<Page>
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, 2003
Date of reporting period: December 31, 2003
Item 1 - Report to Shareholders
<Page>
MORGAN STANLEY
SELECT DIMENSIONS INVESTMENT SERIES
ANNUAL REPORT
DECEMBER 31, 2003
<Page>
Morgan Stanley Select Dimensions Investment Series
TABLE OF CONTENTS
<Table>
Letter to the Shareholders 1
Portfolio of Investments:
Money Market 18
Flexible Income 20
Balanced Growth 44
Utilities 56
Dividend Growth 60
Value-Added Market 63
Growth 75
American Opportunities 78
Capital Opportunities 83
Global Equity 86
Developing Growth 92
Financial Statements:
Statements of Assets and Liabilities 96
Statements of Operations 98
Statements of Changes in Net Assets 100
Notes to Financial Statements 108
Financial Highlights 118
Independent Auditors' Report 126
Trustee and Officer Information 127
</Table>
<Page>
Morgan Stanley Select Dimensions Investment Series
LETTER TO THE SHAREHOLDERS - DECEMBER 31, 2003
Dear Shareholder:
The year 2003 was a remarkable period for investors in the capital markets, with
a broad divergence of returns across regions, asset classes and sectors. The
defining characteristic of the equity and corporate credit markets during the
period under review was the return of investors' appetite for risk, as buyers
who had been sidelined by the bear market drove stock prices higher and credit
spreads lower. With the economy finally showing signs of life, economically
sensitive sectors -- and, in the case of much of Asia, regions -- handily
outperformed the more traditionally defensive market segments that had
outperformed in previous years. Bond yields remained low during the period,
though the Treasury market was volatile. The year closed with equities up
sharply in the developed world, even more sharply in the emerging markets and
underperformance by the lower-yielding bond markets.
Equity Overview
The U.S. equity market posted one of its strongest 12-month returns in years
after a slow start in the first months of 2003. During the first quarter the
market declined as ongoing concerns about terrorism and the potential for war in
Iraq undermined investor confidence. Buying was further depressed as concerns
persisted regarding the potential for deflation. By mid March the U.S. equity
market was testing its July and October 2002 lows.
That trend reversed sharply when it became clear in March that the U.S. intended
to go to war in Iraq. This development, which helped reduce the uncertainty risk
premium in the capital markets, was reflected in tightening corporate credit
spreads. Accommodative fiscal and monetary policies also played a role as
corporations began to add their purchases to already strong consumer spending.
In April key earnings reports were also stronger than many had anticipated, as
were second-quarter forecasts. These supportive factors caused the equity market
to rally sharply in the second quarter. The rally was led by the companies that
had corrected most severely in the bear market. This environment heavily favored
the technology sector, which went on to post the strongest gains for the year of
any sector.
While the equity market was consolidating during the third quarter, the U.S.
economy showed signs of exceptional growth, with the final number for
third-quarter GDP growth coming in at 8.2 percent. This improved activity
breathed life into such heavily cyclical sectors as basic materials and
industrials. Together with technology, these economically sensitive sectors went
on to dominate the U.S. equity market in terms of gains in the 2003 rally.
Equities went on to close the year with another sharp rise in the fourth
quarter.
<Page>
While all major sectors of the market posted positive returns in 2003, the gains
were not uniform. The defensive sectors that had led the market in previous
years, such as health care, utilities and energy, all lagged the broader market.
Telecommunications continued to lag as overcapacity and regulatory challenges
took their toll on companies' earnings. Large-capitalization stocks generally
underperformed relative to smaller-cap companies, with the more-leveraged,
less-defensive names leading across the capitalization spectrum.
Fixed-Income Overview
In 2003 the bond markets were dominated by perceptions of Federal Reserve Bank
concerns about deflation as well as by mounting evidence that the U.S. economy
was moving into a solid recovery. Interest rates rose briefly in January on
expectations of an imminent recovery, only to consolidate through the spring in
the absence of decisive economic developments. The market moved out of this
pattern in May, when Federal Reserve minutes acknowledged its heightened concern
about deflation as a possibility, "however remote." These comments sent yields
plummeting to multidecade lows as investors sought the safety of Treasury bonds.
Interest rates reversed course once more in June when the Federal Reserve Open
Market Committee cut rates by 25 basis points. This cut, half of what the market
had expected, signaled to many investors that the Fed was less concerned about
deflation than had previously been thought. The economy also began showing more
convincing signs of strength in the third quarter. By September both consumer
and corporate spending were showing strength and the GDP growth rate topped 8
percent. Interest rates moved sharply higher through the end of August in one of
their strongest upward moves in years. Continuing strength in the economy
balanced ongoing deflationary worries to keep interest rates largely unchanged
through the end of the year.
In spite of this volatility during the year, interest rates ended the period
only slightly changed. Across the bulk of the yield curve, yields moved up in
parallel, increasing by roughly 50 basis points. In contrast, the very short
part of the yield curve fell by 25 basis points in response to the June
interest-rate cut. These changes had the effect of steepening the yield curve
slightly to a configuration consistent with expectations for an improving
economy. However, the implied period over which the economy would recover was,
in our view, unduly pessimistic.
Mortgage-backed securities (MBSs) had a strong year in which they went from
attractively priced to expensive relative to historical levels. At the beginning
of the year, uncertainty over the state of the economy and prepayment speeds led
investors to demand a fairly large risk premium as compensation. By early
summer, the market had priced in prepayment speeds well in excess of historical
levels. Once rates
2
<Page>
stabilized later in the year, MBS yield spreads over Treasuries began to decline
as investors developed greater confidence in the clarity of economic data.
Corporate bonds entered the year with very wide yield spreads, following a
string of corporate governance scandals in 2002, though their spreads had begun
the process of returning from their widest levels of 2002. Corporates continued
to do well through 2003 as investors were drawn to their relatively attractive
yields. Sector performance was varied, with such economically sensitive segments
as industrials and basic materials leading.
International Overview
In 2003 performance across the world's equity markets was characterized by an
early weak period from January to mid March, followed by strong returns from mid
March to year-end. After a first-quarter decline in the equity markets that
tested the October and July 2002 lows, the markets recovered rapidly between
March and early summer, based on a reduction of the risk premium for the Iraq
war and its surrounding uncertainty. This recovery, which slowed during the
third quarter, was revived by a year-end rally in the fourth quarter that was
based on an optimistic outlook for faster economic growth in 2004. Conditions
remained favorable during this strong second period, because of renewed capital
spending by corporations and continued consumer spending.
In 2003 performance was led by the emerging markets, which rallied strongly,
followed by the same good performance in the euro zone but more modest gains in
the U.S. and U.K. The stellar performance of emerging markets in 2003 was in
large part based on several countries' willingness to address their economic
weaknesses by trying to cut inflation, lower budget deficits and improve their
current-account balances. These countries also benefited greatly from the global
pickup in growth as countries like Brazil enjoyed a boost in exports of
commodities to China and the U.S. Asia remained a leveraged play on growth,
particularly in regard to that of the U.S., and the region's smaller markets
rallied sharply on expectations of further growth in the U.S. Growth in emerging
markets was driven also by the liquidity created as interest rates remained low
throughout the period.
Among the developed economies, Japan had the strongest performance during the
period. The Japanese market was driven by a combination of positive factors, not
the least of which was its relatively low valuations compared to those of other
regions. The Japanese economy also began to show signs of life after a
protracted, multiyear decline. Economic activity was further helped considerably
by the country's close trading relationship with China.
3
<Page>
The European stock markets were similarly strong in U.S. dollar terms, though
for different reasons than in Japan. While the dollar's decline of 20 percent
against the euro played a major role in the outperformance of the European
markets, this scenario was also the result of the composition of the major
European stock market indexes. The significant weightings there of technology,
materials, banks and capital goods sectors in particular was a major factor, as
the more cyclical sectors of the French, German and Spanish markets did well in
the rally.
As elsewhere throughout Europe, the relative performance of the U.K. among the
world's equity markets was in large part the result of the composition of its
economy. The U.K. stock market is dominated by the consumer staples and oil
sectors. Consumer staples companies, which tend to have more stable -- and thus
less cyclical -- growth characteristics, lagged in the cyclical rally. Britain's
oil sector also lagged, given unfavorable currency and pricing dynamics. While
the U.K. economy performed relatively well during the period, a Bank of England
decision to increase interest rates made the stock market somewhat less
attractive to global investors.
4
<Page>
American Opportunities Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley American
Opportunities Portfolio's Class X shares produced a total return of 20.57
percent versus 28.68 percent for the S&P 500 Index. For the same period, the
Portfolio's Class Y shares returned 20.25 percent. THE PERFORMANCE OF THE
PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
We entered the period with a cautious outlook for the economy and the stock
market, given our concerns over the risk of deflation as well as the high levels
of consumer and corporate debt. As a result, we kept the Portfolio positioned
fairly conservatively through the first part of the year, with technology
holdings below those of the S&P 500 Index. This strategy limited the Portfolio's
participation in the technology-led rally of the second quarter.
As the economy began to show significant signs of improvement we shifted the
Portfolio's composition to emphasize the more economically sensitive sectors
that were more likely to benefit from recovery. This strategy resulted in
overweighted positions relative to the S&P 500 Index in technology, industrials
and basic materials, all of which went on to perform strongly. While these
positions were added after the rally began, they were sufficient to boost the
Portfolio's performance in the latter part of the year.
[CHART]
GROWTH OF $10,000: AMERICAN OPPORTUNITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P 500(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 10,069 $ 9,918
Mar-1995 $ 10,625 $ 10,883
Jun-1995 $ 11,772 $ 11,922
Sep-1995 $ 13,294 $ 12,870
Dec-1995 $ 13,991 $ 13,644
Mar-1996 $ 14,354 $ 14,377
Jun-1996 $ 14,985 $ 15,022
Sep-1996 $ 15,306 $ 15,486
Dec-1996 $ 15,803 $ 16,776
Mar-1997 $ 15,464 $ 17,227
Jun-1997 $ 17,781 $ 20,232
Sep-1997 $ 20,747 $ 21,748
Dec-1997 $ 20,848 $ 22,373
Mar-1998 $ 23,615 $ 25,495
Jun-1998 $ 25,030 $ 26,336
Sep-1998 $ 23,231 $ 23,716
Dec-1998 $ 27,266 $ 28,765
Mar-1999 $ 29,953 $ 30,198
Jun-1999 $ 31,198 $ 32,327
Sep-1999 $ 30,435 $ 30,308
Dec-1999 $ 42,482 $ 34,818
Mar-2000 $ 44,697 $ 35,616
Jun-2000 $ 42,154 $ 34,670
Sep-2000 $ 46,219 $ 34,331
Dec-2000 $ 40,605 $ 31,644
Mar-2001 $ 31,694 $ 27,893
Jun-2001 $ 31,638 $ 29,526
Sep-2001 $ 26,900 $ 25,192
Dec-2001 $ 28,639 $ 27,886
Mar-2002 $ 28,792 $ 27,966
Jun-2002 $ 25,907 $ 24,219
Sep-2002 $ 22,695 $ 20,035
Dec-2002 $ 22,464 $ 21,726
Mar-2003 $ 21,714 $ 21,042
Jun-2003 $ 24,113 $ 24,282
Sep-2003 $ 24,499 $ 24,923
Dec-2003 $ 27,086(2) $ 27,958
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 20.57%(1) (0.13)%(1) 11.52%(1)
Class Y 20.25%(1) -- (12.49)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
5
<Page>
Balanced Growth Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Balanced Growth
Portfolio's Class X shares posted a total return of 19.84 percent compared to
30.03 percent for the Russell 1000 Value Index and 4.10 percent for the Lehman
Brothers U.S. Aggregate Index. For the same period, the Portfolio's Class Y
shares returned 19.51 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
The Portfolio enjoyed its largest gains in the economically sensitive sectors,
which rallied sharply on rising optimism regarding the prospects for the U.S.
economy. The Portfolio's best-performing position was Phelps Dodge, a mining
company whose stock climbed with rising commodity prices. Holdings in the
financial sector also boosted performance, with investment banking and brokerage
companies gaining on rising profits. As a group, consumer discretionary stocks
rallied as consumer spending remained strong and our picks outperformed their
peers. Our holdings in Time Warner, Starwood Hotels and Disney were the leaders
within that group.
The Portfolio's holdings in Schering-Plough, which lost the patent on an
important antiallergy drug -- allowing it to be made generically and sold over
the counter -- proved one of our biggest disappointments. Our stock in the
telecommunications company Sprint hindered performance as well, as it
experienced troubles stemming from sector overcapacity, narrowing
[CHART]
GROWTH OF $10,000: BALANCED GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND LEHMAN AGGREGATE(4) RUSSELL 1000 VALUE(3)
Nov-1994 $ 10,000 $ 10,000 $ 10,000
Dec-1994 $ 10,060 $ 10,094 $ 9,903
Mar-1995 $ 10,498 $ 10,603 $ 10,845
Jun-1995 $ 11,453 $ 11,249 $ 11,816
Sep-1995 $ 11,942 $ 11,470 $ 12,848
Dec-1995 $ 12,359 $ 11,959 $ 13,701
Mar-1996 $ 12,670 $ 11,746 $ 14,477
Jun-1996 $ 13,090 $ 11,813 $ 14,726
Sep-1996 $ 13,538 $ 12,032 $ 15,154
Dec-1996 $ 14,033 $ 12,393 $ 16,666
Mar-1997 $ 13,705 $ 12,323 $ 17,093
Jun-1997 $ 15,411 $ 12,776 $ 19,613
Sep-1997 $ 16,312 $ 13,201 $ 21,566
Dec-1997 $ 16,542 $ 13,589 $ 22,530
Mar-1998 $ 18,156 $ 13,801 $ 25,156
Jun-1998 $ 18,332 $ 14,123 $ 25,269
Sep-1998 $ 16,894 $ 14,720 $ 22,341
Dec-1998 $ 18,926 $ 14,769 $ 26,051
Mar-1999 $ 19,355 $ 14,696 $ 26,424
Jun-1999 $ 20,547 $ 14,567 $ 29,404
Sep-1999 $ 18,984 $ 14,666 $ 26,524
Dec-1999 $ 19,591 $ 14,648 $ 27,965
Mar-2000 $ 19,236 $ 14,971 $ 28,099
Jun-2000 $ 18,346 $ 15,232 $ 26,782
Sep-2000 $ 19,581 $ 15,691 $ 28,888
Dec-2000 $ 20,839 $ 16,351 $ 29,927
Mar-2001 $ 20,664 $ 16,848 $ 28,174
Jun-2001 $ 21,536 $ 16,943 $ 29,550
Sep-2001 $ 19,796 $ 17,724 $ 26,314
Dec-2001 $ 21,090 $ 17,732 $ 28,254
Mar-2002 $ 21,573 $ 17,749 $ 29,410
Jun-2002 $ 20,174 $ 18,404 $ 26,905
Sep-2002 $ 17,812 $ 19,248 $ 21,854
Dec-2002 $ 18,667 $ 19,551 $ 23,868
Mar-2003 $ 18,047 $ 19,823 $ 22,707
Jun-2003 $ 20,254 $ 20,319 $ 26,629
Sep-2003 $ 20,530 $ 20,289 $ 27,179
Dec-2003 $ 22,371(2) $ 20,353 $ 31,035
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 19.84%(1) 3.40%(1) 9.21%(1)
Class Y 19.51%(1) -- 4.86%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Russell 1000 Value Index measures the performance of those companies in
the Russell 1000 Index with lower price-to-book ratios and lower forecasted
growth values. The Index does not include any expenses, fees, or charges.
The Index is unmanaged and should not be considered an investment.
(4) The Lehman Brothers U.S. Aggregate Index tracks the performance of all U.S.
government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities, asset-backed securities and
commercial mortgage-based securities. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
6
<Page>
profit margins, portability of wireless numbers between carriers and an erosion
of pricing power.
Capital Opportunities Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Capital
Opportunities Portfolio's Class X shares produced a total return of 41.64
percent versus 35.62 percent for the S&P Mid-Cap 400 Index and 35.38 percent for
the Lipper Multi-Cap Growth Index. For the same period, the Portfolio's Class Y
shares returned 41.39 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
The Portfolio's performance was driven largely by stock selection and sector
allocation in areas we felt demonstrated strong potential for superior returns.
In consumer discretionary stocks, an overweighted position relative to the S&P
Mid-Cap 400 Index and strong stock selection provided some of the best results.
Leaders in this group included Abercrombie & Fitch and lottery administrator
GTECH. GTECH benefited from acquisitions, new products and strong lottery sales
supporting the company's earnings growth. It has also provided favorable
earnings guidance for the upcoming two years.
The Portfolio's overweighted position in technology relative to the S&P Mid-Cap
400 Index boosted its returns, as did its investments in software and
semiconductor companies, which performed well over the period. Intel, Veritas
and Marvell all contributed strong results. Semiconductor company Intel more
than doubled in price during the period.
[CHART]
GROWTH OF $10,000: CAPITAL OPPORTUNITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P MID-CAP 400(3) LIPPER(4)
Jan-1997 $ 10,000 $ 10,000 $ 10,000
Mar-1997 $ 9,400 $ 9,452 $ 9,211
Jun-1997 $ 10,361 $ 10,841 $ 10,696
Sep-1997 $ 11,739 $ 12,583 $ 12,060
Dec-1997 $ 11,584 $ 12,688 $ 11,718
Mar-1998 $ 12,737 $ 14,085 $ 13,370
Jun-1998 $ 12,679 $ 13,784 $ 13,680
Sep-1998 $ 9,875 $ 11,790 $ 11,660
Dec-1998 $ 12,241 $ 15,114 $ 14,623
Mar-1999 $ 12,881 $ 14,149 $ 15,551
Jun-1999 $ 13,951 $ 16,153 $ 16,713
Sep-1999 $ 14,587 $ 14,795 $ 16,081
Dec-1999 $ 23,516 $ 17,338 $ 21,402
Mar-2000 $ 27,532 $ 19,538 $ 24,475
Jun-2000 $ 25,866 $ 18,894 $ 22,985
Sep-2000 $ 27,194 $ 21,180 $ 23,175
Dec-2000 $ 17,034 $ 20,373 $ 18,822
Mar-2001 $ 10,935 $ 18,179 $ 14,636
Jun-2001 $ 13,315 $ 20,572 $ 16,084
Sep-2001 $ 7,847 $ 17,165 $ 11,808
Dec-2001 $ 10,836 $ 20,255 $ 14,087
Mar-2002 $ 10,149 $ 21,616 $ 13,604
Jun-2002 $ 7,316 $ 19,604 $ 11,250
Sep-2002 $ 5,988 $ 16,361 $ 9,332
Dec-2002 $ 6,087 $ 17,318 $ 9,885
Mar-2003 $ 6,110 $ 16,550 $ 9,809
Jun-2003 $ 7,161 $ 19,467 $ 11,431
Sep-2003 $ 7,726 $ 20,750 $ 12,020
Dec-2003 $ 8,622(2) $ 23,486 $ 13,383
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- ------------------------------------------------------------------------------
Class X 41.64%(1) (6.77)%(1) (2.11)%(1)
Class Y 41.39%(1) -- (28.40)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's Mid-Cap 400 Index (S&P 400) is a market-value
weighted index, the performance of which is based on the performance of 400
domestic stocks chosen for market size, liquidity and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(4) The Lipper Multi-Cap Growth Index tracks the performance of the 30 largest
multi-cap growth open-end mutual funds, as categorized by Lipper, Inc. Funds
in this category, by portfolio practice, invest in a variety of market
capitalization ranges without concentrating 75% of their equity assets in
any one market capitalization range over an extended period of time.
Multi-cap growth funds typically have an above-average price-to-earnings
ratio, price-to-book ratio, and three-year sales-per-share growth value,
compared to the S&P SuperComposite 1500 Index. The Index does not include
any fees or charges. The Index is unmanaged and should not be considered an
investment.
* Inception date of January 21, 1997 for Class X and July 24, 2000 for
Class Y.
7
<Page>
Within financial services both stock selection and an underweighting relative to
the S&P 400 Mid-Cap Index were positive contributors to performance.
Areas of weakness in the Portfolio were health care and producer durables.
Within health care, individual health care services and pharmaceutical issues
detracted from relative performance. Accredo Health, a product provider for
patients with chronic diseases, declined as a result of management revenue
warnings for 2003 and 2004. Regeneron Pharmaceuticals was adversely impacted
from weak trial data for a drug therapy designed to treat obesity. The
Portfolio's underweight position relative to the S&P Mid-Cap 400 Index in
sectors such as health care, other energy, materials & processing, financial
services and consumer staples all contributed to relative performance.
Developing Growth Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Developing
Growth Portfolio's Class X shares produced a total return of 41.40 percent
versus 42.71 percent for the Russell Mid-Cap Growth Index and 46.31 percent for
the Russell 2500 Growth Index. For the same period, the Portfolio's Class Y
shares returned 41.17 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
The Portfolio's underperformance relative to the Russell Mid-Cap Growth Index
was the result primarily of sector allocations, particularly its overweighted
position relative to the Russell Mid-Cap Growth Index in the underperforming
auto
[CHART]
GROWTH OF $10,000: DEVELOPING GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND RUSSELL MIDCAP GROWTH(3) RUSSELL 2500 GROWTH(4)
Nov-1994 $ 10,000 $ 10,000 $ 10,000
Nov-1994 $ 10,070 $ 10,000 $ 10,000
Dec-1994 $ 10,158 $ 10,140 $ 10,203
Mar-1995 $ 10,702 $ 11,237 $ 11,066
Jun-1995 $ 12,648 $ 12,139 $ 12,052
Sep-1995 $ 14,746 $ 13,334 $ 13,392
Dec-1995 $ 15,365 $ 13,586 $ 13,625
Mar-1996 $ 16,213 $ 14,462 $ 14,579
Jun-1996 $ 17,564 $ 15,002 $ 15,324
Sep-1996 $ 17,982 $ 15,512 $ 15,534
Dec-1996 $ 17,355 $ 15,960 $ 15,679
Mar-1997 $ 15,540 $ 15,378 $ 14,424
Jun-1997 $ 17,861 $ 17,642 $ 16,769
Sep-1997 $ 21,093 $ 20,110 $ 19,558
Dec-1997 $ 19,745 $ 19,558 $ 17,992
Mar-1998 $ 22,255 $ 21,892 $ 19,998
Jun-1998 $ 21,615 $ 21,878 $ 19,022
Sep-1998 $ 17,203 $ 18,226 $ 14,798
Dec-1998 $ 21,530 $ 23,051 $ 18,550
Mar-1999 $ 22,794 $ 23,839 $ 18,355
Jun-1999 $ 26,078 $ 26,322 $ 21,439
Sep-1999 $ 27,153 $ 25,004 $ 20,695
Dec-1999 $ 41,450 $ 34,875 $ 28,842
Mar-2000 $ 45,800 $ 42,242 $ 33,211
Jun-2000 $ 38,331 $ 39,113 $ 30,916
Sep-2000 $ 36,577 $ 40,100 $ 30,007
Dec-2000 $ 32,492 $ 30,778 $ 24,201
Mar-2001 $ 24,222 $ 23,057 $ 19,381
Jun-2001 $ 26,781 $ 26,788 $ 23,503
Sep-2001 $ 20,157 $ 19,341 $ 17,140
Dec-2001 $ 24,210 $ 24,576 $ 21,579
Mar-2002 $ 23,393 $ 24,142 $ 20,942
Jun-2002 $ 20,581 $ 19,733 $ 17,459
Sep-2002 $ 16,589 $ 16,344 $ 14,131
Dec-2002 $ 17,496 $ 17,841 $ 15,301
Mar-2003 $ 17,466 $ 17,838 $ 15,290
Jun-2003 $ 20,520 $ 21,184 $ 14,943
Sep-2003 $ 22,093 $ 22,700 $ 14,967
Dec-2003 $ 24,739(2) $ 25,461 $ 16,103
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 41.40%(1) 2.82%(1) 10.42%(1)
Class Y 41.17%(1) -- (11.50)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Russell Midcap Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth Index.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index. The period used for this benchmark in the above chart
began on November 30, 1994.
(4) The Russell 2500 Growth Index measures the performance of those companies in
the Russell 2500 Index with higher price-to-book ratios and higher
forecasted growth values. Indexes are unmanaged and their returns do not
include any sales charges or fees. Such costs would lower performance. It is
not possible to invest directly in an index. The period used for this
benchmark in the above chart began on November 30, 1994.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
8
<Page>
and transportation sectors and underweighted positions relative to the index in
producer durables, technology and utilities, all of which performed strongly. As
for individual holdings, retailers Abercrombie & Fitch and Dollar Tree Stores
boasted positive performance for the year, but their returns lagged their
respective sector indexes. Stock selection also detracted from the Portfolio's
relative performance in technology, health care, producer durables and materials
and processing.
Stock selection helped the Portfolio's relative performance in several areas,
including consumer discretionary issues, consumer staples, autos and
transportation, and energy. From an allocation perspective, underweighted
positions relative to the Russell Mid-Cap Growth Index in financial services,
health care, and materials and processing added to the Portfolio's relative
return as well. Among its largest positions, the consumer discretionary holdings
GTECH and Royal Caribbean Cruises and the health-care holding Stericycle made
positive contributions to the Portfolio's return.
Dividend Growth Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Dividend Growth
Portfolio's Class X shares produced a total return of 27.73 percent versus 28.68
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 27.48 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
FOR FUTURE RESULTS.
[CHART]
GROWTH OF $10,000: DIVIDEND GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P 500(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 9,995 $ 9,918
Mar-1995 $ 10,947 $ 10,883
Jun-1995 $ 12,113 $ 11,922
Sep-1995 $ 12,859 $ 12,870
Dec-1995 $ 14,005 $ 13,644
Mar-1996 $ 15,432 $ 14,377
Jun-1996 $ 15,791 $ 15,022
Sep-1996 $ 16,363 $ 15,486
Dec-1996 $ 17,435 $ 16,776
Mar-1997 $ 17,896 $ 17,227
Jun-1997 $ 20,639 $ 20,232
Sep-1997 $ 21,908 $ 21,748
Dec-1997 $ 21,991 $ 22,373
Mar-1998 $ 24,979 $ 25,495
Jun-1998 $ 25,037 $ 26,336
Sep-1998 $ 23,306 $ 23,716
Dec-1998 $ 26,329 $ 28,765
Mar-1999 $ 26,526 $ 30,198
Jun-1999 $ 29,700 $ 32,327
Sep-1999 $ 26,447 $ 30,308
Dec-1999 $ 26,468 $ 34,818
Mar-2000 $ 24,834 $ 35,616
Jun-2000 $ 24,087 $ 34,670
Sep-2000 $ 25,440 $ 34,331
Dec-2000 $ 27,886 $ 31,644
Mar-2001 $ 26,598 $ 27,893
Jun-2001 $ 28,204 $ 29,526
Sep-2001 $ 24,206 $ 25,192
Dec-2001 $ 26,367 $ 27,886
Mar-2002 $ 27,801 $ 27,966
Jun-2002 $ 25,518 $ 24,219
Sep-2002 $ 20,155 $ 20,035
Dec-2002 $ 21,642 $ 21,726
Mar-2003 $ 20,546 $ 21,042
Jun-2003 $ 24,118 $ 24,282
Sep-2003 $ 24,727 $ 24,923
Dec-2003 $ 27,644(2) $ 27,958
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 27.73%(1) 0.98%(1) 11.76%(1)
Class Y 27.48%(1) -- 3.14%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
9
<Page>
The Portfolio's emphasis on high-quality, reasonably valued stocks with a record
of paying dividends and with strong cash-flow-return-on-investment has resulted
in overweighted and underweighted positions in several key sectors relative to
the S&P 500 Index. The Portfolio entered the period well positioned for an
upturn in industrial activity, with overweighted positions relative to the S&P
500 Index in industrials and basic materials. Led by United Technologies,
Caterpillar and Johnson Controls, our overweighted position in industrials
provided some of the Portfolio's best results. Additionally, an overweighted
stance in basic materials relative to the S&P 500 proved one of our top
performing allocations, including strong performance by Alcoa and Dow Chemicals.
Our reduced exposure to several underperforming companies, namely Microsoft and
Wal-Mart, also helped boost returns.
Not all of the Portfolio's holdings aided performance. Based on the Portfolio's
underlying investment strategy, the Portfolio was underweighted in technology
stocks such as Dell and Intel relative to the S&P 500 Index. Our reduced
exposure hindered performance as these more economically sensitive stocks
rebounded well during the rally. The Portfolio also took an overweighted
position in pharmaceutical stocks such as Wyeth, Merck and Bristol Myers, which
lagged other sectors based on patent expiration concerns and pipeline issues.
10
<Page>
Flexible Income Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Flexible Income
Portfolio's Class X shares produced a total return of 13.54 percent versus 4.31
percent for the Lehman Brothers Intermediate Government/Credit Index. For the
same period, the Portfolio's Class Y shares returned 13.15 percent. THE
PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE OF DIFFERING
EXPENSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The Portfolio's significant outperformance of the Lehman Brothers Intermediate
Government/Credit Index owed largely to our asset allocation strategy, which
resulted in significant positions in high-yield and global corporate debt as
well as non-U.S. dollar exposure. Both the investment-grade and high-yield
corporate credit markets performed strongly during the period as an improving
economy and attractive valuations drew investors back to the market. The
Portfolio's non-U.S.-dollar positions were boosted by the fall in the value of
the U.S. dollar relative to other currencies. The Portfolio's returns were also
boosted by its exposure to the emerging markets, which rallied strongly on
improved global economic conditions.
Not all of the Portfolio's positions performed strongly. Our diversified
approach to asset allocation resulted in having a substantial portion of the
Portfolio invested in mortgage-backed securities (MBSs). Within the MBS universe
we focused on higher-coupon bonds, to take advantage of what then appeared to be
compelling values. These securities underperformed during the period, though
their impact was not enough to offset strong gains elsewhere in the Portfolio.
[CHART]
GROWTH OF $10,000: FLEXIBLE INCOME -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND LEHMAN(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 10,076 $ 10,022
Mar-1995 $ 10,222 $ 10,462
Jun-1995 $ 10,336 $ 10,984
Sep-1995 $ 10,469 $ 11,166
Dec-1995 $ 10,777 $ 11,559
Mar-1996 $ 11,027 $ 11,462
Jun-1996 $ 11,304 $ 11,534
Sep-1996 $ 11,500 $ 11,739
Dec-1996 $ 11,806 $ 12,026
Mar-1997 $ 11,820 $ 12,013
Jun-1997 $ 12,221 $ 12,367
Sep-1997 $ 12,639 $ 12,701
Dec-1997 $ 12,788 $ 12,973
Mar-1998 $ 13,010 $ 13,175
Jun-1998 $ 13,181 $ 13,423
Sep-1998 $ 13,310 $ 14,026
Dec-1998 $ 13,328 $ 14,067
Mar-1999 $ 13,175 $ 14,041
Jun-1999 $ 13,232 $ 13,985
Sep-1999 $ 13,191 $ 14,114
Dec-1999 $ 13,084 $ 14,121
Mar-2000 $ 13,167 $ 14,334
Jun-2000 $ 13,110 $ 14,576
Sep-2000 $ 12,701 $ 14,996
Dec-2000 $ 12,463 $ 15,550
Mar-2001 $ 12,340 $ 16,077
Jun-2001 $ 11,890 $ 16,185
Sep-2001 $ 11,915 $ 16,930
Dec-2001 $ 11,957 $ 16,944
Mar-2002 $ 11,811 $ 16,906
Jun-2002 $ 12,317 $ 17,507
Sep-2002 $ 12,559 $ 18,300
Dec-2002 $ 12,994 $ 18,610
Mar-2003 $ 13,396 $ 18,891
Jun-2003 $ 13,988 $ 19,405
Sep-2003 $ 14,218 $ 19,401
Dec-2003 $ 14,753(2) $ 19,413
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 13.54%(1) 2.05%(1) 4.35%(1)
Class Y 13.15%(1) -- 3.34%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers Intermediate U.S. Government/Credit Index tracks the
performance of U.S. government and corporate obligations, including U.S.
government agency and Treasury securities, and corporate and Yankee bonds
with maturities of 1 to 10 years. Indexes are unmanaged and their returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
11
<Page>
Global Equity Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Global Equity
Portfolio's Class X shares produced a total return of 34.71 percent versus 33.11
percent for the MSCI World Index. For the same period, the Portfolio's Class Y
shares returned 34.33 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Much of the Portfolio's performance was driven by a strong country and regional
allocation. Our decision to emphasize Japan benefited the Portfolio, as Japanese
stocks rallied from low valuations based on signs that earnings were in recovery
and economic growth was gaining momentum. Banking stocks in Japan were
especially strong, as fears concerning that country's banking crisis abated
after the government bailed out Resona Bank. Several key companies also reported
stronger earnings and lower loan-loss provisions. Asian stocks proved attractive
because of their low valuations at the start of the period and their close ties
to the U.S. economic cycle, as well as the strong growth that occurred in China,
leading the Portfolio's holdings to rise sharply as Asian stocks rallied during
the year. An overweighted position in Europe combined with an underweighting in
the U.K., relative to the MSCI World Index, also contributed positively to
Portfolio performance. The U.K., which became one of the first to experience
increased interest rates, lagged in the global rally. In contrast, continental
European stocks soared on growing investor confidence.
[CHART]
GROWTH OF $10,000: GLOBAL EQUITY -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND MSCI WORLD(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 9,970 $ 9,854
Mar-1995 $ 10,028 $ 10,315
Jun-1995 $ 10,679 $ 10,755
Sep-1995 $ 11,136 $ 11,356
Dec-1995 $ 11,342 $ 11,896
Mar-1996 $ 11,900 $ 12,380
Jun-1996 $ 12,292 $ 12,739
Sep-1996 $ 12,278 $ 12,909
Dec-1996 $ 12,639 $ 13,500
Mar-1997 $ 12,795 $ 13,538
Jun-1997 $ 14,275 $ 15,576
Sep-1997 $ 14,534 $ 16,022
Dec-1997 $ 13,733 $ 15,628
Mar-1998 $ 15,467 $ 17,866
Jun-1998 $ 15,589 $ 18,229
Sep-1998 $ 13,514 $ 16,044
Dec-1998 $ 15,809 $ 19,431
Mar-1999 $ 16,148 $ 20,124
Jun-1999 $ 17,250 $ 21,085
Sep-1999 $ 17,198 $ 20,772
Dec-1999 $ 21,205 $ 24,276
Mar-2000 $ 22,009 $ 24,525
Jun-2000 $ 21,624 $ 23,656
Sep-2000 $ 21,023 $ 22,467
Dec-2000 $ 19,948 $ 21,077
Mar-2001 $ 17,255 $ 18,370
Jun-2001 $ 17,946 $ 18,854
Sep-2001 $ 14,861 $ 16,144
Dec-2001 $ 16,513 $ 17,531
Mar-2002 $ 16,991 $ 17,591
Jun-2002 $ 15,673 $ 15,985
Sep-2002 $ 12,831 $ 13,047
Dec-2002 $ 13,645 $ 14,045
Mar-2003 $ 13,089 $ 13,334
Jun-2003 $ 15,566 $ 15,606
Sep-2003 $ 15,956 $ 16,361
Dec-2003 $ 18,381(2) $ 18,694
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 34.71%(1) 3.06%(1) 6.89%(1)
Class Y 34.33%(1) -- (5.05)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. 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
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/Pacific region. 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 date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
12
<Page>
A strategy combining overweighted positions in the semiconductor and materials
sectors with an underweighted position in telecommunications, relative to the
MSCI World Index, was another key driver in the Portfolio's outperformance. Both
the semiconductor and basic materials sectors were leaders in the strong rally
of economically sensitive industries. However, the telecommunications sector
lagged as continuing competition, regulatory questions and overcapacity served
as drags on earnings.
The Portfolio's performance was hindered by an overweighting in the
pharmaceutical and health-care sector and its underweighting, relative to the
MSCI World Index, in the hotel, restaurant and leisure industries. Its
pharmaceutical and health-care industry position hurt the Portfolio, as the
anticipated growth was never realized and earnings remained disappointing,
resulting from regulatory, pipeline and patent expiration concerns. A faster
than expected recovery in the hotel, restaurant and leisure industries similarly
hurt the Portfolio, as a rebound from the effects of September 11 and a
previously slowing economy proved stronger than anticipated.
Growth Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Growth
Portfolio's Class X shares produced a total return of 26.90 percent versus 28.68
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 26.58 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
[CHART]
GROWTH OF $10,000: GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P 500(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 10,067 $ 9,918
Mar-1995 $ 10,194 $ 10,883
Jun-1995 $ 10,710 $ 11,922
Sep-1995 $ 11,381 $ 12,870
Dec-1995 $ 11,405 $ 13,644
Mar-1996 $ 12,199 $ 14,377
Jun-1996 $ 12,835 $ 15,022
Sep-1996 $ 13,402 $ 15,486
Dec-1996 $ 14,091 $ 16,776
Mar-1997 $ 13,624 $ 17,227
Jun-1997 $ 16,004 $ 20,232
Sep-1997 $ 17,210 $ 21,748
Dec-1997 $ 17,343 $ 22,373
Mar-1998 $ 19,416 $ 25,495
Jun-1998 $ 19,184 $ 26,336
Sep-1998 $ 16,060 $ 23,716
Dec-1998 $ 19,636 $ 28,765
Mar-1999 $ 21,059 $ 30,198
Jun-1999 $ 22,596 $ 32,327
Sep-1999 $ 22,408 $ 30,308
Dec-1999 $ 27,314 $ 34,818
Mar-2000 $ 29,991 $ 35,616
Jun-2000 $ 29,030 $ 34,670
Sep-2000 $ 28,434 $ 34,331
Dec-2000 $ 24,123 $ 31,644
Mar-2001 $ 19,664 $ 27,893
Jun-2001 $ 21,506 $ 29,526
Sep-2001 $ 18,124 $ 25,192
Dec-2001 $ 20,449 $ 27,886
Mar-2002 $ 19,829 $ 27,966
Jun-2002 $ 16,803 $ 24,219
Sep-2002 $ 13,950 $ 20,035
Dec-2002 $ 14,756 $ 21,726
Mar-2003 $ 14,769 $ 21,042
Jun-2003 $ 16,610 $ 24,282
Sep-2003 $ 17,020 $ 24,923
Dec-2003 $ 18,726(2) $ 27,958
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 26.90%(1) (0.94)%(1) 7.10%(1)
Class Y 26.58%(1) -- (12.77)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
13
<Page>
Our emphasis on the larger, higher-quality names we favor had a negative impact
on the Portfolio's relative performance, as smaller-cap and more-speculative
issues dominated the S&P 500 Index's gains in 2003. From an allocation
perspective, relative performance was also hampered by our overweighted position
relative to the S&P 500 Index in health care, which did not advance as strongly
as did other economically sensitive sectors.
The Portfolio also suffered from poor stock selection. Two of our largest
holdings in the health-care sector detracted from the Portfolio's relative
performance. Johnson & Johnson declined because of negative publicity centering
on a number of deaths allegedly linked to a stent the company produces, which is
designed to treat coronary artery disease. Accordingly, we reduced the
Portfolio's position in Johnson & Johnson in April. We similarly decreased our
position in Pfizer in the third quarter on concerns about competition for its
drugs Lipitor and Viagra, though not before the stock began to fall. Our stock
selection was weakest in the consumer discretionary sector, particularly among
retailers. Wal-Mart, one of the Portfolio's 10 largest positions, suffered from
intense scrutiny surrounding its labor practices.
On a more positive note, the Portfolio benefited from several sector and stock
allocations. Its overweighted position, relative to the S&P 500 Index, in the
information technology sector was the largest positive contributor to relative
performance for the year. Relative results were also buoyed by our significant
underweighting in telecommunications, which finished the year as the
worst-performing market sector. Our stock selection in the technology sector was
particularly strong. Among the Portfolio's largest technology holdings, Intel
more than doubled in price, and Cisco's gain was in the double digits. Both
companies benefited from accelerating economic momentum, strong earnings reports
and an improved outlook for corporate spending. We established a substantial
position in media stocks in the third quarter, which produced mixed results
through the end of the year.
Money Market Portfolio
As of December 31, 2003, Morgan Stanley Money Market Portfolio had net assets in
excess of $130 million, with an average maturity of 41 days. For the seven-day
period ended December 31, 2003, the Portfolio's Class X shares provided an
effective annualized yield of 0.53 percent and a current yield of 0.55 percent,
while its 30-day moving average yield for December was 0.53 percent. For the
12-month period ended December 31, 2003, the Portfolio's Class X shares provided
a total return of 0.65 percent.
For the seven-day period ended December 31, 2003, the Portfolio's Class Y shares
provided an effective annualized yield of 0.27 percent and a current yield of
0.26 percent, while its 30-day moving average yield for December was 0.28
percent. For the 12-month period ended December 31, 2003, the portfolio's Class
Y shares provided a total return of 0.40 percent. THE PERFORMANCE OF THE
PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE
14
<Page>
OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Our strategy in managing the Portfolio remained consistent with our long-term
focus on maintaining preservation of capital and very high liquidity. As always,
we adhered to a conservative approach that avoided the use of derivatives or
structured notes that might fluctuate excessively with changing interest rates.
On December 31, 2003, approximately 78 percent of the Portfolio was invested in
high-quality commercial paper, 19 percent in federal agency obligations and the
remaining 3 percent in bankers' acceptances. Approximately 94 percent of the
Portfolio's holdings were due to mature in less than four months.
Utilities Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Utilities
Portfolio's Class X shares produced a total return of 20.47 percent versus 28.68
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 20.20 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
While the Portfolio fared well, it was outpaced by the S&P 500 Index largely
because of the tepid performance of the telecommunications industry. Our
underlying strategy for asset allocation within the Portfolio is to maintain
diversified exposure to telecommunications, natural gas and electric companies.
Though we trimmed our positions in
[CHART]
GROWTH OF $10,000: UTILITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P 500(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 10,065 $ 9,918
Mar-1995 $ 10,508 $ 10,883
Jun-1995 $ 11,128 $ 11,922
Sep-1995 $ 12,124 $ 12,870
Dec-1995 $ 12,889 $ 13,644
Mar-1996 $ 13,072 $ 14,377
Jun-1996 $ 13,621 $ 15,022
Sep-1996 $ 13,298 $ 15,486
Dec-1996 $ 13,981 $ 16,776
Mar-1997 $ 13,729 $ 17,227
Jun-1997 $ 15,031 $ 20,232
Sep-1997 $ 16,102 $ 21,748
Dec-1997 $ 17,679 $ 22,373
Mar-1998 $ 19,996 $ 25,495
Jun-1998 $ 19,786 $ 26,336
Sep-1998 $ 18,602 $ 23,716
Dec-1998 $ 21,609 $ 28,765
Mar-1999 $ 21,918 $ 30,198
Jun-1999 $ 24,729 $ 32,327
Sep-1999 $ 24,475 $ 30,308
Dec-1999 $ 31,056 $ 34,818
Mar-2000 $ 35,987 $ 35,616
Jun-2000 $ 32,123 $ 34,670
Sep-2000 $ 32,899 $ 34,331
Dec-2000 $ 30,463 $ 31,644
Mar-2001 $ 26,843 $ 27,893
Jun-2001 $ 26,206 $ 29,526
Sep-2001 $ 22,448 $ 25,192
Dec-2001 $ 22,692 $ 27,886
Mar-2002 $ 22,376 $ 27,966
Jun-2002 $ 19,817 $ 24,219
Sep-2002 $ 16,632 $ 20,035
Dec-2002 $ 18,070 $ 21,726
Mar-2003 $ 17,664 $ 21,042
Jun-2003 $ 20,344 $ 24,282
Sep-2003 $ 20,366 $ 24,923
Dec-2003 $ 21,770(2) $ 27,958
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 20.47%(1) 0.15%(1) 8.88%(1)
Class Y 20.20%(1) -- (11.48)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
15
<Page>
the telecommunications sector and redistributed those assets, our exposure to
the Regional Bells tempered the performance of the Portfolio.
On a more positive note, our positions in electric and natural gas companies
contributed the strongest results to the Portfolio. Our increased exposure to
electric companies, the largest allocation in the Portfolio, performed strongly
in light of low interest rates and improving fundamentals. The improving
conditions in the natural gas industry also boosted the Portfolio's performance.
These companies benefited from high natural gas prices as well as improving
industry fundamentals.
Value-Added Market Portfolio
For the 12-month period ended December 31, 2003, Morgan Stanley Value-Added
Market Portfolio's Class X shares produced a total return of 37.14 percent
versus 28.68 percent for the S&P 500 Index. For the same period, the Portfolio's
Class Y shares returned 36.87 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO
SHARE CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
Our strategy of approximately equally weighting portfolio holdings was the key
driver of the Portfolio's outperformance. Much of the Portfolio's outperformance
was also driven by technology, which had suffered most heavily in the bear
market of 2001-2002 and had the most aggressive rebound. Our
capitalization-neutral weighting policy moved
[CHART]
GROWTH OF $10,000: VALUE-ADDED MARKET -- CLASS X
($ in Thousands)
<Table>
<Caption>
FUND S&P 500(3)
Nov-1994 $ 10,000 $ 10,000
Dec-1994 $ 9,924 $ 9,918
Mar-1995 $ 10,752 $ 10,883
Jun-1995 $ 11,483 $ 11,922
Sep-1995 $ 12,157 $ 12,870
Dec-1995 $ 12,617 $ 13,644
Mar-1996 $ 13,343 $ 14,377
Jun-1996 $ 13,765 $ 15,022
Sep-1996 $ 14,051 $ 15,486
Dec-1996 $ 14,861 $ 16,776
Mar-1997 $ 15,075 $ 17,227
Jun-1997 $ 17,086 $ 20,232
Sep-1997 $ 18,744 $ 21,748
Dec-1997 $ 18,743 $ 22,373
Mar-1998 $ 21,028 $ 25,495
Jun-1998 $ 20,834 $ 26,336
Sep-1998 $ 17,959 $ 23,716
Dec-1998 $ 21,028 $ 28,765
Mar-1999 $ 21,273 $ 30,198
Jun-1999 $ 24,047 $ 32,327
Sep-1999 $ 21,944 $ 30,308
Dec-1999 $ 23,583 $ 34,818
Mar-2000 $ 23,578 $ 35,616
Jun-2000 $ 23,443 $ 34,670
Sep-2000 $ 24,995 $ 34,331
Dec-2000 $ 26,408 $ 31,644
Mar-2001 $ 24,957 $ 27,893
Jun-2001 $ 26,657 $ 29,526
Sep-2001 $ 22,888 $ 25,192
Dec-2001 $ 25,925 $ 27,886
Mar-2002 $ 27,294 $ 27,966
Jun-2002 $ 24,830 $ 24,219
Sep-2002 $ 20,276 $ 20,035
Dec-2002 $ 21,785 $ 21,726
Mar-2003 $ 20,838 $ 21,042
Jun-2003 $ 24,744 $ 24,282
Sep-2003 $ 26,030 $ 24,923
Dec-2003 $ 29,876(2) $ 27,958
</Table>
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
<Table>
<Caption>
1 YEAR 5 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 37.14%(1) 7.28%(1) 12.72%(1)
Class Y 36.87%(1) -- 6.52%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 2003 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception date of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
16
<Page>
the Portfolio toward the smaller-cap information technology stocks that ended up
outpacing their large-cap counterparts. This approximate equal weighting
approach particularly helped performance in health care in that it moved the
Portfolio's allocation away from the large-cap pharmaceutical positions that
underperformed the smaller-cap ones.
All ten sectors finished the period with positive returns, though some
outperformed others. Telecommunications and utilities had the weakest returns as
a whole and contributed least to the Portfolio's total returns. With so many
small utilities in the benchmark, the Portfolio's performance was hampered by
its overweighted position relative to the S&P 500 Index in this lagging sector.
The Portfolio's holdings in telecommunications also hurt it, as that sector
lagged the market as a whole.
We appreciate your ongoing support of Morgan Stanley Select Dimensions
Investment Series and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
Charles A. Fiumefreddo Mitchell M. Merin
CHAIRMAN OF THE BOARD PRESIDENT
THE MENTION OF ANY SECURITIES ABOVE SHOULD NOT BE DEEMED A RECOMMENDATION TO BUY
OR SELL SUCH SECURITIES.
Proxy Voting Policies and Procedures
A description of the Fund's policies and procedures with respect to the voting
of proxies relating to the Fund's portfolio securities is available without
charge, upon request, by calling (800) 869-NEWS. This information is also
available on the Securities and Exchange Commission's website at
http://www.sec.gov.
17
<Page>
Money Market
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (77.9%)
BANKING (1.3%)
$ 1,700 Citicorp 1.09% 01/29/04 $ 1,698,559
--------------
FINANCE - AUTOMOTIVE (6.7%)
6,500 DaimlerChrysler Revolving Auto Conduit 1.10 01/15/04 - 01/21/04 6,496,777
2,200 New Center Asset Trust 1.09 02/04/04 2,197,735
--------------
8,694,512
--------------
FINANCE - CONSUMER (4.9%)
4,519 Old Line Funding Corp. - 144A* 1.08 - 1.10 01/13/04 - 01/15/04 4,517,207
1,900 Sheffield Receivables Corp. - 144A* 1.09 01/05/04 1,899,770
--------------
6,416,977
--------------
FINANCIAL CONGLOMERATES (19.5%)
5,000 Asset Securitization Co-op Corp. - 144A* 1.08 - 1.09 01/06/04 - 02/09/04 4,997,670
6,200 Falcon Asset Securitization - 144A* 1.08 - 1.10 01/02/04 - 01/27/04 6,197,606
6,100 General Electric Capital Corp. 1.11 - 1.12 01/07/04 - 06/07/04 6,083,556
6,275 Mortgage Interest Networking Trust 1.08 - 1.09 01/13/04 - 02/20/04 6,268,039
2,030 Yorktown Capital, LLC - 144A* 1.08 01/09/04 2,029,513
--------------
25,576,384
--------------
FINANCE - CORPORATE (4.8%)
6,300 CAFCO LLC - 144A* 1.08 - 1.09 01/07/04 - 02/10/04 6,295,316
--------------
INTERNATIONAL BANKS (38.0%)
2,600 ABN Amro N.A. Finance, Inc. 1.08 01/14/04 2,598,986
6,400 ANZ (Delaware) Inc. 1.07 - 1.10 01/12/04 - 02/19/04 6,394,676
3,400 Barclays U.S. Funding Corp. 1.08 01/08/04 - 01/12/04 3,399,070
1,000 CBA (Delaware) Finance Inc. 1.10 02/17/04 998,564
5,850 Danske Corp. 1.08 - 1.10 02/13/04 - 03/08/04 5,840,802
3,350 Dexia (Delaware) LLC 1.08 - 1.09 01/21/04 3,347,980
4,400 ING (U.S.) Funding LLC 1.07 - 1.08 01/02/04 - 01/20/04 4,398,446
2,580 Lloyds TSB Bank PLC 1.10 03/09/04 2,574,639
5,850 Royal Bank of Scotland PLC 1.08 01/22/04 - 02/03/04 5,845,507
4,200 Societe Generale N.A. Inc. 1.08 - 1.09 02/05/04 4,195,584
3,100 UBS Finance (Delaware) LLC 1.16 04/30/04 3,088,117
7,000 Westpac Capital Corp. 1.07 01/05/04 - 01/08/04 6,998,992
--------------
49,681,363
--------------
INVESTMENT BANKS/BROKERS (2.7%)
3,600 Goldman Sachs Group, Inc. (The) 1.11 02/25/04 - 03/01/04 3,593,587
--------------
TOTAL COMMERCIAL PAPER
(COST $101,956,698) 101,956,698
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES (19.4%)
$ 8,300 Federal Home Loan Banks 1.03 - 1.10% 01/09/04 - 04/05/04 $ 8,286,560
7,250 Federal National Mortgage Assoc. 1.08 - 1.09 01/14/04 - 04/07/04 7,238,020
9,968 Freddie Mac 1.05 - 1.12 02/26/04 - 05/24/04 9,936,760
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(COST $25,461,340) 25,461,340
--------------
BANKER'S ACCEPTANCE (2.7%)
3,475 JP Morgan Chase Bank
(COST $3,467,708) 1.10 - 1.15 01/12/04 - 04/13/04 3,467,708
--------------
TOTAL INVESTMENTS
(COST $130,885,746) (a) 100.0% 130,885,746
OTHER ASSETS IN EXCESS OF LIABILITIES 0.0 27,221
----- --------------
NET ASSETS 100.0% $ 130,912,967
===== ==============
</Table>
- ----------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(a) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
Flexible Income
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT & CORPORATE BONDS (93.3%)
FOREIGN (26.6%)
ARGENTINA (0.1%)
GOVERNMENT OBLIGATION
$ 169 Republic of Argentina (c) 6.00% 03/31/23 $ 83,464
--------------
AUSTRALIA (0.3%)
OTHER METALS/MINERALS
70 Murrin Murrin Holdings Property Ltd. (c) 9.375 08/31/07 7
--------------
PROPERTY/CASUALTY INSURANCE (0.3%)
200 Mantis Reef Ltd. - 144A* 4.692 11/14/08 201,257
--------------
TOTAL AUSTRALIA 201,264
--------------
AUSTRIA (2.1%)
GOVERNMENT OBLIGATION
EUR 1,200 Austrian Government Bond 3.40 10/20/04 1,524,061
--------------
BELGIUM (0.2%)
CABLE/SATELLITE TV
$ 220 Telenet Group Holding N.V. - 144A* 11.50++ 06/15/14 139,700
--------------
BERMUDA (0.0%)
PERSONNEL SERVICES
EUR 20 Adecco Financial Services 6.00 03/15/06 26,471
--------------
BRAZIL (3.3%)
GOVERNMENT OBLIGATION
$ 308 Federal Republic of Brazil 8.00 04/15/14 303,780
570 Federal Republic of Brazil 8.875 04/15/24 556,463
600 Federal Republic of Brazil 11.00 08/17/40 663,000
230 Federal Republic of Brazil 11.25 07/26/07 270,250
180 Federal Republic of Brazil 12.25 03/06/30 225,000
310 Federal Republic of Brazil 14.50 10/15/09 406,875
--------------
TOTAL BRAZIL 2,425,368
--------------
BULGARIA (0.2%)
GOVERNMENT OBLIGATION
130 Federal Republic of Bulgaria 8.25 01/15/15 153,979
--------------
CANADA (2.0%)
AEROSPACE & DEFENSE (0.0%)
EUR 100 Bombardier Capital 6.125 05/14/07 13,065
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
ALTERNATIVE POWER GENERATION (0.1%)
$ 45 Calpine Canada Energy Finance Corp. 8.50% 05/01/08 $ 36,113
--------------
CONTAINERS/PACKAGING (0.1%)
65 Norampac, Inc. 6.75 06/01/13 68,088
--------------
FOREST PRODUCTS (0.3%)
175 Tembec Industries Inc. 8.50 02/01/11 182,000
40 Tembec Industries Inc. 7.75 03/15/12 40,000
--------------
222,000
--------------
GOVERNMENT OBLIGATION (0.6%)
CAD 575 Canada Government Bond 5.50 06/01/09 474,585
--------------
MOVIES/ENTERTAINMENT (0.2%)
$ 134 Alliance Atlantis Communications, Inc. 13.00 12/15/09 153,430
--------------
OIL & GAS PRODUCTION (0.1%)
30 Nexen Inc. 5.05 11/20/13 29,647
40 Petro-Canada 5.35 07/15/33 35,906
--------------
65,553
--------------
OTHER METALS/MENERALS (0.1%)
65 Inco Ltd. 7.20 09/15/32 71,281
--------------
PUBLISHING: NEWSPAPERS (0.3%)
192 Hollinger Participation Trust - 144A* 12.125+ 11/15/10 228,402
--------------
PULP & PAPER (0.2%)
155 Abitibi - Consolidated Inc. 6.00 06/20/13 149,023
--------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
200 Worldwide Fiber Inc. (a) (c) 12.00 08/01/09 20
--------------
TOTAL CANADA 1,481,560
--------------
CHILE (0.3%)
OIL & GAS PRODUCTION
180 Empresa Nacional de Petroleo 6.75 11/15/12 199,190
--------------
COLUMBIA (0.2%)
GOVERNMENT OBLIGATIONS
125 Republic of Columbia 9.75 04/09/11 141,812
--------------
DENMARK (0.1%)
GOVERNMENT OBLIGATION
DKK 400 Kingdom of Denmark 5.00 08/15/05 70,020
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
DOMINICAN REPUBLIC (0.1%)
GOVERNMENT OBLIGATION
$ 90 Dominican (Republic of) 9.04% 01/23/13 $ 68,781
--------------
ECUADOR (0.6%)
GOVERNMENT OBLIGATION
580 Republic of Ecuador 7.00 08/15/30 450,313
--------------
FRANCE (1.7%)
CHEMICALS - SPECIALTY (0.2%)
140 Rhodia SA - 144A* 8.875 06/01/11 129,500
--------------
GOVERNMENT OBLIGATIONS (1.1%)
EUR 225 France (Republic of) 5.00 07/12/05 293,923
350 France (Republic of) 6.50 04/25/11 509,003
--------------
802,926
--------------
MEDIA CONGLOMERATES (0.2%)
$ 160 Vivendi Universal - 144A* 9.25 04/15/10 190,400
--------------
TELECOMMUNICATIONS (0.1%)
EUR 25 France Telecom 7.00 12/23/09 35,666
15 France Telecom 8.125 01/28/33 24,330
--------------
59,996
--------------
WATER UTILITIES (0.1%)
20 Gie Suez Alliance 5.50 02/20/09 26,690
20 Veolia Environnement 5.875 06/27/08 26,956
--------------
53,646
--------------
TOTAL FRANCE 1,236,468
--------------
GERMANY (2.5%)
GOVERNMENT OBLIGATIONS
610 Germany (Federal Republic of) 7.375 01/03/05 806,287
725 Germany (Federal Republic of) 6.25 01/04/24 1,076,759
--------------
TOTAL GERMANY 1,883,046
--------------
IRELAND (0.3%)
INVESTMENT MANAGERS
$ 175 JSG Funding PLC 9.625 10/01/12 196,875
--------------
IVORY COAST (0.0%)
GOVERNMENT OBLIGATIONS
90 Ivory Coast (c) 2.00 03/29/18 14,948
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
JAPAN (2.6%)
GOVERNMENT OBLIGATIONS
JPY 171,000 Japan (Government of) 0.10% 04/20/05 $ 1,593,783
15,000 Japan (Government of) 0.10 12/20/05 139,640
23,500 Japan (Government of) 0.80 03/20/13 209,699
--------------
TOTAL JAPAN 1,943,122
--------------
KYRGYZSTAN (0.1%)
INDUSTRIAL CONGLOMERATES (0.1%)
EUR 10 Hutchison Whampoa Finance 5.875 07/08/13 12,830
$ 35 Hutchinson Whampoa International Ltd. - 144A* 6.50 02/13/13 36,528
--------------
49,358
--------------
TOBACCO (0.0%)
EUR 15 Altria Finance (CI) Ltd. 5.625 06/24/08 19,432
--------------
TOTAL KYRGYZSTAN 68,790
--------------
LUXEMBOURG (0.3%)
CHEMICALS/SPECIALTY (0.0%)
20 Sygenta Lux Finance 5.50 07/10/06 26,558
--------------
INDUSTRIAL CONGLOMERATES (0.2%)
10 Tyco International Group S.A 6.125 04/04/07 13,245
$ 140 Tyco International Group S.A 6.75 02/15/11 153,650
--------------
166,895
--------------
TELECOMMUNICATIONS (0.1%)
30 Telecom Italia Capital SpA - 144A* 4.00 11/15/08 30,230
--------------
TOTAL LUXEMBOURG 223,683
--------------
MALAYSIA (0.2%)
GOVERNMENT OBLIGATION
140 Malaysia 7.50 07/15/11 165,964
--------------
MAURITIUS ISLAND (0.2%)
PULP/PAPER
560 TJIWI Kimia Mauritius (c) 10.00 08/01/04 182,000
--------------
MEXICO (2.5%)
GOVERNMENT OBLIGATIONS (2.4%)
195 United Mexican States Corp. 8.375 01/14/11 232,050
1,090 United Mexican States Corp. 11.375 09/15/16 1,547,800
--------------
1,779,850
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
TELECOMMUNCIATION EQUIPMENT (0.1%)
$ 195 Satelites Mexicanos SA (a) (c) 10.125% 11/01/04 $ 88,725
--------------
TOTAL MEXICO 1,868,575
--------------
NETHERLANDS (0.3%)
ELECTRIC UTILITIES (0.0%)
EUR 20 RWE Finance BV 5.50 10/26/07 26,822
--------------
MULTI-LINE INSURANCE (0.1%)
15 Allianz Fanance II BV 6.125 05/31/22 20,166
25 Munich Re Finance BV 6.75 06/21/23 34,976
--------------
55,142
--------------
PUBLISHING: BOOKS/MAGAZINES (0.0%)
20 VNU N.V 6.625 05/30/07 27,464
--------------
TELECOMMUNICATIONS (0.2%)
20 Deutsche Telekom International Finance Corp. 7.50 05/29/07 28,177
$ 50 Deutsche Telekom International Finance Corp. 8.75 06/15/30 64,100
EUR 25 Olivetti Finance N.V. 5.875 01/24/08 33,611
15 TPSA Eurofinance BV 6.625 03/01/06 20,085
--------------
145,973
--------------
TOTAL NETHERLANDS 255,401
--------------
PANAMA (0.1%)
GOVERNMENT OBLIGATION
$ 80 Republic of Panama 9.375 04/01/29 90,400
--------------
PERU (0.4%)
GOVERNMENT OBLIGATIONS
100 Republic of Peru 8.75 11/21/33 100,500
180 Republic of Peru 9.875 02/06/15 209,700
--------------
TOTAL PERU 310,200
--------------
PHILIPPINES (0.2%)
GOVERNMENT OBLIGATIONS
142 Republic of Philippines 9.375 01/18/17 153,715
--------------
QATAR (0.1%)
GAS DISTRIBUTORS
55 Ras Laffan Liquid Natural Gas Co. - 144A* 8.294 03/15/14 64,625
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
RUSSIA (3.1%)
GOVERNMENT OBLIGATION
$ 1,290 Federal Republic of Russia 5.00% 03/31/30 $ 1,240,013
170 Federal Republic of Russia 8.25 03/31/10 190,444
301 Federal Republic of Russia 11.00 07/24/18 408,028
270 Federal Republic of Russia 12.75 06/24/28 432,189
--------------
TOTAL RUSSIA 2,270,674
--------------
SOUTH AFRICA (0.2%)
GOVERNMENT OBLIGATION
150 Republic of South Africa 8.50 06/23/17 179,625
--------------
SWEDEN (0.3%)
GOVERNMENT OBLIGATION
SEK 1,325 Swedish Government Bond 5.00 01/15/04 184,233
--------------
TUNISIA (0.0%)
REGIONAL BANKS
$ 30 Banque Centrale de Tunisie 7.375 04/25/12 33,825
--------------
TURKEY (0.4%)
GOVERNMENT OBLIGATIONS
120 Republic of Turkey 11.50 01/23/12 153,300
50 Republic of Turkey 11.75 06/15/10 63,500
60 Republic of Turkey 12.375 06/15/09 77,100
--------------
TOTAL TURKEY 293,900
--------------
UNITED KINGDOM (1.1%)
ADVERTISING/MARKETING SERVICES (0.1%)
EUR 30 WPP Group PLC 6.00 06/18/08 40,600
--------------
CHEMICALS: SPECIALTY (0.2%)
$ 125 Avecia Group PLC 11.00 07/01/09 113,125
--------------
ELECTRIC UTILITIES (0.0%)
EUR 20 National Grid Transco 5.00 07/02/18 24,085
--------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.1%)
$ 85 Xerox Capital Europe PLC 5.875 05/15/04 86,275
--------------
GOVERNMENT OBLIGATION (0.7%)
GBP 275 U.K. Treasury 5.00 06/07/04 493,670
--------------
LIFE/HEALTH INSURANCE (0.0%)
EUR 20 SL Finance PLC 6.375 07/12/22 27,099
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
TOBACCO (0.0%)
EUR 20 BAT International Finance PLC 4.875% 02/25/09 $ 25,583
--------------
TOTAL UNITED KINGDOM 810,437
--------------
VENEZUELA (0.5%)
GOVERNMENT OBLIGATIONS
$ 120 Republic of Venezuela 9.25 09/15/27 109,800
220 Republic of Venezuela 10.75 09/19/13 235,176
--------------
344,976
--------------
TOTAL FOREIGN
(COST $18,298,647) 19,741,465
--------------
UNITED STATES (66.7%)
CORPORATE BONDS (36.6%)
ADVERTISING/MARKETING SERVICES (0.5%)
239 Advanstar Communications - 144A* 8.68 08/15/08 252,567
145 Interep National Radio Sales, Inc. (Series B) 10.00 07/01/08 129,050
--------------
381,617
--------------
AEROSPACE & DEFENSE (0.3%)
30 Goodrich Corp. 7.625 12/15/12 34,718
35 Lockheed Martin Corp. 8.50 12/01/29 46,003
40 Raytheon Co. 8.30 03/01/10 48,056
95 Systems 2001 Asset Trust - 144A* 6.664 09/15/13 105,109
--------------
233,886
--------------
AIRLINES (0.1%)
65 Continental Airlines, Inc. 6.648 09/15/17 63,558
30 Southwest Airlines Co. 5.496 11/01/06 31,995
--------------
95,553
--------------
ALTERNATIVE POWER GENERATION (0.2%)
120 Calpine Corp. 8.50 02/15/11 95,550
30 Calpine Corp. - 144A* 8.50 07/15/10 29,400
--------------
124,950
--------------
APPAREL/FOOTWEAR (0.1%)
60 Oxford Industries Inc. - 144A* 8.875 06/01/11 65,925
--------------
APPAREL/FOOTWEAR RETAIL (0.2%)
190 Payless Shoesource Inc. 8.25 08/01/13 183,825
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
AUTO PARTS: O.E.M. (0.9%)
$ 250 Intermet Corp. 9.75% 06/15/09 $ 257,500
175 Lear Corp. (Series B) 8.11 05/15/09 206,719
165 TRW Automotive, Inc. 9.375 02/15/13 189,338
--------------
653,557
--------------
BROADCASTING (0.7%)
EUR 25 Clear Channel Communications, Inc. 6.50 07/07/05 32,872
$ 30 Clear Channel Communications, Inc. 7.65 09/15/10 35,173
80 Granite Broadcasting Corp. - 144A* 9.75 12/01/10 80,200
135 Nextmedia Operating, Inc. 10.75 07/01/11 153,900
50 Nextstar Finance Inc. - 144A* 7.00 01/15/14 50,500
60 Salem Communications Holdings Corp. (Series A) 7.75 12/15/10 62,850
110 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 120,175
--------------
535,670
--------------
BUILDING PRODUCTS (0.4%)
45 Brand Services Inc. 12.00 10/15/12 52,256
25 Nortek, Inc. 9.25 03/15/07 25,813
290 Nortek Holdings, Inc. - 144A* 10.00++ 05/15/11 210,975
--------------
289,044
--------------
CABLE/SATELLITE TV (2.3%)
38 Avalon Cable LLC 11.875 12/01/08 40,081
135 Charter Communications Holdings LLC 10.75 10/01/09 124,537
245 Charter Communications Holdings/Charter
Capital 11.75++ 05/15/11 165,375
10 Comcast Cable Communications Inc. 6.75 01/30/11 11,148
115 Comcast Corp. 6.50 01/15/15 125,076
15 CSC Holdings Inc. 7.25 07/15/08 15,675
130 CSC Holdings Inc. (Series B) 8.125 07/15/09 140,400
55 CSC Holdings Inc. 9.875 02/15/13 57,750
25 CSC Holdings Inc. 10.50 05/15/16 28,750
160 Directv Holdings/Finance 8.375 03/15/13 186,400
42 Echostar DBS Corp. 9.125 01/15/09 47,197
150 Echostar DBS Corp. 9.375 02/01/09 157,687
210 Echostar DBS Corp. - 144A* 6.375 10/01/11 216,300
160 Knology, Inc. - 144A* (d) 12.00+ 11/30/09 160,536
80 Lodgenet Entertainment Corp. 9.50 06/15/13 88,000
25 Pegasus Communications Corp. (Series B) 9.75 12/01/06 22,687
25 Pegagus Communications Corp. (Series B) 12.50 08/01/07 23,750
20 Pegasus Satellite Communications Corp. 13.50++ 03/01/07 17,025
25 Pegasus Satellite Communications Corp. 12.375 08/01/06 23,656
60 Renaissance Media Group LLC 10.00 04/15/08 62,325
--------------
1,714,355
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
CASINO/GAMING (1.2%)
$ 840 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B) (c) 13.50% 03/01/10 $ 8,400
115 Harrah's Operating Co., Inc. 7.875 12/15/05 125,350
50 Harrah's Operating Co., Inc. 8.00 02/01/11 58,815
140 MGM Mirage Inc. 6.00 10/01/09 144,550
190 Park Place Entertainment 8.875 09/15/08 215,650
299 Resort At Summerlin LP/Ras Co.
(Series B) (a) (c) 13.00 12/15/07 0
70 Station Casinos, Inc. 8.375 02/15/08 75,337
140 Station Casinos, Inc. 9.875 07/01/10 154,700
85 Venetian Casino/LV Sands 11.00 06/15/10 99,025
--------------
881,827
--------------
CELLULAR TELEPHONE (0.3%)
95 Dobson Communications Corp. 10.875 07/01/10 104,025
90 Qwest Corp. 6.625 09/15/05 93,825
--------------
197,850
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.6%)
161 Equistar Chemical Funding 10.125 09/01/08 177,100
35 Equistar Chemical Funding 10.625 05/01/11 38,850
55 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 61,050
160 Huntsman ICI Chemicals 10.125 07/01/09 165,600
35 ICI Wilmington Inc. 4.375 12/01/08 34,907
--------------
477,507
--------------
CHEMICALS: SPECIALTY (1.3%)
50 FMC Corp. 10.25 11/01/09 58,750
60 ISP Chemco 10.25 07/01/11 67,800
135 ISP Holdings Inc. (Series B) 10.625 12/15/09 149,175
40 Koppers Industry Inc. - 144A* 9.875 10/15/13 44,300
20 Kraton Polymers/LLC Capital - 144A* 8.125 01/15/14 20,900
175 Millennium America, Inc. 7.00 11/15/06 180,250
65 Millennium America, Inc. 9.25 06/15/08 71,175
150 Nalco Co. - 144A* 7.75 11/15/11 161,250
100 Rockwood Specialties Corp. - 144A* 10.625 05/15/11 112,000
60 Westlake Chemical Corp. - 144A* 8.75 07/15/11 66,000
--------------
931,600
--------------
COMMERCIAL PRINTING/FORMS (0.0%)
300 Premier Graphics Inc. (a) (c) 11.50 12/01/05 0
--------------
COMPUTER COMMUNICATIONS (0.3%)
160 Avaya, Inc. 11.125 04/01/09 188,000
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
CONSUMER/BUSINESS SERVICES (0.3%)
$ 125 Muzak LLC/Muzak Finance Corp. 9.875% 03/15/09 $ 121,406
90 Muzak LLC/Muzak Finance Corp. 10.00 02/15/09 96,300
--------------
217,706
--------------
CONTAINERS/PACKAGING (0.9%)
160 Graphic Packaging International - 144A* 9.50 08/15/13 177,600
45 Owens-Brockway Glass Containers Corp. 7.75 05/15/11 48,544
240 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 268,500
40 Pliant Corp. (Issued 08/29/00) 13.00 06/01/10 36,800
70 Pliant Corp. (Issued 04/10/02) 13.00 06/01/10 64,400
35 Sealed Air Corp - 144A* 5.625 07/15/13 35,881
--------------
631,725
--------------
DEPARTMENT STORES (0.5%)
25 Federated Department Stores, Inc. 6.90 04/01/29 27,097
25 Federated Department Stores, Inc. 7.00 02/15/28 27,400
25 May Department Stores Co., Inc. 6.70 09/15/28 25,915
50 May Department Stores Co., Inc. 6.90 01/15/32 54,025
15 May Department Stores Co., Inc. 7.875 03/01/30 17,993
10 Penney (J.C.) Co., Inc. 6.875 10/15/15 10,562
15 Penney (J.C.) Co., Inc. 7.60 04/01/07 16,631
60 Penney (J.C.) Co., Inc. 7.95 04/01/17 68,475
50 Penney (J.C.) Co., Inc. 8.00 03/01/10 57,562
40 Penney (J.C.) Co., Inc. 9.00 08/01/12 48,050
--------------
353,710
--------------
DRUGSTORE CHAINS (0.1%)
15 CVS Corp. - 144A* 6.204 10/10/25 15,581
70 Rite Aid Corp. 7.70 02/15/27 64,400
--------------
79,981
--------------
ELECTRIC UTILITIES (2.0%)
11 AES Corp. (The) 8.875 02/15/11 12,045
140 AES Corp. (The) - 144A* 9.00 05/15/15 158,900
16 AES Corp. (The) 9.375 09/15/10 17,820
60 Allegheny Energy, Inc. 7.75 08/01/05 60,825
45 Carolina Power & Light Co. 5.125 09/15/13 45,649
15 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 13,572
40 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 36,057
65 CMS Energy Corp. 7.50 01/15/09 67,275
75 CMS Energy Corp. 8.50 04/15/11 81,375
55 Columbus Southern Power 6.60 03/01/33 59,141
25 Constellation Energy Group, Inc. 7.60 04/01/32 29,353
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 10 Detroit Edison Co. 6.35% 10/15/32 $ 10,643
30 Duke Energy Corp. 4.50 04/01/10 30,644
20 Entergy Gulf States, Inc. - 144A* 3.60 06/01/08 19,298
35 Exelon Corp. 6.75 05/01/11 39,161
10 FirstEnergy Corp. (Series B) 6.45 11/15/11 10,384
30 IPALCO Enterprises, Inc. 8.625 11/14/11 33,675
135 Monongahela Power Co. 5.00 10/01/06 138,037
115 MSW Energy Holdings/Finance - 144A* 7.375 09/01/10 120,750
25 MSW Energy Holdings/Finance - 144A* 8.50 09/01/10 27,375
115 Nevada Power Co. - 144A* 9.00 08/15/13 127,794
65 PG&E Corp. - 144A* 6.875 07/15/08 70,687
10 PSEG Energy Holdings Inc. 7.75 04/16/07 10,662
100 PSEG Energy Holdings Inc. 8.625 02/15/08 109,625
25 Public Service Electric & Gas Co. 5.00 01/01/13 25,261
20 South Carolina Electric & Gas Co. 5.30 05/15/33 18,562
40 TNP Enterprises, Inc. 10.25 04/01/10 43,800
25 TXU Energy Co. 7.00 03/15/13 27,707
15 Wisconsin Electric Power Co. 5.625 05/15/33 14,618
--------------
1,460,695
--------------
ELECTRICAL PRODUCTS (0.2%)
35 Cooper Industries Inc. 5.25 07/01/07 37,451
90 Rayovac Corp. 8.50 10/01/13 95,850
--------------
133,301
--------------
ELECTRONIC DISTRIBUTORS (0.2%)
165 BRL Universal Equipment Corp. 8.875 02/15/08 177,787
400 CHS Electronics, Inc. (a) (c) 9.875 04/15/05 3,500
--------------
181,287
--------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.3%)
155 High Voltage Engineering, Inc. (c) 10.75 08/15/04 39,525
140 Xerox Corp. 7.125 06/15/10 150,500
--------------
190,025
--------------
ENGINEERING & CONSTRUCTION (0.2%)
120 ABB Finance Inc. 6.75 06/03/04 115,236
55 Encompass Services Corp. (a) (c) 10.50 05/01/09 0
--------------
115,236
--------------
ENVIRONMENTAL SERVICES (0.3%)
75 Allied Waste North America, Inc. (Series B) 8.875 04/01/08 84,375
115 Allied Waste North America, Inc. (Series B) 10.00 08/01/09 124,775
45 Waste Management, Inc. 6.875 05/15/09 50,357
--------------
259,507
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
FINANCE/RENTAL/LEASING (1.1%)
$ 30 American General Finance 4.625% 09/01/10 $ 30,420
35 CIT Group Inc. 2.875 09/29/06 35,116
80 Countrywide Home Loans, Inc. 3.25 05/21/08 78,762
85 Ford Motor Credit Co. 7.25 10/25/11 92,326
100 Ford Motor Credit Co. 7.375 10/28/09 109,947
25 Household Finance Corp. 4.125 12/15/08 25,247
15 Household Finance Corp. 5.875 02/01/09 16,307
15 Household Finance Corp. 6.375 10/15/11 16,543
35 Household Finance Corp. 6.40 06/17/08 38,843
EUR 25 Household Finance Corp. 6.50 05/05/09 34,884
$ 35 Household Finance Corp. 6.75 05/15/11 39,459
15 International Lease Finance Corp. 2.95 05/23/06 15,127
30 International Lease Finance Corp. 3.75 08/01/07 30,621
70 MBNA Corp. 6.125 03/01/13 75,296
45 SLM Corp. 5.00 10/01/13 44,799
120 United Rentals NA Inc. - 144A* 7.75 11/15/13 123,150
--------------
806,847
--------------
FINANCIAL CONGLOMERATES (1.4%)
15 Boeing Capital Corp. 5.75 02/15/07 16,212
10 Boeing Capital Corp. 5.80 01/15/13 10,506
35 Boeing Capital Corp. 6.10 03/01/11 37,831
55 Chase Manhattan Corp. 6.00 02/15/09 60,276
10 Chase Manhattan Corp. 7.00 11/15/09 11,540
40 Citicorp 6.75 08/15/05 43,164
20 Citigroup Inc. 5.75 05/10/06 21,536
35 Citigroup Inc. 6.00 02/21/12 38,308
50 Citigroup Inc. 6.625 06/15/32 54,345
20 General Electric Capital Corp. 4.25 12/01/10 19,931
85 General Electric Capital Corp. 6.75 03/15/32 94,418
25 General Motors Acceptance Corp. 4.50 07/15/06 25,734
70 General Motors Acceptance Corp. 6.875 09/15/11 75,512
110 General Motors Acceptance Corp. 8.00 11/01/31 123,895
65 John Hancock Financial Services, Inc. 5.625 12/01/08 70,289
100 Prudential Holdings, LLC (Series C) - 144A* 8.695 12/18/23 123,801
175 Prudential Holdings, LLC
(Series B) (FSA) - 144A* 7.245 12/18/23 197,734
--------------
1,025,032
--------------
FOOD RETAIL (0.5%)
25 Albertson's Inc. 7.45 08/01/29 27,359
45 CA FM Lease Trust - 144A* 8.50 07/15/17 50,755
35 Couche-Tard US/Finance - 144A* 7.50 12/15/13 36,837
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 200 Delhaize America, Inc. 8.125% 04/15/11 $ 231,000
15 Kroger Co. 7.50 04/01/31 17,338
--------------
363,289
--------------
FOOD: MAJOR DIVERSIFIED (0.1%)
25 General Mills Inc. 3.875 11/30/07 25,339
30 Kraft Foods Inc. 5.25 06/01/07 31,942
30 Kraft Foods Inc. 6.25 06/01/12 32,750
--------------
90,031
--------------
FOOD: MEAT/FISH/DAIRY (1.0%)
95 Michael Foods Inc. (Series B) - 144A* 8.00 11/15/13 99,512
65 National Beef Packing/NB Finance - 144A* 10.50 08/01/11 67,275
220 Pilgrim's Pride Corp. 9.625 09/15/11 243,100
60 PPC Escrow Corp. - 144A* 9.25 11/15/13 62,400
135 Smithfield Foods Inc. 7.625 02/15/08 137,025
25 Smithfield Foods Inc. 7.75 05/15/13 26,125
130 Smithfield Foods Inc. (Series B) 8.00 10/15/09 137,800
--------------
773,237
--------------
FOREST PRODUCTS (0.3%)
15 Louisiana Pacific Corp. 8.875 08/15/10 17,775
60 Louisiana Pacific Corp. 10.875 11/15/08 71,700
30 Weyerhaeuser Co. 6.125 03/15/07 32,538
95 Weyerhaeuser Co. 6.75 03/15/12 103,804
--------------
225,817
--------------
GAS DISTRIBUTORS (0.4%)
35 Consolidated Natural Gas Co. 6.25 11/01/11 38,723
10 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 9,958
130 Dynegy Holdings, Inc. 6.875 04/01/11 120,412
130 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 146,900
--------------
315,993
--------------
HOME BUILDING (0.6%)
20 Centex Corp. 7.875 02/01/11 23,548
45 Meritage Corp. 9.75 06/01/11 50,512
35 Pulte Homes, Inc. 6.375 05/15/33 34,180
120 Schuler Homes, Inc. 9.375 07/15/09 135,600
35 Tech Olympic USA, Inc. (Issued 11/27/02) 9.00 07/01/10 37,800
60 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 64,800
80 Tech Olympic USA, Inc. 10.375 07/01/12 90,000
--------------
436,440
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.2%)
$ 40 Mohawk Industries Inc. 7.20% 04/15/12 $ 45,507
30 Simmons Corp. - 144A* 7.875 01/15/14 30,300
85 Tempur-Pedic/Tempur Products - 144A* 10.25 08/15/10 95,200
--------------
171,007
--------------
HOME IMPROVEMENT CHAINS (0.0%)
30 Lowe's Companies, Inc. 6.50 03/15/29 32,562
--------------
HOSPITAL/NURSING MANAGEMENT (0.7%)
100 HCA, Inc. 7.875 02/01/11 114,208
115 HCA, Inc. 8.75 09/01/10 137,112
10 Manor Care, Inc. 7.50 06/15/06 10,900
35 Manor Care, Inc. 8.00 03/01/08 39,725
15 Tenet Healthcare Corp. 6.50 06/01/12 14,456
45 Tenet Healthcare Corp. 6.875 11/15/31 40,500
125 Tenet Healthcare Corp. 7.375 02/01/13 126,250
--------------
483,151
--------------
HOTELS/RESORTS/CRUISELINES (0.8%)
70 Hilton Hotels Corp. 7.625 12/01/12 79,013
75 Hilton Hotels Corp. 7.95 04/15/07 83,531
130 Horseshoe Gaming Holding Corp. (Series B) 8.625 05/15/09 137,963
45 Hyatt Equities LLC - 144A* 6.875 06/15/07 48,381
50 Marriott International, Inc. (Series E) 7.00 01/15/08 55,754
20 Starwood Hotels & Resorts Worldwide Inc. 7.375 05/01/07 21,700
150 Starwood Hotels & Resorts Worldwide Inc. 7.875 05/01/12 169,500
--------------
595,842
--------------
INDUSTRIAL CONGLOMERATES (0.1%)
45 Honeywell International, Inc. 6.125 11/01/11 49,560
--------------
INDUSTRIAL MACHINERY (0.1%)
35 Flowserve Corp. 12.25 08/15/10 40,775
--------------
INDUSTRIAL SPECIALTIES (0.8%)
115 Cabot Safety Corp. 12.50 07/15/05 117,875
165 Johnsondiversy, Inc. 9.625 05/15/12 184,800
121 Tekni-Plex Inc. (Series B) 12.75 06/15/10 132,495
50 Tekni-Plex Inc. - 144A* 8.75 11/15/13 52,375
115 UCAR Finance, Inc. 10.25 02/15/12 132,825
--------------
620,370
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES (0.1%)
$ 30 Electronic Data Systems Corp. 6.00% 08/01/13 $ 29,543
25 Electronic Data Systems Corp. 7.125 10/15/09 26,726
--------------
56,269
--------------
INTEGRATED OIL (0.2%)
30 Amerada Hess Corp. 6.65 08/15/11 32,561
55 Amerada Hess Corp. 7.875 10/01/29 60,520
70 Conoco Inc. 6.95 04/15/29 79,634
--------------
172,715
--------------
INTERNET SOFTWARE/SERVICES (0.0%)
188 Exodus Communications, Inc. (a) (c) 11.625 07/15/10 0
--------------
INVESTMENT BANKS/BROKERS (0.2%)
EUR 20 Goldman Sachs Group Inc. 6.50 10/06/10 28,136
$ 55 Goldman Sachs Group Inc. 6.60 01/15/12 61,561
60 Goldman Sachs Group Inc. 6.875 01/15/11 68,233
--------------
157,930
--------------
MAJOR BANKS (0.3%)
20 Bank of New York Co., Inc. 5.20 07/01/07 21,443
25 Bank One Corp. 6.00 02/17/09 27,417
70 FleetBoston Financial Corp. 7.25 09/15/05 76,150
70 Wachovia Corp. 4.95 11/01/06 74,369
--------------
199,379
--------------
MANAGED HEALTH CARE (0.2%)
95 Aetna, Inc. 7.875 03/01/11 112,465
20 Cigna Corp. 7.00 01/15/11 22,398
30 Wellpoint Health Network, Inc. 6.375 06/15/06 32,728
--------------
167,591
--------------
MEDIA CONGLOMERATES (0.2%)
55 AOL Time Warner Inc. 6.125 04/15/06 59,247
50 AOL Time Warner Inc. 7.625 04/15/31 57,904
30 Time Warner, Inc. 6.625 05/15/29 30,945
--------------
148,096
--------------
MEDICAL DISTRIBUTORS (0.3%)
185 AmerisourceBergen Corp. 8.125 09/01/08 209,513
--------------
MEDICAL/NURSING SERVICES (0.3%)
25 Fresenius Medical Care Capital Trust II
(Units)^ 7.875 02/01/08 26,813
181 Fresenius Medical Care Capital Trust 7.875 06/15/11 196,385
--------------
223,198
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
MEDICAL SPECIALTIES (0.0%)
$ 25 National Nephrology Assoc. - 144A* 9.00% 11/01/11 $ 26,313
--------------
METAL FABRICATIONS (0.3%)
60 General Cable Corp. - 144A* 9.50 11/15/10 64,500
170 Trimas Corp. 9.875 06/15/12 178,075
--------------
242,575
--------------
MISCELLANEOUS COMMERCIAL SERVICES (0.3%)
90 Iron Mountain Inc. 7.75 01/15/15 94,725
140 Iron Mountain Inc. 8.625 04/01/13 151,900
--------------
246,625
--------------
MISCELLANEOUS MANUFACTURING (0.4%)
120 Amsted Industries Inc. - 144A* 10.25 10/15/11 133,200
160 Jacuzzi Brands Inc. - 144A* 9.625 07/01/10 176,800
--------------
310,000
--------------
MOTOR VEHICLES (0.4%)
90 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 100,364
45 DaimlerChrysler North American Holdings Co. 7.20 09/01/09 50,314
75 Ford Motor Co. 7.45 07/16/31 76,011
EUR 35 General Motors Corp. 8.375 07/05/33 51,656
--------------
278,345
--------------
MULTI-LINE INSURANCE (0.5%)
$ 85 AIG Sun America Global Financial VI - 144A* 6.30 05/10/11 94,201
45 AIG Sun America Global Financial - 144A* 6.90 03/15/32 51,448
100 Farmers Exchange Capital - 144A* 7.05 07/15/28 93,860
45 Hartford Financial Services Group, Inc. 2.375 06/01/06 44,801
5 Hartford Financial Services Group, Inc. 7.90 06/15/10 5,926
100 Nationwide Mutual Insurance Co. - 144A* 7.50 02/15/24 102,848
--------------
393,084
--------------
OIL & GAS PIPELINES (0.9%)
180 El Paso Production Holdings - 144A* 7.75 06/01/13 178,200
25 GulfTerra Energy Partners, L.P. 8.50 06/01/10 28,500
87 GulfTerra Energy Partners, L.P. 10.625 12/01/12 108,315
25 Northwest Pipeline Corp. 8.125 03/01/10 27,875
40 Southern Natural Gas 8.875 03/15/10 45,200
20 Texas Eastern Transmission, L.P. 7.00 07/15/32 22,200
35 Transcontinental Gas Pipe Line Corp.
(Series B) 8.875 07/15/12 41,563
220 Williams Companies, Inc. (The) 7.875 09/01/21 233,200
--------------
685,053
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCTION (1.1%)
$ 160 Chesepeake Energy Corp. 7.50% 09/15/13 $ 174,000
135 Hillcorp Energy/Finance - 144A* 10.50 09/01/10 148,500
65 Kerr-McGee Corp. 7.875 09/15/31 74,055
65 Magnum Hunter Resources, Inc. 9.60 03/15/12 74,100
100 Pemex Project Funding Master Trust - 144A* 2.95 10/15/09 102,250
225 Vintage Petroleum, Inc. 7.875 05/15/11 238,500
--------------
811,405
--------------
OIL REFINING/MARKETING (0.6%)
65 CITGO Petroleum Corp. 11.375 02/01/11 75,725
170 Husky Oil Ltd. 8.90 08/15/28 197,200
30 Marathon Oil Corp. 5.375 06/01/07 32,132
40 Marathon Oil Corp. 6.80 03/15/32 42,978
55 Tesoro Petroleum Corp. 9.00 07/01/08 57,338
65 Tesoro Petroleum Corp. 9.625 04/01/12 71,500
--------------
476,873
--------------
OILFIELD SERVICES/EQUIPMENT (0.3%)
20 Hanover Compress Co. 8.625 12/15/10 20,900
100 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 106,500
60 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 63,900
--------------
191,300
--------------
OTHER CONSUMER SERVICES (0.1%)
40 Cendant Corp. 7.375 01/15/13 45,945
--------------
OTHER TRANSPORTATION (0.3%)
165 Laidlaw International Inc. - 144A* 10.75 06/15/11 187,275
--------------
PHARMACEUTICALS: MAJOR (0.0%)
25 Schering-Plough Corp. 5.30 12/01/13 25,495
--------------
PUBLISHING: BOOKS/MAGAZINES (0.8%)
185 Dex Media Inc. - 144A* 9.00++ 11/15/13 131,350
100 Dex Media East/Finance 12.125 11/15/12 123,500
95 Dex Media West/Finance - 144A* 9.875 08/15/13 110,913
45 PEI Holdings, Inc. 11.00 03/15/10 52,425
175 PRIMEDIA, Inc. 8.875 05/15/11 185,500
--------------
603,688
--------------
PUBLISHING: NEWSPAPERS (0.1%)
55 News America Holdings, Inc. 7.75 02/01/24 64,654
30 News America Holdings, Inc. 8.875 04/26/23 38,558
--------------
103,212
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
PULP & PAPER (0.4%)
$ 225 Georgia-Pacific Corp. 8.875% 02/01/10 $ 257,625
30 International Paper Co. 4.25 01/15/09 30,157
30 MeadWestVaco Corp. 6.85 04/01/12 33,052
--------------
320,834
--------------
RAILROADS (0.1%)
30 Union Pacific Corp. 3.625 06/01/10 28,781
30 Union Pacific Corp. 6.79 11/09/07 33,544
--------------
62,325
--------------
REAL ESTATE DEVELOPMENT (0.6%)
120 CB Richard Ellis Services, Inc. 11.25 06/15/11 136,200
70 CBRE Escrow Inc. - 144A* 9.75 05/15/10 78,050
45 LNR Property Corp. - 144A* 7.25 10/15/13 46,013
180 LNR Property Corp. 7.625 07/15/13 190,350
--------------
450,613
--------------
REAL ESTATE INVESTMENT TRUST (0.2%)
150 HMH Properties, Inc. (Series B) 7.875 08/01/08 156,750
--------------
REGIONAL BANKS (0.2%)
AUD 200 KFW International Inc. 6.25 07/15/05 151,595
--------------
SAVINGS BANKS (0.1%)
$ 35 Washington Mutual Inc. 8.25 04/01/10 42,138
--------------
SEMICONDUCTORS (0.1%)
50 Fairchild Semiconductors Corp. 10.50 02/01/09 56,000
--------------
SERVICES TO THE HEALTH INDUSTRY (0.4%)
80 Anthem Insurance - 144A* 9.125 04/01/10 100,695
60 Medco Health Solutions 7.25 08/15/13 65,572
25 Omnicare, Inc. 6.125 06/01/13 25,188
75 Omnicare, Inc. (Series B) 8.125 03/15/11 82,313
--------------
273,768
--------------
SPECIALTY STORES (0.5%)
130 Autonation, Inc. 9.00 08/01/08 149,825
85 General Nutrition Center - 144A* 8.50 12/01/10 87,550
120 Sonic Automotive Inc. 8.625 08/15/13 127,200
40 Sonic Automotive Inc. - 144A* 8.625 08/15/13 42,400
--------------
406,975
--------------
SPECIALTY TELECOMMUNICATIONS (0.9%)
235 American Tower Corp. (Conv) 6.25 10/15/09 237,350
70 American Tower Corp. 9.375 02/01/09 74,900
80 Primus Telecommunication Group, Inc.
(Series B) 9.875 05/15/08 83,200
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 90 Qwest Corp. 5.625% 11/15/08 $ 89,550
145 Qwest Services Corp. - 144A* 13.00 12/15/07 171,100
--------------
656,100
--------------
STEEL (0.2%)
160 United States Steel Corp. 9.75 05/15/10 180,800
--------------
TELECOMMUNICATIONS (0.3%)
EUR 20 AT&T Corp. 6.50 11/21/06 26,993
$ 45 AT&T Corp. 8.75 11/15/31 52,767
438 Rhythms Netconnections, Inc. (a) (c) 12.75 04/15/09 0
200 Startec Global Communications Corp. (a) (c) 12.00 05/15/08 20
140 Verizon Global Funding Corp. 7.75 12/01/30 165,070
--------------
244,850
--------------
TOBACCO (0.3%)
180 Altria Group, Inc. 7.00 11/04/13 192,367
35 Altria Group, Inc. 7.75 01/15/27 37,869
--------------
230,236
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.4%)
190 Manitowoc Inc. (The) 10.50 08/01/12 217,313
60 NMHG Holding Co. 10.00 05/15/09 66,600
--------------
283,913
--------------
WHOLESALE DISTRIBUTORS (0.4%)
160 Burhmann US, Inc. 12.25 11/01/09 180,000
110 Fisher Scientific International Inc. 8.125 05/01/12 118,525
--------------
298,525
--------------
WIRELESS TELECOMMUNICATIONS (1.1%)
50 AT&T Wireless -Services Inc. 8.75 03/01/31 61,910
1,800 CellNet Data Systems, Inc. (a) (c) 14.00 10/01/07 0
140 Metropcs Inc. - 144A* 10.75 10/01/11 140,000
15 Nextel Communications Inc. 7.375 08/01/15 16,200
255 Nextel Communications Inc. 9.375 11/15/09 279,225
115 Nextel Partners Inc. (Class A) 11.00 03/15/10 127,650
85 SBA Communications Corp. - 144A* 9.75++ 12/15/11 60,350
110 SBA Communications Corp. 10.25 02/01/09 108,625
31 SBA Communications Corp. 12.00 03/01/08 33,868
--------------
827,828
--------------
TOTAL CORPORATE BONDS
(COST $29,166,649) 27,213,421
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (23.9%)
Federal Home Loan Mortgage Corp. (3.3%)
$ 270 5.125% 11/07/13 $ 269,472
1,200 6.00 ** 1,238,578
42 7.00 06/01/04 42,738
842 7.50 11/01/29 - 06/01/32 904,054
--------------
2,454,842
--------------
Federal National Mortgage Assoc. (20.1%)
650 4.50 ** 650,813
950 5.00 ** 969,000
2,200 5.50 ** 2,246,219
1,175 6.00 ** 1,214,656
5,300 6.50 ** 5,543,468
201 6.50 05/01/31 - 01/01/34 210,340
1,925 7.00 ** 2,038,695
452 7.00 06/01/32 478,282
497 7.50 02/01/31 - 03/01/32 531,119
972 8.00 04/01/30 - 05/01/31 1,049,099
--------------
14,931,691
--------------
Government National Mortgage Assoc. (0.5%)
218 7.50 04/15/26 - 08/15/29 233,647
86 8.00 02/15/26 - 06/15/26 94,002
--------------
327,649
--------------
MORTGAGE-BACKED SECURITIES
(COST $17,546,910) 17,714,182
--------------
U.S. GOVERNMENT OBLIGATIONS (6.2%)
U.S. Treasury Bonds (4.1%) (b)
700 0.00 02/15/06 672,888
345 8.125 08/15/19 - 08/15/21 469,314
1,315 8.75 05/15/17 - 08/15/20 1,867,708
--------------
3,009,910
--------------
3,650 U.S. Treasury Strips (2.1%) 0.00 08/15/17 - 08/15/22 1,562,255
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $4,381,507) 4,572,165
--------------
TOTAL UNITED STATES
(COST $51,095,066) 49,499,768
--------------
TOTAL GOVERNMENT & CORPORATE BONDS
(COST $69,393,713) 69,241,233
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (e) (0.5%)
AEROSPACE & DEFENSE (0.0%)
1,118 Orbital Sciences Corp. (d) $ 13,438
--------------
APPAREL/FOOTWEAR RETAIL (0.0%)
50,166 County Seat Stores Corp. (d) 0
--------------
BROADCASTING (0.2%)
12,500 Tri-State Outdoor 150,938
--------------
CASINO/GAMING (0.0%)
787 Fitzgerald Gaming Corp.*** 0
--------------
CONSUMER/BUSINESS SERVICES (0.1%)
3,900 Anacomp, Inc. (Class A) (d) 87,750
--------------
FOOD: SPECIALTY/CANDY (0.0%)
100 SFAC New Holdings Inc. (d) 0
18 SFFB New Holdings Inc. (d) 0
--------------
0
--------------
MEDICAL SPECIALTIES (0.0%)
1,105 MEDIQ, Inc. (d) 4,432
--------------
MEDICAL/NURSING SERVICES (0.0%)
34,888 Raintree Healthcare Corp. (d) 0
--------------
RESTAURANTS (0.0%)
10,137 Catalina Restaurant Group, Inc. (d) 20,274
--------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
1,171 Birch Telecom Inc (d) 0
16,679 PFB Telecom NV (Series B) (d) 0
568 Viatel Holdings Bermuda Ltd. (d) 1,562
--------------
1,562
--------------
TEXTILES (0.0%)
11,192 U.S. Leather, Inc. (d) 0
--------------
WIRELESS TELECOMMUNICATIONS (0.2%)
3,518 Arch Wireless, Inc. (Class A) (d) 69,656
825 NII Holdings, Inc. (Class B) 61,570
4,516 Vast Solutions, Inc. (Class B1) (d) 0
4,516 Vast Solutions, Inc. (Class B2) (d) 0
4,516 Vast Solutions, Inc. (Class B3) (d) 0
--------------
131,226
--------------
TOTAL COMMON STOCKS
(COST $3,562,508) 409,620
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
40
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.1%)
CELLULAR TELEPHONE (0.1%)
210 Dobson Communications Corp. $0.06
(COST $35,596) $ 37,828
--------------
NON-CONVERTIBLE PREFERRED STOCKS (0.8%)
BROADCASTING (0.3%)
21 Paxson Communications Corp. 194,278
--------------
CABLE/SATELLITE TV (0.0%)
9,953 Knology Holdings, Inc. - 144A* (d) (e) 100
--------------
CELLULAR TELEPHONE (0.2%)
165 Dobson Communications Corp. 177,788
--------------
ELECTRIC UTILITIES (0.3%)
190 TNP Enterprises, Inc. (Series D)+ 206,625
--------------
RESTAURANTS (0.0%)
17 Catalina Restaurant Group, Inc.(Units)^ 15,300
--------------
TOTAL NON-CONVERTIBLE PREFERRED STOCKS
(COST $554,327) 594,091
--------------
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE
--------- ----------
WARRANTS (e) (0.0%)
BROADCASTING (0.0%)
300 UIH Australia/Pacific Inc. 05/15/06 0
--------------
CASINO/GAMING (0.0%)
9,000 Aladdin Gaming Enterprices, Inc. - 144A* 03/01/10 0
250 Resort At Summerlin LP - 144A* 12/15/07 0
--------------
0
--------------
ELECTRIC UTILITIES (0.0%)
125 TNP Enterprises, Inc. - 144A* 04/01/11 1
--------------
RESTAURANTS (0.0%)
4,250 Catalina Restaurant Group, Inc. (d) 07/10/12 0
--------------
TELECOMMUNICATIONS (0.0%)
200 Startec Global Communications Corp. - 144A* 05/15/08 0
--------------
TOTAL WARRANTS
(COST $7,842) 1
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
41
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.1%)
REPURCHASE AGREEMENT
$ 3,060 Joint repurchase agreement account
(dated 12/31/03; proceeds $3,060,167) (f)
(COST $3,060,000) 0.98% 01/02/04 $ 3,060,000
--------------
TOTAL INVESTMENTS
(COST $76,613,986) (g) (h) 98.8% 73,342,773
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2 881,679
----- --------------
NET ASSETS 100.0% $ 74,224,452
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
** SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE
PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL
AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT.
*** RESALE IS RESTRICTED; ACQUIRED (12/12/98) AT A COST BASIS OF $3,549.
^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
BONDS OR PREFERRED STOCK WITH ATTACHED WARRANTS.
+ PAYMENT-IN-KIND SECURITY.
++ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT
A FUTURE DATE.
(a) ISSUER IN BANKRUPTCY.
(b) SOME OR ALL OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS.
(c) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT.
(d) ACQUIRED THROUGH EXCHANGE OFFER.
(e) NON-INCOME PRODUCING SECURITIES.
(f) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(g) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$31,550,472 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS, FORWARD FOREIGN CURRENCY CONTRACTS AND OPEN FUTURES
CONTRACTS.
(h) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $76,980,370. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $4,207,169 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $7,844,766, RESULTING IN NET UNREALIZED
DEPRECIATION OF $3,637,597.
BOND INSURANCE:
FSA FINANCIAL SECURITY ASSURANCE INC.
SEE NOTES TO FINANCIAL STATEMENTS
42
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2003:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION
- ---------------------------------------------------------------------------------------
21 Long U.S. Treasury Note 2 Year,
March 2004 $ 4,494,984 $ 16,661
2 Long U.S. Treasury Note 10 Year,
March 2004 224,531 1,471
4 Long U.S. Treasury Bond 30 Year,
March 2004 437,250 1,091
66 Short U.S. Treasury Note 5 Year,
March 2004 (7,367,250) (54,005)
16 Short U.S. Treasury Note 10 Year,
March 2004 (1,796,250) (9,513)
18 Short U.S. Treasury Bond 30 Year,
March 2004 (1,967,625) (7,851)
-------------
Net unrealized depreciation $ (52,146)
=============
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 2003:
<Table>
<Caption>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- --------------------------------------------------------
CAD 85,000 $ 64,915 02/20/04 $ (529)
CHF 415,000 $ 312,735 01/22/04 (21,985)
EUR 950,000 $ 1,123,735 01/26/04 (70,839)
GBP 35,000 $ 58,244 01/22/04 (4,145)
SEK 1,000,000 $ 136,398 03/19/04 (2,032)
------------
Total unrealized depreciation $ (99,530)
============
</Table>
CURRENCY ABBREVIATIONS:
AUD Australian Dollar.
GBP British Pound.
CAD Canadian Dollar.
DKK Danish Krone.
EUR Euro.
JPY Japanese Yen.
SEK Swedish Krona.
CHF Swiss Franc.
SEE NOTES TO FINANCIAL STATEMENTS
43
<Page>
Balanced Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (66.1%)
ADVERTISING/MARKETING SERVICES (0.5%)
34,700 Interpublic Group of Companies, Inc. (The)* $ 541,320
--------------
AEROSPACE & DEFENSE (0.3%)
9,610 Raytheon Co. 288,684
--------------
AUTO PARTS: O.E.M. (0.8%)
10,530 Magna International Inc. (Class A) (Canada) 842,926
--------------
BROADCASTING (0.5%)
11,500 Clear Channel Communications, Inc. 538,545
--------------
CHEMICALS: MAJOR DIVERSIFIED (2.7%)
49,300 Bayer AG (ADR) (Germany) 1,449,913
20,250 Dow Chemical Co. (The) 841,793
12,230 Du Pont (E.I.) de Nemours & Co. 561,235
--------------
2,852,941
--------------
COMPUTER PROCESSING HARDWARE (0.8%)
36,750 Hewlett-Packard Co. 844,148
--------------
CONTAINERS/PACKAGING (1.1%)
18,900 Temple-Inland, Inc. 1,184,463
--------------
DATA PROCESSING SERVICES (0.7%)
17,800 Automatic Data Processing, Inc. 705,058
--------------
DISCOUNT STORES (0.9%)
17,820 Wal-Mart Stores, Inc. 945,351
--------------
ELECTRIC UTILITIES (2.4%)
28,200 Edison International* 618,426
10,900 Entergy Corp. 622,717
10,870 Exelon Corp. 721,333
15,900 FirstEnergy Corp. 559,680
--------------
2,522,156
--------------
FINANCE/RENTAL/LEASING (1.5%)
16,400 Fannie Mae 1,230,984
7,400 Freddie Mac 431,568
--------------
1,662,552
--------------
FINANCIAL CONGLOMERATES (3.5%)
32,100 Citigroup Inc. 1,558,134
35,150 J.P. Morgan Chase & Co. 1,291,060
22,010 Prudential Financial, Inc. 919,358
--------------
3,768,552
--------------
FINANCIAL PUBLISHING/SERVICES (1.1%)
50,000 Equifax, Inc. 1,225,000
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
44
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED (1.6%)
17,650 Kraft Foods Inc. (Class A) $ 568,683
9,250 Nestle SA (ADR) (Registered Shares) (Switzerland) 575,350
13,660 PepsiCo, Inc. 636,829
--------------
1,780,862
--------------
FOOD: SPECIALTY/CANDY (0.6%)
22,300 Cadbury Schweppes PLC (ADR) (United Kingdom) 666,547
--------------
HOSPITAL/NURSING MANAGEMENT (1.0%)
65,100 Tenet Healthcare Corp.* 1,044,855
--------------
HOTELS/RESORTS/CRUISELINES (2.2%)
69,110 Hilton Hotels Corp. 1,183,854
31,600 Starwood Hotels & Resorts Worldwide, Inc. 1,136,652
--------------
2,320,506
--------------
HOUSEHOLD/PERSONAL CARE (1.2%)
22,510 Kimberly-Clark Corp. 1,330,116
--------------
INDUSTRIAL CONGLOMERATES (1.6%)
13,930 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 945,568
12,980 Textron, Inc. 740,639
--------------
1,686,207
--------------
INDUSTRIAL MACHINERY (0.8%)
14,000 Parker-Hannifin Corp. 833,000
--------------
INFORMATION TECHNOLOGY SERVICES (1.0%)
11,750 International Business Machines Corp. 1,088,990
--------------
INTEGRATED OIL (4.3%)
40,630 BP PLC (ADR) (United Kingdom) 2,005,091
16,070 ConocoPhillips 1,053,710
37,400 Exxon Mobil Corp. 1,533,400
--------------
4,592,201
--------------
INVESTMENT BANKS/BROKERS (2.7%)
13,610 Edwards (A.G.), Inc. 493,090
12,700 Lehman Brothers Holdings, Inc. 980,694
23,900 Merrill Lynch & Co., Inc. 1,401,735
--------------
2,875,519
--------------
LIFE/HEALTH INSURANCE (0.6%)
19,590 MetLife, Inc. 659,595
--------------
MAJOR BANKS (3.4%)
10,580 Bank of America Corp. 850,949
21,300 Bank One Corp. 971,067
20,820 PNC Financial Services Group 1,139,479
14,600 Wachovia Corp. 680,214
--------------
3,641,709
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
45
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS (1.6%)
33,730 Sprint Corp. (FON Group) $ 553,847
33,880 Verizon Communications Inc. 1,188,510
--------------
1,742,357
--------------
MANAGED HEALTH CARE (0.7%)
13,300 CIGNA Corp. 764,750
--------------
MEDIA CONGLOMERATES (3.5%)
64,770 Disney (Walt) Co. (The) 1,511,084
125,150 AOL Time Warner Inc.* 2,251,449
--------------
3,762,533
--------------
MEDICAL SPECIALTIES (0.9%)
18,210 Bausch & Lomb, Inc. 945,099
--------------
MOTOR VEHICLES (0.9%)
44,000 Honda Motor Co., Ltd. (ADR) (Japan) 990,000
--------------
MULTI-LINE INSURANCE (1.3%)
23,560 Hartford Financial Services Group, Inc. (The) (Note 4) 1,390,747
--------------
OIL & GAS PRODUCTION (0.7%)
15,370 EOG Resources, Inc. 709,633
--------------
OIL REFINING/MARKETING (0.7%)
15,380 Valero Energy Corp. 712,709
--------------
OILFIELD SERVICES/EQUIPMENT (1.7%)
33,200 Schlumberger Ltd. 1,816,704
--------------
OTHER METALS/MINERALS (1.3%)
17,780 Phelps Dodge Corp.* 1,352,880
--------------
PACKAGED SOFTWARE (1.1%)
43,720 Microsoft Corp. 1,204,049
--------------
PHARMACEUTICALS: MAJOR (5.9%)
14,500 AstraZeneca PLC (ADR) (United Kingdom) 701,510
121,370 Bristol-Myers Squibb Co. 3,471,182
12,330 Roche Holdings Ltd. (ADR) (Switzerland) 1,236,083
54,370 Schering-Plough Corp. 945,494
--------------
6,354,269
--------------
RECIOUS METALS (1.0%)
21,920 Newmont Mining Corp. 1,065,531
--------------
PROPERTY - CASUALTY INSURERS (2.8%)
27,170 Chubb Corp. (The) 1,850,277
70,712 Travelers Property Casualty Corp. (Class A) 1,186,547
--------------
3,036,824
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
46
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
RAILROADS (2.0%)
59,000 Norfolk Southern Corp. $ 1,395,350
10,890 Union Pacific Corp. 756,637
--------------
2,151,987
--------------
REAL ESTATE INVESTMENT TRUSTS (0.0%)
12 Corrections Corporation of America* 346
--------------
RESTAURANTS (0.5%)
21,380 McDonald's Corp. 530,865
--------------
TELECOMMUNICATION EQUIPMENT (0.8%)
49,600 Nokia Corp. (ADR) (Finland) 843,200
--------------
TOBACCO (0.9%)
16,990 Altria Group, Inc. 924,596
--------------
TOTAL COMMON STOCKS
(COST $56,073,965) 70,740,882
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------ --------
CORPORATE BONDS (10.0%)
AEROSPACE & DEFENSE (0.3%)
$ 65 Boeing Co. 6.625% 02/15/38 68,369
25 Goodrich Corp. 7.625 12/15/12 28,932
15 Lockheed Martin Corp. 7.75 05/01/26 18,074
20 Lockheed Martin Corp. 8.50 12/01/29 26,287
15 Raytheon Co. 4.85 01/15/11 15,042
25 Raytheon Co. 8.30 03/01/10 30,035
137 Systems 2001 Asset Trust - 144A** 6.664 09/15/13 151,357
--------------
338,096
--------------
AIRLINES (0.3%)
113 American West Airlines 7.10 04/02/21 119,466
152 Continental Airlines, Inc. 6.90 01/02/18 149,816
45 Southwest Airlines Co. 5.496 11/01/06 47,993
--------------
317,275
--------------
BEVERAGES: ALCOHOLIC (0.1%)
50 Miller Brewing Co. - 144A** 4.25 08/15/08 50,719
--------------
BROADCASTING (0.1%)
50 Clear Channel Communications, Inc. 7.65 09/15/10 58,621
--------------
CABLE/SATELLITE TV (0.2%)
20 Comcast Cable Communications Inc. 6.75 01/30/11 22,297
95 Comcast Corp. 6.50 01/15/15 103,323
10 Comcast Corp. 7.625 02/15/08 11,261
55 TCI Communications, Inc. 7.875 02/15/26 64,485
--------------
201,366
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
47
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
$ 40 ICI Wilmington Inc. 4.375% 12/01/08 $ 39,893
--------------
CONTAINERS/PACKAGING (0.0%)
45 Sealed Air Corp - 144A** 5.625 07/15/13 46,133
--------------
DATA PROCESSING SERVICES (0.0%)
25 Electronic Data Systems Corp. 7.125 10/15/09 26,726
--------------
DEPARTMENT STORES (0.2%)
145 May Department Stores Co. 6.70 09/15/28 150,306
70 Federated Department Stores, Inc. 6.90 04/01/29 75,871
--------------
226,177
--------------
DRUGSTORE CHAINS (0.2%)
180 CVS Corp. 5.625 03/15/06 192,593
15 CVS Corp. - 144A** 6.204 10/10/25 15,581
--------------
208,174
--------------
ELECTRIC UTILITIES (0.6%)
30 Appalachian Power Co. (Series H) 5.95 05/15/33 28,857
70 Carolina Power & Light Co. 5.125 09/15/13 71,009
35 Cincinnati Gas & Electric Co. 5.70 09/15/12 36,886
25 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 22,621
30 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 27,043
15 Columbus Southern Power Co. 6.60 03/01/33 16,129
15 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 14,938
45 Constellation Energy Group, Inc. 7.60 04/01/32 52,835
70 Detroit Edison Co. 6.125 10/01/10 76,901
45 Duke Energy Corp. 4.50 04/01/10 45,966
30 Entergy Gulf States, Inc. - 144A** 3.60 06/01/08 28,947
50 Exelon Corp. 6.75 05/01/11 55,944
40 Ohio Power Co. 6.60 02/15/33 43,071
45 Public Service Electric & Gas Co. 5.00 01/01/13 45,470
20 South Carolina Electric & Gas Co. 5.30 05/15/33 18,562
35 TXU Energy Co. 7.00 03/15/13 38,790
10 Wisconsin Electric Power Co. 5.625 05/15/33 9,745
15 Wisconsin Energy Corp. 6.20 04/01/33 14,994
--------------
648,708
--------------
ELECTRICAL PRODUCTS (0.1%)
70 Cooper Industries Inc. 5.25 07/01/07 74,902
--------------
ENVIRONMENTAL SERVICES (0.1%)
70 Waste Management, Inc. 6.875 05/15/09 78,333
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
FINANCE/RENTAL/LEASING (0.8%)
$ 90 American General Finance Corp. 4.625% 09/01/10 $ 91,261
55 CIT Group Inc. 2.875 09/29/06 55,182
105 Countrywide Home Loans, Inc. 3.25 05/21/08 103,376
20 Ford Motor Credit Co. 7.25 10/25/11 21,724
35 Ford Motor Credit Co. 7.375 10/28/09 38,481
40 Household Finance Corp. 4.125 12/15/08 40,395
50 Household Finance Corp. 5.875 02/01/09 54,358
25 Household Finance Corp. 6.375 10/15/11 27,572
65 Household Finance Corp. 6.40 06/17/08 72,137
35 Household Finance Corp. 6.75 05/15/11 39,459
30 International Lease Finance Corp. 3.75 08/01/07 30,621
115 MBNA Corp. 6.125 03/01/13 123,701
120 Prime Property Funding II - 144A** 7.00 08/15/04 123,778
75 SLM Corp. 5.00 10/01/13 74,665
--------------
896,710
--------------
FINANCIAL CONGLOMERATES (1.4%)
15 Boeing Capital Corp. 5.75 02/15/07 16,212
10 Boeing Capital Corp. 6.10 03/01/11 10,809
10 Boeing Capital Corp. 6.50 02/15/12 10,951
95 Chase Manhattan Corp. 6.00 02/15/09 104,114
40 Citicorp 6.75 08/15/05 43,164
90 Citigroup Inc. 5.625 08/27/12 95,171
60 Citigroup Inc. 5.75 05/10/06 64,609
60 Citigroup Inc. 6.00 02/21/12 65,671
25 General Electric Capital Corp. 4.25 12/01/10 24,913
140 General Electric Capital Corp. 6.75 03/15/32 155,512
35 General Motors Acceptance Corp. 4.50 07/15/06 36,028
155 General Motors Acceptance Corp. 6.875 09/15/11 167,205
120 General Motors Acceptance Corp. 8.00 11/01/31 135,158
100 John Hancock Financial Services, Inc. 5.625 12/01/08 108,137
160 Prudential Holdings, LLC
(Series C) - 144A** 8.695 12/18/23 198,082
225 Prudential Holdings, LLC
(Series B) (FSA) - 144A** 7.245 12/18/23 254,229
--------------
1,489,965
--------------
FOOD RETAIL (0.2%)
40 Albertson's, Inc. 7.50 02/15/11 45,919
110 Kroger Co. 6.80 04/01/11 123,288
--------------
169,207
--------------
FOOD: MAJOR DIVERSIFIED (0.1%)
20 General Mills Inc. 3.875 11/30/07 20,271
25 Kraft Foods Inc. 5.25 06/01/07 26,618
15 Kraft Foods Inc. 5.625 11/01/11 15,830
40 Kraft Foods Inc. 6.25 06/01/12 43,666
--------------
106,385
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
49
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS (0.1%)
$ 30 Weyerhaeuser Co. 6.00% 08/01/06 $ 32,143
25 Weyerhaeuser Co. 6.125 03/15/07 27,115
90 Weyerhaeuser Co. 6.75 03/15/12 98,340
--------------
157,598
--------------
GAS DISTRIBUTORS (0.1%)
60 Consolidated Natural Gas Co. 6.25 11/01/11 66,382
65 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A**
(Qatar) 8.294 03/15/14 76,375
--------------
142,757
--------------
HOME BUILDING (0.1%)
45 Centex Corp. 7.50 01/15/12 51,991
30 Pulte Homes, Inc. 6.375 05/15/33 29,297
--------------
81,288
--------------
HOME FURNISHINGS (0.0%)
35 Mohawk Industries Inc. 7.20 04/15/12 39,819
--------------
HOTELS/RESORTS/CRUISELINES (0.2%)
70 Hyatt Equities LLC - 144A** 6.875 06/15/07 75,259
110 Marriott International, Inc. (Series E) 7.00 01/15/08 122,658
--------------
197,917
--------------
INDUSTRIAL CONGLOMERATES (0.2%)
80 Honeywell International, Inc. 6.125 11/01/11 88,107
45 Hutchison Whampoa International Ltd. - 144A**
(Virgin Islands) 6.50 02/13/13 46,964
--------------
135,071
--------------
INFORMATION TECHNOLOGY SERVICES (0.0%)
35 Electronic Data Systems Corp. 6.00 08/01/13 34,466
--------------
INTEGRATED OIL (0.2%)
25 Amerada Hess Corp. 6.65 08/15/11 27,134
85 Amerada Hess Corp. 7.875 10/01/29 93,531
110 Conoco Inc. 6.95 04/15/29 125,139
--------------
245,804
--------------
INVESTMENT BANKS/BROKERS (0.2%)
60 Goldman Sachs Group Inc. 5.25 10/15/13 60,691
30 Goldman Sachs Group Inc. 6.60 01/15/12 33,579
95 Goldman Sachs Group, Inc. 6.875 01/15/11 108,035
--------------
202,305
--------------
LIFE/HEALTH INSURANCE (0.1%)
100 American General Corp. 7.50 07/15/25 119,279
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
50
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
MAJOR BANKS (0.2%)
$ 30 Bank of New York (The) 5.20% 07/01/07 $ 32,165
105 Bank One Corp. 6.00 02/17/09 115,150
65 FleetBoston Financial Corp. 7.25 09/15/05 70,710
--------------
218,025
--------------
MAJOR TELECOMMUNICATIONS (0.4%)
50 AT&T Corp. 8.75 11/15/31 58,630
80 Deutsche Telekom International Finance Corp.
(Netherlands) 8.75 06/15/30 102,559
45 Telecom Italia Capital SpA - 144A**
(Luxembourg) 4.00 11/15/08 45,344
25 Verizon Global Funding Corp. 7.75 12/01/30 29,477
160 Verizon New England Inc. 6.50 09/15/11 176,626
--------------
412,636
--------------
MANAGED HEALTH CARE (0.2%)
135 Aetna, Inc. 7.875 03/01/11 159,819
25 Cigna Corp. 6.375 10/15/11 27,091
60 Wellpoint Healthcare Networks, Inc. 6.375 06/15/06 65,457
--------------
252,367
--------------
MEDIA CONGLOMERATES (0.1%)
55 AOL Time Warner Inc. 6.125 04/15/06 59,247
45 AOL Time Warner Inc. 7.70 05/01/32 52,718
20 Time Warner, Inc. 6.625 05/15/29 20,630
--------------
132,595
--------------
MOTOR VEHICLES (0.5%)
50 DaimlerChrysler North American Holdings Co. 7.20 09/01/09 55,904
95 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 105,940
35 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 41,941
25 Ford Motor Co. 6.625 10/01/28 23,064
275 Ford Motor Co. 7.45 07/16/31 278,708
--------------
505,557
--------------
MULTI-LINE INSURANCE (0.7%)
180 AIG Sun America Global Finance VI - 144A** 6.30 05/10/11 199,485
200 Farmers Exchange Capital - 144A** 7.05 07/15/28 187,719
30 Hartford Financial Services Group, Inc.,
(The) (Note 4) 2.375 06/01/06 29,867
75 Hartford Financial Services Group, Inc.,
(The) (Note 4) 7.90 06/15/10 88,894
195 Nationwide Mutual Insurance Co. - 144A** 7.50 02/15/24 200,553
--------------
706,518
--------------
OIL & GAS PIPELINES (0.0%)
30 Texas Eastern Transmission, L.P. 7.00 07/15/32 33,300
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
51
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCTION (0.4%)
$ 30 Kerr-McGee Corp. 6.875% 09/15/11 $ 33,427
60 Kerr-McGee Corp 7.875 09/15/31 68,358
50 Nexen Inc. (Canada) 5.05 11/20/13 49,412
225 Pemex Project Funding Master Trust 8.625 02/01/22 250,313
10 Petro-Canada (Canada) 4.00 07/15/13 9,254
35 Petro-Canada (Canada) 5.35 07/15/33 31,417
--------------
442,181
--------------
OIL REFINING/MARKETING (0.1%)
30 Marathon Oil Corp. 5.375 06/01/07 32,132
40 Marathon Oil Corp. 6.80 03/15/32 42,978
--------------
75,110
--------------
OTHER CONSUMER SERVICES (0.1%)
15 Cendant Corp. 7.125 03/15/15 16,971
45 Cendant Corp. 7.375 01/15/13 51,688
--------------
68,659
--------------
OTHER METALS/MINERALS (0.2%)
45 BHP Billiton Finance (Australia) 4.80 04/15/13 45,198
90 Inco Ltd. (Canada) 7.20 09/15/32 98,697
25 Inco Ltd. (Canada) 7.75 05/15/12 29,210
--------------
173,105
--------------
PHARMACEUTICALS: MAJOR (0.0%)
35 Schering-Plough Corp. 5.30 12/01/13 35,693
--------------
PROPERTY CASUALTY INSURERS (0.2%)
200 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 201,257
--------------
PUBLISHING: NEWSPAPERS (0.1%)
80 News America Holdings, Inc. 7.28 06/30/28 89,448
30 News America Holdings, Inc. 7.75 02/01/24 35,266
--------------
124,714
--------------
PULP & PAPER (0.1%)
55 International Paper Co. 4.25 01/15/09 55,287
45 MeadWestVaco Corp. 6.85 04/01/12 49,578
40 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 43,811
--------------
148,676
--------------
RAILROADS (0.0%)
25 Union Pacific Corp. 6.79 11/09/07 27,953
--------------
REAL ESTATE DEVELOPMENT (0.2%)
194 World Financial Properties - 144A** 6.91 09/01/13 215,185
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
$ 25 EOP Operating LP 6.763% 06/15/07 $ 27,711
125 EOP Operating LP 7.25 06/15/28 136,314
15 Rouse Co. (The) 5.375 11/26/13 14,950
40 Simon Property Group LP 6.375 11/15/07 44,150
45 Vornado Realty Trust 5.625 06/15/07 48,082
--------------
271,207
--------------
SAVINGS BANKS (0.1%)
55 Washington Mutual Bank 5.50 01/15/13 56,836
10 Washington Mutual Inc. 8.25 04/01/10 12,039
--------------
68,875
--------------
SERVICES TO THE HEALTH INDUSTRY (0.0%)
35 Anthem Insurance Companies, Inc. - 144A** 9.125 04/01/10 44,054
--------------
TOBACCO (0.1%)
35 Altra Group, Inc. 7.00 11/04/13 37,405
50 Altria Group, Inc. 7.75 01/15/27 54,098
--------------
91,503
--------------
WIRELESS TELECOMMUNICATIONS (0.1%)
65 AT&T Wireless Services, Inc. 8.75 03/01/31 80,483
--------------
TOTAL CORPORATE BONDS
(COST $9,995,558) 10,663,347
--------------
FOREIGN GOVERNMENT OBLIGATIONS (0.2%)
160 United Mexican States (Mexico)
(COST $183,128) 8.30 08/15/31 180,800
--------------
MORTGAGE-BACKED SECURITIES (8.0%)
Federal Home Loan Mortgage Corp.
1,474 6.50 06/01/30 - 03/01/33 1,544,566
864 7.50 09/01/25 - 06/01/32 928,241
Federal National Mortgage Assoc.
2,450 6.50 + 2,562,547
1,225 7.00 + 1,297,351
297 7.00 05/01/31 - 09/01/32 314,452
779 7.50 08/01/29 - 07/01/32 832,856
837 8.00 12/01/28 - 04/01/32 902,424
154 Government National Mortgage Association 7.50 08/15/23 - 10/15/29 165,279
--------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $8,461,672) 8,547,716
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
53
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (11.1%)
$ 290 Federal Home Loan Mortgage Corp. 5.125% 11/07/13 $ 289,433
U.S. Treasury Bonds
1,750 5.50 08/15/28 1,823,351
150 6.125 08/15/29 170,027
2,250 7.625 02/15/25 2,972,198
2,225 8.125 08/15/19 - 08/15/21 3,032,851
200 8.50 02/15/20 279,399
425 8.75 08/15/20 607,883
U.S. Treasury Notes
2,100 3.50 11/15/06 2,171,287
575 3.875 02/15/13 563,051
--------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST $11,822,523) 11,909,480
--------------
ASSET-BACKED SECURITIES (0.7%)
FINANCE/RENTAL/LEASING
215 Chase Credit Card Master Trust 2001-4A 5.50 11/17/08 231,136
200 Citibank Credit Card Issuance Trust 6.90 10/15/07 216,818
2 Daimler Chrysler Auto Trust 2002-A 2.90 12/06/04 2,050
67 Harley-Davidson Motorcycle Trust 2002-1 3.02 09/15/06 67,449
100 MBNA Master Credit Card Trust 5.90 08/15/11 110,334
125 Nissan Auto Receivables Owner Trust 2001-C 4.80 02/15/07 127,803
--------------
TOTAL ASSET-BACKED SECURITIES
(COST $716,574) 755,590
--------------
SHORT-TERM INVESTMENTS (7.0%)
U.S. GOVERNMENT OBLIGATIONS (a) (0.2%)
100 U.S. Treasury Bill*** 0.93 03/25/04 99,786
100 U.S. Treasury Bill*** 1.00 03/25/04 99,769
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $199,550) 199,555
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
54
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (6.8%)
$ 7,330 Joint repurchase agreement account
(dated 12/31/03; proceeds $7,330,399) (b)
(COST $7,330,000) 0.98% 01/02/04 $ 7,330,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $7,529,550) 7,529,555
--------------
TOTAL INVESTMENTS
(COST $94,782,970) (c) (d) 103.1% 110,327,370
LIABILITIES IN EXCESS OF OTHER ASSETS (3.1) (3,277,448)
----- --------------
NET ASSETS 100.0% $ 107,049,922
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
FSA FINANCIAL SECURITY ASSURANCE.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** ALL OR A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS.
+ SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE
PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE.
(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 A AMOUNT EQUAL TO
$10,601,699 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $96,043,885. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $15,447,781 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $1,164,296, RESULTING IN NET UNREALIZED
APPRECIATION OF $14,283,485.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2003:
<Table>
<Caption>
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION
- --------------------------------------------------------------------------------------
59 Short U.S. Treasury Bond 20 Year,
March 2004 $ (6,449,437) $ (35,706)
2 Short U.S. Treasury Note 5 Year,
March 2004 (223,250) (693)
1 Short U.S. Treasury Note 10 Year,
March 2004 (112,266) (651)
------------
Total unrealized depreciation $ (37,050)
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
55
<Page>
Utilities
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (92.9%)
COMPUTER COMMUNICATIONS (1.4%)
45,000 Cisco Systems, Inc.* $ 1,093,050
--------------
ELECTRIC UTILITIES (45.1%)
120,000 AES Corp. (The)* 1,132,800
70,000 Allegheny Energy, Inc.* 893,200
35,000 American Electric Power Co., Inc. 1,067,850
43,500 Cinergy Corp. 1,688,235
100,000 CMS Energy Corp.* 852,000
24,000 Consolidated Edison, Inc. 1,032,240
20,000 Constellation Energy Group, Inc. 783,200
25,000 Dominion Resources, Inc. 1,595,750
56,710 Duke Energy Corp. 1,159,719
80,000 Edison International 1,754,400
50,000 Energy East Corp. 1,120,000
32,500 Entergy Corp. 1,856,725
30,000 Exelon Corp. 1,990,800
24,800 FirstEnergy Corp. 872,960
30,000 FPL Group, Inc. 1,962,600
27,000 NSTAR 1,309,500
50,000 PG&E Corp.* 1,388,500
20,000 Pinnacle West Capital Corp. 800,400
50,000 PPL Corp. 2,187,500
33,081 Progress Energy, Inc. 1,497,246
34,000 Public Service Enterprise Group, Inc. 1,489,200
56,000 SCANA Corp. 1,918,000
42,000 Southern Co. (The) 1,270,500
55,000 TXU Corp. 1,304,600
56,000 Wisconsin Energy Corp. 1,873,200
--------------
34,801,125
--------------
ENERGY (16.9%)
35,000 AGL Resources, Inc. 1,018,500
20,000 Burlington Resources, Inc. 1,107,600
35,000 Equitable Resources, Inc. 1,502,200
35,600 KeySpan Corp. 1,310,080
30,000 Kinder Morgan, Inc. 1,773,000
82,500 MDU Resources Group, Inc. 1,964,325
39,000 New Jersey Resources Corp. 1,501,890
55,000 Questar Corp. 1,933,250
30,000 Sempra Energy 901,800
--------------
13,012,645
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
56
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
OIL & GAS PIPELINES (1.9%)
95,000 El Paso Corp. $ 778,050
70,000 Williams Companies, Inc. (The) 687,400
--------------
1,465,450
--------------
TELECOMMUNICATIONS (27.1%)
60,000 Alcatel SA (ADR) (France)* 771,000
34,160 ALLTEL Corp. 1,591,173
70,000 American Tower Corp. (Class A)* 757,400
45,000 AT&T Corp. 913,500
70,000 AT&T Wireless Services Inc.* 559,300
55,500 BellSouth Corp. 1,570,650
35,000 Cablevision Systems New York Group (Class A)* 818,650
30,625 CenturyTel, Inc. 998,988
30,000 Comcast Corp. (Class A)* 986,100
40,000 Motorola, Inc. 562,800
62,000 Nextel Communications, Inc. (Class A)* 1,739,720
300,000 Nortel Networks Corp. (Canada)* 1,269,000
300,000 Qwest Communications International, Inc.* 1,296,000
76,272 SBC Communications, Inc. 1,988,411
55,000 Sprint Corp. (FON Group) 903,100
115,000 Sprint Corp. (PCS Group)* 646,300
30,000 Telefonaktiebolaget LM Ericsson (ADR) (Sweden)* 531,000
42,394 Verizon Communications Inc. 1,487,182
60,000 Vodafone Group PLC (ADR) (United Kingdom) 1,502,400
--------------
20,892,674
--------------
WATER UTILITIES (0.5%)
19,219 Philadelphia Suburban Corp. 424,734
--------------
TOTAL COMMON STOCKS
(COST $54,639,537) 71,689,678
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- -------------- ------ --------
CORPORATE BONDS (2.8%)
ELECTRIC UTILITIES (2.0%)
$ 45 Appalachian Power Co. (Series G) 3.60% 05/15/08 44,511
55 Carolina Power & Light Co. 5.125 09/15/13 55,793
140 Cinergy Corp. 6.25 09/01/04 143,640
45 Cleco Power LLC 5.375 05/01/13 44,263
60 Commonwealth Edison Co. (Series 98) 6.15 03/15/12 65,568
17 Constellation Energy Group, Inc. 7.60 04/01/32 19,960
30 Duke Energy Corp. 4.50 04/01/10 30,644
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
57
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 35 Duquesne Light Co. (Series O) 6.70% 04/15/12 $ 39,044
10 Entergy Gulf States, Inc. - 144A** 3.60 06/01/08 9,649
45 Exelon Corp. 6.75 05/01/11 50,349
50 FirstEnergy Corp. (Series B) 6.45 11/15/11 51,918
45 FirstEnergy Corp. (Series C) 7.375 11/15/31 46,199
60 Indiana Michigan Power Co. (Series A) 6.875 07/01/04 61,647
15 Indianapolis Power & Light Co. - 144A** 6.30 07/01/13 15,503
60 Jersey Central Power & Light Co. (Series MTN) 6.45 05/15/06 64,562
55 Ohio Power Co. (Series G) 6.60 02/15/33 59,222
65 Pinnacle West Capital Corp. 6.40 04/01/06 69,763
80 Progress Energy Inc. 6.55 03/01/04 80,601
175 PSEG Energy Holdings 9.125 02/10/04 176,750
115 Public Service Co. of New Mexico (Series B) 7.50 08/01/18 131,774
50 Public Service Electric & Gas Co.
(Series MTNB) 5.00 01/01/13 50,522
65 South Carolina Electric & Gas Co. 7.50 06/15/05 70,203
65 Texas-New Mexico Power Co. 6.25 01/15/09 65,885
30 TXU Energy Co. 7.00 03/15/13 33,248
40 Wisconsin Electric Power Co. 4.50 05/15/13 39,135
--------------
1,520,353
--------------
ENERGY (0.0%)
35 Consolidated Natural Gas Co. (Series B) 5.375 11/01/06 37,545
--------------
TELECOMMUNICATIONS (0.8%)
80 AT&T Corp. 7.25 11/15/06 88,536
60 AT&T Wireless Services, Inc. 7.875 03/01/11 69,545
30 British Telecommunications PLC
(United Kingdom) 8.375 12/15/10 36,566
85 Deutsche Telekom International Finance Corp.
(Netherlands) 8.75 06/15/30 108,969
60 France Telecom S.A. (France) 9.75 03/01/31 79,994
180 GTE Corp. 7.90 02/01/27 198,052
--------------
581,662
--------------
TOTAL CORPORATE BONDS
(COST $2,011,577) 2,139,560
--------------
ASSET-BACKED SECURITIES (0.5%)
FINANCE/RENTAL/LEASING
100 Detroit Edison Securitization Funding LLC
(Series 2001 - 1 Class A3) 5.875 03/01/10 108,665
115 PECO Energy Transition Trust
(Series 2000 - A Class A3) 7.625 03/01/10 135,288
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
58
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 100 PSE&G Transition Funding LLC
(Series 2001 - 1 Class A6) 6.61% 06/15/15 $ 114,343
--------------
TOTAL ASSET-BACKED SECURITIES
(COST $340,777) 358,296
--------------
U.S. GOVERNMENT OBLIGATION (0.2%)
160 U.S. Treasury Bond
(COST $178,240) 6.125 08/15/29 181,362
--------------
SHORT-TERM INVESTMENT (3.9%)
REPURCHASE AGREEMENT
3,036 Joint repurchase agreement account
(dated 12/31/03; proceeds $3,036,165) (a)
(COST $3,036,000) 0.98 01/02/04 3,036,000
--------------
TOTAL INVESTMENTS
(COST $60,206,131) (b) 100.3% 77,404,896
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3) (236,053)
----- --------------
NET ASSETS 100.0% $ 77,168,843
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $61,907,503. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $15,503,985 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $6,592, RESULTING IN NET UNREALIZED
APPRECIATION OF $15,497,393.
SEE NOTES TO FINANCIAL STATEMENTS
59
<Page>
Dividend Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCKS (94.9%)
ALUMINUM (3.0%)
136,700 Alcan Inc. (Canada) $ 6,418,065
148,400 Alcoa, Inc. 5,639,200
----------------
12,057,265
----------------
APPAREL/FOOTWEAR (1.1%)
105,600 V.F. Corp. 4,566,144
----------------
AUTO PARTS: O.E.M. (2.4%)
82,700 Johnson Controls, Inc. 9,603,124
----------------
BEVERAGES:
NON-ALCOHOLIC (1.0%)
78,100 Coca-Cola Co. (The) 3,963,575
----------------
BIOTECHNOLOGY (0.3%)
20,000 Amgen Inc.* 1,236,000
----------------
CHEMICALS: MAJOR
DIVERSIFIED (3.9%)
209,100 Dow Chemical Co. (The) 8,692,287
156,900 Du Pont (E.I.)
de Nemours & Co. 7,200,141
----------------
15,892,428
----------------
COMPUTER PROCESSING
HARDWARE (2.3%)
151,200 Dell Inc.* 5,134,752
179,600 Hewlett-Packard Co. 4,125,412
----------------
9,260,164
----------------
DATA PROCESSING
SERVICES (1.3%)
131,000 First Data Corp. 5,382,790
----------------
DISCOUNT STORES (2.7%)
282,300 Target Corp. 10,840,320
----------------
DRUGSTORE CHAINS (0.9%)
102,900 CVS Corp. 3,716,748
----------------
ELECTRIC UTILITIES (2.3%)
98,200 Exelon Corp. 6,516,552
42,500 FPL Group, Inc. 2,780,350
----------------
9,296,902
----------------
FINANCE/RENTAL/LEASING (2.8%)
28,300 Fannie Mae $ 2,124,198
369,500 MBNA Corp. 9,182,075
----------------
11,306,273
----------------
FINANCIAL CONGLOMERATES (3.5%)
222,200 Citigroup Inc. 10,785,588
89,300 J.P. Morgan Chase & Co. 3,279,989
----------------
14,065,577
----------------
FOOD DISTRIBUTORS (0.5%)
59,800 SYSCO Corp. 2,226,354
----------------
FOOD: MAJOR
DIVERSIFIED (2.2%)
192,200 PepsiCo, Inc. 8,960,364
----------------
HOME IMPROVEMENT
CHAINS (2.5%)
291,000 Home Depot, Inc. (The) 10,327,590
----------------
HOUSEHOLD/PERSONAL
CARE (3.3%)
78,200 Avon Products, Inc. 5,277,718
83,800 Procter & Gamble Co. (The) 8,369,944
----------------
13,647,662
----------------
INDUSTRIAL
CONGLOMERATES (6.3%)
100,000 3M Co. 8,503,000
233,200 General Electric Co. 7,224,536
104,700 United Technologies Corp. 9,922,419
----------------
25,649,955
----------------
INFORMATION TECHNOLOGY
SERVICES (3.2%)
232,200 Accenture Ltd. (Class A)
(Bermuda)* 6,111,504
75,700 International Business
Machines Corp. 7,015,876
----------------
13,127,380
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
60
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
INSURANCE BROKERS/
SERVICES (0.2%)
18,400 Marsh & McLennan
Companies, Inc. $ 881,176
----------------
INTEGRATED OIL (5.7%)
193,200 BP PLC (ADR) (United Kingdom) 9,534,420
208,600 Exxon Mobil Corp. 8,552,600
96,400 Royal Dutch Petroleum Co.
(NY Registered Shares)
(Netherlands) 5,050,396
----------------
23,137,416
----------------
INVESTMENT BANKS/
BROKERS (4.3%)
44,100 Goldman Sachs Group,
Inc. (The) 4,353,993
45,500 Lehman Brothers
Holdings, Inc. 3,513,510
161,500 Merrill Lynch & Co., Inc. 9,471,975
----------------
17,339,478
----------------
INVESTMENT MANAGERS (1.4%)
177,700 Mellon Financial Corp. 5,705,947
----------------
LIFE/HEALTH INSURANCE (1.5%)
152,500 Lincoln National Corp. 6,156,425
----------------
MAJOR BANKS (7.8%)
163,000 Bank of America Corp. 13,110,090
64,500 Bank of New York Co.,
Inc. (The) 2,136,240
84,300 Comerica, Inc. 4,725,858
95,800 PNC Financial Services Group 5,243,134
52,700 Wachovia Corp. 2,455,293
72,500 Wells Fargo & Co. 4,269,525
----------------
31,940,140
----------------
MANAGED HEALTH CARE (1.0%)
38,379 Anthem, Inc.* 2,878,425
21,100 CIGNA Corp. 1,213,250
----------------
4,091,675
----------------
MEDICAL DISTRIBUTORS (0.4%)
25,400 Cardinal Health, Inc. $ 1,553,464
----------------
MEDICAL SPECIALTIES (0.3%)
22,200 Guidant Corp. 1,336,440
----------------
MULTI-LINE INSURANCE (1.7%)
76,300 American International
Group, Inc. 5,057,164
32,200 Hartford Financial Services
Group, Inc. (The) (Note 4) 1,900,766
----------------
6,957,930
----------------
OFFICE EQUIPMENT/
SUPPLIES (1.7%)
174,300 Pitney Bowes, Inc. 7,080,066
----------------
OILFIELD SERVICES/
EQUIPMENT (1.2%)
50,800 Halliburton Co. 1,320,800
63,200 Schlumberger Ltd. 3,458,304
----------------
4,779,104
----------------
PACKAGED SOFTWARE (3.4%)
25,800 Mercury Interactive Corp.* 1,254,912
382,600 Microsoft Corp. 10,536,804
51,700 SAP AG (ADR) (Germany) 2,148,652
----------------
13,940,368
----------------
PHARMACEUTICALS: MAJOR (7.0%)
254,800 Bristol-Myers Squibb Co. 7,287,280
357,560 Pfizer Inc. 12,632,595
199,000 Wyeth, Inc. 8,447,550
----------------
28,367,425
----------------
RAILROADS (1.6%)
122,200 Burlington Northern Santa
Fe Corp. 3,953,170
73,500 CSX Corp. 2,641,590
----------------
6,594,760
----------------
SEMICONDUCTORS (2.2%)
27,000 Analog Devices, Inc. 1,232,550
169,100 Intel Corp. 5,445,020
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
61
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
30,300 Marvell Technology Group Ltd.
(Bermuda)* $ 1,149,279
23,500 Maxim Integrated Products, Inc. 1,170,300
----------------
8,997,149
----------------
TELECOMMUNICATION
EQUIPMENT (0.6%)
185,900 Motorola, Inc. 2,615,613
----------------
TELECOMMUNICATIONS (1.8%)
210,000 Verizon Communications Inc. 7,366,800
----------------
TOBACCO (2.3%)
172,700 Altria Group, Inc. 9,398,334
----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (3.3%)
133,200 Caterpillar Inc. 11,058,264
34,600 Deere & Co. 2,250,730
----------------
13,308,994
----------------
TOTAL COMMON STOCKS
(COST $296,468,179) 386,675,319
----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (5.1%)
REPURCHASE AGREEMENT
$ 20,892 Joint repurchase agreement
account 0.98% due 01/02/04
(dated 12/31/03; proceeds
$20,893,137) (a)
(COST $20,892,000) $ 20,892,000
----------------
TOTAL INVESTMENTS
(COST $317,360,179)(b) 100.0% 407,567,319
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.0 15,879
----- ----------------
NET ASSETS 100.0% $ 407,583,198
===== ================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $324,611,274. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $86,622,391 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $3,666,346, RESULTING IN NET UNREALIZED
APPRECIATION OF $82,956,045.
SEE NOTES TO FINANCIAL STATEMENTS
62
<Page>
Value-Added Market
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCKS (98.8%)
ADVERTISING/MARKETING
SERVICES (0.4%)
24,320 Interpublic Group of
Companies, Inc. (The)* $ 379,392
4,330 Omnicom Group, Inc. 378,139
----------------
757,531
----------------
AEROSPACE & DEFENSE (1.4%)
9,000 Boeing Co. 379,260
4,300 General Dynamics Corp. 388,677
12,910 Goodrich Corp. 383,298
7,400 Lockheed Martin Corp. 380,360
4,000 Northrop Grumman Corp. 382,400
12,100 Raytheon Co. 363,484
12,650 Rockwell Collins, Inc. 379,879
----------------
2,657,358
----------------
AGRICULTURAL COMMODITIES/
MILLING (0.2%)
24,000 Archer-Daniels-Midland Co. 365,280
----------------
AIR FREIGHT/COURIERS (0.4%)
5,300 FedEx Corp. 357,750
4,900 United Parcel Service, Inc.
(Class B) 365,295
----------------
723,045
----------------
AIRLINES (0.4%)
31,400 Delta Air Lines, Inc. 370,834
22,900 Southwest Airlines Co. 369,606
----------------
740,440
----------------
ALTERNATIVE POWER
GENERATION (0.2%)
75,000 Calpine Corp.* 360,750
----------------
ALUMINUM (0.2%)
10,200 Alcoa, Inc. 387,600
----------------
APPAREL/FOOTWEAR (1.2%)
7,800 Cintas Corp. 391,014
10,520 Jones Apparel Group, Inc. 370,620
10,300 Liz Claiborne, Inc. 365,238
5,500 Nike, Inc. (Class B) $ 376,530
9,800 Reebok International Ltd. 385,336
9,000 V.F. Corp. 389,160
----------------
2,277,898
----------------
APPAREL/FOOTWEAR RETAIL (0.8%)
16,700 Gap, Inc. (The) 387,607
21,200 Limited Brands, Inc. 382,236
11,300 Nordstrom, Inc. 387,590
17,100 TJX Companies, Inc. (The) 377,055
----------------
1,534,488
----------------
AUTO PARTS: O.E.M. (1.0%)
21,000 Dana Corp. 385,350
37,530 Delphi Corp. 383,181
3,530 Eaton Corp. 381,169
3,400 Johnson Controls, Inc. 394,808
37,500 Visteon Corp. 390,375
----------------
1,934,883
----------------
AUTOMOTIVE AFTERMARKET (0.4%)
17,900 Cooper Tire & Rubber Co. 382,702
49,000 Goodyear Tire &
Rubber Co. (The)* 385,140
----------------
767,842
----------------
BEVERAGES: ALCOHOLIC (0.6%)
6,900 Anheuser-Busch
Companies, Inc. 363,492
3,930 Brown-Forman Corp.
(Class B) 367,258
6,530 Coors (Adolph) Co.
(Class B) 366,333
----------------
1,097,083
----------------
BEVERAGES: NON-ALCOHOLIC (0.6%)
7,700 Coca-Cola Co. (The) 390,775
17,000 Coca-Cola Enterprises Inc. 371,790
15,560 Pepsi Bottling Group,
Inc. (The) 376,241
----------------
1,138,806
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
63
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
BIOTECHNOLOGY (1.0%)
6,000 Amgen Inc.* $ 370,800
9,775 Biogen, Inc.* 359,524
6,500 Chiron Corp.* 370,435
7,600 Genzyme Corp.* 374,984
14,300 MedImmune, Inc.* 363,220
----------------
1,838,963
----------------
BROADCASTING (0.4%)
8,200 Clear Channel
Communications, Inc. 384,006
9,800 Univision Communications
Inc. (Class A)* 388,962
----------------
772,968
----------------
BUILDING PRODUCTS (0.4%)
3,800 American Standard
Companies, Inc.* 382,660
13,210 Masco Corp. 362,086
----------------
744,746
----------------
CABLE/SATELLITE TV (0.2%)
11,370 Comcast Corp. (Class A)* 373,732
----------------
CASINO/GAMING (0.4%)
7,670 Harrah's Entertainment, Inc. 381,736
10,700 International Game Technology 381,990
----------------
763,726
----------------
CHEMICALS:
AGRICULTURAL (0.2%)
13,600 Monsanto Co. 391,408
----------------
CHEMICALS: MAJOR
DIVERSIFIED (1.2%)
9,190 Dow Chemical Co. (The) 382,028
8,300 Du Pont (E.I.) de Nemours & Co. 380,887
9,800 Eastman Chemical Co. 387,394
12,300 Engelhard Corp. 368,385
30,900 Hercules Inc.* 376,980
9,040 Rohm & Haas Co. 386,098
----------------
2,281,772
----------------
CHEMICALS: SPECIALTY (0.8%)
7,300 Air Products & Chemicals, Inc. $ 385,659
13,990 Great Lakes Chemical Corp. 380,388
10,200 Praxair, Inc. 389,640
6,400 Sigma-Aldrich Corp. 365,952
----------------
1,521,639
----------------
COMMERCIAL PRINTING/
FORMS (0.4%)
8,900 Deluxe Corp. 367,837
13,000 Donnelley (R.R.) & Sons Co. 391,950
----------------
759,787
----------------
COMPUTER
COMMUNICATIONS (0.4%)
29,800 Avaya Inc.* 385,612
16,100 Cisco Systems, Inc.* 391,069
----------------
776,681
----------------
COMPUTER PERIPHERALS (0.6%)
28,600 EMC Corp.* 369,512
4,900 Lexmark International, Inc.* 385,336
17,400 Network Appliance, Inc.* 357,222
----------------
1,112,070
----------------
COMPUTER PROCESSING
HARDWARE (1.2%)
17,500 Apple Computer, Inc.* 373,975
10,730 Dell Inc.* 364,391
80,100 Gateway, Inc.* 368,460
16,100 Hewlett-Packard Co. 369,817
9,800 NCR Corp.* 380,240
87,300 Sun Microsystems, Inc.* 391,977
----------------
2,248,860
----------------
CONSTRUCTION MATERIALS (0.2%)
7,900 Vulcan Materials Co. 375,803
----------------
CONSUMER SUNDRIES (0.2%)
17,200 American Greetings Corp.
(Class A)* 376,164
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
64
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
CONTAINERS/PACKAGING (1.0%)
6,400 Ball Corp. $ 381,248
7,500 Bemis Company, Inc. 375,000
15,800 Pactiv Corp.* 377,620
6,890 Sealed Air Corp.* 373,025
6,240 Temple-Inland, Inc. 391,061
----------------
1,897,954
----------------
CONTRACT DRILLING (0.8%)
9,000 Nabors Industries, Ltd.
(Bermuda)* 373,500
10,200 Noble Corp.* 364,956
15,500 Rowan Companies, Inc.* 359,135
15,600 Transocean Inc.* 374,556
----------------
1,472,147
----------------
DATA PROCESSING
SERVICES (1.5%)
9,400 Automatic Data
Processing, Inc. 372,334
8,700 Computer Sciences Corp.* 384,801
25,100 Concord EFS, Inc.* 372,484
20,900 Convergys Corp.* 364,914
9,100 First Data Corp. 373,919
9,160 Fiserv, Inc.* 361,912
9,900 Paychex, Inc. 368,280
13,100 SunGard Data Systems Inc.* 363,001
----------------
2,961,645
----------------
DEPARTMENT STORES (1.2%)
22,800 Dillard's, Inc. (Class A) 375,288
8,000 Federated Department
Stores, Inc. 377,040
8,300 Kohl's Corp.* 373,002
13,440 May Department Stores Co. 390,701
14,900 Penney (J.C.) Co., Inc. 391,572
8,200 Sears, Roebuck & Co. 373,018
----------------
2,280,621
----------------
DISCOUNT STORES (1.2%)
26,900 Big Lots, Inc.* 382,249
10,300 Costco Wholesale Corp.* 382,954
17,800 Dollar General Corp. 373,622
10,400 Family Dollar Stores, Inc. $ 373,152
9,650 Target Corp. 370,560
6,920 Wal-Mart Stores, Inc. 367,106
----------------
2,249,643
----------------
DRUGSTORE CHAINS (0.4%)
11,000 CVS Corp. 397,320
10,320 Walgreen Co. 375,442
----------------
772,762
----------------
ELECTRIC UTILITIES (5.1%)
42,900 AES Corp. (The)* 404,976
30,190 Allegheny Energy, Inc.* 385,224
8,000 Ameren Corp. 368,000
12,100 American Electric Power
Co., Inc. 369,171
37,800 CenterPoint Energy, Inc. 366,282
9,560 Cinergy Corp. 371,024
43,400 CMS Energy Corp.* 369,768
8,500 Consolidated Edison, Inc. 365,585
9,400 Constellation Energy
Group, Inc. 368,104
5,700 Dominion Resources, Inc. 363,831
9,400 DTE Energy Co. 370,360
18,500 Duke Energy Corp. 378,325
17,650 Edison International* 387,064
6,490 Entergy Corp. 370,774
5,590 Exelon Corp. 370,952
10,800 FirstEnergy Corp. 380,160
5,600 FPL Group, Inc. 366,352
13,830 PG&E Corp.* 384,059
9,300 Pinnacle West Capital Corp. 372,186
8,500 PPL Corp. 371,875
8,100 Progress Energy, Inc. 366,606
8,300 Public Service Enterprise
Group, Inc. 363,540
12,100 Southern Co. (The) 366,025
25,800 TECO Energy, Inc. 371,778
15,460 TXU Corp. 366,711
21,050 Xcel Energy, Inc. 357,429
----------------
9,676,161
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
65
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
ELECTRICAL PRODUCTS (1.2%)
15,900 American Power
Conversion Corp. $ 388,755
6,700 Cooper Industries Ltd.
(Class A) (Bermuda) 388,131
5,900 Emerson Electric Co. 382,025
11,300 Molex Inc. 394,257
34,700 Power-One, Inc.* 375,801
16,700 Thomas & Betts Corp.* 382,263
----------------
2,311,232
----------------
ELECTRONIC COMPONENTS (0.8%)
12,800 Jabil Circuit, Inc.* 362,240
7,060 QLogic Corp.* 364,296
30,900 Sanmina-SCI Corp.* 389,649
63,700 Solectron Corp.* 376,467
----------------
1,492,652
----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (1.8%)
13,700 Agilent Technologies, Inc.* 400,588
107,970 JDS Uniphase Corp.* 394,090
10,670 Rockwell Automation, Inc. 379,852
13,200 Scientific-Atlanta, Inc. 360,360
23,400 Symbol Technologies, Inc. 395,226
12,100 Tektronix, Inc. 382,360
15,000 Thermo Electron Corp.* 378,000
11,800 Waters Corp.* 391,288
28,100 Xerox Corp.* 387,780
----------------
3,469,544
----------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.8%)
17,200 Applied Materials, Inc.* 386,140
6,500 KLA-Tencor Corp.* 381,355
9,200 Novellus Systems, Inc.* 386,860
15,400 Teradyne, Inc.* 391,930
----------------
1,546,285
----------------
ELECTRONICS/APPLIANCE
STORES (0.6%)
7,170 Best Buy Co., Inc. 374,561
35,500 Circuit City Stores -
Circuit City Group 359,615
11,890 RadioShack Corp. $ 364,785
----------------
1,098,961
----------------
ELECTRONICS/APPLIANCES (0.6%)
15,400 Eastman Kodak Co. 395,318
13,200 Maytag Corp. 367,620
5,090 Whirlpool Corp. 369,788
----------------
1,132,726
----------------
ENERGY (0.2%)
6,300 Kinder Morgan, Inc. 372,330
----------------
ENGINEERING &
CONSTRUCTION (0.2%)
9,350 Fluor Corp. (New) 370,634
----------------
ENVIRONMENTAL SERVICES (0.4%)
27,920 Allied Waste Industries, Inc. 387,530
13,000 Waste Management, Inc. 384,800
----------------
772,330
----------------
FINANCE/RENTAL/
LEASING (1.5%)
6,000 Capital One Financial Corp. 367,740
5,067 Countrywide Financial Corp. 384,307
5,000 Fannie Mae 375,300
6,400 Freddie Mac 373,248
14,960 MBNA Corp. 371,756
31,400 Providian Financial Corp.* 365,496
11,200 Ryder System, Inc. 382,480
9,630 SLM Corp. 362,858
----------------
2,983,185
----------------
FINANCIAL
CONGLOMERATES (1.4%)
7,640 American Express Co.* 368,477
7,600 Citigroup Inc. 368,904
10,030 J.P. Morgan Chase & Co. 368,402
9,860 John Hancock Financial
Services, Inc. 369,750
11,100 Principal Financial
Group, Inc. 367,077
9,200 Prudential Financial, Inc. 384,284
7,400 State Street Corp. 385,392
----------------
2,612,286
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
66
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
FINANCIAL PUBLISHING/
SERVICES (0.6%)
15,000 Equifax, Inc. $ 367,500
5,300 McGraw-Hill Companies,
Inc. (The) 370,576
6,050 Moody's Corp. 366,327
----------------
1,104,403
----------------
FOOD DISTRIBUTORS (0.2%)
10,330 SYSCO Corp. 384,586
----------------
FOOD RETAIL (1.0%)
16,200 Albertson's, Inc. 366,930
20,100 Kroger Co.* 372,051
17,100 Safeway Inc.* 374,661
13,400 Supervalu, Inc. 383,106
39,000 Winn-Dixie Stores, Inc. 388,050
----------------
1,884,798
----------------
FOOD: MAJOR
DIVERSIFIED (1.2%)
13,500 Campbell Soup Co. 361,800
8,100 General Mills, Inc. 366,930
10,100 Heinz (H.J.) Co. 367,943
10,000 Kellogg Co. 380,800
7,800 PepsiCo, Inc. 363,636
17,360 Sara Lee Corp. 376,886
----------------
2,217,995
----------------
FOOD: MEAT/FISH/DAIRY (0.2%)
14,300 ConAgra Foods Inc. 377,377
----------------
FOOD: SPECIALTY/CANDY (0.6%)
4,700 Hershey Foods Corp. 361,853
12,320 McCormick & Co., Inc.
(Non-Voting) 370,832
6,600 Wrigley (Wm.) Jr. Co. (Class A) 370,986
----------------
1,103,671
----------------
FOREST PRODUCTS (0.4%)
21,400 Louisiana-Pacific Corp.* 382,632
5,890 Weyerhaeuser Co. 376,960
----------------
759,592
----------------
GAS DISTRIBUTORS (1.1%)
88,000 Dynegy, Inc. (Class A)* $ 376,640
9,900 KeySpan Corp. 364,320
10,500 Nicor Inc. 357,420
16,960 NiSource, Inc. 372,102
8,660 Peoples Energy Corp. 364,066
12,200 Sempra Energy 366,732
----------------
2,201,280
----------------
HOME BUILDING (0.6%)
3,500 Centex Corp. 376,775
5,100 KB HOME 369,852
4,010 Pulte Homes, Inc. 375,416
----------------
1,122,043
----------------
HOME FURNISHINGS (0.6%)
17,060 Leggett & Platt, Inc. 369,008
16,200 Newell Rubbermaid, Inc. 368,874
22,600 Tupperware Corp. 391,884
----------------
1,129,766
----------------
HOME IMPROVEMENT
CHAINS (0.6%)
10,400 Home Depot, Inc. (The) 369,096
6,600 Lowe's Companies, Inc. 365,574
11,200 Sherwin-Williams Co. 389,088
----------------
1,123,758
----------------
HOSPITAL/NURSING
MANAGEMENT (0.8%)
8,900 HCA, Inc. 382,344
15,500 Health Management
Associates, Inc.
(Class A) 372,000
11,400 Manor Care, Inc. 394,098
23,500 Tenet Healthcare Corp.* 377,175
----------------
1,525,617
----------------
HOTELS/RESORTS/
CRUISELINES (0.8%)
9,490 Carnival Corp. 377,038
21,500 Hilton Hotels Corp. 368,295
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
67
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
7,900 Marriott International,
Inc. (Class A) $ 364,980
10,200 Starwood Hotels & Resorts
Worldwide, Inc. 366,894
----------------
1,477,207
----------------
HOUSEHOLD/PERSONAL
CARE (1.5%)
6,000 Alberto-Culver Co. (Class B) 378,480
5,400 Avon Products, Inc. 364,446
7,520 Clorox Co. (The) 365,171
7,400 Colgate-Palmolive Co. 370,370
10,000 Gillette Co. (The) 367,300
10,630 International Flavors &
Fragrances, Inc. 371,200
6,600 Kimberly-Clark Corp. 389,994
3,700 Procter & Gamble Co. (The) 369,556
----------------
2,976,517
----------------
INDUSTRIAL
CONGLOMERATES (1.6%)
4,500 3M Co. 382,635
11,850 General Electric Co. 367,113
11,700 Honeywell International, Inc. 391,131
5,700 Ingersoll Rand Co.
(Class A) (Bermuda) 386,916
5,200 ITT Industries, Inc. 385,892
6,690 Textron, Inc. 381,731
14,600 Tyco International Ltd.
(Bermuda) 386,900
4,070 United Technologies Corp. 385,714
----------------
3,068,032
----------------
INDUSTRIAL MACHINERY (0.4%)
4,600 Illinois Tool Works Inc. 385,986
6,530 Parker-Hannifin Corp. 388,535
----------------
774,521
----------------
INDUSTRIAL SPECIALTIES (0.4%)
13,400 Ecolab Inc. 366,758
6,000 PPG Industries, Inc. 384,120
----------------
750,878
----------------
INFORMATION TECHNOLOGY
SERVICES (1.0%)
16,790 Citrix Systems, Inc.* $ 356,116
15,600 Electronic Data Systems Corp. 382,824
3,900 International Business
Machines Corp. 361,452
17,330 PeopleSoft, Inc.* 395,124
24,800 Unisys Corp.* 368,280
----------------
1,863,796
----------------
INSURANCE BROKERS/
SERVICES (0.4%)
15,600 AON Corp. 373,464
7,700 Marsh & McLennan
Companies, Inc. 368,753
----------------
742,217
----------------
INTEGRATED OIL (0.8%)
6,800 Amerada Hess Corp. 361,556
4,380 ChevronTexaco Corp. 378,388
5,660 ConocoPhillips 371,126
9,070 Exxon Mobil Corp. 371,870
----------------
1,482,940
----------------
INTERNET SOFTWARE/
SERVICES (0.4%)
26,800 Siebel Systems, Inc.* 371,716
8,580 Yahoo! Inc.* 387,559
----------------
759,275
----------------
INVESTMENT BANKS/
BROKERS (1.2%)
4,700 Bear Stearns Companies,
Inc. (The) 375,765
3,800 Goldman Sachs Group,
Inc. (The) 375,174
4,870 Lehman Brothers Holdings Inc. 376,061
6,300 Merrill Lynch & Co., Inc. 369,495
6,700 Morgan Stanley (Note 4) 387,729
31,800 Schwab (Charles) Corp. 376,512
----------------
2,260,736
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
68
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
INVESTMENT MANAGERS (1.0%)
12,600 Federated Investors,
Inc. (Class B) $ 369,936
7,500 Franklin Resources, Inc. 390,450
22,900 Janus Capital Group, Inc. 375,789
11,400 Mellon Financial Corp. 366,054
8,200 Price (T.) Rowe Group, Inc. 388,762
----------------
1,890,991
----------------
LIFE/HEALTH INSURANCE (1.2%)
10,400 AFLAC, Inc. 376,272
7,440 Jefferson-Pilot Corp. 376,836
9,260 Lincoln National Corp. 373,826
11,000 MetLife, Inc. 370,370
8,350 Torchmark Corp. 380,259
23,600 UnumProvident Corp. 372,172
----------------
2,249,735
----------------
MAJOR BANKS (2.7%)
4,600 Bank of America Corp. 369,978
10,980 Bank of New York Co., Inc. (The) 363,658
8,280 Bank One Corp. 377,485
9,580 BB&T Corp. 370,171
6,620 Comerica, Inc. 371,117
8,900 FleetBoston Financial Corp. 388,485
16,500 Huntington Bancshares, Inc. 371,250
12,720 KeyCorp 372,950
11,000 National City Corp. 373,340
7,000 PNC Financial Services
Group 383,110
11,370 SouthTrust Corp. 372,140
5,180 SunTrust Banks, Inc. 370,370
8,100 Wachovia Corp. 377,379
6,200 Wells Fargo & Co. 365,118
----------------
5,226,551
----------------
MAJOR
TELECOMMUNICATIONS (0.8%)
8,000 ALLTEL Corp. 372,640
13,800 BellSouth Corp. 390,540
15,000 SBC Communications, Inc. 391,050
22,900 Sprint Corp. (FON Group) 376,018
----------------
1,530,248
----------------
MANAGED HEALTH CARE (1.2%)
5,800 Aetna, Inc. $ 391,964
4,900 Anthem, Inc.* 367,500
6,800 CIGNA Corp. 391,000
16,900 Humana, Inc.* 386,165
6,800 UnitedHealth Group Inc. 395,624
4,000 WellPoint Health
Networks, Inc.* 387,960
----------------
2,320,213
----------------
MEDIA CONGLOMERATES (0.6%)
15,700 Disney (Walt) Co. (The) 366,281
20,400 Time Warner Inc.* 366,996
8,300 Viacom Inc. (Class B)
(Non-Voting) 368,354
----------------
1,101,631
----------------
MEDICAL DISTRIBUTORS (0.5%)
5,900 AmerisourceBergen Corp. 331,285
5,800 Cardinal Health, Inc. 354,728
11,700 McKesson Corp. 376,272
----------------
1,062,285
----------------
MEDICAL SPECIALTIES (3.0%)
17,700 Applera Corp. - Applied
Biosystems Group 366,567
4,560 Bard (C.R.), Inc. 370,500
7,400 Bausch & Lomb, Inc. 384,060
12,120 Baxter International, Inc. 369,902
9,100 Becton, Dickinson & Co. 374,374
10,400 Biomet, Inc. 378,664
10,400 Boston Scientific Corp.* 382,304
6,500 Guidant Corp. 391,300
7,560 Medtronic, Inc. 367,492
8,600 Millipore Corp.* 370,230
14,000 Pall Corp. 375,620
21,600 PerkinElmer, Inc. 368,712
6,100 St. Jude Medical, Inc.* 374,235
4,440 Stryker Corp. 377,444
5,500 Zimmer Holdings, Inc.* 387,200
----------------
5,638,604
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
69
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.2%)
16,600 Sabre Holdings Corp. $ 358,394
----------------
MISCELLANEOUS
MANUFACTURING (0.6%)
12,530 Crane Co. 385,172
4,200 Danaher Corp. 385,350
9,300 Dover Corp. 369,675
----------------
1,140,197
----------------
MOTOR VEHICLES (0.6%)
23,590 Ford Motor Co. 377,440
7,250 General Motors Corp. 387,150
7,600 Harley-Davidson, Inc. 361,228
----------------
1,125,818
----------------
MULTI-LINE INSURANCE (0.8%)
5,600 American International
Group, Inc. 371,168
6,280 Hartford Financial Services
Group, Inc. (The) (Note 4) 370,708
8,000 Loews Corp. 395,600
9,500 Safeco Corp. 369,835
----------------
1,507,311
----------------
OFFICE EQUIPMENT/
SUPPLIES (0.4%)
6,800 Avery Dennison Corp. 380,936
9,260 Pitney Bowes, Inc. 376,141
----------------
757,077
----------------
OIL & GAS PIPELINES (0.4%)
46,600 El Paso Corp. 381,654
37,000 Williams Companies,
Inc. (The) 363,340
----------------
744,994
----------------
OIL & GAS PRODUCTION (1.6%)
7,600 Anadarko Petroleum Corp. 387,676
4,700 Apache Corp. 381,170
6,800 Burlington Resources, Inc. 376,584
6,700 Devon Energy Corp. 383,642
7,900 EOG Resources, Inc. $ 364,743
7,910 Kerr-McGee Corp. 367,736
9,140 Occidental Petroleum Corp. 386,074
10,500 Unocal Corp. 386,715
----------------
3,034,340
----------------
OIL REFINING/MARKETING (0.6%)
8,690 Ashland, Inc. 382,881
11,700 Marathon Oil Corp. 387,153
7,480 Sunoco, Inc. 382,602
----------------
1,152,636
----------------
OILFIELD SERVICES/
EQUIPMENT (0.7%)
11,400 Baker Hughes Inc. 366,624
10,100 BJ Services Co.* 362,590
13,900 Halliburton Co. 361,400
6,600 Schlumberger, Ltd. 361,152
----------------
1,451,766
----------------
OTHER CONSUMER
SERVICES (0.8%)
5,290 Apollo Group, Inc.
(Class A)* 359,720
7,100 Block (H.&R.), Inc. 393,127
16,890 Cendant Corp.* 376,140
6,020 eBay Inc.* 388,832
----------------
1,517,819
----------------
OTHER CONSUMER
SPECIALTIES (0.2%)
5,470 Fortune Brands, Inc. 391,050
----------------
OTHER METALS/MINERALS (0.2%)
4,900 Phelps Dodge Corp.* 372,841
----------------
PACKAGED SOFTWARE (2.5%)
9,200 Adobe Systems, Inc. 361,560
15,570 Autodesk, Inc. 382,711
20,700 BMC Software, Inc.* 386,055
13,400 Computer Associates
International, Inc. 366,356
60,400 Compuware Corp.* 364,816
6,900 Intuit Inc.* 365,079
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
70
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
7,600 Mercury Interactive Corp.* $ 369,664
13,400 Microsoft Corp. 369,036
36,300 Novell, Inc.* 381,876
28,000 Oracle Corp.* 369,600
96,300 Parametric Technology Corp.* 379,422
11,000 Symantec Corp.* 381,150
10,480 VERITAS Software Corp.* 389,437
----------------
4,866,762
----------------
PERSONNEL SERVICES (0.4%)
16,400 Monster Worldwide Inc.* 360,144
16,390 Robert Half International, Inc.* 382,543
----------------
742,687
----------------
PHARMACEUTICALS:
GENERIC DRUGS (0.2%)
8,000 Watson Pharmaceuticals, Inc.* 368,000
----------------
PHARMACEUTICALS: MAJOR (1.5%)
7,800 Abbott Laboratories 363,480
13,200 Bristol-Myers Squibb Co. 377,520
7,200 Johnson & Johnson 371,952
5,400 Lilly (Eli) & Co. 379,782
8,100 Merck & Co. Inc. 374,220
10,500 Pfizer Inc. 370,965
21,500 Schering-Plough Corp. 373,885
8,700 Wyeth 369,315
----------------
2,981,119
----------------
PHARMACEUTICALS: OTHER (0.6%)
4,870 Allergan, Inc. 374,065
6,100 Forest Laboratories, Inc.* 376,980
24,800 King Pharmaceuticals, Inc.* 378,448
----------------
1,129,493
----------------
PRECIOUS METALS (0.4%)
9,200 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 387,596
8,000 Newmont Mining Corp. 388,880
----------------
776,476
----------------
PROPERTY - CASUALTY
INSURERS (1.6%)
9,300 ACE Ltd. (Bermuda) $ 385,206
8,900 Allstate Corp. (The) 382,878
5,470 Chubb Corp. (The) 372,507
8,800 Cincinnati Financial Corp. 368,544
4,600 Progressive Corp. (The) 384,514
9,430 St. Paul Companies, Inc. (The) 373,899
22,300 Travelers Property
Casualty Corp. (Class B) 378,431
4,700 XL Capital Ltd. (Class A) 364,485
----------------
3,010,464
----------------
PUBLISHING: BOOKS/
MAGAZINES (0.2%)
7,490 Meredith Corp. 365,587
----------------
PUBLISHING: NEWSPAPERS (1.0%)
7,410 Dow Jones & Co., Inc. 369,389
4,100 Gannett Co., Inc. 365,556
4,800 Knight-Ridder, Inc. 371,376
8,000 New York Times Co. (The)
(Class A) 382,320
7,500 Tribune Co. 387,000
----------------
1,875,641
----------------
PULP & PAPER (0.8%)
12,000 Boise Cascade Corp. 394,320
12,700 Georgia-Pacific Corp. 389,509
8,600 International Paper Co. 370,746
12,590 MeadWestvaco Corp. 374,553
----------------
1,529,128
----------------
RAILROADS (0.8%)
11,400 Burlington Northern
Santa Fe Corp. 368,790
10,700 CSX Corp. 384,558
16,300 Norfolk Southern Corp. 385,495
5,300 Union Pacific Corp. 368,244
----------------
1,507,087
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
71
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS (1.1%)
10,500 Apartment Investment &
Management Co. (Class A) $ 362,250
12,700 Equity Office Properties Trust 363,855
12,400 Equity Residential 365,924
12,600 Plum Creek Timber Co., Inc. 383,670
11,500 ProLogis Trust 369,035
7,970 Simon Property Group, Inc. 369,330
----------------
2,214,064
----------------
RECREATIONAL PRODUCTS (0.8%)
12,070 Brunswick Corp. 384,188
7,700 Electronic Arts Inc.* 367,906
17,610 Hasbro, Inc. 374,741
19,120 Mattel, Inc. 368,442
----------------
1,495,277
----------------
REGIONAL BANKS (2.3%)
15,500 AmSouth Bancorporation 379,750
10,922 Charter One Financial, Inc. 377,355
6,300 Fifth Third Bancorp 372,330
8,300 First Tennessee National Corp. 366,030
10,000 Marshall & Ilsley Corp. 382,500
9,200 North Fork Bancorporation, Inc. 372,324
7,980 Northern Trust Corp. 370,432
9,900 Regions Financial Corp. 368,280
13,200 Synovus Financial Corp. 381,744
13,000 U.S. Bancorp 387,140
11,700 Union Planters Corp. 368,433
6,000 Zions Bancorporation 367,980
----------------
4,494,298
----------------
RESTAURANTS (1.0%)
17,700 Darden Restaurants, Inc. 372,408
15,100 McDonald's Corp. 374,933
11,800 Starbucks Corp.* 390,108
10,100 Wendy's International, Inc. 396,324
10,860 Yum! Brands, Inc.* 373,584
----------------
1,907,357
----------------
SAVINGS BANKS (0.4%)
3,700 Golden West Financial Corp. $ 381,803
9,200 Washington Mutual, Inc. 369,104
----------------
750,907
----------------
SEMICONDUCTORS (3.0%)
25,800 Advanced Micro Devices, Inc.* 384,420
16,500 Altera Corp.* 374,550
8,500 Analog Devices, Inc. 388,025
63,600 Applied Micro Circuits Corp.* 380,328
11,150 Broadcom Corp. (Class A)* 380,104
12,000 Intel Corp. 386,400
8,900 Linear Technology Corp. 374,423
41,500 LSI Logic Corp.* 368,105
7,900 Maxim Integrated
Products, Inc. 393,420
26,900 Micron Technology, Inc.* 362,343
9,400 National Semiconductor
Corp.* 370,454
16,800 NVIDIA Corp.* 390,600
19,600 PMC - Sierra, Inc.* 394,940
13,300 Texas Instruments Inc. 390,754
10,000 Xilinx, Inc.* 387,400
----------------
5,726,266
----------------
SERVICES TO THE HEALTH
INDUSTRY (0.8%)
5,500 Express Scripts, Inc.
(Class A)* 365,365
15,400 IMS Health Inc. 382,844
10,800 Medco Health Solutions Inc.* 367,092
5,400 Quest Diagnostics Inc.* 394,794
----------------
1,510,095
----------------
SPECIALTY INSURANCE (0.6%)
5,300 Ambac Financial Group, Inc. 367,767
6,300 MBIA Inc. 373,149
6,670 MGIC Investment Corp. 379,790
----------------
1,120,706
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
72
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
SPECIALTY STORES (1.4%)
20,100 AutoNation, Inc.* $ 369,237
4,300 AutoZone, Inc.* 366,403
8,530 Bed Bath & Beyond Inc.* 369,776
22,400 Office Depot, Inc.* 374,304
13,900 Staples, Inc.* 379,470
8,530 Tiffany & Co. 385,556
29,800 Toys 'R' Us, Inc.* 376,672
----------------
2,621,418
----------------
SPECIALTY
TELECOMMUNICATIONS (0.6%)
11,500 CenturyTel, Inc. 375,130
30,000 Citizens Communications Co.* 372,600
97,000 Qwest Communications
International, Inc.* 419,040
----------------
1,166,770
----------------
STEEL (0.8%)
29,300 Allegheny Technologies Inc. 387,346
6,800 Nucor Corp. 380,800
10,700 United States Steel Corp. 374,714
21,400 Worthington Industries, Inc. 385,842
----------------
1,528,702
----------------
TELECOMMUNICATION
EQUIPMENT (1.8%)
133,580 ADC Telecommunications, Inc.* 396,733
32,000 Andrew Corp.* 368,320
60,000 CIENA Corp.* 398,400
21,000 Comverse Technology, Inc.* 369,390
35,800 Corning Inc.* 373,394
134,600 Lucent Technologies Inc.* 382,264
27,800 Motorola, Inc. 391,146
7,200 QUALCOMM Inc. 388,296
47,100 Tellabs, Inc.* 397,053
----------------
3,464,996
----------------
TELECOMMUNICATIONS (0.4%)
18,400 AT&T Corp. 373,520
10,700 Verizon Communications Inc. 375,356
----------------
748,876
----------------
TOBACCO (0.6%)
7,100 Altria Group, Inc. $ 386,382
6,710 R. J. Reynolds Tobacco
Holdings, Inc. 390,187
10,400 UST, Inc. 371,176
----------------
1,147,745
----------------
TOOLS/HARDWARE (0.6%)
7,800 Black & Decker Corp. (The) 384,696
11,800 Snap-On, Inc. 380,432
10,280 Stanley Works (The) 389,304
----------------
1,154,432
----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (1.0%)
4,600 Caterpillar Inc. 381,892
7,400 Cummins Inc.* 362,156
5,900 Deere & Co. 383,795
7,900 Navistar International Corp.* 378,331
4,500 PACCAR, Inc. 383,040
----------------
1,889,214
----------------
WHOLESALE DISTRIBUTORS (0.4%)
11,050 Genuine Parts Co. 366,860
7,820 Grainger (W.W.), Inc. 370,590
----------------
737,450
----------------
WIRELESS
TELECOMMUNICATIONS (0.6%)
47,700 AT&T Wireless Services Inc.* 381,123
14,200 Nextel Communications,
Inc. (Class A)* 398,452
68,400 Sprint Corp. (PCS Group)* 384,408
----------------
1,163,983
----------------
TOTAL COMMON STOCKS
(COST $132,533,930) 188,214,927
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
73
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT
$ 2,927 Joint repurchase agreement
account 0.98% due 01/02/04
(dated 12/31/03; proceeds
$2,927,159) (a)
(COST $2,927,000) $ 2,927,000
----------------
TOTAL INVESTMENTS
(COST $135,460,930) (b) 100.3% 191,141,927
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.3) (568,063)
----- ----------------
NET ASSETS 100.0% $ 190,573,864
===== ================
</Table>
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $136,037,525. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $60,859,865 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $5,755,463, RESULTING IN NET UNREALIZED
APPRECIATION OF $55,104,402.
SEE NOTES TO FINANCIAL STATEMENTS#
74
<Page>
Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (99.2%)
AIR FREIGHT/COURIERS (0.7%)
4,700 United Parcel Service, Inc.
(Class B) $ 350,385
----------------
APPAREL/FOOTWEAR RETAIL (1.1%)
6,500 Abercrombie & Fitch Co.
(Class A)* 160,615
5,351 Chico's FAS, Inc.* 197,719
7,793 TJX Companies, Inc. (The) 171,836
----------------
530,170
----------------
BEVERAGES: ALCOHOLIC (0.8%)
6,800 Anheuser-Busch Companies, Inc. 358,224
----------------
BEVERAGES: NON-ALCOHOLIC (2.0%)
18,368 Coca-Cola Co. (The) 932,176
----------------
BIOTECHNOLOGY (3.1%)
16,130 Amgen Inc.* 996,834
2,400 Biogen Idec Inc.* 88,272
4,200 Genzyme Corp.* 207,228
2,709 Gilead Sciences, Inc.* 157,501
----------------
1,449,835
----------------
BROADCASTING (1.8%)
10,950 Clear Channel Communications,
Inc. 512,788
8,312 Univision Communications Inc.
(Class A)* 329,903
----------------
842,691
----------------
CABLE/SATELLITE TV (0.8%)
10,800 EchoStar Communications
Corp. (Class A)* 367,200
----------------
COMPUTER
COMMUNICATIONS (2.9%)
52,509 Cisco Systems, Inc.* 1,275,444
6,400 Juniper Networks, Inc.* 119,552
----------------
1,394,996
----------------
COMPUTER PERIPHERALS (1.1%)
15,447 EMC Corp.* 199,575
15,600 Network Appliance, Inc.* 320,268
----------------
519,843
----------------
COMPUTER PROCESSING
HARDWARE (1.5%)
21,019 Dell Inc.* $ 713,805
----------------
DATA PROCESSING SERVICES (1.0%)
7,720 First Data Corp. 317,215
4,700 Paychex, Inc. 174,840
----------------
492,055
----------------
DISCOUNT STORES (4.7%)
15,180 Dollar Tree Stores, Inc.* 456,311
18,574 Target Corp. 713,242
19,954 Wal-Mart Stores, Inc. 1,058,560
----------------
2,228,113
----------------
DRUGSTORE CHAINS (0.3%)
3,561 Walgreen Co. 129,549
----------------
ELECTRICAL PRODUCTS (0.8%)
5,600 Emerson Electric Co. 362,600
----------------
ELECTRONIC COMPONENTS (0.7%)
2,800 Amphenol Corp. (Class A)* 179,004
2,700 SanDisk Corp.* 165,078
----------------
344,082
----------------
ELECTRONIC PRODUCTION
EQUIPMENT (1.3%)
19,581 Applied Materials, Inc.* 439,593
4,375 Novellus Systems, Inc.* 183,969
----------------
623,562
----------------
FINANCIAL CONGLOMERATES (5.0%)
13,400 American Express Co.* 646,282
35,366 Citigroup Inc. 1,716,666
----------------
2,362,948
----------------
FOOD: MAJOR DIVERSIFIED (0.9%)
9,096 PepsiCo, Inc. 424,056
----------------
HOME IMPROVEMENT
CHAINS (2.3%)
22,859 Home Depot, Inc. (The) 811,266
4,700 Lowe's Companies, Inc. 260,333
----------------
1,071,599
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
75
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
HOTELS/RESORTS/
CRUISELINES (0.6%)
7,900 Carnival Corp. (Panama) $ 313,867
----------------
HOUSEHOLD/PERSONAL CARE (2.5%)
6,036 Colgate-Palmolive Co. 302,102
8,869 Procter & Gamble Co. (The) 885,836
----------------
1,187,938
----------------
INDUSTRIAL CONGLOMERATES (7.5%)
11,550 3M Co. 982,096
82,021 General Electric Co. 2,541,011
----------------
3,523,107
----------------
INFORMATION TECHNOLOGY
SERVICES (2.6%)
18,150 Accenture Ltd. (Class A)
(Bermuda)* 477,708
5,750 International Business
Machines Corp. 532,910
10,100 PeopleSoft, Inc.* 230,280
----------------
1,240,898
----------------
INTEGRATED OIL (1.0%)
11,025 Exxon Mobil Corp. 452,025
----------------
INTERNET RETAIL (1.1%)
15,700 InterActiveCorp* 532,701
----------------
INTERNET SOFTWARE/
SERVICES (1.1%)
11,300 Yahoo! Inc.* 510,421
----------------
INVESTMENT BANKS/
BROKERS (3.5%)
9,101 Goldman Sachs Group,
Inc. (The) 898,542
6,400 Lehman Brothers Holdings Inc. 494,208
21,900 Schwab (Charles) Corp. (The) 259,296
----------------
1,652,046
----------------
MAJOR BANKS (2.4%)
14,025 Bank of New York Co.,
Inc. (The) 464,508
11,050 Wells Fargo & Co. 650,734
----------------
1,115,242
----------------
MANAGED HEALTH CARE (2.5%)
6,110 Anthem, Inc.* $ 458,250
8,000 Caremark Rx, Inc.* 202,640
8,700 UnitedHealth Group Inc. 506,166
----------------
1,167,056
----------------
MEDIA CONGLOMERATES (1.7%)
6,300 News Corporation Ltd. (The)
(Pref.) (ADR) (Australia) 190,575
13,550 Viacom Inc. (Class B)
(Non-Voting) 601,349
----------------
791,924
----------------
MEDICAL SPECIALTIES (2.6%)
10,200 Boston Scientific Corp.* 374,952
4,000 Guidant Corp. 240,800
2,425 INAMED Corp.* 116,545
5,236 Medtronic, Inc. 254,522
3,925 St. Jude Medical, Inc.* 240,799
----------------
1,227,618
----------------
MULTI-LINE INSURANCE (2.9%)
20,943 American International
Group, Inc. 1,388,102
----------------
OILFIELD SERVICES/
EQUIPMENT (0.9%)
9,920 Smith International, Inc.* 411,878
----------------
OTHER CONSUMER
SERVICES (2.9%)
5,150 Apollo Group, Inc. (Class A)* 350,200
15,600 eBay Inc.* 1,007,604
----------------
1,357,804
----------------
PACKAGED SOFTWARE (9.1%)
9,800 Mercury Interactive
Corp.* 476,672
98,680 Microsoft Corp. 2,717,647
30,900 Novell, Inc.* 325,068
35,626 Oracle Corp.* 470,263
8,900 VERITAS Software Corp.* 330,724
----------------
4,320,374
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
76
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS: MAJOR (9.6%)
9,371 Abbott Laboratories $ 436,689
5,800 Bristol-Myers Squibb Co. 165,880
19,146 Johnson & Johnson 989,082
4,550 Lilly (Eli) & Co. 320,001
4,690 Merck & Co. Inc. 216,678
64,065 Pfizer Inc. 2,263,416
2,991 Wyeth 126,968
----------------
4,518,714
----------------
PHARMACEUTICALS: OTHER (0.3%)
1,600 Allergan, Inc. 122,896
----------------
RESTAURANTS (1.0%)
11,500 McDonald's Corp. 285,545
5,694 Yum! Brands, Inc.* 195,874
----------------
481,419
----------------
SEMICONDUCTORS (8.1%)
15,000 Analog Devices, Inc. 684,750
4,100 Broadcom Corp. (Class A)* 139,769
46,358 Intel Corp. 1,492,728
10,851 Linear Technology Corp. 456,502
8,200 Marvell Technology Group Ltd.
(Bermuda)* 311,026
3,200 Maxim Integrated Products, Inc. 159,360
16,066 Texas Instruments Inc. 472,019
3,200 Xilinx, Inc.* 123,968
----------------
3,840,122
----------------
SPECIALTY STORES (1.2%)
6,650 Bed Bath & Beyond Inc.* 288,278
5,894 Tiffany & Co. 266,409
----------------
554,687
----------------
TELECOMMUNICATION
EQUIPMENT (0.7%)
6,426 QUALCOMM Inc. 346,554
----------------
TOBACCO (0.6%)
5,400 Altria Group, Inc. 293,868
----------------
TOTAL COMMON AND
PREFERRED STOCKS
(COST $40,984,484) 46,849,150
----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
$ 172 Joint repurchase agreement
account 0.98% due 01/02/04
(dated 12/31/03; proceeds
$172,009) (a)
(COST $172,000) $ 172,000
----------------
TOTAL INVESTMENTS
(COST $41,156,484) (b) 99.6% 47,021,150
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.4 185,035
----- ----------------
NET ASSETS 100.0% $ 47,206,185
===== ================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $46,749,268. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $665,363 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $393,481, RESULTING IN NET UNREALIZED
APPRECIATION OF $271,882.
SEE NOTES TO FINANCIAL STATEMENTS
77
<Page>
American Opportunities
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCKS (98.2%)
ADVERTISING/MARKETING
SERVICES (0.7%)
23,900 Omnicom Group, Inc. $ 2,087,187
----------------
AGRICULTURAL COMMODITIES/
MILLING (0.2%)
40,000 Archer-Daniels-Midland Co. 608,800
----------------
AIR FREIGHT/COURIERS (0.2%)
8,200 United Parcel Service, Inc.
(Class B) 611,310
----------------
ALUMINUM (0.5%)
16,300 Alcan Inc. (Canada) 765,285
17,600 Alcoa, Inc. 668,800
----------------
1,434,085
----------------
APPAREL/FOOTWEAR (0.6%)
34,200 Coach, Inc.* 1,291,050
9,300 Nike, Inc. (Class B) 636,678
----------------
1,927,728
----------------
APPAREL/FOOTWEAR RETAIL (1.8%)
48,300 Chico's FAS, Inc.* 1,784,685
83,600 Gap, Inc. (The) 1,940,356
61,200 Hot Topic, Inc.* 1,802,952
----------------
5,527,993
----------------
AUTO PARTS: O.E.M. (0.6%)
17,900 Eaton Corp. 1,932,842
----------------
BEVERAGES:
NON-ALCOHOLIC (0.6%)
37,200 Coca-Cola Co. (The) 1,887,900
----------------
BIOTECHNOLOGY (3.7%)
48,300 Amgen Inc.* 2,984,940
36,900 Chiron Corp.* 2,102,931
44,000 Genentech, Inc.* 4,117,080
20,400 Gilead Sciences, Inc.* 1,186,056
29,500 NPS Pharmaceuticals, Inc.* 906,830
----------------
11,297,837
----------------
BROADCASTING (1.5%)
65,800 Clear Channel
Communications, Inc. $ 3,081,414
35,800 Univision Communications
Inc. (Class A)* 1,420,902
----------------
4,502,316
----------------
CASINO/GAMING (0.9%)
22,900 GTECH Holdings Corp. 1,133,321
47,200 International Game Technology 1,685,040
----------------
2,818,361
----------------
CHEMICALS: SPECIALTY (0.9%)
9,300 Air Products & Chemicals, Inc. 491,319
60,000 Praxair, Inc. 2,292,000
----------------
2,783,319
----------------
COMPUTER
COMMUNICATIONS (3.1%)
340,800 Cisco Systems, Inc.* 8,278,032
68,100 Juniper Networks, Inc.* 1,272,108
----------------
9,550,140
----------------
COMPUTER PERIPHERALS (0.7%)
156,600 EMC Corp.* 2,023,272
----------------
COMPUTER PROCESSING
HARDWARE (1.4%)
128,100 Dell Inc.* 4,350,276
----------------
DATA PROCESSING SERVICES (0.9%)
76,500 Paychex, Inc. 2,845,800
----------------
DRUGSTORE CHAINS (0.5%)
41,700 Walgreen Co. 1,517,046
----------------
ELECTRICAL PRODUCTS (0.3%)
14,900 Emerson Electric Co. 964,775
----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (0.7%)
64,700 Rockwell Automation, Inc. 2,303,320
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
78
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.8%)
68,700 Applied Materials, Inc.* $ 1,542,315
48,100 ASML Holding N.V.
(Netherlands)* 964,405
----------------
2,506,720
----------------
ENGINEERING &
CONSTRUCTION (0.6%)
61,200 Chicago Bridge & Iron
Company N.V. (ADR)
(Netherlands) 1,768,680
----------------
ENVIRONMENTAL SERVICES (0.5%)
51,400 Waste Management, Inc. 1,521,440
----------------
FINANCE/RENTAL/LEASING (0.5%)
68,000 MBNA Corp. 1,689,800
----------------
FINANCIAL
CONGLOMERATES (3.7%)
129,000 Citigroup, Inc. 6,261,660
41,900 J.P. Morgan Chase & Co. 1,538,987
23,500 State Street Corp. 1,223,880
17,700 UBS AG (ADR) (Switzerland) 1,203,423
15,800 UBS AG (Registered Shares)
(Switzerland) 1,078,807
----------------
11,306,757
----------------
FOOD: MAJOR DIVERSIFIED (0.8%)
52,700 PepsiCo, Inc. 2,456,874
----------------
HOME IMPROVEMENT
CHAINS (1.8%)
76,800 Home Depot, Inc. (The) 2,725,632
47,800 Lowe's Companies, Inc. 2,647,642
----------------
5,373,274
----------------
HOTELS/RESORTS/
CRUISELINES (1.4%)
42,600 Carnival Corp. 1,692,498
17,400 Marriott International,
Inc. (Class A) 803,880
46,800 Starwood Hotels & Resorts
Worldwide, Inc. 1,683,396
----------------
4,179,774
----------------
HOUSEHOLD/PERSONAL
CARE (1.8%)
23,300 Avon Products, Inc. $ 1,572,517
38,100 Procter & Gamble Co. (The) 3,805,428
----------------
5,377,945
----------------
INDUSTRIAL CONGLOMERATES (4.4%)
52,500 3M Co. 4,464,075
47,400 Ingersoll-Rand Co. Ltd.
(Class A) (Bermuda) 3,217,512
12,450 Siemens AG (Germany) 994,859
62,900 Tyco International Ltd.
(Bermuda) 1,666,850
34,600 United Technologies Corp. 3,279,042
----------------
13,622,338
----------------
INDUSTRIAL MACHINERY (1.9%)
31,900 Illinois Tool Works Inc. 2,676,729
53,000 Parker-Hannifin Corp. 3,153,500
----------------
5,830,229
----------------
INFORMATION TECHNOLOGY
SERVICES (2.0%)
82,200 Accenture Ltd. (Class A)
(Bermuda)* 2,163,504
13,900 Cognizant Technology
Solutions Corp.* 634,396
6,800 Infosys Technologies Ltd.
(ADR) (India) 650,760
16,700 International Business Machines
Corp. 1,547,756
50,500 PeopleSoft, Inc.* 1,151,400
----------------
6,147,816
----------------
INTEGRATED OIL (2.0%)
65,100 BP PLC (ADR)
(United Kingdom) 3,212,685
17,900 Murphy Oil Corp. 1,169,049
18,308 Total SA (ADR) (France) 1,693,673
----------------
6,075,407
----------------
INTERNET SOFTWARE/
SERVICES (1.6%)
107,000 Yahoo! Inc.* 4,833,190
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
79
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
INVESTMENT BANKS/
BROKERS (3.3%)
29,600 Goldman Sachs Group,
Inc. (The) $ 2,922,408
11,800 Legg Mason, Inc. 910,724
43,000 Lehman Brothers Holdings
Inc. 3,320,460
50,100 Merrill Lynch & Co., Inc. 2,938,365
----------------
10,091,957
----------------
INVESTMENT MANAGERS (0.5%)
16,000 Franklin Resources, Inc. 832,960
14,200 Price (T.) Rowe Group, Inc. 673,222
----------------
1,506,182
----------------
MAJOR BANKS (1.1%)
55,100 Wells Fargo & Co. 3,244,839
----------------
MANAGED HEALTH CARE (2.3%)
37,100 Anthem, Inc.* 2,782,500
27,300 Humana, Inc.* 623,805
14,000 PacifiCare Health Systems,
Inc.* 946,400
29,900 UnitedHealth Group Inc. 1,739,582
9,900 WellPoint Health Networks,
Inc.* 960,201
----------------
7,052,488
----------------
MEDIA CONGLOMERATES (1.8%)
66,100 Disney (Walt) Co. (The) 1,542,113
104,400 News Corporation Ltd. (The)
(Australia) 940,820
65,700 News Corporation Ltd.
(The) (ADR) (Australia) 2,371,770
34,200 Time Warner Inc.* 615,258
----------------
5,469,961
----------------
MEDICAL SPECIALTIES (4.8%)
15,600 Alcon, Inc. (Switzerland) 944,424
72,800 Boston Scientific Corp.* 2,676,128
76,800 Guidant Corp. 4,623,360
50,300 St. Jude Medical, Inc.* 3,085,905
8,600 Varian Medical Systems, Inc.* 594,260
40,000 Zimmer Holdings, Inc.* 2,816,000
----------------
14,740,077
----------------
MISCELLANEOUS
MANUFACTURING (0.7%)
25,100 Danaher Corp. $ 2,302,925
----------------
OIL & GAS PRODUCTION (1.3%)
27,785 Apache Corp. 2,253,363
14,100 EOG Resources, Inc. 650,997
19,500 Pogo Producing Co. 941,850
----------------
3,846,210
----------------
OILFIELD SERVICES/
EQUIPMENT (1.4%)
35,100 Schlumberger Ltd. 1,920,672
58,100 Smith International, Inc.* 2,412,312
----------------
4,332,984
----------------
OTHER CONSUMER
SERVICES (1.5%)
42,850 Apollo Group, Inc.
(Class A)* 2,913,800
26,300 eBay Inc.* 1,698,717
----------------
4,612,517
----------------
OTHER METALS/MINERALS (2.2%)
94,750 BHP Billiton Ltd. (Australia) 868,100
22,300 Companhia Vale do Rio Doce
S.A. (Class A)
(ADR) (Brazil) 1,148,673
39,700 Inco Ltd. (Canada)* 1,580,854
18,900 Phelps Dodge Corp. 1,438,101
61,700 Rio Tinto PLC (United
Kingdom) 1,699,947
----------------
6,735,675
----------------
PACKAGED SOFTWARE (7.3%)
18,300 Cognos, Inc. (Canada)* 560,346
23,900 Intuit Inc.* 1,264,549
50,200 Mercury Interactive Corp.* 2,441,728
339,200 Microsoft Corp. 9,341,568
47,200 Oracle Corp.* 623,040
32,500 Red Hat, Inc.* 610,025
97,700 SAP AG (ADR) (Germany) 4,060,412
59,700 Symantec Corp.* 2,068,605
41,500 VERITAS Software Corp.* 1,542,140
----------------
22,512,413
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
80
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
PERSONNEL SERVICES (0.9%)
25,800 Manpower, Inc. $ 1,214,664
64,800 Robert Half International,
Inc.* 1,512,432
----------------
2,727,096
----------------
PHARMACEUTICALS:
GENERIC DRUGS (0.2%)
13,300 Watson Pharmaceuticals,
Inc.* 611,800
----------------
PHARMACEUTICALS:
MAJOR (5.3%)
34,600 Abbott Laboratories 1,612,360
24,000 Johnson & Johnson 1,239,840
33,500 Lilly (Eli) & Co. 2,356,055
20,700 Novartis AG (ADR)
(Switzerland) 949,923
286,400 Pfizer Inc. 10,118,512
----------------
16,276,690
----------------
PHARMACEUTICALS: OTHER (1.4%)
35,300 Forest Laboratories, Inc.* 2,181,540
35,000 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 1,984,850
----------------
4,166,390
----------------
PRECIOUS METALS (3.6%)
33,800 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 1,423,994
87,100 Glamis Gold Ltd. (Canada)* 1,491,152
52,500 Goldcorp Inc. (Canada) 837,375
150,800 Newmont Mining Corp.
Hldg Co. 7,330,388
----------------
11,082,909
----------------
PUBLISHING:
NEWSPAPERS (0.5%)
15,700 Gannett Co., Inc. 1,399,812
----------------
PULP & PAPER (0.2%)
21,100 Georgia-Pacific Corp. 647,137
----------------
RESTAURANTS (1.2%)
70,700 Starbucks Corp.* 2,337,342
38,200 Wendy's International, Inc. 1,498,968
----------------
3,836,310
----------------
SEMICONDUCTORS (6.2%)
54,700 Analog Devices, Inc. $ 2,497,055
237,700 Intel Corp. 7,653,940
40,700 Linear Technology Corp. 1,712,249
35,800 Maxim Integrated Products,
Inc. 1,782,840
122,100 Texas Instruments Inc. 3,587,298
41,900 Xilinx, Inc.* 1,623,206
----------------
18,856,588
----------------
SERVICES TO THE HEALTH
INDUSTRY (0.6%)
36,700 Medco Health Solutions
Inc.* 1,247,433
11,500 Omnicare, Inc. 464,485
----------------
1,711,918
----------------
SPECIALTY STORES (1.3%)
102,750 Staples, Inc.* 2,805,075
24,200 Tiffany & Co. 1,093,840
----------------
3,898,915
----------------
TELECOMMUNICATION
EQUIPMENT (0.7%)
23,400 Corning Inc.* 244,062
37,100 QUALCOMM Inc. 2,000,803
----------------
2,244,865
----------------
TOBACCO (1.0%)
58,400 Altria Group, Inc. 3,178,128
----------------
TRUCKS/CONSTRUCTION/FARM
MACHINERY (1.9%)
36,900 Caterpillar Inc. 3,063,438
43,700 Deere & Co. 2,842,685
----------------
5,906,123
----------------
WIRELESS
TELECOMMUNICATIONS (1.4%)
170,600 Vodafone Group PLC
(ADR) (United Kingdom) 4,271,824
----------------
TOTAL COMMON STOCKS
(COST $264,350,705) 300,929,284
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
81
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.8%)
REPURCHASE AGREEMENT
$ 5,530 Joint repurchase agreement
account
0.98% due 01/02/04
(dated 12/31/03;
proceeds $5,530,301 (a)
COST $5,530,000) $ 5,530,000
----------------
TOTAL INVESTMENTS
(COST $269,880,705) (b) 100.0% 306,459,284
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.0) (103,111)
----- ----------------
NET ASSETS 100.0% $ 306,356,173
===== ================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $272,997,159. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $34,090,387 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $628,262, RESULTING IN NET UNREALIZED
APPRECIATION OF $33,462,125.
SEE NOTES TO FINANCIAL STATEMENTS
82
<Page>
Capital Opportunities
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCKS (98.8%)
ADVERTISING/MARKETING
SERVICES (2.2%)
19,500 Abitron Inc.* $ 813,540
----------------
AIR FREIGHT/COURIERS (1.0%)
9,300 C.H. Robinson Worldwide,
Inc. 352,563
----------------
AIRLINES (0.6%)
8,662 JetBlue Airways Corp.* 229,716
----------------
APPAREL/FOOTWEAR (1.9%)
14,800 Carter's, Inc.* 376,660
8,100 Coach, Inc.* 305,775
----------------
682,435
----------------
APPAREL/FOOTWEAR RETAIL (1.1%)
10,850 Chico's FAS, Inc.* 400,907
----------------
BEVERAGES: NON-ALCOHOLIC (1.1%)
14,400 Cott Corp.* 403,344
----------------
BIOTECHNOLOGY (1.5%)
7,200 Genzyme Corp.* 355,248
8,400 Telik, Inc.* 193,284
----------------
548,532
----------------
BROADCASTING (5.4%)
14,700 Clear Channel
Communications, Inc. 688,401
23,750 Univision Communications Inc.
(Class A)* 942,637
10,675 Westwood One, Inc.* 365,192
----------------
1,996,230
----------------
CABLE/SATELLITE TV (1.5%)
16,400 EchoStar Communications Corp.
(Class A)* 557,600
----------------
CASINO/GAMING (9.2%)
20,410 GTECH Holdings Corp. 1,010,091
17,700 International Game
Technology 631,890
30,900 Station Casinos, Inc. 946,467
27,730 Wynn Resorts, Ltd.* 776,717
----------------
3,365,165
----------------
COMPUTER PERIPHERALS (1.8%)
25,900 EMC Corp.* $ 334,628
16,200 Network Appliance,
Inc.* 332,586
----------------
667,214
----------------
COMPUTER PROCESSING
HARDWARE (0.9%)
10,200 Dell Inc.* 346,392
----------------
DATA PROCESSING SERVICES (3.9%)
12,200 Alliance Data Systems
Corp.* 337,696
7,875 Global Payments Inc. 371,070
10,400 Paychex, Inc. 386,880
12,800 SunGard Data Systems
Inc.* 354,688
----------------
1,450,334
----------------
DISCOUNT STORES (2.1%)
25,200 Dollar Tree Stores, Inc.* 757,512
----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (0.9%)
6,400 Diebold, Inc. 344,768
----------------
ELECTRONIC PRODUCTION
EQUIPMENT (2.6%)
25,100 Applied Materials, Inc.* 563,495
11,400 Synopsys, Inc.* 384,864
----------------
948,359
----------------
ELECTRONICS/APPLIANCES (3.0%)
14,700 Harman International
Industries, Inc. 1,087,506
----------------
FINANCE/RENTAL/LEASING (0.9%)
10,762 Doral Financial Corp. 347,397
----------------
FINANCIAL CONGLOMERATES (0.5%)
6,200 Brascan Corp. (Class A)
(Canada) 189,348
----------------
FINANCIAL PUBLISHING/
SERVICES (1.0%)
21,350 Interactive Data Corp.* 353,556
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
83
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
HOME BUILDING (1.0%)
750 NVR, Inc.* $ 349,500
----------------
HOTELS/RESORTS/
CRUISELINES (2.6%)
24,200 Carnival Corp. 961,466
----------------
INFORMATION TECHNOLOGY
SERVICES (1.0%)
14,400 Accenture Ltd. (Class A)
(Bermuda)* 379,008
----------------
INTERNET RETAIL (1.3%)
14,025 InterActiveCorp.* 475,868
----------------
INTERNET SOFTWARE/
SERVICES (1.0%)
7,800 Yahoo! Inc.* 352,326
----------------
INVESTMENT BANKS/
BROKERS (1.4%)
35,900 AmeriTrade Holding Corp.
(Class A)* 505,113
----------------
MEDICAL SPECIALTIES (3.1%)
11,300 Dade Behring Holdings,
Inc.* 403,862
10,575 Varian Medical Systems,
Inc.* 730,732
----------------
1,134,594
----------------
MEDICAL/NURSING
SERVICES (1.0%)
11,900 VCA Antech, Inc.* 368,662
----------------
MISCELLANEOUS COMMERCIAL
SERVICES (1.8%)
7,350 Corporate Executive Board Co.
(The)* 343,025
8,425 Iron Mountain Inc.* 333,125
----------------
676,150
----------------
OIL & GAS PRODUCTION (2.4%)
35,900 Ultra Petroleum Corp.* 883,858
----------------
OILFIELD SERVICES/
EQUIPMENT (2.7%)
10,100 BJ Services Co.* 362,590
15,000 Smith International, Inc.* 622,800
----------------
985,390
----------------
OTHER CONSUMER
SERVICES (2.7%)
6,600 Apollo Group, Inc.
(Class A)* $ 448,800
11,700 ITT Educational Services, Inc.* 549,549
----------------
998,349
----------------
PACKAGED SOFTWARE (4.1%)
7,375 Mercury Interactive Corp.* 358,720
38,800 Novell, Inc.* 408,176
27,900 Oracle Corp.* 368,280
9,675 VERITAS Software Corp.* 359,523
----------------
1,494,699
----------------
PHARMACEUTICALS: OTHER (0.8%)
4,500 Forest Laboratories, Inc.* 278,100
----------------
PRECIOUS METALS (2.5%)
19,100 Newmont Mining Corp. 928,451
----------------
PROPERTY - CASUALTY
INSURERS (3.5%)
322 Berkshire Hathaway,
Inc. (Class B)* 906,430
850 White Mountain Insurance
Group, Ltd. 390,958
----------------
1,297,388
----------------
PUBLISHING: NEWSPAPERS (1.0%)
5,600 Media General, Inc.
(Class A) 364,560
----------------
REAL ESTATE INVESTMENT
TRUSTS (0.4%)
5,300 Plum Creek Timber Co.,
Inc. 161,385
----------------
REGIONAL BANKS (0.7%)
7,000 UCBH Holdings, Inc. 272,790
----------------
RESTAURANTS (1.9%)
6,600 P.F. Chang's China Bistro,
Inc.* 335,808
11,625 Sonic Corp.* 355,958
----------------
691,766
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
84
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
SEMICONDUCTORS (4.9%)
14,400 Fairchild Semiconductor Corp.
(Class A)* $ 359,568
8,900 Linear Technology Corp. 374,423
9,300 Marvell Technology Group
Ltd. (Bermuda)* 352,749
6,100 Rambus Inc.* 187,270
18,100 Texas Instruments Inc. 531,778
----------------
1,805,788
----------------
SERVICES TO THE HEALTH
INDUSTRY (2.4%)
11,100 IMS Health Inc. 275,946
13,075 Stericycle, Inc.* 610,603
----------------
886,549
----------------
SPECIALTY STORES (2.0%)
9,300 Tractor Supply Co.* 361,677
12,700 Tuesday Morning Corp.* 384,175
----------------
745,852
----------------
SPECIALTY
TELECOMMUNICATIONS (6.3%)
52,600 Crown Castle International
Corp.* 580,178
17,925 IDT Corp. (Class B)* 414,605
12,085 NTL, Inc.* 842,929
53,600 PTEK Holdings, Inc.* 472,216
----------------
2,309,928
----------------
TELECOMMUNICATION
EQUIPMENT (1.1%)
7,500 QUALCOMM Inc. 404,475
----------------
TRUCKING (1.0%)
16,500 Overnite Corp.* 375,375
----------------
WHOLESALE DISTRIBUTORS (1.1%)
11,100 Imagistics International
Inc.* 416,250
----------------
TOTAL COMMON STOCKS
(COST $31,418,582) 36,346,058
----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.9%)
REPURCHASE AGREEMENT
$ 692 Joint repurchase agreement
account
0.98% due 01/02/04
(dated 12/31/03;
proceeds $692,038) (a)
(COST $692,000) $ 692,000
----------------
TOTAL INVESTMENTS
(COST $32,110,582) (b) 100.7% 37,038,058
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.7) (263,439)
----- ----------------
NET ASSETS 100.0% $ 36,774,619
===== ================
</Table>
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $32,128,947. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $5,346,910 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $437,799, RESULTING IN NET UNREALIZED
APPRECIATION OF $4,909,111.
SEE NOTES TO FINANCIAL STATEMENTS
85
<Page>
Global Equity
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (97.7%)
AUSTRALIA (0.3%)
MAJOR BANKS
20,000 Westpac Banking Corp. $ 240,362
----------------
BELGIUM (0.4%)
FINANCIAL CONGLOMERATES
20,000 Fortis 401,178
----------------
BRAZIL (0.3%)
INTEGRATED OIL
10,000 Petroleo Brasileiro S.A. (ADR) 292,400
----------------
CANADA (0.6%)
INTEGRATED OIL
22,000 Suncor Energy, Inc. 551,740
----------------
CHINA (2.0%)
ELECTRIC UTILITIES
250,000 Huaneng Power International,
Inc. (Class H) 433,072
----------------
LIFE/HEALTH INSURANCE
1,500,000 China Life Insurance
Co., Ltd.* 1,226,769
----------------
MAJOR TELECOMMUNICATIONS
200,000 China Unicom Ltd. 186,752
----------------
TOTAL CHINA 1,846,593
----------------
FINLAND (0.7%)
PULP & PAPER
25,000 Stora Enso Oyj
(Registered Shares) 335,993
----------------
TELECOMMUNICATION EQUIPMENT
20,100 Nokia Corp. (Class A) (ADR) 341,700
----------------
TOTAL FINLAND 677,693
----------------
FRANCE (6.5%)
ADVERTISING/MARKETING SERVICES
15,000 Publicis Groupe 485,113
----------------
AEROSPACE & DEFENSE
10,400 Thales S.A. 348,778
----------------
AUTO PARTS: O.E.M.
8,000 Valeo S.A. $ 319,634
----------------
AUTOMOTIVE AFTERMARKET
9,000 Compagnie Generale des
Etablissements Michelin
(B Shares) 412,025
----------------
ENGINEERING & CONSTRUCTION
4,000 Vinci S.A. 330,456
----------------
FOOD: MAJOR DIVERSIFIED
6,000 Groupe Danone 977,022
----------------
INTEGRATED OIL
5,022 Total S.A. 931,522
----------------
MAJOR BANKS
10,200 BNP Paribas S.A. 640,757
----------------
MAJOR TELECOMMUNICATIONS
7,000 France Telecom S.A.* 199,608
----------------
MEDIA CONGLOMERATES
20,000 Vivendi Universal S.A.* 484,987
----------------
REGIONAL BANKS
12,000 Credit Agricole S.A. 285,858
----------------
SEMICONDUCTORS
17,900 STMicroelectronics NV 484,295
----------------
TOTAL FRANCE 5,900,055
----------------
GERMANY (4.9%)
AUTO PARTS: O.E.M.
10,000 Continental AG 378,401
----------------
BROADCASTING
25,000 ProSiebenSat.1
Media AG (Pref.) 416,845
----------------
CHEMICALS: MAJOR DIVERSIFIED
9,000 BASF AG 504,895
----------------
ELECTRIC UTILITIES
8,000 E. ON AG 520,877
----------------
INDUSTRIAL CONGLOMERATES
15,000 MAN AG 453,968
6,500 Siemens AG 519,404
----------------
973,372
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
86
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
INDUSTRIAL SPECIALTIES
12,000 SGL Carbon AG* $ 200,841
----------------
MAJOR BANKS
6,000 Deutsche Bank AG
(Registered Shares) 496,061
----------------
MOTOR VEHICLES
3,000 Bayerische Motoren Werke
(BMW) AG 138,739
8,000 Volkswagen AG 444,467
----------------
583,206
----------------
PACKAGED SOFTWARE
2,500 SAP AG 418,890
----------------
TOTAL GERMANY 4,493,388
----------------
HONG KONG (0.4%)
ELECTRIC UTILITIES
690,000 China Resources Power
Holdings Co., Ltd.* 322,147
----------------
IRELAND (0.6%)
MAJOR BANKS
37,500 Bank of Ireland 510,596
----------------
ITALY (0.8%)
INTEGRATED OIL
36,500 ENI SpA 687,137
----------------
JAPAN (9.9%)
BROADCASTING
70 Fuji Television Network, Inc. 377,991
----------------
ELECTRONIC COMPONENTS
3,000 Hoya Corp. 274,835
5,000 TDK Corp. 359,371
----------------
634,206
----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
25,000 Canon, Inc. 1,161,437
63,000 Konica Minolta Holdings, Inc. 845,201
41,000 Ricoh Co., Ltd. 807,327
----------------
2,813,965
----------------
ELECTRONICS/APPLIANCES
10,000 Fuji Photo Film Co., Ltd. $ 322,130
----------------
FOOD RETAIL
8,000 Ito-Yokado Co., Ltd. 251,001
----------------
GAS DISTRIBUTORS
200,000 Tokyo Gas Co., Ltd. 711,293
----------------
INDUSTRIAL CONGLOMERATES
63,200 Hitachi, Ltd. 380,106
----------------
INDUSTRIAL MACHINERY
12,900 Fanuc Ltd. 771,045
----------------
INVESTMENT BANKS/BROKERS
27,400 Nomura Holdings, Inc. 465,553
----------------
MAJOR BANKS
40 Mitsubishi Tokyo Financial
Group, Inc. 311,330
----------------
MAJOR TELECOMMUNICATIONS
75 Nippon Telegraph &
Telephone Corp. (NTT) 361,000
----------------
MOTOR VEHICLES
10,000 Toyota Motor Corp. 337,026
----------------
PHARMACEUTICALS: MAJOR
15,000 Takeda Chemical Industries,
Ltd. 593,520
----------------
RAILROADS
90 East Japan Railway Co. 423,145
----------------
WIRELESS TELECOMMUNICATIONS
100 NTT DoCoMo, Inc. 226,236
----------------
TOTAL JAPAN 8,979,547
----------------
NETHERLANDS (2.3%)
ELECTRONIC PRODUCTION
EQUIPMENT
21,000 ASML Holding NV* 415,423
----------------
FINANCIAL CONGLOMERATES
15,000 ING Groep NV
(Share Certificates) 349,017
----------------
INTEGRATED OIL
16,000 Royal Dutch Petroleum Co. 841,618
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
87
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS
20,000 Koninklijke (Royal) KPN NV* $ 154,028
----------------
PERSONNEL SERVICES
20,000 Vedior NV 312,083
----------------
TOTAL NETHERLANDS 2,072,169
----------------
NORWAY (0.7%)
MAJOR TELECOMMUNICATIONS
100,000 Telenor ASA 651,910
----------------
PORTUGAL (0.2%)
MAJOR TELECOMMUNICATIONS
22,000 Portugal Telecom, SGPS, S.A.
(Registered Shares) 220,925
----------------
RUSSIA (0.3%)
WIRELESS TELECOMMUNICATIONS
3,800 AO VimpelCom
(Sponsored ADR)* 279,300
----------------
SPAIN (0.7%)
BROADCASTING
67 Antena 3 Television, S.A.* 2,946
----------------
ENGINEERING & CONSTRUCTION
7,343 ACS, Actividades
de Construccion y
Servicios, S.A. 357,604
----------------
MAJOR TELECOMMUNICATIONS
20,000 Telefonica S.A.* 292,955
----------------
TOTAL SPAIN 653,505
----------------
SWEDEN (0.6%)
METAL FABRICATIONS
10,000 AB SKF (B Shares) 386,309
----------------
TELECOMMUNICATION EQUIPMENT
100,000 Telefonaktiebolaget LM
Ericsson
(B Shares)* 179,259
----------------
TOTAL SWEDEN 565,568
----------------
SWITZERLAND (3.1%)
FINANCIAL CONGLOMERATES
6,000 UBS AG (Registered Shares) $ 409,673
----------------
MAJOR BANKS
14,000 Credit Suisse Group 510,681
----------------
MULTI-LINE INSURANCE
11,300 Converium Holding AG 598,932
----------------
PERSONNEL SERVICES
12,000 Adecco S.A. (Registered Shares) 769,045
----------------
PROPERTY - CASUALTY INSURERS
8,000 Swiss Re
(Registered Shares) 538,493
----------------
TOTAL SWITZERLAND 2,826,824
----------------
UNITED KINGDOM (5.9%)
ADVERTISING/MARKETING SERVICES
45,000 WPP Group PLC 440,731
----------------
FINANCIAL CONGLOMERATES
25,000 Lloyds TSB Group PLC 199,987
----------------
FOOD: MAJOR DIVERSIFIED
32,000 Unilever PLC 297,553
----------------
INDUSTRIAL CONGLOMERATES
60,000 Tomkins PLC 286,589
----------------
INTEGRATED OIL
18,256 BP PLC (ADR) 900,934
----------------
MAJOR BANKS
30,000 HSBC Holdings PLC 473,320
6,000 Royal Bank of Scotland
Group PLC 176,346
----------------
649,666
----------------
MOVIES/ENTERTAINMENT
70,000 Rank Group PLC 349,040
----------------
OTHER METALS/MINERALS
80,000 BHP Billiton PLC 697,098
23,300 Rio Tinto PLC 641,957
----------------
1,339,055
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
88
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATIONS
351,534 Vodafone Group PLC $ 869,363
----------------
TOTAL UNITED KINGDOM 5,332,918
----------------
UNITED STATES (56.5%)
AEROSPACE & DEFENSE
22,900 Northrop Grumman Corp. 2,189,240
----------------
AGRICULTURAL COMMODITIES/MILLING
73,500 Archer-Daniels-Midland Co. 1,118,670
----------------
APPAREL/FOOTWEAR RETAIL
70,000 Gap, Inc. (The) 1,624,700
----------------
BEVERAGES: NON-ALCOHOLIC
22,100 Coca-Cola Co. (The) 1,121,575
----------------
BIOTECHNOLOGY
28,900 Gilead Sciences, Inc.* 1,680,246
----------------
CHEMICALS: MAJOR DIVERSIFIED
44,400 Dow Chemical Co. (The) 1,845,708
----------------
COMPUTER COMMUNICATIONS
75,100 Cisco Systems, Inc.* 1,824,179
----------------
ELECTRIC UTILITIES
57,000 Southern Co. (The) 1,724,250
----------------
ELECTRICAL PRODUCTS
34,000 Emerson Electric Co. 2,201,500
----------------
ELECTRONIC COMPONENTS
121,900 Flextronics International Ltd.* 1,808,996
----------------
ELECTRONIC PRODUCTION
EQUIPMENT
71,600 Applied Materials, Inc.* 1,607,420
----------------
FINANCIAL CONGLOMERATES
37,300 Citigroup Inc. 1,810,542
50,300 J.P. Morgan Chase & Co. 1,847,519
----------------
3,658,061
----------------
FOOD: MAJOR DIVERSIFIED
47,000 Kellogg Co. 1,789,760
----------------
INFORMATION TECHNOLOGY SERVICES
17,500 International Business
Machines Corp. 1,621,900
----------------
INTEGRATED OIL
46,700 Exxon Mobil Corp. $ 1,914,700
----------------
MAJOR BANKS
19,600 Bank of America Corp. 1,576,428
----------------
MANAGED HEALTH CARE
24,300 Oxford Health Plans, Inc.* 1,057,050
----------------
MEDIA CONGLOMERATES
92,000 Time Warner Inc.* 1,655,080
----------------
MULTI-LINE INSURANCE
24,000 American International
Group, Inc. 1,590,720
----------------
OIL & GAS PRODUCTION
32,600 Burlington Resources, Inc. 1,805,388
----------------
PHARMACEUTICALS: MAJOR
18,700 Lilly (Eli) & Co. 1,315,171
50,500 Pfizer Inc. 1,784,165
42,400 Wyeth 1,799,880
----------------
4,899,216
----------------
PRECIOUS METALS
31,900 Newmont Mining Corp. 1,550,659
----------------
PROPERTY - CASUALTY INSURERS
106,429 Travelers Property Casualty
Corp. (Class B) 1,806,100
----------------
SEMICONDUCTORS
62,200 Intel Corp. 2,002,840
----------------
SPECIALTY STORES
43,200 Bed Bath & Beyond Inc.* 1,872,720
----------------
TELECOMMUNICATIONS
67,000 SBC Communications, Inc. 1,746,690
----------------
TRUCKS/CONSTRUCTION/FARM
MACHINERY
27,400 Caterpillar Inc. 2,274,748
----------------
TOTAL UNITED STATES 51,568,544
----------------
TOTAL COMMON AND
PREFERRED STOCKS
(COST $77,375,334) 89,074,499
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
89
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.9%)
REPURCHASE AGREEMENT
$ 1,767 Joint repurchase agreement
account 0.98% due
01/02/04 (dated 12/31/03;
proceeds 1,767,096) (a)
(COST $1,767,000) $ 1,767,000
----------------
TOTAL INVESTMENTS
(COST $79,142,334) (b) 99.6% 90,841,499
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.4 358,887
----- ----------------
NET ASSETS 100.0% $ 91,200,386
===== ================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $14,804,517 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $3,105,352, RESULTING IN NET UNREALIZED APPRECIATION OF
$11,699,165.
FORWARD FOREIGN CURRENCY CONTRACT OPEN AT DECEMBER 31, 2003:
<Table>
<Caption>
CONTRACT IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- --------------------------------------------------------------
HKD 3,342,170 $ 430,431 01/05/04 $ (22)
</Table>
CURRENCY ABBREVIATION:
HKD Hong Kong Dollar.
SEE NOTES TO FINANCIAL STATEMENTS
90
<Page>
Global Equity
SUMMARY OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ---------------------------------------------------------------------
Advertising/Marketing
Services $ 925,844 1.0%
Aerospace & Defense 2,538,018 2.8
Agricultural
Commodities/Milling 1,118,670 1.2
Apparel/Footwear Retail 1,624,700 1.8
Auto Parts: O.E.M. 698,035 0.8
Automotive Aftermarket 412,025 0.4
Beverages: Non-Alcoholic 1,121,575 1.2
Biotechnology 1,680,246 1.8
Broadcasting 797,782 0.9
Chemicals: Major
Diversified 2,350,603 2.6
Computer Communications 1,824,179 2.0
Electric Utilities 3,000,346 3.3
Electrical Products 2,201,500 2.4
Electronic Components 2,443,202 2.7
Electronic
Equipment/Instruments 2,813,965 3.1
Electronic Production
Equipment 2,022,843 2.2
Electronics/Appliances 322,130 0.3
Engineering &
Construction 688,060 0.8
Financial Conglomerates 5,017,916 5.5
Food Retail 251,001 0.3
Food: Major Diversified 3,064,335 3.4
Gas Distributors 711,293 0.8
Industrial Conglomerates 1,640,067 1.8
Industrial Machinery 771,045 0.8
Industrial Specialties 200,841 0.2
Information Technology
Services 1,621,900 1.8
Integrated Oil 6,120,051 6.7
Investment Banks/Brokers 465,553 0.5
Life/Health Insurance 1,226,769 1.3
Major Banks 4,935,881 5.4
Major Telecommunications 2,067,178 2.3
Managed Health Care 1,057,050 1.2
Media Conglomerates $ 2,140,067 2.3%
Metal Fabrications 386,309 0.4
Motor Vehicles 920,232 1.0
Movies/Entertainment 349,040 0.4
Multi-Line Insurance 2,189,652 2.4
Oil & Gas Production 1,805,388 2.0
Other Metals/Minerals 1,339,055 1.5
Packaged Software 418,890 0.5
Personnel Services 1,081,128 1.2
Pharmaceuticals: Major 5,492,736 6.0
Precious Metals 1,550,659 1.7
Property - Casualty
Insurers 2,344,593 2.6
Pulp & Paper 335,993 0.4
Railroads 423,145 0.5
Regional Banks 285,858 0.3
Repurchase Agreement 1,767,000 1.9
Semiconductors 2,487,135 2.7
Specialty Stores 1,872,720 2.0
Telecommunication
Equipment 520,959 0.6
Telecommunications 1,746,690 1.9
Trucks/Construction/
Farm Machinery 2,274,748 2.5
Wireless
Telecommunications 1,374,899 1.5
--------------- ----
$ 90,841,499 99.6%
=============== ====
<Caption>
TYPE OF INVESTMENT
- ---------------------------------------------------------------------
Common Stocks $ 88,657,654 97.2%
Preferred Stock 416,845 0.5
Short-Term Investment 1,767,000 1.9
--------------- ----
$ 90,841,499 99.6%
=============== ====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
91
<Page>
Developing Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (99.5%)
ADVERTISING/MARKETING
SERVICES (1.1%)
6,600 Getty Images, Inc.* $ 330,858
8,200 R.H. Donnelley Corp.* 326,688
----------------
657,546
----------------
AEROSPACE & DEFENSE (0.5%)
8,800 Empresa Brasileira
de Aeronautica S.A.
(ADR) (Pref.) (Brazil) 308,264
----------------
AIR FREIGHT/COURIERS (1.0%)
15,250 C.H. Robinson Worldwide,
Inc. 578,127
----------------
AIRLINES (0.4%)
9,500 JetBlue Airways Corp.* 251,940
----------------
APPAREL/FOOTWEAR (0.8%)
13,200 Coach, Inc.* 498,300
----------------
APPAREL/FOOTWEAR RETAIL (1.8%)
17,825 Chico's FAS, Inc.* 658,634
19,100 TJX Companies,
Inc. (The) 421,155
----------------
1,079,789
----------------
AUTO PARTS: O.E.M. (0.5%)
6,900 Gentex Corp. 304,704
----------------
BEVERAGES:
NON-ALCOHOLIC (0.8%)
17,600 Cott Corp. (Canada)* 492,976
----------------
BIOTECHNOLOGY (4.1%)
10,100 Celgene Corp.* 454,702
11,500 Genzyme Corp.* 567,410
6,600 ICOS Corp.* 272,448
6,600 IDEXX Laboratories, Inc.* 305,448
11,400 MedImmune, Inc.* 289,560
15,000 Millennium Pharmaceuticals,
Inc.* 280,050
10,900 NPS Pharmaceuticals, Inc.* 335,066
----------------
2,504,684
----------------
BROADCASTING (4.9%)
22,550 Citadel Broadcasting Corp.* $ 504,443
32,975 Radio One, Inc. (Class D)* 636,417
31,400 Univision Communications
Inc. (Class A)* 1,246,266
16,900 Westwood One, Inc.* 578,149
----------------
2,965,275
----------------
CASINO/GAMING (7.3%)
33,525 GTECH Holdings Corp. 1,659,152
25,000 International Game
Technology 892,500
30,000 Station Casinos, Inc. 918,900
33,450 Wynn Resorts, Ltd.* 936,934
----------------
4,407,486
----------------
COMPUTER PERIPHERALS (0.9%)
26,500 Network Appliance, Inc.* 544,045
----------------
CONTAINERS/PACKAGING (0.8%)
8,600 Sealed Air Corp.* 465,604
----------------
DATA PROCESSING
SERVICES (3.4%)
20,100 Alliance Data Systems Corp.* 556,368
10,600 Global Payments Inc. 499,472
11,600 Paychex, Inc. 431,520
20,900 SunGard Data Systems Inc.* 579,139
----------------
2,066,499
----------------
DISCOUNT STORES (2.2%)
15,800 Dollar General Corp. 331,642
33,200 Dollar Tree Stores, Inc.* 997,992
----------------
1,329,634
----------------
ELECTRONIC COMPONENTS (1.0%)
5,800 Amphenol Corp. (Class A)* 370,794
5,150 QLogic Corp.* 265,740
----------------
636,534
----------------
ELECTRONIC DISTRIBUTORS (0.5%)
4,900 CDW Corp. 283,024
----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (0.9%)
10,500 Diebold, Inc. 565,635
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
92
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
ELECTRONIC PRODUCTION
EQUIPMENT (3.5%)
15,200 ASML Holding N.V.
(Netherlands)* $ 304,760
6,000 KLA-Tencor Corp.* 352,020
10,700 Lam Research Corp.* 345,610
11,300 Novellus Systems, Inc.* 475,165
18,500 Synopsys, Inc.* 624,560
----------------
2,102,115
----------------
ELECTRONICS/APPLIANCES (1.8%)
14,550 Harman International
Industries, Inc. 1,076,409
----------------
ENERGY (0.9%)
14,700 Questar Corp. 516,705
----------------
FINANCE/RENTAL/LEASING (0.9%)
17,650 Doral Financial Corp. 569,742
----------------
FINANCIAL CONGLOMERATES (0.5%)
9,900 Brascan Corp.
(Class A) (Canada) 302,346
----------------
FINANCIAL PUBLISHING/
SERVICES (2.3%)
6,500 D&B Corp.* 329,615
24,700 Interactive Data Corp.* 409,032
11,300 Moody's Corp. 684,215
----------------
1,422,862
----------------
FOOD DISTRIBUTORS (0.7%)
16,600 ARAMARK Corp. (Class B) 455,172
----------------
HOME BUILDING (1.4%)
3,000 Lennar Corp. (Class A) 288,000
1,200 NVR, Inc.* 559,200
----------------
847,200
----------------
HOME FURNISHINGS (0.5%)
4,100 Mohawk Industries, Inc.* 289,214
----------------
HOSPITAL/NURSING
MANAGEMENT (0.5%)
11,500 Community Health Systems
Inc.* 305,670
----------------
HOTELS/RESORTS/
CRUISELINES (2.5%)
44,550 Royal Caribbean Cruises Ltd.
(Liberia) $ 1,549,894
----------------
INDUSTRIAL MACHINERY (0.5%)
7,800 Graco Inc. 312,780
----------------
INDUSTRIAL SPECIALTIES (0.5%)
10,500 Ecolab Inc. 287,385
----------------
INFORMATION TECHNOLOGY
SERVICES (1.0%)
6,500 Cognizant Technology Solutions
Corp.* 296,660
13,900 PeopleSoft, Inc.* 316,920
----------------
613,580
----------------
INSURANCE BROKERS/
SERVICES (1.0%)
16,100 ChoicePoint Inc.* 613,249
----------------
INTEGRATED OIL (0.5%)
12,900 Suncor Energy, Inc.
(Canada) 323,274
----------------
INTERNET SOFTWARE/
SERVICES (0.6%)
24,500 Siebel Systems, Inc.* 339,815
----------------
INVESTMENT BANKS/
BROKERS (2.1%)
59,000 AmeriTrade Holding Corp.* 830,130
5,700 Legg Mason, Inc. 439,926
----------------
1,270,056
----------------
INVESTMENT MANAGERS (1.3%)
4,400 Affiliated Managers
Group, Inc.* 306,196
17,000 Federated Investors,
Inc. (Class B) 499,120
----------------
805,316
----------------
MANAGED HEALTH CARE (0.6%)
5,400 Coventry Health Care, Inc.* 348,246
----------------
MEDICAL DISTRIBUTORS (0.5%)
4,350 Patterson Dental Co.* 279,096
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
93
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
MEDICAL SPECIALTIES (4.4%)
7,650 Bard (C.R.), Inc. $ 621,562
5,850 St. Jude Medical, Inc.* 358,898
17,400 Varian Medical Systems, Inc.* 1,202,340
7,050 Zimmer Holdings, Inc.* 496,320
----------------
2,679,120
----------------
MEDICAL/NURSING
SERVICES (0.5%)
10,000 Lincare Holdings, Inc.* 300,300
----------------
MISCELLANEOUS COMMERCIAL
SERVICES (2.2%)
12,050 Corporate Executive
Board Co.* 562,374
12,500 Iron Mountain Inc.* 494,250
11,700 Viad Corp. 292,500
----------------
1,349,124
----------------
OIL & GAS PRODUCTION (1.1%)
20,000 Pioneer Natural
Resources Co.* 638,600
----------------
OILFIELD SERVICES/
EQUIPMENT (2.6%)
16,700 BJ Services Co.* 599,530
24,350 Smith International, Inc.* 1,011,012
----------------
1,610,542
----------------
OTHER CONSUMER
SERVICES (2.8%)
7,500 Apollo Group, Inc. (Class A)* 510,000
17,200 DeVry, Inc.* 432,236
15,600 ITT Educational Services, Inc.* 732,732
----------------
1,674,968
----------------
PACKAGED SOFTWARE (4.3%)
13,000 Adobe Systems, Inc. 510,900
6,000 Cognos, Inc. (Canada)* 183,720
12,750 Mercury Interactive Corp.* 620,160
63,500 Novell, Inc.* 668,020
18,400 Symantec Corp.* 637,560
----------------
2,620,360
----------------
PHARMACEUTICALS:
GENERIC DRUGS (0.2%)
4,900 Valeant Pharmaceuticals
International $ 123,235
----------------
PHARMACEUTICALS: OTHER (1.7%)
6,250 Allergan, Inc. 480,063
11,800 Endo Pharmaceuticals
Holdings, Inc.* 227,268
10,900 Shire Pharmaceuticals
Group PLC (ADR)
(United Kingdom)* 316,645
----------------
1,023,976
----------------
PRECIOUS METALS (1.8%)
14,500 Freeport-McMoRan
Copper & Gold, Inc.
(Class B) 610,885
25,900 Placer Dome Inc. (Canada) 463,869
----------------
1,074,754
----------------
PROPERTY - CASUALTY
INSURERS (1.0%)
1,385 White Mountain Insurance
Group, Ltd. 637,031
----------------
REAL ESTATE INVESTMENT
TRUSTS (0.4%)
8,900 Plum Creek Timber Co., Inc. 271,005
----------------
RECREATIONAL PRODUCTS (0.8%)
10,400 Electronic Arts Inc.* 496,912
----------------
REGIONAL BANKS (0.7%)
11,400 UCBH Holdings, Inc. 444,258
----------------
RESTAURANTS (1.7%)
10,100 Outback Steakhouse, Inc. 446,521
5,800 P.F. Chang's China Bistro, Inc.* 295,104
9,800 Sonic Corp.* 300,076
----------------
1,041,701
----------------
SAVINGS BANKS (0.6%)
15,300 Sovereign Bancorp, Inc. 363,375
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
94
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
SEMICONDUCTORS (4.9%)
94,700 Agere Systems
Inc. (Class A)* $ 288,835
8,500 Broadcom Corp. (Class A)* 289,765
24,400 Fairchild Semiconductor
Corp. (Class A)* 609,268
11,300 Integrated Circuit Systems, Inc.* 321,937
7,300 Linear Technology Corp. 307,111
15,050 Marvell Technology
Group Ltd. (Bermuda)* 570,847
7,000 National Semiconductor Corp.* 275,870
10,100 Rambus Inc.* 310,070
----------------
2,973,703
----------------
SERVICES TO THE HEALTH
INDUSTRY (2.5%)
18,400 IMS Health Inc. 457,424
22,475 Stericycle, Inc.* 1,049,583
----------------
1,507,007
----------------
SPECIALTY INSURANCE (0.9%)
10,800 Radian Group, Inc. 526,500
----------------
SPECIALTY STORES (2.0%)
20,600 PETSMART, Inc. 490,280
10,200 Tiffany & Co. 461,040
7,100 Tractor Supply Co.* 276,119
----------------
1,227,439
----------------
SPECIALTY
TELECOMMUNICATIONS (4.8%)
83,500 Crown Castle
International Corp.* 921,005
28,100 IDT Corp. (Class B)* 649,953
19,626 NTL, Inc.* 1,368,914
----------------
2,939,872
----------------
TELECOMMUNICATION
EQUIPMENT (0.6%)
37,500 Corning Inc.* 391,125
----------------
TOTAL COMMON AND
PREFERRED STOCKS
(COST $51,535,962) 60,485,099
----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.8%)
REPURCHASE AGREEMENT
$ 497 Joint repurchase agreement
account 0.98% due
01/02/04 (dated 12/31/03;
proceeds $497,027) (a)
(COST $497,000) $ 497,000
----------------
TOTAL INVESTMENTS
(COST $52,032,962) (b) 100.3% 60,982,099
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.3) (188,105)
----- ----------------
NET ASSETS 100.0% $ 60,793,994
===== ================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $52,052,417. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $9,432,707 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $503,025, RESULTING IN NET UNREALIZED
APPRECIATION OF $8,929,682.
SEE NOTES TO FINANCIAL STATEMENTS
95
<Page>
Morgan Stanley Select Dimensions Investment Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
-------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 130,885,746 $ 73,342,773 $ 110,327,370
Cash 2,086 13,852,238 597
Receivable for:
Investments sold -- 1,681,742 145,670
Interest/principal paydowns -- 1,060,885 426,652
Dividends -- -- 193,280
Shares of beneficial interest sold 231,760 814 22,085
Foreign withholding taxes reclaimed -- 728 --
Prepaid expenses and other assets 1,875 14,692 3,478
-------------- -------------- --------------
TOTAL ASSETS 131,121,467 89,953,872 111,119,132
-------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased -- 15,533,765 3,908,756
Investment management fee 60,093 26,703 56,809
Shares of beneficial interest redeemed 116,597 29,122 62,561
Distribution fee 8,926 4,672 5,027
Variation margin -- 11,531 7,781
Unrealized depreciation on open forward foreign currency
contracts -- 99,530 --
Accrued expenses and other payables 22,884 24,097 28,276
-------------- -------------- --------------
TOTAL LIABILITIES 208,500 15,729,420 4,069,210
-------------- -------------- --------------
NET ASSETS $ 130,912,967 $ 74,224,452 $ 107,049,922
============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 130,912,927 $ 94,110,574 $ 104,859,591
Accumulated undistributed net investment income (net
investment loss) 40 2,169,219 (23,336)
Accumulated net realized loss -- (18,648,080) (13,293,683)
Net unrealized appreciation (depreciation) -- (3,407,261) 15,507,350
-------------- -------------- --------------
NET ASSETS $ 130,912,967 $ 74,224,452 $ 107,049,922
============== ============== ==============
*COST $ 130,885,746 $ 76,613,986 $ 94,782,970
============== ============== ==============
CLASS X SHARES:
Net Assets $ 91,730,234 $ 53,269,756 $ 84,151,452
Shares Outstanding (unlimited authorized shares of $.01
par value) 91,730,225 6,826,770 5,719,149
NET ASSET VALUE PER SHARE $ 1.00 $ 7.80 $ 14.71
============== ============== ==============
CLASS Y SHARES:
Net Assets $ 39,182,733 $ 20,954,696 $ 22,898,470
Shares Outstanding (unlimited authorized shares of $.01
par value) 39,182,701 2,691,996 1,559,472
NET ASSET VALUE PER SHARE $ 1.00 $ 7.78 $ 14.68
============== ============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
96
<Page>
<Table>
<Caption>
DIVIDEND VALUE-ADDED
UTILITIES GROWTH MARKET GROWTH
-------------- -------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 77,404,896 $ 407,567,319 $ 191,141,927 $ 47,021,150
Cash 959 915 149 --
Receivable for:
Investments sold 512,236 -- 5,791,416 865,797
Interest/principal paydowns 49,175 569 80 --
Dividends 121,677 566,743 251,570 31,572
Shares of beneficial interest sold 7,978 49,445 56,674 249
Foreign withholding taxes reclaimed 8,371 5,414 -- --
Prepaid expenses and other assets 3,448 5,505 8,724 76,661
-------------- -------------- -------------- --------------
TOTAL ASSETS 78,108,740 408,195,910 197,250,540 47,995,429
-------------- -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased 803,901 160,999 6,433,632 681,815
Investment management fee 44,316 224,807 83,080 33,474
Shares of beneficial interest redeemed 59,111 179,777 121,520 51,828
Distribution fee 2,947 11,239 10,140 1,506
Variation margin -- -- -- --
Unrealized depreciation on open forward foreign currency
contracts -- -- -- --
Accrued expenses and other payables 29,622 35,890 28,304 20,621
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 939,897 612,712 6,676,676 789,244
-------------- -------------- -------------- --------------
NET ASSETS $ 77,168,843 $ 407,583,198 $ 190,573,864 $ 47,206,185
============== ============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 103,193,842 $ 508,654,116 $ 135,146,926 $ 81,453,333
Accumulated undistributed net investment income (net
investment loss) (15,243) 1,327 1,594,467 80,357
Accumulated net realized loss (43,208,521) (191,279,385) (1,848,526) (40,192,171)
Net unrealized appreciation (depreciation) 17,198,765 90,207,140 55,680,997 5,864,666
-------------- -------------- -------------- --------------
NET ASSETS $ 77,168,843 $ 407,583,198 $ 190,573,864 $ 47,206,185
============== ============== ============== ==============
*COST $ 60,206,131 $ 317,360,179 $ 135,460,930 $ 41,156,484
============== ============== ============== ==============
CLASS X SHARES:
Net Assets $ 63,728,363 $ 356,055,755 $ 143,019,477 $ 40,356,249
Shares Outstanding (unlimited authorized shares of $.01
par value) 4,122,437 24,012,877 6,766,959 2,850,591
NET ASSET VALUE PER SHARE $ 15.46 $ 14.83 $ 21.13 $ 14.16
============== ============== ============== ==============
CLASS Y SHARES:
Net Assets $ 13,440,480 $ 51,527,443 $ 47,554,387 $ 6,849,936
Shares Outstanding (unlimited authorized shares of $.01
par value) 869,938 3,479,898 2,265,781 487,654
NET ASSET VALUE PER SHARE $ 15.45 $ 14.81 $ 20.99 $ 14.05
============== ============== ============== ==============
<Caption>
AMERICAN CAPITAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES GLOBAL EQUITY GROWTH
-------------- -------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 306,459,284 $ 37,038,058 $ 90,841,499 $ 60,982,099
Cash 919 116 -- 831
Receivable for:
Investments sold -- -- 430,453 54,224
Interest/principal paydowns 151 19 -- --
Dividends 241,270 2,460 43,077 7,112
Shares of beneficial interest sold 29,792 16,497 907 3,270
Foreign withholding taxes reclaimed 6,217 -- 51,371 --
Prepaid expenses and other assets 22,176 23 2,180 74
-------------- -------------- -------------- --------------
TOTAL ASSETS 306,759,809 37,057,173 91,369,487 61,047,610
-------------- -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased -- 187,991 -- 153,767
Investment management fee 170,344 24,552 79,908 27,184
Shares of beneficial interest redeemed 176,407 44,394 57,787 46,140
Distribution fee 10,191 2,506 1,641 1,490
Variation margin -- -- -- --
Unrealized depreciation on open forward foreign currency
contracts -- -- -- --
Accrued expenses and other payables 46,694 23,111 29,765 25,035
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 403,636 282,554 169,101 253,616
-------------- -------------- -------------- --------------
NET ASSETS $ 306,356,173 $ 36,774,619 $ 91,200,386 $ 60,793,994
============== ============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 550,141,738 $ 127,924,356 $ 90,200,581 $ 102,030,204
Accumulated undistributed net investment income (net
investment loss) 877,204 -- 194,057 --
Accumulated net realized loss (281,242,956) (96,077,213) (10,901,954) (50,185,347)
Net unrealized appreciation (depreciation) 36,580,187 4,927,476 11,707,702 8,949,137
-------------- -------------- -------------- --------------
NET ASSETS $ 306,356,173 $ 36,774,619 $ 91,200,386 $ 60,793,994
============== ============== ============== ==============
*COST $ 269,880,705 $ 32,110,582 $ 79,142,334 $ 52,032,962
============== ============== ============== ==============
CLASS X SHARES:
Net Assets $ 260,229,535 $ 25,472,808 $ 83,607,076 $ 53,996,123
Shares Outstanding (unlimited authorized shares of $.01
par value) 18,543,878 3,271,962 5,901,625 3,300,472
NET ASSET VALUE PER SHARE $ 14.03 $ 7.79 $ 14.17 $ 16.36
============== ============== ============== ==============
CLASS Y SHARES:
Net Assets $ 46,126,638 $ 11,301,811 $ 7,593,310 $ 6,797,871
Shares Outstanding (unlimited authorized shares of $.01
par value) 3,303,979 1,464,380 539,075 419,191
NET ASSET VALUE PER SHARE $ 13.96 $ 7.72 $ 14.09 $ 16.22
============== ============== ============== ==============
</Table>
97
<Page>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
-------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 2,005,480 $ 3,689,184 $ 1,175,082
Dividends -- 9,666 1,444,278*
-------------- -------------- --------------
TOTAL INCOME 2,005,480 3,698,850 2,619,360
-------------- -------------- --------------
EXPENSES
Investment management fee 838,468 292,379 585,115
Distribution fee (Class Y shares) 107,007 46,832 42,222
Shareholder reports and notices 13,879 9,862 16,068
Professional fees 25,496 41,962 24,284
Custodian fees 15,000 44,447 24,580
Trustees' fees and expenses 2,078 1,114 1,001
Transfer agent fees and expenses 500 500 500
Other 5,302 23,049 12,194
-------------- -------------- --------------
TOTAL EXPENSES 1,007,730 460,145 705,964
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 997,750 3,238,705 1,913,396
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments -- (2,937,633) 5,782,244
Futures contracts -- 231,085 (63,350)
Foreign exchange transactions -- 2,060,198 --
-------------- -------------- --------------
NET REALIZED GAIN (LOSS) -- (646,350) 5,718,894
-------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments -- 6,741,537 10,182,192
Future contracts -- (83,924) 18,037
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies -- (92,358) --
-------------- -------------- --------------
NET APPRECIATION -- 6,565,255 10,200,229
-------------- -------------- --------------
NET GAIN -- 5,918,905 15,919,123
-------------- -------------- --------------
NET INCREASE $ 997,750 $ 9,157,610 $ 17,832,519
============== ============== ==============
</Table>
- ----------
* NET OF FOREIGN WITHHOLDING TAX OF $8,487, $3,303, $108,709, $23,251, $851,
$95,145 AND $2,210, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
98
<Page>
<Table>
<Caption>
DIVIDEND VALUE-ADDED
UTILITIES GROWTH MARKET GROWTH
-------------- -------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 307,604 $ 55,794 $ 19,709 $ 10,090
Dividends 2,116,535* 9,316,134* 2,545,913 489,614
-------------- -------------- -------------- --------------
TOTAL INCOME 2,424,139 9,371,928 2,565,622 499,704
-------------- -------------- -------------- --------------
EXPENSES
Investment management fee 490,090 2,331,330 774,172 350,054
Distribution fee (Class Y shares) 30,167 98,699 74,907 12,412
Shareholder reports and notices 13,940 57,695 19,027 8,757
Professional fees 22,152 27,568 25,614 23,996
Custodian fees 225 16,543 16,336 22,634
Trustees' fees and expenses 745 4,215 1,502 352
Transfer agent fees and expenses 500 500 500 500
Other 4,041 7,577 18,262 641
-------------- -------------- -------------- --------------
TOTAL EXPENSES 561,860 2,544,127 930,320 419,346
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 1,862,279 6,827,801 1,635,302 80,358
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 1,780,791 (12,830,310) (1,891,365) 1,923,241
Futures contracts -- -- -- --
Foreign exchange transactions -- -- -- --
-------------- -------------- -------------- --------------
NET REALIZED GAIN (LOSS) 1,780,791 (12,830,310) (1,891,365) 1,923,241
-------------- -------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 10,330,998 97,796,849 50,755,753 8,291,544
Future contracts -- -- -- --
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies -- -- -- --
-------------- -------------- -------------- --------------
NET APPRECIATION 10,330,998 97,796,849 50,755,753 8,291,544
-------------- -------------- -------------- --------------
NET GAIN 12,111,789 84,966,539 48,864,388 10,214,785
-------------- -------------- -------------- --------------
NET INCREASE $ 13,974,068 $ 91,794,340 $ 50,499,690 $ 10,295,143
============== ============== ============== ==============
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
-------------- -------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 145,937 $ 6,035 $ 21,805 $ 59,734
Dividends 2,798,110* 86,533* 1,131,595* 162,792*
-------------- -------------- -------------- --------------
TOTAL INCOME 2,944,047 92,568 1,153,400 222,526
-------------- -------------- -------------- --------------
EXPENSES
Investment management fee 1,840,527 235,261 808,249 264,728
Distribution fee (Class Y shares) 94,228 21,731 13,024 11,129
Shareholder reports and notices 42,585 -- 15,670 13,763
Professional fees 27,749 21,236 26,599 25,022
Custodian fees 50,769 15,955 16,811 23,978
Trustees' fees and expenses 2,865 153 769 379
Transfer agent fees and expenses 500 500 500 500
Other 5,798 479 6,097 960
-------------- -------------- -------------- --------------
TOTAL EXPENSES 2,065,021 295,315 887,719 340,459
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 879,026 (202,747) 265,681 (117,933)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 20,121,258 6,411,535 (458,688) 8,256,418
Futures contracts (7,614,000) -- -- --
Foreign exchange transactions (427) -- (52,373) (23)
-------------- -------------- -------------- --------------
NET REALIZED GAIN (LOSS) 12,506,831 6,411,535 (511,061) 8,256,395
-------------- -------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 41,530,046 4,645,509 24,580,309 10,239,030
Future contracts (6,783) -- -- --
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies 868 -- (12,634) --
-------------- -------------- -------------- --------------
NET APPRECIATION 41,524,131 4,645,509 24,567,675 10,239,030
-------------- -------------- -------------- --------------
NET GAIN 54,030,962 11,057,044 24,056,614 18,495,425
-------------- -------------- -------------- --------------
NET INCREASE $ 54,909,988 $ 10,854,297 $ 24,322,295 $ 18,377,492
============== ============== ============== ==============
</Table>
99
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 997,750 $ 2,519,398 $ 3,238,705 $ 4,567,651
Net realized gain (loss) -- -- (646,350) (10,550,464)
Net change in unrealized appreciation/depreciation -- -- 6,565,255 11,409,322
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) 997,750 2,519,398 9,157,610 5,426,509
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (827,889) (2,146,983) (2,773,979) (2,672,959)
Class Y shares (169,941) (372,357) (925,237) (418,622)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (997,830) (2,519,340) (3,699,216) (3,091,581)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in shares
of beneficial interest (62,571,493) (13,661,167) (529,307) 6,356,434
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) (62,571,573) (13,661,109) 4,929,087 8,691,362
NET ASSETS:
Beginning of period 193,484,540 207,145,649 69,295,365 60,604,003
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 130,912,967 $ 193,484,540 $ 74,224,452 $ 69,295,365
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ 40 $ 120 $ 2,169,219 $ 831,569
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
100
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,913,396 $ 2,880,732 $ 1,862,279 $ 3,200,225
Net realized gain (loss) 5,718,894 (9,229,020) 1,780,791 (23,753,026)
Net change in unrealized appreciation/depreciation 10,200,229 (7,609,088) 10,330,998 (4,884,473)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) 17,832,519 (13,957,376) 13,974,068 (25,437,274)
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (1,967,896) (2,731,171) (1,584,703) (2,803,574)
Class Y shares (396,811) (281,828) (281,994) (356,108)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (2,364,707) (3,012,999) (1,866,697) (3,159,682)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in shares
of beneficial interest (5,590,818) (10,321,727) (12,512,023) (25,265,054)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 9,876,994 (27,292,102) (404,652) (53,862,010)
NET ASSETS:
Beginning of period 97,172,928 124,465,030 77,573,495 131,435,505
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 107,049,922 $ 97,172,928 $ 77,168,843 $ 77,573,495
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ (23,336) $ 90,112 $ (15,243) $ (12,862)
================= ================= ================= =================
<Caption>
DIVIDEND GROWTH VALUE-ADDED MARKET
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,827,801 $ 8,840,107 $ 1,635,302 $ 1,816,030
Net realized gain (loss) (12,830,310) (39,482,430) (1,891,365) 3,420,730
Net change in unrealized appreciation/depreciation 97,796,849 (60,956,564) 50,755,753 (36,086,090)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) 91,794,340 (91,598,887) 50,499,690 (30,849,330)
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (6,163,835) (8,353,169) (1,481,946) (1,937,562)
Class Y shares (662,650) (486,953) (312,854) (163,395)
Net realized gain
Class X shares -- -- (2,267,155) --
Class Y shares -- -- (533,709) --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (6,826,485) (8,840,122) (4,595,664) (2,100,957)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in shares
of beneficial interest (48,375,157) (78,910,159) 4,762,027 (20,008,345)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 36,592,698 (179,349,168) 50,666,053 (52,958,632)
NET ASSETS:
Beginning of period 370,990,500 550,339,668 139,907,811 192,866,443
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 407,583,198 $ 370,990,500 $ 190,573,864 $ 139,907,811
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ 1,327 $ 11 $ 1,594,467 $ 1,816,289
================= ================= ================= =================
</Table>
101
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 80,358 $ 41,760 $ 879,026 $ 1,030,021
Net realized gain (loss) 1,923,241 (20,099,406) 12,506,831 (73,515,538)
Net change in unrealized appreciation/depreciation 8,291,544 (1,299,207) 41,524,131 (23,992,117)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) 10,295,143 (21,356,853) 54,909,988 (96,477,634)
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (41,761) -- (963,468) (2,513,231)
Class Y shares -- -- (70,108) (147,685)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (41,761) -- (1,033,576) (2,660,916)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in shares
of beneficial interest (6,401,441) (19,768,451) (52,264,903) (89,896,539)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 3,851,941 (41,125,304) 1,611,509 (189,035,089)
NET ASSETS:
Beginning of period 43,354,244 84,479,548 304,744,664 493,779,753
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 47,206,185 $ 43,354,244 $ 306,356,173 $ 304,744,664
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ 80,357 $ 41,760 $ 877,204 $ 1,032,181
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
102
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (202,747) $ (343,046) $ 265,681 $ 346,468
Net realized gain (loss) 6,411,535 (55,704,147) (511,061) (3,336,891)
Net change in unrealized appreciation/depreciation 4,645,509 28,089,327 24,567,675 (16,471,692)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) 10,854,297 (27,957,866) 24,322,295 (19,462,115)
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares -- -- (300,580) (80,154)
Class Y shares -- -- (10,185) --
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- (310,765) (80,154)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in shares
of beneficial interest (2,713,544) (10,307,026) (12,372,405) (23,468,339)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 8,140,753 (38,264,892) 11,639,125 (43,010,608)
NET ASSETS:
Beginning of period 28,633,866 66,898,758 79,561,261 122,571,869
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 36,774,619 $ 28,633,866 $ 91,200,386 $ 79,561,261
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ -- $ -- $ 194,057 $ 291,514
================= ================= ================= =================
<Caption>
DEVELOPING GROWTH
-------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (117,933) $ (176,673)
Net realized gain (loss) 8,256,395 (18,055,817)
Net change in unrealized appreciation/depreciation 10,239,030 (4,627,220)
----------------- -----------------
NET INCREASE (DECREASE) 18,377,492 (22,859,710)
----------------- -----------------
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 (6,077,045) (17,133,000)
----------------- -----------------
TOTAL INCREASE (DECREASE) 12,300,447 (39,992,710)
NET ASSETS:
Beginning of period 48,493,547 88,486,257
----------------- -----------------
END OF PERIOD $ 60,793,994 $ 48,493,547
================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
(NET INVESTMENT LOSS) $ -- $ --
================= =================
</Table>
103
<Page>
SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 48,686,635 119,285,645 819,656 1,401,928
Reinvestment of dividends and distributions 827,889 2,146,983 368,963 383,157
Redeemed (110,263,101) (144,910,533) (1,918,631) (2,348,029)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (60,748,577) (23,477,905) (730,012) (562,944)
================= ================= ================= =================
AMOUNT
Sold $ 48,686,635 $ 119,285,645 $ 6,110,077 $ 9,828,447
Reinvestment of dividends and distributions 827,889 2,146,983 2,773,979 2,672,959
Redeemed (110,263,101) (144,910,533) (14,378,272) (16,427,076)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (60,748,577) $ (23,477,905) $ (5,494,216) $ (3,925,670)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 61,345,479 48,033,474 1,404,030 1,657,735
Reinvestment of dividends and distributions 169,941 372,357 123,307 59,826
Redeemed (63,338,336) (38,589,093) (861,581) (244,617)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y (1,822,916) 9,816,738 665,756 1,472,944
================= ================= ================= =================
AMOUNT
Sold $ 61,345,479 $ 48,033,474 $ 10,478,359 $ 11,579,296
Reinvestment of dividends and distributions 169,941 372,357 925,237 418,622
Redeemed (63,338,336) (38,589,093) (6,438,687) (1,715,814)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ (1,822,916) $ 9,816,738 $ 4,964,909 $ 10,282,104
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
104
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 522,053 724,016 214,482 301,789
Reinvestment of dividends and distributions 146,503 205,346 111,657 197,658
Redeemed (1,694,288) (2,119,779) (1,281,303) (2,380,363)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (1,025,732) (1,190,417) (955,164) (1,880,916)
================= ================= ================= =================
AMOUNT
Sold $ 6,847,511 $ 9,873,756 $ 2,983,710 $ 4,375,976
Reinvestment of dividends and distributions 1,967,896 2,731,171 1,584,703 2,803,574
Redeemed (22,040,823) (28,467,516) (17,688,607) (33,881,020)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (13,225,416) $ (15,862,589) $ (13,120,194) $ (26,701,470)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 751,891 560,381 293,544 335,317
Reinvestment of dividends and distributions 29,284 21,469 19,859 25,390
Redeemed (203,489) (179,996) (260,617) (273,414)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y 577,686 401,854 52,786 87,293
================= ================= ================= =================
AMOUNT
Sold $ 9,921,937 $ 7,630,860 $ 3,996,627 $ 4,899,620
Reinvestment of dividends and distributions 396,811 281,828 281,994 356,108
Redeemed (2,684,150) (2,371,826) (3,670,450) (3,819,312)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ 7,634,598 $ 5,540,862 $ 608,171 $ 1,436,416
================= ================= ================= =================
<Caption>
DIVIDEND GROWTH VALUE-ADDED MARKET
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 1,772,994 1,816,448 927,026 1,005,911
Reinvestment of dividends and distributions 480,186 644,042 214,234 107,048
Redeemed (7,130,986) (9,442,311) (2,000,060) (2,997,915)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (4,877,806) (6,981,821) (858,800) (1,884,956)
================= ================= ================= =================
AMOUNT
Sold $ 22,505,914 $ 24,354,692 $ 16,395,002 $ 17,757,380
Reinvestment of dividends and distributions 6,163,835 8,353,169 3,749,101 1,937,562
Redeemed (89,625,898) (124,347,345) (34,615,230) (50,407,468)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (60,956,149) $ (91,639,484) $ (14,471,127) $ (30,712,526)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 1,465,207 1,428,587 1,317,054 942,345
Reinvestment of dividends and distributions 51,209 38,352 48,653 9,062
Redeemed (518,581) (522,959) (293,426) (334,532)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y 997,835 943,980 1,072,281 616,875
================= ================= ================= =================
AMOUNT
Sold $ 18,555,581 $ 19,114,664 $ 23,315,043 $ 16,143,557
Reinvestment of dividends and distributions 662,650 486,953 846,563 163,395
Redeemed (6,637,239) (6,872,292) (4,928,452) (5,602,771)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ 12,580,992 $ 12,729,325 $ 19,233,154 $ 10,704,181
================= ================= ================= =================
</Table>
105
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 300,887 395,097 984,541 1,385,445
Reinvestment of dividends and distributions 3,325 -- 77,139 186,580
Redeemed (1,018,781) (2,005,315) (6,039,452) (8,935,569)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (714,569) (1,610,218) (4,977,772) (7,363,544)
================= ================= ================= =================
AMOUNT
Sold $ 3,719,693 $ 5,105,430 $ 12,118,391 $ 18,386,151
Reinvestment of dividends and distributions 41,761 -- 963,468 2,513,231
Redeemed (12,302,379) (25,381,091) (74,062,012) (117,722,907)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (8,540,925) $ (20,275,661) $ (60,980,153) $ (96,823,525)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 242,391 136,527 1,348,244 1,117,040
Reinvestment of dividends and distributions -- -- 5,636 10,997
Redeemed (71,767) (103,816) (633,416) (605,031)
----------------- ----------------- ----------------- -----------------
NET INCREASE - CLASS Y 170,624 32,711 720,464 523,006
================= ================= ================= =================
AMOUNT
Sold $ 3,010,578 $ 1,832,084 $ 16,488,980 $ 14,735,675
Reinvestment of dividends and distributions -- -- 70,108 147,685
Redeemed (871,094) (1,324,874) (7,843,838) (7,956,374)
----------------- ----------------- ----------------- -----------------
NET INCREASE - CLASS Y $ 2,139,484 $ 507,210 $ 8,715,250 $ 6,926,986
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
106
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 364,879 589,277 384,457 331,885
Reinvestment of dividends and distributions -- -- 25,048 6,608
Redeemed (1,111,639) (2,238,406) (1,668,617) (2,462,599)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (746,760) (1,649,129) (1,259,112) (2,124,106)
================= ================= ================= =================
AMOUNT
Sold $ 2,408,037 $ 4,328,497 $ 4,428,039 $ 3,897,393
Reinvestment of dividends and distributions -- -- 300,580 80,154
Redeemed (6,859,678) (15,590,037) (19,093,417) (28,327,330)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (4,451,641) $ (11,261,540) $ (14,364,798) $ (24,349,783)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 546,847 711,761 234,174 149,454
Reinvestment of dividends and distributions -- -- 852 --
Redeemed (278,698) (685,448) (72,031) (73,439)
----------------- ----------------- ----------------- -----------------
NET INCREASE - CLASS Y 268,149 26,313 162,995 76,015
================= ================= ================= =================
AMOUNT
Sold $ 3,465,304 $ 5,340,206 $ 2,790,650 $ 1,721,233
Reinvestment of dividends and distributions -- -- 10,185 --
Redeemed (1,727,207) (4,385,692) (808,442) (839,789)
----------------- ----------------- ----------------- -----------------
NET INCREASE - CLASS Y $ 1,738,097 $ 954,514 $ 1,992,393 $ 881,444
================= ================= ================= =================
<Caption>
DEVELOPING GROWTH
-------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
CLASS X SHARES
SHARES
Sold 339,110 263,100
Reinvestment of dividends and distributions -- --
Redeemed (1,006,209) (1,636,123)
----------------- -----------------
NET DECREASE - CLASS X (667,099) (1,373,023)
================= =================
AMOUNT
Sold $ 4,568,617 $ 3,579,933
Reinvestment of dividends and distributions -- --
Redeemed (13,279,669) (21,293,539)
----------------- -----------------
NET DECREASE - CLASS X $ (8,711,052) $ (17,713,606)
================= =================
CLASS Y SHARES
SHARES
Sold 235,623 113,513
Reinvestment of dividends and distributions -- --
Redeemed (42,796) (73,538)
----------------- -----------------
NET INCREASE - CLASS Y 192,827 39,975
================= =================
AMOUNT
Sold $ 3,194,704 $ 1,497,355
Reinvestment of dividends and distributions -- --
Redeemed (560,697) (916,749)
----------------- -----------------
NET INCREASE - CLASS Y $ 2,634,007 $ 580,606
================= =================
</Table>
107
<Page>
Morgan Stanley Select Dimensions Investment Series
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003
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 is offered
exclusively to life insurance companies in connection with particular life
insurance and/or annuity contracts they offer. 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:
<Table>
<Caption>
PORTFOLIO INVESTMENT OBJECTIVE
Money Market Seeks high current income, preservation of capital and liquidity by investing in
short-term money market instruments.
Flexible Income Seeks, as a primary objective, to earn a high level of current income and, as a secondary
(formerly Diversified objective, to maximize total return, but only to the extent consistent with its primary
Income) objective. Prior to May 1, 2003, Flexible Income sought its secondary objective by equally
allocating its assets among three separate groupings of fixed income securities.
Balanced Growth Seeks to provide capital growth with reasonable current income by investing primarily in
common stocks and securities convertible into common stocks and by investing in fixed
income securities.
Utilities Seeks both capital appreciation and current income by investing in equity and fixed
income securities of companies in the utilities industry.
Dividend Growth Seeks to provide reasonable current income and long-term growth of income and capital
by investing primarily in common stock of companies with a record of paying dividends
and the potential for increasing dividends.
Value-Added Market Seeks to achieve a high level of total return on its assets through a combination of capital
appreciation and current income by investing, on an equally-weighted basis, in a
diversified portfolio of common stocks of the companies which are represented in the Standard &
Poor's 500 Composite Stock Price Index.
Growth Seeks long-term growth of capital by investing primarily in common stocks issued by
domestic and foreign companies.
</Table>
108
<Page>
<Table>
<Caption>
PORTFOLIO INVESTMENT OBJECTIVE
American Seeks long-term capital growth consistent with an effort to reduce volatility by investing
Opportunities principally in common stock of companies in industries which are believed to have
attractive growth potential.
Capital Opportunities Seeks long-term capital growth by investing primarily in equity securities with market
capitalization's within the capitalization range of companies comprising the Lipper
Multi-Cap Growth Universe.
Global Equity Seeks to obtain total return on its assets primarily through long-term capital growth and,
to a lesser extent, from income, through investments in equity securities of
companies located in various countries around the world.
Developing Growth Seeks long-term capital growth by investing primarily in equity securities of smaller and
medium-sized companies that have the potential for growing more rapidly than the economy.
</Table>
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 Manager") and/or (in the case
of Growth Portfolio ) Morgan Stanley Investment Management Inc. (the
"Sub-Advisor"), an affiliate of the Investment Manager, 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
109
<Page>
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 Manager 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 ex-dividend date. Interest income is accrued daily
except where collection is not expected. The Fund amortizes premiums and
accretes discounts over the life of the respective securities.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Portfolios, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, or U.S. Treasury or federal agency obligations. The Portfolio may also
invest directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to
110
<Page>
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 securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
G. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply individually
for each Portfolio with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Accordingly, no federal income tax provision
is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date.
I. EXPENSES -- Direct expenses are charged to the respective Portfolio and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Portfolios.
J. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
111
<Page>
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to each Portfolio's net assets determined at the close of
each business day:
<Table>
<Caption>
PORTFOLIO ANNUAL RATE
- --------- -----------
Money Market 0.50%
Flexible Income 0.40
Balanced Growth 0.60
Utilities 0.65
Dividend Growth *
Value-Added Market 0.50
Growth 0.80%
American Opportunities **
Capital Opportunities 0.75
Global Equity 1.00
Developing Growth 0.50
</Table>
- ----------
* 0.625% to the portion of daily net assets not exceeding $500 million; 0.50%
to the portion of daily net assets exceeding $500 million, but not
exceeding $1 billion and 0.475% to the portion of daily net assets
exceeding $1 billion.
** 0.625% to the portion of daily net assets not exceeding $500 million; 0.60%
to the portion of daily net assets exceeding $500 million, but not
exceeding $1 billion and 0.575% to the portion of daily net assets
exceeding $1 billion.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides Growth with investment advice and portfolio
management relating to the Portfolio's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the
Sub-Advisor compensation of $140,021 for the year ended December 31, 2003.
On October 23, 2003, the Board of Trustees of the Fund determined to terminate
the Sub-Advisory Agreement. Therefore, effective on or about May 1, 2004, the
Investment Manager will assume direct responsibility for investment of the
portfolio.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. 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.
112
<Page>
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities of portfolio securities, excluding short-term
investments (except for the Money Market Portfolio), for the year ended December
31, 2003 were as follows:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES OTHER
--------------------------------- ---------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
-------------- ---------------- -------------- ----------------
Money Market $ 174,596,837 $ 203,979,114 $1,062,411,990 $ 1,098,046,028
Flexible Income 114,976,509 111,830,112 55,504,191 54,781,418
Balanced Growth 14,848,230 8,910,537 101,060,960 115,186,187
Utilities 683,423 415,599 64,798,063 75,665,369
Dividend Growth -- -- 152,656,400 220,212,387
Value-Added Market -- -- 37,694,422 36,119,754
Growth -- -- 54,727,802 59,396,174
American Opportunities -- -- 736,577,145 775,018,045
Capital Opportunities -- -- 56,855,200 59,807,662
Global Equity -- -- 56,474,719 69,468,276
Developing Growth -- -- 99,331,349 103,698,702
</Table>
Included in the aforementioned purchases and sales of portfolio securities of
Value-Added Market are purchases and sales of Morgan Stanley, an affiliate of
the Investment Manager, Sub-Advisor and Distributor, of $30,043 and $34,842,
respectively including a net realized gain of $9,006.
The following Portfolios had transactions in Hartford Financial Services Group,
Inc., an affiliate of the Fund:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS (LOSSES)
------------ ------------ --------------
Balanced Growth $ 29,965 $ 75,436 $ (5,817)
Dividend Growth 1,510,600 50,961 5,461
Value-Added Market 14,920 -- --
</Table>
The following Portfolios had transactions with other Morgan Stanley funds during
the year ended December 31, 2003:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS (LOSSES)
------------ ------------ --------------
Balanced Growth $ 374,804 -- --
Utilities 322,700 -- --
Dividend Growth -- $ 175,146 $ (7,008)
Growth -- 13,104 1,704
Value-Added Market 67,165 -- --
American Opportunities 728,476 1,326,377 13,851
Capital Opportunities 578,380 568,775 48,055
Developing Growth 336,280 358,393 77,243
</Table>
113
<Page>
For the year ended December 31, 2003, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, Sub-Advisor and Distributor, for executed portfolio
transactions:
<Table>
<Caption>
BALANCED DIVIDEND VALUE-ADDED
GROWTH UTILITIES GROWTH MARKET GROWTH
------------- --------- -------- ----------- ------
$ 3,282 $ 84,455 $ 50,637 $ 447 $ 699
======== ========= ======== ====== ======
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
------------- ------------- -------- -----------
$ 228,690 $ 2,999 $ 20,007 $ 8,012
========== ======== ======== ========
</Table>
Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor 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 Statements 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
Portfolios' market exposure, seek higher investment returns, or to seek to
protect against a decline in the value of the Portfolios' securities or an
increase in prices of securities that may be purchased.
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statements of Assets and Liabilities. The Portfolios bear 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 counterparties to meet the terms of their contracts.
6. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted
114
<Page>
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for tax purposes are reported as distributions of
paid-in-capital.
The tax character of distributions paid for the years ended December 31, 2002
and December 31, 2003 for all portfolios was the same as the book character
shown on the Statements of Changes in Net Assets.
As of December 31, 2003, the tax-basis components of accumulated earnings were
as follows:
<Table>
<Caption>
FLEXIBLE BALANCED DIVIDEND VALUE-ADDED
INCOME GROWTH UTILITIES GROWTH MARKET
------------- ------------- ------------- --------------- -------------
Undistributed ordinary income $ 2,341,352 $ 21,859 $ 346 $ 1,327 $ 1,582,581
Undistributed long-term gains -- -- -- -- --
------------- ------------- ------------- --------------- -------------
Net accumulated earnings 2,341,352 21,859 346 1,327 1,582,581
Capital loss carryforward* (18,331,717) (12,115,013) (41,522,738) (184,028,290) (1,207,850)
Post-October losses (196,443) -- -- -- (52,195)
Temporary differences (77,347) -- -- -- --
Net unrealized appreciation
(depreciation) (3,621,967) 14,283,485 15,497,393 82,956,045 55,104,402
------------- ------------- ------------- --------------- -------------
Total accumulated earnings (losses) $ (19,886,122) $ 2,190,331 $ (26,024,999) $ (101,070,918) $ 55,426,938
============= ============= ============= =============== =============
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
GROWTH OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
------------- ------------- ------------- --------------- -------------
Undistributed ordinary income $ 80,357 $ 877,204 -- $ 194,052 --
Undistributed long-term gains -- -- -- -- --
------------- ------------- ------------- --------------- -------------
Net accumulated earnings 80,357 877,204 -- 194,052 --
Capital loss carryforward* (34,599,387) (278,126,502) $ (96,058,848) (9,170,518) $ (50,165,892)
Post-October losses -- -- -- (1,731,435) --
Temporary differences -- -- -- -- --
Net unrealized appreciation
(depreciation) 271,882 33,463,733 4,909,111 11,707,706 8,929,682
------------- ------------- ------------- --------------- -------------
Total accumulated earnings (losses) $ (34,247,148) $(243,785,565) $ (91,149,737) $ 999,805 $ (41,236,210)
============= ============= ============= =============== =============
</Table>
* As of December 31, 2003, the following Portfolios had a net capital loss
carryforward which may be used to offset future capital gains to the extent
provided by regulations.
115
<Page>
<Table>
<Caption>
(AMOUNTS IN THOUSANDS)
-----------------------------------------------------------------------------
AVAILABLE THROUGH DECEMBER 31, 2006 2007 2008 2009 2010 2011 TOTAL
- ------------------------------ -------- -------- -------- -------- --------- -------- ----------
Flexible Income $ 153 $ 941 $ 1,681 $ 2,688 $ 6,782 $ 6,087 $ 18,332
Balanced Growth -- -- -- -- 12,115 -- 12,115
Utilities -- -- -- 20,380 21,143 -- 41,523
Dividend Growth -- -- 83,533 21,046 58,750 20,699 184,028
Value-Added Market -- -- -- -- -- 1,208 1,208
Growth -- -- -- 15,102 16,400 3,097 34,599
American Opportunities -- -- -- 203,342 74,785 -- 278,127
Capital Opportunities -- -- -- 38,492 57,567 -- 96,059
Global Equity -- -- -- 6,508 2,663 -- 9,171
Developing Growth -- -- -- 31,854 18,312 -- 50,166
</Table>
During the year ended December 31, 2003, the following Portfolios utilized net
capital loss carryforwards: Balanced Growth -- $5,078,425; Utilities --
$434,007; American Opportunities -- $6,161,891; Capital Opportunities --
$5,112,083; Global Equity -- $222,931; Developing Growth -- $7,396,516.
At December 31, 2003, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<Table>
<Caption>
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 -
Value-Added Market - -
Growth -
American Opportunities - -
Capital Opportunities - -
Global Equity - -
Developing Growth - - -
</Table>
116
<Page>
Additionally, Flexible Income had temporary differences attributable to interest
on bonds in default and Flexible Income and Balanced Growth had temporary
differences attributable to capital loss deferrals on straddles. Flexible Income
and Balanced Growth had permanent differences attributable to reclassification
of net losses on paydowns and American Opportunities had permanent differences
attributable to a prior year excess distribution. 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:
<Table>
<Caption>
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME (LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL
---------------------------- ------------------------- ---------------
Flexible Income $ 1,798,161 $ (1,798,161) --
Balanced Growth 337,863 (337,863) --
Utilities 2,037 (2,037) --
Value-Added Market (62,324) 62,324 --
Growth -- 668 $ (668)
American Opportunities (427) 2,008,134 (2,007,707)
Capital Opportunities 202,747 -- (202,747)
Global Equity (52,373) 52,373
Developing Growth 117,933 23 (117,956)
</Table>
117
<Page>
Morgan Stanley Select Dimensions Investment Series
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
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
1999 $ 1.00 $ 0.05 -- $ 0.05 $ (0.05)
2000(a) 1.00 0.06* -- 0.06 (0.06)
2001 1.00 0.04* -- 0.04 (0.04)
2002 1.00 0.01* -- 0.01 (0.01)
2003 1.00 0.006* -- 0.006 (0.006)
CLASS Y SHARES
2000(b) 1.00 0.03* -- 0.03 (0.03)
2001 1.00 0.04* -- 0.04 (0.04)
2002 1.00 0.01* -- 0.01 (0.01)
2003 1.00 0.004* -- 0.004 (0.004)
FLEXIBLE INCOME
CLASS X SHARES
1999 9.93 0.78 $ (0.96) (0.18) (0.77)
2000(a) 8.96 0.76* (1.15) (0.39) (0.65)
2001 7.83 0.56* (0.88) (0.32) (0.42)
2002 6.99 0.51* 0.08 0.59 (0.35)
2003 7.23 0.34* 0.62 0.96 (0.39)
CLASS Y SHARES
2000(b) 8.58 0.33* (0.73) (0.40) (0.33)
2001 7.81 0.52* (0.86) (0.34) (0.41)
2002 6.97 0.48* 0.10 0.58 (0.33)
2003 7.22 0.32* 0.61 0.93 (0.37)
BALANCED GROWTH
CLASS X SHARES
1999 16.38 0.48 0.15 0.63 (0.48)
2000(a) 14.63 0.47* 0.42 0.89 (0.51)
2001 14.90 0.44* (0.28) 0.16 (0.44)
2002 14.62 0.36* (2.02) (1.66) (0.38)
2003 12.58 0.27* 2.19 2.46 (0.33)
CLASS Y SHARES
2000(b) 13.67 0.18* 1.25 1.43 (0.22)
2001 14.88 0.39* (0.27) 0.12 (0.41)
2002 14.59 0.32* (2.01) (1.69) (0.34)
2003 12.56 0.23* 2.19 2.42 (0.30)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
118
<Page>
<Table>
<Caption>
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+ (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- ---------- ------------- ---------
MONEY MARKET
CLASS X SHARES
1999 -- $ (0.05) $ 1.00 4.78% $ 135,675 0.54% 4.67% N/A
2000(a) -- (0.06) 1.00 5.98 118,274 0.55 5.80 N/A
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 -- (0.006) 1.00 0.65 91,730 0.54 0.66 N/A
CLASS Y SHARES
2000(b) -- (0.03) 1.00 2.58(1) 2,673 0.80(2) 5.55(2) N/A
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 -- (0.004) 1.00 0.40 39,183 0.79 0.41 N/A
FLEXIBLE INCOME
CLASS X SHARES
1999 $ (0.02)++ (0.79) 8.96 (1.83) 86,270 0.48 8.31 69%
2000(a) (0.09)++ (0.74) 7.83 (4.74) 69,443 0.47 8.92 33
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
CLASS Y SHARES
2000(b) (0.04)++ (0.37) 7.81 (4.68)(1) 602 0.72(2) 9.23(2) 33
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
BALANCED GROWTH
CLASS X SHARES
1999 (1.90) (2.38) 14.63 3.52 128,299 0.64 3.10 37
2000(a) (0.11) (0.62) 14.90 6.37 120,911 0.64 3.29 39
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
CLASS Y SHARES
2000(b) -- (0.22) 14.88 10.55(1) 1,455 0.86(2) 2.90(2) 39
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
</Table>
119
<Page>
<Table>
<Caption>
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
- ------------ --------- ------------- -------------- ---------- ------------
UTILITIES
CLASS X SHARES
1999 $ 18.71 $ 0.34 $ 7.69 $ 8.03 $ (0.34)
2000(a) 26.25 0.38* (0.79) (0.41) (0.40)
2001 23.99 0.43* (6.45) (6.02) (0.45)
2002 17.10 0.47* (3.93) (3.46) (0.48)
2003 13.16 0.35* 2.31 2.66 (0.36)
CLASS Y SHARES
2000(b) 26.06 0.15* (2.04) (1.89) (0.18)
2001 23.99 0.40* (6.48) (6.08) (0.40)
2002 17.09 0.44* (3.93) (3.49) (0.45)
2003 13.15 0.31* 2.31 2.62 (0.32)
DIVIDEND GROWTH
CLASS X SHARES
1999 22.05 0.40 (0.10) 0.30 (0.40)
2000(a) 19.92 0.33* 0.05 0.38 (0.37)
2001 15.85 0.27* (1.13) (0.86) (0.28)
2002 14.71 0.26* (2.88) (2.62) (0.26)
2003 11.83 0.24* 3.00 3.24 (0.24)
CLASS Y SHARES
2000(b) 14.14 0.10* 1.73 1.83 (0.13)
2001 15.84 0.23* (1.13) (0.90) (0.25)
2002 14.69 0.23* (2.88) (2.65) (0.23)
2003 11.81 0.20* 3.01 3.21 (0.21)
VALUE-ADDED MARKET
CLASS X SHARES
1999 19.19 0.22 2.08 2.30 (0.22)
2000(a) 20.54 0.26* 1.95 2.21 (0.09)
2001 20.75 0.22* (0.56) (0.34) (0.19)
2002 19.12 0.19* (3.22) (3.03) (0.21)
2003 15.88 0.19* 5.59 5.78 (0.21)
CLASS Y SHARES
2000(b) 18.74 0.09* 1.89 1.98 --
2001 20.72 0.16* (0.55) (0.39) (0.18)
2002 19.05 0.16* (3.22) (3.06) (0.20)
2003 15.79 0.15* 5.56 5.71 (0.19)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
120
<Page>
<Table>
<Caption>
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+ (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- ---------- ------------- ---------
UTILITIES
CLASS X SHARES
1999 $ (0.15) $ (0.49) $ 26.25 43.71% $ 165,368 0.70% 1.63% 31%
2000(a) (1.45) (1.85) 23.99 (1.91) 196,489 0.69 1.43 32
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
CLASS Y SHARES
2000(b) -- (0.18) 23.99 (7.26)(1) 5,494 0.95(2) 1.40(2) 32
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
DIVIDEND GROWTH
CLASS X SHARES
1999 (2.03) (2.43) 19.92 0.53 742,811 0.60 1.86 101
2000(a) (4.08) (4.45) 15.85 5.36 619,469 0.63 2.01 41
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
CLASS Y SHARES
2000(b) -- (0.13) 15.84 13.02(1) 2,780 0.88(2) 1.45(2) 41
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
VALUE-ADDED MARKET
CLASS X SHARES
1999 (0.73) (0.95) 20.54 12.15 189,708 0.55 1.11 21
2000(a) (1.91) (2.00) 20.75 11.98 186,887 0.54 1.31 8
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
CLASS Y SHARES
2000(b) -- -- 20.72 10.57(1) 890 0.78(2) 1.02(2) 8
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
</Table>
121
<Page>
<Table>
<Caption>
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
- ------------ --------- ------------- -------------- ---------- ------------
GROWTH
CLASS X SHARES
1999 $ 18.23 $ (0.02) $ 6.65 $ 6.63 --
2000(a) 23.27 (0.02)* (2.47) (2.49) --
2001 19.42 (0.01)* (2.90) (2.91) --
2002 15.48 0.01* (4.32) (4.31) --
2003 11.17 0.03* 2.97 3.00 $ (0.01)
CLASS Y SHARES
2000(b) 23.90 (0.03)* (4.47) (4.50) --
2001 19.40 (0.05)* (2.90) (2.95) --
2002 15.42 (0.02)* (4.30) (4.32) --
2003 11.10 (0.01)* 2.96 2.95 --
AMERICAN OPPORTUNITIES
CLASS X SHARES
1999 23.31 0.08 11.76 11.84 (0.07)
2000(a) 32.60 0.05* (1.39) (1.34) --
2001 28.57 0.09* (7.97) (7.88) (0.05)
2002 14.99 0.04* (3.26) (3.22) (0.09)
2003 11.68 0.04* 2.36 2.40 (0.05)
CLASS Y SHARES
2000(b) 29.89 0.05* (1.39) (1.34) --
2001 28.55 0.03* (7.95) (7.92) (0.05)
2002 14.93 0.01* (3.25) (3.24) (0.06)
2003 11.63 0.01* 2.34 2.35 (0.02)
CAPITAL OPPORTUNITIES
CLASS X SHARES
1999 11.86 0.06 10.81 10.87 (0.06)
2000(a) 22.66 (0.09)* (5.64) (5.73) --
2001 15.38 (0.07)* (5.52) (5.59) --
2002 9.79 (0.05)* (4.24) (4.29) --
2003 5.50 (0.04)* 2.33 2.29 --
CLASS Y SHARES
2000(b) 24.41 (0.05)* (8.99) (9.04) --
2001 15.37 (0.09)* (5.53) (5.62) --
2002 9.75 (0.07)* (4.22) (4.29) --
2003 5.46 (0.05)* 2.31 2.26 --
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
122
<Page>
<Table>
<Caption>
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+ (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- ---------- ------------- ---------
GROWTH
CLASS X SHARES
1999 $ (1.59) $ (1.59) $ 23.27 39.10% $ 96,699 0.90% (0.11)% 88%
2000(a) (1.36) (1.36) 19.42 (11.68) 132,909 0.88 (0.10) 68
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
CLASS Y SHARES
2000(b) -- -- 19.40 (18.83)(1) 2,536 1.14(2) (0.34)(2) 68
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
AMERICAN OPPORTUNITIES
CLASS X SHARES
1999 (2.48) (2.55) 32.60 55.81 768,751 0.66 0.29 360
2000(a) (2.69) (2.69) 28.57 (4.42) 832,971 0.64 0.17 426
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
CLASS Y SHARES
2000(b) -- -- 28.55 (4.48)(1) 13,930 0.88(2) 0.40(2) 426
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
CAPITAL OPPORTUNITIES
CLASS X SHARES
1999 (0.01) (0.07) 22.66 92.10 84,949 0.20(3) 0.37(3) 318
2000(a) (1.55) (1.55) 15.38 (27.56) 116,991 0.79 (0.41) 21
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
CLASS Y SHARES
2000(b) -- -- 15.37 (36.83)(1) 4,895 1.02(2) (0.62)(2) 21
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
</Table>
123
<Page>
<Table>
<Caption>
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
- ------------ --------- ------------- -------------- ---------- ------------
GLOBAL EQUITY
CLASS X SHARES
1999 $ 14.69 $ 0.06 $ 4.94 $ 5.00 $ (0.06)
2000(a) 19.63 0.13* (1.19) (1.06) (0.06)
2001 17.26 0.04* (2.88) (2.84) (0.11)
2002 12.79 0.04* (2.26) (2.22) (0.01)
2003 10.56 0.04* 3.62 3.66 (0.05)
CLASS Y SHARES
2000(b) 18.85 0.00* (1.61) (1.61) --
2001 17.24 (0.01)* (2.86) (2.87) (0.10)
2002 12.75 0.01* (2.26) (2.25) --
2003 10.50 0.01* 3.60 3.61 (0.02)
DEVELOPING GROWTH
CLASS X SHARES
1999 20.81 0.01 19.23 19.24 (0.01)
2000(a) 40.04 0.22* (7.89) (7.67) --
2001 25.93 (0.01)* (6.25) (6.26) (0.22)
2002 16.01 (0.03)* (4.41) (4.44) --
2003 11.57 (0.03)* 4.82 4.79 --
CLASS Y SHARES
2000(b) 29.79 0.09* (3.98) (3.89) --
2001 25.90 (0.05)* (6.25) (6.30) (0.21)
2002 15.95 (0.06)* (4.40) (4.46) --
2003 11.49 (0.07)* 4.80 4.73 --
</Table>
- ----------
(a) PRIOR TO JULY 24, 2000, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO MAY 1, 2000 HAVE BEEN DESIGNATED CLASS X SHARES.
(b) FOR THE PERIOD JULY 24, 2000 (ISSUE DATE) THROUGH DECEMBER 31, 2000.
* THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
++ DISTRIBUTION FROM PAID-IN CAPITAL.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE PORTFOLIO HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS RATIOS
WOULD HAVE BEEN 0.92% AND (0.35%), RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
124
<Page>
<Table>
<Caption>
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+ (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- ---------- ------------- ---------
GLOBAL EQUITY
CLASS X SHARES
1999 -- $ (0.06) $ 19.63 34.14% $ 173,743 1.08% 0.36% 79%
2000(a) $ (1.25) (1.31) 17.26 (5.93) 171,523 1.06 0.68 68
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
CLASS Y SHARES
2000(b) -- -- 17.24 (8.54)(1) 883 1.29(2) 0.02(2) 68
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
DEVELOPING GROWTH
CLASS X SHARES
1999 -- (0.01) 40.04 92.52 160,595 0.58 0.06 178
2000(a) (6.44) (6.44) 25.93 (21.61) 142,640 0.56 0.66 207
2001 (3.44) (3.66) 16.01 (25.49) 85,513 0.59 (0.05) 196
2002 -- -- 11.57 (27.73) 45,892 0.61 (0.26) 251
2003 -- -- 16.36 41.40 53,996 0.62 (0.20) 193
CLASS Y SHARES
2000(b) -- -- 25.90 (13.06)(1) 1,716 0.83(2) 0.74(2) 207
2001 (3.44) (3.65) 15.95 (25.67) 2,973 0.84 (0.30) 196
2002 -- -- 11.49 (27.96) 2,602 0.86 (0.51) 251
2003 -- -- 16.22 41.17 6,798 0.87 (0.45) 193
</Table>
125
<Page>
Morgan Stanley Select Dimensions Investment Series
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Morgan Stanley Select Dimensions Investment
Series (the "Fund"), comprising Money Market Portfolio, Flexible Income
Portfolio (formerly Diversified Income Portfolio), Balanced Growth Portfolio,
Utilities Portfolio, Dividend Growth Portfolio, Value-Added Market Portfolio,
Growth Portfolio, American Opportunities Portfolio, Capital Opportunities
Portfolio, Global Equity Portfolio and Developing Growth Portfolio (the
"Portfolios") as of December 31, 2003, 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 periods
presented. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios constituting Morgan Stanley Select Dimensions Investment
Series as of December 31, 2003, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
FEBRUARY 17, 2004
126
<Page>
Morgan Stanley Select Dimensions Investment Series
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ------------------------- ------------- ----------------------
Michael Bozic (62) Trustee Since Retired; Director or 216 Director of Weirton
c/o Mayer, Brown, Rowe & Maw LLP April 1994 Trustee of the Retail Steel Corporation.
Counsel to the Independent Directors Funds (since April 1994)
1675 Broadway and the Institutional
New York, NY Funds (since July 2003);
formerly Vice Chairman of
Kmart Corporation
(December 1998-October
2000), Chairman and Chief
Executive Officer of
Levitz Furniture
Corporation (November
1995-November 1998) and
President and Chief
Executive Officer of
Hills Department Stores
(May 1991-July 1995);
formerly variously
Chairman, Chief Executive
Officer, President and
Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of
Sears, Roebuck & Co.
Edwin J. Garn (71) Trustee Since Director or Trustee of 216 Director of Franklin
c/o Summit Ventures LLC January 1993 the Retail Funds (since Covey (time management
1 Utah Center January 1993) and the systems), BMW Bank of
201 S. Main Street Institutional Funds North America, Inc.
Salt Lake City, UT (since July 2003); member (industrial loan
of the Utah Regional corporation), United
Advisory Board of Pacific Space Alliance (joint
Corp.; formerly United venture between
States Senator (R-Utah) Lockheed Martin and
(1974-1992) and Chairman, the Boeing Company)
Senate Banking Committee and Nuskin Asia
(1980-1986), Mayor of Pacific (multilevel
Salt Lake City, Utah marketing); member of
(1971-1974), Astronaut, the board of various
Space Shuttle Discovery civic and charitable
(April 12-19, 1985), and organizations.
Vice Chairman, Huntsman
Corporation (chemical
company).
Wayne E. Hedien (69) Trustee Since September Retired; Director or 216 Director of The PMI
c/o Mayer, Brown, Rowe & Maw LLP 1997 Trustee of the Retail Group Inc. (private
Counsel to the Independent Directors Funds (since September mortgage insurance);
1675 Broadway 1997) and the Trustee and Vice
New York, NY Institutional Funds Chairman of The Field
(since July 2003); Museum of Natural
formerly associated with History; director of
the Allstate Companies various other business
(1966-1994), most and charitable
recently as Chairman of organizations.
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).
</Table>
127
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ------------------------- ------------- ----------------------
Dr. Manuel H. Johnson (54) Trustee Since Chairman of the Audit 216 Director of NVR,
c/o Johnson Smick International, Inc. July 1991 Committee and Director or Inc. (home
2099 Pennsylvania Avenue, N.W. Trustee of the Retail construction);
Suite 950 Funds (since July 1991) Chairman and Trustee
Washington, D.C. and the Institutional of the Financial
Funds (since July 2003); Accounting Foundation
Senior Partner, Johnson (oversight
Smick International, organization of the
Inc., a consulting firm; Financial Accounting
Co-Chairman and a founder Standards Board);
of the Group of Seven Director of RBS
Council (G7C), an Greenwich Capital
international economic Holdings (financial
commission; formerly Vice holding company).
Chairman of the Board of
Governors of the Federal
Reserve System and
Assistant Secretary of
the U.S. Treasury.
Joseph J. Kearns (61) Trustee Since Deputy Chairman of the 217 Director of Electro
PMB754 July 2003 Audit Committee and Rent Corporation
23852 Pacific Coast Highway Director or Trustee of (equipment leasing),
Malibu, CA the Retail Funds (since The Ford Family
July 2003) and the Foundation, and the
Institutional Funds UCLA Foundation.
(since August
1994); previously
Chairman of the Audit
Committee of the
Institutional Funds
(October 2001-July
2003); President, Kearns
& Associates LLC
(investment consulting);
formerly CFO of the
J. Paul Getty Trust.
Michael E. Nugent (67) Trustee Since Chairman of the Insurance 216 Director of various
c/o Triumph Capital, L.P. July 1991 Committee and Director or business
445 Park Avenue Trustee of the Retail organizations.
New York, NY Funds (since July 1991)
and the Institutional
Funds (since July 2001);
General Partner of
Triumph Capital, L.P., a
private investment
partnership; formerly
Vice President, Bankers
Trust Company and BT
Capital Corporation
(1984-1988).
Fergus Reid (71) Trustee Since Chairman of the 217 Trustee and Director
85 Charles Colman Blvd. July 2003 Governance Committee and of certain
Pawling, NY Director or Trustee of investment companies
the Retail Funds (since in the JPMorgan
July 2003) and the Funds complex
Institutional Funds managed by JPMorgan
(since June 1992); Investment
Chairman of Lumelite Management Inc.
Plastics Corporation.
</Table>
128
<Page>
Interested Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ------------------------- ------------- ----------------------
Charles A. Fiumefreddo (70) Chairman of Since Chairman and Director or 216 None
c/o Morgan Stanley Trust the Board July 1991 Trustee of the Retail
Harborside Financial Center, and Trustee Funds (since July 1991)
Plaza Two, and the Institutional
Jersey City, NJ Funds (since July 2003);
formerly Chief Executive
Officer of the Retail
Funds (until September
2002).
James F. Higgins (55) Trustee Since Director or Trustee of 216 Director of AXA
c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and
Harborside Financial Center, June 2000) and the The Equitable Life
Plaza Two, Institutional Funds Assurance Society of
Jersey City, NJ (since July 2003); Senior the United States
Advisor of Morgan Stanley (financial
(since August 2000); services).
Director of the
Distributor and Dean
Witter Realty Inc.;
previously President and
Chief Operating Officer
of the Private Client
Group of Morgan Stanley
(May 1999-August 2000),
and President and Chief
Operating Officer of
Individual Securities of
Morgan Stanley (February
1997-May 1999).
Philip J. Purcell (60) Trustee Since Director or Trustee of 216 Director of American
1585 Broadway April 1994 the Retail Funds (since Airlines, Inc. and
New York, NY April 1994) and the its parent company,
Institutional Funds AMR Corporation.
(since July 2003);
Chairman of the Board of
Directors and Chief
Executive Officer of
Morgan Stanley and Morgan
Stanley DW Inc.; Director
of the Distributor;
Chairman of the Board of
Directors and Chief
Executive Officer of
Novus Credit Services
Inc.; Director and/or
officer of various Morgan
Stanley subsidiaries.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (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., MORGAN STANLEY INVESTMENTS LP 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 MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
129
<Page>
Officers:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- ----------------- ---------------- --------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Stanley Investment Management Inc.; President,
New York, NY Director and Chief Executive Officer of the
Investment Manager and Morgan Stanley Services;
Chairman, Chief Executive Officer and Director of
the Distributor; Chairman and Director of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President Morgan Stanley Investments
LP (since February 2003); President of the
Institutional Funds (since July 2003) and
President of the Retail Funds (since May 1999);
Trustee (since July 2003) and President (since
December 2002) of the Van Kampen Closed-End Funds;
Trustee (since May 1999) and President (since
October 2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Vice Since April 2003 Chief Global Operations Officer and Managing
1221 Avenue of the Americas President and Director of Morgan Stanley Investment Management
New York, NY Principal Inc.; Managing Director of Morgan Stanley & Co.
Executive Officer Incorporated; Managing Director of Morgan Stanley;
Managing Director, Chief Administrative Officer
and Director of the Investment Manager and Morgan
Stanley Services; Chief Executive Officer and
Director of the Transfer Agent; Managing Director
and Director of the Distributor; Executive Vice
President and Principal Executive Officer of the
Institutional Funds (since July 2003); previously
President of the Institutional Funds (March 2001-
July 2003) and Director of the Institutional Funds
(March 2001-July 2003).
Barry Fink (48) Vice President Since General Counsel (since May 2000) and Managing
1221 Avenue of the Americas and General February 1997 Director (since December 2000) of Morgan Stanley
New York, NY Counsel Investment Management; Managing Director (since
December 2000), Secretary (since February 1997)
and Director (since July 1998) of the Investment
Manager and Morgan Stanley Services; Assistant
Secretary of Morgan Stanley DW; Chief Legal
Officer of Morgan Stanley Investments LP (since
July 2002); Vice President of the Institutional
Funds (since July 2003); Vice President and
Secretary of the Distributor; previously Secretary
of the Retail Funds (February 1997-July 2003);
previously Vice President and Assistant General
Counsel of the Investment Manager and Morgan
Stanley Services (February 1997-December 2001).
Joseph J. McAlinden (60) Vice President Since July 1995 Managing Director and Chief Investment Officer of
1221 Avenue of the Americas the Investment Manager, Morgan Stanley Investment
New York, NY Management Inc. and Morgan Stanley Investments LP;
Director of the Transfer Agent, Chief Investment
Officer of the Van Kampen Funds; Vice President of
the Institutional Funds (since July 2003) and the
Retail Funds (since July 1995).
Stefanie V. Chang (37) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. and
1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and Vice
New York, NY President of the Institutional Funds (since
December 1997) and the Retail Funds (since July
2003); formerly practiced law with the New York
law firm of Rogers & Wells (now Clifford Chance
LLP).
</Table>
130
<Page>
<Table>
<Caption>
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**
- --------------------------- ----------------- ---------------- --------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer since Executive Director of the Investment Manager and
c/o Morgan Stanley Trust Chief Financial July 2003 and Morgan Stanley Services (since December 2001);
Harborside Financial Center, Officer Chief Financial previously Vice President of the Retail Funds
Plaza Two, Officer since (September 2002-July 2003); previously Vice
Jersey City, NJ September 2002 President of the Investment Manager and Morgan
Stanley Services (August 2000-November 2001) and
Senior Manager at PricewaterhouseCoopers LLP
(January 1998-August 2000).
Thomas F. Caloia (57) Vice President Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust Assistant Treasurer of the Investment Manager, the
Harborside Financial Center, Distributor and Morgan Stanley Services;
Plaza Two, previously Treasurer of the Retail Funds (April
Jersey City, NJ 1989-July 2003); formerly First Vice President of
the Investment Manager, the Distributor and Morgan
Stanley Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas and Morgan Stanley Investment Management Inc.;
New York, NY Secretary of the Institutional Funds (since June
1999) and the Retail Funds (since July 2003);
formerly practiced law with the New York law firms
of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ----------
* 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.
131
<Page>
Trustees
Michael Bozic Dr. Manuel H. Johnson
Charles A. Fiumefreddo Joseph J. Kearns
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien Philip J. Purcell
James F. Higgins Fergus Reid
Officers
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT AND GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER AND CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Transfer Agent Independent Auditors
Morgan Stanley Trust Deloitte & Touche LLP
Harborside Financial Center--Plaza Two Two World Financial Center
Jersey City, New Jersey 07311 New York, New York 10281
Investment Manager
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Sub-Advisor
(Growth Portfolio)
Morgan Stanley Investment Management 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.
<Page>
#40474
13558A04-AP-1/04
<Page>
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) Not applicable.
(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.
<Page>
Item 4. Principal Accountant Fees and Services
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 161,328 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 9,684(2) $ 2,847,161(2)
TAX FEES $ 38,878(3) $ 736,810(4)
ALL OTHER FEES $ 0 $ 0
TOTAL NON-AUDIT FEES $ 48,562 $ 3,583,971
TOTAL $ 209,890 $ 3,583,971
</Table>
2002
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 144,600 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 5,657(2) $ 2,818,115(2)
TAX FEES $ 58,673(3) $ 365,427(4)
ALL OTHER FEES $ 0 $ 501,166(5)
TOTAL NON-AUDIT FEES $ 64,330 $ 3,684,708
TOTAL $ 208,930 $ 3,684,708
</Table>
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.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
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, supercedes
and replaces all prior versions that may have been adopted from time to
time.
<Page>
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
<Page>
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.
<Page>
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.
<Page>
1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after
May 6, 2003, the audit committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined to have a
direct impact on the operations or financial reporting of the Registrant.
100% of such services were pre-approved by the audit committee pursuant to
the Audit Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
<Page>
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9 - 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.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(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 10 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.
<Page>
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 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 18, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 18, 2004