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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07185
Morgan Stanley Select Dimensions Investment Series
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Item 1 - Report to Shareholders
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MORGAN STANLEY
SELECT DIMENSIONS INVESTMENT SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2004
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Morgan Stanley Select Dimensions Investment Series
TABLE OF CONTENTS
<Table>
Letter to the Shareholders 1
Fund Performance 14
Portfolio of Investments:
Money Market 16
Flexible Income 18
Balanced Growth 42
Utilities 55
Dividend Growth 59
Value-Added Market 62
Growth 74
American Opportunities 77
Capital Opportunities 81
Global Equity 84
Developing Growth 90
Financial Statements:
Statements of Assets and Liabilities 94
Statements of Operations 96
Statements of Changes in Net Assets 98
Notes to Financial Statements 106
Financial Highlights 114
</Table>
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Morgan Stanley Select Dimensions Investment Series
LETTER TO THE SHAREHOLDERS - JUNE 30, 2004
Dear Shareholder,
In stark contrast to 2003, the first six months of 2004 offered investors small
comfort as capital markets produced little in the way of returns but a great
deal of volatility. Investors' perceptions were driven largely by alternating
fears of a global economic slowdown and excessive inflation. As a result, equity
and bond markets around the world experienced significant movements as key
economic data were published over the course of the period.
Equity Overview
The six-month period under review saw a general market rotation away from the
more aggressive stocks and sectors that led the market in 2003 towards sectors
that benefit from rising inflation and a rebound in global industrial production
such as energy and industrials. The period began with a technology stock rally
which lost steam at the end of January. In March, the market corrected as
concern grew that slow employment growth would undermine the economy. Surging
oil prices led to increased profits for energy companies. Commodity stocks
performed particularly well in February as rising imports by China supported
global commodity prices.
The market offered no unusual surprises through the second quarter. Optimism
regarding the potential for a global soft landing was offset by concern about
tighter global monetary policy and earnings disappointments. In April, published
employment numbers and inflation figures exceeded expectations. This led to a
sell-off in both the bond and stock markets as investors began to price in a
rate increase quicker than they had previously expected. During this period,
defensive stocks in the consumer staples and healthcare area outperformed while
interest rate sensitive stocks such as financial services and utilities lagged.
Basic materials stocks corrected sharply due to concerns that China would have a
hard landing, as the government tightened credit availability to prevent an
overheating.
Fixed Income Market Overview
Interest rates generally fell during the first half of the six-month review
period but then rose sharply on expectations for federal funds rate hikes, based
on incoming employment and inflation data. The period began with interest rates
trending lower during the first quarter of 2004 as employment growth and price
pressures remained low. Rates then rose abruptly in April with the publication
of surprisingly strong March employment figures and upward revisions for prior
months. This report, coupled with a high level of oil prices and other price
pressures, led investors to conclude that the Federal Open Market Committee (the
"Fed") would move to raise interest rates as soon as its June meeting. These
concerns led to the worst month for bond returns in years. This unfavorable
environment remained until the end of the period, when
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the Fed affirmed its intent to increase rates at a "measured" pace. As expected,
at the end of June the Fed raised the federal funds rate by 25 basis points from
its multi-decade low.
Sector performance varied in this challenging environment. Treasuries largely
underperformed, because of their high sensitivity to changes in interest rates
as well as their lack of the yield cushion enjoyed by other sectors.
Mortgage-backed securities (MBSs) outperformed Treasuries in the first quarter
of the period in spite of falling rates, as rates did not fall far enough to
trigger a sharp increase in prepayment expectations, going on to outperform for
the full six-month period. Corporate bonds outperformed their government
counterparts as investors sought out securities with higher yields. The
lower-rated tiers of the corporate credit market posted the strongest results of
any segment of the U.S. bond market.
International Equity Market Overview
The global equity markets had mixed results for the six-month period ending June
30, 2004, performing generally positively though rising at a slower pace than in
2003. Concerns over the sustainability of the job recovery in the United States,
even as economic conditions there improved, impaired the markets in the mid to
late second quarter, but these fears abated after strong April and May U.S.
employment figures were released and payroll numbers improved. During the final
two months of the period, concerns over rising inflation and the timing of an
interest-rate increase added more uncertainty to the markets, particularly in
technology and other economically sensitive sectors. By the end of this
six-month period the market had already priced in the 25-basis-point (0.25%)
increase in rates approved by the Federal Open Market Committee at its June 30
meeting.
The performance of the global equity markets over the period was driven
primarily by growth in the United States and China. In the second quarter, the
Chinese government's suspension of a number of loans signaled its intention to
moderate growth and fueled fears of a restrictive monetary policy, which hurt
investor sentiment in the Japanese market. The Japanese economy nevertheless
remained on a solid footing as export growth to the United States and China
stayed firm and domestic consumer spending improved. Japan's moderation of its
fiscal spending and the way it managed its nonperforming bank loans also
benefited that market's performance. Japanese real estate showed particularly
encouraging signs during the period, and retail companies performed well as the
domestic economic environment improved.
The European economy, on the other hand, lagged, reflecting a strong euro, a
less-stimulative central bank than in the United States and structural
hindrances such as rigid labor laws and high corporate tax rates. Despite these
factors, European equities rose on increasing demand and the growth in China.
While the U.K. market produced mixed results because of its bias toward
defensive sectors and France continued to
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perform relatively strongly, Germany suffered from a number of structural issues
and saw relatively slow growth over the period. Norway performed particularly
well, however, because of the high number of energy equities in that market, and
the Austrian market also had strong gains from its proximity to eastern Europe.
After leading the world for the last six months of 2003, the emerging markets
experienced increased volatility in the six months ending June 30, 2004. The
strength of the emerging markets was moderated in the second quarter of 2004 by
a combination of inflation concerns, geopolitical uncertainty and the potential
for a slowing Chinese economy. During this period, performance varied widely
from region to region. Turkey saw consumer sentiment there diminish and risk
aversion increase over the last few months of the period, significantly hurting
market performance. Although high oil prices, structural reforms and a shift in
the current-account balance all strengthened confidence in the Russian market,
concerns about political risk there still weighed heavily on investors over the
period, leading the market to fall after peaking in April. Egypt, though it
represents a very small segment of the world's emerging markets, also saw
improvements in its economic and political environment and has made considerable
gains based on an expansion of trade. The markets of Hungary, Poland and the
Czech Republic also continued to perform well as economic indicators improved
after struggling to recover for much of 2003. Having previously benefited from
the general success of President Luiz Inacio Lula da Silva's new administration,
Brazilian equities were hindered by investors' heightened risk aversion despite
signs of improvement in the domestic economy.
American Opportunities Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley American
Opportunities Portfolio's Class X shares produced a total return of 1.36 percent
versus 3.44 percent for the S&P 500 Index.(1) For the same period, the
Portfolio's Class Y shares returned 1.22 percent. THE PERFORMANCE OF THE
PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The single largest contributor to the Portfolio's underperformance was its
overweighted position relative to the S&P 500 Index in the metals industry,
which is in turn a component of the basic materials sector. The Portfolio's
overweight of precious metals stocks was as a hedge against geopolitical and
currency risk. While
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(1) 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.
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these holdings were trimmed during the period, the Portfolio's overweight still
hampered its performance relative to the market and its peers.
The Portfolio's performance was supported by strong selection in key sectors,
namely health care and technology. The Portfolio's position in biotechnology
company Biogen gained sharply when the company received approval faster than had
been anticipated for Antegren, its multiple sclerosis treatment. In the
technology sector, the Portfolio benefited from an overweighted position in
Yahoo! as online advertising spending grew rapidly. The Portfolio's returns were
also supported by an overweighted position relative to the S&P 500 Index in the
energy sector, where profits were boosted by high oil prices and the benefits of
a multi-year period of consolidation and restructuring.
Balanced Growth Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Balanced Growth
Portfolio's Class X shares posted a total return of 2.18 percent compared to
3.94 percent for the Russell 1000 Value Index(2) and 0.15 percent for the Lehman
Brothers U.S. Aggregate Index.(3) For the same period, the Portfolio's Class Y
shares returned 2.06 percent. THE PERFORMANCE OF THE TWO SHARE CLASSES VARIES
BECAUSE EACH HAS DIFFERENT EXPENSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
The Portfolio's performance was hurt primarily by stock selection within the
health-care and basic materials sectors. A number of pharmaceutical stocks in
particular detracted from Portfolio performance in the health-care sector as
news of a drug-reimportation bill's consideration in Congress caused concerns
within the industry. Among the companies negatively affected by anxieties over
compressed margins and a loss of funding for research and development was
Bristol-Myers, the Portfolio's worst-performing security. Also within
healthcare, Tenet served as a drag on Portfolio performance when it became clear
that its turnaround and financial restatement problems were going to take longer
than expected. Within the basic materials sector, the Portfolio's holdings in
mining and precious metals hurt its performance as the economy recovered, the
dollar strengthened and gold and commodities prices fell with demand. Newport
Mining and Phelps-Dodge both drove underperformance as a result of this drop in
demand.
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(2) THE RUSSELL 1000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE COMPANIES IN
THE RUSSELL 1000 INDEX WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED
GROWTH VALUES. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY
SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(3) THE LEHMAN BROTHERS U.S. AGGREGATE INDEX TRACKS THE PERFORMANCE OF ALL U.S.
GOVERNMENT AGENCY AND TREASURY SECURITIES, INVESTMENT-GRADE CORPORATE DEBT
SECURITIES, AGENCY MORTGAGE-BACKED SECURITIES, ASSET-BACKED SECURITIES AND
COMMERCIAL MORTGAGE-BASED SECURITIES. INDEXES ARE UNMANAGED AND THEIR
RETURNS DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER
PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
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Stock selection in other sectors benefited performance. The recovery of the
travel and tourism industries greatly supported hotels and lodging, allowing
Starwood Hotels & Resorts to make strong gains for the Portfolio. Stock
selection within the financial services sector also aided performance as we
avoided securities that were vulnerable to interest-rate volatility and made
gains with a number of insurance companies such as Hartford Financial Services.
The rising price of oil during the period boosted energy stocks and led such
Portfolio holdings as Schlumberger and Valero both to benefit strongly.
Capital Opportunities Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Capital
Opportunities Portfolio's Class X shares produced a total return of 9.24 percent
versus 6.09 percent for the S&P Mid-Cap 400 Index(4) and 4.62 percent for the
Lipper Multi-Cap Growth Index.(5) For the same period, the Portfolio's Class Y
shares returned 9.20 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 outperformance of its benchmarks was primarily the result of
stock selection, particularly in the information technology sector. Although an
overweighted position in this sector relative to the S&P Mid-Cap 400 Index
hampered returns, communication equipment, internet software and services, and
semiconductors and software turned out to be areas of strength. Performance was
driven by holdings in QUALCOMM, Yahoo!, Marvell Technology, Red Hat and Adobe.
Stock selection in the health-care sector added to performance as well, with
Dade Behring, INAMED, Varian Medical Systems and VCA Antech all contributing
positively.
Stock selection in the consumer discretionary sector was another positive
factor. A recovery in travel and leisure benefited Wynn Resorts, which performed
strongly after releasing plans for expanding its Las Vegas resort and upon
completing a common stock offering. Station Casinos also became a performance
leader for the Portfolio, in part because of that company's strategic focus on
slot machines and video poker, which tend to be a less volatile source of
revenue in the casino and gaming industry. A further factor is that Station
Casinos focuses on the local population, which is growing rapidly.
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(4) THE STANDARD AND POOR'S MIDCAP 400 INDEX (S&P 400) IS A MARKET-VALUE
WEIGHTED INDEX, THE PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 400
DOMESTIC STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP
REPRESENTATION. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY
SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(5) THE LIPPER MULTI-CAP GROWTH INDEX TRACKS THE PERFORMANCE OF THE 30 LARGEST
MULTI-CAP GROWTH 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 PERCENT 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. 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.
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There were a number of securities in the Portfolio that detracted modestly from
performance, especially holdings in the industrials, materials and consumer
staples areas. Within the industrial sector, Career Education hindered Portfolio
performance after becoming the subject of an SEC investigation into possible
falsification of enrollment, graduation and placement records. Newport Mining
was the primary detractor among securities in the materials sector. Concerns
regarding the Chinese government's intention to slow economic growth hurt shares
of commodities producers and other recent beneficiaries of China's economic
boom. And finally, stock selection in the consumer staples sector hurt the
Portfolio because of its lack of exposure to the food products industry.
Developing Growth Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Developing Growth
Portfolio's Class X shares produced a total return of 8.44 percent versus 5.94
for the Russell Mid-Cap Growth Index(6) and 5.65 percent for the Russell 2500
Growth Index.(7) For the same period, the Portfolio's Class Y shares returned
8.26 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 outperformance relative to the Russell Mid-Cap Growth Index was
the result primarily of stock selection. The Portfolio's underweighted position
in the technology sector relative to the Russell Mid-Cap Growth Index boosted
performance, as did strong performance by several key holdings in that sector.
Software and semiconductors turned out to be particular areas of strength,
highlighted by Symantec, Marvell Technology, Red Hat and Adobe. Similarly, stock
selection coupled with underweighted positions relative to the Russell Mid-Cap
Growth Index in the energy and financial services sectors positively affected
performance. Leading stocks in the Portfolio's energy sector included Smith
International and Ultra Petroleum. Ultra Petroleum was one of the
best-performing securities as a result of production and reserve growth in its
Wyoming operation. Chicago Mercantile Exchange and Legg Mason drove financial
services performance during the period.
Stock selection in the consumer discretionary sector was also a positive factor.
A recovery in travel and leisure benefited Wynn Resorts and Royal Caribbean
Cruises. Strong bookings and improved pricing allowed Royal Caribbean to be
among the top three performers for the period. Station Casinos also became
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(6) 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.
(7) 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.
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a performance leader for the Portfolio, in part because of that company's
strategic focus on slot machines and video poker, which tend to be a less
volatile source of revenue in the casino and gaming industry.
Not all holdings contributed positively to Portfolio performance, however, as
stock selection in a number of sectors served as a drag over the period. The
utilities and materials and processing sectors constituted weaknesses for the
Portfolio, with IDT hindering performance in utilities and Freeport-McMoRan and
American Standard detracting from performance in materials and processing. Other
securities that served to pull down performance included NTL, which was affected
by increased competition in broadband and filed for bankruptcy last year, and
Career Education, which became the subject of an SEC investigation into possible
falsification of enrollment, graduation and placement records. An underweighted
position in Biogen relative to the Russell Mid-Cap Growth Index negatively
affected performance as that company's financial results, existing products and
drug pipeline all allowed its stock to perform well for the period.
Dividend Growth Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Dividend Growth
Portfolio's Class X shares produced a total return of 2.10 percent versus 3.44
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 1.98 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 continued to focus on companies with the capacity to grow
dividends and which earn real economic returns above their cost of capital. The
Portfolio underperformed its benchmark for the six-month period under review due
to both asset allocation and stock selection. In terms of asset allocation,
Portfolio performance was hindered primarily by its overweighted position in the
basic material sector relative to the S&P 500 Index. Concerns over the
possibility of rising interest rates and a potential economic slowdown in China
hurt the sector during the first half of the year. Regarding stock selection,
the industrial and health-care sectors had the largest negative impact on
returns. The Portfolio's positions in Bristol-Myers, Wyeth, Caterpillar and
United Technologies were the main contributors to underperformance, as was
Citigroup, largely due to charges it took for unfavorable court decisions.
Lastly, the Portfolio's position in Lehman Brothers was hurt by the anticipated
weakness in the fixed-income markets as a result of interest rates that were
expected to rise before merger and acquisition and equity-underwriting activity
could accelerate.
Other sector allocation and security selection decisions made positive
contributions to performance. The Portfolio's overweighting in energy and
industrials benefited its relative performance during the period. High oil
prices and continuing signs of economic growth helped the energy sector
outperform others. The
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industrial sector had a strong first half, driven by accelerated orders. The
Portfolio's underweighting in information technology proved to be beneficial, as
that sector pulled back after strong appreciation in 2003. Stock selection was
also successful in the information technology sector, with stocks such as First
Data and Microsoft outperforming their peers. Security selection was favorable
in the consumer discretionary sector as well, with Portfolio ownership of Target
and VF Corp., both of which continued to show strong earnings growth.
Flexible Income Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Flexible Income
Portfolio's Class X shares produced a total return of 0.04 percent versus -0.11
percent for the Lehman Brothers Intermediate U.S. Government/Credit Index(8).
For the same period, the Portfolio's Class Y shares returned -0.08 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 slight outperformance relative to the Lehman Brothers
Intermediate Government U.S. Credit Index was largely due to its holdings of
high-yield, emerging markets and non-U.S. bonds. These holdings benefited from
general outperformance by the Portfolio relative to the Lehman benchmark and
helped support its returns.
The Portfolio's performance was negatively influenced by its interest-rate
sensitivity, which was greater than that of its Lehman benchmark. This posture
caused the Portfolio to be more negatively affected by the spike in interest
rates during April and May than was its benchmark.
Global Equity Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Global Equity
Portfolio's Class X shares produced a total return of 1.31 percent versus 3.52
percent for the MSCI World Index(9). For the same period, the Portfolio's Class
Y shares returned 1.22 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
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(8) 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.
(9) THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX (MSCI) MEASURES
PERFORMANCE FROM A DIVERSE RANGE OF GLOBAL STOCK MARKETS INCLUDING THE
U.S., CANADA, EUROPE, AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE
PERFORMANCE OF THE INDEX IS LISTED IN U.S. DOLLARS AND ASSUMES REINVESTMENT
OF NET DIVIDENDS. "NET DIVIDENDS" REFLECTS A REDUCTION IN DIVIDENDS AFTER
TAKING INTO ACCOUNT WITHHOLDING OF TAXES BY CERTAIN FOREIGN COUNTRIES
REPRESENTED IN THE INDEX. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT
INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT
IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
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The Portfolio's underperformance of its benchmark during this period was driven
primarily by sector allocation in the first quarter of 2004, particularly its
overweighted position in the semiconductor, media and materials sectors and an
underweighted position in Japanese banking stocks, relative to the MSCI World
Index. Despite producing strong earnings, these cyclical sectors suffered as
investors questioned whether the peak in the earnings cycle was occurring.
Against the backdrop of a prospect for higher interest rates, a spike in oil
prices and a potential slowdown in China, cyclical sectors underperformed and
negatively affected the Portfolio's performance.
Sector allocation decisions continued to contribute to the Portfolio's
underperformance in the second quarter as its overweighting in regard to
underperforming diversified financials, relative to the MSCI World Index, served
as a drag on performance. An underweighted position in the telecommunications
sector, relative to the MSCI World Index, also hindered performance for the
period, because the Portfolio was thus not positioned to take advantage of
positive earnings surprises in several key companies. In addition to these
sector allocation issues, stock-specific risk related to accounting concerns
hurt performance early in the year through holdings of Adecco and Royal Dutch.
Other sector and regional allocations contributed positively to the Portfolio's
performance over the period. An overweighted position in energy, relative to the
MSCI World Index, helped performance as a result of high crude oil prices being
driven by strong global demand. British Petroleum was a particularly strong
gainer for the Portfolio. Within the consumer staples sector, an emphasis on
food, beverage and tobacco holdings helped performance when these stocks began
to outperform in 2004 after underperforming cyclical and technology stocks
during 2003. The Portfolio's overweighted position in Japan, relative to the
MSCI World Index, also boosted performance, as the Japanese market gained on
long-awaited signs of continued growth. Holdings within that market which
performed well included Toyota, Mitsubishi and Tokyo Financial Group.
Growth Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Growth Portfolio's
Class X shares produced a total return of 2.61 percent versus 3.44 percent for
the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned
2.47 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 of its benchmark was primarily the result of
sector allocation. An underweighted position in the energy sector relative to
the S&P 500 Index served as the most significant
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detractor from returns, given that sector's market leadership over the period.
Stock selection and an underweighted position in consumer staples also hurt
performance, as the Portfolio was not positioned to take advantage of the gains
made by the food products and personal care items industries. Its overweighted
position in health care also hindered performance.
Stock selection in the financial sector also had a negative impact on the
Portfolio, with Citigroup and Fannie Mae serving as drags on performance. Fannie
Mae's performance suffered after it announced that it would take a charge of
$240 to $260 million as the result of a compromise with the SEC and Fannie Mae's
regulator. Citigroup's stock declined during the period on news of an SEC
accounting probe of the company's Argentine business in 2001-2002. Citigroup's
performance was further hurt by its announcement that it would take a $4.95
billion charge in the second quarter, including $2.65 billion to settle a
class-action lawsuit related to the WorldCom scandal.
On a more positive note, the Portfolio benefited from stock selection in a
number of sectors. Within the information technology sector, Yahoo!, Marvell
Technology and Juniper Networks all helped performance. A strong earnings
release late in the period and an improved outlook for Internet advertising
drove Yahoo!'s positive performance. Marvell Technology's products gained
overall market share as its new products gained traction and Juniper Networks
enjoyed a high margin contribution from its acquisition of NetScreen. In the
health-care sector, stock selection was positive as well, with strong performers
including Anthem, Caremark and Boston Scientific. Anthem gained after its result
outpaced analysts' expectations, thanks to rising enrollment. Boston Scientific
benefited from impressive test results on its new drug-coated stent called
Taxus. In the industrial sector, positive stock selection was led by General
Electric, which performed strongly after completing a spin-off of a financial
services division and the acquisition of Vivendi's Universal media properties.
Money Market Portfolio
As of June 30, 2004, Morgan Stanley Investment Series Money Market Portfolio had
net assets in excess of $120 million and an average Portfolio maturity of 40
days. For the seven-day period ended June 30, 2004, the Portfolio's Class X
shares provided an effective annualized yield and a current yield both of 0.63
percent; its 30-day moving average yield for June was 0.59 percent. For the
six-month period ended June 30, 2004, the Portfolio's Class X shares returned
0.27 percent.
For the seven-day period ended June 30, 2004 the Portfolio's Class Y shares
provided an effective annualized yield and a current yield of 0.38 percent,
while its 30-day moving average yield for June was 0.34 percent. For the
six-month period ended June 30, 2004 the Portfolio's Class Y shares provided a
total return
10
<Page>
of 0.15 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 in managing the Portfolio remained consistent with the Portfolio's
long-term focus on maintaining preservation of capital and very high liquidity.
The Portfolio adhered to a conservative approach that emphasized purchasing
high-quality money market obligations and avoided the use of derivatives or
structured notes that might fluctuate excessively with changing interest rates.
On June 30, 2004, approximately 77 percent of the Portfolio was invested in
high-quality commercial paper, 14 percent in federal agency obligations, 5
percent in floating-rate notes, 2 percent in bankers' acceptances and the
remaining 2 percent in certificates of deposit issued by financially strong
commercial banks. At the end of the fiscal period, approximately 98 percent of
the Portfolio's holdings were due to mature in less than four months.
Utilities Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Utilities
Portfolio's Class X shares produced a total return of 5.32 percent versus 3.44
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 5.19 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 outperformance resulted from solid contributions by all the
sectors owned, namely electric utilities, natural gas and telecommunications.
The Portfolio's positioning in electric and natural gas companies contributed
the strongest results to its performance. Electric utilities stocks performed
well as a result of relatively low interest rates, strong fundamentals,
strengthening balance sheets, improved dividend growth potential and the overall
heightened appeal of the sector, given its positive dividend tax
characteristics. Additionally, the Portfolio capitalized on several turnaround
opportunities, or special situations. For
example, TXU Corp. benefited from a proactive new management team that enacted a
more disciplined cost reduction plan combined with a prudent growth strategy,
enabling a more robust earnings trajectory for the company. Within the natural
gas sector a number of stocks benefited performance as a result of good demand
trends and a favorable pricing environment. Strong performers for the Portfolio
within this sector included the Williams Companies, Questar Corp. and Sempra
Energy.
While the Portfolio's holdings in telecom stocks performed well generally,
selective telecom companies, including some of the Regional Bell Operating
Companies, lagged. However, other holdings with wireless exposure such as Sprint
and Alltel outperformed as a result of vigorous growth in the mobile telephone
industry.
11
<Page>
Value-Added Portfolio
For the six-month period ending June 30, 2004, Morgan Stanley Value-Added
Portfolio's Class X shares produced a total return of 5.96 percent versus 3.44
percent for the S&P 500 Index. For the same period, the Portfolio's Class Y
shares returned 5.78 percent. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE
CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Positive returns across all ten sectors represented in the Portfolio resulted in
its outperformance during the period, driven particularly by contributions from
the industrials and consumer discretionary sectors. The economy's continued
improvement spurred the industrial sector's gains, while the Portfolio's
strategy of equal weighting allowed the sector's relatively large number of
companies to be a major contributor to its outperformance. Similarly, the
consumer discretionary sector's sheer size was a major reason for its strong
contribution to performance. The continued strength of the economy again played
a role in the sector's performance as returns were driven by companies such as
J. C. Penney and Dillard's. The Portfolio's equal weighting structure also
allowed for an outsized contribution from the smallest 200 companies in the S&P
500 Index.
The relatively small sectors, such as utilities and telecommunications,
contributed less to the Portfolio's total return. The telecom area performed
strongly as a result of the gains made by companies such as Sprint PCS and AT&T
wireless. Some of the Portfolio's most disappointing holdings in terms of
performance were QLogic, Ciena Corp., Delta, Watson Pharmaceuticals and
Winn-Dixie. QLogic served as the biggest drag on the Portfolio as
lower-forecasted sales numbers in March contributed to negative performance at
the end of that quarter, while Delta's poor performance resulted from higher
fuel prices and difficult contract negotiations.
12
<Page>
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 copy of (1) the Fund's policies and procedures with respect to the voting of
proxies relating to the Fund's portfolio securities; and (2) how the Fund voted
proxies relating to portfolio securities during the most recent twelve-month
period ended June 30 is available without charge, upon request, by calling (800)
869-NEWS or by visiting the Mutual Fund Center on our website at
www.morganstanley.com. This information is also available on the Securities and
Exchange Commission's website at http://www.sec.gov.
13
<Page>
Morgan Stanley Select Dimensions Investment Series
FUND PERFORMANCE - JUNE 30, 2004
AVERAGE ANNUAL TOTAL RETURNS-PERIOD ENDED JUNE 30, 2004(1)
<Table>
<Caption>
SINCE
CLASS X 1 YEAR 5 YEARS INCEPTION*
- ------- ------ ------- ----------
American Opportunities 13.85% (2.53)% 11.04%
Balanced Growth 12.86 2.16 8.96
Capital Opportunities 31.53 (7.57) (0.80)
Developing Growth 30.73 0.57 10.78
Dividend Growth 17.03 (1.01) 11.36
Flexible Income 5.51 2.21 4.12
Global Equity 19.62 1.54 6.66
Growth 15.68 (3.19) 7.01
Money Market 0.54 2.91 4.05
Utilities 12.70 (1.50) 8.99
Value-Added Market 27.94 5.65 12.70
</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. THE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. PERFORMANCE FOR CLASS X SHARES WILL VARY FROM THE PERFORMANCE OF CLASS Y
SHARES DUE TO DIFFERENCES IN EXPENSES.
- ----------
(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.
* The inception date of each Portfolio was November 9, 1994, with the
exception of Capital Opportunities, which commenced operations on January
21, 1997.
14
<Page>
AVERAGE ANNUAL TOTAL RETURNS-PERIOD ENDED JUNE 30, 2004(1)
<Table>
<Caption>
SINCE
CLASS Y 1 YEAR INCEPTION*
- ------- ------ ----------
American Opportunities 13.59% (10.72)%
Balanced Growth 12.62 4.78
Capital Opportunities 31.31 (23.62)
Developing Growth 30.36 (8.29)
Dividend Growth 16.77 3.25
Flexible Income 5.26 2.89
Global Equity 19.34 (4.13)
Growth 15.36 (10.70)
Money Market 0.29 1.98
Utilities 12.43 (8.93)
Value-Added Market 27.60 7.19
</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. THE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X
SHARES DUE TO DIFFERENCES IN EXPENSES.
- ----------
(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.
* Inception date of July 24, 2000.
15
<Page>
Money Market
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (77.6%)
ASSET-BACKED - AUTO (0.7%)
$ 850 DaimlerChrysler Revolving Auto Conduit 1.32% 07/28/04 $ 849,159
---------------
ASSET-BACKED - CONSUMER (7.1%)
1,000 Barton Capital Corp. - 144A* 1.10 07/21/04 999,389
4,450 Gemini Securitization Corp. - 144A* 1.07 - 1.33 07/16/04 - 08/13/04 4,446,565
3,125 Thames Asset Global Securitization - 144A* 1.08 - 1.28 07/15/04 - 08/11/04 3,122,703
---------------
8,568,657
---------------
ASSET-BACKED - CORPORATE (11.1%)
5,700 Asset Securitization Co-op Corp. - 144A* 1.06 - 1.26 07/01/04 - 07/21/04 5,698,328
1,200 Atlantis One Funding - 144A* 1.08 07/14/04 1,199,532
2,500 CAFCO LLC - 144A* 1.23 07/27/04 2,497,779
4,000 Moat Funding LLC - 144A* 1.07 - 1.25 07/12/04 - 08/19/04 3,996,068
---------------
13,391,707
---------------
ASSET-BACKED - DIVERSIFIED (9.3%)
5,770 CRC Funding - 144A* 1.17 - 1.40 08/02/04 - 08/25/04 5,761,087
5,500 Fairway Finance Corp. - 144A* 1.10 - 1.27 07/19/04 - 07/29/04 5,495,818
---------------
11,256,905
---------------
ASSET-BACKED - MORTGAGES (1.2%)
1,500 Sydney Capital Corp. - 144A* 1.23 07/15/04 1,499,282
---------------
ASSET-BACKED - SECURITIES (12.7%)
3,504 Amstel Funding Corp. - 144A* 1.20 - 1.44 07/15/04 - 09/22/04 3,497,192
5,700 Cancara Asset Securitization Ltd. - 144A* 1.10 - 1.24 07/08/04 - 08/23/04 5,692,925
1,400 Galaxy Funding Inc. - 144A* 1.24 08/17/04 1,397,734
890 Grampian Funding LLC - 144A* 1.50 07/01/04 890,000
3,850 Scaldis Capital Corp. - 144A* 1.10 - 1.16 07/06/04 - 08/12/04 3,847,011
---------------
15,324,862
---------------
FINANCE - AUTOMOTIVE (1.5%)
1,750 Toyota Motor Credit Corp. 1.22 08/05/04 1,747,924
---------------
FINANCIAL CONGLOMERATES (3.7%)
4,500 General Electric Capital Corp. 1.05 - 1.50 07/19/04 - 09/20/04 4,489,914
---------------
INTERNATIONAL BANKS (27.7%)
1,200 ABN Amro N.A. Finance, Inc. 1.07 09/07/04 1,197,597
1,350 ANZ (Delaware) Inc. 1.08 07/19/04 1,349,271
2,189 Bank of Irland - 144A* 1.09 - 1.89 07/29/04 - 12/31/04 2,182,261
1,700 BNP Paribas Finance Inc. 1.14 08/06/04 1,698,062
4,300 CBA (Delaware) Finance Inc. 1.08 - 1.37 07/02/04 - 08/23/04 4,297,222
1,825 Danske Corp. 1.07 09/28/04 1,820,195
1,500 Deutsche Bank Financial LLC 1.08 08/13/04 1,498,065
2,200 Fortis Funding LLC - 144A* 1.10 08/16/04 2,196,908
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 4,930 HBOS Treasury Services PLC 1.10 - 1.52% 07/27/04 - 09/30/04 $ 4,921,339
1,900 ING (U.S.) Funding LLC 1.06 07/07/04 1,899,664
2,000 Natexis Banques Populaires U.S. Finance LLC 1.08 07/22/04 1,998,740
2,300 Royal Bank of Scotland PLC 1.05 07/06/04 2,299,665
1,600 Svenska Handelsbanken, Inc. 1.20 - 1.56 08/05/04 - 09/24/04 1,596,139
1,900 Swedbank, Inc. 1.36 09/21/04 1,894,158
2,500 Westpac Capital Corp. 1.05 - 1.07 07/07/04 - 07/09/04 2,499,500
---------------
33,348,786
---------------
FOOD-BEVERAGE (2.6%)
3,100 Nestle Capital Corp. - 144A* 1.10 - 1.15 08/26/04 - 09/10/04 3,093,693
---------------
TOTAL COMMERCIAL PAPER
(COST $93,570,889) 93,570,889
---------------
U.S. GOVERNMENT AGENCIES (14.2%)
1,400 Federal Farm Credit Bank 1.10 09/27/04 1,396,270
3,500 Federal Home Loan Banks 1.08 - 1.17 07/28/04 - 10/08/04 3,492,377
5,400 Federal National Mortgage Assoc. 1.06 - 1.15 08/20/04 - 09/29/04 5,388,874
6,800 Freddie Mac 1.03 - 1.16 07/27/04 - 11/15/04 6,783,412
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(COST $17,060,933) 17,060,933
---------------
FLOATING RATE NOTE (5.4%)
BANKING (3.7%)
4,500 U.S. Bank N.A. - Cincinnati 1.09 11/05/04 4,504,693
---------------
INSURANCE (1.7%)
2,000 AIG SunAmerica Global Financing VIII - 144A* 1.19 11/15/04 2,001,293
---------------
TOTAL FLOATING RATE NOTE
(COST $6,505,986) 6,505,986
---------------
CERTIFICATE OF DEPOSIT (1.7%)
2,000 State Street Bank & Trust
(COST $2,000,000) 1.12 07/23/04 2,000,000
---------------
BANKER'S ACCEPTANCES (1.5%)
1,840 JP Morgan Chase Bank
(COST $1,836,559) 1.08 - 1.16 08/09/04 - 09/20/04 1,836,559
---------------
TOTAL INVESTMENTS
(COST $120,974,367) (a) 100.4% 120,974,367
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4) (446,500)
----- ---------------
NET ASSETS 100.0% $ 120,527,867
===== ===============
</Table>
- ----------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(a) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
Flexible Income
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
GOVERNMENT & CORPORATE BONDS (99.2%)
FOREIGN (25.8%)
ARGENTINA (0.3%)
GOVERNMENT OBLIGATIONS
$ 275 Republic of Agentina (c) 11.75% 04/07/09 $ 79,750
35 Republic of Agentina (c) 11.375 03/15/10 10,500
20 Republic of Agentina (c) 11.75 06/15/15 6,000
30 Republic of Agentina (c) 11.375 01/30/17 8,850
5 Republic of Agentina (c) 12.00 02/01/20 1,425
169 Republic of Agentina (c) 6.00 03/31/23 86,456
50 Republic of Agentina (c) 2.438 03/31/23 25,577
---------------
TOTAL ARGENTINA 218,558
---------------
AUSTRALIA (0.3%)
OTHER METALS/MINERALS (0.0%)
70 Murrin Murrin Holdings Property Ltd. (c) 9.375 08/31/07 7
---------------
PROPERTY/CASUAL INSURANCE (0.3%)
200 Mantis Reef Ltd. - 144A* 4.692 11/14/08 197,727
---------------
TOTAL AUSTRALIA 197,734
---------------
AUSTRIA (2.1%)
GOVERNMENT OBLIGATION
EUR 1,200 Austrian Government Bond 3.40 10/20/04 1,468,426
---------------
BELGIUM (0.3%)
CABLE/SATELLITE TV
$ 290 Telenet Group Holding NV - 144A* 11.50++ 06/15/14 185,600
---------------
BERMUDA (0.0%)
PERSONNEL SERVICES
EUR 20 Adecco Financial Services 6.00 03/15/06 25,206
---------------
BRAZIL (1.8%)
GOVERNMENT OBLIGATIONS
$ 446 Federal Republic of Brazil 8.00 04/15/14 409,318
60 Federal Republic of Brazil 6.00 04/15/24 46,982
165 Federal Republic of Brazil 8.875 04/15/24 134,475
230 Federal Republic of Brazil 11.00 08/17/40 217,062
160 Federal Republic of Brazil 11.25 07/26/07 173,200
240 Federal Republic of Brazil 14.50 10/15/09 280,800
---------------
TOTAL BRAZIL 1,261,837
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
BULGARIA (0.2%)
GOVERNMENT OBLIGATION
$ 130 Federal Republic of Bulgaria 8.25% 01/15/15 $ 152,133
---------------
CANADA (2.4%)
AEROSPACE & DEFENSE (0.0%)
EUR 10 Bombardier Capital 6.125 05/14/07 11,738
---------------
CONTAINERS/PACKAGING (0.1%)
$ 65 Norampac, Inc. 6.75 06/01/13 64,025
---------------
FOREST PRODUCTS (0.3%)
40 Tembec Industries Inc. 7.75 03/15/12 38,800
175 Tembec Industries Inc. 8.50 02/01/11 177,625
---------------
216,425
---------------
GOVERNMENT OBLIGATIONS (0.4%)
CAD 175 Canada Government Bond 5.50 06/01/09 137,825
190 Canada Government Bond 3.00 06/01/06 141,529
---------------
279,354
---------------
INTEGRATED OIL (0.1%)
$ 40 Petro-Canada 5.35 07/15/33 34,170
---------------
MOVIES/ENTERTAINMENT (0.2%)
134 Alliance Atlantis Communications, Inc. 13.00 12/15/09 148,070
---------------
OIL & GAS PRODUCTION (0.1%)
90 Nexen Inc. 5.05 11/20/13 86,473
---------------
OILFIELD SERVICES/EQUIPMENT (0.2%)
130 CHC Helicopter Corp. 144A* 7.375 05/01/14 128,375
---------------
OTHER METALS/MINERALS (0.3%)
210 Inco Ltd. 7.20 09/15/32 221,953
5 Inco Ltd. 7.75 05/15/12 5,696
---------------
227,649
---------------
PUBLISHING: NEWSPAPERS (0.3%)
203 Hollinger Participation Trust - 144A* 12.125+ 11/15/10 237,784
---------------
PULP & PAPER (0.2%)
155 Abitibi-Consolidated, Inc. 6.00 06/20/13 137,961
---------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
200 Worldwide Fiber, Inc. (a) (c) 12.00 08/01/09 20
---------------
TELECOMMUNICATION EQUIPMENT (0.2%)
125 Nortel Networks Ltd. 6.125 02/15/06 126,250
---------------
TOTAL CANADA 1,698,294
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
CAYMAN ISLANDS (0.0%)
TOBACCO
EUR 15 Altria Finance Ltd. 5.625% 06/24/08 $ 18,763
---------------
CHILE (0.3%)
OIL & GAS PRODUCTION
$ 180 Empresa Nacional de Petroleo 6.75 11/15/12 193,477
---------------
COLOMBIA (0.2%)
GOVERNMENT OBLIGATION
119 Republic of Columbia 9.75 04/09/11 131,904
---------------
DENMARK (0.1%)
GOVERNMENT OBLIGATION
DKK 400 Kingdom of Denmark 5.00 08/15/05 67,381
---------------
FRANCE (1.5%)
CHEMICALS: SPECIALTY (0.2%)
$ 140 Rhodia SA - 144A* 8.875 06/01/11 119,000
---------------
GOVERNMENT OBLIGATIONS (1.1%)
EUR 350 France (Republic of) 6.50 04/25/11 491,223
225 French Treasury Note 5.00 07/12/05 281,637
---------------
772,860
---------------
TELECOMMUNICATIONS (0.1%)
15 France Telecom 7.00 12/23/09 20,650
20 France Telecom 8.125 01/28/33 30,863
$ 25 France Telecom S.A. 9.50 03/01/31 31,465
---------------
82,978
---------------
WATER UTILITIES (0.1%)
EUR 20 Veolia Environment 5.875 06/27/08 26,157
---------------
20 Gie Suez Alliance 5.50 02/20/09 25,828
---------------
51,985
---------------
TOTAL FRANCE 1,026,823
---------------
GERMANY (3.0%)
CABLE/SATELLITE TV (0.2%)
$ 115 Kabel Deutschland - 144A* 10.625 07/01/14 118,737
---------------
GOVERNMENT OBLIGATIONS (2.6%)
EUR 610 Germany (Federal Republic of) 7.375 01/03/05 762,592
775 Germany (Federal Republic of) 6.25 01/04/24 1,118,309
---------------
1,880,901
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
PHARMACY: MAJOR (0.2%)
$ 55 VWR International - 144A* 6.875% 04/15/12 $ 55,481
70 VWR International - 144A* 8.00 04/15/14 72,100
---------------
127,581
---------------
TOTAL GERMANY 2,127,219
---------------
IRELAND (0.3%)
INVESTMENT MANAGERS
175 JSG Funding PLC 9.625 10/01/12 192,500
---------------
ITALY (0.0%)
TELECOMMUNICATIONS
30 Telecom Italia Capital - 144A* 4.00 11/15/08 29,499
---------------
IVORY COAST (0.0%)
GOVERNMENT OBLIGATION
90 Ivory Coast (c) 2.00 03/29/18 12,672
---------------
JAPAN (2.9%)
GOVERNMENT OBLIGATIONS
JPY 41,500 Japan (Government of) 0.80 03/20/13 355,893
171,000 Japan (Government of) 0.10 04/20/05 1,572,031
15,000 Japan (Government of) 0.10 12/20/05 137,829
---------------
TOTAL JAPAN 2,065,753
---------------
KYRGYZSTAN (0.2%)
INDUSTRIAL CONGLOMERATES
EUR 10 Hutchison Whampoa Finance 5.875 07/08/13 12,376
$ 165 Hutchison Whampoa International Ltd. - 144A* 6.50 02/13/13 165,449
---------------
TOTAL KYRGYZSTAN 177,825
---------------
LUXEMBOURG (0.0%)
CHEMICALS: AGRICULTURAL (0.0%)
EUR 20 Sygenta Lux Finance 5.50 07/10/06 25,536
---------------
INDUSTRIAL CONGLOMERATES (0.0%)
10 Tyco International Group S.A. 6.125 04/04/07 13,066
---------------
TOTAL LUXEMBOURG 38,602
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
MALAYSIA (0.4%)
GOVERNMENT OBLIGATION
$ 230 Malaysia 8.75% 06/01/09 $ 270,917
---------------
MAURITIUS ISLAND (0.3%)
PULP/PAPER
560 TJIWI Kimia Mauritius (c) 10.00 08/01/04 211,400
---------------
MEXICO (2.4%)
GOVERNMENT OBLIGATIONS (2.3%)
50 United Mexican States Corp. 8.00 09/24/22 52,050
405 United Mexican States Corp. 8.375 01/14/11 458,662
170 United Mexican States Corp. 8.125 12/30/19 182,325
150 United Mexican States Corp. 10.375 02/17/09 181,575
410 United Mexican States Corp. 11.375 09/15/16 574,000
110 United Mexican States Corp. 11.50 05/15/26 154,495
---------------
1,603,107
---------------
SPECIALTY TELECOMMUNICATION (0.1%)
205 Satelites Mexicanos SA (a) (c) 10.125 11/01/04 87,125
---------------
TOTAL MEXICO 1,690,232
---------------
NETHERLANDS (0.3%)
ELECTRIC UTILITIES (0.0%)
EUR 20 RWE Finance BV 5.50 10/26/07 25,940
---------------
MULTI-LINE INSURANCE (0.1%)
15 Allianz Finance II BV 6.125 05/31/22 19,809
25 Munich Re Finance BV 6.75 06/21/23 33,731
---------------
53,540
---------------
PUBLISHING: BOOKS/MAGAZINES (0.0%)
20 VNU N.V. 6.625 05/30/07 26,351
---------------
TELECOMMUNICATIONS (0.2%)
20 Deutsche Telekom International Finance Corp. 8.125 05/29/12 29,678
$ 50 Deutsche Telekom International Finance Corp. 8.75 06/15/30 61,032
EUR 25 Olivetti Finance N.V. 5.875 01/24/08 32,535
15 TPSA Eurofinance BV 6.625 03/01/06 19,276
---------------
142,521
---------------
TOTAL NETHERLANDS 248,352
---------------
NIGERIA (0.3%)
GOVERNMENT OBLIGATION
$ 250 Central Bank of Nigeria 6.25 11/15/20 213,375
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
PANAMA (0.3%)
GOVERNMENT OBLIGATIONS
$ 80 Republic of Panama 9.375% 04/01/29 $ 89,000
100 Republic of Panama 9.625 02/08/11 111,250
---------------
TOTAL PANAMA 200,250
---------------
PERU (0.3%)
GOVERNMENT OBLIGATIONS
40 Republic of Peru 8.375 05/03/16 37,400
150 Republic of Peru 9.875 02/06/15 157,500
---------------
TOTAL PERU 194,900
---------------
PHILIPPINES (0.5%)
GOVERNMENT OBLIGATIONS
100 Republic of Philippines 9.875 01/15/19 100,000
250 Republic of Philippines 8.875 03/17/15 241,875
---------------
TOTAL PHILIPPINES 341,875
---------------
QATAR (0.2%)
GAS DISTRIBUTORS
105 Ras Laffan Liquid Natural Gas Co. - 144A* 8.294 03/15/14 118,125
---------------
RUSSIA (2.5%)
GOVERNMENT OBLIGATIONS
900 Federal Republic of Russia 5.00 03/31/30 823,950
170 Federal Republic of Russia 8.25 03/31/10 185,078
301 Federal Republic of Russia 11.00 07/24/18 381,058
270 Federal Republic of Russia 12.75 06/24/28 394,753
---------------
TOTAL RUSSIA 1,784,839
---------------
SOUTH KOREA (0.7%)
GOVERNMENT OBLIGATION
500 Citigroup Inc - 144A* 5.30 10/05/05 507,294
---------------
SWEDEN (0.1%)
GOVERNMENT OBLIGATION
SEK 375 Swedish Government Bond 5.00 01/28/09 51,927
---------------
TUNISIA (0.0%)
REGIONAL BANKS
$ 30 Banque Centrale de Tunisie 7.375 04/25/12 32,850
---------------
TURKEY (0.6%)
GOVERNMENT OBLIGATIONS
290 Republic of Turkey 11.00 01/14/13 317,550
105 Republic of Turkey 11.50 01/23/12 118,125
---------------
TOTAL TURKEY 435,675
---------------
</Table>
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23
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM (0.5%)
ADVERTISING/MARKETING SERVICES (0.3%)
$ 150 WPP Finance (UK) Corp. - 144A* 5.875% 06/15/14 $ 150,896
EUR 30 WPP Group PLC 6.00 06/18/08 39,258
---------------
190,154
---------------
CHEMICALS: SPECIALTY (0.1%)
$ 75 Avecia Group PLC 11.00 07/01/09 57,375
---------------
ELECTRIC UTILITIES (0.0%)
EUR 20 National Grid Transco 5.00 07/02/18 23,348
---------------
FINANCIAL CONGLOMERATES (0.1%)
$ 68 Dunlop Standard Aerospace Holdings PLC - 144A* 11.875 05/15/09 72,590
---------------
LIFE HEALTH INSURANCE (0.0%)
EUR 20 SL Finance PLC 6.375 07/12/22 26,124
---------------
TOBACCO (0.0%)
20 BAT International Finance PLC 4.875 02/25/09 24,846
---------------
TOTAL UNITED KINGDOM 394,437
---------------
VENEZUELA (0.5%)
GOVERNMENT OBLIGATIONS
$ 130 Republic of Venezuela 9.25 09/15/27 110,500
240 Republic of Venezuela 10.75 09/19/13 237,760
---------------
TOTAL VENEZUELA 348,260
---------------
TOTAL FOREIGN
(COST $18,121,581) 18,334,914
---------------
UNITED STATES (73.4%)
CORPORATE BONDS (39.7%)
ADVERTISING/MARKETING SERVICES (0.5%)
223 Advanstar Communications, Inc. 8.75**** 08/15/08 235,036
110 Interep National Radio Sales, Inc. (Series B) 10.00 07/01/08 91,850
---------------
326,886
---------------
AEROSPACE & DEFENSE (0.2%)
20 Lockheed Martin Corp. 8.50 12/01/29 25,161
5 Raytheon Co. 4.85 01/15/11 4,969
45 Raytheon Co. 8.30 03/01/10 52,846
90 Systems 2001 Asset Trust - 144A* 6.664 09/15/13 96,965
---------------
179,941
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
AIR FREIGHT/COURIERS (0.1%)
$ 40 FedEx Corp. 7.25% 02/15/11 $ 44,938
30 Fedex Corp. - 144A* 2.65 04/01/07 29,152
---------------
74,090
---------------
AIRLINES (0.2%)
21 Continental Airlines, Inc. 6.545 02/02/19 19,762
64 Continental Airlines, Inc. 6.648 09/15/17 59,662
30 Southwest Airlines Co. 5.496 11/01/06 31,111
---------------
110,535
---------------
ALTERNATIVE POWER GENERATION (0.5%)
190 Calpine Corp. - 144A* 8.50 07/15/10 158,175
205 Ormat Funding Corp. - 144A* 8.25 12/30/20 194,536
---------------
352,711
---------------
APPAREL/FOOTWEAR (0.1%)
60 Oxford Industries Inc. - 144A* 8.875 06/01/11 63,600
---------------
AUTO PARTS: O.E.M. (0.2%)
154 TRW Automotive, Inc. 9.375 02/15/13 174,405
---------------
AUTOMOTIVE AFTERMARKET (0.2%)
110 Tenneco Automotive, Inc. (Series B) 11.625 10/15/09 118,800
---------------
BROADCASTING (0.3%)
75 Clear Channel Communications, Inc. 7.65 09/15/10 84,600
45 Granite Broadcasting Corp. - 144A* 9.75 12/01/10 42,075
74 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 80,660
---------------
207,335
---------------
BUILDING PRODUCTS (1.0%)
290 Associated Materials Inc. - 144A* 11.25++ 03/01/14 195,750
45 Brand Services Inc. 12.00 10/15/12 51,525
35 Interface Inc. 7.30 04/01/08 34,869
165 Interface Inc. - 144A* 9.50 02/01/14 165,000
260 Nortek Holdings, Inc. - 144A* 10.00++ 05/15/11 209,300
55 WII Components, Inc. - 144A* 10.00 02/15/12 54,175
---------------
710,619
---------------
CABLE/SATELLITE TV (2.0%)
38 Avalon Cable LLC 11.875 12/01/08 40,270
75 Cablevision Systems Corp. - 144A* 5.66 04/01/09 77,250
135 Charter Communications Holdings LLC 10.75 10/01/09 114,075
185 Charter Communications Holdings/Charter Capital 11.75++ 05/15/11 120,712
180 Comcast Cable Communications Inc. 6.75 01/30/11 194,494
85 Comcast Corp. 6.50 01/15/15 88,266
</Table>
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25
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 130 CSC Holdings Inc (Series B) 8.125% 07/15/09 $ 135,850
25 CSC Holdings Inc. 10.50 05/15/16 28,187
115 Directv Holdings/Finance 8.375 03/15/13 127,794
210 Echostar DBS Corp. 6.375 10/01/11 207,900
42 Echostar DBS Corp. 9.125 01/15/09 46,252
149 Knology, Inc. - 144A* (d) 12.00+ 11/30/09 141,036
30 Pegagus Communications Corp. (Series B) (c) 12.50 08/01/07 14,700
15 Pegasus Communications Corp. (Series B) (c) 9.75 12/01/06 7,350
25 Pegasus Satellite Communications Inc. (a) (c) 12.375 08/01/06 12,250
60 Renaissance Media Group LLC 10.00 04/15/08 62,100
---------------
1,418,486
---------------
CASINO/GAMING (1.3%)
840 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B) (c) 13.50 03/01/10 0
105 Harrah's Operating Co., Inc. - 144A* 5.50 07/01/10 105,659
115 Harrah's Operating Co., Inc. 7.875 12/15/05 121,756
235 MGM Mirage, Inc. 6.00 10/01/09 231,475
190 Park Place Entertainment 8.875 09/15/08 206,625
299 Resorts At Summerlin LP/Ras Co.
(Series B) (a) (c) 13.00 12/15/07 0
75 Station Casinos, Inc. 6.00 04/01/12 72,937
105 Station Casinos, Inc. 6.50 02/01/14 101,587
85 Venetian Casino/LV Sands 11.00 06/15/10 98,600
---------------
938,639
---------------
CHEMICALS: MAJOR DIVERSIFIED (0.7%)
161 Equistar Chemical Funding 10.125 09/01/08 177,100
35 Equistar Chemical Funding 10.625 05/01/11 39,025
55 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 62,287
160 Huntsman ICI Chemicals 10.125 07/01/09 164,000
45 ICI Wilmington Inc. 4.375 12/01/08 44,186
---------------
486,598
---------------
CHEMICALS: SPECIALTY (1.4%)
50 FMC Corp. 10.25 11/01/09 57,750
60 ISP Chemco 10.25 07/01/11 67,050
135 ISP Holdings Inc. (Series B) 10.625 12/15/09 149,175
40 Koppers Industry Inc. 9.875 10/15/13 44,000
175 Millennium America, Inc. 7.00 11/15/06 180,687
65 Millennium America, Inc. 9.25 06/15/08 70,200
150 Nalco Co. - 144A* 7.75 11/15/11 157,875
65 Nalco Co. - 144A* 8.875 11/15/13 68,412
100 Rockwood Specialties, Inc. 10.625 05/15/11 107,000
60 Westlake Chemical Corp. 8.75 07/15/11 65,400
---------------
967,549
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
COMMERCIAL PRINTING/FORMS (0.0%)
$ 300 Premier Graphics Inc. (a) (c) 11.50% 12/01/05 $ 0
---------------
CONSUMER/BUSINESS SERVICES (0.2%)
115 Muzak LLC/Muzak Finance Corp. 9.875 03/15/09 89,125
80 Muzak LLC/Muzak Finance Corp. 10.00 02/15/09 70,800
---------------
159,925
---------------
CONSUMER SUNDRIES (0.1%)
80 Amscan Holdings, Inc. - 144A* 8.75 05/01/14 79,000
---------------
CONTAINERS/PACKAGING (1.1%)
225 Graphic Packaging International Corp. 9.50 08/15/13 245,250
45 Owens-Brockway Glass Containers Corp. 7.75 05/15/11 47,025
175 Owens-Brockway Glass Containers Corp. 8.75 11/15/12 190,750
75 Owens-Illinois Inc. 7.50 05/15/10 73,875
70 Pliant Corp. (Issued 04/10/02) 13.00 06/01/10 63,000
95 Pliant Corp. (Issued 08/29/00) 13.00 06/01/10 85,500
105 Sealed Air Corp - 144A* 5.625 07/15/13 103,902
---------------
809,302
---------------
DEPARTMENT STORES (0.4%)
45 Federated Department Stores, Inc. 6.90 04/01/29 46,825
25 Federated Department Stores, Inc. 7.00 02/15/28 26,263
25 May Department Stores Co., Inc. 6.70 09/15/28 24,916
50 May Department Stores Co., Inc. 6.90 01/15/32 51,437
10 Penney (J.C.) Co., Inc. 6.875 10/15/15 10,312
60 Penney (J.C.) Co., Inc. 7.95 04/01/17 66,975
40 Penney (J.C.) Co., Inc. 9.00 08/01/12 47,400
---------------
274,128
---------------
DRUGSTORE CHAINS (0.2%)
15 CVS Corp. - 144A* 6.204 10/10/25 14,879
90 Rite Aid Corp. 7.125 01/15/07 92,475
30 Rite Aid Corp. 8.125 05/01/10 31,725
---------------
139,079
---------------
ELECTRIC UTILITIES (3.0%)
80 AES Corp. (The) 7.75 03/01/14 77,300
11 AES Corp. (The) 8.875 02/15/11 11,467
16 AES Corp. (The) 9.375 09/15/10 17,140
140 AES Corp. (The) - 144A* 9.00 05/15/15 150,675
60 Allegheny Energy, Inc. 7.75 08/01/05 62,400
85 Arizona Public Service Co. 5.80 06/30/14 85,241
45 Carolina Power & Light Co. 5.125 09/15/13 44,391
</Table>
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27
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 65 Cincinnati Gas & Electric Co. 5.70% 09/15/12 $ 66,565
15 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 13,018
40 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 34,584
65 CMS Energy Corp. 7.50 01/15/09 65,000
75 CMS Energy Corp. 8.50 04/15/11 76,875
55 Columbus Southern Power 6.60 03/01/33 56,218
60 Consolidated Natural Gas Co. 6.25 11/01/11 63,932
10 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 9,598
5 Constellation Energy Group, Inc. 7.60 04/01/32 5,536
10 Detroit Edison Co. 6.35 10/15/32 10,092
30 Duke Energy Corp. 4.50 04/01/10 29,542
20 Entergy Gulf States, Inc. 3.60 06/01/08 19,315
80 Exelon Corp. 6.75 05/01/11 87,122
10 FirstEnergy Corp. (Series B) 6.45 11/15/11 10,383
30 IPALCO Enterprises, Inc. 8.625 11/14/11 32,700
135 Monongahela Power Co. 5.00 10/01/06 138,513
25 MSW Energy Holdings/Finance 8.50 09/01/10 26,563
115 MSW Energy Holdings/Finance - 144A* 7.375 09/01/10 115,000
190 Nevada Power Co. 9.00 08/15/13 207,575
75 Pacific Gas & Electric 6.05 03/01/34 70,776
65 PG&E Corp. - 144A* 6.875 07/15/08 68,250
15 PSEG Energy Holdings Inc. 7.75 04/16/07 15,788
100 PSEG Energy Holdings Inc. 8.625 02/15/08 108,000
25 Public Service Electric & Gas Co. 5.00 01/01/13 24,707
20 South Carolina Electric & Gas Co. 5.30 05/15/33 17,916
10 Southern California Edison Co. (Series D) 5.00 01/15/14 9,747
20 Texas Eastern Transmission, L.P. 7.00 07/15/32 20,976
40 TNP Enterprises, Inc. 10.25 04/01/10 41,600
80 TXU Energy Co. 7.00 03/15/13 87,259
125 Westar Energy Inc. 6.00 07/01/14 127,234
15 Wisconsin Electric Power Co. 5.625 05/15/33 14,058
---------------
2,123,056
---------------
ELECTRICAL PRODUCTS (0.2%)
35 Cooper Industries Inc. 5.25 07/01/07 36,525
90 Rayovac Corp. 8.50 10/01/13 94,950
---------------
131,475
---------------
ELECTRONIC DISTRIBUTORS (0.2%)
165 BRL Universal Equipment Corp. 8.875 02/15/08 177,581
---------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.2%)
140 Xerox Corp. 7.125 06/15/10 143,500
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION (0.0%)
$ 55 Encompass Services Corp. (a) (c) 10.50% 05/01/09 $ 0
---------------
ENVIRONMENTAL SERVICES (0.4%)
60 Allied Waste North America, Inc. 9.25 09/01/12 67,500
75 Allied Waste North America, Inc. (Series B) 8.875 04/01/08 82,500
65 Waste Management, Inc. 5.00 03/15/14 61,897
60 Waste Management, Inc. 6.875 05/15/09 65,946
---------------
277,843
---------------
FINANCE/RENTAL/LEASING (1.4%)
35 CIT Group Inc. 2.875 09/29/06 34,560
90 Countrywide Home Loans, Inc. 3.25 05/21/08 86,653
340 Ford Motor Credit Co. 7.25 10/25/11 355,561
105 Ford Motor Credit Co. 7.375 10/28/09 112,182
65 MBNA America Bank NA 7.125 11/15/12 71,789
70 MBNA Corp. 6.125 03/01/13 72,414
45 SLM Corp. 5.00 10/01/13 43,534
115 United Rentals NA Inc. 6.50 02/15/12 109,250
120 United Rentals NA Inc. 7.75 11/15/13 114,000
---------------
999,943
---------------
FINANCIAL CONGLOMERATES (2.0%)
55 Chase Manhattan Corp. 6.00 02/15/09 58,345
40 Citicorp. 6.75 08/15/05 41,859
20 Citigroup Inc. 5.75 05/10/06 20,962
45 Citigroup Inc. 6.00 02/21/12 47,785
50 Citigroup Inc. 6.625 06/15/32 51,953
20 General Electric Capital Corp. 4.25 12/01/10 19,471
85 General Electric Capital Corp. 6.75 03/15/32 91,673
25 General Motors Acceptance Corp. 4.50 07/15/06 25,279
615 General Motors Acceptance Corp. 6.875 09/15/11 631,446
85 General Motors Acceptance Corp. 8.00 11/01/31 87,335
100 Prudential Holdings, LLC (Series C) - 144A* 8.695 12/18/23 120,354
175 Prudential Holdings, LLC (Series B) (FSA) - 144A* 7.245 12/18/23 198,904
---------------
1,395,366
---------------
FOOD RETAIL (0.4%)
25 Albertson's Inc. 7.45 08/01/29 27,084
10 Albertson's Inc. 7.50 02/15/11 11,284
43 CAFMLease Trust - 144A* 8.50 07/15/17 48,171
200 Delhaize America, Inc. 8.125 04/15/11 219,306
15 Kroger Co. 7.50 04/01/31 16,652
---------------
322,497
---------------
</Table>
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29
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED (0.2%)
$ 25 General Mills Inc. 3.875% 11/30/07 $ 24,937
30 Kraft Foods Inc. 5.25 06/01/07 31,221
25 Kraft Foods Inc. 5.625 11/01/11 25,470
30 Kraft Foods Inc. 6.25 06/01/12 31,639
---------------
113,267
---------------
FOOD: MEAT/FISH/DAIRY (1.0%)
95 Michael Foods Inc. (Series B) 8.00 11/15/13 98,562
220 Pilgrim's Pride Corp. 9.625 09/15/11 244,200
60 PPC Escrow Corp. 9.25 11/15/13 64,200
135 Smithfield Foods Inc. 7.625 02/15/08 142,425
25 Smithfield Foods Inc. 7.75 05/15/13 26,375
130 Smithfield Foods Inc. (Series B) 8.00 10/15/09 140,725
---------------
716,487
---------------
FOREIGN DEBT (0.1%)
50 TRAC-X EM Ltd. - 144A* 6.50 12/23/08 48,225
---------------
FOREST PRODUCTS (0.2%)
30 Weyerhaeuser Co. 6.125 03/15/07 31,716
95 Weyerhaeuser Co. 6.75 03/15/12 103,036
---------------
134,752
---------------
GAS DISTRIBUTORS (0.4%)
130 Dynegy Holdings, Inc. 6.875 04/01/11 112,613
130 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 140,400
---------------
253,013
---------------
HOME BUILDING (0.4%)
50 Schuler Homes, Inc. 9.375 07/15/09 55,125
80 Tech Olympic USA, Inc. 10.375 07/01/12 83,800
100 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 103,000
35 Tech Olympic USA, Inc. (Issued 11/27/02) 9.00 07/01/10 36,050
---------------
277,975
---------------
HOME FURNISHINGS (0.1%)
40 Mohawk Industries Inc. 7.20 04/15/12 44,449
40 Tempur-Pedic International, Inc. 10.25 08/15/10 45,300
---------------
89,749
---------------
HOME IMPROVEMENT CHAINS (0.0%)
30 Lowe's Companies, Inc. 6.50 03/15/29 31,577
---------------
HOSPITAL/NURSING MANAGEMENT (0.8%)
45 HCA, Inc. 6.30 10/01/12 45,095
100 HCA, Inc. 7.875 02/01/11 109,819
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 115 HCA, Inc. 8.75% 09/01/10 $ 131,473
70 Medcath Holdings Corp. - 144A* 9.875 07/15/12 70,671
10 Tenet Healthcare Corp. 6.50 06/01/12 8,750
115 Tenet Healthcare Corp. 7.375 02/01/13 104,650
65 Tenet Healthcare Corp. - 144A* 9.875 07/01/14 66,463
---------------
536,921
---------------
HOTELS/RESORTS/CRUISELINES (0.8%)
70 Hilton Hotels Corp. 7.625 12/01/12 75,600
75 Hilton Hotels Corp. 7.95 04/15/07 81,375
130 Horseshoe Gaming Holding Corp. (Series B) 8.625 05/15/09 136,175
45 Hyatt Equities LLC - 144A* 6.875 06/15/07 47,875
50 Marriott International, Inc. (Series E) 7.00 01/15/08 54,503
20 Starwood Hotels & Resorts Worldwide, Inc. 7.375 05/01/07 21,150
150 Starwood Hotels & Resorts Worldwide, Inc. 7.875 05/01/12 161,250
---------------
577,928
---------------
HOUSEHOLD/PERSONAL CARE (0.1%)
110 Prestige Brands, Inc. - 144A* 9.25 04/15/12 106,150
---------------
INDUSTRIAL CONGLOMERATES (0.1%)
45 Honeywell International, Inc. 6.125 11/01/11 48,352
---------------
INDUSTRIAL MACHINERY (0.1%)
35 Flowserve Corp. 12.25 08/15/10 39,813
---------------
INDUSTRIAL SPECIALTIES (0.7%)
165 Johnsondiversy, Inc. 9.625 05/15/12 180,675
50 Tekni-Plex Inc. - 144A* 8.75 11/15/13 48,000
121 Tekni-Plex Inc. (Series B) 12.75 06/15/10 116,765
115 UCAR Finance, Inc. 10.25 02/15/12 128,513
---------------
473,953
---------------
INFORMATION TECHNOLOGY SERVICES (0.1%)
25 Electronic Data Systems Corp. 7.125 10/15/09 26,191
30 Electronic Data Systems Corp. 6.00 08/01/13 28,702
---------------
54,893
---------------
INTEGRATED OIL (0.2%)
30 Amerada Hess Corp. 6.65 08/15/11 31,791
10 Amerada Hess Corp. 7.875 10/01/29 10,834
75 Conoco Inc. 6.95 04/15/29 82,826
---------------
125,451
---------------
INTERNET SOFTWARE/SERVICES (0.1%)
186 Exodus Communications, Inc. (a) (c) 11.625 07/15/10 0
70 Global Cash Access - 144A* 8.75 03/15/12 73,150
---------------
73,150
---------------
</Table>
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31
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKS/BROKERS (0.2%)
EUR 20 Goldman Sachs Group Inc. 6.50% 10/06/10 $ 27,220
$ 55 Goldman Sachs Group Inc. 6.60 01/15/12 59,273
60 Goldman Sachs Group Inc. 6.875 01/15/11 65,954
---------------
152,447
---------------
LIFE HEALTH INSURANCE (0.1%)
65 John Hancock Financial Services, Inc. 5.625 12/01/08 68,405
---------------
MAJOR BANKS (0.5%)
20 Bank of New York Co., Inc. 5.20 07/01/07 20,895
25 Bank One Corp. 6.00 02/17/09 26,599
10 Chase Manhattan Corp. 7.00 11/15/09 11,115
70 FleetBoston Financial Corp. 7.25 09/15/05 73,787
25 Household Finance Corp. 4.125 12/15/08 24,668
15 Household Finance Corp. 5.875 02/01/09 15,850
15 Household Finance Corp. 6.375 10/15/11 16,034
35 Household Finance Corp. 6.40 06/17/08 37,683
EUR 25 Household Finance Corp. 6.50 05/05/09 33,821
$ 35 Household Finance Corp. 6.75 05/15/11 38,301
70 Wachovia Corp. 4.95 11/01/06 72,549
---------------
371,302
---------------
MANAGED HEALTH CARE (0.5%)
220 Aetna, Inc. 7.875 03/01/11 254,078
90 Health Net, Inc. 8.375 04/15/11 105,365
30 Wellpoint Health Network, Inc. 6.375 06/15/06 31,821
---------------
391,264
---------------
MEDIA CONGLOMERATES (0.6%)
100 News America Holdings, Inc. 7.30 04/30/28 108,757
55 News America Holdings, Inc. 7.75 02/01/24 62,379
30 News America Holdings, Inc. 8.875 04/26/23 37,573
30 News America Inc. 7.125 04/08/28 31,995
25 Time Warner, Inc. 6.625 05/15/29 24,333
120 Time Warner, Inc. 7.625 04/15/31 130,244
---------------
395,281
---------------
MEDICAL DISTRIBUTORS (0.3%)
185 AmerisourceBergen Corp. 8.125 09/01/08 200,263
---------------
MEDICAL/NURSING SERVICES (0.5%)
181 Fresenius Medical Care Capital Trust 7.875 06/15/11 192,765
25 Fresenius Medical Care Capital Trust II (Units)^ 7.875 02/01/08 26,438
110 Team Health, Inc. - 144A* 9.00 04/01/12 106,150
---------------
325,353
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
32
<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 $ 28,750
---------------
METAL FABRICATIONS (0.3%)
60 General Cable Corp. 9.50 11/15/10 64,800
170 Trimas Corp. 9.875 06/15/12 181,050
---------------
245,850
---------------
MISCELLANEOUS COMMERCIAL SERVICES (0.4%)
150 Iron Mountain Inc. 7.75 01/15/15 149,625
140 Iron Mountain Inc. 8.625 04/01/13 149,100
---------------
298,725
---------------
MISCELLANEOUS MANUFACTURING (0.2%)
120 Amsted Industries Inc. - 144A* 10.25 10/15/11 130,800
---------------
MOTOR VEHICLES (0.3%)
45 DaimlerChrysler North American Holdings Co. 7.20 09/01/09 49,038
145 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 158,492
EUR 35 General Motors Corp. 8.375 07/05/33 47,044
---------------
254,574
---------------
MOVIES/ENTERTAINMENT (0.1%)
$ 175 Cinemark, Inc. - 144A* 9.75++ 03/15/14 115,063
---------------
MULTI-LINE INSURANCE (0.5%)
85 AIG Sun America Global Financial - 144A* 6.30 05/10/11 91,428
20 AXA Financial Inc. 6.50 04/01/08 21,771
30 American General Finance 4.625 09/01/10 29,664
100 Farmers Exchange Capital - 144A* 7.05 07/15/28 96,246
45 Hartford Financial Services Group, Inc. 2.375 06/01/06 44,291
5 Hartford Financial Services Group, Inc. 7.90 06/15/10 5,801
15 International Lease Finance Corp. 2.95 05/23/06 14,907
30 International Lease Finance Corp. 3.75 08/01/07 29,893
---------------
334,001
---------------
OIL & GAS PIPELINES (1.2%)
260 El Paso Production Holdings 7.75 06/01/13 239,850
21 GulfTerra Energy Partners, L.P. 8.50 06/01/10 22,943
87 GulfTerra Energy Partners, L.P. 10.625 12/01/12 103,965
25 Northwest Pipeline Corp. 8.125 03/01/10 27,063
95 Pacific Energy Partner/Finance - 144A* 7.125 06/15/14 96,900
10 Panhandle Eastern Pipe Line Co. 2.75 03/15/07 9,603
40 Southern Natural Gas 8.875 03/15/10 43,900
35 Transcontinental Gas Pipe Line Corp. (Series B) 8.875 07/15/12 39,725
245 Williams Companies, Inc. (The) 7.875 09/01/21 237,038
---------------
820,987
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCTION (1.3%)
$ 160 Chesapeake Energy Corp. 7.50% 09/15/13 $ 167,200
160 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 174,000
105 Kerr-McGee Corp. 6.875 09/15/11 113,116
65 Magnum Hunter Resources, Inc. 9.60 03/15/12 71,825
170 Pemex Project Funding Master Trust - 144A* 2.82 06/15/10 171,190
225 Vintage Petroleum, Inc. 7.875 05/15/11 231,750
---------------
929,081
---------------
OIL REFINING/MARKETING (0.6%)
65 CITGO Petroleum Corp. 11.375 02/01/11 75,725
170 Husky Oil Ltd. 8.90 08/15/28 192,662
30 Marathon Oil Corp. 5.375 06/01/07 31,356
55 Tesoro Petroleum Corp. 9.00 07/01/08 56,925
65 Tesoro Petroleum Corp. 9.625 04/01/12 73,288
---------------
429,956
---------------
OILFIELD SERVICES/EQUIPMENT (0.3%)
20 Hanover Compressor Co. 8.625 12/15/10 20,800
50 Hanover Compressor Co. 9.00 06/01/14 52,125
100 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 106,250
60 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 64,500
---------------
243,675
---------------
OTHER TRANSPORTATION (0.3%)
165 Laidlaw International Inc. 10.75 06/15/11 180,881
---------------
PHARMACEUTICALS: MAJOR (0.0%)
25 Schering-Plough Corp. 5.30 12/01/13 24,596
---------------
PHARMACEUTICALS: OTHER (0.1%)
45 Leiner Health Products Inc. - 144A* 11.00 06/01/12 46,688
---------------
PUBLISHING: BOOKS/MAGAZINES (0.8%)
100 Dex Media East/Finance 12.125 11/15/12 117,250
185 Dex Media Inc. - 144A* 9.00++ 11/15/13 120,250
95 Dex Media West LLC 9.875 08/15/13 104,738
40 PEI Holdings, Inc. 11.00 03/15/10 46,600
175 PRIMEDIA, Inc. 8.875 05/15/11 174,125
---------------
562,963
---------------
PULP & PAPER (0.4%)
210 Georgia-Pacific Corp. 8.875 02/01/10 238,875
30 International Paper Co. 4.25 01/15/09 29,521
---------------
268,396
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
RAILROADS (0.1%)
$ 30 Union Pacific Corp. 3.625% 06/01/10 $ 28,249
30 Union Pacific Corp. 6.79 11/09/07 32,686
---------------
60,935
---------------
REAL ESTATE DEVELOPMENT (0.5%)
120 CB Richard Ellis Services, Inc. 11.25 06/15/11 137,400
70 CBRE Escrow Inc. 9.75 05/15/10 77,350
120 LNR Property Corp. 7.625 07/15/13 120,000
---------------
334,750
---------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
84 HMH Properties, Inc. (Series B) 7.875 08/01/08 86,520
---------------
REGIONAL BANKS (0.2%)
AUD 200 KFW International Inc. 6.25 07/15/05 140,632
---------------
SAVINGS BANKS (0.2%)
$ 155 Washington Mutual Inc. 8.25 04/01/10 180,692
---------------
SERVICES TO THE HEALTH INDUSTRY (0.1%)
80 Anthem Insurance - 144A* 9.125 04/01/10 98,237
---------------
SPECIALTY STORES (0.7%)
130 Autonation, Inc. 9.00 08/01/08 147,550
85 General Nutrition Center - 144A* 8.50 12/01/10 88,613
120 Petro Stopping Centers/Financial Corp. - 144A* 9.00 02/15/12 119,400
115 Sonic Automotive, Inc. 8.625 08/15/13 120,463
---------------
476,026
---------------
SPECIALTY TELECOMMUNICATIONS (1.1%)
130 American Tower Corp. 9.375 02/01/09 139,425
90 American Tower Corp. - 144A* 7.50 05/01/12 87,525
245 Primus Telecommunications Group, Inc. - 144A* 8.00 01/15/14 216,825
125 Qwest Communications International - 144A* 4.75**** 02/15/09 117,500
20 Qwest Corp. 5.625 11/15/08 19,650
45 Qwest Corp. 6.625 09/15/05 46,125
140 Qwest Services Corp. - 144A* 13.00 12/15/07 160,300
---------------
787,350
---------------
STEEL (0.2%)
135 United States Steel Corp. 9.75 05/15/10 150,188
---------------
TELECOMMUNICATIONS (0.6%)
EUR 20 AT&T Corp. 6.50 11/21/06 25,829
$ 50 AT&T Corp. 8.75 11/15/31 48,930
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 433 Rhythms Netconnections, Inc. (a) (c) 12.75% 04/15/09 $ 0
120 Sprint Capital Corp. 8.75 03/15/32 140,235
200 Startec Global Communications Corp. (a) (c) 12.00 05/15/08 0
165 Verizon Global Funding Corp. 7.75 12/01/30 185,880
---------------
400,874
---------------
TOBACCO (0.1%)
25 Altria Group, Inc. 7.00 11/04/13 25,501
35 Altria Group, Inc. 7.75 01/15/27 35,882
---------------
61,383
---------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.4%)
190 Manitowoc Inc. (The) 10.50 08/01/12 218,500
60 NMHG Holding Co. 10.00 05/15/09 66,300
---------------
284,800
---------------
WHOLESALE DISTRIBUTORS (0.8%)
150 Buhrmann US, Inc. - 144A* 8.25 07/01/14 150,375
160 Burhmann US, Inc. 12.25 11/01/09 176,095
110 Fisher Scientific International Inc. 8.125 05/01/12 118,250
115 Nebraska Book Company, Inc. 8.625 03/15/12 113,275
---------------
557,995
---------------
WIRELESS TELECOMMUNICATIONS (1.2%)
40 AT&T Wireless Services, Inc. 8.75 03/01/31 48,909
170 Centennial Communications Corp. - 144A* 8.125 02/01/14 158,525
140 Metropcs Inc. 10.75 10/01/11 152,600
75 Rural Cellular Corp - 144A* 6.02**** 03/15/10 77,625
245 SBA Communications Corp. 10.25 02/01/09 252,350
45 Ubiquitel Operating Co. 14.00++ 04/15/10 44,775
90 US Unwired Inc. - 144A* 10.00 06/15/12 91,350
---------------
826,134
---------------
TOTAL CORPORATE BONDS
(COST $29,657,727) 28,130,362
---------------
MORTGAGE-BACKED SECURITIES (17.6%)
FEDERAL HOME LOAN MORTGAGE CORP. (2.8%)
270 5.125 11/07/13 264,807
1,200 6.00 ** 1,220,625
466 7.50 11/01/29 - 06/01/32 501,234
---------------
1,986,666
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOC. (14.5%)
$ 650 4.50% ** $ 635,172
950 5.00 ** 951,187
2,200 5.50 ** 2,210,313
275 6.00 ** 280,758
1,950 6.50 ** 2,027,945
1,180 6.50 10/01/28 - 11/01/33 1,230,446
1,631 7.00 05/01/31 - 09/01/33 1,722,340
373 7.50 02/01/31 - 03/01/32 399,927
734 8.00 04/01/30 - 05/01/31 794,294
---------------
10,252,382
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. (0.3%)
168 7.50 04/15/26 - 08/15/29 181,296
54 8.00 02/15/26 - 06/15/26 58,756
---------------
240,052
---------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $12,334,523) 12,479,100
---------------
ASSET-BACKED SECURITIES (3.3%)
FINANCE/RENTAL/LEASING (0.2%)
136 Chase Funding Mortgage 1.21 11/25/18 136,506
---------------
INVESTMENT TRUSTS/MUTUAL FUNDS (3.1%)
2,150 Targeted Return Index - 144A* 8.218 08/01/15 2,234,682
---------------
TOTAL ASSET-BACKED SECURITIES
(COST $2,337,497) 2,371,188
---------------
U.S. GOVERNMENT OBLIGATIONS (12.8%)
U.S. Treasury Bonds
1,900 0.00 02/15/06 - 02/15/25 1,049,869
2,800 6.125 08/15/29 3,080,876
335 8.125 08/15/19 - 08/15/21 441,358
1,315 (b) 8.75 05/15/17 - 08/15/20 1,808,202
600 U.S. Treasury Note 3.875 02/15/13 573,774
5,370 U.S. Treasury Strips 0.00 08/15/17 - 05/15/25 2,096,952
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $8,927,069) 9,051,031
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES
(COST $53,256,816) $ 52,031,681
---------------
TOTAL GOVERNMENT & CORPORATE BONDS
(COST $71,378,397) 70,366,595
---------------
COMMON STOCKS (e) (0.3%)
AEROSPACE & DEFENSE (0.0%)
1,118 Orbital Sciences Corp. (d) 15,440
---------------
APPAREL/FOOTWEAR RETAIL (0.0%)
50,166 County Seat Stores Corp. (d) 0
---------------
CASINO/GAMING (0.0%)
787 Fitzgerald Gaming Corp.*** 0
---------------
CONSUMER/BUSINESS SERVICES (0.1%)
3,900 Anacomp, Inc. (Class A) (d) 82,095
---------------
FOOD: SPECIALTY/CANDY (0.0%)
100 SFAC New Holdings Inc. (d) 0
18 SFFB New Holdings Inc. (d) 0
---------------
0
---------------
MEDICAL/NURSING SERVICES (0.0%)
34,888 Raintree Healthcare Corp. (d) 0
---------------
RESTAURANTS (0.1%)
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
---------------
0
---------------
TELECOMMUNICATIONS (0.0%)
352 Viatel Holdings Bermuda Ltd. (d) 317
---------------
TEXTILES (0.0%)
11,192 U.S. Leather, Inc. (d) 0
---------------
WIRELESS TELECOMMUNICATIONS (0.1%)
46 Arch Wireless, Inc. (Class A) (d) 1,310
2,475 NII Holdings, Inc. (Class B)* 83,383
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
---------------
84,693
---------------
TOTAL COMMON STOCKS
(COST $3,301,795) 202,819
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS (0.5%)
BROADCASTING (0.3%)
23 Paxson Communications Corp. $ 198,158
---------------
ELECTRIC UTILITIES (0.2%)
156 TNP Enterprises, Inc. (Series D)+ 175,110
---------------
RESTAURANTS (0.0%)
17 Catalina Restaurant Group, Inc. (Units)^ 15,300
---------------
TOTAL NON-CONVERTIBLE PREFERRED STOCKS
(COST $388,381) 388,568
---------------
<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 Enterprises, Inc. - 144A* 03/01/10 0
250 Resorts At Summerlin LP - 144A* 12/15/07 0
---------------
0
---------------
ELECTRIC UTILITIES (0.0%)
125 TNP Enterprises, Inc. - 144A* 04/01/11 1,656
---------------
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) 1,656
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.0%)
U.S. GOVERNMENT OBLIGATION (f) (0.2%)
$ 100 U.S. Treasury Bill (b)
(COST $99,746) 1.089% 09/23/04 $ 99,746
---------------
REPURCHASE AGREEMENT (0.8%)
584 The Bank of New York
(dated 06/30/04; proceeds $584,432) (g)
(COST $584,416) 1.00 07/01/04 584,416
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $684,162) 684,162
---------------
TOTAL INVESTMENTS (h) (i)
(COST $75,760,577) 101.0% 71,643,800
LIABILITIES IN EXCESS OF OTHER ASSETS (1.0) (737,012)
----- ---------------
NET ASSETS 100.0% $ 70,906,788
===== ===============
</Table>
- ----------
* 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.
**** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT JUNE 30,
2004.
^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
PREFERRED STOCK WITH ATTACHED WARRANTS.
+ PAYMENT-IN-KIND SECURITY.
++ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT
A FUTURE DATE.
(a) ISSUER IN BANKRUPTCY.
(b) ALL OR A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $155,551.
(c) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT.
(d) ACQUIRED THROUGH EXCHANGE OFFER.
(e) NON-INCOME PRODUCING SECURITIES.
(f) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(g) COLLATERALIZED BY FEDERAL NATIONAL MORTGAGE ASSOCIATION 4.197% DUE
03/01/34 VALUED AT $596,104.
(h) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$22,716,892 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS, FORWARD FOREIGN CURRENCY CONTRACTS AND OPEN FUTURES
CONTRACTS.
(i) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $2,621,017 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $6,737,794, RESULTING IN NET UNREALIZED DEPRECIATION OF
$4,116,777.
BOND INSURANCE:
FSA FINANCIAL SECURITY ASSURANCE INC.
SEE NOTES TO FINANCIAL STATEMENTS
40
<Page>
FUTURES CONTRACTS OPEN AT JUNE 30, 2004:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------
68 Short US Treasury Note 5 Year,
Sept. 2004 $ (7,390,750) $ (55,185)
47 Short US Treasury Note 10 Year,
Sept. 2004 (5,138,422) (55,223)
31 Short US Treasury Bond 30 Year,
Sept. 2004 (3,297,625) (60,556)
1 Long Euro Bond Sept. 2004 137,975 935
----------
Net unrealized depreciation $ (170,029)
==========
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 2004:
<Table>
<Caption>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- ------------------------------------------------------------------------------------------------------
CHF 65,000 $ 49,808 07/22/04 $ (2,210)
EUR 1,150,000 $ 1,361,774 07/26/04 (39,739)
GBP 35,000 $ 61,527 08/24/04 (1,837)
JPY 17,000,000 $ 155,393 08/10/04 (1,065)
----------
Total unrealized depreciation $ (44,851)
==========
</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
41
<Page>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (65.7%)
ADVERTISING/MARKETING SERVICES (0.5%)
34,700 Interpublic Group of Companies, Inc. (The)* $ 476,431
---------------
AEROSPACE & DEFENSE (0.7%)
13,260 Northrop Grumman Corp. 712,062
---------------
AUTO PARTS: O.E.M. (1.2%)
14,130 Magna International Inc. (Class A) (Canada) 1,203,452
---------------
BROADCASTING (1.1%)
31,480 Clear Channel Communications, Inc. 1,163,186
---------------
CHEMICALS: MAJOR DIVERSIFIED (2.6%)
60,680 Bayer AG (ADR) (Germany) 1,771,856
20,250 Dow Chemical Co. (The) 824,175
---------------
2,596,031
---------------
COMPUTER PROCESSING HARDWARE (0.7%)
31,690 Hewlett-Packard Co. 668,659
---------------
CONTAINERS/PACKAGING (0.7%)
10,100 Temple-Inland, Inc. 699,425
---------------
DATA PROCESSING SERVICES (1.8%)
15,670 Automatic Data Processing, Inc. 656,260
18,310 First Data Corp. 815,161
15,400 SunGard Data Systems Inc.* 400,400
---------------
1,871,821
---------------
DISCOUNT STORES (1.0%)
20,250 Target Corp. 860,017
2,000 Wal-Mart Stores, Inc. 105,520
---------------
965,537
---------------
ELECTRIC UTILITIES (2.8%)
10,360 Consolidated Edison, Inc. 411,914
16,550 Edison International 423,183
12,660 Entergy Corp. 709,087
20,990 Exelon Corp. 698,757
15,900 FirstEnergy Corp. 594,819
---------------
2,837,760
---------------
FINANCE/RENTAL/LEASING (1.1%)
16,900 Freddie Mac 1,069,770
---------------
FINANCIAL CONGLOMERATES (3.0%)
25,700 Citigroup Inc. 1,195,050
28,350 J.P. Morgan Chase & Co. 1,099,129
16,310 Prudential Financial, Inc. 757,926
---------------
3,052,105
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
42
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL PUBLISHING/SERVICES (0.9%)
35,900 Equifax, Inc. $ 888,525
---------------
FOOD: MAJOR DIVERSIFIED (2.0%)
17,650 Kraft Foods Inc. (Class A) 559,152
7,560 Nestle SA (ADR) (Registered Shares) (Switzerland) 505,008
16,810 PepsiCo, Inc. 905,723
---------------
1,969,883
---------------
FOOD: SPECIALTY/CANDY (0.8%)
23,500 Cadbury Scweppes PLC (ADR) (United Kingdom) 824,380
---------------
HOTELS/RESORTS/CRUISELINES (1.7%)
22,210 Hilton Hotels Corp. 414,439
11,770 Marriott International, Inc. (Class A) 587,088
16,270 Starwood Hotels & Resorts Worldwide, Inc. 729,709
---------------
1,731,236
---------------
HOUSEHOLD/PERSONAL CARE (1.3%)
20,690 Kimberly-Clark Corp. 1,363,057
---------------
INDUSTRIAL CONGLOMERATES (1.3%)
25,800 General Electric Co. 835,920
7,160 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 489,100
---------------
1,325,020
---------------
INDUSTRIAL MACHINERY (0.6%)
10,970 Parker-Hannifin Corp. 652,276
---------------
INFORMATION TECHNOLOGY SERVICES (1.4%)
31,660 Accenture Ltd. (Class A) (Bermuda)* 870,017
5,970 International Business Machines Corp. 526,255
---------------
1,396,272
---------------
INTEGRATED OIL (6.0%)
40,050 BP PLC (ADR) (United Kingdom) 2,145,478
16,070 ConocoPhillips 1,225,980
30,410 Exxon Mobil Corp. 1,350,508
26,080 Royal Dutch Petroleum Co. (NY Registered Shares) (Netherlands) 1,347,554
---------------
6,069,520
---------------
INVESTMENT BANKS/BROKERS (2.4%)
14,600 Lehman Brothers Holdings Inc. 1,098,650
23,900 Merrill Lynch & Co., Inc. 1,290,122
---------------
2,388,772
---------------
LIFE/HEALTH INSURANCE (0.7%)
20,070 MetLife, Inc. 719,509
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
43
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
MAJOR BANKS (2.4%)
10,880 Bank of America Corp. $ 920,666
21,300 Bank One Corp. 1,086,300
8,920 PNC Financial Services Group 473,474
---------------
2,480,440
---------------
MAJOR TELECOMMUNICATIONS (2.2%)
16,990 SBC Communications, Inc. 412,007
53,470 Sprint Corp. (FON Group) 941,072
25,620 Verizon Communications Inc. 927,188
---------------
2,280,267
---------------
MANAGED HEALTH CARE (0.8%)
11,500 CIGNA Corp. 791,315
---------------
MEDIA CONGLOMERATES (3.5%)
61,340 Disney (Walt) Co. (The) 1,563,557
113,760 Time Warner Inc.* 1,999,901
---------------
3,563,458
---------------
MEDICAL SPECIALTIES (1.2%)
18,210 Bausch & Lomb, Inc. 1,184,925
---------------
MOTOR VEHICLES (1.5%)
63,040 Honda Motor Co., Ltd. (ADR) (Japan) 1,533,133
---------------
MULTI-LINE INSURANCE (1.1%)
16,360 Hartford Financial Services Group, Inc. (The) (Note 4) 1,124,586
---------------
OIL REFINING/MARKETING (0.7%)
9,080 Valero Energy Corp. 669,741
---------------
OILFIELD SERVICES/EQUIPMENT (1.9%)
30,450 Schlumberger Ltd. 1,933,879
---------------
PACKAGED SOFTWARE (1.4%)
21,790 Computer Associates International, Inc. 611,427
26,970 Microsoft Corp. 770,263
---------------
1,381,690
---------------
PHARMACEUTICALS: MAJOR (5.6%)
10,700 AstraZeneca PLC (ADR) (United Kingdom) 488,348
97,100 Bristol-Myers Squibb Co. 2,378,950
12,370 Roche Holdings Ltd. (ADR) (Switzerland) 1,224,877
60,130 Schering-Plough Corp. 1,111,202
13,170 Wyeth 476,227
---------------
5,679,604
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
44
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
PRECIOUS METALS (0.5%)
13,330 Newmont Mining Corp. $ 516,671
---------------
PROPERTY - CASUALTY INSURERS (2.4%)
22,670 Chubb Corp. (The) 1,545,641
23,046 St. Paul Companies, Inc. (The) 934,285
---------------
2,479,926
---------------
RAILROADS (2.0%)
52,140 Norfolk Southern Corp. 1,382,753
11,750 Union Pacific Corp. 698,538
---------------
2,081,291
---------------
RESTAURANTS (0.5%)
20,310 McDonald's Corp. 528,060
---------------
SEMICONDUCTORS (0.7%)
24,670 Intel Corp. 680,892
---------------
TOBACCO (0.5%)
10,130 Altria Group, Inc. 507,007
---------------
WIRELESS TELECOMMUNICATIONS (0.5%)
38,090 AT&T Wireless Services, Inc.* 545,449
---------------
TOTAL COMMON STOCKS
(COST $53,606,701) 66,607,023
---------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ------ --------
CORPORATE BONDS (9.6%)
ADVERTISING/MARKETING SERVICES (0.1%)
$ 80 WPP Finance (UK) Corp. - 144A** 5.875% 06/15/14 80,478
---------------
AEROSPACE & DEFENSE (0.2%)
15 Lockheed Martin Corp. 7.75 05/01/26 17,430
20 Lockheed Martin Corp. 8.50 12/01/29 25,161
15 Raytheon Co. 4.85 01/15/11 14,908
25 Raytheon Co. 8.30 03/01/10 29,359
129 Systems 2001 Asset Trust - 144A** 6.664 09/15/13 139,630
---------------
226,488
---------------
AIR FREIGHT/COURIERS (0.1%)
50 Fedex Corp. - 144A** 2.65 04/01/07 48,586
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
45
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
$ 109 American West Airlines 7.10% 04/02/21 $ 115,393
150 Continental Airlines, Inc. 6.90 01/02/18 140,981
45 Southwest Airlines Co. 5.496 11/01/06 46,666
---------------
303,040
---------------
BEVERAGES: ALCOHOLIC (0.1%)
50 Miller Brewing Co. - 144A** 4.25 08/15/08 49,803
---------------
BROADCASTING (0.1%)
50 Clear Channel Communications, Inc. 7.65 09/15/10 56,400
---------------
CABLE/SATELLITE TV (0.2%)
20 Comcast Cable Communications Inc. 6.75 01/30/11 21,610
55 Comcast Corp. 6.50 01/15/15 57,113
10 Comcast Corp. 7.625 02/15/08 10,972
55 TCI Communications, Inc. 7.875 02/15/26 62,240
---------------
151,935
---------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
40 ICI Wilmington Inc. 4.375 12/01/08 39,276
---------------
Containers/Packaging (0.1%)
65 Sealed Air Corp - 144A** 5.625 07/15/13 64,320
---------------
DEPARTMENT STORES (0.2%)
70 Federated Department Stores, Inc. 6.90 04/01/29 72,840
145 May Department Stores Co., Inc. 6.70 09/15/28 144,515
10 May Department Stores Co., Inc. 6.90 01/15/32 10,287
---------------
227,642
---------------
DRUGSTORE CHAINS (0.2%)
180 CVS Corp. 5.625 03/15/06 187,726
15 CVS Corp. - 144A** 6.204 10/10/25 14,879
---------------
202,605
---------------
ELECTRIC UTILITIES (0.9%)
30 Appalachian Power Co. (Series H) 5.95 05/15/33 27,753
50 Arizona Public Service Co. 5.80 06/30/14 50,142
70 Carolina Power & Light Co. 5.125 09/15/13 69,052
35 Cincinnati Gas & Electric Co. 5.70 09/15/12 35,843
25 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 21,697
30 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 25,938
15 Columbus Southern Power Co. 6.60 03/01/33 15,332
15 Consolidated Natural Gas Co. (Series A) 5 .00 03/01/14 14,397
60 Consolidated Natural Gas Co. 6.25 11/01/01 63,932
25 Constellation Energy Group, Inc. 7.60 04/01/32 27,682
</Table>
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46
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 70 Detroit Edison Co. 6.125% 10/01/10 $ 74,697
45 Duke Energy Corp. 3.75 03/05/08 44,416
45 Duke Energy Corp. 4.50 04/01/10 44,314
30 Entergy Gulf States, Inc. 3.60 06/01/08 28,972
50 Exelon Corp. 6.75 05/01/11 54,451
55 Ohio Power Co. (Series G) 6.60 02/15/33 56,365
80 Pacific Gas & Electric Co. 6.05 03/01/34 75,494
45 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 44,473
20 South Carolina Electric & Gas Co. 5.30 05/15/33 17,916
15 Southern California Edison Co. 5.00 01/15/14 14,621
30 Texas Eastern Transmission, L.P. 7.00 07/15/32 31,463
40 TXU Energy Co. 7.00 03/15/13 43,630
10 Wisconsin Electric Power Co. 5.625 05/15/33 9,372
---------------
891,952
---------------
ELECTRICAL PRODUCTS (0.1%)
70 Cooper Industries Inc. 5.25 07/01/07 73,050
---------------
ENVIRONMENTAL SERVICES (0.1%)
20 Waste Management, Inc. 5.00 03/15/14 19,045
95 Waste Management, Inc. 6.875 05/15/09 104,415
---------------
123,460
---------------
FINANCE/RENTAL/LEASING (0.4%)
55 CIT Group Inc. 2.875 09/29/06 54,309
25 CIT Group Inc. 7.375 04/02/07 27,368
105 Countrywide Home Loans, Inc. 3.25 05/21/08 101,095
20 Ford Motor Credit Co. 7.25 10/25/11 20,915
35 Ford Motor Credit Co. 7.375 10/28/09 37,394
115 MBNA Corp. 6.125 03/01/13 118,966
75 SLM Corp. 5.00 10/01/13 72,556
---------------
432,603
---------------
FINANCIAL CONGLOMERATES (1.4%)
95 Chase Manhattan Corp. 6.00 02/15/09 100,778
40 Citicorp. 6.75 08/15/05 41,859
90 Citigroup Inc. 5.625 08/27/12 92,662
60 Citigroup Inc. 5.75 05/10/06 62,887
90 Citigroup Inc. 6.00 02/21/12 95,570
40 General Electric Capital Corp. 4.25 12/01/10 38,942
140 General Electric Capital Corp. 6.75 03/15/32 150,991
35 General Motors Acceptance Corp. 4.50 07/15/06 35,390
265 General Motors Acceptance Corp. 6.875 09/15/11 272,087
120 General Motors Acceptance Corp. 8.00 11/01/31 123,296
100 Prudential Holdings, LLC (Series C) - 144A** 8.695 12/18/23 120,354
</Table>
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47
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 225 Prudential Holdings, LLC (Series B)
(FSA) - 144A** 7.245% 12/18/23 $ 255,733
---------------
1,390,549
---------------
FOOD RETAIL (0.2%)
40 Albertson's, Inc. 7.50 02/15/11 45,135
110 Kroger Co. 6.80 04/01/11 120,027
---------------
165,162
---------------
FOOD: MAJOR DIVERSIFIED (0.2%)
20 General Mills Inc. 3.875 11/30/07 19,950
25 Kraft Foods Inc. 5.25 06/01/07 26,017
85 Kraft Foods Inc. 5.625 11/01/11 86,599
40 Kraft Foods Inc. 6.25 06/01/12 42,185
---------------
174,751
---------------
FOREST PRODUCTS (0.2%)
30 Weyerhaeuser Co. 6.00 08/01/06 31,579
25 Weyerhaeuser Co. 6.125 03/15/07 26,430
90 Weyerhaeuser Co. 6.75 03/15/12 97,613
---------------
155,622
---------------
GAS DISTRIBUTORS (0.0%)
65 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A**
(Qatar) 8.294 03/15/14 73,125
---------------
HOME FURNISHINGS (0.0%)
35 Mohawk Industries, Inc. 7.20 04/15/12 38,893
---------------
HOME IMPROVEMENT CHAINS (0.0%)
15 Lowe's Companies, Inc. 6.50 03/15/29 15,788
10 Lowe's Companies, Inc. 6.875 02/15/28 10,970
---------------
26,758
---------------
HOTELS/RESORTS/CRUISELINES (0.2%)
70 Hyatt Equities LLC - 144A** 6.875 06/15/07 74,472
110 Marriott International, Inc. (Series E) 7.00 01/15/08 119,906
---------------
194,378
---------------
INDUSTRIAL CONGLOMERATES (0.1%)
80 Honeywell International, Inc. 6.125 11/01/11 85,960
45 Hutchison Whampoa International Ltd. - 144A**
(Virgin Islands) 6.50 02/13/13 45,122
---------------
131,082
---------------
INFORMATION TECHNOLOGY SERVICES (0.0%)
25 Electronic Data Systems Corp. 7.125 10/15/09 26,191
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
INSURANCE BROKERS/SERVICES (0.2%)
$ 200 Farmers Exchange Capital - 144A** 7.05% 07/15/28 $ 192,492
---------------
INTEGRATED OIL (0.2%)
25 Amerada Hess Corp. 6.65 08/15/11 26,493
30 Amerada Hess Corp. 7.875 10/01/29 32,502
110 Conoco Inc. 6.95 04/15/29 121,479
10 Petro-Canada (Canada) 4.00 07/15/13 8,949
35 Petro-Canada (Canada) 5.35 07/15/33 29,899
---------------
219,322
---------------
INVESTMENT BANKS/BROKERS (0.2%)
60 Goldman Sachs Group Inc. 5.25 10/15/13 58,364
30 Goldman Sachs Group Inc. 6.60 01/15/12 32,331
95 Goldman Sachs Group Inc. 6.875 01/15/11 104,426
---------------
195,121
---------------
LIFE/HEALTH INSURANCE (0.1%)
100 John Hancock Financial Services, Inc. 5.625 12/01/08 105,238
---------------
MAJOR BANKS (0.4%)
30 Bank of New York (The) 5.20 07/01/07 31,343
105 Bank One Corp. 6.00 02/17/09 111,715
65 FleetBoston Financial Corp. 7.25 09/15/05 68,516
40 Household Finance Corp. 4.125 12/15/08 39,468
50 Household Finance Corp. 5.875 02/01/09 52,834
25 Household Finance Corp. 6.375 10/15/11 26,724
65 Household Finance Corp. 6.40 06/17/08 69,984
35 Household Finance Corp. 6.75 05/15/11 38,301
---------------
438,885
---------------
MAJOR TELECOMMUNICATIONS (0.5%)
70 AT&T Corp. 8.75 11/15/31 68,502
90 Deutsche Telekom International Finance Corp.
(Netherlands) 8.75 06/15/30 109,857
35 France Telecom S.A. (France) 9.50 03/01/31 44,051
20 Sprint Capital Corp. 8.75 03/15/32 23,372
45 Telecom Italia Capital SpA - 144A** (Luxembourg) 4.00 11/15/08 44,249
25 Verizon Global Funding Corp. 7.75 12/01/30 28,164
160 Verizon New England Inc. 6.50 09/15/11 170,732
---------------
488,927
---------------
MANAGED HEALTH CARE (0.3%)
135 Aetna, Inc. 7.875 03/01/11 155,912
35 Anthem Insurance Companies, Inc. - 144A** 9.125 04/01/10 42,979
60 Wellpoint Health Network, Inc. 6.375 06/15/06 63,642
---------------
262,533
---------------
</Table>
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49
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
MEDIA CONGLOMERATES (0.2%)
$ 45 AOL Time Warner Inc. 7.70% 05/01/32 $ 49,307
80 News America Holdings, Inc. 7.28 06/30/28 86,861
30 News America Holdings, Inc. 7.75 02/01/24 34,025
20 Time Warner, Inc. 6.625 05/15/29 19,466
15 Time Warner, Inc. 7.625 04/15/31 16,280
---------------
205,939
---------------
MOTOR VEHICLES (0.3%)
50 DaimlerChrysler North American Holdings Co. 7.20 09/01/09 54,487
95 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 103,840
35 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 40,327
25 Ford Motor Co. 6.625 10/01/28 21,954
125 Ford Motor Co. 7.45 07/16/31 119,488
---------------
340,096
---------------
MULTI-LINE INSURANCE (0.4%)
180 AIG SunAmerica Global Finance VI - 144A** 6.30 05/10/11 193,611
90 American General Finance Corp. 4.625 09/01/10 88,992
15 AXA Financial Inc. 6.50 04/01/08 16,328
30 Hartford Financial Services Group, Inc. (The)
(Note 4) 2.375 06/01/06 29,527
75 Hartford Financial Services Group, Inc. (The)
(Note 4) 7.90 06/15/10 87,018
30 International Lease Finance Corp. 3.75 08/01/07 29,893
---------------
445,369
---------------
OIL & GAS PIPELINES (0.0%)
15 Panhandle Eastern Pipe Line Co. 2.75 03/15/07 14,405
---------------
OIL & GAS PRODUCTION (0.4%)
45 Kerr-McGee Corp. 6.875 09/15/11 48,478
50 Nexen Inc. (Canada) 5.05 11/20/13 48,041
40 Pemex Project Funding Master Trust 7.375 12/15/14 41,000
235 Pemex Project Funding Master Trust 8.625 02/01/22 245,575
---------------
383,094
---------------
OIL REFINING/MARKETING (0.1%)
30 Marathon Oil Corp. 5.375 06/01/07 31,356
25 Marathon Oil Corp. 6.80 03/15/32 26,004
---------------
57,360
---------------
</Table>
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50
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS (0.1%)
$ 90 Inco Ltd. (Canada) 7.20% 09/15/32 $ 95,123
25 Inco Ltd. (Canada) 7.75 05/15/12 28,478
---------------
123,601
---------------
PHARMACEUTICALS: MAJOR (0.0%)
35 Schering-Plough Corp. 5.30 12/01/13 34,434
---------------
PROPERTY - CASUALTY INSURERS (0.2%)
200 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 197,727
---------------
PULP & PAPER (0.1%)
55 International Paper Co. 4.25 01/15/09 54,122
50 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 53,439
---------------
107,561
---------------
RAILROADS (0.0%)
25 Union Pacific Corp. 6.79 11/09/07 27,238
---------------
REAL ESTATE DEVELOPMENT (0.2%)
187 World Financial Properties - 144A** 6.91 09/01/13 203,833
---------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
35 EOP Operating L.P. 7.25 06/15/28 36,360
10 EOP Operating L.P. 4.75 03/15/14 9,231
25 EOP Operating L.P. 6.763 06/15/07 26,942
30 Rouse Co. (The) 3.625 03/15/09 28,531
15 Rouse Co. (The) 5.375 11/26/13 14,516
---------------
115,580
---------------
SAVINGS BANKS (0.1%)
55 Washington Mutual Bank 5.50 01/15/13 55,055
35 Washington Mutual Inc. 8.25 04/01/10 40,802
---------------
95,857
---------------
TOBACCO (0.1%)
45 Altria Group Inc. 7.00 11/04/13 45,903
60 Altria Group, Inc. 7.75 01/15/27 61,512
---------------
107,415
---------------
WIRELESS TELECOMMUNICATIONS (0.0%)
35 AT&T Wireless Services, Inc. 8.75 03/01/31 42,795
---------------
TOTAL CORPORATE BONDS
(COST $9,471,375) 9,752,971
---------------
</Table>
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51
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.2%)
$ 10 United Mexican States (Mexico) 8.00% 09/24/22 $ 10,410
160 United Mexican States (Mexico) 8.30 08/15/31 168,000
---------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $193,576) 178,410
---------------
MORTGAGE-BACKED SECURITIES (4.6%)
Federal Home Loan Mortgage Corp.
1,081 6.50 06/01/30 - 03/01/33 1,128,129
587 7.50 09/01/25 - 06/01/32 631,636
Federal National Mortgage Assoc.
694 6.50 01/01/32 - 01/01/33 723,593
703 7.00 05/01/33 - 07/01/34 741,775
350 7.50 + 374,500
197 7.50 08/01/29 - 01/01/31 210,903
647 8.00 12/01/28 - 04/01/32 699,598
108 Government National Mortgage Association 7.50 08/15/23 - 10/15/29 116,553
---------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $4,577,276) 4,626,687
---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (14.8%)
290 Federal Home Loan Mortgage Corp. 5.125 11/07/13 284,423
1,575 Federal National Mortgage Assoc. 4.25 05/15/09 1,578,690
U.S. Treasury Bonds
1,750 5.50 08/15/28 1,773,448
775 6.125 08/15/29 852,743
1,440 7.625 02/15/25 1,848,319
2,250 8.125 08/15/19 - 08/15/21 2,975,288
200 8.50 02/15/20 270,688
425 8.75 08/15/20 588,808
U.S. Treasury Notes
3,150 3.50 11/15/06 3,191,715
875 3.875 02/15/13 836,754
2,460 U.S. Treasury Strip 0.00 02/15/25 771,953
---------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST $15,116,606) 14,972,829
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (0.7%)
FINANCE/RENTAL/LEASING
$ 215 Chase Credit Card Master Trust 2001-4A 5.50% 11/17/08 $ 224,954
200 Citibank Credit Issuance Trust 6.90 10/15/07 210,878
15 Harley-Davidson Motorcycle Trust 2002-1 3.02 09/15/06 14,548
100 MBNA Master Credit Card Trust 5.90 08/15/11 107,214
92 Nissan Auto Receivables Owner Trust 2001-C 4.80 02/15/07 93,367
50 TXU Electric Delivery Transition Bond 4.81 11/15/12 50,021
---------------
TOTAL ASSET-BACKED SECURITIES
(COST $679,183) 700,982
---------------
SHORT-TERM INVESTMENTS (5.8%)
U.S. GOVERNMENT OBLIGATION (a) (0.2%)
200 U.S. Treasury Bill***
(COST $199,542) 0.98 09/23/04 199,543
---------------
REPURCHASE AGREEMENT (5.6%)
5,731 Joint repurchase agreement account
(dated 06/30/04; proceeds $5,731,231) (b)
(COST $5,731,000) 1.45 07/01/04 5,731,000
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $5,930,543) 5,930,543
---------------
TOTAL INVESTMENTS
(COST $89,575,260) (c) (d) 101.4% 102,769,445
LIABILITIES IN EXCESS OF OTHER ASSETS (1.4) (1,374,413)
------ ---------------
NET ASSETS 100.0% $ 101,395,032
====== ===============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
FSA FINANCIAL SECURITY ASSURANCE.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** A PORTION OF THIS SECURITY HAS BEEN SEGREGATED IN CONNECTION WITH OPEN
FUTURES CONTRACTS IN THE AMOUNT OF $89,800.
+ 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 AN AMOUNT EQUAL TO
$6,878,390 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $14,832,810 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $1,638,625, RESULTING IN NET UNREALIZED APPRECIATION OF
$13,194,185.
SEE NOTES TO FINANCIAL STATEMENTS
53
<Page>
FUTURES CONTRACTS OPEN AT JUNE 30, 2004:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION
- ------------------------------------------------------------------------------------------------------
10 Short U.S. Treasury Notes 5 Year,
September 2004 $ (1,086,875) $ (8,621)
5 Short U.S. Treasury Notes 10 Year,
September 2004 (546,641) (8,523)
48 Short U.S. Treasury Bond 20 Year,
September 2004 (5,106,000) (128,126)
----------
Total unrealized depreciation $ (145,270)
==========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
54
<Page>
Utilities
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (94.4%)
ELECTRIC UTILITIES (51.2%)
120,000 AES Corp. (The)* $ 1,191,600
70,000 Allegheny Energy, Inc.* 1,078,700
35,000 American Electric Power Co., Inc. 1,120,000
200,000 Aquila, Inc.* 712,000
58,500 Cinergy Corp. 2,223,000
25,000 Constellation Energy Group, Inc. 947,500
25,000 Dominion Resources, Inc. 1,577,000
56,710 Duke Energy Corp. 1,150,646
80,000 Edison International 2,045,600
32,500 Entergy Corp. 1,820,325
60,000 Exelon Corp. 1,997,400
30,000 FPL Group, Inc. 1,918,500
40,000 NRG Energy Inc.* 992,000
27,000 NSTAR 1,292,760
60,000 PG&E Corp.* 1,676,400
29,400 Pinnacle West Capital Corp. 1,187,466
75,000 PNM Resources Inc. 1,557,750
45,000 PPL Corp. 2,065,500
23,081 Progress Energy, Inc. 1,016,718
29,000 Public Service Enterprise Group, Inc. 1,160,870
100,000 Reliant Energy, Inc.* 1,083,000
56,000 SCANA Corp. 2,036,720
60,000 Sierra Pacific Resources* 462,600
42,000 Southern Co. (The) 1,224,300
55,000 TXU Corp. 2,228,050
51,000 Wisconsin Energy Corp. 1,663,110
---------------
37,429,515
---------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (1.6%)
50,000 Itron, Inc.* 1,147,000
---------------
ENERGY (18.3%)
35,000 AGL Resources, Inc. 1,016,750
50,000 Burlington Resources, Inc. 1,809,000
65,000 El Paso Corp. 512,200
35,600 KeySpan Corp. 1,306,520
25,000 Kinder Morgan, Inc. 1,482,250
67,500 MDU Resources Group, Inc. 1,622,025
39,000 New Jersey Resources Corp. 1,621,620
50,000 Questar Corp. 1,932,000
30,000 Sempra Energy 1,032,900
90,000 Williams Companies, Inc. (The) 1,071,000
---------------
13,406,265
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
55
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (23.3%)
55,000 Alcatel SA (ADR) (France)* $ 851,950
34,160 ALLTEL Corp. 1,729,179
95,000 American Tower Corp. (Class A)* 1,444,000
55,500 BellSouth Corp. 1,455,210
45,000 Cablevision Systems New York Group (Class A)* 884,250
30,625 CenturyTel, Inc. 919,975
40,000 Cisco Systems, Inc.* 948,000
57,000 Nextel Communications, Inc. (Class A)* 1,519,620
61,272 SBC Communications, Inc. 1,485,846
110,000 Sprint Corp. (FON Group) 1,936,000
30,000 Telefonaktiebolaget LM Ericsson (ADR) (Sweden)* 897,600
42,394 Verizon Communications Inc. 1,534,239
65,000 Vodafone Group PLC (ADR) (United Kingdom) 1,436,500
---------------
17,042,369
---------------
TOTAL COMMON STOCKS
(COST $51,169,525) 69,025,149
---------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------ --------
CORPORATE BONDS (2.4%)
ELECTRIC UTILITIES (1.6%)
$ 45 Appalachian Power Co. (Series G) 3.60% 05/15/08 43,914
55 Carolina Power & Light Co. 5.125 09/15/13 54,255
140 Cinergy Corp. 6.25 09/01/04 140,949
45 Cleco Power LLC 5.375 05/01/13 43,609
60 Commonwealth Edison Co. (Series 98) 6.15 03/15/12 64,190
12 Constellation Energy Group, Inc. 7.60 04/01/32 13,287
30 Duke Energy Corp. 4.50 04/01/10 29,543
35 Duquesne Light Co. (Series O) 6.70 04/15/12 38,267
10 Entergy Gulf States, Inc. 3.60 06/01/08 9,657
45 Exelon Corp. 6.75 05/01/11 49,006
50 FirstEnergy Corp. (Series B) 6.45 11/15/11 51,914
60 Indiana Michigan Power Co. (Series A) 6.875 07/01/04 60,000
15 Indianapolis Power & Light Co. - 144A** 6.30 07/01/13 15,422
60 Jersey Central Power & Light Co. (Series MTN) 6.45 05/15/06 63,145
55 Ohio Power Co. (Series G) 6.60 02/15/33 56,365
25 Pacific Gas & Electric 3.60 03/01/09 24,090
65 Pinnacle West Capital Corp. 6.40 04/01/06 68,345
115 Public Service Co. of New Mexico (Series B) 7.50 08/01/18 130,111
50 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 49,415
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
56
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
$ 65 South Carolina Electric & Gas Co. 7.50% 06/15/05 $ 68,001
10 Southern California Edison Co. 5.00 01/15/14 9,747
65 Texas-New Mexico Power Co. 6.25 01/15/09 65,290
30 TXU Energy Co. 7.00 03/15/13 32,722
40 Wisconsin Electric Power Co. 4.50 05/15/13 38,189
---------------
1,219,433
---------------
ENERGY (0.1%)
35 Consolidated Natural Gas Co. (Series B) 5.375 11/01/06 36,444
10 Panhandle Eastern Pipe Line Co. 2.75 03/15/07 9,603
---------------
46,047
---------------
TELECOMMUNICATIONS (0.7%)
75 AT&T Corp. 8.05 11/15/11 77,111
45 AT&T Wireless Services, Inc. 7.875 03/01/11 51,253
30 British Telecommunications PLC (United Kingdom) 8.375 12/15/10 35,079
85 Deutsche Telekom International Finance Corp.
(Netherlands) 8.75 06/15/30 103,754
60 France Telecom S.A. (France) 9.50 03/01/31 75,516
180 GTE Corp. 7.90 02/01/27 193,444
---------------
536,157
---------------
TOTAL CORPORATE BONDS
(COST $1,737,830) 1,801,637
---------------
ASSET-BACKED SECURITIES (0.5%)
FINANCE/RENTAL/LEASING
100 Detroit Edison Securitization Funding LLC
(Series 2001 - 1 Class A3) 5.875 03/01/10 105,870
115 PECO Energy Transition Trust
(Series 2000 - A Class A3) 7.625 03/01/10 130,820
100 PSE&G Transition Funding LLC
(Series 2001 - 1 Class A6) 6.61 06/15/15 110,540
---------------
TOTAL ASSET-BACKED SECURITIES
(COST $340,777) 347,230
---------------
U.S. GOVERNMENT OBLIGATIONS (0.2%)
55 U.S. Treasury Bonds 6.125 08/15/29 60,517
U.S. Treasury Strips
100 0.00 02/15/25 31,442
90 0.00 05/15/25 27,735
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $118,798) 119,694
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
57
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.2%)
REPURCHASE AGREEMENT
$ 1,629 Joint repurchase agreement account
(dated 06/30/04; proceeds $1,629,066) (a)
(COST $1,629,000) 1.45% 07/01/04 $ 1,629,000
---------------
TOTAL INVESTMENTS
(COST $54,995,930) (b) 99.7% 72,922,710
OTHER ASSETS IN EXCESS OF LIABILITIES 0.3 194,894
----- ---------------
NET ASSETS 100.0% $ 73,117,604
===== ===============
</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 APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $18,162,736 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $235,956, RESULTING IN NET UNREALIZED APPRECIATION OF
$17,926,780.
SEE NOTES TO FINANCIAL STATEMENTS
58
<Page>
Dividend Growth
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (97.3%)
AEROSPACE & DEFENSE (0.3%)
10,100 General Dynamics Corp. $ 1,002,930
-----------------
ALUMINUM (1.7%)
194,300 Alcoa, Inc. 6,417,729
-----------------
APPAREL/FOOTWEAR (1.3%)
105,600 V.F. Corp. 5,142,720
-----------------
AUTO PARTS: O.E.M. (1.8%)
131,800 Johnson Controls, Inc. 7,035,484
-----------------
BEVERAGES: ALCOHOLIC (0.5%)
35,800 Anheuser-Busch Companies,
Inc. 1,933,200
-----------------
BEVERAGES:
NON-ALCOHOLIC (1.6%)
123,300 Coca-Cola Co. (The) 6,224,184
-----------------
CASINO/GAMING (0.4%)
41,100 International Game Technology 1,586,460
-----------------
CHEMICALS: MAJOR
DIVERSIFIED (2.2%)
209,100 Dow Chemical Co. (The) 8,510,370
-----------------
COMPUTER
COMMUNICATIONS (1.5%)
240,200 Cisco Systems, Inc.* 5,692,740
-----------------
COMPUTER PERIPHERALS (1.2%)
72,300 EMC Corp.* 824,220
41,100 Lexmark International, Inc.* 3,967,383
-----------------
4,791,603
-----------------
COMPUTER PROCESSING
HARDWARE (1.2%)
124,100 Dell Inc.* 4,445,262
-----------------
DATA PROCESSING
SERVICES (1.9%)
167,200 First Data Corp. 7,443,744
-----------------
DISCOUNT STORES (2.7%)
245,900 Target Corp. 10,443,373
-----------------
DRUGSTORE CHAINS (1.1%)
102,900 CVS Corp. 4,323,858
-----------------
ELECTRIC UTILITIES (2.4%)
196,400 Exelon Corp. $ 6,538,156
42,500 FPL Group, Inc. 2,717,875
-----------------
9,256,031
-----------------
FINANCE/RENTAL/LEASING (2.0%)
28,300 Fannie Mae 2,019,488
222,700 MBNA Corp. 5,743,433
-----------------
7,762,921
-----------------
FINANCIAL CONGLOMERATES (3.8%)
237,700 Citigroup, Inc. 11,053,050
89,300 J.P. Morgan Chase & Co. 3,462,161
-----------------
14,515,211
-----------------
FOOD DISTRIBUTORS (0.6%)
59,800 SYSCO Corp. 2,145,026
-----------------
FOOD: MAJOR DIVERSIFIED (2.7%)
192,200 PepsiCo, Inc. 10,355,736
-----------------
HOME IMPROVEMENT
CHAINS (2.4%)
260,700 Home Depot, Inc. (The) 9,176,640
-----------------
HOUSEHOLD/PERSONAL
CARE (4.2%)
156,400 Avon Products, Inc. 7,216,296
167,600 Procter & Gamble Co. (The) 9,124,144
-----------------
16,340,440
-----------------
INDUSTRIAL
CONGLOMERATES (8.4%)
139,800 3M Co. 12,583,398
280,900 General Electric Co. 9,101,160
116,100 United Technologies Corp. 10,620,828
-----------------
32,305,386
-----------------
INFORMATION TECHNOLOGY
SERVICES (3.9%)
232,200 Accenture Ltd. (Class A)
(Bermuda)* 6,380,856
96,800 International Business
Machines Corp. 8,532,920
-----------------
14,913,776
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
59
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
INTEGRATED OIL (6.2%)
199,800 BP PLC (ADR)
(United Kingdom) $ 10,703,286
41,300 ChevronTexaco Corp. 3,886,743
208,600 Exxon Mobil Corp. 9,263,926
-----------------
23,853,955
-----------------
INVESTMENT BANKS/
BROKERS (4.1%)
44,100 Goldman Sachs Group, Inc.
(The) 4,152,456
41,100 Lehman Brothers Holdings
Inc. 3,092,775
161,500 Merrill Lynch & Co., Inc. 8,717,770
-----------------
15,963,001
-----------------
INVESTMENT MANAGERS (1.4%)
177,700 Mellon Financial Corp. 5,211,941
-----------------
LIFE/HEALTH INSURANCE (1.9%)
152,500 Lincoln National Corp. 7,205,625
-----------------
MAJOR BANKS (5.0%)
163,000 Bank of America Corp. 13,793,060
62,500 Comerica, Inc. 3,430,000
37,000 Wells Fargo & Co. 2,117,510
-----------------
19,340,570
-----------------
MAJOR
TELECOMMUNICATIONS (1.9%)
198,300 Verizon Communications Inc. 7,176,477
-----------------
MANAGED HEALTH CARE (1.0%)
44,979 Anthem, Inc.* 4,028,319
-----------------
MEDICAL SPECIALTIES (1.1%)
10,300 Bard (C.R.), Inc. 583,495
71,800 Medtronic, Inc. 3,498,096
3,600 Stryker Corp. 198,000
-----------------
4,279,591
-----------------
MOTOR VEHICLES (0.2%)
14,800 Harley-Davidson, Inc. 916,712
-----------------
MULTI-LINE INSURANCE (2.4%)
132,700 American International Group,
Inc. $ 9,458,856
-----------------
OFFICE EQUIPMENT/
SUPPLIES (2.0%)
174,300 Pitney Bowes, Inc. 7,712,775
-----------------
OIL & GAS PRODUCTION (0.2%)
12,300 Devon Energy Corp. 811,800
-----------------
OILFIELD SERVICES/
EQUIPMENT (2.1%)
120,600 Halliburton Co. 3,649,356
69,200 Schlumberger Ltd. 4,394,892
-----------------
8,044,248
-----------------
PACKAGED SOFTWARE (4.1%)
17,700 Adobe Systems, Inc. 823,050
425,600 Microsoft Corp. 12,155,136
69,400 SAP AG (ADR) (Germany) 2,901,614
-----------------
15,879,800
-----------------
PHARMACEUTICALS: MAJOR (7.5%)
279,200 Bristol-Myers Squibb Co. 6,840,400
86,300 Johnson & Johnson 4,806,910
339,360 Pfizer, Inc. 11,633,261
155,600 Wyeth 5,626,496
-----------------
28,907,067
-----------------
PHARMACEUTICALS: OTHER (0.9%)
50,800 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 3,418,332
-----------------
RAILROADS (0.5%)
59,000 Burlington Northern Santa Fe
Corp. 2,069,130
-----------------
RECREATIONAL PRODUCTS (0.1%)
7,500 Electronic Arts Inc.* 409,125
-----------------
SEMICONDUCTORS (3.1%)
69,600 Advanced Micro Devices,
Inc.* 1,106,640
30,600 Analog Devices, Inc. 1,440,648
165,100 Intel Corp. 4,556,760
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
60
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
47,400 Marvell Technology Group Ltd.
(Bermuda)* $ 1,265,580
23,300 Maxim Integrated Products,
Inc. 1,221,386
105,200 National Semiconductor
Corp.* 2,313,348
-----------------
11,904,362
-----------------
SERVICES TO THE HEALTH
INDUSTRY (0.7%)
70,500 Medco Health Solutions Inc.* 2,643,750
-----------------
TOBACCO (0.5%)
36,500 Altria Group, Inc. 1,826,825
-----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (0.6%)
34,600 Deere & Co. 2,426,844
-----------------
TOTAL COMMON STOCKS
(COST $293,021,947) 375,253,929
-----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE BOND (0.1%)
WIRELESS
TELECOMMUNICATIONS (0.1%)
$ 408 Nextel Communications, Inc.
5.25% due 01/15/10
(COST $392,831) $ 398,820
-----------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
10,237 Joint repurchase agreement
account 1.45% due 07/01/04
(dated 06/30/04; proceeds
$10,237,412) (a)
(COST $10,237,000) 10,237,000
-----------------
TOTAL INVESTMENTS
(COST $303,651,778) (b) 100.1% 385,889,749
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.1) (268,038)
----- -----------------
NET ASSETS 100.0% $ 385,621,711
===== =================
</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 $84,686,702 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $2,448,731, RESULTING IN NET UNREALIZED APPRECIATION OF
$82,237,971.
SEE NOTES TO FINANCIAL STATEMENTS
61
<Page>
Value-Added Market
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (98.0%)
ADVERTISING/MARKETING
SERVICES (0.4%)
28,650 Interpublic Group of Companies,
Inc. (The)* $ 393,364
5,207 Omnicom Group, Inc. 395,159
-----------------
788,523
-----------------
AEROSPACE & DEFENSE (1.4%)
7,819 Boeing Co. 399,473
3,988 General Dynamics Corp. 396,008
12,535 Goodrich Corp. 405,257
7,719 Lockheed Martin Corp. 402,006
7,566 Northrop Grumman Corp. 406,294
11,570 Raytheon Co. 413,859
12,650 Rockwell Collins, Inc. 421,498
-----------------
2,844,395
-----------------
AGRICULTURAL COMMODITIES/
MILLING (0.2%)
24,457 Archer-Daniels-Midland Co. 410,388
-----------------
AIR FREIGHT/COURIERS (0.4%)
5,025 FedEx Corp. 410,492
5,365 United Parcel Service, Inc.
(Class B) 403,287
-----------------
813,779
-----------------
AIRLINES (0.4%)
56,923 Delta Air Lines, Inc.* 405,292
23,595 Southwest Airlines Co. 395,688
-----------------
800,980
-----------------
ALTERNATIVE POWER
GENERATION (0.2%)
87,961 Calpine Corp.* 379,992
-----------------
ALUMINUM (0.2%)
11,976 Alcoa, Inc. 395,567
-----------------
APPAREL/FOOTWEAR (1.1%)
8,470 Cintas Corp. 403,765
10,228 Jones Apparel Group, Inc. 403,801
11,058 Liz Claiborne, Inc. 397,867
5,326 Nike, Inc. (Class B) 403,444
10,805 Reebok International Ltd. $ 388,764
8,063 V.F. Corp. 392,668
-----------------
2,390,309
-----------------
APPAREL/FOOTWEAR RETAIL (0.7%)
15,962 Gap, Inc. (The) 387,078
21,369 Limited Brands, Inc. 399,600
9,065 Nordstrom, Inc. 386,260
15,469 TJX Companies, Inc. (The) 373,422
-----------------
1,546,360
-----------------
AUTO PARTS: O.E.M. (1.0%)
20,437 Dana Corp. 400,565
37,452 Delphi Corp. 399,987
6,387 Eaton Corp. 413,494
7,332 Johnson Controls, Inc. 391,382
33,510 Visteon Corp. 391,062
-----------------
1,996,490
-----------------
AUTOMOTIVE AFTERMARKET (0.4%)
17,252 Cooper Tire & Rubber Co. 396,796
43,214 Goodyear Tire & Rubber Co.
(The)* 392,815
-----------------
789,611
-----------------
BEVERAGES: ALCOHOLIC (0.6%)
7,467 Anheuser-Busch Companies,
Inc. 403,218
8,355 Brown-Forman Corp. (Class B) 403,296
5,681 Coors (Adolph) Co. (Class B) 410,964
-----------------
1,217,478
-----------------
BEVERAGES: NON-ALCOHOLIC (0.6%)
8,006 Coca-Cola Co. (The) 404,143
14,035 Coca-Cola Enterprises Inc. 406,875
13,596 Pepsi Bottling Group, Inc.
(The) 415,222
-----------------
1,226,240
-----------------
BIOTECHNOLOGY (1.1%)
7,388 Amgen Inc.* 403,163
6,481 Biogen Idec Inc.* 409,923
9,193 Chiron Corp.* 410,376
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
62
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
8,825 Genzyme Corp.* $ 417,687
3,000 Gilead Sciences, Inc.* 201,000
17,155 MedImmune, Inc.* 401,427
-----------------
2,243,576
-----------------
BROADCASTING (0.4%)
10,989 Clear Channel Communications,
Inc. 406,044
12,930 Univision Communications Inc.
(Class A)* 412,855
-----------------
818,899
-----------------
BUILDING PRODUCTS (0.4%)
10,140 American Standard Companies,
Inc.* 408,743
13,210 Masco Corp. 411,888
-----------------
820,631
-----------------
CABLE/SATELLITE TV (0.2%)
14,284 Comcast Corp. (Class A)* 400,381
-----------------
CASINO/GAMING (0.4%)
7,582 Harrah's Entertainment, Inc. 410,186
10,837 International Game Technology 418,308
-----------------
828,494
-----------------
CHEMICALS: AGRICULTURAL (0.2%)
11,305 Monsanto Co. 435,242
-----------------
CHEMICALS: MAJOR
DIVERSIFIED (1.2%)
9,948 Dow Chemical Co. (The) 404,884
9,252 Du Pont (E.I.)
de Nemours & Co. 410,974
8,843 Eastman Chemical Co. 408,812
12,840 Engelhard Corp. 414,860
34,542 Hercules Inc.* 421,067
9,953 Rohm & Haas Co. 413,846
-----------------
2,474,443
-----------------
CHEMICALS: SPECIALTY (0.8%)
7,825 Air Products & Chemicals, Inc. 410,421
15,281 Great Lakes Chemical Corp. 413,504
10,357 Praxair, Inc. 413,348
6,868 Sigma-Aldrich Corp. 409,401
-----------------
1,646,674
-----------------
COMMERCIAL PRINTING/
FORMS (0.4%)
9,303 Deluxe Corp. $ 404,680
12,222 Donnelley (R.R.) & Sons Co. 403,570
-----------------
808,250
-----------------
COMPUTER
COMMUNICATIONS (0.4%)
25,226 Avaya Inc.* 398,319
17,039 Cisco Systems, Inc.* 403,824
-----------------
802,143
-----------------
COMPUTER PERIPHERALS (0.6%)
35,633 EMC Corp.* 406,216
4,210 Lexmark International, Inc.* 406,391
19,100 Network Appliance, Inc.* 411,223
-----------------
1,223,830
-----------------
COMPUTER PROCESSING
HARDWARE (1.2%)
12,042 Apple Computer, Inc.* 391,847
11,562 Dell Inc.* 414,151
90,136 Gateway, Inc.* 405,612
19,274 Hewlett-Packard Co. 406,681
8,100 NCR Corp.* 401,679
91,577 Sun Microsystems, Inc.* 397,444
-----------------
2,417,414
-----------------
CONSTRUCTION MATERIALS (0.2%)
8,545 Vulcan Materials Co. 406,315
-----------------
CONTAINERS/PACKAGING (1.0%)
5,606 Ball Corp. 403,912
14,502 Bemis Company, Inc. 409,681
16,174 Pactiv Corp.* 403,380
7,579 Sealed Air Corp.* 403,733
5,884 Temple-Inland, Inc. 407,467
-----------------
2,028,173
-----------------
CONTRACT DRILLING (0.8%)
8,825 Nabors Industries, Ltd.
(Bermuda)* 399,066
10,727 Noble Corp.* 406,446
16,453 Rowan Companies, Inc.* 400,301
14,397 Transocean Inc.* 416,649
-----------------
1,622,462
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
63
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
DATA PROCESSING
SERVICES (1.5%)
7,575 Affiliated Computer Services,
Inc. (Class A)* $ 401,020
9,451 Automatic Data Processing,
Inc. 395,808
8,762 Computer Sciences Corp.* 406,820
27,156 Convergys Corp.* 418,202
9,306 First Data Corp. 414,303
10,293 Fiserv, Inc.* 400,295
11,856 Paychex, Inc. 401,681
15,415 SunGard Data Systems Inc.* 400,790
-----------------
3,238,919
-----------------
DEPARTMENT STORES (1.1%)
17,812 Dillard's, Inc. (Class A) 397,208
8,155 Federated Department Stores,
Inc. 400,410
9,284 Kohl's Corp.* 392,528
14,098 May Department Stores Co. 387,554
10,365 Penney (J.C.) Co., Inc. 391,382
10,219 Sears, Roebuck & Co. 385,869
-----------------
2,354,951
-----------------
DISCOUNT STORES (1.1%)
26,131 Big Lots, Inc.* 377,854
9,589 Costco Wholesale Corp. 393,820
19,926 Dollar General Corp. 389,753
12,581 Family Dollar Stores, Inc. 382,714
9,023 Target Corp. 383,207
7,638 Wal-Mart Stores, Inc. 402,981
-----------------
2,330,329
-----------------
DRUGSTORE CHAINS (0.4%)
9,703 CVS Corp. 407,720
11,173 Walgreen Co. 404,574
-----------------
812,294
-----------------
ELECTRIC UTILITIES (5.0%)
39,518 AES Corp. (The)* 392,414
26,529 Allegheny Energy, Inc.* 408,812
9,157 Ameren Corp. 393,385
12,546 American Electric Power Co.,
Inc. $ 401,472
34,697 CenterPoint Energy, Inc. 399,015
10,404 Cinergy Corp. 395,352
43,693 CMS Energy Corp.* 398,917
9,957 Consolidated Edison, Inc. 395,890
10,524 Constellation Energy Group,
Inc. 398,860
6,276 Dominion Resources, Inc. 395,890
9,938 DTE Energy Co. 402,887
19,700 Duke Energy Corp. 399,713
15,687 Edison International 401,117
7,101 Entergy Corp. 397,727
11,955 Exelon Corp. 397,982
10,724 FirstEnergy Corp. 401,185
6,282 FPL Group, Inc. 401,734
14,158 PG&E Corp.* 395,575
9,887 Pinnacle West Capital Corp. 399,336
8,935 PPL Corp. 410,116
9,176 Progress Energy, Inc. 404,203
9,970 Public Service Enterprise
Group, Inc. 399,099
13,807 Southern Co. (The) 402,474
33,678 TECO Energy, Inc. 403,799
10,086 TXU Corp. 408,584
23,470 Xcel Energy, Inc. 392,184
-----------------
10,397,722
-----------------
ELECTRICAL PRODUCTS (1.2%)
20,537 American Power Conversion
Corp. 403,552
6,908 Cooper Industries Ltd.
(Class A) (Bermuda)* 410,404
6,532 Emerson Electric Co. 415,109
13,018 Molex Inc. 417,617
37,752 Power-One, Inc.* 414,517
14,780 Thomas & Betts Corp.* 402,459
-----------------
2,463,658
-----------------
ELECTRONIC COMPONENTS (0.8%)
15,717 Jabil Circuit, Inc.* 395,754
15,279 QLogic Corp.* 406,269
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
64
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
44,616 Sanmina-SCI Corp.* $ 406,006
66,916 Solectron Corp.* 432,947
-----------------
1,640,976
-----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (1.5%)
13,592 Agilent Technologies, Inc.* 397,974
105,832 JDS Uniphase Corp.* 401,103
10,841 Rockwell Automation, Inc. 406,646
12,186 Scientific-Atlanta, Inc. 420,417
27,731 Symbol Technologies, Inc. 408,755
11,839 Tektronix, Inc. 402,763
13,366 Thermo Electron Corp.* 410,871
27,719 Xerox Corp.* 401,925
-----------------
3,250,454
-----------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.8%)
20,804 Applied Materials, Inc.* 408,174
8,375 KLA-Tencor Corp.* 413,557
12,926 Novellus Systems, Inc.* 406,393
18,786 Teradyne, Inc.* 426,442
-----------------
1,654,566
-----------------
ELECTRONICS/APPLIANCE
STORES (0.5%)
7,652 Best Buy Co., Inc. 388,262
31,288 Circuit City Stores -
Circuit City Group 405,180
13,802 RadioShack Corp. 395,151
-----------------
1,188,593
-----------------
ELECTRONICS/APPLIANCES (0.6%)
14,854 Eastman Kodak Co. 400,761
16,494 Maytag Corp. 404,268
5,744 Whirlpool Corp. 394,038
-----------------
1,199,067
-----------------
ENGINEERING &
CONSTRUCTION (0.2%)
8,632 Fluor Corp. 411,487
-----------------
ENVIRONMENTAL SERVICES (0.4%)
31,608 Allied Waste Industries, Inc.* $ 416,593
13,646 Waste Management, Inc. 418,250
-----------------
834,843
-----------------
FINANCE/RENTAL/LEASING (1.5%)
5,708 Capital One Financial Corp. 390,313
5,643 Countrywide Financial Corp. 396,421
5,717 Fannie Mae 407,965
6,469 Freddie Mac 409,488
15,595 MBNA Corp. 402,195
26,975 Providian Financial Corp.* 395,723
10,081 Ryder System, Inc. 403,946
9,838 SLM Corp. 397,947
-----------------
3,203,998
-----------------
FINANCIAL CONGLOMERATES (1.2%)
7,811 American Express Co. 401,329
8,583 Citigroup, Inc. 399,109
10,558 J.P. Morgan Chase & Co. 409,334
11,606 Principal Financial Group, Inc. 403,657
8,784 Prudential Financial, Inc. 408,192
8,086 State Street Corp. 396,537
-----------------
2,418,158
-----------------
FINANCIAL PUBLISHING/
SERVICES (0.6%)
15,866 Equifax, Inc. 392,683
5,200 McGraw-Hill Companies, Inc.
(The) 398,164
6,186 Moody's Corp. 399,987
-----------------
1,190,834
-----------------
FOOD DISTRIBUTORS (0.2%)
10,965 SYSCO Corp. 393,315
-----------------
FOOD RETAIL (1.0%)
15,137 Albertson's, Inc. 401,736
22,396 Kroger Co.* 407,607
16,135 Safeway Inc.* 408,861
13,400 Supervalu, Inc. 410,174
59,816 Winn-Dixie Stores, Inc. 430,675
-----------------
2,059,053
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
65
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED (1.2%)
14,983 Campbell Soup Co. $ 402,743
8,815 General Mills, Inc. 418,977
10,642 Heinz (H.J.) Co. 417,166
9,743 Kellogg Co. 407,745
7,563 PepsiCo, Inc. 407,494
17,870 Sara Lee Corp. 410,831
-----------------
2,464,956
-----------------
FOOD: MEAT/FISH/DAIRY (0.2%)
14,795 ConAgra Foods Inc. 400,649
-----------------
FOOD: SPECIALTY/CANDY (0.6%)
8,914 Hershey Foods Corp. 412,451
11,919 McCormick & Co., Inc.
(Non-Voting) 405,246
6,413 Wrigley (Wm.) Jr. Co. (Class A) 404,340
-----------------
1,222,037
-----------------
FOREST PRODUCTS (0.4%)
17,826 Louisiana-Pacific Corp. 421,585
6,651 Weyerhaeuser Co. 419,811
-----------------
841,396
-----------------
GAS DISTRIBUTORS (1.6%)
93,717 Dynegy, Inc. (Class A)* 399,234
11,123 KeySpan Corp. 408,214
6,685 Kinder Morgan, Inc. 396,354
11,728 Nicor Inc. 398,400
19,424 NiSource, Inc. 400,523
9,566 Peoples Energy Corp. 403,207
11,637 Sempra Energy 400,662
33,177 Williams Companies, Inc.
(The) 394,806
-----------------
3,201,400
-----------------
HOME BUILDING (0.6%)
8,472 Centex Corp. 387,594
5,804 KB Home 398,329
7,849 Pulte Homes, Inc. 408,383
-----------------
1,194,306
-----------------
HOME FURNISHINGS (0.4%)
15,012 Leggett & Platt, Inc. $ 400,971
17,439 Newell Rubbermaid, Inc. 409,816
-----------------
810,787
-----------------
HOME IMPROVEMENT
CHAINS (0.6%)
11,378 Home Depot, Inc. (The) 400,506
7,418 Lowe's Companies, Inc. 389,816
9,736 Sherwin-Williams Co. 404,531
-----------------
1,194,853
-----------------
HOSPITAL/NURSING
MANAGEMENT (0.8%)
9,938 HCA, Inc. 413,321
18,273 Health Management Associates,
Inc. (Class A) 409,681
12,589 Manor Care, Inc. 411,409
31,239 Tenet Healthcare Corp.* 418,915
-----------------
1,653,326
-----------------
HOTELS/RESORTS/
CRUISELINES (0.8%)
8,547 Carnival Corp. (Panama) 401,709
22,051 Hilton Hotels Corp. 411,472
8,065 Marriott International, Inc.
(Class A) 402,282
9,127 Starwood Hotels & Resorts
Worldwide, Inc. 409,346
-----------------
1,624,809
-----------------
HOUSEHOLD/PERSONAL
CARE (1.5%)
8,170 Alberto-Culver Co. (Class B) 409,644
8,830 Avon Products, Inc. 407,416
7,498 Clorox Co. (The) 403,242
7,057 Colgate-Palmolive Co. 412,482
9,361 Gillette Co. (The) 396,906
10,862 International Flavors &
Fragrances, Inc. 406,239
6,227 Kimberly-Clark Corp. 410,235
7,400 Procter & Gamble Co. (The) 402,856
-----------------
3,249,020
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
66
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.5%)
4,525 3M Co. $ 407,295
12,465 General Electric Co.** 403,866
10,897 Honeywell International, Inc. 399,157
5,883 Ingersoll Rand Co. (Class A)
(Bermuda) 401,868
4,797 ITT Industries, Inc. 398,151
6,822 Textron, Inc. 404,886
12,361 Tyco International Ltd.
(Bermuda) 409,644
4,494 United Technologies Corp. 411,111
-----------------
3,235,978
-----------------
INDUSTRIAL MACHINERY (0.4%)
4,198 Illinois Tool Works Inc. 402,546
6,977 Parker-Hannifin Corp. 414,852
-----------------
817,398
-----------------
INDUSTRIAL SPECIALTIES (0.4%)
12,985 Ecolab Inc. 411,624
6,491 PPG Industries, Inc. 405,623
-----------------
817,247
-----------------
INFORMATION TECHNOLOGY
SERVICES (1.0%)
20,402 Citrix Systems, Inc.* 415,385
20,777 Electronic Data Systems
Corp. 397,880
4,479 International Business
Machines Corp. 394,824
21,184 PeopleSoft, Inc.* 391,904
29,023 Unisys Corp.* 402,839
-----------------
2,002,832
-----------------
INSURANCE BROKERS/
SERVICES (0.4%)
14,123 AON Corp. 402,082
8,963 Marsh & McLennan Companies,
Inc. 406,741
-----------------
808,823
-----------------
INTEGRATED OIL (0.8%)
5,193 Amerada Hess Corp. 411,234
4,295 ChevronTexaco Corp. 404,202
5,197 ConocoPhillips $ 396,479
9,065 Exxon Mobil Corp. 402,577
-----------------
1,614,492
-----------------
INTERNET SOFTWARE/
SERVICES (0.4%)
36,266 Siebel Systems, Inc.* 387,321
11,279 Yahoo! Inc.* 409,766
-----------------
797,087
-----------------
INVESTMENT BANKS/
BROKERS (1.3%)
4,746 Bear Stearns Companies, Inc.
(The) 400,135
35,653 E *TRADE Group, Inc.* 397,531
4,242 Goldman Sachs Group, Inc.
(The) 399,427
5,402 Lehman Brothers Holdings
Inc. 406,500
7,388 Merrill Lynch & Co., Inc. 398,804
7,648 Morgan Stanley (Note 4) 403,585
40,929 Schwab (Charles) Corp. (The) 393,328
-----------------
2,799,310
-----------------
INVESTMENT MANAGERS (1.0%)
13,108 Federated Investors, Inc.
(Class B) 397,697
7,953 Franklin Resources, Inc. 398,286
24,309 Janus Capital Group, Inc. 400,855
13,370 Mellon Financial Corp. 392,142
8,094 Price (T.) Rowe Group, Inc. 407,938
-----------------
1,996,918
-----------------
LIFE/HEALTH INSURANCE (1.2%)
9,928 AFLAC, Inc. 405,162
8,031 Jefferson-Pilot Corp. 407,975
8,792 Lincoln National Corp. 415,422
11,292 MetLife, Inc. 404,818
7,546 Torchmark Corp. 405,975
25,712 UnumProvident Corp. 408,821
-----------------
2,448,173
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
67
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
MAJOR BANKS (2.7%)
4,776 Bank of America Corp. $ 404,145
13,633 Bank of New York Co., Inc.
(The) 401,901
8,094 Bank One Corp. 412,794
11,068 BB&T Corp. 409,184
7,336 Comerica, Inc. 402,600
17,524 Huntington Bancshares, Inc. 401,300
13,370 KeyCorp 399,629
11,592 National City Corp. 405,836
7,539 PNC Financial Services Group 400,170
11,019 Regions Financial Corp.* 402,744
10,168 SouthTrust Corp. 394,620
6,216 SunTrust Banks, Inc. 403,978
8,913 Wachovia Corp. 396,628
6,972 Wells Fargo & Co. 399,008
-----------------
5,634,537
-----------------
MAJOR
TELECOMMUNICATIONS (1.2%)
7,982 ALLTEL Corp. 404,049
27,750 AT&T Corp. 405,982
15,942 BellSouth Corp. 417,999
16,853 SBC Communications, Inc. 408,685
23,053 Sprint Corp. (FON Group) 405,733
11,213 Verizon Communications Inc. 405,798
-----------------
2,448,246
-----------------
MANAGED HEALTH CARE (1.4%)
4,758 Aetna, Inc. 404,430
4,567 Anthem, Inc.* 409,021
12,173 Caremark Rx, Inc.* 400,979
5,970 CIGNA Corp. 410,796
24,133 Humana, Inc.* 407,848
6,497 UnitedHealth Group Inc. 404,438
3,602 WellPoint Health Networks,
Inc.* 403,460
-----------------
2,840,972
-----------------
MEDIA CONGLOMERATES (0.6%)
15,929 Disney (Walt) Co. (The) 406,030
23,012 Time Warner Inc.* 404,551
11,295 Viacom Inc. (Class B)
(Non-Voting) $ 403,457
-----------------
1,214,038
-----------------
MEDICAL DISTRIBUTORS (0.6%)
6,864 AmerisourceBergen Corp. 410,330
5,817 Cardinal Health, Inc. 407,481
11,826 McKesson Corp. 405,987
-----------------
1,223,798
-----------------
MEDICAL SPECIALTIES (3.3%)
18,938 Applera Corp. - Applied
Biosystems Group* 411,901
7,112 Bard (C.R.), Inc. 402,895
6,273 Bausch & Lomb, Inc. 408,184
11,684 Baxter International, Inc.* 403,215
8,088 Becton, Dickinson & Co. 418,958
9,192 Biomet, Inc. 408,492
9,651 Boston Scientific Corp.* 413,063
7,111 Guidant Corp. 397,363
14,345 Hospira, Inc.* 395,922
8,330 Medtronic, Inc. 405,838
7,327 Millipore Corp.* 413,023
16,096 Pall Corp. 421,554
20,068 PerkinElmer, Inc. 402,163
5,393 St. Jude Medical, Inc.* 407,980
7,303 Stryker Corp. 401,665
8,673 Waters Corp.* 414,396
4,559 Zimmer Holdings, Inc.* 402,104
-----------------
6,928,716
-----------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.2%)
14,823 Sabre Holdings Corp. 410,745
-----------------
MISCELLANEOUS
MANUFACTURING (0.6%)
12,880 Crane Co. 404,303
7,959 Danaher Corp. 412,674
9,636 Dover Corp. 405,676
-----------------
1,222,653
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
68
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
MOTOR VEHICLES (0.6%)
25,307 Ford Motor Co. $ 396,055
8,437 General Motors Corp. 393,080
6,541 Harley-Davidson, Inc. 405,150
-----------------
1,194,285
-----------------
MULTI-LINE INSURANCE (0.8%)
5,600 American International Group,
Inc. 399,168
5,906 Hartford Financial Services
Group, Inc. (The) (Note 4) 405,978
6,679 Loews Corp. 400,473
9,208 Safeco Corp. 405,152
-----------------
1,610,771
-----------------
OFFICE EQUIPMENT/
SUPPLIES (0.4%)
6,314 Avery Dennison Corp. 404,159
9,260 Pitney Bowes, Inc. 409,755
-----------------
813,914
-----------------
OIL & GAS PIPELINES (0.2%)
52,309 El Paso Corp. 412,195
-----------------
OIL & GAS PRODUCTION (1.5%)
6,936 Anadarko Petroleum Corp. 406,450
9,378 Apache Corp. 408,412
11,326 Burlington Resources, Inc. 409,775
6,194 Devon Energy Corp. 408,804
6,676 EOG Resources, Inc. 398,624
7,408 Kerr-McGee Corp. 398,328
8,261 Occidental Petroleum Corp. 399,915
10,500 Unocal Corp. 399,000
-----------------
3,229,308
-----------------
OIL REFINING/MARKETING (0.8%)
7,783 Ashland, Inc. 411,020
10,720 Marathon Oil Corp. 405,645
6,384 Sunoco, Inc. 406,150
5,482 Valero Energy Corp. 404,352
-----------------
1,627,167
-----------------
OILFIELD SERVICES/
EQUIPMENT (0.8%)
10,987 Baker Hughes Inc. $ 413,661
8,974 BJ Services Co.* 411,368
12,919 Halliburton Co. 390,929
6,340 Schlumberger Ltd.
(Netherland) 402,653
-----------------
1,618,611
-----------------
OTHER CONSUMER
SERVICES (0.8%)
4,637 Apollo Group, Inc. (Class A)* 409,401
8,236 Block (H.&R.), Inc. 392,692
16,595 Cendant Corp. 406,246
4,312 eBay Inc.* 396,488
-----------------
1,604,827
-----------------
OTHER CONSUMER
SPECIALTIES (0.2%)
5,358 Fortune Brands, Inc. 404,154
-----------------
OTHER METALS/MINERALS (0.2%)
5,310 Phelps Dodge Corp.* 411,578
-----------------
PACKAGED SOFTWARE (2.5%)
9,047 Adobe Systems, Inc. 420,685
9,936 Autodesk, Inc. 425,360
22,258 BMC Software, Inc.* 411,773
15,005 Computer Associates
International, Inc. 421,040
56,573 Compuware Corp.* 373,382
10,313 Intuit Inc.* 397,876
8,079 Mercury Interactive Corp.* 402,577
14,089 Microsoft Corp.** 402,382
48,681 Novell, Inc.* 408,434
33,848 Oracle Corp.* 403,807
84,267 Parametric Technology Corp.* 421,335
9,525 Symantec Corp.* 417,005
14,040 VERITAS Software Corp.* 388,908
-----------------
5,294,564
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
69
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
PERSONNEL SERVICES (0.4%)
16,128 Monster Worldwide Inc.* $ 414,812
13,066 Robert Half International, Inc. 388,975
-----------------
803,787
-----------------
PHARMACEUTICALS:
GENERIC DRUGS (0.4%)
19,859 Mylan Laboratories, Inc. 402,145
14,556 Watson Pharmaceuticals, Inc.* 391,556
-----------------
793,701
-----------------
PHARMACEUTICALS: MAJOR (1.5%)
9,889 Abbott Laboratories 403,076
16,338 Bristol-Myers Squibb Co. 400,281
7,360 Johnson & Johnson 409,952
5,618 Lilly (Eli) & Co. 392,754
8,535 Merck & Co., Inc. 405,413
11,860 Pfizer, Inc. 406,561
22,064 Schering-Plough Corp. 407,743
11,004 Wyeth 397,905
-----------------
3,223,685
-----------------
PHARMACEUTICALS: OTHER (0.6%)
4,454 Allergan, Inc. 398,722
6,861 Forest Laboratories, Inc.* 388,538
33,992 King Pharmaceuticals, Inc.* 389,208
-----------------
1,176,468
-----------------
PRECIOUS METALS (0.4%)
11,814 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 391,634
10,310 Newmont Mining Corp. 399,616
-----------------
791,250
-----------------
PROPERTY - CASUALTY
INSURERS (1.3%)
9,393 ACE Ltd. (Bermuda) 397,136
8,738 Allstate Corp. (The) 406,754
5,853 Chubb Corp. (The) 399,058
9,613 Cincinnati Financial Corp. 418,358
4,671 Progressive Corp. (The) 398,436
9,645 St. Paul Travelers Companies,
Inc. $ 391,008
5,292 XL Capital Ltd. (Class A)
(Bermuda) 399,334
-----------------
2,810,084
-----------------
PUBLISHING: BOOKS/
MAGAZINES (0.2%)
7,360 Meredith Corp. 404,506
-----------------
PUBLISHING: NEWSPAPERS (1.0%)
8,901 Dow Jones & Co., Inc. 401,435
4,721 Gannett Co., Inc. 400,577
5,552 Knight-Ridder, Inc. 399,744
8,923 New York Times Co. (The)
(Class A) 398,947
8,875 Tribune Co. 404,168
-----------------
2,004,871
-----------------
PULP & PAPER (0.6%)
11,331 Georgia-Pacific Corp. 419,020
9,288 International Paper Co. 415,174
14,193 MeadWestvaco Corp. 417,132
-----------------
1,251,326
-----------------
RAILROADS (0.8%)
11,597 Burlington Northern Santa Fe
Corp. 406,707
12,259 CSX Corp. 401,727
15,517 Norfolk Southern Corp. 411,511
6,819 Union Pacific Corp. 405,390
-----------------
1,625,335
-----------------
REAL ESTATE INVESTMENT
TRUSTS (1.1%)
12,864 Apartment Investment &
Management Co. (Class A) 400,456
14,428 Equity Office Properties Trust 392,442
13,370 Equity Residential 397,490
12,053 Plum Creek Timber Co., Inc. 392,687
12,096 ProLogis Trust 398,200
7,698 Simon Property Group, Inc. 395,831
-----------------
2,377,106
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
70
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
RECREATIONAL PRODUCTS (0.8%)
9,995 Brunswick Corp. $ 407,796
7,586 Electronic Arts Inc.* 413,816
20,729 Hasbro, Inc. 393,851
22,002 Mattel, Inc. 401,537
-----------------
1,617,000
-----------------
REGIONAL BANKS (2.3%)
15,943 AmSouth Bancorporation 406,068
9,073 Charter One Financial, Inc. 400,936
7,479 Fifth Third Bancorp 402,221
8,864 First Horizon National Corp. 403,046
4,547 M&T Bank Corp. 396,953
10,274 Marshall & Ilsley Corp. 401,611
10,421 North Fork Bancorporation,
Inc. 396,519
9,411 Northern Trust Corp. 397,897
15,943 Synovus Financial Corp. 403,677
14,433 U.S. Bancorp 397,773
13,573 Union Planters Corp. 404,611
6,517 Zions Bancorporation 400,470
-----------------
4,811,782
-----------------
RESTAURANTS (1.0%)
19,461 Darden Restaurants, Inc. 399,924
14,861 McDonald's Corp. 386,386
9,281 Starbucks Corp.* 403,538
11,489 Wendy's International, Inc. 400,277
10,662 Yum! Brands, Inc.* 396,840
-----------------
1,986,965
-----------------
SAVINGS BANKS (0.5%)
3,726 Golden West Financial Corp. 396,260
9,000 Sovereign Bancorp, Inc. 198,900
9,740 Washington Mutual, Inc. 376,354
-----------------
971,514
-----------------
SEMICONDUCTORS (3.0%)
25,877 Advanced Micro Devices,
Inc.* 411,444
18,365 Altera Corp.* 408,070
8,683 Analog Devices, Inc. 408,796
81,665 Applied Micro Circuits Corp.* 434,458
8,837 Broadcom Corp. (Class A)* $ 413,306
14,412 Intel Corp. 397,771
10,457 Linear Technology Corp. 412,738
53,267 LSI Logic Corp.* 405,895
7,729 Maxim Integrated Products,
Inc. 405,154
27,156 Micron Technology, Inc.* 415,758
18,804 National Semiconductor
Corp.* 413,500
19,856 NVIDIA Corp.* 407,048
28,187 PMC - Sierra, Inc.* 404,483
16,691 Texas Instruments Inc. 403,588
12,169 Xilinx, Inc. 405,349
-----------------
6,147,358
-----------------
SERVICES TO THE HEALTH
INDUSTRY (0.8%)
5,274 Express Scripts, Inc.
(Class A)* 417,859
16,473 IMS Health Inc. 386,127
11,152 Medco Health Solutions Inc.* 418,200
4,759 Quest Diagnostics Inc. 404,277
-----------------
1,626,463
-----------------
SPECIALTY INSURANCE (0.6%)
5,555 Ambac Financial Group, Inc. 407,959
7,094 MBIA Inc. 405,209
5,352 MGIC Investment Corp. 406,003
-----------------
1,219,171
-----------------
SPECIALTY STORES (1.5%)
23,497 AutoNation, Inc.* 401,799
4,516 AutoZone, Inc.* 361,732
10,404 Bed Bath & Beyond Inc.* 400,034
10,737 Boise Cascade Corp. 404,141
22,345 Office Depot, Inc.* 400,199
13,225 Staples, Inc. 387,625
10,586 Tiffany & Co. 390,094
24,227 Toys 'R' Us, Inc.* 385,936
-----------------
3,131,560
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
71
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
SPECIALTY
TELECOMMUNICATIONS (0.6%)
13,415 CenturyTel, Inc. $ 402,987
31,935 Citizens Communications
Co.* 386,414
110,802 Qwest Communications
International, Inc.* 397,779
-----------------
1,187,180
-----------------
STEEL (0.8%)
22,946 Allegheny Technologies Inc. 414,175
5,289 Nucor Corp. 405,984
11,711 United States Steel Corp. 411,290
19,701 Worthington Industries, Inc. 404,462
-----------------
1,635,911
-----------------
TELECOMMUNICATION
EQUIPMENT (1.8%)
147,661 ADC Telecommunications,
Inc.* 419,357
20,299 Andrew Corp.* 406,183
111,465 CIENA Corp.* 414,650
21,201 Comverse Technology, Inc.* 422,748
31,683 Corning Inc.* 413,780
105,554 Lucent Technologies Inc.* 398,994
21,943 Motorola, Inc. 400,460
5,852 QUALCOMM Inc. 427,079
47,524 Tellabs, Inc.* 415,360
-----------------
3,718,611
-----------------
TOBACCO (0.6%)
8,068 Altria Group, Inc. 403,803
6,001 R. J. Reynolds Tobacco
Holdings, Inc. 405,608
11,191 UST, Inc. 402,876
-----------------
1,212,287
-----------------
TOOLS/HARDWARE (0.6%)
6,607 Black & Decker Corp. 410,493
12,064 Snap-On, Inc. 404,747
8,837 Stanley Works (The) 402,790
-----------------
1,218,030
-----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (1.0%)
5,132 Caterpillar Inc. $ 407,686
6,318 Cummins Inc. 394,875
5,921 Deere & Co. 415,299
10,237 Navistar International Corp.* 396,786
7,074 PACCAR, Inc. 410,221
-----------------
2,024,867
-----------------
WHOLESALE DISTRIBUTORS (0.4%)
10,104 Genuine Parts Co. 400,927
7,138 Grainger (W.W.), Inc. 410,435
-----------------
811,362
-----------------
WIRELESS
TELECOMMUNICATIONS (0.4%)
27,972 AT&T Wireless Services,
Inc.* 400,559
15,063 Nextel Communications, Inc.
(Class A)* 401,580
-----------------
802,139
-----------------
TOTAL COMMON STOCKS
(COST $138,190,272) 202,345,451
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
72
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT
$ 4,828 Joint repurchase agreemnet
account 1.45% due 07/01/04
(dated 06/30/04; proceeds
$4,828,194) (a)
(COST $4,828,000) $ 4,828,000
-----------------
TOTAL INVESTMENTS
(COST $143,018,272) (b)(c) 100.3% 207,173,451
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.3) (686,363)
----- -----------------
NET ASSETS 100.0% $ 206,487,088
===== =================
</Table>
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH
OPEN FUTURES CONTRACTS IN THE AMOUNT OF $226,667.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$2,385,480 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $69,095,264 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $4,940,085, RESULTING IN NET UNREALIZED APPRECIATION OF
$64,155,179.
FUTURES CONTRACTS OPEN AT JUNE 30, 2004:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
4 Long S&P Midcap 400 Index
September 2004 $ 1,216,500 $ 21,413
5 Long S&P 500 Index
September 2004 1,425,500 8,396
------------
Total unrealized appreciation $ 29,809
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
73
<Page>
Growth
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (99.0%)
AIR FREIGHT/COURIERS (1.8%)
8,195 C.H. Robinson Worldwide, Inc. $ 375,659
6,000 United Parcel Service, Inc.
(Class B) 451,020
-----------------
826,679
-----------------
Apparel/Footwear (0.5%)
5,150 Coach, Inc.* 232,729
-----------------
APPAREL/FOOTWEAR RETAIL (1.3%)
8,451 Chico's FAS, Inc.* 381,647
8,293 TJX Companies, Inc. (The) 200,193
-----------------
581,840
-----------------
BEVERAGES: NON-ALCOHOLIC (2.5%)
22,338 Coca-Cola Co. (The) 1,127,622
-----------------
BIOTECHNOLOGY (3.8%)
8,430 Amgen Inc.* 460,025
3,500 Biogen Idec Inc.* 221,375
3,140 Celgene Corp.* 179,796
2,800 Chiron Corp.* 124,992
7,000 Genentech, Inc.* 393,400
2,809 Gilead Sciences, Inc.* 188,203
5,220 Telik, Inc.* 124,601
-----------------
1,692,392
-----------------
BROADCASTING (1.0%)
14,232 Univision Communications Inc.
(Class A)* 454,428
-----------------
CASINO/GAMING (2.0%)
6,620 GTECH Holdings Corp. 306,572
9,900 International Game
Technology 382,140
5,770 Wynn Resorts, Ltd.* 222,895
-----------------
911,607
-----------------
COMPUTER
COMMUNICATIONS (3.7%)
59,909 Cisco Systems, Inc.* 1,419,843
10,300 Juniper Networks, Inc.* 253,071
-----------------
1,672,914
-----------------
COMPUTER PERIPHERALS (1.5%)
39,447 EMC Corp.* $ 449,696
10,000 Network Appliance, Inc.* 215,300
20,100 Seagate Technology Inc.
(Escrow)* 0
-----------------
664,996
-----------------
COMPUTER PROCESSING
HARDWARE (1.5%)
18,619 Dell Inc.* 666,933
-----------------
DATA PROCESSING
SERVICES (0.5%)
6,800 Paychex, Inc. 230,384
-----------------
DEPARTMENT STORES (0.6%)
6,300 Kohl's Corp.* 266,364
-----------------
DISCOUNT STORES (1.7%)
5,974 Target Corp. 253,716
9,454 Wal-Mart Stores, Inc. 498,793
-----------------
752,509
-----------------
ELECTRONIC COMPONENTS (0.5%)
6,680 Amphenol Corp. (Class A)* 222,578
-----------------
FINANCE/RENTAL/LEASING (3.3%)
8,000 Fannie Mae 570,880
34,800 MBNA Corp. 897,492
-----------------
1,468,372
-----------------
FINANCIAL
CONGLOMERATES (5.3%)
13,700 American Express Co. 703,906
36,466 Citigroup, Inc. 1,695,669
-----------------
2,399,575
-----------------
FOOD: MAJOR DIVERSIFIED (1.1%)
9,006 PepsiCo, Inc. 485,243
-----------------
HOME IMPROVEMENT
CHAINS (1.0%)
8,500 Lowe's Companies, Inc. 446,675
-----------------
HOTELS/RESORTS/
CRUISELINES (0.9%)
8,400 Carnival Corp. (Panama) 394,800
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
74
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
HOUSEHOLD/PERSONAL CARE (2.4%)
5,150 Kimberly-Clark Corp. $ 339,282
13,680 Procter & Gamble Co. (The) 744,739
-----------------
1,084,021
-----------------
INDUSTRIAL
CONGLOMERATES (10.1%)
2,550 3M Co. 229,526
87,321 General Electric Co. 2,829,200
27,700 Tyco International Ltd.
(Bermuda) 917,978
6,315 United Technologies Corp. 577,696
-----------------
4,554,400
-----------------
INFORMATION TECHNOLOGY
SERVICES (1.2%)
19,410 Accenture Ltd. (Class A)
(Bermuda)* 533,387
-----------------
INTEGRATED OIL (1.8%)
15,200 Exxon Mobil Corp. 675,032
1,770 Murphy Oil Corp. 130,449
-----------------
805,481
-----------------
INTERNET RETAIL (3.2%)
6,300 Amazon.com, Inc.* 342,720
37,170 IAC/InterActiveCorp.* 1,120,304
-----------------
1,463,024
-----------------
INTERNET SOFTWARE/
SERVICES (2.0%)
24,240 Yahoo! Inc.* 880,639
-----------------
INVESTMENT BANKS/
BROKERS (3.1%)
25,800 AmeriTrade Holding Corp.* 292,830
8,276 Goldman Sachs Group, Inc.
(The) 779,268
4,500 Lehman Brothers Holdings
Inc. 338,625
-----------------
1,410,723
-----------------
MANAGED HEALTH CARE (2.5%)
4,010 Anthem, Inc.* $ 359,136
9,050 Caremark Rx, Inc.* 298,107
7,500 UnitedHealth Group Inc. 466,875
-----------------
1,124,118
-----------------
MEDIA CONGLOMERATES (1.5%)
8,055 News Corporation Ltd. (The)
(ADR) (Australia) 285,308
22,400 Time Warner Inc.* 393,792
-----------------
679,100
-----------------
MEDICAL SPECIALTIES (3.8%)
14,700 Boston Scientific Corp.* 629,160
2,500 Dade Behring Inc.* 118,800
1,800 Guidant Corp. 100,584
2,375 INAMED Corp.* 149,269
9,136 Medtronic, Inc. 445,106
3,390 St. Jude Medical, Inc.* 256,454
-----------------
1,699,373
-----------------
MULTI-LINE INSURANCE (1.4%)
9,143 American International Group,
Inc. 651,713
-----------------
OILFIELD SERVICES/
EQUIPMENT (0.8%)
6,090 Smith International, Inc.* 339,578
-----------------
OTHER CONSUMER
SERVICES (2.1%)
10,180 eBay Inc.* 936,051
-----------------
PACKAGED SOFTWARE (9.3%)
4,200 Adobe Systems, Inc. 195,300
9,900 Mercury Interactive Corp.* 493,317
83,480 Microsoft Corp. 2,384,189
10,200 Novell, Inc.* 85,578
24,426 Oracle Corp.* 291,402
6,900 Red Hat, Inc.* 158,493
5,400 Symantec Corp.* 236,412
11,470 VERITAS Software Corp.* 317,719
-----------------
4,162,410
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
75
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS: MAJOR (6.5%)
8,700 Bristol-Myers Squibb Co. $ 213,150
12,246 Johnson & Johnson 682,102
2,575 Lilly (Eli) & Co. 180,018
54,165 Pfizer, Inc. 1,856,776
-----------------
2,932,046
-----------------
PHARMACEUTICALS: OTHER (1.9%)
1,500 Allergan, Inc. 134,280
5,000 Forest Laboratories, Inc.* 283,150
6,835 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 459,927
-----------------
877,357
-----------------
REGIONAL BANKS (1.0%)
8,200 Fifth Third Bancorp 440,996
-----------------
RESTAURANTS (1.3%)
6,500 Outback Steakhouse, Inc. 268,840
8,124 Yum! Brands, Inc.* 302,375
-----------------
571,215
-----------------
SEMICONDUCTORS (5.5%)
14,400 Analog Devices, Inc. 677,952
28,858 Intel Corp. 796,481
14,251 Linear Technology Corp. 562,487
4,260 Marvell Technology Group Ltd.
(Bermuda)* 113,742
13,866 Texas Instruments Inc. 335,280
-----------------
2,485,942
-----------------
SPECIALTY STORES (1.2%)
1,820 Bed Bath & Beyond Inc.* 69,979
7,580 PETsMART, Inc. 245,971
7,800 Staples, Inc. 228,618
-----------------
544,568
-----------------
TELECOMMUNICATION
EQUIPMENT (1.9%)
19,900 Motorola, Inc. 363,175
6,626 QUALCOMM Inc. 483,566
-----------------
846,741
-----------------
TOTAL COMMON STOCKS
(COST $41,713,744) 44,521,523
-----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$ 1,200 Joint repurchase agreement
account 1.45% due 07/01/04
(dated 06/30/04;
1,200,048) (a)
(COST $1,200,000) $ 1,200,000
-----------------
TOTAL INVESTMENTS
(COST $42,913,744) (b) 101.7% 45,721,523
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.7) (746,751)
----- -----------------
NET ASSETS 100.0% $ 44,974,772
===== =================
</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 $3,488,333 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $680,554, RESULTING IN NET UNREALIZED APPRECIATION OF
$2,807,779.
SEE NOTES TO FINANCIAL STATEMENTS
76
<Page>
American Opportunities
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (99.1%)
ADVERTISING/MARKETING
SERVICES (0.6%)
23,700 Omnicom Group, Inc. $ 1,798,593
-----------------
APPAREL/FOOTWEAR (0.6%)
34,200 Coach, Inc.* 1,545,498
-----------------
APPAREL/FOOTWEAR RETAIL (1.6%)
48,300 Chico's FAS, Inc.* 2,181,228
86,800 Gap, Inc. (The) 2,104,900
-----------------
4,286,128
-----------------
BEVERAGES:
NON-ALCOHOLIC (0.7%)
37,900 Coca-Cola Co. (The) 1,913,192
-----------------
BIOTECHNOLOGY (2.8%)
61,900 Biogen Idec Inc.* 3,915,175
34,000 Genentech, Inc.* 1,910,800
27,400 Gilead Sciences, Inc.* 1,835,800
-----------------
7,661,775
-----------------
CASINO/GAMING (0.4%)
26,100 Wynn Resorts, Ltd.* 1,008,243
-----------------
COMPUTER
COMMUNICATIONS (4.2%)
486,300 Cisco Systems, Inc.* 11,525,310
-----------------
COMPUTER PERIPHERALS (1.3%)
100,800 EMC Corp.* 1,149,120
24,200 Lexmark International, Inc.* 2,336,026
-----------------
3,485,146
-----------------
COMPUTER PROCESSING
HARDWARE (2.0%)
155,600 Dell Inc.* 5,573,592
-----------------
DATA PROCESSING SERVICES (1.2%)
77,700 Automatic Data Processing,
Inc. 3,254,076
-----------------
DISCOUNT STORES (2.2%)
144,300 Target Corp. 6,128,421
-----------------
ELECTRICAL PRODUCTS (0.4%)
17,800 Cooper Industries Ltd.
(Class A) (Bermuda) $ 1,057,498
-----------------
ENGINEERING &
CONSTRUCTION (0.6%)
61,200 Chicago Bridge & Iron
Company N.V. (Netherlands) 1,704,420
-----------------
FINANCE/RENTAL/LEASING (3.2%)
54,100 Capital One Financial Corp. 3,699,358
40,100 Freddie Mac 2,538,330
97,900 MBNA Corp. 2,524,841
-----------------
8,762,529
-----------------
FINANCIAL
CONGLOMERATES (1.7%)
101,400 Citigroup, Inc. 4,715,100
-----------------
FOOD: MAJOR DIVERSIFIED (2.9%)
32,300 Kellogg Co. 1,351,755
121,320 PepsiCo, Inc. 6,536,722
-----------------
7,888,477
-----------------
HOME IMPROVEMENT
CHAINS (0.4%)
35,100 Home Depot, Inc. (The) 1,235,520
-----------------
HOTELS/RESORTS/
CRUISELINES (0.4%)
26,400 Carnival Corp. (Panama) 1,240,800
-----------------
HOUSEHOLD/PERSONAL
CARE (5.0%)
76,900 Clorox Co. (The) 4,135,682
38,700 Gillette Co. (The) 1,640,880
58,800 Kimberly-Clark Corp. 3,873,744
73,400 Procter & Gamble Co. (The) 3,995,896
-----------------
13,646,202
-----------------
INDUSTRIAL
CONGLOMERATES (6.4%)
226,100 General Electric Co. 7,325,640
47,400 Ingersoll-Rand Co. Ltd.
(Class A) (Bermuda) 3,237,894
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
77
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
182,200 Tyco International Ltd.
(Bermuda) $ 6,038,108
13,400 United Technologies Corp. 1,225,832
-----------------
17,827,474
-----------------
INFORMATION TECHNOLOGY
SERVICES (0.7%)
73,600 Cognizant Technology
Solutions Corp.* 1,870,176
-----------------
INTEGRATED OIL (2.2%)
44,000 BP PLC (ADR)
(United Kingdom) 2,357,080
19,700 ConocoPhillips 1,502,913
7,998 Total S.A. (France) 1,528,258
6,200 Total S.A. (ADR) (France) 595,696
-----------------
5,983,947
-----------------
INTERNET SOFTWARE/
SERVICES (4.8%)
78,400 Check Point Software
Technologies Ltd. (Israel)* 2,116,016
20,900 SINA Corp. (Cayman Island)* 689,491
287,700 Yahoo! Inc.* 10,452,141
-----------------
13,257,648
-----------------
INVESTMENT BANKS/
BROKERS (2.2%)
39,400 Goldman Sachs Group, Inc.
(The) 3,709,904
25,200 Legg Mason, Inc. 2,293,452
-----------------
6,003,356
-----------------
MAJOR BANKS (2.1%)
49,000 Bank of America Corp. 4,146,380
180 Mitsubishi Tokyo Financial
Group, Inc. (Japan) 1,670,342
-----------------
5,816,722
-----------------
MANAGED HEALTH CARE (2.5%)
24,800 Anthem, Inc.* 2,221,088
35,500 Caremark Rx, Inc.* 1,169,370
56,900 UnitedHealth Group Inc. 3,542,025
-----------------
6,932,483
-----------------
MEDIA CONGLOMERATES (1.1%)
104,400 News Corporation Ltd.
(Australia) $ 923,610
26,500 News Corporation Ltd. (The)
(ADR) (Australia) 938,630
63,100 Time Warner Inc.* 1,109,298
-----------------
2,971,538
-----------------
MEDICAL SPECIALTIES (6.2%)
21,300 Alcon, Inc. (Switzerland) 1,675,245
64,000 Baxter International, Inc. 2,208,640
37,700 Boston Scientific Corp.* 1,613,560
43,600 Guidant Corp. 2,436,368
89,800 Medtronic, Inc. 4,375,056
14,300 St. Jude Medical, Inc.* 1,081,795
40,000 Zimmer Holdings, Inc.* 3,528,000
-----------------
16,918,664
-----------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.4%)
29,600 Laureate Education Inc.* 1,131,904
-----------------
MISCELLANEOUS
MANUFACTURING (0.5%)
24,200 Danaher Corp. 1,254,770
-----------------
MOTOR VEHICLES (0.4%)
23,000 Honda Motor Co., Ltd. (Japan) 1,111,540
-----------------
MULTI-LINE INSURANCE (1.6%)
61,800 American International Group,
Inc. 4,405,104
-----------------
OIL & GAS PRODUCTION (0.8%)
59,400 Burlington Resources, Inc. 2,149,092
-----------------
OILFIELD SERVICES/
EQUIPMENT (2.2%)
17,400 Schlumberger Ltd.
(Netherland) 1,105,074
90,800 Smith International, Inc.* 5,063,008
-----------------
6,168,082
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
78
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
OTHER CONSUMER
SERVICES (2.7%)
32,515 Apollo Group, Inc. (Class A)* $ 2,870,749
49,200 eBay Inc.* 4,523,940
-----------------
7,394,689
-----------------
PACKAGED SOFTWARE (7.6%)
22,600 Adobe Systems, Inc. 1,050,900
60,400 Computer Associates
International, Inc. 1,694,824
44,400 Mercury Interactive Corp.* 2,212,452
319,600 Microsoft Corp. 9,127,776
94,400 Network Associates, Inc.* 1,711,472
78,600 Oracle Corp.* 937,698
49,300 Red Hat, Inc.* 1,132,421
36,700 SAP AG (ADR) (Germany) 1,534,427
31,700 Symantec Corp.* 1,387,826
-----------------
20,789,796
-----------------
PERSONNEL SERVICES (0.7%)
37,100 Manpower, Inc. 1,883,567
-----------------
PHARMACEUTICALS: MAJOR (6.0%)
95,700 Johnson & Johnson 5,330,490
31,200 Lilly (Eli) & Co. 2,181,192
258,800 Pfizer, Inc. 8,871,664
-----------------
16,383,346
-----------------
PHARMACEUTICALS: OTHER (1.4%)
28,400 Forest Laboratories, Inc.* 1,608,292
33,100 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 2,227,299
-----------------
3,835,591
-----------------
PRECIOUS METALS (0.9%)
66,100 Newmont Mining Corp. Hldg
Co. 2,562,036
-----------------
PROPERTY - CASUALTY
INSURERS (0.9%)
800 Berkshire Hathaway, Inc.
(Class B)* 2,364,000
-----------------
RESTAURANTS (0.6%)
35,000 Starbucks Corp.* 1,521,800
-----------------
SEMICONDUCTORS (5.1%)
104,900 Advanced Micro Devices,
Inc.* $ 1,667,910
34,000 Analog Devices, Inc. 1,600,720
31,700 Broadcom Corp. (Class A)* 1,482,609
88,000 Intel Corp. 2,428,800
70,200 Marvell Technology Group Ltd.
(Bermuda)* 1,874,340
29,800 Maxim Integrated Products,
Inc. 1,562,116
79,600 National Semiconductor
Corp.* 1,750,404
842 Samsung Electronics Co., Ltd.
(GDR) - 144A** (South Korea) 173,241
62,000 Texas Instruments Inc. 1,499,160
-----------------
14,039,300
-----------------
SERVICES TO THE HEALTH
INDUSTRY (1.0%)
40,800 Medco Health Solutions Inc.* 1,530,000
27,960 Omnicare, Inc. 1,196,968
-----------------
2,726,968
-----------------
SPECIALTY STORES (1.6%)
25,700 Dick's Sporting Goods, Inc.* 857,095
66,500 PETsMART, Inc. 2,157,925
46,650 Staples, Inc. 1,367,311
-----------------
4,382,331
-----------------
TELECOMMUNICATION
EQUIPMENT (2.6%)
105,000 Motorola, Inc. 1,916,250
62,900 QUALCOMM Inc. 4,590,442
23,100 Telefonaktiebolaget LM
Ericsson (ADR) (Sweden)* 691,152
-----------------
7,197,844
-----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (1.1%)
43,700 Deere & Co. 3,065,118
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
79
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
WIRELESS
TELECOMMUNICATIONS (0.6%)
72,700 Vodafone Group PLC (ADR)
(United Kingdom) $ 1,606,670
-----------------
TOTAL COMMON STOCKS
(COST $251,493,273) 271,986,076
-----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENT (0.8%)
REPURCHASE AGREEMENT
$ 2,246 Joint repurchase agreement
account 1.45% due 07/01/04
(dated 06/30/04; proceeds
$2,246,090) (a)
(COST $2,246,000) 2,246,000
-----------------
TOTAL INVESTMENTS
(COST $253,739,273) (b) 99.9% 274,232,076
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1 238,167
----- -----------------
NET ASSETS 100.0% $ 274,470,243
===== =================
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
GDR GLOBAL 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 APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $24,180,406 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $3,687,603, RESULTING IN NET UNREALIZED APPRECIATION OF
$20,492,803.
SEE NOTES TO FINANCIAL STATEMENTS
80
<Page>
Capital Opportunities
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (99.2%)
ADVERTISING/MARKETING
SERVICES (2.4%)
21,200 Lamar Advertising Co.
(Class A)* $ 919,020
-----------------
AIR FREIGHT/COURIERS (1.1%)
9,100 C.H. Robinson Worldwide,
Inc. 417,144
-----------------
APPAREL/FOOTWEAR (1.0%)
8,700 Coach, Inc.* 393,153
-----------------
APPAREL/FOOTWEAR RETAIL (1.0%)
8,050 Chico's FAS, Inc.* 363,538
-----------------
BIOTECHNOLOGY (5.1%)
8,600 Amgen Inc.* 469,302
12,265 Charles River Laboratories
International, Inc.* 599,391
6,400 Gilead Sciences, Inc.* 428,800
5,000 ImClone Systems, Inc.* 428,950
-----------------
1,926,443
-----------------
BROADCASTING (3.9%)
25,000 Radio One, Inc. (Class D)* 400,250
33,350 Univision Communications
Inc. (Class A)* 1,064,865
-----------------
1,465,115
-----------------
CASINO/GAMING (9.7%)
12,190 GTECH Holdings Corp. 564,519
17,800 International Game
Technology 687,080
27,300 Station Casinos, Inc. 1,321,320
28,330 Wynn Resorts, Ltd.* 1,094,388
-----------------
3,667,307
-----------------
COMPUTER PERIPHERALS (1.8%)
3,900 Lexmark International, Inc.* 376,467
14,300 Network Appliance, Inc.* 307,879
-----------------
684,346
-----------------
CONSTRUCTION MATERIALS (2.1%)
14,100 Rinker Group Ltd. (ADR)
(Australia) 789,036
-----------------
DATA PROCESSING
SERVICES (0.9%)
7,675 Global Payments Inc. $ 345,528
-----------------
DISCOUNT STORES (1.1%)
15,400 Dollar Tree Stores, Inc.* 422,422
-----------------
ELECTRONICS/APPLIANCES (1.1%)
4,400 Harman International Industries,
Inc. 400,400
-----------------
FINANCIAL CONGLOMERATES (1.2%)
16,350 Brascan Corp. (Class A)
(Canada) 461,724
-----------------
HOTELS/RESORTS/
CRUISELINES (3.3%)
28,800 Royal Caribbean Cruises Ltd.
(Liberia) 1,250,208
-----------------
INTERNET RETAIL (1.5%)
19,125 IAC/InterActiveCorp* 576,427
-----------------
INTERNET SOFTWARE/
SERVICES (2.1%)
21,300 Yahoo! Inc.* 773,829
-----------------
INVESTMENT BANKS/
BROKERS (2.1%)
34,400 Ameritrade Holding Corp.* 390,440
18,400 Greenhill & Co., Inc.* 384,744
-----------------
775,184
-----------------
MEDICAL DISTRIBUTORS (1.3%)
6,300 Patterson Companies Inc.* 481,887
-----------------
MEDICAL SPECIALTIES (6.7%)
11,300 Apogent Technologies Inc.* 361,600
13,700 Dade Behring Inc.* 651,024
12,000 INAMED Corp.* 754,200
7,700 Kinetic Concepts, Inc.* 384,230
4,475 Varian Medical Systems, Inc.* 355,091
-----------------
2,506,145
-----------------
MEDICAL/NURSING
SERVICES (1.7%)
14,100 VCA Antech, Inc.* 631,962
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
81
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL
SERVICES (1.7%)
3,750 Corporate Executive Board Co.
(The) $ 216,713
8,625 Iron Mountain Inc.* 416,243
-----------------
632,956
-----------------
OIL & GAS PIPELINES (0.5%)
5,700 Western Gas Resources, Inc. 185,136
-----------------
OIL & GAS PRODUCTION (4.9%)
4,700 Evergreen Resources, Inc.* 189,880
7,000 Patina Oil & Gas Corp. 209,090
38,900 Ultra Petroleum Corp.
(Canada)* 1,452,137
-----------------
1,851,107
-----------------
OILFIELD SERVICES/
EQUIPMENT (2.1%)
8,000 BJ Services Co.* 366,720
7,600 Smith International, Inc.* 423,776
-----------------
790,496
-----------------
OTHER CONSUMER
SERVICES (3.7%)
7,200 Apollo Group, Inc. (Class A)* 635,688
8,200 eBay Inc.* 753,990
-----------------
1,389,678
-----------------
PACKAGED SOFTWARE (5.1%)
11,700 Adobe Systems, Inc. 544,050
7,175 Mercury Interactive Corp.* 357,530
24,900 Red Hat, Inc.* 571,953
10,100 Symantec Corp.* 442,178
-----------------
1,915,711
-----------------
PHARMACEUTICALS: OTHER (1.0%)
5,800 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 390,282
-----------------
PRECIOUS METALS (3.0%)
29,400 Newmont Mining Corp. 1,139,544
-----------------
PROPERTY - CASUALTY
INSURERS (3.7%)
345 Berkshire Hathaway, Inc.
(Class B)* $ 1,019,475
715 White Mountains Insurance
Group, Ltd. (Bermuda) 364,650
-----------------
1,384,125
-----------------
REAL ESTATE INVESTMENT
TRUSTS (1.1%)
12,500 Plum Creek Timber Co., Inc. 407,250
-----------------
RECREATIONAL PRODUCTS (4.1%)
14,100 Electronic Arts Inc.* 769,155
26,400 WMS Industries, Inc.* 786,720
-----------------
1,555,875
-----------------
RESTAURANTS (3.0%)
7,920 P.F. Chang's China Bistro,
Inc.* 325,908
21,187 Sonic Corp.* 482,004
18,500 The Steak n Shake Co.* 337,070
-----------------
1,144,982
-----------------
SEMICONDUCTORS (1.9%)
9,000 Linear Technology Corp. 355,230
13,400 Marvell Technology Group Ltd.
(Bermuda)* 357,780
-----------------
713,010
-----------------
SERVICES TO THE HEALTH
INDUSTRY (1.5%)
11,075 Stericycle, Inc.* 573,021
-----------------
SPECIALTY STORES (3.1%)
9,100 Guitar Center, Inc.* 404,677
13,300 PETsMART, Inc. 431,585
11,500 Tuesday Morning Corp.* 333,500
-----------------
1,169,762
-----------------
SPECIALTY
TELECOMMUNICATIONS (3.7%)
53,900 Crown Castle International
Corp.* 795,025
10,385 NTL, Inc.* 598,384
-----------------
1,393,409
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
82
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION
EQUIPMENT (3.0%)
22,300 Corning Inc.* $ 291,238
11,300 QUALCOMM Inc. 824,674
-----------------
1,115,912
-----------------
WHOLESALE DISTRIBUTORS (1.0%)
6,300 Fisher Scientific International,
Inc.* 363,825
-----------------
TOTAL COMMON STOCKS
(COST $32,968,737) 37,366,899
-----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$ 1,029 Joint repurchase agreement
account 1.45% due
07/01/04 (dated 06/30/04;
proceeds $1,029,041) (a)
(COST $1,029,000) 1,029,000
-----------------
TOTAL INVESTMENTS
(COST $33,997,737) (b) 101.9% 38,395,899
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.9) (730,506)
----- -----------------
NET ASSETS 100.0% $ 37,665,393
===== =================
</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 $5,482,614 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $1,084,452, RESULTING IN NET UNREALIZED APPRECIATION OF
$4,398,162.
SEE NOTES TO FINANCIAL STATEMENTS
83
<Page>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (96.8%)
AUSTRALIA (0.3%)
MAJOR BANKS
20,000 Westpac Banking Corp. $ 245,590
-----------------
BELGIUM (0.5%)
FINANCIAL CONGLOMERATES
20,000 Fortis 443,862
-----------------
BRAZIL (0.2%)
WIRELESS TELECOMMUNICATIONS
25,000 Telesp Celular Participacoes
S.A. (ADR) (Pref.)* 197,000
-----------------
CANADA (0.7%)
INTEGRATED OIL
22,000 Suncor Energy, Inc. 560,255
-----------------
CHINA (0.2%)
ELECTRIC UTILITIES
200,000 Huaneng Power International,
Inc. (Class H) 178,208
-----------------
FINLAND (0.4%)
PULP & PAPER
25,000 Stora Enso Oyj
(Registered Shares) 339,908
-----------------
FRANCE (7.2%)
ADVERTISING/MARKETING SERVICES
10,000 Publicis Groupe 296,680
-----------------
AEROSPACE & DEFENSE
9,000 Thales S.A. 330,006
-----------------
AUTO PARTS: O.E.M.
4,000 Valeo S.A. 167,058
-----------------
AUTOMOTIVE AFTERMARKET
7,000 Compagnie Generale des
Etablissements Michelin
(B Shares) 387,952
-----------------
ELECTRICAL PRODUCTS
5,000 Schneider Electric S.A. 342,042
-----------------
ENGINEERING & CONSTRUCTION
4,000 Vinci S.A. $ 403,865
-----------------
FOOD RETAIL
8,000 Carrefour S.A. 389,037
-----------------
FOOD: MAJOR DIVERSIFIED
7,000 Groupe Danone 612,017
-----------------
INTEGRATED OIL
4,022 Total S.A. 768,524
-----------------
MAJOR BANKS
10,200 BNP Paribas S.A. 628,735
-----------------
MAJOR TELECOMMUNICATIONS
10,000 France Telecom S.A.* 261,195
-----------------
MEDIA CONGLOMERATES
25,000 Vivendi Universal S.A.* 695,058
-----------------
MULTI-LINE INSURANCE
25,000 Axa 551,779
-----------------
REGIONAL BANKS
12,000 Credit Agricole S.A. 292,656
-----------------
TOTAL FRANCE 6,126,604
-----------------
GERMANY (5.7%)
AIRLINES
24,000 Deutsche Lufthansa AG* 327,189
-----------------
AUTO PARTS: O.E.M.
8,000 Continental AG 386,696
-----------------
BROADCASTING
22,500 ProSiebenSat.1 Media AG
(Pref.) 407,432
-----------------
CHEMICALS: MAJOR DIVERSIFIED
7,000 BASF AG 375,490
-----------------
ELECTRIC UTILITIES
8,000 E. ON AG 578,483
-----------------
INDUSTRIAL CONGLOMERATES
13,000 MAN AG 475,249
5,500 Siemens AG 396,433
-----------------
871,682
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
84
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
MAJOR BANKS
5,000 Bayerische Hypo - und
Vereinsbank AG* $ 89,138
5,000 Deutsche Bank AG
(Registered Shares) 393,744
-----------------
482,882
-----------------
MAJOR TELECOMMUNICATIONS
20,000 Deutsche Telekom AG
(Registered Shares)* 352,163
-----------------
MOTOR VEHICLES
3,000 Bayerische Motoren Werke
(BMW) AG 133,049
-----------------
MULTI-LINE INSURANCE
3,000 Allianz AG
(Registered Shares) 325,690
-----------------
PACKAGED SOFTWARE
3,700 SAP AG 614,775
-----------------
TOTAL GERMANY 4,855,531
-----------------
IRELAND (0.9%)
MAJOR BANKS
37,500 Bank of Ireland 502,088
-----------------
MAJOR TELECOMMUNICATIONS
125,000 Eircom Group PLC* 225,589
-----------------
TOTAL IRELAND 727,677
-----------------
JAPAN (10.4%)
ELECTRONIC COMPONENTS
3,000 Hoya Corp. 314,774
3,000 TDK Corp. 228,225
-----------------
542,999
-----------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
14,000 Canon, Inc. 739,618
48,000 Konica Minolta Holdings, Inc. 664,168
31,000 Ricoh Co., Ltd. 660,786
-----------------
2,064,572
-----------------
ELECTRONICS/APPLIANCES
10,000 Fuji Photo Film Co., Ltd. 314,223
-----------------
FOOD RETAIL
11,000 Ito-Yokado Co., Ltd. $ 471,977
30,000 Seiyu, Ltd. (The)* 98,677
-----------------
570,654
-----------------
GAS DISTRIBUTORS
150,000 Tokyo Gas Co., Ltd. 533,352
-----------------
HOUSEHOLD/PERSONAL CARE
5,000 Kao Corp. 120,819
-----------------
INDUSTRIAL CONGLOMERATES
43,200 Hitachi, Ltd. 298,082
-----------------
INDUSTRIAL MACHINERY
12,900 Fanuc Ltd. 771,582
-----------------
INVESTMENT BANKS/BROKERS
27,400 Nomura Holdings, Inc. 406,569
-----------------
MAJOR BANKS
40 Mitsubishi Tokyo Financial
Group, Inc. 371,187
100 UFJ Holdings, Inc.* 442,852
-----------------
814,039
-----------------
MAJOR TELECOMMUNICATIONS
50 Nippon Telegraph & Telephone
Corp. 267,824
-----------------
MOTOR VEHICLES
12,000 Toyota Motor Corp. 487,321
-----------------
PHARMACEUTICALS: MAJOR
15,000 Takeda Chemical Industries,
Ltd. 660,143
-----------------
RAILROADS
90 East Japan Railway Co. 506,064
-----------------
RECREATIONAL PRODUCTS
4,000 Nintendo Co., Ltd. 464,903
-----------------
TOTAL JAPAN 8,823,146
-----------------
NETHERLANDS (2.3%)
AIR FREIGHT/COURIERS
18,000 TPG NV 412,206
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
85
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
ELECTRONIC PRODUCTION
EQUIPMENT
28,000 ASML Holding NV* $ 474,932
-----------------
INTEGRATED OIL
10,000 Royal Dutch Petroleum Co. 514,343
-----------------
MAJOR BANKS
10,000 ABN AMRO Holding NV 219,248
-----------------
PERSONNEL SERVICES
25,000 Vedior NV 365,210
-----------------
TOTAL NETHERLANDS 1,985,939
-----------------
NORWAY (1.1%)
INTEGRATED OIL
30,000 Statoil ASA 381,007
-----------------
MAJOR TELECOMMUNICATIONS
85,000 Telenor ASA 591,283
-----------------
TOTAL NORWAY 972,290
-----------------
RUSSIA (0.3%)
WIRELESS TELECOMMUNICATIONS
2,000 Mobile Telesystems (ADR) 244,000
-----------------
SOUTH KOREA (0.2%)
WIRELESS TELECOMMUNICATIONS
10,000 SK Telecom Co., Ltd. (ADR) 209,900
-----------------
SPAIN (0.8%)
APPAREL/FOOTWEAR RETAIL
15,000 Idustria de Diseno Textil, S.A. 344,969
-----------------
MAJOR TELECOMMUNICATIONS
20,000 Telefonica S.A. 296,314
-----------------
TOTAL SPAIN 641,283
-----------------
SWEDEN (0.3%)
TELECOMMUNICATION EQUIPMENT
80,000 Telefonaktiebolaget LM
Ericsson (B Shares)* 236,236
-----------------
SWITZERLAND (2.7%)
FINANCIAL CONGLOMERATES
10,000 UBS AG (Registered Shares) 705,830
-----------------
FOOD: MAJOR DIVERSIFIED
3,000 Nestle S.A.
(Registered Shares) $ 801,408
-----------------
MAJOR BANKS
5,000 Credit Suisse Group* 177,957
-----------------
MULTI-LINE INSURANCE
5,300 Converium Holding AG 276,170
-----------------
PROPERTY - CASUALTY INSURERS
5,000 Swiss Re (Registered Shares) 325,322
-----------------
TOTAL SWITZERLAND 2,286,687
-----------------
TAIWAN (0.2%)
SEMICONDUCTORS
22,817 Taiwan Semiconductor
Manufacturing Co. Ltd.
(ADR) 189,612
-----------------
UNITED KINGDOM (6.4%)
ADVERTISING/MARKETING SERVICES
45,000 WPP Group PLC 458,489
-----------------
AIRLINES
40,000 British Airways PLC* 200,498
-----------------
CABLE/SATELLITE TV
20,000 British Sky Broadcasting Group
PLC 226,333
-----------------
FINANCIAL CONGLOMERATES
25,000 Lloyds TSB Group PLC 196,382
-----------------
HOTELS/RESORTS/CRUISELINES
10,000 Carnival PLC 487,235
-----------------
INTEGRATED OIL
18,256 BP PLC (ADR) 977,974
-----------------
LIFE/HEALTH INSURANCE
25,000 Prudential PLC 215,826
-----------------
MAJOR BANKS
12,000 Royal Bank of Scotland
Group PLC 346,705
-----------------
MOVIES/ENTERTAINMENT
70,000 Rank Group PLC 382,074
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
86
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS
63,000 BHP Billiton PLC $ 548,467
20,300 Rio Tinto PLC 489,742
-----------------
1,038,209
-----------------
PHARMACEUTICALS: MAJOR
16,000 GlaxoSmithKline PLC 324,872
-----------------
WIRELESS TELECOMMUNICATIONS
251,534 Vodafone Group PLC 552,602
-----------------
TOTAL UNITED KINGDOM 5,407,199
-----------------
UNITED STATES (56.0%)
AEROSPACE & DEFENSE
39,800 Northrop Grumman Corp. 2,137,260
-----------------
AGRICULTURAL COMMODITIES/
MILLING
73,500 Archer-Daniels-Midland Co. 1,233,330
-----------------
APPAREL/FOOTWEAR RETAIL
70,000 Gap, Inc. (The) 1,697,500
-----------------
BEVERAGES: NON-ALCOHOLIC
26,770 Coca-Cola Co. (The) 1,351,350
-----------------
BIOTECHNOLOGY
26,100 Gilead Sciences, Inc.* 1,748,700
-----------------
CHEMICALS: MAJOR DIVERSIFIED
32,000 Dow Chemical Co. (The) 1,302,400
-----------------
ELECTRIC UTILITIES
40,100 Southern Co. (The) 1,168,915
-----------------
ELECTRICAL PRODUCTS
34,000 Emerson Electric Co. 2,160,700
-----------------
ELECTRONIC COMPONENTS
111,900 Flextronics International Ltd.* 1,784,805
-----------------
ELECTRONIC PRODUCTION
EQUIPMENT
80,000 Applied Materials, Inc.* 1,569,600
-----------------
FINANCIAL CONGLOMERATES
35,300 Citigroup, Inc. 1,641,450
47,820 J.P. Morgan Chase & Co. 1,853,981
-----------------
3,495,431
-----------------
FOOD: MAJOR DIVERSIFIED
47,000 Kellogg Co. $ 1,966,950
-----------------
INFORMATION TECHNOLOGY
SERVICES
17,500 International Business
Machines Corp. 1,542,625
-----------------
INTEGRATED OIL
41,700 Exxon Mobil Corp. 1,851,897
-----------------
MAJOR BANKS
19,600 Bank of America Corp. 1,658,552
-----------------
MAJOR TELECOMMUNICATIONS
67,000 SBC Communications, Inc. 1,624,750
-----------------
MANAGED HEALTH CARE
23,300 Oxford Health Plans, Inc. 1,282,432
-----------------
MEDIA CONGLOMERATES
92,000 Time Warner Inc.* 1,617,360
-----------------
MULTI-LINE INSURANCE
24,000 American International
Group, Inc. 1,710,720
-----------------
OIL & GAS PRODUCTION
50,200 Burlington Resources, Inc. 1,816,236
-----------------
PHARMACEUTICALS: MAJOR
18,700 Lilly (Eli) & Co. 1,307,317
46,300 Pfizer, Inc. 1,587,164
42,400 Wyeth 1,533,184
-----------------
4,427,665
-----------------
PRECIOUS METALS
11,270 Newmont Mining Corp. 436,825
-----------------
PROPERTY - CASUALTY INSURERS
18,726 St. Paul Travelers Companies,
Inc. 759,152
-----------------
SEMICONDUCTORS
62,200 Intel Corp. 1,716,720
-----------------
SPECIALTY STORES
43,200 Bed Bath & Beyond Inc.* 1,661,040
-----------------
TELECOMMUNICATION EQUIPMENT
75,100 Cisco Systems, Inc.* 1,779,870
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
87
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY
26,400 Caterpillar Inc. $ 2,097,216
-----------------
TOTAL UNITED STATES 47,600,001
-----------------
TOTAL COMMON AND
PREFERRED STOCKS
(COST $72,655,358) 82,270,928
-----------------
SHORT-TERM INVESTMENT (3.5%)
REPURCHASE AGREEMENT
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
$ 2,953 Joint repurchase agreement
account 1.45% due
07/01/04 (dated 06/30/04;
proceeds $2,953,119) (a)
(COST $2,953,000) 2,953,000
-----------------
TOTAL INVESTMENTS
(COST $75,608,358) (b) 100.3% 85,223,928
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.3) (232,869)
----- -----------------
NET ASSETS 100.0% $ 84,991,059
===== =================
</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 $13,506,812 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $3,891,242, RESULTING IN NET UNREALIZED APPRECIATION OF
$9,615,570.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 2004:
<Table>
<Caption>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------
EUR 317,364 $ 384,550 07/01/04 $ (2,444)
$ 91,479 EUR 75,372 07/02/04 430
$ 117,354 EUR 96,691 07/02/04 551
$ 270,111 CHF 337,341 07/02/04 (302)
$ 205,545 GBP 112,986 07/02/04 23
$ 220,294 GBP 121,094 07/02/04 24
EUR 214,876 $ 260,794 07/06/04 (1,225)
----------
Net unrealized depreciation $ (2,943)
==========
</Table>
CURRENCY ABBREVIATIONS:
GBP British Pound.
EUR Euro.
CHF Swiss Franc.
SEE NOTES TO FINANCIAL STATEMENTS
88
<Page>
Global Equity
SUMMARY OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------
Advertising/Marketing
Services $ 755,169 0.9%
Aerospace & Defense 2,467,266 2.9
Agricultural Commodities/
Milling 1,233,330 1.4
Air Freight/Couriers 412,206 0.5
Airlines 527,687 0.6
Apparel/Footwear Retail 2,042,469 2.4
Auto Parts: O.E.M 553,754 0.7
Automotive Aftermarket 387,952 0.5
Beverages: Non-Alcoholic 1,351,350 1.6
Biotechnology 1,748,700 2.1
Broadcasting 407,432 0.5
Cable/Satellite TV 226,333 0.3
Chemicals: Major
Diversified 1,677,890 2.0
Electric Utilities 1,925,606 2.3
Electrical Products 2,502,742 2.9
Electronic Components 2,327,804 2.7
Electronic Equipment/
Instruments 2,064,572 2.4
Electronic Production
Equipment 2,044,532 2.4
Electronics/Appliances 314,223 0.4
Engineering & Construction 403,865 0.5
Financial Conglomerates 4,841,505 5.7
Food Retail 959,691 1.1
Food: Major Diversified 3,380,375 4.0
Gas Distributors 533,352 0.6
Hotels/Resorts/Cruiselines 487,235 0.6
Household/Personal Care 120,819 0.1
Industrial Conglomerates 1,169,764 1.4
Industrial Machinery 771,582 0.9
Information Technology
Services 1,542,625 1.8
Integrated Oil 5,054,000 5.9
Investment Banks/Brokers 406,569 0.5
Life/Health Insurance 215,826 0.3
Major Banks 5,075,796 6.0
Major Telecommunications $ 3,619,118 4.3%
Managed Health Care 1,282,432 1.5
Media Conglomerates 2,312,418 2.7
Motor Vehicles 620,370 0.7
Movies/Entertainment 382,074 0.4
Multi-Line Insurance 2,864,359 3.4
Oil & Gas Production 1,816,236 2.1
Other Metals/Minerals 1,038,209 1.2
Packaged Software 614,775 0.7
Personnel Services 365,210 0.4
Pharmaceuticals: Major 5,412,680 6.4
Precious Metals 436,825 0.5
Property - Casualty
Insurers 1,084,474 1.3
Pulp & Paper 339,908 0.4
Railroads 506,064 0.6
Recreational Products 464,903 0.5
Regional Banks 292,656 0.3
Repurchase Agreement 2,953,000 3.5
Semiconductors 1,906,332 2.2
Specialty Stores 1,661,040 2.0
Telecommunication
Equipment 2,016,106 2.4
Trucks/Construction/Farm
Machinery 2,097,216 2.5
Wireless
Telecommunications 1,203,502 1.4
--------------- -----
$ 85,223,928 100.3%
=============== =====
<Caption>
Type of Investment
- -------------------------------------------------------------------------
Common Stocks $ 81,666,496 96.1%
Preferred Stocks 604,432 0.7
Short-Term Investment 2,953,000 3.5
--------------- -----
$ 85,223,928 100.3%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
89
<Page>
Developing Growth
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (95.5%)
ADVERTISING/MARKETING
SERVICES (2.7%)
7,400 Getty Images, Inc.* $ 444,000
26,700 Lamar Advertising Co.
(Class A)* 1,157,445
-----------------
1,601,445
-----------------
AIR FREIGHT/COURIERS (0.9%)
12,250 C.H. Robinson Worldwide,
Inc. 561,540
-----------------
APPAREL/FOOTWEAR (1.0%)
13,000 Coach, Inc.* 587,470
-----------------
APPAREL/FOOTWEAR RETAIL (1.0%)
12,925 Chico's FAS, Inc.* 583,693
-----------------
AUTO PARTS: O.E.M. (0.6%)
9,100 Gentex Corp. 361,088
-----------------
BIOTECHNOLOGY (5.3%)
7,900 Amylin Pharmaceuticals,
Inc.* 180,120
9,200 Biogen Idec Inc.* 581,900
6,600 Celgene Corp.* 377,916
18,020 Charles River Laboratories
International, Inc.* 880,637
9,500 Gilead Sciences, Inc.* 636,500
6,500 ImClone Systems, Inc.* 557,635
-----------------
3,214,708
-----------------
BROADCASTING (3.2%)
35,375 Radio One, Inc. (Class D)* 566,354
31,700 Univision Communications Inc.
(Class A)* 1,012,181
12,000 XM Satellite Radio Holdings Inc.
(Class A)* 327,480
-----------------
1,906,015
-----------------
CASINO/GAMING (7.9%)
13,225 GTECH Holdings Corp. 612,450
24,100 International Game
Technology 930,260
36,800 Station Casinos, Inc. 1,781,120
37,865 Wynn Resorts, Ltd.* 1,462,725
-----------------
4,786,555
-----------------
COMPUTER
COMMUNICATIONS (0.8%)
11,300 Avaya Inc.* $ 178,427
12,700 Juniper Networks, Inc.* 312,039
-----------------
490,466
-----------------
COMPUTER PERIPHERALS (1.8%)
6,200 Lexmark International, Inc.* 598,486
23,100 Network Appliance, Inc.* 497,343
-----------------
1,095,829
-----------------
CONSTRUCTION MATERIALS (1.5%)
16,500 Rinker Group Ltd. (ADR)
(Australia) 923,340
-----------------
CONTAINERS/PACKAGING (0.5%)
5,500 Sealed Air Corp.* 292,985
-----------------
DATA PROCESSING
SERVICES (1.4%)
12,500 Global Payments Inc. 562,750
11,730 SunGard Data Systems Inc.* 304,980
-----------------
867,730
-----------------
DISCOUNT STORES (1.0%)
22,100 Dollar Tree Stores, Inc.* 606,203
-----------------
ELECTRONIC DISTRIBUTORS (0.4%)
3,600 CDW Corp. 229,536
-----------------
ELECTRONIC PRODUCTION
EQUIPMENT (1.4%)
9,100 KLA-Tencor Corp.* 449,358
14,855 Synopsys, Inc.* 422,328
-----------------
871,686
-----------------
ELECTRONICS/APPLIANCES (0.9%)
6,325 Harman International Industries,
Inc. 575,575
-----------------
FINANCE/RENTAL/LEASING (0.4%)
7,450 Doral Financial Corp. 257,025
-----------------
FINANCIAL CONGLOMERATES (1.4%)
23,900 Brascan Corp. (Class A)
(Canada) 674,936
9,900 Conseco Inc.* 197,010
-----------------
871,946
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
90
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.6%)
3,600 Whole Foods Market, Inc. $ 343,620
-----------------
GAS DISTRIBUTORS (0.4%)
6,600 Questar Corp. 255,024
-----------------
HOME BUILDING (0.5%)
610 NVR, Inc.* 295,362
-----------------
HOSPITAL/NURSING
MANAGEMENT (0.4%)
8,500 Community Health Systems
Inc.* 227,545
-----------------
HOTELS/RESORTS/
CRUISELINES (3.6%)
5,300 Four Seasons Hotels, Inc.
(Canada) 319,113
43,250 Royal Caribbean Cruises Ltd.
(Liberia) 1,877,482
-----------------
2,196,595
-----------------
INDUSTRIAL MACHINERY (0.5%)
8,900 Graco Inc. 276,345
-----------------
INDUSTRIAL SPECIALTIES (0.5%)
9,000 Ecolab Inc. 285,300
-----------------
INFORMATION TECHNOLOGY
SERVICES (0.3%)
8,200 Cognizant Technology Solutions
Corp.* 208,362
-----------------
INSURANCE BROKERS/
SERVICES (0.9%)
11,700 ChoicePoint Inc.* 534,222
-----------------
INTEGRATED OIL (0.5%)
11,300 Suncor Energy, Inc. (Canada) 289,393
-----------------
INTERNET SOFTWARE/
SERVICES (0.8%)
11,900 Ask Jeeves, Inc.* 464,457
-----------------
INVESTMENT BANKS/
BROKERS (2.4%)
54,600 Ameritrade Holding Corp.* $ 619,710
2,800 Chicago Mercantile Exchange
(The) 404,236
4,725 Legg Mason, Inc. 430,022
-----------------
1,453,968
-----------------
MANAGED HEALTH CARE (0.7%)
12,900 Caremark Rx, Inc.* 424,926
-----------------
MEDICAL DISTRIBUTORS (1.1%)
8,850 Patterson Companies Inc.* 676,936
-----------------
MEDICAL SPECIALTIES (8.7%)
18,100 Apogent Technologies Inc.* 579,200
11,000 Bard (C.R.), Inc. 623,150
17,900 Dade Behring Inc.* 850,608
9,100 Hospira, Inc.* 251,160
6,200 IDEXX Laboratories, Inc.* 390,228
14,300 INAMED Corp.* 898,755
11,600 Kinetic Concepts, Inc.* 578,840
6,500 Varian Medical Systems,
Inc.* 515,775
6,550 Zimmer Holdings, Inc.* 577,710
-----------------
5,265,426
-----------------
MEDICAL/NURSING SERVICES (1.8%)
7,900 DaVita, Inc.* 243,557
7,400 Lincare Holdings, Inc.* 243,164
13,500 VCA Antech, Inc.* 605,070
-----------------
1,091,791
-----------------
MISCELLANEOUS COMMERCIAL
SERVICES (1.9%)
5,030 Corporate Executive Board Co.
(The) 290,684
11,400 Iron Mountain Inc.* 550,164
7,200 Laureate Education Inc.* 275,328
-----------------
1,116,176
-----------------
OIL & GAS PIPELINES (0.9%)
15,800 Western Gas Resources, Inc. 513,184
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
91
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCTION (4.6%)
6,500 Evergreen Resources, Inc.* $ 262,600
11,000 Patina Oil & Gas Corp. 328,570
58,800 Ultra Petroleum Corp.
(Canada)* 2,195,004
-----------------
2,786,174
-----------------
OILFIELD SERVICES/
EQUIPMENT (1.8%)
11,200 BJ Services Co.* 513,408
9,950 Smith International, Inc.* 554,812
-----------------
1,068,220
-----------------
OTHER CONSUMER SERVICES (1.3%)
2,070 Apollo Group, Inc. (Class A)* 182,760
13,200 DeVry, Inc.* 361,944
6,600 ITT Educational Services,
Inc.* 250,932
-----------------
795,636
-----------------
OTHER METALS/MINERALS (0.4%)
3,400 Phelps Dodge Corp.* 263,534
-----------------
PACKAGED SOFTWARE (5.2%)
18,600 Adobe Systems, Inc. 864,900
9,800 Mercury Interactive Corp.* 488,334
35,600 Red Hat, Inc.* 817,732
15,800 Symantec Corp.* 691,724
10,400 VERITAS Software Corp.* 288,080
-----------------
3,150,770
-----------------
PHARMACEUTICALS: OTHER (1.3%)
3,050 Allergan, Inc. 273,036
13,400 Elan Corp. PLC (ADR)
(Ireland)* 331,516
7,400 Shire Pharmaceuticals Group
PLC (ADR)
(United Kingdom)* 197,876
-----------------
802,428
-----------------
PRECIOUS METALS (1.8%)
17,600 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 583,440
30,000 Placer Dome Inc. (Canada) 499,200
-----------------
1,082,640
-----------------
PROPERTY - CASUALTY
INSURERS (0.9%)
1,025 White Mountains Insurance
Group, Ltd. (Bermuda) $ 522,750
-----------------
PUBLISHING: NEWSPAPERS (0.4%)
275 Washington Post Co. (The)
(Class B) 255,753
-----------------
REAL ESTATE INVESTMENT
TRUSTS (0.9%)
15,900 Plum Creek Timber Co., Inc. 518,022
-----------------
RECREATIONAL PRODUCTS (1.0%)
10,540 Electronic Arts Inc.* 574,957
-----------------
REGIONAL BANKS (0.8%)
11,600 UCBH Holdings, Inc. 458,432
-----------------
RESTAURANTS (2.3%)
10,100 Krispy Kreme Doughnuts,
Inc.* 192,809
9,200 Outback Steakhouse, Inc. 380,512
12,100 P.F. Chang's China Bistro,
Inc.* 497,915
12,850 Sonic Corp.* 292,337
-----------------
1,363,573
-----------------
SEMICONDUCTORS (3.4%)
13,200 Advanced Micro Devices,
Inc.* 209,880
21,900 Altera Corp.* 486,618
13,800 Linear Technology Corp. 544,686
21,900 Marvell Technology Group Ltd.
(Bermuda)* 584,730
9,700 National Semiconductor
Corp.* 213,303
-----------------
2,039,217
-----------------
SERVICES TO THE HEALTH
INDUSTRY (1.9%)
7,000 Omnicare, Inc. 299,670
16,575 Stericycle, Inc.* 857,591
-----------------
1,157,261
-----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
92
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (1.1%)
19,700 PETsMART, Inc. $ 639,265
-----------------
SPECIALTY
TELECOMMUNICATIONS (3.7%)
77,900 Crown Castle International
Corp.* 1,149,025
12,600 IDT Corp. (Class B)* 232,344
15,226 NTL, Inc.* 877,322
-----------------
2,258,691
-----------------
TELECOMMUNICATION
EQUIPMENT (0.8%)
35,800 Corning Inc.* 467,548
-----------------
WHOLESALE DISTRIBUTORS (0.9%)
9,100 Fisher Scientific International,
Inc.* 525,525
-----------------
WIRELESS
TELECOMMUNICATIONS (0.4%)
7,350 NII Holdings, Inc.* 247,622
-----------------
TOTAL COMMON STOCKS
(COST $50,852,730) 57,581,485
-----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT
$ 2,074 Joint repurchase agreement
account 1.45% due
07/01/04 (dated 06/30/04;
proceeds $2,074,084) (a)
(COST $2,074,000) $ 2,074,000
-----------------
TOTAL INVESTMENTS
(COST $52,926,730) (b) 98.9% 59,655,485
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.1 650,611
----- -----------------
NET ASSETS 100.0% $ 60,306,096
===== =================
</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 $7,921,104 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $1,192,349, RESULTING IN NET UNREALIZED APPRECIATION OF
$6,728,755.
SEE NOTES TO FINANCIAL STATEMENTS
93
<Page>
Morgan Stanley Select Dimensions Investment Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
--------------- --------------- ---------------
ASSETS:
Investments in securities, at value* $ 120,974,367 $ 71,643,800 $ 101,528,314
Investments in affiliates -- -- 1,241,131
Cash 6,341 6,048,868 136
Receivable for:
Investments sold -- 3,568,470 570,887
Interest/principal paydowns 8,082 1,078,017 405,191
Dividends -- -- 100,841
Shares of beneficial interest sold 84,349 11,079 55,129
Foreign withholding taxes reclaimed -- -- --
Variation margin -- -- --
Prepaid expenses and other assets 3,544 2,298 1,677
--------------- --------------- ---------------
TOTAL ASSETS 121,076,683 82,352,532 103,903,306
--------------- --------------- ---------------
LIABILITIES:
Payable for:
Investments purchased -- 11,133,630 2,222,929
Shares of beneficial interest redeemed 463,733 85,698 145,306
Investment management fee 54,703 25,625 54,805
Variation margin -- 94,562 53,594
Distribution fee 9,071 5,434 5,528
Payable to bank -- 3,472 --
Unrealized depreciation on open forward
foreign currency contracts -- 44,851 --
Accrued expenses and other payables 21,309 52,472 26,112
--------------- --------------- ---------------
TOTAL LIABILITIES 548,816 11,445,744 2,508,274
--------------- --------------- ---------------
NET ASSETS $ 120,527,867 $ 70,906,788 $ 101,395,032
=============== =============== ===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 120,527,769 $ 94,848,471 $ 98,124,840
Accumulated undistributed net investment income (loss) 98 (240,477) (174,442)
Accumulated undistributed net realized gain (loss) -- (19,369,564) (9,600,425)
Net unrealized appreciation (depreciation) -- (4,331,642) 13,045,059
--------------- --------------- ---------------
NET ASSETS $ 120,527,867 $ 70,906,788 $ 101,395,032
--------------- --------------- ---------------
*COST $ 120,974,367 $ 75,760,577 $ 89,575,260
=============== =============== ===============
CLASS X SHARES:
Net Assets $ 79,931,147 $ 46,577,328 $ 76,549,462
Shares Outstanding (unlimited authorized shares
of $.01 par value) 79,931,069 6,309,588 5,150,101
NET ASSET VALUE PER SHARE $ 1.00 $ 7.38 $ 14.86
=============== =============== ===============
CLASS Y SHARES:
Net Assets $ 40,596,720 $ 24,329,460 $ 24,845,570
Shares Outstanding (unlimited authorized shares
of $.01 par value) 40,596,701 3,304,396 1,675,108
NET ASSET VALUE PER SHARE $ 1.00 $ 7.36 $ 14.83
=============== =============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
94
<Page>
<Table>
<Caption>
DIVIDEND VALUE-ADDED
UTILITIES GROWTH MARKET GROWTH
--------------- --------------- --------------- ---------------
ASSETS:
Investments in securities, at value* $ 72,922,710 $ 385,889,749 $ 206,363,888 $ 45,721,523
Investments in affiliates -- -- 809,563 --
Cash 860 756 597 380
Receivable for:
Investments sold 449,364 -- 8,584,620 351,206
Interest/principal paydowns 38,128 10,289 194 --
Dividends 137,111 391,811 222,022 40,504
Shares of beneficial interest sold 1,204 52,531 216,004 20,388
Foreign withholding taxes reclaimed 8,371 6,612 -- --
Variation margin -- -- 16,750 --
Prepaid expenses and other assets 3,001 12,528 7,450 72,248
--------------- --------------- --------------- ---------------
TOTAL ASSETS 73,560,749 386,364,276 216,221,088 46,206,249
--------------- --------------- --------------- ---------------
LIABILITIES:
Payable for:
Investments purchased 315,693 -- 9,249,889 1,121,743
Shares of beneficial interest redeemed 56,525 480,290 358,787 60,380
Investment management fee 42,780 218,043 91,340 32,331
Variation margin -- -- -- --
Distribution fee 3,129 12,795 13,918 1,678
Payable to bank -- -- -- --
Unrealized depreciation on open forward
foreign currency contracts -- -- -- --
Accrued expenses and other payables 25,018 31,437 20,066 15,345
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES 443,145 742,565 9,734,000 1,231,477
--------------- --------------- --------------- ---------------
NET ASSETS $ 73,117,604 $ 385,621,711 $ 206,487,088 $ 44,974,772
=============== =============== =============== ===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 96,025,357 $ 480,848,659 $ 141,352,537 $ 78,118,799
Accumulated undistributed net investment income (loss) (19,757) 19 836,858 (1,031)
Accumulated undistributed net realized gain (loss) (40,814,776) (177,464,938) 112,705 (35,950,775)
Net unrealized appreciation (depreciation) 17,926,780 82,237,971 64,184,988 2,807,779
--------------- --------------- --------------- ---------------
NET ASSETS $ 73,117,604 $ 385,621,711 $ 206,487,088 $ 44,974,772
=============== =============== =============== ===============
*COST $ 54,995,930 $ 303,651,778 $ 143,018,272 $ 42,913,744
=============== =============== =============== ===============
CLASS X SHARES:
Net Assets $ 59,380,541 $ 328,406,023 $ 142,277,275 $ 37,299,946
Shares Outstanding (unlimited authorized shares
of $.01 par value) 3,686,359 21,824,602 6,407,166 2,572,716
NET ASSET VALUE PER SHARE $ 16.11 $ 15.05 $ 22.21 $ 14.50
=============== =============== =============== ===============
CLASS Y SHARES:
Net Assets $ 13,737,063 $ 57,215,688 $ 64,209,813 $ 7,674,826
Shares Outstanding (unlimited authorized shares
of $.01 par value) 853,302 3,807,792 2,912,192 533,334
NET ASSET VALUE PER SHARE $ 16.10 $ 15.03 $ 22.05 $ 14.39
=============== =============== =============== ===============
<Caption>
AMERICAN CAPITAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES GLOBAL EQUITY GROWTH
--------------- --------------- --------------- ---------------
ASSETS:
Investments in securities, at value* $ 274,232,076 $ 38,395,899 $ 85,223,928 $ 59,655,485
Investments in affiliates -- -- -- --
Cash 468 -- 4,268 320
Receivable for:
Investments sold 4,728,968 514,046 649,013 1,308,951
Interest/principal paydowns -- -- -- --
Dividends 155,833 10,099 74,468 15,882
Shares of beneficial interest sold 40,863 27,876 7,255 10,187
Foreign withholding taxes reclaimed 7,470 -- 54,704 --
Variation margin -- -- -- --
Prepaid expenses and other assets 25,849 1,357 5,359 2,693
--------------- --------------- --------------- ---------------
TOTAL ASSETS 279,191,527 38,949,277 86,018,995 60,993,518
--------------- --------------- --------------- ---------------
LIABILITIES:
Payable for:
Investments purchased 4,139,534 1,208,871 905,507 617,105
Shares of beneficial interest redeemed 375,076 22,119 15,399 21,871
Investment management fee 155,855 25,342 77,022 26,967
Variation margin -- -- -- --
Distribution fee 10,058 2,805 1,863 1,698
Payable to bank -- -- -- --
Unrealized depreciation on open forward
foreign currency contracts -- -- 2,943 --
Accrued expenses and other payables 40,761 24,747 25,202 19,781
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES 4,721,284 1,283,884 1,027,936 687,422
--------------- --------------- --------------- ---------------
NET ASSETS $ 274,470,243 $ 37,665,393 $ 84,991,059 $ 60,306,096
=============== =============== =============== ===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 515,262,049 $ 125,481,780 $ 83,009,873 $ 96,604,614
Accumulated undistributed net investment income (loss) 152,055 (122,804) 393,082 (67,017)
Accumulated undistributed net realized gain (loss) (261,438,059) (92,091,745) (8,023,497) (42,960,256)
Net unrealized appreciation (depreciation) 20,494,198 4,398,162 9,611,601 6,728,755
--------------- --------------- --------------- ---------------
NET ASSETS $ 274,470,243 $ 37,665,393 $ 84,991,059 $ 60,306,096
=============== =============== =============== ===============
*COST $ 253,739,273 $ 33,997,737 $ 75,608,358 $ 52,926,730
=============== =============== =============== ===============
CLASS X SHARES:
Net Assets $ 230,102,826 $ 25,108,934 $ 77,063,686 $ 52,790,205
Shares Outstanding (unlimited authorized shares
of $.01 par value) 16,234,973 2,949,865 5,379,721 2,975,195
NET ASSET VALUE PER SHARE $ 14.17 $ 8.51 $ 14.32 $ 17.74
=============== =============== =============== ===============
CLASS Y SHARES:
Net Assets $ 44,367,417 $ 12,556,459 $ 7,927,373 $ 7,515,891
Shares Outstanding (unlimited authorized shares
of $.01 par value) 3,143,838 1,489,888 556,362 427,864
NET ASSET VALUE PER SHARE $ 14.11 $ 8.43 $ 14.25 $ 17.57
=============== =============== =============== ===============
</Table>
95
<Page>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
--------------- --------------- ---------------
INVESTMENT INCOME:
INCOME
Interest $ 663,806 $ 1,903,027 $ 736,724
Dividends -- 5,482 638,042*
Interest and dividends from affiliates -- -- 14,562
--------------- --------------- ---------------
TOTAL INCOME 663,806 1,908,509 1,389,328
--------------- --------------- ---------------
EXPENSES
Investment management fee 303,097 145,321 313,345
Distribution fee (Class Y shares) 47,859 28,446 29,933
Shareholder reports and notices 6,754 6,376 7,309
Professional fees 12,927 51,878 15,172
Custodian fees 6,574 31,082 14,596
Trustees' fees and expenses 766 330 641
Transfer agent fees and expenses 250 250 250
Other 2,120 18,820 5,974
--------------- --------------- ---------------
TOTAL EXPENSES 380,347 282,503 387,220
--------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS) 283,459 1,626,006 1,002,108
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments -- (933,722) 3,626,925
Futures contracts -- 45,480 66,333
Foreign exchange transactions -- 166,758 --
--------------- --------------- ---------------
NET REALIZED GAIN (LOSS) -- (721,484) 3,693,258
--------------- --------------- ---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments -- (845,564) (2,354,071)
Futures contracts -- (117,883) (108,220)
Translation of forward foreign currency contracts,
other assets and liabilities denominated in foreign
currencies -- 39,066 --
--------------- --------------- ---------------
NET APPRECIATION (DEPRECIATION) -- (924,381) (2,462,291)
--------------- --------------- ---------------
NET GAIN (LOSS) -- (1,645,865) 1,230,967
--------------- --------------- ---------------
NET INCREASE (DECREASE) $ 283,459 $ (19,859) $ 2,233,075
=============== =============== ===============
</Table>
- ----------
* NET OF FOREIGN WITHHOLDING TAX OF $20,372, $15,185, $378, $25,852, $713,
$64,818 AND $1,300, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
96
<Page>
<Table>
<Caption>
DIVIDEND VALUE-ADDED
UTILITIES GROWTH MARKET GROWTH
--------------- --------------- --------------- ---------------
INVESTMENT INCOME:
INCOME
Interest $ 83,512 $ 58,930 $ 21,153 $ 1,829
Dividends 984,380 3,583,239* 1,403,756 218,486*
Interest and dividends from affiliates -- 14,448 6,867 --
--------------- --------------- --------------- ---------------
TOTAL INCOME 1,067,892 3,656,617 1,431,776 220,315
--------------- --------------- --------------- ---------------
EXPENSES
Investment management fee 246,821 1,234,912 495,017 183,885
Distribution fee (Class Y shares) 17,419 68,096 69,318 9,027
Shareholder reports and notices 8,004 22,259 10,745 4,871
Professional fees 14,105 13,559 11,465 10,965
Custodian fees -- 12,065 7,460 11,817
Trustees' fees and expenses 468 2,481 1,181 236
Transfer agent fees and expenses 250 250 250 250
Other 1,492 3,680 11,365 295
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 288,559 1,357,302 606,801 221,346
--------------- --------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS) 779,333 2,299,315 824,975 (1,031)
--------------- --------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 2,393,745 13,814,447 1,914,060 4,241,396
Futures contracts -- -- 47,171 --
Foreign exchange transactions -- -- -- --
--------------- --------------- --------------- ---------------
NET REALIZED GAIN (LOSS) 2,393,745 13,814,447 1,961,231 4,241,396
--------------- --------------- --------------- ---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 728,015 (7,969,169) 8,474,182 (3,056,887)
Futures contracts -- -- 29,809 --
Translation of forward foreign currency contracts,
other assets and liabilities denominated in foreign
currencies -- -- -- --
--------------- --------------- --------------- ---------------
NET APPRECIATION (DEPRECIATION) 728,015 (7,969,169) 8,503,991 (3,056,887)
--------------- --------------- --------------- ---------------
NET GAIN (LOSS) 3,121,760 5,845,278 10,465,222 1,184,509
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) $ 3,901,093 $ 8,144,593 $ 11,290,197 $ 1,183,478
=============== =============== =============== ===============
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
--------------- --------------- --------------- ---------------
INVESTMENT INCOME:
INCOME
Interest $ 36,545 $ 3,282 $ 14,578 $ 4,663
Dividends 1,140,596* 60,178* 873,212* 126,038*
Interest and dividends from affiliates -- -- -- --
--------------- --------------- --------------- ---------------
TOTAL INCOME 1,177,141 63,460 887,790 130,701
--------------- --------------- --------------- ---------------
EXPENSES
Investment management fee 905,313 140,799 440,470 151,268
Distribution fee (Class Y shares) 56,749 15,088 10,009 9,166
Shareholder reports and notices 19,869 7,711 8,382 4,887
Professional fees 13,108 11,697 11,928 13,012
Custodian fees 24,844 10,026 17,516 18,620
Trustees' fees and expenses 1,878 222 475 230
Transfer agent fees and expenses 250 250 250 250
Other 3,074 471 5,682 285
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 1,025,085 186,264 494,712 197,718
--------------- --------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS) 152,056 (122,804) 393,078 (67,017)
--------------- --------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 19,805,478 3,985,468 2,889,040 7,225,091
Futures contracts -- -- -- --
Foreign exchange transactions (581) -- (10,583) --
--------------- --------------- --------------- ---------------
NET REALIZED GAIN (LOSS) 19,804,897 3,985,468 2,878,457 7,225,091
--------------- --------------- --------------- ---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (16,085,776) (529,314) (2,083,595) (2,220,382)
Futures contracts -- -- --
Translation of forward foreign currency contracts,
other assets and liabilities denominated in foreign
currencies (213) -- (12,506) --
--------------- --------------- --------------- ---------------
NET APPRECIATION (DEPRECIATION) 16,085,989 (529,314) (2,096,101) (2,220,382)
--------------- --------------- --------------- ---------------
NET GAIN (LOSS) 3,718,908 3,456,154 782,356 5,004,709
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) $ 3,870,964 $ 3,333,350 $ 1,175,434 $ 4,937,692
=============== =============== =============== ===============
</Table>
97
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 283,459 $ 997,750 $ 1,626,006 $ 3,238,705
Net realized gain (loss) -- -- (721,484) (646,350)
Net change in unrealized appreciation/depreciation -- -- (924,381) 6,565,255
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) 283,459 997,750 (19,859) 9,157,610
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (226,527) (827,889) (2,769,904) (2,773,979)
Class Y shares (56,874) (169,941) (1,265,798) (925,237)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (283,401) (997,830) (4,035,702) (3,699,216)
--------------- --------------- --------------- ---------------
Net increase (decrease) from transactions in shares of
beneficial interest (10,385,158) (62,571,493) 737,897 (529,307)
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) (10,385,100) (62,571,573) (3,317,664) 4,929,087
NET ASSETS:
Beginning of period 130,912,967 193,484,540 74,224,452 69,295,365
--------------- --------------- --------------- ---------------
END OF PERIOD $ 120,527,867 $ 130,912,967 $ 70,906,788 $ 74,224,452
=============== =============== =============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ 98 $ 40 $ (240,477) $ 2,169,219
=============== =============== =============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
98
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,002,108 $ 1,913,396 $ 779,333 $ 1,862,279
Net realized gain (loss) 3,693,258 5,718,894 2,393,745 1,780,791
Net change in unrealized appreciation/depreciation (2,462,291) 10,200,229 728,015 10,330,998
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) 2,233,075 17,832,519 3,901,093 13,974,068
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (901,340) (1,967,896) (652,085) (1,584,703)
Class Y shares (251,874) (396,811) (131,762) (281,994)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1,153,214) (2,364,707) (783,847) (1,866,697)
--------------- --------------- --------------- ---------------
Net increase (decrease) from transactions in shares of
beneficial interest (6,734,751) (5,590,818) (7,168,485) (12,512,023)
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) (5,654,890) 9,876,994 (4,051,239) (404,652)
NET ASSETS:
Beginning of period 107,049,922 97,172,928 77,168,843 77,573,495
--------------- --------------- --------------- ---------------
END OF PERIOD $ 101,395,032 $ 107,049,922 $ 73,117,604 $ 77,168,843
=============== =============== =============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (174,442) $ (23,336) $ (19,757) $ (15,243)
=============== =============== =============== ===============
<Caption>
DIVIDEND GROWTH VALUE-ADDED MARKET
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 2,299,315 $ 6,827,801 $ 824,975 $ 1,635,302
Net realized gain (loss) 13,814,447 (12,830,310) 1,961,231 (1,891,365)
Net change in unrealized appreciation/depreciation (7,969,169) 97,796,849 8,503,991 50,755,753
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) 8,144,593 91,794,340 11,290,197 50,499,690
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (2,027,472) (6,163,835) (1,140,613) (1,481,946)
Class Y shares (273,151) (662,650) (441,971) (312,854)
Net realized gain
Class X shares -- -- -- (2,267,155)
Class Y shares -- -- -- (533,709)
--------------- --------------- --------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (2,300,623) (6,826,485) (1,582,584) (4,595,664)
--------------- --------------- --------------- ---------------
Net increase (decrease) from transactions in shares of
beneficial interest (27,805,457) (48,375,157) 6,205,611 4,762,027
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) (21,961,487) 36,592,698 15,913,224 50,666,053
NET ASSETS:
Beginning of period 407,583,198 370,990,500 190,573,864 139,907,811
--------------- --------------- --------------- ---------------
END OF PERIOD $ 385,621,711 $ 407,583,198 $ 206,487,088 $ 190,573,864
=============== =============== =============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ 19 $ 1,327 $ 836,858 $ 1,594,467
=============== =============== =============== ===============
</Table>
99
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (1,031) $ 80,358 $ 152,056 $ 879,026
Net realized gain (loss) 4,241,396 1,923,241 19,804,897 12,506,831
Net change in unrealized appreciation/depreciation (3,056,887) 8,291,544 (16,085,989) 41,524,131
--------------- --------------- --------------- ---------------
NET INCREASE 1,183,478 10,295,143 3,870,964 54,909,988
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (76,820) (41,761) (813,707) (963,468)
Class Y shares (3,537) -- (63,498) (70,108)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (80,357) (41,761) (877,205) (1,033,576)
--------------- --------------- --------------- ---------------
Net decrease from transactions in shares of
beneficial interest (3,334,534) (6,401,441) (34,879,689) (52,264,903)
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) (2,231,413) 3,851,941 (31,885,930) 1,611,509
NET ASSETS:
Beginning of period 47,206,185 43,354,244 306,356,173 304,744,664
--------------- --------------- --------------- ---------------
END OF PERIOD $ 44,974,772 $ 47,206,185 $ 274,470,243 $ 306,356,173
=============== =============== =============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (1,031) $ 80,357 $ 152,055 $ 877,204
=============== =============== =============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
100
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
--------------------------------- ---------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (122,804) $ (202,747) $ 393,078 $ 265,681
Net realized gain (loss) 3,985,468 6,411,535 2,878,457 (511,061)
Net change in unrealized appreciation/depreciation (529,314) 4,645,509 (2,096,101) 24,567,675
--------------- --------------- --------------- ---------------
NET INCREASE 3,333,350 10,854,297 1,175,434 24,322,295
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares -- -- (187,657) (300,580)
Class Y shares -- -- (6,396) (10,185)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- (194,053) (310,765)
--------------- --------------- --------------- ---------------
Net decrease from transactions in shares of
beneficial interest (2,442,576) (2,713,544) (7,190,708) (12,372,405)
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) 890,774 8,140,753 (6,209,327) 11,639,125
NET ASSETS:
Beginning of period 36,774,619 28,633,866 91,200,386 79,561,261
--------------- --------------- --------------- ---------------
END OF PERIOD $ 37,665,393 $ 36,774,619 $ 84,991,059 $ 91,200,386
=============== =============== =============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (122,804) $ -- $ 393,082 $ 194,057
=============== =============== =============== ===============
<Caption>
DEVELOPING GROWTH
----------------------------------
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
--------------- -----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (67,017) $ (117,933)
Net realized gain (loss) 7,225,091 8,256,395
Net change in unrealized appreciation/depreciation (2,220,382) 10,239,030
--------------- ---------------
NET INCREASE 4,937,692 18,377,492
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares -- --
Class Y shares -- --
Net realized gain
Class X shares -- --
Class Y shares -- --
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- --
--------------- ---------------
Net decrease from transactions in shares of
beneficial interest (5,425,590) (6,077,045)
--------------- ---------------
TOTAL INCREASE (DECREASE) (487,898) 12,300,447
NET ASSETS:
Beginning of period 60,793,994 48,493,547
--------------- ---------------
END OF PERIOD $ 60,306,096 $ 60,793,994
=============== ===============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (67,017) $ --
=============== ===============
</Table>
101
<Page>
SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
CLASS X SHARES
SHARES
Sold 19,292,326 48,686,635 172,663 819,656
Reinvestment of dividends and distributions 226,526 827,889 365,254 368,963
Redeemed (31,318,010) (110,263,101) (1,055,099) (1,918,631)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X (11,799,158) (60,748,577) (517,182) (730,012)
=============== =============== =============== ===============
AMOUNT
Sold $ 19,292,326 $ 48,686,635 $ 1,314,242 $ 6,110,077
Reinvestment of dividends and distributions 226,526 827,889 2,769,904 2,773,979
Redeemed (31,318,010) (110,263,101) (8,033,665) (14,378,272)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X $ (11,799,158) $ (60,748,577) $ (3,949,519) $ (5,494,216)
=============== =============== =============== ===============
CLASS Y SHARES
SHARES
Sold 23,686,047 61,345,479 814,404 1,404,030
Reinvestment of dividends and distributions 56,874 169,941 167,498 123,307
Redeemed (22,328,921) (63,338,336) (369,502) (861,581)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 1,414,000 (1,822,916) 612,400 665,756
=============== =============== =============== ===============
AMOUNT
Sold $ 23,686,047 $ 61,345,479 $ 6,220,106 $ 10,478,359
Reinvestment of dividends and distributions 56,874 169,941 1,265,798 925,237
Redeemed (22,328,921) (63,338,336) (2,798,488) (6,438,687)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 1,414,000 $ (1,822,916) $ 4,687,416 $ 4,964,909
=============== =============== =============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
102
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
CLASS X SHARES
SHARES
Sold 106,165 522,053 41,857 214,482
Reinvestment of dividends and distributions 60,576 146,503 40,464 111,657
Redeemed (735,789) (1,694,288) (518,399) (1,281,303)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X (569,048) (1,025,732) (436,078) (955,164)
=============== =============== =============== ===============
AMOUNT
Sold $ 1,582,649 $ 6,847,511 $ 665,239 $ 2,983,710
Reinvestment of dividends and distributions 901,340 1,967,896 652,085 1,584,703
Redeemed (10,945,732) (22,040,823) (8,233,081) (17,688,607)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X $ (8,461,743) $ (13,225,416) $ (6,915,757) $ (13,120,194)
=============== =============== =============== ===============
CLASS Y SHARES
SHARES
Sold 246,850 751,891 107,419 293,544
Reinvestment of dividends and distributions 16,963 29,284 8,181 19,859
Redeemed (148,177) (203,489) (132,236) (260,617)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 115,636 577,686 (16,636) 52,786
=============== =============== =============== ===============
AMOUNT
Sold $ 3,663,509 $ 9,921,937 $ 1,722,246 $ 3,996,627
Reinvestment of dividends and distributions 251,874 396,811 131,762 281,994
Redeemed (2,188,391) (2,684,150) (2,106,736) (3,670,450)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 1,726,992 $ 7,634,598 $ (252,728) $ 608,171
=============== =============== =============== ===============
<Caption>
DIVIDEND GROWTH VALUE-ADDED MARKET
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
CLASS X SHARES
SHARES
Sold 363,124 1,772,994 366,861 927,026
Reinvestment of dividends and distributions 134,988 480,186 51,356 214,234
Redeemed (2,686,387) (7,130,986) (778,010) (2,000,060)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X (2,188,275) (4,877,806) (359,793) (858,800)
=============== =============== =============== ===============
AMOUNT
Sold $ 5,417,837 $ 22,505,914 $ 8,001,229 $ 16,395,002
Reinvestment of dividends and distributions 2,027,472 6,163,835 1,140,613 3,749,101
Redeemed (40,141,448) (89,625,898) (16,894,713) (34,615,230)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X $ (32,696,139) $ (60,956,149) $ (7,752,871) $ (14,471,127)
=============== =============== =============== ===============
CLASS Y SHARES
SHARES
Sold 603,264 1,465,207 766,935 1,317,054
Reinvestment of dividends and distributions 18,209 51,209 20,044 48,653
Redeemed (293,579) (518,581) (140,568) (293,426)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 327,894 997,835 646,411 1,072,281
=============== =============== =============== ===============
AMOUNT
Sold $ 9,006,861 $ 18,555,581 $ 16,543,841 $ 23,315,043
Reinvestment of dividends and distributions 273,151 662,650 441,971 846,563
Redeemed (4,389,330) (6,637,239) (3,027,330) (4,928,452)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 4,890,682 $ 12,580,992 $ 13,958,482 $ 19,233,154
=============== =============== =============== ===============
</Table>
103
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
CLASS X SHARES
SHARES
Sold 50,703 300,887 181,240 984,541
Reinvestment of dividends and distributions 5,298 3,325 57,424 77,139
Redeemed (333,876) (1,018,781) (2,547,569) (6,039,452)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X (277,875) (714,569) (2,308,905) (4,977,772)
=============== =============== =============== ===============
AMOUNT
Sold $ 733,131 $ 3,719,693 $ 2,560,954 $ 12,118,391
Reinvestment of dividends and distributions 76,820 41,761 813,707 963,468
Redeemed (4,798,646) (12,302,379) (35,993,123) (74,062,012)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X $ (3,988,695) $ (8,540,925) $ (32,618,462) $ (60,980,153)
=============== =============== =============== ===============
CLASS Y SHARES
SHARES
Sold 88,933 242,391 277,147 1,348,244
Reinvestment of dividends and distributions 246 -- 4,500 5,636
Redeemed (43,499) (71,767) (441,788) (633,416)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 45,680 170,624 (160,141) 720,464
=============== =============== =============== ===============
AMOUNT
Sold $ 1,270,424 $ 3,010,578 $ 3,885,394 $ 16,488,980
Reinvestment of dividends and distributions 3,537 -- 63,498 70,108
Redeemed (619,800) (871,094) (6,210,119) (7,843,838)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 654,161 $ 2,139,484 $ (2,261,227) $ 8,715,250
=============== =============== =============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
104
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
---------------------------------- ----------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 DECEMBER 31, 2003
--------------- ----------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
CLASS X SHARES
SHARES
Sold 111,501 364,879 110,398 384,457
Reinvestment of dividends and distributions -- -- 13,104 25,048
Redeemed (433,598) (1,111,639) (645,406) (1,668,617)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X (322,097) (746,760) (521,904) (1,259,112)
=============== =============== =============== ===============
AMOUNT
Sold $ 915,017 $ 2,408,037 $ 1,578,344 $ 4,428,039
Reinvestment of dividends and distributions -- -- 187,657 300,580
Redeemed (3,563,466) (6,859,678) (9,196,818) (19,093,417)
--------------- --------------- --------------- ---------------
NET DECREASE - CLASS X $ (2,648,449) $ (4,451,641) $ (7,430,817) $ (14,364,798)
=============== =============== =============== ===============
CLASS Y SHARES
SHARES
Sold 246,365 546,847 125,698 234,174
Reinvestment of dividends and distributions -- -- 449 852
Redeemed (220,857) (278,698) (108,860) (72,031)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 25,508 268,149 17,287 162,995
=============== =============== =============== ===============
AMOUNT
Sold $ 2,005,257 $ 3,465,304 $ 1,782,425 $ 2,790,650
Reinvestment of dividends and distributions -- -- 6,396 10,185
Redeemed (1,799,384) (1,727,207) (1,548,712) (808,442)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 205,873 $ 1,738,097 $ 240,109 $ 1,992,393
=============== =============== =============== ===============
<Caption>
DEVELOPING GROWTH
---------------------------------
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
--------------- -----------------
(UNAUDITED)
CLASS X SHARES
SHARES
Sold 67,010 339,110
Reinvestment of dividends and distributions -- --
Redeemed (392,287) (1,006,209)
--------------- ---------------
NET DECREASE - CLASS X (325,277) (667,099)
=============== ===============
AMOUNT
Sold $ 1,150,793 $ 4,568,617
Reinvestment of dividends and distributions -- --
Redeemed (6,715,248) (13,279,669)
--------------- ---------------
NET DECREASE - CLASS X $ (5,564,455) $ (8,711,052)
=============== ===============
CLASS Y SHARES
SHARES
Sold 75,833 235,623
Reinvestment of dividends and distributions -- --
Redeemed (67,160) (42,796)
--------------- ---------------
NET INCREASE (DECREASE) - CLASS Y 8,673 192,827
=============== ===============
AMOUNT
Sold $ 1,294,432 $ 3,194,704
Reinvestment of dividends and distributions -- --
Redeemed (1,155,567) (560,697)
--------------- ---------------
NET INCREASE (DECREASE) - CLASS Y $ 138,865 $ 2,634,007
=============== ===============
</Table>
105
<Page>
Morgan Stanley Select Dimensions Investment Series
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Select Dimensions Investment Series (the "Fund") is registered
under the Investment Company Act of 1940 as amended (the "Act"), as a
diversified, open-end management investment company. The Fund, which consists of
11 separate portfolios ("Portfolios"), was organized on June 2, 1994, as a
Massachusetts business trust and commenced operations on November 9, 1994, with
the exception of Capital Opportunities which commenced operations on January 21,
1997.
On July 24, 2000, the Fund commenced offering one additional class of shares
(Class Y shares). The two classes are identical except that Class Y shares incur
distribution expenses. Class X shares are generally available to holders of
contracts offered before May 1, 2000. Class Y shares are available to holders of
contracts offered on or after July 24, 2000.
The investment objectives of each Portfolio are as follows:
<Table>
<Caption>
PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Money Market Seeks high current income, preservation of capital and
liquidity.
Flexible Income Seeks, as a primary objective, to earn a high level of
current income and, as a secondary objective, to
maximize total return, but only to the extent consistent
with its primary objective.
Balanced Growth Seeks to provide capital growth with reasonable current
income.
Utilities Seeks both capital appreciation and current income.
Dividend Growth Seeks to provide reasonable current income and long-term
growth of income and capital.
Value-Added Seeks to achieve a high level of total return on its
Market assets through a combination of capital appreciation and
current income.
Growth Seeks long-term growth of capital.
American Opportunities Seeks long-term capital growth consistent with an effort
to reduce volatility.
Capital Opportunities Seeks long-term capital growth.
Global Equity Seeks to obtain total return on its assets primarily
through long-term capital growth and to a lesser extent
from income.
Developing Growth Seeks long-term capital growth.
</Table>
106
<Page>
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") determines that the
latest sale price, the bid price or the mean between the last reported bid and
asked price do not reflect a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees.
Occasionally, developments affecting the closing prices of securities and other
assets may occur between the times at which valuations of such securities are
determined (that is, close of the foreign market on which the securities trade)
and the close of business on the NYSE. If developments occur during such periods
that are expected to materially affect the value of such securities, such
valuations may be adjusted to reflect the estimated fair value of such
securities as of the close of the NYSE, as determined in good faith by the
Fund's Trustees or by the Investment 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
107
<Page>
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 Portfolios may also
invest directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract which is known as variation margin.
Such receipts or payments are recorded by the Fund as unrealized gains or
losses. Upon closing of the contract, the Fund realizes a gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
F. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the
108
<Page>
securities. Forward contracts are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are recorded as
unrealized foreign currency gain or loss. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
G. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply individually
for each Portfolio with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Accordingly, no federal income tax provision
is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date.
I. EXPENSES -- Direct expenses are charged to the respective Portfolio and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Portfolios.
J. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT 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.
109
<Page>
Prior to May 1, 2004, under a Sub-Advisory Agreement between the Investment
Manager and Morgan Stanley Investment Management Inc. (the "Sub-Advisor"), an
affiliate of the Investment Manager, the Sub-Advisor provided Growth with
investment advice and portfolio management relating to the Portfolio's
investments in securities, subject to the overall supervision of the Investment
Manager. As compensation for its services provided pursuant to the Sub-Advisory
Agreement, the Investment Manager paid the Sub-Advisor compensation of $49,777
for the period January 1, 2004 through April 30, 2004. Effective May 1, 2004,
the Investment Manager assumed direct responsibility for the 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.
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 six months ended
June 30, 2004 were as follows:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES OTHER
------------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
------------- ---------------- -------------- ----------------
Money Market $ 30,899,706 $ 39,407,564 $ 317,935,411 $ 319,955,000
Flexible Income 57,714,756 56,365,572 19,425,462 17,890,169
Balanced Growth 3,041,929 1,581,000 25,017,132 33,596,718
Utilities 103,287 161,584 11,746,603 17,881,953
Dividend Growth -- -- 94,935,241 111,803,221
Value-Added Market -- -- 20,924,802 17,175,849
Growth -- -- 34,153,739 37,645,425
American Opportunities -- -- 230,348,140 263,010,853
Capital Opportunities -- -- 30,482,375 32,917,688
Global Equity -- -- 13,168,472 20,777,489
Developing Growth -- -- 48,835,005 56,707,504
</Table>
110
<Page>
Value-Added Market had transactions in Morgan Stanley, an affiliate of the
Investment Manager and Distributor:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS INCOME VALUE
--------- ----- ------------ ------ -----
$ 49,829 -- -- $ 3,350 $ 403,585
</Table>
The following Portfolios had transactions in Hartford Financial Services Group,
Inc., an affiliate of the Fund:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS INCOME VALUE
--------- ----- ------------ ------ -----
Balanced Growth -- $ 457,073 $ 110,309 $ 16,513 $ 1,241,131
Dividend Growth -- 2,090,052 624,952 14,448 --
Value-Added Market -- 25,512 6,672 3,517 405,978
</Table>
The following Portfolios had transactions with other Morgan Stanley funds during
the six months ended June 30, 2004:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS (LOSSES)
--------- ----- --------------
Dividend Growth $ 287,865 -- --
Growth 2,435 $ 133,855 $ 41,492
American Opportunities 526,800 -- --
Capital Opportunities 150,352 -- --
Developing Growth 86,964 11,879 (652)
</Table>
For the six months ended June 30, 2004, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for executed portfolio transactions:
<Table>
<Caption>
BALANCED DIVIDEND AMERICAN GLOBAL CAPITAL
GROWTH UTILITIES GROWTH OPPORTUNITIES EQUITY OPPORTUNITIES
-------- --------- -------- ------------- ------ -------------
$ 516 $ 8,175 $ 34,243 $ 92,765 $5,497 $ 7,408
======== ========= ======== ============= ====== =============
</Table>
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward contracts to facilitate settlement
of foreign currency denominated portfolio transactions or to manage foreign
currency exposure associated with foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in the foreign exchange rates
111
<Page>
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
Some of the Portfolios may purchase and sell interest rate and index futures
("futures contracts") to facilitate trading, increase or decrease the
Portfolio's market exposure, seek higher investment returns, or to seek to
protect against a decline in the value of the 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 Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the value of the underlying securities. Risks
may also arise upon entering into these contracts from the potential inability
of the counterparties to meet the terms of their contracts.
6. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require 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.
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:
<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>
112
<Page>
At December 31, 2003, the primary reason(s) for significant temporary book/tax
differences were as follows:
<Table>
<Caption>
TEMPORARY DIFFERENCES
---------------------------
POST- LOSS
OCTOBER DEFERRALS FROM
LOSSES WASH SALES
-------- ---------------
Flexible Income - -
Balanced Growth -
Utilities -
Dividend Growth -
Value-Added Market - -
Growth -
American Opportunities -
Capital Opportunities -
Global Equity -
Developing Growth -
</Table>
Additionally, Flexible Income had temporary differences attributable to interest
on bonds in default, Flexible Income and Balanced Growth had temporary
differences attributable to capital loss deferrals on straddles and Flexible
Income, Balanced Growth and Utilities had temporary differences attributable to
book amortization of premiums/discounts on debt securities.
113
<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 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)
2004(c) 1.00 0.003* -- 0.003 (0.003)
CLASS Y SHARES
2000(b) 1.00 0.03* -- 0.03 (0.03)
2001 1.00 0.04* -- 0.04 (0.04)
2002 1.00 0.01* -- 0.01 (0.01)
2003 1.00 0.004* -- 0.004 (0.004)
2004(c) 1.00 0.001* -- 0.001 (0.001)
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)
2004(c) 7.80 0.17* (0.16) 0.01 (0.43)
CLASS Y SHARES
2000(b) 8.58 0.33* (0.73) (0.40) (0.33)
2001 7.81 0.52* (0.86) (0.34) (0.41)
2002 6.97 0.48* 0.10 0.58 (0.33)
2003 7.22 0.32* 0.61 0.93 (0.37)
2004(c) 7.78 0.16* (0.16) 0.00 (0.42)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
114
<Page>
<Table>
<Caption>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
MONEY MARKET
CLASS X SHARES
1999 -- $ (0.05) $ 1.00 4.78%
2000(a) -- (0.06) 1.00 5.98
2001 -- (0.04) 1.00 3.88
2002 -- (0.01) 1.00 1.34
2003 -- (0.006) 1.00 0.65
2004(c) -- (0.003) 1.00 0.27(1)
CLASS Y SHARES
2000(b) -- (0.03) 1.00 2.58(1)
2001 -- (0.04) 1.00 3.62
2002 -- (0.01) 1.00 1.09
2003 -- (0.004) 1.00 0.40
2004(c) -- (0.001) 1.00 0.15(1)
FLEXIBLE INCOME
CLASS X SHARES
1999 $ (0.02)++ (0.79) 8.96 (1.83)
2000(a) (0.09)++ (0.74) 7.83 (4.74)
2001 (0.10)++ (0.52) 6.99 (4.06)
2002 -- (0.35) 7.23 8.67
2003 -- (0.39) 7.80 13.54
2004(c) -- (0.43) 7.38 0.04(1)
CLASS Y SHARES
2000(b) (0.04)++ (0.37) 7.81 (4.68)(1)
2001 (0.09)++ (0.50) 6.97 (4.41)
2002 -- (0.33) 7.22 8.59
2003 -- (0.37) 7.78 13.15
2004(c) -- (0.42) 7.36 (0.08)(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME RATE
- ------------ --------------- --------------- --------------- ---------------
MONEY MARKET
CLASS X SHARES
1999 $ 135,675 0.54% 4.67% N/A
2000(a) 118,274 0.55 5.80 N/A
2001 175,957 0.52 3.63 N/A
2002 152,479 0.52 1.34 N/A
2003 91,730 0.54 0.66 N/A
2004(c) 79,931 0.55(2) 0.55(2) N/A
CLASS Y SHARES
2000(b) 2,673 0.80(2) 5.55(2) N/A
2001 31,189 0.77 3.38 N/A
2002 41,006 0.77 1.09 N/A
2003 39,183 0.79 0.41 N/A
2004(c) 40,597 0.80(2) 0.30(2) N/A
FLEXIBLE INCOME
CLASS X SHARES
1999 86,270 0.48 8.31 69%
2000(a) 69,443 0.47 8.92 33
2001 56,745 0.49 7.48 114
2002 54,669 0.50 7.26 115
2003 53,270 0.57 4.49 258
2004(c) 46,577 0.70(2) 4.54(2) 108(1)
CLASS Y SHARES
2000(b) 602 0.72(2) 9.23(2) 33
2001 3,859 0.74 7.23 114
2002 14,626 0.75 7.01 115
2003 20,955 0.82 4.24 258
2004(c) 24,329 0.95(2) 4.29(2) 108(1)
</Table>
115
<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 GAIN (LOSS) OPERATIONS SHAREHOLDERS
- ------------ --------------- --------------- --------------- --------------- ---------------
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)
2004(c) 14.71 0.15* 0.17 0.32 (0.17)
CLASS Y SHARES
2000(b) 13.67 0.18* 1.25 1.43 (0.22)
2001 14.88 0.39* (0.27) 0.12 (0.41)
2002 14.59 0.32* (2.01) (1.69) (0.34)
2003 12.56 0.23* 2.19 2.42 (0.30)
2004(c) 14.68 0.13* 0.17 0.30 (0.15)
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)
2004(c) 15.46 0.17* 0.65 0.82 (0.17)
CLASS Y SHARES
2000(b) 26.06 0.15* (2.04) (1.89) (0.18)
2001 23.99 0.40* (6.48) (6.08) (0.40)
2002 17.09 0.44* (3.93) (3.49) (0.45)
2003 13.15 0.31* 2.31 2.62 (0.32)
2004(c) 15.45 0.15* 0.65 0.80 (0.15)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
116
<Page>
<Table>
<Caption>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
BALANCED GROWTH
CLASS X SHARES
1999 $ (1.90) $ (2.38) $ 14.63 3.52%
2000(a) (0.11) (0.62) 14.90 6.37
2001 -- (0.44) 14.62 1.21
2002 -- (0.38) 12.58 (11.49)
2003 -- (0.33) 14.71 19.84
2004(c) -- (0.17) 14.86 2.18(1)
CLASS Y SHARES
2000(b) -- (0.22) 14.88 10.55(1)
2001 -- (0.41) 14.59 0.86
2002 -- (0.34) 12.56 (11.66)
2003 -- (0.30) 14.68 19.51
2004(c) -- (0.15) 14.83 2.06(1)
UTILITIES
CLASS X SHARES
1999 (0.15) (0.49) 26.25 43.71
2000(a) (1.45) (1.85) 23.99 (1.91)
2001 (0.42) (0.87) 17.10 (25.51)
2002 -- (0.48) 13.16 (20.37)
2003 -- (0.36) 15.46 20.47
2004(c) -- (0.17) 16.11 5.32(1)
CLASS Y SHARES
2000(b) -- (0.18) 23.99 (7.26)(1)
2001 (0.42) (0.82) 17.09 (25.69)
2002 -- (0.45) 13.15 (20.58)
2003 -- (0.32) 15.45 20.20
2004(c) -- (0.15) 16.10 5.19(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME RATE
- ------------ --------------- --------------- --------------- ---------------
BALANCED GROWTH
CLASS X SHARES
1999 $ 128,299 0.64% 3.10% 37%
2000(a) 120,911 0.64 3.29 39
2001 116,002 0.64 2.95 71
2002 84,846 0.66 2.58 161
2003 84,151 0.68 2.01 124
2004(c) 76,549 0.68(2) 1.98(2) 28(1)
CLASS Y SHARES
2000(b) 1,455 0.86(2) 2.90(2) 39
2001 8,463 0.89 2.70 71
2002 12,327 0.91 2.33 161
2003 22,898 0.93 1.76 124
2004(c) 24,846 0.93(2) 1.73(2) 28(1)
UTILITIES
CLASS X SHARES
1999 165,368 0.70 1.63 31
2000(a) 196,489 0.69 1.43 32
2001 118,964 0.69 2.15 49
2002 66,825 0.70 3.22 77
2003 63,728 0.71 2.51 91
2004(c) 59,381 0.71(2) 2.09(2) 16(1)
CLASS Y SHARES
2000(b) 5,494 0.95(2) 1.40(2) 32
2001 12,471 0.94 1.90 49
2002 10,749 0.95 2.97 77
2003 13,440 0.96 2.26 91
2004(c) 13,737 0.96(2) 1.84(2) 16(1)
</Table>
117
<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 GAIN (LOSS) OPERATIONS SHAREHOLDERS
- ------------ --------------- --------------- --------------- --------------- ---------------
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)
2004(c) 14.83 0.09* 0.22 0.31 (0.09)
CLASS Y SHARES
2000(b) 14.14 0.10* 1.73 1.83 (0.13)
2001 15.84 0.23* (1.13) (0.90) (0.25)
2002 14.69 0.23* (2.88) (2.65) (0.23)
2003 11.81 0.20* 3.01 3.21 (0.21)
2004(c) 14.81 0.07* 0.22 0.29 (0.07)
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)
2004(c) 21.13 0.10* 1.16 1.26 (0.18)
CLASS Y SHARES
2000(b) 18.74 0.09* 1.89 1.98 --
2001 20.72 0.16* (0.55) (0.39) (0.18)
2002 19.05 0.16* (3.22) (3.06) (0.20)
2003 15.79 0.15* 5.56 5.71 (0.19)
2004(c) 20.99 0.07* 1.14 1.21 (0.15)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
118
<Page>
<Table>
<Caption>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
DIVIDEND GROWTH
CLASS X SHARES
1999 $ (2.03) $ (2.43) $ 19.92 0.53%
2000(a) (4.08) (4.45) 15.85 5.36
2001 -- (0.28) 14.71 (5.45)
2002 -- (0.26) 11.83 (17.92)
2003 -- (0.24) 14.83 27.73
2004(c) -- (0.09) 15.05 2.10(1)
CLASS Y SHARES
2000(b) -- (0.13) 15.84 13.02(1)
2001 -- (0.25) 14.69 (5.71)
2002 -- (0.23) 11.81 (18.15)
2003 -- (0.21) 14.81 27.48
2004(c) -- (0.07) 15.03 1.98(1)
VALUE-ADDED MARKET
CLASS X SHARES
1999 (0.73) (0.95) 20.54 12.15
2000(a) (1.91) (2.00) 20.75 11.98
2001 (1.10) (1.29) 19.12 (1.83)
2002 -- (0.21) 15.88 (15.97)
2003 (0.32) (0.53) 21.13 37.14
2004(c) -- (0.18) 22.21 5.96(1)
CLASS Y SHARES
2000(b) -- -- 20.72 10.57(1)
2001 (1.10) (1.28) 19.05 (2.04)
2002 -- (0.20) 15.79 (16.21)
2003 (0.32) (0.51) 20.99 36.87
2004(c) -- (0.15) 22.05 5.78(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME RATE
- ------------ --------------- --------------- --------------- ---------------
DIVIDEND GROWTH
CLASS X SHARES
1999 $ 742,811 0.60% 1.86% 101%
2000(a) 619,469 0.63 2.01 41
2001 527,738 0.62 1.79 22
2002 341,673 0.64 1.89 22
2003 356,056 0.66 1.85 42
2004(c) 328,406 0.65(2) 1.20(2) 25(1)
CLASS Y SHARES
2000(b) 2,780 0.88(2) 1.45(2) 41
2001 22,602 0.87 1.54 22
2002 29,318 0.89 1.64 22
2003 51,527 0.91 1.60 42
2004(c) 57,216 0.90(2) 0.95(2) 25(1)
VALUE-ADDED MARKET
CLASS X SHARES
1999 189,708 0.55 1.11 21
2000(a) 186,887 0.54 1.31 8
2001 181,881 0.54 1.12 6
2002 121,065 0.54 1.09 8
2003 143,019 0.55 1.11 24
2004(c) 142,277 0.54(2) 0.90(2) 9(1)
CLASS Y SHARES
2000(b) 890 0.78(2) 1.02(2) 8
2001 10,985 0.79 0.87 6
2002 18,843 0.79 0.84 8
2003 47,554 0.80 0.86 24
2004(c) 64,210 0.79(2) 0.65(2) 9(1)
</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
- ------------ --------------- --------------- --------------- --------------- ---------------
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)
2004(c) 14.16 0.00* 0.37 0.37 (0.03)
CLASS Y SHARES
2000(b) 23.90 (0.03)* (4.47) (4.50) --
2001 19.40 (0.05)* (2.90) (2.95) --
2002 15.42 (0.02)* (4.30) (4.32) --
2003 11.10 (0.01)* 2.96 2.95 --
2004(c) 14.05 (0.02)* 0.37 0.35 (0.01)
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)
2004(c) 14.03 0.01* 0.18 0.19 (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)
2004(c) 13.96 (0.01)* 0.18 0.17 (0.02)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
120
<Page>
<Table>
<Caption>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
GROWTH
CLASS X SHARES
1999 $ (1.59) $ (1.59) $ 23.27 39.10%
2000(a) (1.36) (1.36) 19.42 (11.68)
2001 (1.03) (1.03) 15.48 (15.23)
2002 -- -- 11.17 (27.84)
2003 -- (0.01) 14.16 26.90
2004(c) -- (0.03) 14.50 2.61(1)
CLASS Y SHARES
2000(b) -- -- 19.40 (18.83)(1)
2001 (1.03) (1.03) 15.42 (15.46)
2002 -- -- 11.10 (28.02)
2003 -- -- 14.05 26.58
2004(c) -- (0.01) 14.39 2.47(1)
AMERICAN OPPORTUNITIES
CLASS X SHARES
1999 (2.48) (2.55) 32.60 55.81
2000(a) (2.69) (2.69) 28.57 (4.42)
2001 (5.65) (5.70) 14.99 (29.47)
2002 -- (0.09) 11.68 (21.56)
2003 -- (0.05) 14.03 20.57
2004(c) -- (0.05) 14.17 1.36(1)
CLASS Y SHARES
2000(b) -- -- 28.55 (4.48)(1)
2001 (5.65) (5.70) 14.93 (29.67)
2002 -- (0.06) 11.63 (21.73)
2003 -- (0.02) 13.96 20.25
2004(c) -- (0.02) 14.11 1.22(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ --------------- --------------- --------------- ---------------
GROWTH
CLASS X SHARES
1999 $ 96,699 0.90% (0.11)% 88%
2000(a) 132,909 0.88 (0.10) 68
2001 80,096 0.86 (0.04) 81
2002 39,834 0.91 0.08 135
2003 40,356 0.93 0.21 128
2004(c) 37,300 0.92(2) 0.04(2) 75(1)
CLASS Y SHARES
2000(b) 2,536 1.14(2) (0.34)(2) 68
2001 4,383 1.11 (0.29) 81
2002 3,520 1.16 (0.17) 135
2003 6,850 1.18 (0.04) 128
2004(c) 7,675 1.17(2) (0.21)(2) 75(1)
AMERICAN OPPORTUNITIES
CLASS X SHARES
1999 768,751 0.66 0.29 360
2000(a) 832,971 0.64 0.17 426
2001 463,012 0.65 0.46 393
2002 274,710 0.66 0.27 309
2003 260,230 0.67 0.33 261
2004(c) 230,103 0.67(2) 0.14(2) 81(1)
CLASS Y SHARES
2000(b) 13,930 0.88(2) 0.40(2) 426
2001 30,768 0.90 0.21 393
2002 30,035 0.91 0.02 309
2003 46,126 0.92 0.08 261
2004(c) 44,367 0.92(2) (0.11)(2) 81(1)
</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 GAIN (LOSS) OPERATIONS SHAREHOLDERS
- ------------ --------------- --------------- --------------- --------------- ---------------
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 --
2004(c) 7.79 (0.02)* 0.74 0.72 --
CLASS Y SHARES
2000(b) 24.41 (0.05)* (8.99) (9.04) --
2001 15.37 (0.09)* (5.53) (5.62) --
2002 9.75 (0.07)* (4.22) (4.29) --
2003 5.46 (0.05)* 2.31 2.26 --
2004(c) 7.72 (0.03)* 0.74 0.71 --
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)
2004(c) 14.17 0.07* 0.11 0.18 (0.03)
CLASS Y SHARES
2000(b) 18.85 0.00* (1.61) (1.61) --
2001 17.24 (0.01)* (2.86) (2.87) (0.10)
2002 12.75 0.01* (2.26) (2.25) --
2003 10.50 0.01* 3.60 3.61 (0.02)
2004(c) 14.09 0.05* 0.12 0.17 (0.01)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
122
<Page>
<Table>
<Caption>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
CAPITAL OPPORTUNITIES
CLASS X SHARES
1999 $ (0.01) $ (0.07) $ 22.66 92.10%
2000(a) (1.55) (1.55) 15.38 (27.56)
2001 -- -- 9.79 (36.39)
2002 -- -- 5.50 (43.82)
2003 -- -- 7.79 41.64
2004(c) -- -- 8.51 9.24(1)
CLASS Y SHARES
2000(b) -- -- 15.37 (36.83)(1)
2001 -- -- 9.75 (36.56)
2002 -- -- 5.46 (44.00)
2003 -- -- 7.72 41.39
2004(c) -- -- 8.43 9.20(1)
GLOBAL EQUITY
CLASS X SHARES
1999 -- (0.06) 19.63 34.14
2000(a) (1.25) (1.31) 17.26 (5.93)
2001 (1.52) (1.63) 12.79 (17.22)
2002 -- (0.01) 10.56 (17.37)
2003 -- (0.05) 14.17 34.71
2004(c) -- (0.03) 14.32 1.31(1)
CLASS Y SHARES
2000(b) -- -- 17.24 (8.54)(1)
2001 (1.52) (1.62) 12.75 (17.38)
2002 -- -- 10.50 (17.57)
2003 -- (0.02) 14.09 34.33
2004(c) -- (0.01) 14.25 1.22(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE
- ------------ --------------- --------------- --------------- ---------------
CAPITAL OPPORTUNITIES
CLASS X SHARES
1999 $ 84,949 0.20%(3) 0.37%(3) 318%
2000(a) 116,991 0.79 (0.41) 21
2001 55,488 0.80 (0.63) 16
2002 22,097 0.90 (0.71) 103
2003 25,473 0.87 (0.57) 184
2004(c) 25,109 0.91(2) (0.57)(2) 82(1)
CLASS Y SHARES
2000(b) 4,895 1.02(2) (0.62)(2) 21
2001 11,410 1.05 (0.88) 16
2002 6,537 1.15 (0.96) 103
2003 11,302 1.12 (0.82) 184
2004(c) 12,556 1.16(2) (0.82)(2) 82(1)
GLOBAL EQUITY
CLASS X SHARES
1999 173,743 1.08 0.36 79
2000(a) 171,523 1.06 0.68 68
2001 118,747 1.07 0.29 89
2002 75,611 1.08 0.35 44
2003 83,607 1.08 0.35 72
2004(c) 77,064 1.10(2) 0.91(2) 15(1)
CLASS Y SHARES
2000(b) 883 1.29(2) 0.02(2) 68
2001 3,825 1.32 0.04 89
2002 3,951 1.33 0.10 44
2003 7,593 1.33 0.10 72
2004(c) 7,927 1.35(2) 0.66(2) 15(1)
</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
- ------------ --------------- --------------- --------------- --------------- ---------------
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 --
2004(c) 16.36 (0.02)* 1.40 1.38 --
CLASS Y SHARES
2000(b) 29.79 0.09* (3.98) (3.89) --
2001 25.90 (0.05)* (6.25) (6.30) (0.21)
2002 15.95 (0.06)* (4.40) (4.46) --
2003 11.49 (0.07)* 4.80 4.73 --
2004(c) 16.22 (0.04)* 1.39 1.35 --
</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 (ISSUED DATE) THROUGH DECEMBER 31, 2000.
(c) FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED).
* 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>
TOTAL NET ASSET
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE
ENDED TO AND END OF TOTAL
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+
- ------------ --------------- --------------- --------------- ---------------
DEVELOPING GROWTH
CLASS X SHARES
1999 -- $ (0.01) $ 40.04 92.52%
2000(a) $ (6.44) (6.44) 25.93 (21.61)
2001 (3.44) (3.66) 16.01 (25.49)
2002 -- -- 11.57 (27.73)
2003 -- -- 16.36 41.40
2004(c) -- -- 17.74 8.44(1)
CLASS Y SHARES
2000(b) -- -- 25.90 (13.06)(1)
2001 (3.44) (3.65) 15.95 (25.67)
2002 -- -- 11.49 (27.96)
2003 -- -- 16.22 41.17
2004(c) -- -- 17.57 8.26(1)
<Caption>
RATIOS TO AVERAGE
NET ASSETS
NET ASSETS ------------------------------------
FOR THE YEAR END OF NET PORTFOLIO
ENDED PERIOD INVESTMENT TURNOVER
DECEMBER 31 (000'S) EXPENSES INCOME RATE
- ------------ --------------- --------------- --------------- ---------------
DEVELOPING GROWTH
CLASS X SHARES
1999 $ 160,595 0.58% 0.06% 178%
2000(a) 142,640 0.56 0.66 207
2001 85,513 0.59 (0.05) 196
2002 45,892 0.61 (0.26) 251
2003 53,996 0.62 (0.20) 193
2004(c) 52,790 0.62(2) (0.19)(2) 82(1)
CLASS Y SHARES
2000(b) 1,716 0.83(2) 0.74(2) 207
2001 2,973 0.84 (0.30) 196
2002 2,602 0.86 (0.51) 251
2003 6,798 0.87 (0.45) 193
2004(c) 7,516 0.87(2) (0.44)(2) 82(1)
</Table>
125
<Page>
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<Page>
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<Page>
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<Page>
Trustees
Michael Bozic Dr. Manuel H. Johnson
Charles A. Fiumefreddo Joseph J. Kearns
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien Fergus Reid
James F. Higgins
Officers
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT
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
<Table>
<Caption>
TRANSFER AGENT INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------- ---------------------------------------------
Morgan Stanley Trust Deloitte & Touche LLP
Harborside Financial Center--Plaza Two Two World Financial Center
Jersey City, New Jersey 07311 New York, New York 10281
</Table>
Investment Manager
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
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>
PRSRT STD
U.S. POSTAGE
PAID
HUDSON, MA 01749
PERMIT NO. 6
RA04-00494P-Y06/04
<Page>
RA04-00494P-Y06/04
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
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.
<Page>
(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) Code of Ethics - Not applicable for semiannual reports.
(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
August 19, 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
August 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
August 19, 2004