<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07185
Morgan Stanley Select Dimensions Investment Series
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: December 31, 2005
Date of reporting period: December 31, 2005
Item 1 - Report to Shareholders
<Page>
MORGAN STANLEY
SELECT DIMENSIONS INVESTMENT SERIES
ANNUAL REPORT
DECEMBER 31, 2005
<Page>
Morgan Stanley Select Dimensions Investment Series
TABLE OF CONTENTS
<Table>
Letter to the Shareholders 1
Expense Example 21
Portfolio of Investments:
Money Market 26
Flexible Income 29
Balanced Growth 47
Utilities 60
Dividend Growth 64
Equally-Weighted S&P 500 68
Growth 80
American Opportunities 83
Capital Opportunities 86
Global Equity 89
Developing Growth 93
Financial Statements:
Statements of Assets and Liabilities 98
Statements of Operations 100
Statements of Changes in Net Assets 102
Notes to Financial Statements 110
Financial Highlights 120
Report of Independent Registered Public Accounting Firm 130
Trustee and Officer Information 131
Federal Tax Notice 136
</Table>
<Page>
Morgan Stanley Select Dimensions Investment Series
LETTER TO THE SHAREHOLDERS - DECEMBER 31, 2005
Dear Shareholders,
In 2005, investors found themselves confronted with myriad uncertainties -- from
soaring oil prices and inflation to natural disasters of unprecedented scope.
Stock and bond markets advanced nonetheless, as the positive effects of global
economic growth won the day. Broadly speaking, stocks outperformed bonds in the
United States. Larger returns were to be had abroad, however, with many emerging
markets generating especially strong returns.
Domestic Equity Overview
Energy prices, inflationary pressures, monetary policy, the strength of the
consumer and the pace of economic growth were the U.S. market's dominant
concerns during 2005. Yet although energy prices remained high, consumer
confidence and spending held up reasonably well, inflation was largely contained
and the economy advanced at a good clip. On the corporate front, strong profits,
healthy balance sheets and respectable earnings were positive influences on the
market, as was ongoing merger-and-acquisition activity.
For the year, the stock market gained 4.91 percent, as measured by the S&P
500(R) Index. This muted return was earned in a climate of fluctuating
sentiment. After a 2004 year-end rally, the market sold-off in the first four
months of 2005 as investors moved to lock in profits. Rekindled anxiety about
rising oil prices took hold, and trouble at U.S. automakers hinted at a
potential economic slowdown. From May through July, better economic data --
including improved consumer confidence, a pick-up in retail sales and solid
gross domestic product growth -- helped the stock market gain back ground.
Stocks lost momentum from August through October. In the wake of the Gulf Coast
hurricanes, prices for crude oil and gasoline spiked, consumer confidence fell
and raw materials costs increased. Renewed inflation concerns roiled the market,
as did indications from the Federal Open Market Committee ("the Fed") that
ongoing increases to the federal funds rate were likely.
Despite these factors, the stock market demonstrated resiliency, particularly as
indications emerged that the impact of the hurricanes on economic growth would
be less severe than initially anticipated. By late October, the market renewed
its advance. Energy prices dipped, consumer confidence rebounded and retail
sales data were stronger than many expected.
During the final weeks of the period, the market was buffeted by cross currents.
Yield trends in the bond market, rising gold prices and additional increases to
the federal funds target rate gave investors pause. On the other hand, sentiment
was boosted by a range of factors including favorable productivity and jobs
data, and merger-and-acquisition activity in the oil sector. Many investors were
also heartened by the Fed's comments that the pace of rate increases could slow
or cease.
<Page>
For the year, mid-cap stocks bested their small- and large-cap counterparts.
Value stocks narrowly outperformed growth stocks, with both styles returning
respectable gains. Within the S&P 500(R) Index, energy and utilities were the
best performing sectors during the 12-month period, driven by high commodity
prices. Despite interest rate concerns, the financials sector was strong,
supported by companies with exposure to capital markets and insurance companies.
Health care companies (except large-cap pharmaceuticals) also showed strength in
the overall market. In contrast, the Index's consumer discretionary sector was a
significant laggard, hurt by flagging performance in auto and auto-related
industries and media stocks. The telecommunication services sector was another
significant drag in the Index. Among the factors hampering the sector were
industry consolidation and the significant capital expenditures needed to fund
future growth, as well as increased competition.
International Equity Overview
During the 12-month period ended December 31, 2005, international markets
advanced on positive news from the world's major economic regions. Stubbornly
high oil prices, weakening consumer confidence, devastating natural disasters,
rising U.S. interest rates and mounting worries about global inflation were
ongoing concerns, but markets gained nonetheless.
Europe's economy showed signs of renewed strength. The European Central Bank
raised interest rates to stave off inflation, bolstering confidence that the
economy was indeed growing at a sustainable pace. Exports continued to drive
growth, as demand from Eastern Europe, Asia and the United States remained
strong. The major European markets gained as investors took a more positive view
of the prospects of the German economy. In the United Kingdom, equity markets
were weaker due, in part, to concerns of slowing consumer and industrial trends.
Market sentiment brightened as the period progressed, however.
In Japan, improved economic and political outlooks fuelled strong performance in
the second half of the reporting period. Although macroeconomic indicators had
recovered gradually throughout the year, it was Prime Minister Koizumi's call
for postal privatization that spurred an equity market rally in August.
Moreover, positive outlooks announced by Bank of Japan, dissipating deflationary
pressures and the reelection of Prime Minister Koizumi further bolstered
investor sentiment and attracted foreign investment.
Emerging markets bested the developed markets for the overall reporting period.
Strong macroeconomic growth, good corporate governance, a healthy consumer and
attractive commodity prices were among the factors that helped support
investors' appetites for the region. In addition, domestic economic risk in the
emerging markets remained relatively low.
2
<Page>
Fixed Income Overview
A range of events influenced the fixed-income markets in 2005. The series of
natural disasters that struck the U.S., combined with soaring energy prices, led
to concerns about whether the economy could sustain its level of growth. In the
wake of Hurricane Katrina, some observers initially believed that the economy
would suffer lingering after effects. As the weeks progressed, however, it
became apparent that the impact on the economy would be much smaller and more
temporary than anticipated. Even the sharply higher energy prices failed to
interrupt the positive economic momentum, and real gross domestic product growth
continued at a reasonable clip throughout the year.
Given the economy's continuing growth and relatively low inflation, the Federal
Open Market Committee (the Fed) continued with its tightening policy, raising
the federal funds target rate from 2.25 percent to 4.25 percent through eight
increases of 25 basis points each. The minutes from the Fed's December meeting,
however, indicated that this "measured pace" of increases may slow in the
future.
Short- and intermediate-term Treasury yields rose sharply during the year in
response to stronger-than-expected economic data and the Fed's numerous
tightening moves. In contrast, 10-year Treasury yields experienced little net
change for the year and 30-year yields declined slightly. As a result, the yield
curve flattened during the reporting period.
The fundamentals of the high yield bond market remained positive throughout
2005. Default rates remained low, the economy advanced above historical norms,
and corporate earnings trends continued to be favorable. Given the low yields
available in the long-term bond market, high yield bonds were also rewarded by
income-oriented investors. The period was also quite volatile, particularly from
mid-March through mid-May. The credit downgrade of leading auto manufacturers
into the high yield universe created doubt about corporate profitability overall
and caused heightened concerns of supply-demand imbalances within the high yield
market. Sentiment improved as the period progressed and investors returned their
attention to the broader fundamentals of the high yield market.
Investment-grade corporate bonds underperformed other major U.S. bond market
sectors as leading auto manufacturer's credit woes roiled not only the high
yield market, but the investment-grade segment of the corporate market as well.
Sector returns were unevenly distributed, with a few key names driving
performance within each sector. Overall, Aa-rated issues posted the highest
returns while medium-quality, Baa-rated issues lagged. Among the corporate
sub-sectors, the best performers were energy, utilities, and banking issues. The
most significant industry laggards were automotive manufacturers and parts
producers.
3
<Page>
American Opportunities Portfolio
For the 12-month period ended December 31, 2005, American Opportunities
Portfolio Class X shares produced a total return of 14.39 percent versus 5.26
percent for the Russell 1000(R) Growth Index. For the same period, the
Portfolio's Class Y shares returned 14.16 percent. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
The Portfolio outperformed the Russell 1000(R) Growth Index due to positive
stock selection. Sector allocations were also beneficial. Positioning in the
energy, financial services and technology sectors contributed most to the
Portfolio's returns versus its benchmark.
Within energy, stock selection in crude oil producers added significantly to
relative performance. Exposure to the coal industry proved advantageous, as did
the Portfolio's overall overweight to the energy sector versus the Russell
Index. Stock selection in the financial services sector also had a favorable
impact on relative performance, driven primarily by stock selection in financial
information services, and followed by diversified financial services. Within
technology, stock selection in computer technology, communications technology,
and semiconductor companies served the Portfolio well. A sector underweight
versus the Russell benchmark further enhanced relative performance.
[SIDENOTE]
[CHART]
GROWTH OF $10,000: AMERICAN OPPORTUNITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X RUSSELL 1000(R) GROWTH INDEX(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 11,295 $ 12,312
Dec-1997 $ 14,901 $ 16,066
Dec-1998 $ 19,488 $ 22,285
Dec-1999 $ 30,363 $ 29,674
Dec-2000 $ 29,022 $ 23,020
Dec-2001 $ 20,469 $ 18,318
Dec-2002 $ 16,056 $ 13,211
Dec-2003 $ 19,359 $ 17,140
Dec-2004 $ 20,965 $ 18,220
Dec-2005 $ 23,982(2) $ 19,179
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 14.39%(1) (3.74)%(1) 9.14%(1) 11.48%(1)
Class Y 14.16%(1) (3.99)%(1) -- (4.48)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Russell 1000(R) Growth Index measures the performance of those
companies in the Russell 1000(R) Index with higher price-to-book ratios and
higher forecasted growth values. Indexes are unmanaged and their returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
4
<Page>
In contrast, the Portfolio's return was tempered by its materials and processing
holdings. Here, gold exposure was detrimental, as was a sector overweight.
Consumer staples were another area of weakness. Stock selection in the drugs and
grocery store chains industry and the soaps and household chemicals industry
were principal detractors.
As of the close of the period, consumer discretionary was the largest sector
weighting in the Portfolio, followed by health care and technology. The
Portfolio's consumer discretionary position is overweighted versus the Russell
benchmark, while health care and technology are underweighted versus the Index.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
Balanced Growth Portfolio
For the 12-month period ended December 31, 2005, Balanced Growth Portfolio Class
X shares produced a total return of 8.21 percent versus 7.05 percent for the
Russell 1000(R) Value Index, 2.37 percent for the Lehman Brothers U.S.
Government/Credit Index and 2.43 percent for the Lehman Brothers U.S. Aggregate
Index. For the same period, the Portfolio's Class Y shares returned 7.89
percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
[SIDENOTE]
[CHART]
GROWTH OF $10,000: BALANCED GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
LEHMAN BROTHERS LEHMAN BROTHERS
CLASS X RUSSELL 1000(R) VALUE INDEX(3) U.S. GOV'T /CREDIT INDEX(4) U.S. AGGREGATE INDEX(5)
Dec-1995 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Dec-1996 $ 11,354 $ 12,164 $ 10,290 $ 10,363
Dec-1997 $ 13,384 $ 16,444 $ 11,294 $ 11,364
Dec-1998 $ 15,313 $ 19,014 $ 12,364 $ 12,351
Dec-1999 $ 15,852 $ 20,411 $ 12,099 $ 12,249
Dec-2000 $ 16,861 $ 21,843 $ 13,533 $ 13,673
Dec-2001 $ 17,064 $ 20,622 $ 14,683 $ 14,828
Dec-2002 $ 15,104 $ 17,421 $ 16,304 $ 16,348
Dec-2003 $ 18,100 $ 22,652 $ 17,065 $ 17,019
Dec-2004 $ 20,079 $ 26,389 $ 17,780 $ 17,758
Dec-2005 $ 21,727(2) $ 28,250 $ 18,202 $ 18,189
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------
Class X 8.21%(1) 5.20%(1) 8.07%(1) 9.27%(1)
Class Y 7.89%(1) 4.92%(1) -- 6.46%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Russell 1000(R) Value Index measures the performance of those companies
in the Russell 1000(R) Index with lower price -to-book ratios and lower
forecasted growth values. Indexes are unmanaged and their returns do not
include any sales charges or fees. Such costs would lower performance. It
is not possible to invest directly in an index.
(4) The Lehman Brothers U.S. Government/Credit Index tracks the performance of
government and corporate obligations, including U.S. government agency and
Treasury securities and corporate and Yankee bonds. Indexes are unmanaged
and their returns do not include any sales charges or fees. Such costs
would lower performance. It is not possible to invest directly in an index.
The Portfolio's fixed income benchmark is being changed from the Lehman
Brothers U.S. Aggregate Index to Lehman Brothers U.S. Government/Credit
Index to more accurately reflect the Portfolio's investible universe.
(5) The Lehman Brothers U.S. Aggregate Index tracks the performance of all U.S.
government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities, asset-backed securities and
commercial mortgage-based securities. Indexes are unmanaged and their
returns do not include any sales charges or fees. Such costs would lower
performance. It is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
5
<Page>
From an absolute performance standpoint, energy was the Portfolio's best
performing equity group. The Portfolio had a particular emphasis on refining and
marketing companies, which generated standout gains. These companies were able
to capture significantly wider profit margins as the spread between the rising
cost of crude oil and the price for refining continued to increase. The
Portfolio was well positioned in the financials sector. The Portfolio had
limited exposure to regional banks, which tend to suffer disproportionately to
other types of financial companies in a rising interest-rate and flattening
yield curve environment. Diversified financial service companies, in which the
Portfolio had more sizeable weighting, did well because of their capital markets
exposure. Insurance securities were also a notable contributor in the financials
area. Health care holdings, primarily in pharmaceuticals companies, were also a
positive influence on performance. Less bad news, positive expectations for new
drug launches, and favorable patent protection rulings helped buoy the
beleaguered industry.
In contrast, the Portfolio's telecommunication services holdings did not fare so
well. Within the industry, competition has intensified, and the landline
companies have begun to lose revenues to cable and wireless carriers. Media
securities, part of the consumer discretionary sector, also drove down returns,
as these companies continued to slump amid weak advertising revenues.
The Portfolio's fixed income position posted a slightly negative return for the
period, on an absolute basis. The Portfolio focuses on investment-grade
corporate bonds and Treasury securities, and these groups lagged other bond
market sectors for the year. Within its investment-grade bond portion, the
Portfolio gained from its security selection in the insurance sector, which
outperformed for the period. Additionally, a focus on higher-quality credits,
strong security selection in the energy sector, and an underweight versus the
Lehman indices to the automotive sector further enhanced performance. We managed
the overall interest-rate exposure of the Portfolio's bond allocation
conservatively. This posture was beneficial as interest rates rose across the
short-term and intermediate-term portions of the curve. However, during periods
of rate declines, such as we saw in the early part of the period, this defensive
positioning detracted from relative performance.
For the fiscal year overall, the Portfolio's stock and bond proportions remained
fairly constant. As of the end of the reporting period, the Portfolio held 67
percent in stocks and 29 percent in bonds.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
6
<Page>
Capital Opportunities Portfolio
For the 12-month period ended December 31, 2005, Capital Opportunities Portfolio
Class X shares produced a total return of 22.62 percent versus 5.17 percent for
the Russell 3000(R) Growth Index. For the same period, the Portfolio's Class Y
shares returned 22.22 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
The Portfolio's consumer discretionary, energy and financial services portions
were leading contributors to its outperformance of the Russell benchmark. Within
consumer discretionary, stock selection in consumer electronics, commercial
services, and retail had the most significant favorable impact on relative
performance. This positive stock selection more than offset the tempering
influence of a large overweight to the overall sector, which did not perform as
strongly as others within the Index. In the energy sector, exposure to the crude
oil producer industry was beneficial. An overweight to the energy sector
relative to the benchmark also proved advantageous. Stock selection in the
financial services sector also bolstered relative performance, driven primarily
diversified financial services. Miscellaneous financials companies were also
beneficial.
The main area of weakness for the Portfolio was health care. Stock selection
within the
[SIDENOTE]
[CHART]
GROWTH OF $10,000: CAPITAL OPPORTUNITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X RUSSELL 3000(R) GROWTH INDEX(3)
Jan-1997 $ 10,000 $ 10,000
Mar-1997 $ 9,400 $ 9,390
Jun-1997 $ 10,361 $ 11,155
Sep-1997 $ 11,739 $ 12,094
Dec-1997 $ 11,584 $ 12,154
Mar-1998 $ 12,737 $ 13,957
Jun-1998 $ 12,679 $ 14,456
Sep-1998 $ 9,875 $ 12,973
Dec-1998 $ 12,241 $ 16,410
Mar-1999 $ 12,861 $ 17,355
Jun-1999 $ 13,961 $ 18,153
Sep-1999 $ 14,687 $ 17,470
Dec-1999 $ 23,516 $ 21,961
Mar-2000 $ 27,532 $ 23,563
Jun-2000 $ 25,866 $ 22,848
Sep-2000 $ 27,194 $ 21,640
Dec-2000 $ 17,034 $ 17,038
Mar-2001 $ 10,935 $ 13,545
Jun-2001 $ 13,315 $ 14,781
Sep-2001 $ 7,847 $ 11,823
Dec-2001 $ 10,836 $ 13,694
Mar-2002 $ 10,149 $ 13,346
Jun-2002 $ 7,316 $ 10,881
Sep-2002 $ 5,988 $ 9,195
Dec-2002 $ 6,087 $ 9,855
Mar-2003 $ 6,110 $ 9,732
Jun-2003 $ 7,161 $ 11,184
Sep-2003 $ 7,726 $ 11,673
Dec-2003 $ 8,622 $ 12,907
Mar-2004 $ 9,175 $ 13,055
Jun-2004 $ 9,419 $ 13,289
Sep-2004 $ 9,419 $ 12,586
Dec-2004 $ 10,570 $ 13,801
Mar-2005 $ 10,050 $ 13,205
Jun-2005 $ 10,758 $ 13,541
Sep-2005 $ 11,810 $ 14,112
Dec-2005 $ 12,961(2) $ 14,515
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -------------------------------------------------------------------------------
Class X 22.62%(1) (5.32)%(1) -- 2.94%(1)
Class Y 22.22%(1) (5.55)%(1) -- (12.80)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Russell 3000(R) Growth Index measures the performance of those
companies in the Russell 3000(R) Index with higher price-to-book ratios and
higher forecasted growth values. Indexes are unmanaged and their returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.
* Inception dates of January 21, 1997 for Class X and July 24, 2000 for
Class Y.
7
<Page>
biotechnology research and production industry was the most notable detractor,
followed by stock selection in the drugs and pharmaceutical industry and the
health care management services industry. A sector underweight also hindered
relative performance. Meanwhile, within the consumer staples sector, stock
selection in soft drink companies slowed the Portfolio's advance relative to the
benchmark, as did as an avoidance of soaps and household chemical companies.
As of the close of the period, consumer discretionary was the largest sector
weighting in the Portfolio, followed by health care and technology. The
Portfolio's consumer discretionary position is overweighted versus the Russell
benchmark, while health care and technology are underweighted versus the Index.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
Developing Growth Portfolio
For the 12-month period ended December 31, 2005, Developing Growth Portfolio
Class X shares produced a total return of 18.69 percent versus 12.10 percent for
the Russell MidCap(R) Growth Index. For the same period, the Portfolio's Class Y
shares returned 18.40 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
[SIDENOTE]
[CHART]
GROWTH OF $10,000: DEVELOPING GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X RUSSELL MIDCAP(R) GROWTH INDEX(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 11,295 $ 11,748
Dec-1997 $ 12,850 $ 14,396
Dec-1998 $ 14,012 $ 16,967
Dec-1999 $ 26,976 $ 25,670
Dec-2000 $ 21,146 $ 22,654
Dec-2001 $ 15,756 $ 18,089
Dec-2002 $ 11,387 $ 13,132
Dec-2003 $ 16,101 $ 18,741
Dec-2004 $ 19,693 $ 21,642
Dec-2005 $ 23,373(2) $ 24,260
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- ---------------------------------------------------------------------------------------
Class X 18.69%(1) 2.02%(1) 8.86%(1) 12.16%(1)
Class Y 18.40%(1) 1.76%(1) -- (0.96)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Russell Midcap(R) Growth Index measures the performance of those
Russell Midcap(R) companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell
1000(R) Growth Index. Indexes are unmanaged and their returns do not
include any sales charges or fees. Such costs would lower performance. It
is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class
Y.
8
<Page>
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
The Portfolio benefited particularly from strong stock selection within
technology, financial services and utilities. Within technology, stocks from the
computer services, software and systems industry and the communications
technology industry were sources of notable gains. In the financial services
sector, securities brokerage companies and miscellaneous financial companies
boosted the Portfolio's return. The contribution of the utilities sector was
driven primarily by wireless companies, with gas distributors further enhancing
gains.
In contrast, health care was an area of weakness for the Portfolio. Performance
was hindered by stock selection, specifically within health care services and
drugs and pharmaceuticals. A sector-level underweighting versus the Index
exerted an adverse influence. The Portfolio's relative performance was slowed by
its large sector overweight to consumer discretionary, an area which lagged
others in the market. Moreover, although certain consumer discretionary
positions performed quite well, there were also areas of weakness. Here, the
toy, entertainment and hotel/motel industries were represented among the
laggards.
As of the close of the period, consumer discretionary was the largest sector
weighting in the portfolio, followed by health care and technology. The
portfolio's consumer discretionary position is overweighted versus the Russell
benchmark, while health care and technology are underweighted versus the Index.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
9
<Page>
Dividend Growth Portfolio
For the 12-month period ended December 31, 2005, Dividend Growth Portfolio Class
X shares produced a total return of 5.57 percent versus 4.91 percent for the S&P
500(R) Index. For the same period, the Portfolio's Class Y shares returned 5.32
percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
For the most part, the Portfolio's performance during the period was driven by
individual stocks, rather than broad trends affecting entire industries or
sectors. Positive influences on the Portfolio's return relative to the benchmark
included our selections in the consumer discretionary group. Although auto
components and media stocks struggled in the broad index, the Portfolio's
holdings in these areas did well. Exposure to multi-line retail also enhanced
relative results. Select holdings in the consumer staples sector -- specifically
in beverages and the food and staples retailing industry -- generated good gains
for the Portfolio, as did technology picks. Among the Portfolio's technology
holdings, computers and peripherals, semiconductors, and Internet software and
services companies drove outperformance relative to the benchmark.
However, the Portfolio fell short of the Index in a few areas. Although the
Portfolio's energy holdings
[SIDENOTE]
[CHART]
GROWTH OF $10,000: DIVIDEND GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X S&P 500(R)(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 12,449 $ 12,295
Dec-1997 $ 15,702 $ 16,397
Dec-1998 $ 18,799 $ 21,082
Dec-1999 $ 18,898 $ 25,518
Dec-2000 $ 19,911 $ 23,192
Dec-2001 $ 18,827 $ 20,438
Dec-2002 $ 15,453 $ 15,923
Dec-2003 $ 19,738 $ 20,491
Dec-2004 $ 21,373 $ 22,721
Dec-2005 $ 22,564(2) $ 23,836
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 5.57%(1) 2.53%(1) 8.48%(1) 10.88%(1)
Class Y 5.32%(1) 2.28%(1) -- 4.42%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
10
<Page>
achieved significant gains on an absolute basis, energy represented an area of
underperformance relative to the benchmark. The Portfolio's large-cap,
valuation-conscious orientation limited its participation in the stronger
performance of the more volatile mid-caps that led within the Index.
Telecommunications exposure detracted from the Portfolio's relative performance,
given the industry's ongoing challenges. Among the factors hampering the sector
were industry consolidation and the significant capital expenditures needed to
fund future growth, as well as increased competition (especially from cable
providers). Within the industrials sector, individual selections from a variety
of industry groups dampened results. Commercial services and supplies and
industrial conglomerates were among those holdings that fell short.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
Equally-Weighted S&P 500 Portfolio
For the 12-month period ended December 31, 2005, Equally-Weighted S&P 500
Portfolio Class X shares produced a total return of 7.81 percent versus 8.06
percent for the Standard & Poor's Equal Weight Index. For the same period, the
Portfolio's Class Y shares returned 7.57 percent. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
[SIDENOTE]
[CHART]
GROWTH OF $10,000: EQUALLY-WEIGHTED S&P 500 -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X S&P EWI(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 11,778 $ 11,902
Dec-1997 $ 14,855 $ 15,360
Dec-1998 $ 16,666 $ 17,232
Dec-1999 $ 18,691 $ 19,304
Dec-2000 $ 20,930 $ 21,164
Dec-2001 $ 20,547 $ 21,082
Dec-2002 $ 17,266 $ 17,249
Dec-2003 $ 23,679 $ 24,082
Dec-2004 $ 27,620 $ 28,439
Dec-2005 $ 29,779(2) $ 30,731
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 7.81%(1) 7.31%(1) 11.53%(1) 12.61%(1)
Class Y 7.57%(1) 7.05%(1) -- 8.45%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Equal Weight Index (S&P EWI) is the equal-weighted
version of the widely regarded S&P 500(R) Index, which measures 500 leading
companies in leading U.S. industries. The S&P EWI has the same constituents
as the capitalization weighted S&P 500(R) Index, but each company in the
S&P EWI is allocated a fixed weight, rebalancing quarterly. Indexes are
unmanaged and their returns do not include any expenses, sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
11
<Page>
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
The energy sector was the leading driver of performance during the period.
Exceptionally high oil prices, increased demand and solid earnings growth
propelled energy stock gains. Insurance and diversified financial services
stocks also contributed notably. Insurance stocks were well served by their
reduced sensitivity to rising interest rates, while diversified financial
services benefited as capital markets activity increased. Health care services
providers rose briskly, boosted by increased plan enrollments and higher profit
margins.
In contrast, the auto and auto components groups were significant detractors.
Investor sentiment deteriorated as the auto industry faced myriad woes,
including credit downgrades, earning disappointments, production cuts and
pension funding uncertainties. Media stocks struggled due to company-specific
reasons, while technology hardware and equipment stocks faltered in the wake of
earnings disappointments. Banking stocks, particularly regional banks, lagged as
rising interest rates proved particularly disadvantageous.
From a market-capitalization perspective, the stocks in the middle of the
Index's capitalization range outperformed larger and smaller issues.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
12
<Page>
Flexible Income Portfolio
For the 12-month period ended December 31, 2005, Flexible Income Portfolio Class
X shares produced a total return of 2.88 percent versus 1.58 percent for the
Lehman Brothers Intermediate U.S. Government/Credit Index. For the same period,
the Portfolio's Class Y shares returned 2.62 percent. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
During the period, we kept the Portfolio's overall interest-rate exposure well
below that of its benchmark. This posture was beneficial as interest rates rose
across the short-term and intermediate-term portions of the curve. However,
during periods of rate declines, such as we saw in the early part of the period,
this defensive positioning detracted from relative performance.
The Portfolio's mortgage position had a positive impact on relative performance.
As interest rates rose throughout much of the period, an emphasis on
higher-coupon, slow- prepaying mortgage issues benefited performance as these
issues outperformed their lower-coupon counterparts. Compared with lower-coupon,
faster pre-paying mortgages, the mortgages favored by the Portfolio tend to be
less sensitive to rising interest rates.
Within the investment-grade portion of its corporate bond portfolio, the
Portfolio benefited from
[SIDENOTE]
[CHART]
GROWTH OF $10,000: FLEXIBLE INCOME -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X LEHMAN BROTHERS INT. U.S. GOV'T/CREDIT INDEX(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 10,954 $ 10,405
Dec-1997 $ 11,866 $ 11,223
Dec-1998 $ 12,367 $ 12,170
Dec-1999 $ 12,140 $ 12,217
Dec-2000 $ 11,564 $ 13,453
Dec-2001 $ 11,094 $ 14,659
Dec-2002 $ 12,056 $ 16,101
Dec-2003 $ 13,690 $ 16,795
Dec-2004 $ 14,648 $ 17,306
Dec-2005 $ 15,069(2) $ 17,579
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 2.88%(1) 5.44%(1) 4.19%(1) 4.45%(1)
Class Y 2.62%(1) 5.14%(1) -- 3.80%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers Intermediate U.S. Government/Credit Index tracks the
performance of U.S. government and corporate obligations, including U.S.
government agency and Treasury securities, and corporate and Yankee bonds
with maturities of 1 to 10 years. Indexes are unmanaged and their returns
do not include any sales charges or fees. Such costs would lower
performance. It is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
13
<Page>
favorable sector and security selection decisions. Also, our decision to
underweight corporate bonds proved helpful as most credit spreads widened
slightly. In terms of sector and industry positioning, the Portfolio is
overweight versus the Index in insurance, paper, energy and autos.
Among its high yield holdings, the Portfolio benefited from an underweight to
the transportation sector, the worst performing sector in the high yield market
during the period. The Portfolio was particularly well served by its de-emphasis
of auto-related companies. Overall security selection in the cable sector and
utility sectors further enhanced relative performance. In contrast, security
selection in several sectors, including forest products, housing, financials,
and telecom, detracted from relative performance.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
Global Equity Portfolio
For the 12-month period ended December 31, 2005, Global Equity Portfolio Class X
shares produced a total return of 10.64 percent versus 9.49 percent for the MSCI
World Index. For the same period, the Portfolio's Class Y shares returned 10.32
percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
[SIDENOTE]
[CHART]
GROWTH OF $10,000: GLOBAL EQUITY -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X MSCI WORLD INDEX(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 11,143 $ 11,348
Dec-1997 $ 12,108 $ 13,137
Dec-1998 $ 13,938 $ 16,334
Dec-1999 $ 18,697 $ 20,407
Dec-2000 $ 17,588 $ 17,718
Dec-2001 $ 14,560 $ 14,737
Dec-2002 $ 12,030 $ 11,806
Dec-2003 $ 16,207 $ 15,715
Dec-2004 $ 17,530 $ 18,028
Dec-2005 $ 19,396(2) $ 19,738
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 10.64%(1) 1.98%(1) 6.85%(1) 7.33%(1)
Class Y 10.32%(1) 1.72%(1) -- (0.07)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International (MSCI) World Index measures
performance from a diverse range of global stock markets including the
U.S., Canada, Europe, Australia, New Zealand, and the Far East. The
performance of the Index is listed in U.S. dollars and assumes reinvestment
of net dividends. "Net dividends" reflects a reduction in dividends after
taking into account withholding of taxes by certain foreign countries
represented in the Index. Indexes are unmanaged and their returns do not
include any sales charges or fees. Such costs would lower performance. It
is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
14
<Page>
The Portfolio's outperformance versus the benchmark was primarily driven by
stock selection in the pharmaceuticals, energy and technology sectors. Although
pharmaceutical stocks lagged in the overall market, the Portfolio's holdings
performed well overall. Our emphasis was on smaller and medium-sized companies
and those focused on generic drugs. In our view, these companies exhibited more
attractive growth prospects than the large drug companies. Stock selection in
energy contributed positively, offsetting the negative effects of the
Portfolio's underweight in the market's top performing sector. In
technology--one of the market's weakest sectors -- our selection among companies
with consumer-driven businesses served the Portfolio well.
In contrast, the materials sector hampered relative results, due to an
underweight and weak stock selection. The sector performed well in the broad
market, against a backdrop of rising prices for copper, steel and other raw
materials. Also limiting gains was the Portfolio's selection in the electronic
equipment industry.
In August 2005, a new management team took the Portfolio's helm. As outlined in
the Portfolio's prospectus, our team uses a bottom-up investment approach that
emphasizes security selection and disposition on an individual company basis. We
seek growth companies, focusing on securities believed to offer strong business
fundamentals at an attractive valuation, while taking into consideration a
company's history of paying dividends.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
15
<Page>
Growth Portfolio
For the 12-month period ended December 31, 2005, Growth Portfolio Class X shares
produced a total return of 15.55 percent versus 5.26 percent for the Russell
1000(R) Growth Index. For the same period, the Portfolio's Class Y shares
returned 15.21 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
Broad strength across sectors drove the Portfolio's performance. Relative to the
benchmark, the Portfolio benefited most from strong stock selection within
utilities, health care and energy. Overall, stock selection was strongest in
health care. Here, medical and dental instruments and supplies, health care
management services, and biotechnology research and production were represented
among leading contributors to relative performance. Within the energy sector,
crude oil producers were most advantageous. The favorable impact of the
Portfolio's utilities holdings was driven primarily by wireless companies, with
gas distributors further enhancing gains.
Stock selection was favorable in all sectors except technology. On an industry
level, computer technology companies detracted most, followed by computer
services and software, and communications technology.
[SIDENOTE]
[CHART]
GROWTH OF $10,000: GROWTH -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X RUSSELL 1000(R) GROWTH INDEX(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 12,356 $ 12,312
Dec-1997 $ 15,207 $ 16,066
Dec-1998 $ 17,218 $ 22,285
Dec-1999 $ 23,950 $ 29,674
Dec-2000 $ 21,152 $ 23,020
Dec-2001 $ 17,931 $ 18,318
Dec-2002 $ 12,938 $ 13,211
Dec-2003 $ 16,419 $ 17,140
Dec-2004 $ 17,673 $ 18,220
Dec-2005 $ 20,422(2) $ 19,179
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 15.55%(1) (0.70)%(1) 7.40%(1) 7.88%(1)
Class Y 15.21%(1) (0.96)%(1) -- (4.61)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Russell 1000(R) Growth Index measures the performance of those
companies in the Russell 1000(R) Index with higher price-to-book ratios and
higher forecasted growth values. Indexes are unmanaged and their returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
16
<Page>
As of the close of the period, consumer discretionary was the largest sector
weighting in the Portfolio, followed by health care and technology. The
Portfolio's consumer discretionary position is overweighted versus the Russell
benchmark, while health care and technology are underweighted versus the Index.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
Money Market Portfolio
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH MONEY
MARKET FUNDS SEEK TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN SUCH FUNDS.
As of December 31, 2005, Money Market Portfolio had net assets of more than $89
million with an average portfolio maturity of 32 days. For the seven-day period
ended December 31, 2005, the Portfolio provided an effective annualized yield of
3.84 percent and a current yield of 3.77 percent, while its 30-day moving
average yield for December was 3.70 percent. For the 12-month period ended
December 31, 2005, the Portfolio's Class X shares returned 2.73 percent. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
For the seven-day period ended December 31, 2005, the Portfolio's Class Y shares
provided an effective annualized yield of 3.59 percent and a current yield of
3.53 percent, while its 30-day moving average yield for December was 3.45
percent. For the 12-month period ended December 31, 2005, the Portfolio's Class
Y shares returned 2.48 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
Our strategy in managing the Portfolio remained consistent with our long-term
focus on maintaining preservation of capital and liquidity. We adhered to a
conservative approach in managing the Portfolio that emphasized purchasing
high-quality money market obligations and avoided the use of derivatives or
structured notes that might fluctuate excessively with changing interest rates.
We also took advantage of the rising yields available on money market
securities. As short-term interest rates climbed, we reinvested the proceeds of
maturing short-term holdings into higher-yielding securities.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
17
<Page>
Utilities Portfolio
For the 12-month period ended December 31, 2005, Utilities Portfolio Class X
shares produced a total return of 16.28 percent versus 4.91 percent for the S&P
500(R) Index. For the same period, the Portfolio's Class Y shares returned 16.00
percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE
COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE.
A variety of factors drove the Portfolio's strong absolute returns and wide
outperformance of the benchmark. Despite the Federal Open Market Committee's
steady monetary tightening policy, interest rates remained low by historical
standards. In this environment, utility stocks were rewarded by investors for
their yield and dividend growth potential. The market's comfort with utilities
was further bolstered by the sector's increased emphasis on basic utility
service models. Such models entailed less high risk diversification efforts, and
in turn, cleaner balance sheets and enhanced earnings predictability.
Merger-and-acquisition activity furthered the overall appeal of the utilities
sector, as did exceptionally strong oil and natural gas prices.
As commodity prices soared, the Portfolio was particularly well served by its
focus on electric companies. Additionally, selected electric positions were
rewarded for restructuring activities or turnarounds. The Portfolio's natural
gas allocation
[SIDENOTE]
[CHART]
GROWTH OF $10,000: UTILITIES -- CLASS X
($ in Thousands)
<Table>
<Caption>
CLASS X S&P 500(R)(3)
Dec-1995 $ 10,000 $ 10,000
Dec-1996 $ 10,848 $ 12,295
Dec-1997 $ 13,717 $ 16,397
Dec-1998 $ 16,766 $ 21,082
Dec-1999 $ 24,096 $ 25,518
Dec-2000 $ 23,636 $ 23,192
Dec-2001 $ 17,607 $ 20,438
Dec-2002 $ 14,021 $ 15,923
Dec-2003 $ 16,891 $ 20,491
Dec-2004 $ 21,019 $ 22,721
Dec-2005 $ 24,440(2) $ 23,836
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE
PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES.
Average Annual Total Returns as of December 31, 2005
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
- -----------------------------------------------------------------------------------
Class X 16.28%(1) 0.67%(1) 9.35%(1) 10.85%(1)
Class Y 16.00%(1) 0.43%(1) -- (0.99)%(1)
</Table>
(1) Figure assumes reinvestment of all distributions for the underlying
portfolio based on net asset value (NAV). It does not reflect the deduction
of insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Ending value on December 31, 2005 for the underlying portfolio. This figure
does not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
* Inception dates of November 9, 1994 for Class X and July 24, 2000 for
Class Y.
18
<Page>
contributed solid gains as well. Stocks of companies with exploration and
production operations were among those that performed most strongly. During the
period, telecommunications stocks across the market generated mixed performance.
A number of companies were hindered by the threat of competition, a significant
build-up of capital expenditures and regulatory uncertainty. The performance of
the Portfolio reflected these broader trends. Exposure to wireless-related
holdings offset much of the lackluster performance from wireline operators, such
as the Regional Bells and independent carriers. Unlike the wireline operators
where growth appears slow at best, the wireless area offered attractive organic
growth prospects as well as the benefit of synergies from current and future
consolidation.
Throughout the period, the Portfolio was well diversified across the utilities
sector. As of December 31, 2005, electric utilities stocks represented 61
percent of equity investments, natural gas and energy stocks represented 23
percent, and telecommunications represented 16 percent. We note that the
Portfolio's holdings and allocation may be modified at any time, in response to
our analysis of broader trends or company specific fundamentals.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE.
We appreciate your ongoing support of Morgan Stanley Select Dimensions
Investment Series and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Ronald E. Robison
Charles A. Fiumefreddo Ronald E. Robison
CHAIRMAN OF THE BOARD PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
19
<Page>
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Portfolios' Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 869-NEWS or by visiting
the Mutual Fund Center on our Web site at www.morganstanley.com. It is also
available on the Securities and Exchange Commission's Web site at
http://www.sec.gov.
You may obtain information regarding how the Portfolios voted proxies relating
to portfolio securities during the most recent twelve-month period ended June 30
without charge by visiting the Mutual Fund Center on our Web site at
www.morganstanley.com. This information is also available on the Securities and
Exchange Commission's Web site at http://www.sec.gov.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in
its semiannual and annual reports within 60 days of the end of the fund's second
and fourth fiscal quarters by filing the schedule electronically with the
Securities and Exchange Commission (SEC). The semiannual reports are filed on
Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also
delivers the semiannual and annual reports to fund shareholders and makes these
reports available on its public Web site, www.morganstanley.com. Each Morgan
Stanley fund also files a complete schedule of portfolio holdings with the SEC
for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does
not deliver the reports for the first and third fiscal quarters to shareholders,
nor are the reports posted to the Morgan Stanley public Web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS
filings) by accessing the SEC's Web site, http://www.sec.gov. You may also
review and copy them at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the SEC's Public Reference Room may be obtained
by calling the SEC at (800) SEC-0330. You can also request copies of these
materials upon payment of a duplicating fee, by electronic request at the SEC's
e-mail address (publicinfo@sec.gov) or by writing the Public Reference section
of the SEC, Washington, DC 20549-0102.
20
<Page>
EXPENSE EXAMPLE - DECEMBER 31, 2005
As a shareholder of the Portfolio, you incur two types of costs: (1) insurance
company charges; and (2) ongoing costs, including advisory fees; distribution
and service (12b-1) fees; and other Portfolio expenses. This example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 07/01/05-12/31/05.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
expenses based on the Portfolio's actual expense ratio and an assumed rate of
return of 5% per year before expenses, which is not the Portfolio's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing cost of investing in the Portfolio
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any insurance company charges. Therefore,
the second line of the table is useful in comparing ongoing costs, and will not
help you determine the relative total cost of owning different funds. In
addition, if these insurance company charges were included, your costs would
have been higher.
21
<Page>
MONEY MARKET
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (1.62% return) $ 1,000.00 $ 1,016.20 $ 2.89
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.27 $ 2.90
CLASS Y
Actual (1.49% return) $ 1,000.00 $ 1,014.90 $ 4.15
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.01 $ 4.17
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.57% AND
0.82% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/364 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
FLEXIBLE INCOME
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (1.31% return) $ 1,000.00 $ 1,013.10 $ 2.94
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.28 $ 2.96
CLASS Y
Actual (1.05% return) $ 1,000.00 $ 1,010.50 $ 4.21
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.02 $ 4.23
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.58% AND
0.83% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
BALANCED GROWTH
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (5.44% return) $ 1,000.00 $ 1,054.40 $ 3.73
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.58 $ 3.67
CLASS Y
Actual (5.26% return) $ 1,000.00 $ 1,052.60 $ 5.02
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.32 $ 4.94
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.72% AND
0.97% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
22
<Page>
UTILITIES
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (4.13% return) $ 1,000.00 $ 1,041.30 $ 3.81
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.48 $ 3.77
CLASS Y
Actual (4.05% return) $ 1,000.00 $ 1,040.50 $ 5.09
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.21 $ 5.04
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.74%, AND
0.99% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
DIVIDEND GROWTH
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (6.95% return) $ 1,000.00 $ 1,069.50 $ 3.34
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.98 $ 3.26
CLASS Y
Actual (6.83% return) $ 1,000.00 $ 1,068.30 $ 4.64
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.64% AND
0.89% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
EQUALLY-WEIGHTED S&P 500
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (7.35% return) $ 1,000.00 $ 1,073.50 $ 1.46
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,023.79 $ 1.43
CLASS Y
Actual (7.24% return) $ 1,000.00 $ 1,072.40 $ 2.77
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.53 $ 2.70
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.28% AND
0.53% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
23
<Page>
GROWTH
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (15.50% return) $ 1,000.00 $ 1,155.00 $ 3.69
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.78 $ 3.47
CLASS Y
Actual (15.30% return) $ 1,000.00 $ 1,153.00 $ 5.05
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.52 $ 4.74
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.68% AND
0.93% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
AMERICAN OPPORTUNITIES
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (15.91% return) $ 1,000.00 $ 1,159.10 $ 3.65
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.83 $ 3.41
CLASS Y
Actual (15.78% return) $ 1,000.00 $ 1,157.80 $ 5.00
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.57 $ 4.69
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.67% AND
0.92% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
CAPITAL OPPORTUNITIES
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (20.47% return) $ 1,000.00 $ 1,204.70 $ 4.95
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53
CLASS Y
Actual (20.31% return) $ 1,000.00 $ 1,203.10 $ 6.33
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.46 $ 5.80
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.89% AND
1.14% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
24
<Page>
GLOBAL EQUITY
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (11.26% return) $ 1,000.00 $ 1,112.60 $ 6.07
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.46 $ 5.80
CLASS Y
Actual (11.13% return) $ 1,000.00 $ 1,111.30 $ 7.40
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.20 $ 7.07
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 1.14% AND
1.39% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
DEVELOPING GROWTH
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------- ------------- --------------
07/01/05 -
07/01/05 12/31/05 12/31/05
------------- ------------- --------------
CLASS X
Actual (15.01% return) $ 1,000.00 $ 1,150.10 $ 3.47
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.98 $ 3.26
CLASS Y
Actual (14.86% return) $ 1,000.00 $ 1,148.60 $ 4.82
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.64% AND
0.89% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE
AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE
ONE-HALF YEAR PERIOD).
25
<Page>
Money Market
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF
THOUSANDS PURCHASE MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (83.5%)
ASSET-BACKED - AUTO (3.9%)
$ 3,462 DaimlerChrysler Revolving Auto Conduit LLC 4.27 - 4.48% 01/27/06 - 03/21/06 $ 3,445,279
------------
ASSET-BACKED - CONSUMER (15.9%)
3,176 Bryant Park Funding LLC* 4.28 - 4.41 01/06/06 - 02/15/06 3,166,826
888 Kitty Hawk Funding Corp.* 4.32 01/03/06 887,681
250 Mont Blanc Capital Corp.* 4.38 01/26/06 249,213
500 Ranger Funding Co., LLC* 4.34 01/25/06 498,500
4,175 Regency Markets No, 1, LLC* 4.19 - 4.34 01/12/06 - 01/20/06 4,166,587
855 Sheffield Receivables Corp.* 4.33 01/23/06 852,646
4,320 Thames Asset Global Securitization* 4.31 - 4.39 01/09/06 - 01/13/06 4,314,631
------------
14,136,084
------------
ASSET-BACKED - CORPORATE (3.4%)
3,050 Eureka Securitization, Inc.* 4.18 - 4.36 01/09/06 - 02/02/06 3,045,108
------------
ASSET-BACKED - DIVERSIFIED (2.4%)
730 Fairway Finance Corp.* 4.22 01/03/06 729,744
1,375 Jupiter Securitization Corp.* 4.36 02/01/06 1,369,696
------------
2,099,440
------------
ASSET-BACKED - MORTGAGE (3.8%)
3,447 Sydney Capital Corp.* 4.45 - 4.51 03/01/06 - 03/23/06 3,417,451
------------
ASSET-BACKED - SECURITIES (23.0%)
4,413 Amstel Funding Corp.* 4.10 - 4.41 01/17/06 - 03/29/06 4,388,782
2,221 Cancara Asset Securitisation LLC* 4.26 - 4.44 01/05/06 - 03/01/06 2,211,690
2,780 Clipper Receivables Co., LLC* 4.27 - 4.37 01/05/06 - 01/20/06 2,775,316
1,612 Galleon Capital, LLC* 4.32 01/12/06 1,609,689
4,223 Golden Fish LLC* 4.36 - 4.38 01/10/06 - 01/27/06 4,215,777
2,100 Grampian Funding LLC* 4.21 - 4.45 02/21/06 - 03/21/06 2,084,027
1,948 Scaldis Capital Corp.* 4.32 - 4.39 01/09/06 - 02/21/06 1,938,258
1,225 Solitaire Funding LLC* 4.30 01/23/06 1,221,650
------------
20,445,189
------------
FINANCE - CORPORATE (2.2%)
2,000 CIT Group, Inc. 4.18 01/06/06 1,998,617
------------
INTERNATIONAL BANKS (27.5%)
800 Bank of Ireland* 4.33 01/30/06 797,127
1,000 Banque Generale du Luxembourg* 4.21 01/04/06 999,534
2,500 CBA (Delaware) Finance Inc. 4.28 - 4.35 01/24/06 - 01/31/06 2,491,817
600 Danske Corp. 4.36 01/09/06 599,348
4,175 DnB NOR Bank ASA 4.21 - 4.41 01/13/06 - 02/03/06 4,164,145
1,000 Fortis Funding LLC* 4.17 01/30/06 996,567
2,100 ING (U.S.) Funding LLC 4.29 - 4.33 01/18/06 - 01/31/06 2,094,262
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF
THOUSANDS PURCHASE MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 4,000 Nordea North America Inc. 4.26 - 4.52% 01/20/06 - 05/25/06 $ 3,959,694
2,100 Skandinaviska Enskilda Banken AB* 4.37 02/03/06 2,091,373
850 Societe Generale N.A., Inc. 4.35 02/03/06 846,524
500 Spintab AB 4.33 01/31/06 498,149
1,845 Swedbank 4.22 - 4.24 01/19/06 - 01/20/06 1,840,879
2,700 UBS Finance (Delaware) LLC 4.25 - 4.33 01/26/06 - 02/28/06 2,687,387
400 Westpac Capital Corp. 4.42 02/21/06 397,469
------------
24,464,275
------------
INVESTMENT BANKS/BROKERS (1.4%)
1,270 Goldman Sachs Group, Inc. (The) 4.33 01/04/06 1,269,390
------------
TOTAL COMMERCIAL PAPER
(COST $74,320,833) 74,320,833
------------
FLOATING RATE NOTES (13.0%)
BANKING (2.8%)
2,500 Wells Fargo & Co. 4.54+ 03/03/06 2,500,587
------------
DOMESTIC BANKS (8.0%)
4,000 SunTrust Bank 4.32+ 01/26/06++ 4,000,000
1,605 U.S. Bank, N.A., Cincinnati 4.23+ 01/30/06++ 1,605,007
1,500 Wells Fargo Bank, N. A. 4.32+ 01/24/06++ 1,500,000
------------
7,105,007
------------
FINANCIAL CONGLOMERATES (2.2%)
2,000 General Electric Capital Corp. 4.46+ 02/03/06 2,000,443
------------
TOTAL FLOATING RATE NOTES
(COST $11,606,037) 11,606,037
------------
CERTIFICATES OF DEPOSIT (1.1%)
DOMESTIC BANKS
1,000 Citibank, N.A.
(COST $1,000,000) 4.28 02/15/06 1,000,000
------------
BANKER'S ACCEPTANCE (1.4%)
DOMESTIC BANKS
1,207 J.P. Morgan Chase Bank
(COST $1,203,949) 3.90 - 4.12 01/05/06 - 02/09/06 1,203,949
------------
TOTAL INVESTMENTS
(COST $88,130,819) (a) 99.0% 88,130,819
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0 908,791
----- ------------
NET ASSETS 100.0% $ 89,039,610
===== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
- ----------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
+ RATE SHOWN IS THE INTEREST RATE IN EFFECT AT DECEMBER 31, 2005.
++ DATE OF NEXT INTEREST RATE RESET.
(a) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SUMMARY OF INVESTMENTS
MATURITY SCHEDULE*
<Table>
1 - 30 Days 59%
31 - 60 Days 28
61 - 90 Days 11
91 - 120 Days 0
121+ Days 2
---
100%
===
</Table>
- ----------
* AS A PERCENTAGE OF TOTAL MARKET VALUE.
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
Flexible Income
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
GOVERNMENT AND CORPORATE BONDS (91.3%)
FOREIGN (14.0%)
ARGENTINA (0.2%)
GOVERNMENT OBLIGATIONS
ARS 682 Republic of Argentina 0.00**% 12/15/35 $ 11,056
230 Republic of Argentina++++ 5.83 12/31/33 89,355
$ 15 Republic of Argentina (h) 0.00** 12/15/35 810
5 Republic of Argentina (d)(h)++++ 8.28 12/31/33 4,564
60 Republic of Argentina (c) 13.969 04/10/49 24,300
------------
TOTAL ARGENTINA 130,085
------------
AUSTRALIA (0.3%)
OTHER METALS/MINERALS (0.0%)
70 Murrin Murrin Holdings Property Ltd. (c)(h) 9.375 08/31/07 0
------------
PROPERTY - CASUALTY INSURERS (0.3%)
200 Mantis Reef Ltd. - 144A* 4.692 11/14/08 196,635
------------
TOTAL AUSTRALIA 196,635
------------
BRAZIL (1.3%)
GOVERNMENT OBLIGATIONS
316 Federal Republic of Brazil 8.00 01/15/18 341,438
77 Federal Republic of Brazil 8.875 10/14/19 86,471
280 Federal Republic of Brazil 14.50 10/15/09 359,800
------------
TOTAL BRAZIL 787,709
------------
CANADA (1.6%)
DRUGSTORE CHAINS (0.2%)
45 Jean Coutu Group PJC Inc. (The) 7.625 08/01/12 44,550
95 Jean Coutu Group PJC Inc. (The) 8.50 08/01/14 87,400
------------
131,950
------------
FOREST PRODUCTS (0.1%)
140 Tembec Industries Inc. 8.50 02/01/11 78,400
------------
MEDIA CONGLOMERATES (0.0%)
.6 Canwest Media Inc. 8.00 09/15/12 614
------------
OTHER METALS/MINERALS (0.2%)
80 Brascan Corp. 7.125 06/15/12 87,328
------------
OTHER TRANSPORTATION (0.2%)
140 CHC Helicopter Corp. 7.375 05/01/14 142,275
------------
PULP & PAPER (0.7%)
100 Abitibi-Consolidated Inc. 6.00 06/20/13 85,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 140 Abitibi-Consolidated Inc. 8.85% 08/01/30 $ 120,400
190 Bowater Canada Finance 7.95 11/15/11 185,250
------------
390,900
------------
TELECOMMUNICATION EQUIPMENT (0.2%)
125 Nortel Networks Ltd. 6.125 02/15/06 125,625
------------
TOTAL CANADA 957,092
------------
FRANCE (0.4%)
CHEMICALS: SPECIALTY (0.1%)
65 Rhodia SA 8.875 06/01/11 66,950
------------
OILFIELD SERVICES/EQUIPMENT (0.1%)
25 CIE Generale de Geophysique S.A. 7.50 05/15/15 26,000
------------
TELECOMMUNICATIONS (0.2%)
95 France Telecom S.A. 8.50 03/01/31 127,140
------------
TOTAL FRANCE 220,090
------------
GERMANY (0.3%)
CABLE/SATELLITE TV
155 Kabel Deutschland - 144A* 10.625 07/01/14 163,912
------------
INDONESIA (0.5%)
PULP & PAPER
264 Tjiwi Kimia Finance BV - 144A* 0.00** 04/29/27 72,497
76 Tjiwi Kimia Finance BV - 144A* 5.248** 04/29/15 66,549
213 Tjiwi Kimia Finance BV - 144A* 5.248** 04/29/18 145,144
------------
TOTAL INDONESIA 284,190
------------
ISRAEL (0.3%)
ALTERNATIVE POWER GENERATION
167 Ormat Funding Corp. 8.25 12/30/20 169,377
------------
JAPAN (4.0%)
GOVERNMENT OBLIGATIONS
JPY 178,000 Japan (Government of) 0.50 06/20/06 1,511,887
110,000 Japan (Government of) 0.50 09/20/06 935,177
------------
TOTAL JAPAN 2,447,064
------------
LUXEMBOURG (0.2%)
TELECOMMUNICATIONS
$ 30 Telecom Italia Capital SpA 4.00 11/15/08 29,113
80 Telecom Italia Capital SpA 4.00 01/15/10 76,265
------------
TOTAL LUXEMBOURG 105,378
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
MEXICO (1.5%)
GOVERNMENT OBLIGATIONS (0.7%)
$ 50 United Mexican States Corp. 6.375% 01/16/13 $ 53,250
265 United Mexican States Corp. 8.375 01/14/11 302,762
39 United Mexican States Corp. 11.50 05/15/26 63,862
40 United Mexican States Corp. (Series MTN) 8.30 08/15/31 51,500
------------
471,374
------------
OIL & GAS PRODUCTION (0.6%)
170 Pemex Project Funding Master Trust - 144A* 5.791** 06/15/10 176,375
80 Pemex Project Funding Master Trust
(Issued 11/17/04) 10.00 09/15/27 107,000
30 Pemex Project Funding Master Trust
(Demand date 03/15/06)#### 10.00 09/15/27 40,237
20 Pemex Project Funding Master Trust
(Issued 12/30/04) 10.00 09/15/27 26,825
------------
350,437
------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
40 Satelites Mexicanos SA (c) 10.125 11/01/04 19,200
------------
TELECOMMUNICATIONS (0.2%)
100 Axtel SA 11.00 12/15/13 113,500
------------
TOTAL MEXICO 954,511
------------
NETHERLANDS (0.1%)
TELECOMMUNICATIONS
75 Deutsche Telekom International Finance Corp. NV 8.75 06/15/30 95,675
------------
QATAR (0.4%)
GAS DISTRIBUTORS (0.2%)
105 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* 8.294 03/15/14 121,605
------------
GOVERNMENT OBLIGATION (0.2%)
100 State of Qatar 9.75 06/15/30 153,030
------------
TOTAL QATAR 274,635
------------
RUSSIA (1.5%)
GOVERNMENT OBLIGATIONS (1.4%)
85 Federal Republic of Russia 5.00 03/31/30 96,167
110 Federal Republic of Russia 8.25 03/31/10 117,359
201 Federal Republic of Russia 11.00 07/24/18 298,673
190 Federal Republic of Russia 12.75 06/24/28 349,059
------------
861,258
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
OIL & GAS PIPELINES (0.1%)
$ 75 Gaz Capital 8.625% 04/28/34 $ 95,250
------------
TOTAL RUSSIA 956,508
------------
TURKEY (0.7%)
GOVERNMENT OBLIGATIONS
70 Citigroup, Inc. - 144A* +++ 0.00 02/23/06 108,967
90 Republic of Turkey 11.00 01/14/13 114,638
150 Republic of Turkey 11.50 01/23/12 191,063
------------
TOTAL TURKEY 414,668
------------
UNITED KINGDOM (0.1%)
ADVERTISING/MARKETING SERVICES
70 WPP Finance (UK) Corp. 5.875 06/15/14 71,161
------------
VENEZUELA (0.6%)
GOVERNMENT OBLIGATIONS
70 Republic of Venezuela 8.50 10/08/14 77,175
240 Republic of Venezuela 9.375 01/13/34 285,000
------------
TOTAL VENEZUELA 362,175
------------
TOTAL FOREIGN
(COST $8,776,186) 8,590,865
------------
UNITED STATES (77.3%)
CORPORATE BONDS (27.8%)
AEROSPACE & DEFENSE (0.7%)
165 K&F Acquisition Inc. 7.75 11/15/14 167,475
100 Northrop Grumman Corp. 4.079 11/16/06 99,248
45 Raytheon Co. 8.30 03/01/10 50,449
78 Systems 2001 Asset Trust - 144A* 6.664 09/15/13 82,653
------------
399,825
------------
AIR FREIGHT/COURIERS (0.1%)
30 Fedex Corp. 2.65 04/01/07 29,190
40 Fedex Corp. 7.25 02/15/11 43,779
------------
72,969
------------
AIRLINES (0.0%)
30 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 30,143
------------
APPAREL/FOOTWEAR (0.5%)
125 Levi Strauss & Co. 8.804** 04/01/12 126,562
200 Phillips-Van Heusen Corp. 7.25 02/15/11 204,000
------------
330,562
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
APPAREL/FOOTWEAR RETAIL (0.2%)
$ 85 Brown Shoe Co., Inc. 8.75% 05/01/12 $ 89,250
60 Limited Brands, Inc. 6.95 03/01/33 60,914
------------
150,164
------------
AUTO PARTS: O.E.M. (0.7%)
100 Arvin Meritor, Inc. 8.75 03/01/12 96,250
155 Lear Corp. (Series B) 8.11 05/15/09 144,362
154 TRW Automotive, Inc. 9.375 02/15/13 167,475
------------
408,087
------------
BEVERAGES: ALCOHOLIC (0.2%)
100 FBG Finance Ltd.- 144A* 5.125 06/15/15 97,471
------------
BROADCASTING (0.3%)
65 Lin Television Corp. 6.50 05/15/13 62,644
40 Lin Television Corp. (Series B) 6.50 05/15/13 38,550
74 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 78,347
------------
179,541
------------
BUILDING PRODUCTS (0.3%)
35 Interface Inc. 7.30 04/01/08 35,525
165 Interface Inc. 9.50 02/01/14 165,000
------------
200,525
------------
CABLE/SATELLITE TV (1.4%)
170 Cablevision Systems Corp. (Series B) 8.716** 04/01/09 172,550
116 CCH I LLC - 144A* 11.00 10/01/15 98,020
180 Comcast Cable Communications Inc. 6.75 01/30/11 190,789
100 Cox Communications, Inc. 4.625 01/15/10 96,893
95 Echostar DBS Corp. 6.375 10/01/11 91,912
65 Echostar DBS Corp. 6.625 10/01/14 62,644
75 Intelsat Bermuda Ltd. - 144A* 8.695** 01/15/12 76,594
60 Renaissance Media Group LLC 10.00 04/15/08 60,375
------------
849,777
------------
CASINO/GAMING (1.2%)
840 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B) (a)(c)(h) 13.50 03/01/10 0
215 Isle of Capri Casinos 7.00 03/01/14 210,700
335 MGM Mirage Inc. 6.00 10/01/09 334,581
299 Resort At Summerlin LP/Ras Co.(Series B) (a)(c)(h) 13.00^ 12/15/07 0
165 Station Casinos, Inc. 6.00 04/01/12 165,412
30 Station Casinos, Inc. 6.875 03/01/16 30,825
------------
741,518
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
CHEMICALS: MAJOR DIVERSIFIED (0.2%)
$ 98 Huntsman ICI Chemicals 10.125% 07/01/09 $ 101,675
45 ICI Wilmington Inc. 4.375 12/01/08 43,880
------------
145,555
------------
CHEMICALS: SPECIALTY (1.4%)
161 Equistar Chemical Funding 10.125 09/01/08 175,490
35 Equistar Chemical Funding 10.625 05/01/11 38,675
100 Innophos Inc. - 144A* 8.875 08/15/14 101,250
2 Innophos Inc. - 144A* 12.34^** 02/15/15 1,644
80 ISP Chemco 10.25 07/01/11 85,600
135 ISP Holdings Inc. (Series B) 10.625 12/15/09 142,425
40 Koppers Industry Inc. 9.875 10/15/13 43,600
175 Millennium America, Inc. 7.00 11/15/06 178,937
100 Nalco Co. 7.75 11/15/11 103,250
------------
870,871
------------
COAL (0.1%)
35 Foundation PA Coal Co. 7.25 08/01/14 36,356
------------
CONTAINERS/PACKAGING (0.9%)
100 Graham Packaging Company Inc. 8.50 10/15/12 99,000
150 Graphic Packaging International Corp. 9.50 08/15/13 144,000
150 Owens-Illinois, Inc. 7.50 05/15/10 153,000
30 Pliant Corp. 11.125 09/01/09 26,850
75 Pliant Corp.(c) 13.00 06/01/10 15,000
125 Sealed Air Corp. - 144A* 5.625 07/15/13 124,270
------------
562,120
------------
DATA PROCESSING SERVICES (0.2%)
105 Sungard Data Systems Inc. - 144A* 9.125 08/15/13 109,200
------------
DEPARTMENT STORES (0.1%)
65 Penny (JC) Co., Inc. 7.40 04/01/37 72,944
------------
DRUGSTORE CHAINS (0.1%)
55 Rite Aid Corp. 8.125 05/01/10 56,237
------------
ELECTRIC UTILITIES (2.3%)
80 AES Corp. (The) 7.75 03/01/14 84,300
11 AES Corp. (The) 8.875 02/15/11 11,949
16 AES Corp. (The) 9.375 09/15/10 17,560
60 AES Corp. (The) - 144A* 9.00 05/15/15 66,000
140 Arizona Public Service Co. 5.80 06/30/14 144,530
55 CC Funding Trust I 6.90 02/16/07 56,073
65 Cincinnati Gas & Electric Co. 5.70 09/15/12 66,808
60 Consolidated Natural Gas Co. 5.00 12/01/14 58,314
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 60 Consolidated Natural Gas Co. (Series C) 6.25% 11/01/11 $ 62,907
70 Consumers Energy Co. 4.80 02/17/09 69,137
45 Entergy Gulf States, Inc. 3.60 06/01/08 43,297
100 Entergy Gulf States, Inc. 4.81** 12/01/09 97,657
80 Exelon Corp. 6.75 05/01/11 85,265
30 IPALCO Enterprises, Inc. 8.625 11/14/11 32,850
135 Monongahela Power Co. 5.00 10/01/06 134,956
115 MSW Energy Holdings/Finance 7.375 09/01/10 118,737
25 MSW Energy Holdings/Finance 8.50 09/01/10 26,750
30 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 29,180
15 PSEG Energy Holdings Inc. 7.75 04/16/07 15,600
100 PSEG Energy Holdings Inc. 8.625 02/15/08 104,500
50 Texas Eastern Transmission, LP 7.00 07/15/32 58,490
35 Wisconsin Electric Power Co. 3.50 12/01/07 34,096
------------
1,418,956
------------
ELECTRICAL PRODUCTS (0.4%)
35 Cooper Industries Inc. 5.25 07/01/07 35,161
45 Cooper Industries Inc. - 144A* 5.25 11/15/12 45,324
85 Rayovac Corp. 8.50 10/01/13 74,587
135 Spectrum Brands, Inc. 7.375 02/01/15 113,400
------------
268,472
------------
ELECTRONICS/APPLIANCES (0.4%)
255 Eastman Kodak Co. 7.25 11/15/13 245,008
------------
ENVIRONMENTAL SERVICES (0.1%)
42 Allied Waste North America, Inc. 9.25 09/01/12 45,675
------------
FINANCE/RENTAL/LEASING (0.6%)
35 CIT Group, Inc. 2.875 09/29/06 34,520
30 CIT Group, Inc. 3.65 11/23/07 29,340
125 MBNA Corp. 4.721** 05/05/08 125,990
150 Residential Capital Corp. 6.375 06/30/10 152,565
------------
342,415
------------
FINANCIAL CONGLOMERATES (0.7%)
120 Chase Manhattan Corp. 6.00 02/15/09 123,340
10 Chase Manhattan Corp. 7.00 11/15/09 10,707
20 Citigroup Inc. 5.75 05/10/06 20,073
45 Citigroup Inc. 6.00 02/21/12 47,290
50 Citigroup Inc. 6.625 06/15/32 56,686
20 General Electric Capital Corp. 4.25 12/01/10 19,543
170 General Motors Acceptance Corp. 6.875 09/15/11 155,207
------------
432,846
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.5%)
$ 39 CA FM Lease Trust - 144A* 8.50% 07/15/17 $ 42,472
145 Delhaize America, Inc. 8.125 04/15/11 158,785
55 Kroger Co. 7.50 04/01/31 61,585
30 Safeway Inc. 7.25 02/01/31 32,469
------------
295,311
------------
FOOD: MAJOR DIVERSIFIED (0.1%)
35 ConAgra Foods, Inc. 7.00 10/01/28 38,137
25 General Mills Inc. 3.875 11/30/07 24,521
30 Kraft Foods Inc. 5.25 06/01/07 30,132
------------
92,790
------------
FOOD: MEAT/FISH/DAIRY (0.8%)
85 Michael Foods Inc. (Series B) 8.00 11/15/13 87,550
90 Pilgrim's Pride Corp. 9.625 09/15/11 96,300
60 PPC Escrow Corp. 9.25 11/15/13 64,350
125 Smithfield Foods Inc. 7.00 08/01/11 128,125
70 Smithfield Foods Inc. 7.625 02/15/08 72,625
20 Smithfield Foods Inc. (Series B) 8.00 10/15/09 21,200
------------
470,150
------------
FOREST PRODUCTS (0.0%)
5 Weyerhaeuser Co. 6.125 03/15/07 5,074
------------
GAS DISTRIBUTORS (0.7%)
130 Dynegy Holdings, Inc. 6.875 04/01/11 128,700
130 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 143,162
120 NiSource Finance Corp. 4.95** 11/23/09 120,503
45 Sempra Energy 4.621 05/17/07 44,696
------------
437,061
------------
HOME BUILDING (0.3%)
50 Tech Olympic USA, Inc. 10.375 07/01/12 49,437
50 Tech Olympic USA, Inc.(Issued 11/27/02) 9.00 07/01/10 50,813
100 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 101,625
------------
201,875
------------
HOME FURNISHINGS (0.2%)
50 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 55,178
40 Tempur-Pedic Inc. 10.25 08/15/10 43,450
------------
98,628
------------
HOSPITAL/NURSING MANAGEMENT (0.6%)
45 HCA, Inc. 6.30 10/01/12 45,450
85 HCA, Inc. 7.875 02/01/11 91,813
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 55 Medcath Holdings Corp. 9.875% 07/15/12 $ 58,300
115 Tenet Healthcare Corp. 7.375 02/01/13 106,663
65 Tenet Healthcare Corp. 9.875 07/01/14 66,138
------------
368,364
------------
HOTELS/RESORTS/CRUISELINES (0.2%)
120 Hyatt Equities LLC - 144A* 6.875 06/15/07 122,475
------------
HOUSEHOLD/PERSONAL CARE (0.1%)
75 Clorox Co. (The) 4.614** 12/14/07 75,176
------------
INDUSTRIAL MACHINERY (0.2%)
50 Goodman Global Holding Company, Inc. - 144A* 7.491** 06/15/12 49,750
70 Goodman Global Holding Company, Inc. - 144A* 7.875 12/15/12 65,450
------------
115,200
------------
INDUSTRIAL SPECIALTIES (0.3%)
165 Johnsondiversy, Inc. 9.625 05/15/12 166,650
------------
INSURANCE BROKERS/SERVICES (0.8%)
290 Farmers Exchange Capital - 144A* 7.05 07/15/28 307,620
185 Marsh & McLennan Co., Inc. 5.875 08/01/33 177,682
------------
485,302
------------
MAJOR BANKS (0.1%)
20 Bank of New York Co., Inc. (The) 5.20 07/01/07 20,106
70 Wachovia Corp. 4.95 11/01/06 70,019
------------
90,125
------------
MANAGED HEALTH CARE (0.3%)
135 Health Net, Inc. 9.875 04/15/11 157,721
30 WellPoint Health Networks Inc. 6.375 06/15/06 30,202
------------
187,923
------------
MEDIA CONGLOMERATES (0.2%)
55 News America Holdings, Inc. 7.75 02/01/24 62,177
30 News America Inc. 7.125 04/08/28 32,393
------------
94,570
------------
MEDICAL DISTRIBUTORS (0.1%)
70 AmerisourceBergen Corp. - 144A* 5.625 09/15/12 70,350
------------
MEDICAL/NURSING SERVICES (0.4%)
181 Fresenius Medical Care Capital Trust 7.875 06/15/11 193,670
25 Fresenius Medical Care Capital Trust II (Units)~ 7.875 02/01/08 25,875
25 National Nephrology Assoc. Inc. - 144A* 9.00 11/01/11 27,813
------------
247,358
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
METAL FABRICATIONS (0.1%)
$ 60 General Cable Corp. 9.50% 11/15/10 $ 63,900
------------
MISCELLANEOUS COMMERCIAL SERVICES (0.3%)
55 Iron Mountain Inc. 7.75 01/15/15 55,688
140 Iron Mountain Inc. 8.625 04/01/13 146,650
------------
202,338
------------
MISCELLANEOUS MANUFACTURING (0.3%)
200 Associated Materials Inc. 11.25^^ 03/01/14 99,000
70 Propex Fabrics Inc. 10.00 12/01/12 62,825
------------
161,825
------------
MOTOR VEHICLES (0.8%)
55 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 66,743
605 General Motors Corp. 8.375 07/15/33 402,325
------------
469,068
------------
MULTI-LINE INSURANCE (0.5%)
160 AIG Sun America Global Finance VI - 144A* 6.30 05/10/11 170,170
30 American General Finance Corp. (Series MTNH) 4.625 09/01/10 29,389
45 Hartford Financial Services Group, Inc. (The) (Note 4) 2.375 06/01/06 44,568
15 International Lease Finance Corp. 2.95 05/23/06 14,902
30 International Lease Finance Corp. 3.75 08/01/07 29,466
------------
288,495
------------
OIL & GAS PIPELINES (0.9%)
85 Colorado Interstate Gas Co. - 144A* 6.80 11/15/15 87,276
140 El Paso Production Holdings 7.75 06/01/13 145,950
95 Pacific Energy Partners/Finance 7.125 06/15/14 98,325
175 Williams Companies, Inc. (The) 7.875 09/01/21 190,313
------------
521,864
------------
OIL & GAS PRODUCTION (0.5%)
75 Hilcorp Energy/Finance - 144A* 7.75 11/01/15 76,688
78 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 86,775
40 Magnum Hunter Resources, Inc. 9.60 03/15/12 43,600
110 Pogo Producing Co. - 144A* 6.875 10/01/17 107,800
------------
314,863
------------
OIL REFINING/MARKETING (0.3%)
170 Husky Oil Ltd. 8.90 08/15/28 183,190
------------
OILFIELD SERVICES/EQUIPMENT (0.3%)
50 Hanover Compressor Co. 9.00 06/01/14 54,750
62 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 64,558
60 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 63,750
------------
183,058
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS: MAJOR (0.1%)
$ 90 Warner Chilcott Corp. - 144A* 8.75% 02/01/15 $ 83,250
------------
PROPERTY - CASUALTY INSURERS (0.1%)
85 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 84,993
------------
PUBLISHING: BOOKS/MAGAZINES (0.7%)
95 Dex Media West/Finance 9.875 08/15/13 105,925
20 Houghton Mifflin Co. 8.25 02/01/11 20,750
130 Houghton Mifflin Co. 9.875 02/01/13 139,588
175 PRIMEDIA, Inc. 8.875 05/15/11 162,313
------------
428,576
------------
PUBLISHING: NEWSPAPERS (0.1%)
45 Knight Ridder, Inc. 5.75 09/01/17 38,245
------------
RAILROADS (0.4%)
22 Burlington North Santa Fe Railway Co. 4.575 01/15/21 21,234
70 Norfolk Southern Corp. 7.35 05/15/07 72,260
30 Union Pacific Corp. 3.625 06/01/10 28,326
65 Union Pacific Corp. - 144A* 5.214 09/30/14 65,035
30 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 30,979
------------
217,834
------------
REAL ESTATE INVESTMENT TRUSTS (0.5%)
24 HMH Properties, Inc. (Series B) 7.875 08/01/08 24,390
85 Host Marriott LP 6.375 03/15/15 85,213
210 Host Marriott LP 7.125 11/01/13 219,450
------------
329,053
------------
SAVINGS BANKS (0.0%)
25 Household Finance Corp. 4.125 12/15/08 24,428
------------
SPECIALTY STORES (0.4%)
60 General Nutrition Centers Inc. 8.50 12/01/10 51,900
215 Sonic Automotive, Inc. 8.625 08/15/13 209,088
------------
260,988
------------
SPECIALTY TELECOMMUNICATIONS (0.5%)
85 American Tower Corp. 7.125 10/15/12 87,975
90 American Tower Corp. 7.50 05/01/12 94,500
125 Qwest Communications International 7.84** 02/15/09 127,344
20 U.S. West Communications Corp. 5.625 11/15/08 19,900
------------
329,719
------------
TELECOMMUNICATIONS (0.5%)
130 AT&T Corp. 9.75 11/15/31 163,780
181 Exodus Communications, Inc. (a)(c)(h) 11.625 07/15/10 0
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 433 Rhythms Netconnections, Inc. (a)(c)(h) 12.75% 04/15/09 $ 0
60 SBC Communications, Inc. 6.15 09/15/34 60,471
55 Sprint Capital Corp. 8.75 03/15/32 73,210
------------
297,461
------------
TOBACCO (0.2%)
100 RJ Reynolds Tobacco Holdings - 144A* 6.50 07/15/10 100,000
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.6%)
175 Caterpillar Financial Services Corp. (Series MTNF) 4.44** 08/20/07 175,382
122 Manitowoc Inc. (The) 10.50 08/01/12 136,030
60 NMHG Holding Co. 10.00 05/15/09 64,200
------------
375,612
------------
WHOLESALE DISTRIBUTORS (0.1%)
85 Nebraska Book Company, Inc. 8.625 03/15/12 78,625
------------
WIRELESS TELECOMMUNICATIONS (0.6%)
75 Rural Cellular Corp. 8.991** 03/15/10 77,438
68 SBA Comminications Corp. 8.50 12/01/12 75,820
89 SBA Communications Corp. 9.75^^ 12/15/11 82,993
110 Ubiquitel Operating Co. 9.875 03/01/11 122,375
------------
358,626
------------
TOTAL CORPORATE BONDS
(COST $18,794,114) 17,087,630
------------
ASSET-BACKED SECURITIES**(17.2%)
Finance/Rental/Leasing
360 Ace Securities Corp. 2005-HE4 A2A 4.489 07/25/35 360,186
290 Aegis Asset-Backed Securities Trust 2005-3 A1 4.48 08/25/35 290,118
370 Aegis Asset-Backed Securities Trust 2005-4 1A1 4.49 10/25/35 369,818
650 American Express Credit Account Master
Trust 2002-3 A 4.479 12/15/09 651,319
375 Ameriquest Mortgage Securities Inc. 2005-R4 A2B 4.52 07/25/35 375,299
87 Asset-Backed Funding Certificates 2004-OPT5 A2 4.57 06/25/25 87,243
650 BA Master Credit Card Trust 2001-A A 4.489 06/15/08 650,728
195 Bear Stearns Asset-Backed Securities,
Inc. 2004-HE5 1A1 4.57 08/25/31 194,948
205 Bear Stearns Asset-Backed Securities,
Inc. 2005-HE8 A1 4.50 08/25/35 205,292
325 Capital Auto Receivables Asset Trust 2005-1 A3 4.43 04/15/08 325,350
285 Carrington Mortgage Loan Trust 2005-NC4 A1 4.53 09/25/35 284,873
201 Countrywide Asset-Backed Certificates 2004-3 3A2 4.58 12/25/32 200,998
475 Countrywide Asset-Backed Certificates 2005-16 2AF1 4.529 05/25/36 475,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
40
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 268 Credit-Based Asset Servicing and Securities
2005-CB4 AV1 4.48% 08/25/35 $ 268,014
338 Credit-Based Asset Servicing and Securities
2005-CB5 AV1 4.489 08/25/35 337,885
174 Equifirst Mortgage Loan Trust 2005-1 A1 4.44 04/25/35 173,972
300 First Franklin Mortgage Loan Asset-Backed
Certificates 2005-FF7 A2 4.479 07/25/35 300,224
525 GE Capital Credit Card Master Note Trust 2004-1 A 4.419 06/15/10 525,641
376 GSAMP Trust 2005-HE4 A2A 4.50 08/25/35 376,440
190 GSAMP Trust 2005-HE3 A2A 4.47 06/25/35 190,162
300 Impac CMB Trust 2004-3 1A 4.629 06/25/34 300,209
248 Long Beach Mortgage Loan Trust 2005-WL1 2A1 4.49 06/25/35 247,769
600 MBNA Master Credit Card Trust 4.509 02/16/10 601,721
450 Merrill Auto Trust Securitization 2005-1 A2B 4.39 04/25/08 450,314
147 Merrill Lynch Mortgage Investors, Inc. 2005-SL1 A 4.58 06/25/35 147,152
230 Novastar Home Equity Loan 2005-1 A2A 4.50 06/25/35 230,561
299 Option One Mortgage Loan Trust 2004-3 A3 4.679 11/25/34 299,844
199 Park Place Securities Inc. 2005-WCW2 A2A 4.469 07/25/35 199,541
267 Securitized Asset-Backed Receivables LLC
2004-NC3 A2 4.77 09/25/34 267,264
354 Specialty Underwriting & Residential
Finance - 2004-BC2 A2 4.65 05/25/35 355,069
108 Structured Asset Investment Loan
Trust 2003-BC13 3A 4.72 11/25/33 108,600
351 Structured Asset Securities Corp. 2005-GEL1 A 4.729 12/25/34 351,168
152 Structured Asset Securities Corp. 2005-WMC1 A1 4.46 01/25/35 151,808
220 Terwin Mortgage Trust 2005-8HE A1-144A* 4.50 07/25/35 219,832
------------
TOTAL ASSET-BACKED SECURITIES
(COST $10,568,887) 10,574,362
------------
U.S. GOVERNMENT AGENCIES - MORTGAGE-BACKED
SECURITIES (7.9%)
Federal Home Loan Mortgage Corp. (0.4%)
234 7.50 11/01/29 - 06/01/32 245,949
------------
Federal National Mortgage Assoc. (7.3%)
735 6.50 07/01/29 - 11/01/33 756,352
2,725 7.00 04/01/31 - 10/01/35 2,844,967
231 7.50 02/01/31 - 03/01/32 242,313
455 8.00 02/01/12 - 06/01/31 485,469
113 8.50 06/01/30 122,367
------------
4,451,468
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
41
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
Government National Mortgage Assoc. (0.2%)
$ 97 7.50% 04/15/26 - 08/15/29 $ 102,664
37 8.00 02/15/26 -06/15/26 39,267
------------
141,931
------------
TOTAL U.S. GOVERNMENT AGENCIES - MORTGAGE-BACKED
SECURITIES
(COST $4,848,748) 4,839,348
------------
U.S. GOVERNMENT OBLIGATIONS (21.4%)
U.S. Treasury Bonds (8.6%)
2,050 6.125 08/15/29 2,497,718
565 6.375 08/15/27 700,093
100 7.625 02/15/25 137,820
185 8.125 08/15/21 256,753
460 8.75 05/15/17 631,817
705 (b) 8.75 08/15/20 1,014,429
------------
5,238,630
------------
U.S. Treasury Notes (7.6%)
1,000 3.875 02/15/13 969,571
210 ^^^ 4.25 08/15/13 208,182
3,520 4.25 08/15/13 - 11/15/13 3,487,755
------------
4,665,508
------------
U.S. Treasury Strips (5.2%)
1,750 0.00 08/15/17 1,031,667
700 0.00 02/15/06 696,837
1,900 0.00 08/15/22 880,755
900 0.00 02/15/25 372,330
600 0.00 02/15/27 227,265
------------
3,208,854
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $12,651,912) 13,112,992
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.0%)
U.S. GOVERNMENT AGENCIES (1.0%)
440 Federal Home Loan Mortgage Corp. (0.7%) 4.53** 09/25/45 439,916
------------
FEDERAL NATIONAL MORTGAGE ASSOC. (0.3%)
230 IO 6.50 03/01/20 31,024
412 IO 7.00 03/01/20 - 03/01/35 61,057
302 IO 8.00 03/01/35 48,479
------------
140,560
------------
Total U.S. Government Agencies 580,476
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
42
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
Private Issues (2.0%)
$ 1,800 Countrywide Alternative Loan Trust 2005-81 X1 (IO) 0.00% 02/25/37 $ 102,094
2,875 Countrywide Alternative Loan Trust 2005-59R A (IO) 1.11 12/20/35 92,541
2,575 Countrywide Alternative Loan Trust 2005-58R A (IO) 0.95 12/20/35 130,761
3,371 Harborview Mortgage Loan Trust 2005-2 X (IO) 1.464 05/19/35 90,321
250 Washington Mutual 2005-AR19 A1B1 4.62 12/25/45 250,000
300 Washington Mutual 2005-AR17 CL A1B1 4.62 12/25/45 300,000
271 Washington Mutual 2005-AR15 A1B1 4.63 11/25/45 270,775
------------
Total Private Issues 1,236,492
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,809,232) 1,816,968
------------
TOTAL UNITED STATES
(COST $48,672,893) 47,431,300
------------
TOTAL GOVERNMENT AND CORPORATE BONDS
(COST $57,449,079) 56,022,165
------------
CONVERTIBLE BOND (0.2%)
TELECOMMUNICATION EQUIPMENT
130 Nortel Networks Corp.
(COST $125,661) 4.25 09/01/08 122,525
------------
<Caption>
NUMBER OF
SHARES
- -----------
COMMON STOCKS (e)(0.1%)
CASINO/GAMING (0.0%)
787 Fitzgeralds Gaming Corp.+ (h) 0
------------
ELECTRIC UTILITIES (0.0%)
13 PNM Resources Inc. (d) 318
1 SW Acquisition (0.03% Ownership Interest, Acquired 09/22/05)(d)(f)(h) 250
------------
568
------------
FOOD: SPECIALTY/CANDY (0.0%)
100 SFAC New Holdings Inc.++ (d)(h) 0
18 SFFB New Holdings Inc. (d)(h) 0
------------
0
------------
MEDICAL/NURSING SERVICES (0.0%)
34,888 Raintree Healthcare Corp. (d)(h) 0
------------
RESTAURANTS (0.1%)
10,137 Catalina Restaurant Group (d)(h) 36,088
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
43
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
SPECIALTY TELECOMMUNICATIONS (0.0%)
1,171 Birch Telecom Inc.# (d) (h) $ 12
16,679 PFB Telecom NV (Series B) (d) (h) 0
------------
12
------------
TELECOMMUNICATIONS (0.0%)
352 Viatel Holdings Bermuda Ltd. (d) 14
------------
TEXTILES (0.0%)
11,192 U.S. Leather, Inc. (d) (h) 0
------------
WIRELESS TELECOMMUNICATIONS (0.0%)
46 USA Mobility, Inc. (d) 1,275
4,516 Vast Solutions, Inc. (Class B1) (d) (h) 0
4,516 Vast Solutions, Inc. (Class B2) (d) (h) 0
4,516 Vast Solutions, Inc. (Class B3) (d) (h) 0
------------
1,275
------------
TOTAL COMMON STOCKS
(COST $2,419,653) 37,957
------------
NON-CONVERTIBLE PREFERRED STOCK (0.0%)
RESTAURANTS
23 Catalina Restaurant Group (Units)~##^ (h)
(COST $22,531) 20,511
------------
<Caption>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- ----------
WARRANTS (e)(0.0%)
CASINO/GAMING (0.0%)
9,000 Aladdin Gaming Enterprises, Inc. - 144A*(h) 03/10/10 0
250 Resort At Summerlin LP - 144A*(h) 12/15/07 0
------------
0
------------
RESTAURANTS (0.0%)
4,250 Catalina Restaurant Group### (d) (h) 07/10/12 0
------------
TOTAL WARRANTS
(COST $92) 0
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
44
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (8.2%)
REPURCHASE AGREEMENT
$ 5,053 Joint repurchase agreement account
(dated 12/30/05; proceeds $5,055,386) (g)
(COST $5,053,000) 4.25% 01/03/06 $ 5,053,000
------------
TOTAL INVESTMENTS
(COST $65,070,016) (i) (j) 99.8% 61,256,158
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2 123,442
----- ------------
NET ASSETS 100.0% $ 61,379,600
===== ============
</Table>
- ----------
IO INTEREST ONLY SECURITY.
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31,
2005.
+ RESALE IS RESTRICTED; ACQUIRED (12/12/98) AT A COST BASIS OF $3,549.
++ RESALE IS RESTRICTED; ACQUIRED (06/10/99) AT A COST BASIS OF $1.
+++ TURKISH CURRENCY INDEX CREDIT LINKED UNSECURED NOTE.
++++ CAPITAL APPRECIATION BOND.
# RESALE IS RESTRICTED; ACQUIRED (BETWEEN 06/18/98 AND 08/05/99) AT A COST
BASIS OF $573,998.
## RESALE IS RESTRICTED; ACQUIRED (05/30/02) AT A COST BASIS OF $22,531.
### RESALE IS RESTRICTED; ACQUIRED (08/27/02) AT A COST BASIS OF $0.
#### DATE ON WHICH THE PRICIPAL AMOUNT CAN BE RECOVERED THROUGH DEMAND.
~ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
BONDS OR PREFERRED STOCK WITH ATTACHED WARRANTS.
^ PAYMENT-IN-KIND SECURITY.
^^ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT
A FUTURE DATE.
^^^ SECURITY PURCHASED ON A FORWARD COMMITMENT BASIS.
(a) ISSUER IN BANKRUPTCY.
(b) ALL OR A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $24,450.
(c) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT.
(d) ACQUIRED THROUGH EXCHANGE OFFER.
(e) NON-INCOME PRODUCING SECURITIES.
(f) RESALE IS RESTRICTED. NO TRANSACTION ACTIVITY DURING THE YEAR.
(g) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(h) SECURITIES WITH A TOTAL MARKET VALUE EQUAL TO $62,235 HAVE BEEN VALUED
AT THEIR FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES
ESTABLISHED BY AND UNDER THE GENERAL SUPERVISION OF THE FUND'S TRUSTEES.
(i) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$13,611,876 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND OPEN FUTURES CONTRACTS.
(j) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $65,776,608. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,267,694 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $5,788,144, RESULTING IN NET UNREALIZED
DEPRECIATION OF $4,520,450.
SEE NOTES TO FINANCIAL STATEMENTS
45
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION
- --------------------------------------------------------------------------------------------------------
8 Short U.S. Treasury Bond 20 Year
March 2006 $ (913,500) $ (17,773)
7 Short U.S. Treasury Note 2 Year
March 2006 (1,436,313) 79
74 Short U.S. Treasury Note 5 Year
March 2006 (7,869,438) (26,608)
30 Long U.S. Treasury Note 10 Year
March 2006 3,282,188 31,399
---------
Net Unrealized Depreciation $ (12,903)
=========
</Table>
CURRENCY ABBREVIATIONS:
ARS Argentina Peso.
JPY Japanese Yen.
SUMMARY OF INVESTMENTS
LONG-TERM CREDIT ANALYSIS
<Table>
AAA 57.5%
AA 5.0
A 3.3
BBB 8.5
BB 9.9
B 14.7
NR 1.1
-----
100.0%*
=====
</Table>
- ----------
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT
OF $3,282,188 AND UNREALIZED APPRECIATION OF $31,399 AND OPEN SHORT FUTURES
CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $10,219,251 WITH NET UNREALIZED
DEPRECIATION OF $44,302.
SEE NOTES TO FINANCIAL STATEMENTS
46
<Page>
Balanced Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS (66.6%)
ADVERTISING/MARKETING SERVICES (0.1%)
5,181 Live Nation Inc.* $ 67,874
------------
AEROSPACE & DEFENSE (1.5%)
11,300 Northrop Grumman Corp. 679,243
17,520 Raytheon Co. 703,428
------------
1,382,671
------------
BEVERAGES: ALCOHOLIC (0.5%)
8,500 Diageo PLC (ADR) (United Kingdom) 495,550
------------
BEVERAGES: NON-ALCOHOLIC (1.0%)
23,490 Coca-Cola Co. (The) 946,882
------------
BIOTECHNOLOGY (0.9%)
18,000 Chiron Corp.* 800,280
------------
BROADCASTING (1.4%)
41,450 Clear Channel Communications, Inc. 1,303,603
------------
CHEMICALS: MAJOR DIVERSIFIED (3.1%)
54,080 Bayer AG (ADR) (Germany) 2,258,381
13,860 Dow Chemical Co. (The) 607,345
------------
2,865,726
------------
COMPUTER PROCESSING HARDWARE (0.7%)
21,450 Hewlett-Packard Co. 614,114
------------
DEPARTMENT STORES (0.6%)
11,200 Kohl's Corp.* 544,320
------------
DISCOUNT STORES (1.0%)
20,500 Wal-Mart Stores, Inc. 959,400
------------
ELECTRIC UTILITIES (2.3%)
18,170 American Electric Power Co., Inc. 673,925
10,520 Entergy Corp. 722,198
14,000 FirstEnergy Corp. 685,860
------------
2,081,983
------------
FINANCE/RENTAL/LEASING (1.6%)
18,750 Freddie Mac 1,225,312
8,700 MBNA Corp. 236,205
------------
1,461,517
------------
FINANCIAL CONGLOMERATES (4.8%)
34,650 Citigroup, Inc. 1,681,564
53,796 JPMorgan Chase & Co. 2,135,163
11,970 State Street Corp. 663,617
------------
4,480,344
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
47
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED (1.6%)
21,780 Unilever N.V. (ADR) (NY Registered Shares) (Netherlands) $ 1,495,633
------------
FOOD: SPECIALTY/CANDY (0.7%)
16,800 Cadbury Schweppes PLC (ADR) (United Kingdom) 643,272
------------
HOUSEHOLD/PERSONAL CARE (0.7%)
5,300 Avon Products, Inc. 151,315
8,650 Procter & Gamble Co. (The) 500,662
------------
651,977
------------
INDUSTRIAL CONGLOMERATES (3.5%)
44,890 General Electric Co. 1,573,394
14,020 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 565,987
12,840 Siemens AG (ADR) (Germany) 1,098,976
------------
3,238,357
------------
INSURANCE BROKERS/SERVICES (0.8%)
22,900 Marsh & McLennan Companies, Inc. 727,304
------------
INTEGRATED OIL (3.6%)
14,620 BP PLC (ADR) (United Kingdom) 938,896
16,170 ConocoPhillips 940,771
7,000 Exxon Mobil Corp. 393,190
17,110 Royal Dutch Shell PLC (ADR) (Class A) (United Kingdom) 1,052,094
------------
3,324,951
------------
INVESTMENT BANKS/BROKERS (3.3%)
3,300 Goldman Sachs Group Inc. (The) 421,443
25,270 Merrill Lynch & Co., Inc. 1,711,537
65,640 Schwab (Charles) Corp. (The) 962,939
------------
3,095,919
------------
LIFE/HEALTH INSURANCE (0.3%)
17,800 Aegon N.V. (NY Registered Shares) (Netherlands) 290,496
------------
MAJOR BANKS (1.8%)
21,450 Bank of America Corp. 989,917
11,490 PNC Financial Services Group 710,427
------------
1,700,344
------------
MAJOR TELECOMMUNICATIONS (3.6%)
27,120 France Telecom S.A. (ADR) (France) 673,661
63,157 Sprint Nextel Corp. 1,475,348
38,040 Verizon Communications Inc. 1,145,765
------------
3,294,774
------------
MANAGED HEALTH CARE (1.2%)
9,920 CIGNA Corp. 1,108,064
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------
MEDIA CONGLOMERATES (3.6%)
40,810 Disney (Walt) Co. (The) $ 978,216
91,360 Time Warner, Inc. 1,593,318
23,400 Viacom Inc. (Class B) (Non-Voting) 762,840
------------
3,334,374
------------
MEDICAL SPECIALTIES (1.2%)
10,000 Applera Corp. - Applied Biosystems Group 265,600
9,560 Bausch & Lomb, Inc. 649,124
8,800 Boston Scientific Corp.* 215,512
------------
1,130,236
------------
MOTOR VEHICLES (0.6%)
19,740 Honda Motor Co., Ltd. (ADR) (Japan) 571,868
------------
MULTI-LINE INSURANCE (0.7%)
7,470 Hartford Financial Services Group, Inc. (The) (Note 4) 641,598
------------
OIL REFINING/MARKETING (0.4%)
6,700 Valero Energy Corp. 345,720
------------
OILFIELD SERVICES/EQUIPMENT (1.4%)
13,380 Schlumberger Ltd. (Netherlands Antilles) 1,299,867
------------
PACKAGED SOFTWARE (1.3%)
70,370 Symantec Corp.* 1,231,475
------------
PHARMACEUTICALS: MAJOR (8.8%)
66,620 Bristol-Myers Squibb Co. 1,530,928
12,190 GlaxoSmithKline PLC (ADR) (United Kingdom) 615,351
18,460 Lilly (Eli) & Co. 1,044,651
21,720 Roche Holdings Ltd. (ADR) (Switzerland) 1,642,032
17,200 Sanofi-Aventis (ADR) (France) 755,080
73,810 Schering-Plough Corp. 1,538,939
22,980 Wyeth 1,058,689
------------
8,185,670
------------
PRECIOUS METALS (1.2%)
21,420 Newmont Mining Corp. 1,143,828
------------
PROPERTY - CASUALTY INSURERS (3.0%)
2,500 ACE Ltd. (Cayman Islands) 133,600
10,750 Chubb Corp. (The) 1,049,737
26,026 St. Paul Travelers Companies, Inc. (The) 1,162,581
6,300 XL Capital Ltd. (Class A) (Cayman Islands) 424,494
------------
2,770,412
------------
RESTAURANTS (0.4%)
9,830 McDonald's Corp. 331,468
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
49
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (1.6%)
32,840 Intel Corp. $ 819,686
52,580 Micron Technology, Inc.* 699,840
------------
1,519,526
------------
SPECIALTY STORES (0.3%)
7,900 Office Depot, Inc.* 248,060
------------
TELECOMMUNICATION EQUIPMENT (0.6%)
23,380 Motorola, Inc. 528,154
------------
TOBACCO (0.9%)
11,580 Altria Group, Inc. 865,258
------------
TOTAL COMMON STOCKS
(COST $49,825,113) 61,722,869
------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------- -------- --------
CORPORATE BONDS (8.0%)
ADVERTISING/MARKETING SERVICES (0.0%)
$ 45 WPP Finance (UK) Corp. (United Kingdom) 5.875% 06/15/14 45,746
------------
AEROSPACE & DEFENSE (0.2%)
55 Northrop Grumman Corp. 4.079 11/16/06 54,587
10 Raytheon Co. 6.15 11/01/08 10,385
25 Raytheon Co. 8.30 03/01/10 28,027
102 Systems 2001 Asset Trust - 144A**
(Cayman Islands) 6.664 09/15/13 109,102
------------
202,101
------------
AIR FREIGHT/COURIERS (0.1%)
50 Fedex Corp. 2.65 04/01/07 48,650
------------
AIRLINES (0.2%)
104 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 111,202
45 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 45,214
------------
156,416
------------
APPAREL/FOOTWEAR RETAIL (0.1%)
45 Limited Brands, Inc. 6.95 03/01/33 45,685
------------
BEVERAGES: ALCOHOLIC (0.1%)
70 FBG Finance Ltd. - 144A**(Australia) 5.125 06/15/15 68,230
70 Miller Brewing Co. - 144A** 4.25 08/15/08 68,739
------------
136,969
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
50
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
CABLE/SATELLITE TV (0.2%)
$ 10 Comcast Cable Communications Inc. 6.75% 01/30/11 $ 10,599
10 Comcast Corp. 7.625 02/15/08 10,476
60 Cox Communications, Inc. 4.625 01/15/10 58,136
55 TCI Communications, Inc. 7.875 02/15/26 63,653
------------
142,864
------------
CASINO/GAMING (0.1%)
90 Harrah's Operating Co., Inc. 5.625 06/01/15 88,577
------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
40 ICI Wilmington Inc. 4.375 12/01/08 39,004
------------
CONTAINERS/PACKAGING (0.1%)
90 Sealed Air Corp. - 144A** 5.625 07/15/13 89,474
------------
DRUGSTORE CHAINS (0.2%)
180 CVS Corp. 5.625 03/15/06 180,218
------------
ELECTRIC UTILITIES (1.0%)
70 Ameren Corp. 4.263 05/15/07 69,020
70 Arizona Public Service Co. 5.80 06/30/14 72,265
20 Arizona Public Service Co. 6.75 11/15/06 20,267
60 Carolina Power & Light Co. 5.125 09/15/13 59,935
75 CC Funding Trust I 6.90 02/16/07 76,463
35 Cincinnati Gas & Electric Co. 5.70 09/15/12 35,974
30 Consolidated Natural Gas Co. (Series A) 5.00 12/01/14 29,157
60 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 62,907
45 Consumers Energy Co. 4.80 02/17/09 44,445
60 Detroit Edison Co. (The) 6.125 10/01/10 62,652
30 Entergy Gulf States, Inc. 3.60 06/01/08 28,865
45 Entergy Gulf States, Inc. 4.81 12/01/09 43,946
40 Exelon Corp. 6.75 05/01/11 42,632
95 FPL Group Capital Inc. 3.25 04/11/06 94,632
30 Pacific Gas & Electric Co. 6.05 03/01/34 31,155
15 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 14,590
45 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 44,553
35 Texas Eastern Transmission, LP 7.00 07/15/32 40,943
25 Wisconsin Electric Power Co. 3.50 12/01/07 24,354
------------
898,755
------------
ELECTRICAL PRODUCTS (0.1%)
70 Cooper Industries Inc. 5.25 07/01/07 70,322
40 Cooper Industries Inc. - 144A** 5.25 11/15/12 40,288
------------
110,610
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
51
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
ELECTRONICS/APPLIANCES (0.0%)
$ 40 LG Electronics Inc. - 144A**(South Korea) 5.00% 06/17/10 $ 39,208
------------
FINANCE/RENTAL/LEASING (0.7%)
55 CIT Group, Inc. 2.875 09/29/06 54,246
95 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 91,277
150 MBNA Corp. 6.125 03/01/13 159,294
95 Nationwide Building Society - 144A**
(United Kingdom) 4.25 02/01/10 92,657
135 Residential Capital Corp. 6.375 06/30/10 137,308
45 SLM Corp. 4.00 01/15/10 43,316
80 SLM Corp. (Series MTNA) 5.00 10/01/13 79,195
------------
657,293
------------
FINANCIAL CONGLOMERATES (0.6%)
105 Bank One Corp. (Series MTNA) 6.00 02/17/09 107,622
95 Chase Manhattan Corp. 6.00 02/15/09 97,644
65 Citigroup Inc. 5.625 08/27/12 67,089
60 Citigroup Inc. 5.75 05/10/06 60,220
90 Citigroup Inc. 6.00 02/21/12 94,580
40 General Electric Capital Corp. 4.25 12/01/10 39,087
10 General Electric Capital Corp. (Series MTNA) 5.875 02/15/12 10,444
100 General Electric Capital Corp. (Series MTNA) 6.75 03/15/32 117,775
------------
594,461
------------
FOOD RETAIL (0.1%)
85 Kroger Co. 7.50 04/01/31 95,176
25 Safeway Inc. 7.25 02/01/31 27,058
------------
122,234
------------
FOOD: MAJOR DIVERSIFIED (0.1%)
10 Conagra, Inc. 8.25 09/15/30 12,388
20 Conagra, Inc. 7.00 10/01/28 21,792
40 Heinz (H.J.) Co. - 144A** 6.428 12/01/08 41,118
25 Kraft Foods Inc. 5.25 06/01/07 25,110
------------
100,408
------------
FOREST PRODUCTS (0.0%)
5 Weyerhaeuser Co. 6.125 03/15/07 5,074
------------
GAS DISTRIBUTORS (0.2%)
45 NiSource Finance Corp. 4.95 11/23/09 45,189
65 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A**
(Qatar) 8.294 03/15/14 75,279
45 Sempra Energy 4.621 05/17/07 44,696
------------
165,164
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.0%)
$ 35 Mohawk Industries, Inc. (Series D) 7.20% 04/15/12 $ 38,624
------------
HOTELS/RESORTS/CRUISELINES (0.1%)
70 Hyatt Equities LLC - 144A** 6.875 06/15/07 71,444
------------
HOUSEHOLD/PERSONAL CARE (0.1%)
85 Clorox Co. (The) 4.614 12/14/07 85,200
------------
INDUSTRIAL CONGLOMERATES (0.1%)
50 Textron Financial Corp. 4.125 03/03/08 49,256
------------
INSURANCE BROKERS/SERVICES (0.3%)
200 Farmers Exchange Capital - 144A** 7.05 07/15/28 212,152
110 Marsh & McLennan Companies, Inc. 5.375 07/15/14 108,447
------------
320,599
------------
INVESTMENT BANKS/BROKERS (0.0%)
30 Goldman Sachs Group Inc. (The) 6.60 01/15/12 32,266
------------
MAJOR BANKS (0.1%)
30 Bank of New York Co., Inc. (The) 5.20 07/01/07 30,159
55 HSBC Finance Corp. 6.75 05/15/11 59,091
------------
89,250
------------
MAJOR TELECOMMUNICATIONS (0.6%)
75 Deutsche Telekom International Finance Corp. NV
(Netherlands) 8.75 06/15/30 95,675
70 France Telecom S.A. (France) 8.50 03/01/31 93,682
45 SBC Communications, Inc. 6.15 09/15/34 45,353
15 Sprint Capital Corp. 8.75 03/15/32 19,966
60 Telecom Italia Capital SA (Luxembourg) 4.00 01/15/10 57,199
45 Telecom Italia Capital SA (Luxembourg) 4.00 11/15/08 43,670
160 Verizon New England Inc. 6.50 09/15/11 164,320
------------
519,865
------------
MANAGED HEALTH CARE (0.1%)
60 WellPoint Health Networks Inc. 6.375 06/15/06 60,404
5 WellPoint Inc. 3.75 12/14/07 4,891
------------
65,295
------------
MEDIA CONGLOMERATES (0.1%)
30 News America Holdings, Inc. 7.75 02/01/24 33,915
15 News America Inc. 7.28 06/30/28 16,448
------------
50,363
------------
MOTOR VEHICLES (0.0%)
35 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 42,473
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
53
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE (0.4%)
$ 180 AIG Sun America Global Finance VI - 144A** 6.30% 05/10/11 $ 191,441
80 American General Finance Corp. (Series MTNH) 4.625 09/01/10 78,370
20 AXA Financial Inc. 6.50 04/01/08 20,735
30 Hartford Financial Services Group, Inc. (The) (Note 4) 2.375 06/01/06 29,712
30 International Lease Finance Corp. 3.75 08/01/07 29,466
------------
349,724
------------
OIL & GAS PRODUCTION (0.2%)
20 Pemex Project Funding Master Trust 7.375 12/15/14 22,270
165 Pemex Project Funding Master Trust 8.625 02/01/22 203,775
------------
226,045
------------
OTHER METALS/MINERALS (0.1%)
60 Brascan Corp. (Canada) 7.125 06/15/12 65,496
------------
PROPERTY - CASUALTY INSURERS (0.5%)
200 Mantis Reef Ltd. - 144A**(Australia) 4.692 11/14/08 196,635
55 Platinum Underwriters Finance Holdings, Ltd. 6.371 11/16/07 55,204
45 Platinum Underwriters Finance Holdings, Ltd. 7.50 06/01/17 45,946
70 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 69,994
100 XLLIAC Global Funding - 144A** 4.80 08/10/10 98,840
------------
466,619
------------
PUBLISHING: NEWSPAPERS (0.0%)
45 Knight Ridder, Inc. 5.75 09/01/17 38,245
------------
PULP & PAPER (0.1%)
50 Sappi Papier Holding AG - 144A**(Austria) 6.75 06/15/12 47,811
------------
RAILROADS (0.2%)
39 Burlington North Santa Fe Railway Co. 4.575 01/15/21 38,222
45 Burlington North Santa Fe Railway Co. 6.125 03/15/09 46,576
45 Norfolk Southern Corp. 7.35 05/15/07 46,453
35 Union Pacific Corp. 6.625 02/01/08 36,165
10 Union Pacific Corp. 6.65 01/15/11 10,663
25 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 25,816
------------
203,895
------------
REAL ESTATE DEVELOPMENT (0.2%)
164 World Financial Properties - 144A**
(Series 1996 WFP- B) 6.91 09/01/13 172,884
------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
10 EOP Operating L.P. 4.75 03/15/14 9,466
25 EOP Operating L.P. 6.763 06/15/07 25,528
10 EOP Operating L.P. 7.875 07/15/31 11,836
------------
46,830
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
54
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.1%)
$ 110 Marshall & Ilsley Bank (Series BKNT) 3.80% 02/08/08 $ 107,977
------------
SAVINGS BANKS (0.3%)
40 Household Finance Corp. 4.125 12/15/08 39,085
20 Household Finance Corp. 5.875 02/01/09 20,454
15 Household Finance Corp. 6.375 10/15/11 15,875
65 Household Finance Corp. 6.40 06/17/08 67,094
55 Washington Mutual Bank 5.50 01/15/13 55,940
45 Washington Mutual Inc. 8.25 04/01/10 50,151
------------
248,599
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.1%)
20 Caterpillar Financial Services Corp. (Series MTNF) 3.625 11/15/07 19,569
80 Caterpillar Financial Services Corp. (Series MTNF) 4.44 08/20/07 80,175
------------
99,744
------------
WIRELESS TELECOMMUNICATIONS (0.1%)
70 Vodafone Group PLC (United Kingdom) 4.61 12/28/07 70,023
------------
TOTAL CORPORATE BONDS
(COST $7,241,695) 7,377,438
------------
FOREIGN GOVERNMENT OBLIGATIONS (0.1%)
50 United Mexican States (Mexico) 8.375 01/14/11 57,125
45 United Mexican States (Mexico) (Series MTN) 8.30 08/15/31 57,937
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $108,261) 115,062
------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (13.2%)
U.S. Treasury Bonds
50 6.125 08/15/29 60,920
410 6.375 08/15/27 508,032
1,540 7.625 02/15/25 2,122,434
740 8.125 8/15/19 - 08/15/21 1,020,831
200 8.50 02/15/20 280,625
425 8.75 08/15/20 611,535
U.S. Treasury Notes
210 1.625 02/28/06 209,278
1,025 3.875 02/15/13 993,810
2,225 4.25 8/15/13 - 11/15/13 2,205,251
2,460 ++ 4.25 08/15/13 2,438,709
90 4.625 05/15/06 90,120
750 5.00 02/15/11 772,706
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
55
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Strips
$ 425 0.00% 02/15/27 $ 160,979
1,860 0.00 02/15/25 769,235
------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(COST $11,918,413) 12,244,465
------------
MORTGAGE-BACKED SECURITIES (2.9%)
Federal Home Loan Mortgage Corp.
225 6.50 03/01/33 231,395
1 7.50 08/01/30 1,472
230 Federal Home Loan Mortgage Corp. (Gold) 7.50 09/01/25 - 06/01/32 241,661
Federal National Mortgage Assoc.
148 (ARM) 4.10 07/01/33 148,694
239 6.50 01/01/32 245,939
1,265 7.00 05/01/31 - 08/01/35 1,321,151
100 7.50 08/01/29 - 01/01/31 105,160
281 8.00 12/01/28 - 01/01/32 300,407
62 Government National Mortgage Assoc. 7.50 08/15/23 - 10/15/29 65,524
------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $2,667,625) 2,661,403
------------
ASSET-BACKED SECURITIES (5.3%)
FINANCE/RENTAL/LEASING
150 American Express Credit Account Master Trust
2002-3 A 4.479+ 12/15/09 150,304
300 American Express Credit Account Master Trust
2003-3 A 4.479+ 11/15/10 300,856
175 Banc of America Securities Auto Trust
2005-WF1 A3 3.99 08/18/09 172,984
100 Capital Auto Receivables Asset Trust 2004-2 A 3.35 02/15/08 98,786
175 Capital Auto Receivables Asset Trust 2005-1 A4 4.05 07/15/09 173,184
150 Caterpillar Financial Asset Trust 2005-A A3 3.90 02/25/09 148,272
215 Chase Credit Card Master Trust 2001-4 A 5.50 11/17/08 215,982
75 CIT Equipment Collateral 2004-EF1 A3 3.50 09/20/08 73,917
100 CNH Equipment Trust 2005-A A3 4.02 04/15/09 98,969
225 CNH Equipment Trust 2005-B A3 4.27 01/15/10 222,769
125 Daimler Chrysler Auto Trust 2005-B A3 4.04 09/08/09 123,682
125 Ford Credit Auto Owner Trust 2005B A3 4.17 01/15/09 124,091
150 GE Dealer Floorplan Master Note Trust 2004-1 A 4.42+ 07/20/08 150,108
175 GE Equipment Small Ticket LLC -2005-2A 4.88 10/22/09 175,027
200 Harley-Davidson Motorcycle Trust 2005-1 A2 3.76 12/17/12 196,194
125 Harley-Davidson Motorcycle Trust 2005-2 A2 4.07 02/15/12 123,168
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
56
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$ 100 Hertz Vehicle Financing LLC 2005-2A 4.93% 02/25/10 $ 100,250
100 Honda Auto Receivables Owner Trust 2005-2 A3 3.93 01/15/09 98,896
150 Honda Auto Receivables Owner Trust 2005-3 A3 3.87 04/20/09 147,955
125 Honda Auto Receivables Owner Trust 2005-6 A3 4.85 10/19/09 125,208
100 Hyundai Auto Receivables Trust 2005-A A3 3.98 11/16/09 98,668
100 MBNA Master Credit Card Trust 1999-B A 5.90 08/15/11 103,382
200 Merrill Auto Trust Securitization 2005-1 A3 4.10 08/25/09 197,830
125 National City Auto Receivables Trust 2004-A A4 2.88 05/15/11 120,517
175 Nissan Auto Receivables Owner Trust 2005-B A3 3.99 07/15/09 173,073
50 TXU Electric Delivery Transition Bond Co. LLC
2004-1 A2 4.81 11/17/14 49,550
200 USAA Auto Owner Trust 2004-2 A-4 3.58 02/15/11 196,162
200 USAA Auto Owner Trust 2004-3 A3 3.16 02/17/09 197,283
125 USAA Auto Owner Trust 2005-1 A3 3.90 07/15/09 123,646
125 Volkswagen Auto Lease Trust 2005-A A3 3.82 05/20/08 123,822
175 Volkswagen Auto Loan Enhanced Trust 4.80 07/20/09 175,047
75 Wachovia Auto Owner Trust 2004-B A3 2.91 04/20/09 73,920
75 Wachovia Auto Owner Trust 2005-A A3 4.06 09/21/09 74,220
125 Wachovia Auto Owner Trust 2005-B A3 4.79 04/20/10 125,000
75 World Omni Auto Receivables Trust 2004-A A3 3.29 11/12/08 74,207
------------
TOTAL ASSET-BACKED SECURITIES
(COST $4,958,824) 4,926,929
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
196 Freddie Mac Whole Loan 2005-S001-2 A2 4.53+ 09/25/45 195,518
386 Fannie Mae 2005-68 X1 (IO) 6.00 08/25/35 116,609
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $263,450) 312,127
------------
SHORT-TERM INVESTMENTS (6.0%)
REPURCHASE AGREEMENT (5.9%)
5,415 Joint repurchase agreement account
(dated 12/30/05; proceeds $5,417,557) (b)
(COST $5,415,000) 4.25 01/03/06 5,415,000
------------
U.S. GOVERNMENT AGENCY & OBLIGATION (a)(0.1%)
100 U.S. Treasury Bills***(COST $99,897) 3.35 01/12/06 99,897
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $5,514,897) 5,514,897
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
57
<Page>
<Table>
<Caption>
VALUE
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $82,498,278) (c)(d) 102.4% $ 94,875,190
LIABILITIES IN EXCESS OF OTHER ASSETS (2.4) (2,241,819)
----- ------------
NET ASSETS 100.0% $ 92,633,371
===== ============
</Table>
- ----------
ADR AMERICAN DEPOSITARY RECEIPT.
ARM ADJUSTABLE RATE MORTGAGE.
IO INTEREST-ONLY SECURITY.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $15,180.
+ FLOATING RATE SECURITY, RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31,
2005.
++ SECURITY PURCHASED ON A FORWARD COMMITMENT BASIS.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$5,868,527, IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $83,637,402. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $13,398,766 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $2,160,978, RESULTING IN NET UNREALIZED
APPRECIATION OF $11,237,788.
SEE NOTES TO FINANCIAL STATEMENTS
58
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------------------
7 Short U.S. Treasury Bond 20 Year,
March 2006 $ (799,312) $ (15,496)
1 Long U.S. Treasury Note 10 Year,
March 2006 109,406 1,388
20 Short U.S. Treasury Note 5 Year,
March 2006 (2,126,875) (10,709)
2 Short U.S. Treasury Note 2 Year,
March 2006 (410,375) 245
---------
Net Unrealized Depreciation $ (24,572)
=========
</Table>
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ---------------------------------------------------------------------
Common Stocks $ 61,722,869 66.6%
U.S. Government Agencies & Obligations 12,244,465 13.2
Corporate Bonds 7,377,438 8.0
Short-Term Investments 5,514,897 6.0
Asset-Backed Securities 4,926,929 5.3
Mortgage-Backed Securities 2,661,403 2.9
Collateralized Mortgage Obligations 312,127 0.3
Foreign Government Obligations 115,062 0.1
------------ -----
$ 94,875,190* 102.4%
============ =====
</Table>
- ----------
* DOES NOT INCLUDE OPEN SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE
AMOUNT OF $3,336,562 WITH NET DEPRECIATION OF $25,960 AND AN OPEN LONG
FUTURES CONTRACT WITH AN UNDERLYING FACE AMOUNT OF $109,406 AND UNREALIZED
APPRECIATION OF $1,388.
SEE NOTES TO FINANCIAL STATEMENTS
59
<Page>
Utilities
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (96.0%)
ELECTRIC UTILITIES (58.3%)
100,000 AES Corp. (The)* $ 1,583,000
32,000 Allegheny Energy, Inc.* 1,012,800
30,000 Ameren Corp. 1,537,200
43,000 American Electric Power Co., Inc. 1,594,870
42,000 CMS Energy Corp.* 609,420
25,000 Consolidated Edison, Inc. 1,158,250
38,000 Constellation Energy Group, Inc. 2,188,800
33,000 Dominion Resources, Inc. 2,547,600
30,000 DPL, Inc. 780,300
55,710 Duke Energy Corp. 1,529,240
60,000 Edison International 2,616,600
31,500 Entergy Corp. 2,162,475
45,000 Exelon Corp. 2,391,300
35,000 FirstEnergy Corp. 1,714,650
60,000 FPL Group, Inc. 2,493,600
44,000 NRGEnergy, Inc.* 2,073,280
45,000 NSTAR 1,291,500
54,000 PG&E Corp. 2,004,480
21,400 Pinnacle West Capital Corp. 884,890
47,000 PNM Resources Inc. 1,151,030
80,000 PPL Corp. 2,352,000
38,000 Reliant Energy, Inc.* 392,160
50,000 SCANA Corp. 1,969,000
50,000 Southern Co. (The) 1,726,500
30,000 TECO Energy, Inc. 515,400
46,000 TXU Corp. 2,308,740
46,000 Wisconsin Energy Corp. 1,796,760
------------
44,385,845
------------
ENERGY (22.4%)
49,000 AGL Resources, Inc. 1,705,690
12,000 Burlington Resources, Inc. 1,034,400
50,000 Equitable Resources, Inc. 1,834,500
22,600 KeySpan Corp. 806,594
17,000 Kinder Morgan, Inc. 1,563,150
53,500 MDU Resources Group, Inc. 1,751,590
33,000 New Jersey Resources Corp. 1,382,370
15,000 Peabody Energy Corp. 1,236,300
26,000 Questar Corp. 1,968,200
47,000 Sempra Energy 2,107,480
71,000 Williams Companies, Inc. (The) 1,645,070
------------
17,035,344
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
60
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (15.3%)
25,160 ALLTEL Corp. $ 1,587,596
53,000 American Tower Corp. (Class A)* 1,436,300
51,272 AT&T Inc. 1,255,651
40,500 BellSouth Corp. 1,097,550
17,625 CenturyTel, Inc. 584,445
98,025 Sprint Nextel Corp. 2,289,864
22,400 Telefonica de Espana S.A. (ADR) (Spain) 1,008,448
50,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico) 1,234,000
25,394 Verizon Communications Inc. 764,867
19,000 Vodafone Group PLC (ADR) (United Kingdom) 407,930
------------
11,666,651
------------
TOTAL COMMON STOCKS
(COST $45,423,038) 73,087,840
------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------- -------- -------------------
CORPORATE BONDS (1.3%)
ELECTRIC UTILITIES (0.8%)
$ 15 Appalachian Power Co. (Series G) 3.60% 05/15/08 14,540
25 Carolina Power & Light Co. 5.13 09/15/13 24,973
45 Cleco Power LLC 5.38 05/01/13 44,728
60 Commonwealth Edison Co. (Series 98) 6.15 03/15/12 62,590
35 Duquesne Light Co. (Series O) 6.70 04/15/12 38,029
10 Entergy Gulf States, Inc. 3.60 06/01/08 9,622
10 Entergy Gulf States, Inc. 4.81 12/01/09 9,766
45 Exelon Corp. 6.75 05/01/11 47,962
25 FirstEnergy Corp. (Series B) 6.45 11/15/11 26,532
15 Indianapolis Power & Light Co. - 144A** 6.30 07/01/13 15,803
60 Jersey Central Power & Light Co. (Series MTN) 6.45 05/15/06 60,367
20 Pacific Gas & Electric Co. 6.05 03/01/34 20,770
60 Pinnacle West Capital Corp. 6.40 04/01/06 60,266
55 Public Service Co. of New Mexico (Series B) 7.50 08/01/18 62,863
30 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 29,702
30 Texas-New Mexico Power Co. 6.25 01/15/09 30,811
20 TXU Energy Co. 7.00 03/15/13 21,343
------------
580,667
------------
ENERGY (0.0%)
15 Panhandle Eastern Pipe Line Co. 4.80 08/15/08 14,839
10 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 9,727
------------
24,566
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
61
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.5%)
$ 10 AT&T Corp. 9.05% 11/15/11 $ 11,081
60 France Telecom S.A. (France) 8.75 03/01/31 80,299
110 GTE Corp. 7.90 02/01/27 116,547
80 SBC Communications, Inc. 6.15 09/15/34 80,628
35 Sprint Capital Corp. 8.38 03/15/12 40,614
35 Sprint Capital Corp. 8.75 03/15/32 46,588
25 Vodafone Airtouch PLC (United Kingdom) 7.75 02/15/10 27,405
------------
403,162
------------
TOTAL CORPORATE BONDS
(COST $972,251) 1,008,395
------------
U.S. GOVERNMENT OBLIGATIONS (0.1%)
30 U.S. Treasury Bond 6.13 08/15/29 36,552
100 U.S. Treasury Strip 0.00 02/15/25 41,370
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $69,287) 77,922
------------
SHORT-TERM INVESTMENT(2.5%)
REPURCHASE AGREEMENT
1,883 Joint repurchase agreement account
(dated 12/30/05; proceeds $1,883,889) (a)
(COST $1,883,000) 4.25 01/03/06 1,883,000
------------
TOTAL INVESTMENTS
(COST $48,347,576)(b) 99.9% 76,057,157
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 32,525
----- ------------
NET ASSETS 100.0% $ 76,089,682
===== ============
</Table>
- ----------
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $49,288,776. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $27,117,690 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $349,309, RESULTING IN NET UNREALIZED
APPRECIATION OF $26,768,381.
SEE NOTES TO FINANCIAL STATEMENTS
62
<Page>
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------------------------
Electric Utilities $ 44,966,512 59.1%
Energy 17,059,910 22.4
Telecommunications 12,069,813 15.8
Repurchase Agreement 1,883,000 2.5
U.S. Government Obligations 77,922 0.1
--------------- -----
$ 76,057,157 99.9%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
63
<Page>
Dividend Growth
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (96.5%)
ADVERTISING/MARKETING
SERVICES (0.2%)
24,000 Clear Channel Outdoor
Holdings, Inc. (Class A)* $ 481,200
-------------
AEROSPACE & DEFENSE (1.0%)
53,063 Northrop Grumman Corp. 3,189,617
-------------
APPAREL/FOOTWEAR (1.4%)
75,228 V.F. Corp. 4,163,117
-------------
AUTO PARTS: O.E.M. (0.8%)
33,651 Johnson Controls, Inc. 2,453,494
-------------
BEVERAGES:
NON-ALCOHOLIC (1.7%)
127,041 Coca-Cola Co. (The) 5,121,023
-------------
BIOTECHNOLOGY (1.0%)
32,507 Genentech, Inc.* 3,006,897
-------------
CHEMICALS:
AGRICULTURAL (1.9%)
76,281 Monsanto Co. 5,914,066
-------------
COMPUTER
COMMUNICATIONS (1.3%)
181,443 Juniper Networks, Inc.* 4,046,179
-------------
COMPUTER PROCESSING
HARDWARE (1.9%)
81,112 Apple Computer, Inc.* 5,831,142
-------------
CONTRACT DRILLING (0.6%)
26,500 Transocean Inc.
(Cayman Islands)* 1,846,785
-------------
DISCOUNT STORES (2.9%)
161,324 Target Corp. 8,867,980
-------------
DRUGSTORE CHAINS (2.1%)
240,502 CVS Corp. 6,354,063
-------------
ELECTRIC UTILITIES (2.5%)
77,448 Exelon Corp. 4,115,587
87,579 FPL Group, Inc. 3,639,783
-------------
7,755,370
-------------
FINANCIAL
CONGLOMERATES (5.5%)
189,789 Citigroup, Inc. 9,210,460
67,310 JPMorgan Chase & Co. $ 2,671,534
51,059 UBS AG (Switzerland) 4,858,264
-------------
16,740,258
-------------
FINANCIAL PUBLISHING/
SERVICES (1.0%)
58,111 McGraw-Hill Companies,
Inc. (The) 3,000,271
-------------
FOOD: MAJOR DIVERSIFIED (3.8%)
198,032 PepsiCo, Inc. 11,699,731
-------------
HOME IMPROVEMENT
CHAINS (1.4%)
107,568 Home Depot, Inc. (The) 4,354,353
-------------
HOTELS/RESORTS/
CRUISELINES (0.6%)
29,300 Starwood Hotels & Resorts
Worldwide, Inc. 1,871,098
-------------
HOUSEHOLD/PERSONAL
CARE (3.3%)
172,685 Procter & Gamble Co. (The) 9,995,008
-------------
INDUSTRIAL
CONGLOMERATES (10.0%)
106,700 3M Co. 8,269,250
289,423 General Electric Co. 10,144,276
215,446 United Technologies Corp. 12,045,586
-------------
30,459,112
-------------
INFORMATION TECHNOLOGY
SERVICES (1.8%)
66,318 International Business
Machines Corp. 5,451,340
-------------
INSURANCE BROKERS/
SERVICES (0.4%)
34,600 Marsh & McLennan
Companies, Inc. 1,098,896
-------------
INTEGRATED OIL (6.9%)
142,400 BP PLC (ADR)
(United Kingdom) 9,144,928
214,929 Exxon Mobil Corp. 12,072,562
-------------
21,217,490
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
64
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
INTERNET SOFTWARE/
SERVICES (3.1%)
11,200 Google, Inc. (Class A)* $ 4,646,432
123,997 Yahoo!, Inc.* 4,858,202
-------------
9,504,634
-------------
INVESTMENT BANKS/
BROKERS (3.3%)
30,783 Goldman Sachs Group,
Inc. (The) 3,931,297
5,100 Legg Mason, Inc. 610,419
84,098 Merrill Lynch & Co., Inc. 5,695,957
-------------
10,237,673
-------------
INVESTMENT MANAGERS (2.0%)
183,092 Mellon Financial Corp. 6,270,901
-------------
LIFE/HEALTH INSURANCE (1.4%)
81,552 Lincoln National Corp. 4,324,703
-------------
MAJOR BANKS (3.4%)
223,996 Bank of America Corp. 10,337,415
-------------
MANAGED HEALTH CARE (4.3%)
97,027 Caremark Rx, Inc.* 5,025,028
130,056 UnitedHealth Group Inc. 8,081,680
-------------
13,106,708
-------------
MEDICAL SPECIALTIES (2.8%)
8,758 Alcon, Inc. (Switzerland) 1,135,037
43,900 Boston Scientific Corp.* 1,075,111
41,008 Fisher Scientific
International, Inc.* 2,536,755
67,900 Medtronic, Inc. 3,909,003
-------------
8,655,906
-------------
OFFICE EQUIPMENT/
SUPPLIES (2.5%)
179,589 Pitney Bowes, Inc. 7,587,635
-------------
OIL & GAS PRODUCTION (2.2%)
152,041 XTO Energy Inc. 6,680,682
-------------
OILFIELD SERVICES/
EQUIPMENT (1.9%)
64,544 Halliburton Co. $ 3,999,146
47,000 Weatherford International Ltd.
(Bermuda)* 1,701,400
-------------
5,700,546
-------------
PACKAGED SOFTWARE (2.1%)
247,661 Microsoft Corp. 6,476,335
-------------
PHARMACEUTICALS: MAJOR (5.4%)
144,736 Bristol-Myers Squibb Co. 3,326,033
88,919 Johnson & Johnson 5,344,032
169,388 Wyeth 7,803,705
-------------
16,473,770
-------------
PROPERTY - CASUALTY
INSURERS (0.7%)
30,500 XL Capital Ltd. (Class A)
(Cayman Islands) 2,055,090
-------------
SEMICONDUCTORS (4.6%)
46,600 Advanced Micro
Devices, Inc.* 1,425,960
167,820 Intel Corp. 4,188,787
66,103 Marvell Technology Group, Ltd.
(Bermuda)* 3,707,717
148,522 Texas Instruments Inc. 4,763,101
-------------
14,085,565
-------------
TELECOMMUNICATION
EQUIPMENT (1.0%)
68,270 QUALCOMM Inc. 2,941,072
-------------
TOBACCO (1.8%)
72,789 Altria Group, Inc. 5,438,794
-------------
TOTAL COMMON STOCKS
(COST $221,877,371) 294,795,919
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
65
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT(3.4%)
REPURCHASE AGREEMENT
$ 10,547 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05; proceeds
$10,551,981) (a)
(COST $10,547,000) $ 10,547,000
-------------
TOTAL INVESTMENTS
(COST $232,424,371)(b) 99.9% 305,342,919
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.1 234,822
----- -------------
NET ASSETS 100.0% $ 305,577,741
===== =============
</Table>
- ----------
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $234,648,613. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $73,646,521 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $2,952,215, RESULTING IN NET UNREALIZED
APPRECIATION OF $70,694,306.
SEE NOTES TO FINANCIAL STATEMENTS
66
<Page>
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------------------
Industrial Conglomerates $ 30,459,112 10.0%
Integrated Oil 21,217,490 6.9
Financial Conglomerates 16,740,258 5.5
Pharmaceuticals: Major 16,473,770 5.4
Semiconductors 14,085,565 4.6
Managed Health Care 13,106,708 4.3
Food: Major Diversified 11,699,731 3.8
Repurchase Agreement 10,547,000 3.4
Major Banks 10,337,415 3.4
Investment Banks/Brokers 10,237,673 3.3
Household/Personal Care 9,995,008 3.3
Internet Software/Services 9,504,634 3.1
Discount Stores 8,867,980 2.9
Medical Specialties 8,655,906 2.8
Electric Utilities 7,755,370 2.5
Office Equipment/Supplies 7,587,635 2.5
Oil & Gas Production 6,680,682 2.2
Packaged Software 6,476,335 2.1
Drugstore Chains 6,354,063 2.1
Investment Managers 6,270,901 2.0
Chemicals: Agricultural 5,914,066 1.9
Computer Processing Hardware 5,831,142 1.9
Oilfield Services/Equipment 5,700,546 1.9
Information Technology Services $ 5,451,340 1.8%
Tobacco 5,438,794 1.8
Beverages: Non-Alcoholic 5,121,023 1.7
Home Improvement Chains 4,354,353 1.4
Life/Health Insurance 4,324,703 1.4
Apparel/Footwear 4,163,117 1.4
Computer Communications 4,046,179 1.3
Aerospace & Defense 3,189,617 1.0
Biotechnology 3,006,897 1.0
Financial Publishing/Services 3,000,271 1.0
Telecommunication Equipment 2,941,072 1.0
Auto Parts: O.E.M. 2,453,494 0.8
Property - Casualty Insurers 2,055,090 0.7
Hotels/Resorts/Cruiselines 1,871,098 0.6
Contract Drilling 1,846,785 0.6
Insurance Brokers/Services 1,098,896 0.4
Advertising/Marketing Services 481,200 0.2
------------- ----
$ 305,342,919 99.9%
============= ====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
67
<Page>
EQUALLY-WEIGHTED S&P 500
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (97.8%)
ADVERTISING/MARKETING
SERVICES (0.4%)
1,668 Live Nation Inc.* $ 21,856
44,645 Interpublic Group of Companies, Inc. (The)* 430,824
4,998 Omnicom Group, Inc. 425,480
-------------
878,160
-------------
AEROSPACE & DEFENSE (1.6%)
6,204 Boeing Co. 435,769
3,835 General Dynamics Corp. 437,382
10,988 Goodrich Corp. 451,607
6,080 L-3 Communications Holdings, Inc. 452,048
6,878 Lockheed Martin Corp. 437,647
7,421 Northrop Grumman Corp. 446,076
11,080 Raytheon Co. 444,862
9,264 Rockwell Collins, Inc. 430,498
-------------
3,535,889
-------------
AGRICULTURAL COMMODITIES/
MILLING (0.2%)
17,513 Archer-Daniels-Midland Co. 431,871
-------------
AIR FREIGHT/COURIERS (0.4%)
4,394 FedEx Corp. 454,296
5,774 United Parcel Service, Inc. (Class B) 433,916
-------------
888,212
-------------
AIRLINES (0.2%)
26,092 Southwest Airlines Co. 428,692
-------------
ALUMINUM (0.2%)
15,547 Alcoa, Inc. 459,725
-------------
APPAREL/FOOTWEAR (1.4%)
10,281 Cintas Corp. 423,372
12,954 Coach, Inc.* 431,886
14,620 Jones Apparel Group, Inc. 449,126
12,539 Liz Claiborne, Inc. 449,147
4,959 Nike, Inc. (Class B) 430,392
7,586 Reebok International Ltd. 441,733
7,793 V.F. Corp. 431,265
-------------
3,056,921
-------------
APPAREL/FOOTWEAR RETAIL (0.8%)
24,060 Gap, Inc. (The) $ 424,418
19,165 Limited Brands, Inc. 428,338
12,063 Nordstrom, Inc. 451,156
19,007 TJX Companies, Inc. (The) 441,533
-------------
1,745,445
-------------
AUTO PARTS: O.E.M. (0.6%)
64,539 Dana Corp. 463,390
6,525 Eaton Corp. 437,762
5,936 Johnson Controls, Inc. 432,794
-------------
1,333,946
-------------
AUTOMOTIVE AFTERMARKET (0.4%)
29,753 Cooper Tire & Rubber Co. 455,816
25,079 Goodyear Tire & Rubber Co. (The)* 435,873
-------------
891,689
-------------
BEVERAGES: ALCOHOLIC (0.8%)
9,911 Anheuser-Busch Companies, Inc. 425,777
6,143 Brown-Forman Corp. (Class B) 425,833
17,540 Constellation Brands Inc. (Class A)* 460,074
6,626 Molson Coors Brewing Co. (Class B) 443,876
-------------
1,755,560
-------------
BEVERAGES:
NON-ALCOHOLIC (0.6%)
10,649 Coca-Cola Co. (The) 429,261
22,054 Coca-Cola Enterprises Inc. 422,775
14,897 Pepsi Bottling Group, Inc. (The) 426,203
-------------
1,278,239
-------------
BIOTECHNOLOGY (1.4%)
5,555 Amgen Inc.* 438,067
9,686 Biogen Idec Inc.* 439,066
9,786 Chiron Corp.* 435,086
6,167 Genzyme Corp.* 436,500
8,658 Gilead Sciences, Inc.* 455,671
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
68
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
12,440 MedImmune, Inc.* $ 435,649
6,533 Millipore Corp.* 431,439
-------------
3,071,478
-------------
BROADCASTING (0.4%)
13,347 Clear Channel Communications, Inc. 419,763
14,508 Univision Communications, Inc. (Class A)* 426,390
-------------
846,153
-------------
BUILDING PRODUCTS (0.4%)
10,636 American Standard Companies, Inc. 424,908
14,324 Masco Corp. 432,442
-------------
857,350
-------------
CABLE/SATELLITE TV (0.2%)
16,357 Comcast Corp. (Class A)* 424,628
-------------
CASINO/GAMING (0.4%)
6,530 Harrah's Entertainment, Inc. 465,524
14,877 International Game Technology 457,914
-------------
923,438
-------------
CHEMICALS: AGRICULTURAL (0.2%)
5,805 Monsanto Co. 450,062
-------------
CHEMICALS: MAJOR DIVERSIFIED (1.2%)
10,038 Dow Chemical Co. (The) 439,865
10,327 Du Pont (E.I.) de Nemours & Co. 438,897
8,626 Eastman Chemical Co. 445,015
14,571 Engelhard Corp. 439,316
37,477 Hercules Inc.* 423,490
9,132 Rohm & Haas Co. 442,171
-------------
2,628,754
-------------
CHEMICALS: SPECIALTY (0.8%)
7,399 Air Products & Chemicals, Inc. 437,947
7,756 Ashland Inc. 449,072
8,387 Praxair, Inc. 444,176
6,885 Sigma-Aldrich Corp. 435,752
-------------
1,766,947
-------------
COMMERCIAL PRINTING/FORMS (0.2%)
12,640 Donnelley (R.R.) & Sons Co. $ 432,414
-------------
COMPUTER COMMUNICATIONS (0.6%)
41,403 Avaya Inc.* 441,770
25,049 Cisco Systems, Inc.* 428,839
13,545 QLogic Corp.* 440,348
-------------
1,310,957
-------------
COMPUTER PERIPHERALS (0.6%)
32,011 EMC Corp.* 435,990
9,210 Lexmark International, Inc. (Class A)* 412,884
14,698 Network Appliance, Inc.* 396,846
5,600 Seagate Technology Inc. (Escrow) (a) 0
-------------
1,245,720
-------------
COMPUTER PROCESSING HARDWARE (1.1%)
6,152 Apple Computer, Inc.* 442,267
13,482 Dell, Inc.* 404,325
161,347 Gateway, Inc.* 404,981
15,175 Hewlett-Packard Co. 434,460
12,699 NCR Corp.* 431,004
99,067 Sun Microsystems, Inc.* 415,091
-------------
2,532,128
-------------
CONSTRUCTION MATERIALS (0.2%)
6,247 Vulcan Materials Co. 423,234
-------------
CONTAINERS/PACKAGING (1.0%)
10,934 Ball Corp. 434,298
16,279 Bemis Company, Inc. 453,696
19,940 Pactiv Corp.* 438,680
8,089 Sealed Air Corp.* 454,359
10,138 Temple-Inland Inc. 454,689
-------------
2,235,722
-------------
CONTRACT DRILLING (0.8%)
5,782 Nabors Industries, Ltd. (Bermuda)* 437,986
6,105 Noble Corp. (Cayman Islands) 430,647
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
69
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
12,033 Rowan Companies, Inc. $ 428,856
6,494 Transocean Inc. (Cayman Islands)* 452,567
-------------
1,750,056
-------------
DATA PROCESSING SERVICES (1.4%)
7,949 Affiliated Computer Services, Inc. (Class A)* 470,422
9,418 Automatic Data Processing, Inc. 432,192
8,922 Computer Sciences Corp.* 451,810
25,635 Convergys Corp.* 406,315
10,062 First Data Corp. 432,767
10,232 Fiserv, Inc.* 442,739
10,712 Paychex, Inc. 408,341
-------------
3,044,586
-------------
DEPARTMENT STORES (0.8%)
18,091 Dillard's, Inc. (Class A) 449,019
6,754 Federated Department Stores, Inc. 447,993
9,607 Kohl's Corp.* 466,900
8,228 Penney (J.C.) Co., Inc. 457,477
-------------
1,821,389
-------------
DISCOUNT STORES (1.4%)
36,573 Big Lots, Inc.* 439,242
9,003 Costco Wholesale Corp. 445,378
22,940 Dollar General Corp. 437,466
19,123 Family Dollar Stores, Inc. 474,059
3,668 Sears Holdings Corp.* 423,764
8,146 Target Corp. 447,786
8,908 Wal-Mart Stores, Inc. 416,894
-------------
3,084,589
-------------
DRUGSTORE CHAINS (0.4%)
15,529 CVS Corp. 410,276
9,480 Walgreen Co. 419,585
-------------
829,861
-------------
ELECTRIC UTILITIES (5.0%)
27,041 AES Corp. (The)* 428,059
13,694 Allegheny Energy, Inc.* 433,415
8,396 Ameren Corp. $ 430,211
11,728 American Electric Power Co., Inc. 434,992
32,997 CenterPoint Energy, Inc. 424,011
10,449 Cinergy Corp. 443,665
29,593 CMS Energy Corp.* 429,394
9,367 Consolidated Edison, Inc. 433,973
7,123 Constellation Energy Group, Inc. 410,285
5,426 Dominion Resources, Inc. 418,887
9,929 DTE Energy Co. 428,834
16,087 Duke Energy Corp. 441,588
9,322 Edison International 406,532
6,233 Entergy Corp. 427,895
8,039 Exelon Corp. 427,192
8,839 FirstEnergy Corp. 433,023
10,218 FPL Group, Inc. 424,660
11,699 PG&E Corp. 434,267
10,165 Pinnacle West Capital Corp. 420,323
14,565 PPL Corp. 428,211
9,757 Progress Energy, Inc. 428,527
6,599 Public Service Enterprise Group, Inc. 428,737
12,404 Southern Co. (The) 428,310
24,490 TECO Energy, Inc. 420,738
8,191 TXU Corp. 411,106
23,220 Xcel Energy, Inc. 428,641
-------------
11,105,476
-------------
ELECTRICAL PRODUCTS (0.8%)
19,644 American Power Conversion Corp. 432,168
5,855 Cooper Industries Ltd. (Class A) (Bermuda) 427,415
5,812 Emerson Electric Co. 434,156
16,436 Molex Inc. 426,514
-------------
1,720,253
-------------
ELECTRONIC COMPONENTS (0.6%)
12,493 Jabil Circuit, Inc.* 463,365
102,299 Sanmina-SCI Corp.* 435,794
117,343 Solectron Corp.* 429,475
-------------
1,328,634
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
70
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (1.6%)
12,433 Agilent Technologies, Inc.* $ 413,895
167,506 JDS Uniphase Corp.* 395,314
7,338 Rockwell Automation, Inc. 434,116
10,134 Scientific-Atlanta, Inc. 436,471
35,710 Symbol Technologies, Inc. 457,802
16,147 Tektronix, Inc. 455,507
13,999 Thermo Electron Corp.* 421,790
29,200 Xerox Corp.* 427,780
-------------
3,442,675
-------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.8%)
23,184 Applied Materials, Inc. 415,921
8,661 KLA-Tencor Corp. 427,247
17,832 Novellus Systems, Inc.* 430,108
29,693 Teradyne, Inc.* 432,627
-------------
1,705,903
-------------
ELECTRONICS/APPLIANCE STORES (0.6%)
9,761 Best Buy Co., Inc. 424,408
20,653 Circuit City Stores - Circuit City Group 466,551
19,777 RadioShack Corp. 415,910
-------------
1,306,869
-------------
ELECTRONICS/APPLIANCES (0.6%)
18,225 Eastman Kodak Co. 426,465
23,160 Maytag Corp. 435,871
5,231 Whirlpool Corp. 438,149
-------------
1,300,485
-------------
ENGINEERING & CONSTRUCTION (0.2%)
5,737 Fluor Corp. 443,241
-------------
ENVIRONMENTAL SERVICES (0.4%)
48,069 Allied Waste Industries, Inc.* 420,123
14,153 Waste Management, Inc. 429,544
-------------
849,667
-------------
FINANCE/RENTAL/LEASING (1.6%)
5,161 Capital One Financial Corp. $ 445,910
8,390 CIT Group, Inc. 434,434
12,384 Countrywide Financial Corp. 423,409
9,237 Fannie Mae 450,858
6,648 Freddie Mac 434,447
15,948 MBNA Corp. 432,988
10,576 Ryder System, Inc. 433,827
8,193 SLM Corp. 451,352
-------------
3,507,225
-------------
FINANCIAL CONGLOMERATES (1.2%)
8,451 American Express Co. 434,888
8,890 Citigroup, Inc. 431,432
11,030 JPMorgan Chase & Co. 437,781
8,827 Principal Financial Group, Inc. 418,665
5,867 Prudential Financial, Inc. 429,406
7,518 State Street Corp. 416,798
-------------
2,568,970
-------------
FINANCIAL PUBLISHING/SERVICES (0.6%)
11,565 Equifax, Inc. 439,701
8,381 McGraw-Hill Companies, Inc. (The) 432,711
7,137 Moody's Corp. 438,355
-------------
1,310,767
-------------
FOOD DISTRIBUTORS (0.2%)
13,454 SYSCO Corp. 417,747
-------------
FOOD RETAIL (0.9%)
18,038 Albertson's, Inc. 385,111
22,965 Kroger Co.* 433,579
17,971 Safeway Inc. 425,194
13,693 Supervalu, Inc. 444,749
3,900 Whole Foods Market, Inc. 301,821
-------------
1,990,454
-------------
FOOD: MAJOR DIVERSIFIED (1.4%)
14,479 Campbell Soup Co. 431,040
21,397 ConAgra Foods Inc. 433,931
8,822 General Mills, Inc. 435,101
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
71
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
12,607 Heinz (H.J.) Co. $ 425,108
9,833 Kellogg Co. 424,982
7,337 PepsiCo, Inc. 433,470
23,220 Sara Lee Corp. 438,858
-------------
3,022,490
-------------
FOOD: MEAT/FISH/DAIRY (0.2%)
26,029 Tyson Foods, Inc. (Class A) 445,096
-------------
FOOD: SPECIALTY/CANDY (0.6%)
7,583 Hershey Foods Corp. 418,961
14,493 McCormick & Co., Inc. (Non-Voting) 448,124
6,367 Wrigley (Wm.) Jr. Co. 423,342
-------------
1,290,427
-------------
FOREST PRODUCTS (0.4%)
16,430 Louisiana-Pacific Corp. 451,332
6,622 Weyerhaeuser Co. 439,303
-------------
890,635
-------------
GAS DISTRIBUTORS (1.2%)
92,006 Dynegy, Inc. (Class A)* 445,309
12,404 KeySpan Corp. 442,699
10,608 Nicor Inc. 417,000
19,984 NiSource, Inc. 416,866
11,647 Peoples Energy Corp. 408,460
9,401 Sempra Energy 421,541
-------------
2,551,875
-------------
HOME BUILDING (1.0%)
6,146 Centex Corp. 439,378
11,608 D.R. Horton, Inc. 414,754
5,860 KB Home 425,788
6,983 Lennar Corp. (Class A) 426,103
10,345 Pulte Homes, Inc. 407,179
-------------
2,113,202
-------------
HOME FURNISHINGS (0.4%)
18,196 Leggett & Platt, Inc. 417,780
18,279 Newell Rubbermaid, Inc. 434,675
-------------
852,455
-------------
HOME IMPROVEMENT CHAINS (0.6%)
10,327 Home Depot, Inc. (The) $ 418,037
6,323 Lowe's Companies, Inc. 421,491
9,990 Sherwin-Williams Co. 453,746
-------------
1,293,274
-------------
HOSPITAL/NURSING MANAGEMENT (0.8%)
8,422 HCA, Inc. 425,311
19,324 Health Management Associates, Inc. (Class A) 424,355
11,035 Manor Care, Inc. 438,862
51,936 Tenet Healthcare Corp.* 397,830
-------------
1,686,358
-------------
HOTELS/RESORTS/CRUISELINES (0.8%)
8,336 Carnival Corp. (Panama) 445,726
19,090 Hilton Hotels Corp. 460,260
6,481 Marriott International, Inc. (Class A) 434,033
6,870 Starwood Hotels & Resorts Worldwide, Inc. 438,718
-------------
1,778,737
-------------
HOUSEHOLD/PERSONAL CARE (1.4%)
9,585 Alberto-Culver Co. 438,514
14,978 Avon Products, Inc. 427,622
7,870 Clorox Co. (The) 447,724
7,846 Colgate-Palmolive Co. 430,353
13,100 International Flavors & Fragrances, Inc. 438,850
7,423 Kimberly-Clark Corp. 442,782
7,583 Procter & Gamble Co. (The) 438,904
-------------
3,064,749
-------------
INDUSTRIAL CONGLOMERATES (1.8%)
5,693 3M Co. 441,207
7,867 Danaher Corp. 438,821
12,171 General Electric Co. ** 426,594
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
72
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
11,585 Honeywell International, Inc. $ 431,541
10,744 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 433,735
4,308 ITT Industries, Inc. 442,949
5,678 Textron, Inc. 437,092
15,463 Tyco International Ltd. (Bermuda) 446,262
7,563 United Technologies Corp. 422,847
-------------
3,921,048
-------------
INDUSTRIAL MACHINERY (0.4%)
4,875 Illinois Tool Works Inc. 428,951
6,385 Parker Hannifin Corp. 421,155
-------------
850,106
-------------
INDUSTRIAL SPECIALTIES (0.4%)
12,294 Ecolab Inc. 445,903
7,744 PPG Industries, Inc. 448,378
-------------
894,281
-------------
INFORMATION TECHNOLOGY SERVICES (0.8%)
16,255 Citrix Systems, Inc.* 467,819
18,692 Electronic Data Systems Corp. 449,356
5,272 International Business Machines Corp. 433,358
71,593 Unisys Corp.* 417,387
-------------
1,767,920
-------------
INSURANCE BROKERS/SERVICES (0.4%)
12,141 AON Corp. 436,469
13,630 Marsh & McLennan Companies, Inc. 432,889
-------------
869,358
-------------
INTEGRATED OIL (1.0%)
3,465 Amerada Hess Corp. 439,431
7,631 Chevron Corp. 433,212
7,652 ConocoPhillips 445,193
7,558 Exxon Mobil Corp. 424,533
8,150 Murphy Oil Corp. 440,019
-------------
2,182,388
-------------
INTERNET RETAIL (0.2%)
8,918 Amazon.com, Inc.* $ 420,484
-------------
INTERNET SOFTWARE/SERVICES (0.4%)
41,677 Siebel Systems, Inc. 440,943
10,371 Yahoo!, Inc.* 406,336
-------------
847,279
-------------
INVESTMENT BANKS/BROKERS (1.6%)
10,385 Ameriprise Financial, Inc. 425,785
3,733 Bear Stearns Companies, Inc. (The) 431,273
20,682 E*TRADE Group, Inc.* 431,427
3,470 Goldman Sachs Group, Inc. (The) 443,154
3,403 Lehman Brothers Holdings Inc. 436,163
6,378 Merrill Lynch & Co., Inc. 431,982
7,716 Morgan Stanley (Note 4) 437,806
29,084 Schwab (Charles) Corp. (The) 426,662
-------------
3,464,252
-------------
INVESTMENT MANAGERS (1.0%)
11,716 Federated Investors, Inc. (Class B) 433,961
4,524 Franklin Resources, Inc. 425,301
23,270 Janus Capital Group, Inc. 433,520
12,864 Mellon Financial Corp. 440,592
5,891 Price (T.) Rowe Group, Inc. 424,329
-------------
2,157,703
-------------
LIFE/HEALTH INSURANCE (1.4%)
9,226 AFLAC, Inc. 428,271
12,546 Genworth Financial Inc. (Class A) 433,841
7,863 Jefferson-Pilot Corp. 447,641
8,413 Lincoln National Corp. 446,141
8,809 MetLife, Inc. 431,641
7,962 Torchmark Corp. 442,687
20,068 UnumProvident Corp. 456,547
-------------
3,086,769
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
73
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
MAJOR BANKS (2.3%)
9,344 Bank of America Corp. $ 431,226
13,711 Bank of New York Co., Inc. (The) 436,695
10,117 BB&T Corp. 424,003
7,599 Comerica, Inc. 431,319
17,987 Huntington Bancshares, Inc. 427,191
12,893 KeyCorp 424,566
12,603 National City Corp. 423,083
6,870 PNC Financial Services Group 424,772
12,561 Regions Financial Corp. 429,084
5,987 SunTrust Banks, Inc. 435,614
8,143 Wachovia Corp. 430,439
6,885 Wells Fargo & Co. 432,585
-------------
5,150,577
-------------
MAJOR TELECOMMUNICATIONS (1.0%)
6,861 ALLTEL Corp. 432,929
17,583 AT&T Inc. 430,608
15,810 BellSouth Corp. 428,451
17,890 Sprint Nextel Corp. 417,910
14,393 Verizon Communications Inc. 433,517
-------------
2,143,415
-------------
MANAGED HEALTH CARE (1.4%)
4,544 Aetna, Inc. 428,545
8,264 Caremark Rx, Inc.* 427,993
3,941 CIGNA Corp. 440,210
7,688 Coventry Health Care, Inc.* 437,908
9,303 Humana, Inc.* 505,432
6,951 UnitedHealth Group Inc. 431,935
5,610 WellPoint Inc.* 447,622
-------------
3,119,645
-------------
MEDIA CONGLOMERATES (0.8%)
17,767 Disney (Walt) Co. (The) 425,875
27,636 News Corp Inc. (Class A) 429,740
24,381 Time Warner, Inc. 425,205
12,897 Viacom Inc. (Class B) (Non-Voting) 420,442
-------------
1,701,262
-------------
MEDICAL DISTRIBUTORS (0.8%)
10,840 AmerisourceBergen Corp. $ 448,776
6,376 Cardinal Health, Inc. 438,350
8,406 McKesson Corp. 433,666
12,813 Patterson Companies, Inc.* 427,954
-------------
1,748,746
-------------
MEDICAL SPECIALTIES (3.3%)
16,382 Applera Corp. - Applied Biosystems Group 435,106
6,559 Bard (C.R.), Inc. 432,369
5,376 Bausch & Lomb, Inc. 365,030
11,396 Baxter International, Inc. 429,059
7,386 Becton, Dickinson & Co. 443,751
11,719 Biomet, Inc. 428,564
17,117 Boston Scientific Corp.* 419,195
6,955 Fisher Scientific International, Inc.* 430,236
6,555 Guidant Corp. 424,436
9,966 Hospira, Inc.* 426,345
7,600 Medtronic, Inc. 437,532
16,111 Pall Corp. 432,741
18,620 PerkinElmer, Inc. 438,687
8,479 St. Jude Medical, Inc.* 425,646
9,192 Stryker Corp. 408,401
11,369 Waters Corp.* 429,748
6,133 Zimmer Holdings, Inc.* 413,610
-------------
7,220,456
-------------
MISCELLANEOUS COMMERCIAL SERVICES (0.2%)
18,218 Sabre Holdings Corp. (Class A) 439,236
-------------
MISCELLANEOUS MANUFACTURING (0.2%)
10,618 Dover Corp. 429,923
-------------
MOTOR VEHICLES (0.6%)
52,875 Ford Motor Co. 408,195
20,048 General Motors Corp. 389,332
8,354 Harley-Davidson, Inc. 430,147
-------------
1,227,674
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
74
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
MULTI-LINE INSURANCE (0.8%)
6,737 American International Group, Inc. $ 459,665
5,073 Hartford Financial Services Group,
Inc. (The) (Note 4) 435,720
4,548 Loews Corp. 431,378
7,692 Safeco Corp. 434,598
-------------
1,761,361
-------------
OFFICE EQUIPMENT/SUPPLIES (0.4%)
7,844 Avery Dennison Corp. 433,538
10,414 Pitney Bowes, Inc. 439,991
-------------
873,529
-------------
OIL & GAS PIPELINES (0.6%)
35,651 El Paso Corp. 433,516
4,670 Kinder Morgan, Inc. 429,406
18,487 Williams Companies, Inc. (The) 428,344
-------------
1,291,266
-------------
OIL & GAS PRODUCTION (1.6%)
4,581 Anadarko Petroleum Corp. 434,050
6,314 Apache Corp. 432,635
5,158 Burlington Resources, Inc. 444,620
6,840 Devon Energy Corp. 427,774
5,652 EOG Resources, Inc. 414,687
4,743 Kerr-McGee Corp. 430,949
5,428 Occidental Petroleum Corp. 433,589
9,558 XTO Energy Inc. 419,979
-------------
3,438,283
-------------
OIL REFINING/MARKETING (0.6%)
7,102 Marathon Oil Corp. 433,009
5,531 Sunoco, Inc. 433,520
8,396 Valero Energy Corp. 433,234
-------------
1,299,763
-------------
OILFIELD SERVICES/EQUIPMENT (1.2%)
7,163 Baker Hughes Inc. 435,367
11,559 BJ Services Co. 423,869
6,887 Halliburton Co. $ 426,719
6,891 National OilwellVarco, Inc.* 432,066
4,393 Schlumberger Ltd. (Netherlands Antilles) 426,780
11,884 Weatherford International Ltd. (Bermuda)* 430,201
-------------
2,575,002
-------------
OTHER CONSUMER SERVICES (0.8%)
6,885 Apollo Group, Inc. (Class A)* 416,267
18,157 Block (H.&R.), Inc. 445,754
26,232 Cendant Corp. 452,502
9,554 eBay, Inc.* 413,211
-------------
1,727,734
-------------
OTHER CONSUMER SPECIALTIES (0.2%)
5,638 Fortune Brands, Inc. 439,877
-------------
OTHER METALS/MINERALS (0.2%)
3,113 Phelps Dodge Corp. 447,867
-------------
PACKAGED SOFTWARE (2.3%)
11,306 Adobe Systems, Inc. 417,870
9,952 Autodesk, Inc. 427,438
21,565 BMC Software, Inc.* 441,867
15,118 Computer Associates International, Inc. 426,176
47,342 Compuware Corp.* 424,658
8,251 Intuit Inc.* 439,778
13,507 Mercury Interactive Corp.* 375,360
16,361 Microsoft Corp. ** 427,840
50,913 Novell, Inc.* 449,562
34,583 Oracle Corp.* 422,258
71,476 Parametric Technology Corp.* 436,004
25,664 Symantec Corp.* 449,120
-------------
5,137,931
-------------
PERSONNEL SERVICES (0.4%)
10,904 Monster Worldwide, Inc.* 445,101
11,216 Robert Half International, Inc. 424,974
-------------
870,075
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
75
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS: GENERIC DRUGS (0.4%)
20,939 Mylan Laboratories, Inc. $ 417,942
13,380 Watson Pharmaceuticals, Inc.* 434,984
-------------
852,926
-------------
PHARMACEUTICALS: MAJOR (1.6%)
10,925 Abbott Laboratories 430,773
19,930 Bristol-Myers Squibb Co. 457,991
7,211 Johnson & Johnson 433,381
7,746 Lilly (Eli) & Co. 438,346
14,624 Merck & Co., Inc. 465,189
19,436 Pfizer, Inc. 453,248
22,198 Schering-Plough Corp. 462,828
9,778 Wyeth 450,472
-------------
3,592,228
-------------
PHARMACEUTICALS: OTHER (0.6%)
4,044 Allergan, Inc. 436,590
10,675 Forest Laboratories, Inc.* 434,259
25,816 King Pharmaceuticals, Inc.* 436,807
-------------
1,307,656
-------------
PRECIOUS METALS (0.4%)
8,158 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 438,900
8,691 Newmont Mining Corp. 464,099
-------------
902,999
-------------
PROPERTY - CASUALTY INSURERS (1.4%)
8,009 ACE Ltd. (Cayman Islands) 428,001
8,083 Allstate Corp. (The) 437,048
4,546 Chubb Corp. (The) 443,917
9,753 Cincinnati Financial Corp. 435,764
3,665 Progressive Corp. (The) 427,999
9,805 St. Paul Travelers Companies, Inc. (The) 437,989
6,649 XL Capital Ltd. (Class A) (Cayman Islands) 448,010
-------------
3,058,728
-------------
PUBLISHING: BOOKS/MAGAZINES (0.2%)
8,510 Meredith Corp. $ 445,413
-------------
PUBLISHING: NEWSPAPERS (1.2%)
12,341 Dow Jones & Co., Inc. 437,982
7,099 Gannett Co., Inc. 429,986
6,903 Knight-Ridder, Inc. 436,960
16,105 New York Times Co. (The) (Class A) 425,977
9,600 Scripps (E.W.) Co. (Class A) 460,992
14,248 Tribune Co. 431,144
-------------
2,623,041
-------------
PULP & PAPER (0.4%)
13,027 International Paper Co. 437,837
15,651 MeadWestvaco Corp. 438,698
-------------
876,535
-------------
RAILROADS (0.8%)
6,522 Burlington Northern Santa Fe Corp. 461,888
8,895 CSX Corp. 451,599
10,204 Norfolk Southern Corp. 457,445
5,639 Union Pacific Corp. 453,996
-------------
1,824,928
-------------
REAL ESTATE INVESTMENT TRUSTS (1.8%)
11,334 Apartment Investment & Management Co. (Class A) 429,219
10,271 Archstone-Smith Trust 430,252
15,081 Equity Office Properties Trust 457,407
11,044 Equity Residential 432,041
11,762 Plum Creek Timber Co., Inc. 424,020
9,556 ProLogis 446,456
6,282 Public Storage, Inc. 425,417
5,563 Simon Property Group, Inc. 426,293
5,177 Vornado Realty Trust 432,124
-------------
3,903,229
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
76
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
RECREATIONAL PRODUCTS (0.8%)
10,863 Brunswick Corp. $ 441,690
8,215 Electronic Arts, Inc.* 429,727
21,629 Hasbro, Inc. 436,473
26,597 Mattel, Inc. 420,765
-------------
1,728,655
-------------
REGIONAL BANKS (2.1%)
16,345 AmSouth Bancorporation 428,402
8,852 Compass Bancshares, Inc. 427,463
11,127 Fifth Third Bancorp 419,710
11,131 First Horizon National Corp. 427,876
3,985 M&T Bank Corp. 434,564
9,994 Marshall & Ilsley Corp. 430,142
15,844 North Fork Bancorporation, Inc. 433,492
8,104 Northern Trust Corp. 419,949
15,477 Synovus Financial Corp. 418,034
14,194 U.S. Bancorp 424,259
5,786 Zions Bancorporation 437,190
-------------
4,701,081
-------------
RESTAURANTS (1.0%)
11,309 Darden Restaurants, Inc. 439,694
12,630 McDonald's Corp. 425,884
14,071 Starbucks Corp.* 422,271
8,024 Wendy's International, Inc. 443,406
9,080 Yum! Brands, Inc. 425,670
-------------
2,156,925
-------------
SAVINGS BANKS (0.6%)
6,491 Golden West Financial Corp. 428,406
20,374 Sovereign Bancorp, Inc. 440,486
10,018 Washington Mutual, Inc. 435,783
-------------
1,304,675
-------------
SEMICONDUCTORS (3.1%)
15,580 Advanced Micro Devices, Inc.* 476,748
23,001 Altera Corp.* 426,209
11,612 Analog Devices, Inc. 416,522
163,146 Applied Micro Circuits Corp.* 419,285
8,953 Broadcom Corp. (Class A)* $ 422,134
16,612 Freescale Semiconductor Inc. (Class B)* 418,124
16,637 Intel Corp. 415,260
11,718 Linear Technology Corp. 422,668
53,716 LSI Logic Corp.* 429,728
11,662 Maxim Integrated Products, Inc. 422,631
32,105 Micron Technology, Inc.* 427,318
16,123 National Semiconductor Corp. 418,876
11,910 NVIDIA Corp.* 435,430
56,192 PMC - Sierra, Inc.* 433,240
13,271 Texas Instruments Inc. 425,601
16,164 Xilinx, Inc. 407,494
-------------
6,817,268
-------------
SERVICES TO THE HEALTH INDUSTRY (1.0%)
4,976 Express Scripts, Inc.* 416,989
17,603 IMS Health Inc. 438,667
8,047 Laboratory Corp. of America Holdings* 433,331
7,636 Medco Health Solutions Inc.* 426,089
8,427 Quest Diagnostics Inc. 433,822
-------------
2,148,898
-------------
SPECIALTY INSURANCE (0.6%)
5,639 Ambac Financial Group, Inc. 434,541
7,266 MBIA Inc. 437,123
6,765 MGIC Investment Corp. 445,272
-------------
1,316,936
-------------
SPECIALTY STORES (1.3%)
19,419 AutoNation, Inc.* 421,975
4,761 AutoZone, Inc.* 436,822
10,457 Bed Bath & Beyond Inc.* 378,021
14,513 Office Depot, Inc.* 455,708
15,623 OfficeMax Inc. 396,199
19,411 Staples, Inc. 440,824
11,205 Tiffany & Co. 429,039
-------------
2,958,588
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
77
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
SPECIALTY TELECOMMUNICATIONS (0.6%)
12,999 CenturyTel, Inc. $ 431,047
34,152 Citizens Communications Co. 417,679
74,133 Qwest Communications International, Inc.* 418,851
-------------
1,267,577
-------------
STEEL (0.6%)
12,870 Allegheny Technologies Inc. 464,350
6,626 Nucor Corp. 442,087
9,364 United States Steel Corp. 450,127
-------------
1,356,564
-------------
TELECOMMUNICATION EQUIPMENT (1.7%)
18,256 ADC Telecommunications, Inc.* 407,839
39,969 Andrew Corp.* 428,867
149,274 CIENA Corp.* 443,344
16,094 Comverse Technology, Inc.* 427,939
20,909 Corning, Inc.* 411,071
155,076 Lucent Technologies Inc.* 412,502
19,583 Motorola, Inc. 442,380
9,764 QUALCOMM Inc. 420,633
40,043 Tellabs, Inc.* 436,469
-------------
3,831,044
-------------
TOBACCO (0.6%)
5,676 Altria Group, Inc. 424,111
4,511 Reynolds American, Inc. 430,034
10,553 UST, Inc. 430,879
-------------
1,285,024
-------------
TOOLS/HARDWARE (0.6%)
5,157 Black & Decker Corp. 448,453
11,388 Snap-On, Inc. 427,733
9,062 Stanley Works (The) 435,338
-------------
1,311,524
-------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.0%)
7,359 Caterpillar Inc. 425,129
4,930 Cummins Inc. 442,369
6,268 Deere & Co. 426,913
15,696 Navistar International Corp.* $ 449,220
6,258 PACCAR, Inc. 433,241
-------------
2,176,872
-------------
WHOLESALE DISTRIBUTORS (0.4%)
10,015 Genuine Parts Co. 439,859
6,226 Grainger (W.W.), Inc. 442,669
-------------
882,528
-------------
TOTAL COMMON STOCKS
(COST $133,486,030) 216,488,531
-------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ------------
SHORT-TERM INVESTMENT (2.1%)
REPURCHASE AGREEMENT
$ 4,630 Joint repurchase agreement
account 4.25% due
01/03/06 (dated 12/30/05;
proceeds $4,632,186) (b)
(COST $4,630,000) 4,630,000
-------------
TOTAL INVESTMENTS
(COST $138,116,030) (c)(d) 99.9% 221,118,531
----- -------------
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 154,403
----- -------------
NET ASSETS 100.0% $ 221,272,934
===== =============
</Table>
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH
OPEN FUTURES CONTRACTS IN THE AMOUNT OF $128,250.
(a) A SECURITY WITH TOTAL MARKET VALUE EQUAL TO $0 HAS BEEN VALUED AT ITS
FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY
AND UNDER GENERAL SUPERVISION OF THE FUND'S TRUSTEES.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$3,059,529 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $138,623,225. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $86,366,367 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $3,871,061, RESULTING IN NET UNREALIZED
APPRECIATION OF $82,495,306.
SEE NOTES TO FINANCIAL STATEMENTS
78
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION
- -----------------------------------------------------------------------------------
3 Long S&P Midcap 400 Index
March 2006 $ 1,114,800 $ (5,190)
15 Long S&P Midcap 400 Mini Index
March 2006 1,114,800 (8,452)
3 Long S&P 500 Index
March 2006 941,100 (3,504)
-------------
Total Unrealized Depreciation $ (17,146)
=============
</Table>
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
SECTOR VALUE NET ASSETS
- ------------------------ --------------------------------
Finance $ 36,850,864 16.7%
Electronic Technology 25,750,218 11.6
Health Technology 16,044,744 7.2
Retail Trade 15,450,953 7.0
Consumer Non-Durables 15,198,506 6.9
Utilities 13,657,351 6.2
Consumer Services 12,649,187 5.7
Producer Manufacturing 12,163,027 5.5
Technology Services 10,797,716 4.9
Consumer Durables 9,865,561 4.5
Process Industries 9,284,172 4.2
Health Services 6,954,901 3.1
Energy Minerals 6,920,434 3.1
Industrial Services 6,909,232 3.1
Repurchase Agreement 4,630,000 2.1
Non-Energy Minerals 4,481,024 2.0
Commercial Services 3,908,796 1.8
Communications 3,410,992 1.5
Transportation 3,141,832 1.4
Distribution Services 3,049,021 1.4
------------- ----------
Total $ 221,118,531* 99.9%
============= ==========
</Table>
* DOES NOT INCLUDE OUTSTANDING LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE
AMOUNT OF $3,170,700 WITH TOTAL UNREALIZED DEPRECIATION OF $17,146.
SEE NOTES TO FINANCIAL STATEMENTS
79
<Page>
GROWTH
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (98.4%)
ADVERTISING/MARKETING SERVICES (1.9%)
11,418 Getty Images, Inc.* $ 1,019,285
------------
AIR FREIGHT/COURIERS (2.8%)
19,640 C.H. Robinson Worldwide, Inc. 727,269
11,200 Expeditors International of Washington, Inc. 756,112
------------
1,483,381
------------
BIOTECHNOLOGY (2.0%)
11,200 Genentech, Inc.* 1,036,000
------------
CASINO/GAMING (2.2%)
38,500 International Game Technology 1,185,030
------------
CHEMICALS: AGRICULTURAL (4.2%)
28,420 Monsanto Co. 2,203,403
------------
COMPUTER PERIPHERALS (0.0%)
20,100 Seagate Technology Inc. (Escrow) (a) 0
------------
COMPUTER PROCESSING HARDWARE (4.2%)
13,000 Apple Computer, Inc.* 934,570
42,819 Dell, Inc.* 1,284,142
------------
2,218,712
------------
DATA PROCESSING SERVICES (1.4%)
19,150 Paychex, Inc. 729,998
------------
DISCOUNT STORES (7.0%)
42,500 Costco Wholesale Corp. 2,102,475
13,900 Sears Holdings Corp.* 1,605,867
------------
3,708,342
------------
FINANCE/RENTAL/LEASING (1.5%)
23,000 Countrywide Financial Corp. 786,370
------------
FINANCIAL CONGLOMERATES (2.7%)
Brookfield Asset Management
28,000 Inc. (Class A) (Canada) 1,409,240
------------
FINANCIAL PUBLISHING/SERVICES (1.5%)
13,250 Moody's Corp. 813,815
------------
GAS DISTRIBUTORS (1.2%)
8,700 Questar Corp. $ 658,590
------------
HOME BUILDING (1.5%)
20,100 Pulte Homes, Inc. 791,136
------------
HOME IMPROVEMENT CHAINS (2.6%)
34,075 Home Depot, Inc. (The) 1,379,356
------------
HOTELS/RESORTS/CRUISELINES (2.9%)
28,500 Carnival Corp. (Panama) 1,523,895
------------
INDUSTRIAL CONGLOMERATES (1.3%)
24,900 Tyco International Ltd. (Bermuda) 718,614
------------
INSURANCE BROKERS/SERVICES (1.5%)
24,600 Marsh & McLennan Companies, Inc. 781,296
------------
INTERNET RETAIL (2.5%)
27,600 Amazon.com, Inc.* 1,301,340
------------
INTERNET SOFTWARE/SERVICES (8.3%)
6,310 Google, Inc. (Class A)* 2,617,767
45,440 Yahoo!, Inc.* 1,780,339
------------
4,398,106
------------
INVESTMENT BANKS/BROKERS (2.0%)
2,900 Chicago Mercantile Exchange Holdings, Inc. 1,065,721
------------
MANAGED HEALTH CARE (3.1%)
26,800 UnitedHealth Group Inc. 1,665,352
------------
MEDICAL SPECIALTIES (4.1%)
5,500 Alcon, Inc. (Switzerland) 712,800
16,500 Dade Behring Holdings, Inc. 674,685
15,200 St. Jude Medical, Inc.* 763,040
------------
2,150,525
------------
MISCELLANEOUS COMMERCIAL SERVICES (3.4%)
11,900 Corporate Executive Board Co. (The) 1,067,430
17,166 Iron Mountain Inc.* 724,749
------------
1,792,179
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
80
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
MOTOR VEHICLES (2.3%)
23,300 Harley-Davidson, Inc. $ 1,199,717
------------
OIL & GAS PRODUCTION (5.7%)
20,000 Southwestern Energy Co.* 718,800
40,940 Ultra Petroleum Corp. (Canada)* 2,284,452
------------
3,003,252
------------
OTHER CONSUMER SERVICES (6.8%)
18,500 Apollo Group, Inc. (Class A)* 1,118,510
56,936 eBay, Inc.* 2,462,482
------------
3,580,992
------------
PERSONNEL SERVICES (1.7%)
22,400 Monster Worldwide, Inc.* 914,368
------------
PROPERTY - CASUALTY INSURERS (3.5%)
641 Berkshire Hathaway, Inc. (Class B)* 1,881,655
------------
RECREATIONAL PRODUCTS (2.3%)
22,900 Electronic Arts, Inc.* 1,197,899
------------
SEMICONDUCTORS (1.5%)
14,060 Marvell Technology Group, Ltd. (Bermuda)* 788,625
------------
SPECIALTY TELECOMMUNICATIONS (1.4%)
27,231 Crown Castle International Corp.* 732,786
------------
TELECOMMUNICATION EQUIPMENT (1.0%)
26,200 Corning, Inc.* 515,092
------------
TOBACCO (2.3%)
16,387 Altria Group, Inc. 1,224,437
------------
WIRELESS TELECOMMUNICATIONS (4.1%)
75,000 America Movil S.A. de C.V. (Series L) (ADR) (Mexico) 2,194,500
------------
TOTAL COMMON STOCKS
(COST $42,597,573) 52,053,009
------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT
$ 788 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05;
proceeds $788,372) (b)
(COST $788,000) $ 788,000
------------
TOTAL INVESTMENTS
(COST $43,385,573)(c) 99.9% 52,841,009
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 31,140
----- ------------
NET ASSETS 100.0% $ 52,872,149
===== ============
</Table>
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) A SECURITY WITH TOTAL MARKET VALUE EQUAL TO $0 HAS BEEN VALUED AT ITS
FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY
AND UNDER THE GENERAL SUPERVISION OF THE FUND'S TRUSTEES.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $43,456,231. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,278,304 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $893,526, RESULTING IN NET UNREALIZED
APPRECIATION OF $9,384,778.
SEE NOTES TO FINANCIAL STATEMENTS
81
<Page>
GROWTH
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------
Internet Software/Services $ 4,398,106 8.3%
Discount Stores 3,708,342 7.0
Other Consumer Services 3,580,992 6.8
Oil & Gas Production 3,003,252 5.7
Computer Processing Hardware 2,218,712 4.2
Chemicals: Agricultural 2,203,403 4.2
Wireless Telecommunications 2,194,500 4.1
Medical Specialties 2,150,525 4.1
Property - Casualty Insurers 1,881,655 3.5
Miscellaneous Commercial Services 1,792,179 3.4
Managed Health Care 1,665,352 3.1
Hotels/Resorts/Cruiselines 1,523,895 2.9
Air Freight/Couriers 1,483,381 2.8
Financial Conglomerates 1,409,240 2.7
Home Improvement Chains 1,379,356 2.6
Internet Retail 1,301,340 2.5
Tobacco 1,224,437 2.3
Motor Vehicles 1,199,717 2.3
Recreational Products 1,197,899 2.3
Casino/Gaming $ 1,185,030 2.2%
Investment Banks/Brokers 1,065,721 2.0
Biotechnology 1,036,000 2.0
Advertising/Marketing Services 1,019,285 1.9
Personnel Services 914,368 1.7
Financial Publishing/Services 813,815 1.5
Home Building 791,136 1.5
Semiconductors 788,625 1.5
Repurchase Agreement 788,000 1.5
Finance/Rental/Leasing 786,370 1.5
Insurance Brokers/Services 781,296 1.5
Specialty Telecommunications 732,786 1.4
Data Processing Services 729,998 1.4
Industrial Conglomerates 718,614 1.3
Gas Distributors 658,590 1.2
Telecommunication Equipment 515,092 1.0
Computer Peripherals 0 0.0
------------ ------------
$ 52,841,009 99.9%
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
82
<Page>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (97.4%)
ADVERTISING/MARKETING
SERVICES (2.3%)
57,973 Getty Images, Inc.* $ 5,175,250
----------------
APPAREL/FOOTWEAR
RETAIL (1.2%)
61,700 Chico's FAS, Inc.* 2,710,481
----------------
BIOTECHNOLOGY (6.6%)
50,436 Amgen Inc.* 3,977,383
47,500 Genentech, Inc.* 4,393,750
44,000 Genzyme Corp.* 3,114,320
68,833 Gilead Sciences, Inc.* 3,622,681
----------------
15,108,134
----------------
CASINO/GAMING (0.9%)
29,500 Station Casinos, Inc. 2,000,100
----------------
CHEMICALS: AGRICULTURAL (4.4%)
94,140 Monsanto Co. 7,298,674
33,900 Potash Corp. of Saskatchewan,
Inc. (Canada) 2,719,458
----------------
10,018,132
----------------
COAL (2.1%)
59,100 Peabody Energy Corp. 4,871,022
----------------
COMPUTER PROCESSING
HARDWARE (6.1%)
118,600 Apple Computer, Inc.* 8,526,154
182,800 Dell, Inc.* 5,482,172
----------------
14,008,326
----------------
DATA PROCESSING SERVICES (1.1%)
54,600 CheckFree Corp.* 2,506,140
----------------
DISCOUNT STORES (3.7%)
152,600 Target Corp. 8,388,422
----------------
ELECTRONICS/APPLIANCE
STORES (1.7%)
88,500 Best Buy Co., Inc. 3,847,980
----------------
FINANCIAL PUBLISHING/
SERVICES (2.3%)
85,400 Moody's Corp. 5,245,268
----------------
HOME IMPROVEMENT
CHAINS (1.7%)
97,900 Home Depot, Inc. (The) $ 3,962,992
----------------
HOTELS/RESORTS/
CRUISELINES (3.0%)
130,100 Carnival Corp. (Panama) 6,956,447
----------------
INDUSTRIAL CONGLOMERATES (1.0%)
66,200 General Electric Co. 2,320,310
----------------
INFORMATION TECHNOLOGY
SERVICES (0.8%)
35,100 Cognizant Technology
Solutions Corp. (Class A)* 1,767,285
----------------
INTERNET SOFTWARE/
SERVICES (9.7%)
33,347 Google, Inc. (Class A)* 13,834,336
214,248 Yahoo!, Inc.* 8,394,237
----------------
22,228,573
----------------
INVESTMENT BANKS/
BROKERS (4.3%)
4,000 Chicago Mercantile
Exchange Holdings, Inc. 1,469,960
53,378 Goldman Sachs Group, Inc.
(The) 6,816,904
110,000 Schwab (Charles) Corp. (The) 1,613,700
----------------
9,900,564
----------------
MAJOR BANKS (3.8%)
820 Sumitomo Mitsui Financial
Group, Inc. (Japan) 8,686,441
----------------
MAJOR
TELECOMMUNICATIONS (2.8%)
280,038 Sprint Nextel Corp. 6,541,688
----------------
MANAGED HEALTH CARE (4.4%)
162,800 UnitedHealth Group Inc. 10,116,392
----------------
MEDICAL SPECIALTIES (7.2%)
62,275 Alcon, Inc. (Switzerland) 8,070,840
33,600 Dade Behring Holdings, Inc. 1,373,904
15,200 INAMED Corp.* 1,332,736
75,420 Medtronic, Inc. 4,341,929
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
83
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
30,200 St. Jude Medical, Inc.* $ 1,516,040
----------------
16,635,449
----------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.4%)
24,900 Bright Horizons Family
Solutions, Inc.* 922,545
----------------
MULTI-LINE INSURANCE (1.1%)
30,800 Hartford Financial Services
Group, Inc. (The) (Note 4) 2,645,412
----------------
OIL & GAS PRODUCTION (6.5%)
47,300 EnCana Corp. (Canada) 2,136,068
41,800 Southwestern Energy Co.* 1,502,292
204,060 Ultra Petroleum Corp.
(Canada)* 11,386,548
----------------
15,024,908
----------------
OTHER CONSUMER SERVICES (5.0%)
25,115 Apollo Group, Inc. (Class A)* 1,518,453
231,933 eBay, Inc.* 10,031,102
----------------
11,549,555
----------------
PACKAGED SOFTWARE (1.2%)
72,500 Adobe Systems, Inc. 2,679,600
----------------
PERSONNEL SERVICES (2.0%)
114,500 Monster Worldwide, Inc.* 4,673,890
----------------
PROPERTY - CASUALTY
INSURERS (1.0%)
802 Berkshire Hathaway, Inc.
(Class B)* 2,354,271
----------------
SEMICONDUCTORS (5.1%)
237,900 Intel Corp. 5,937,984
103,300 Marvell Technology Group, Ltd.
(Bermuda)* 5,794,097
----------------
11,732,081
----------------
SPECIALTY
TELECOMMUNICATIONS (1.5%)
128,317 Crown Castle International
Corp.* 3,453,010
----------------
TELECOMMUNICATION
EQUIPMENT (0.5%)
55,100 Corning, Inc.* $ 1,083,266
----------------
WIRELESS
TELECOMMUNICATIONS (2.0%)
158,000 America Movil S.A. de C.V.
(Series L) (ADR) (Mexico) 4,623,080
----------------
TOTAL COMMON STOCKS
(COST $170,440,428) 223,737,014
----------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$ 6,117 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05;
proceeds $6,119,889) (a)
(COST $6,117,000) 6,117,000
----------------
TOTAL INVESTMENTS
(COST $176,557,428) (b) 100.1% 229,854,014
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1) (314,905)
----- ----------------
NET ASSETS 100.0% $ 229,539,109
===== ================
</Table>
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS THE AGGREGATE COST
FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS
$56,092,650 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS
$2,796,064, RESULTING IN NET UNREALIZED APPRECIATION OF $53,296,586.
SEE NOTES TO FINANCIAL STATEMENTS
84
<Page>
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
Internet Software/Services $ 22,228,573 9.7%
Medical Specialties 16,635,449 7.2
Biotechnology 15,108,134 6.6
Oil & Gas Production 15,024,908 6.5
Computer Processing Hardware 14,008,326 6.1
Semiconductors 11,732,081 5.1
Other Consumer Services 11,549,555 5.0
Managed Health Care 10,116,392 4.4
Chemicals: Agricultural 10,018,132 4.4
Investment Banks/Brokers 9,900,564 4.3
Major Banks 8,686,441 3.8
Discount Stores 8,388,422 3.7
Hotels/Resorts/Cruiselines 6,956,447 3.0
Major Telecommunications 6,541,688 2.8
Repurchase Agreement 6,117,000 2.7
Financial Publishing/Services 5,245,268 2.3
Advertising/Marketing Services 5,175,250 2.3
Coal 4,871,022 2.1
Personnel Services $ 4,673,890 2.0%
Wireless Telecommunications 4,623,080 2.0
Home Improvement Chains 3,962,992 1.7
Electronics/Appliance Stores 3,847,980 1.7
Specialty Telecommunications 3,453,010 1.5
Apparel/Footwear Retail 2,710,481 1.2
Packaged Software 2,679,600 1.2
Multi-Line Insurance 2,645,412 1.1
Data Processing Services 2,506,140 1.1
Property - Casualty Insurers 2,354,271 1.0
Industrial Conglomerates 2,320,310 1.0
Casino/Gaming 2,000,100 0.9
Information Technology Services 1,767,285 0.8
Telecommunication Equipment 1,083,266 0.5
Miscellaneous Commercial Services 922,545 0.4
--------------- -----
$ 229,854,014 100.1%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
85
<Page>
CAPITAL OPPORTUNITIES
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (97.8%)
ADVERTISING/MARKETING
SERVICES (3.9%)
17,700 Getty Images, Inc.* $ 1,580,079
----------------
AIR FREIGHT/COURIERS (3.7%)
19,400 C.H. Robinson Worlwide, Inc. 718,382
11,100 Expeditors International of
Washington, Inc. 749,361
----------------
1,467,743
----------------
CASINO/GAMING (5.4%)
38,300 International Game Technology 1,178,874
14,400 Station Casinos, Inc. 976,320
----------------
2,155,194
----------------
CHEMICALS: AGRICULTURAL (3.6%)
18,645 Monsanto Co. 1,445,547
----------------
DISCOUNT STORES (5.8%)
27,500 Costco Wholesale Corp. 1,360,425
8,450 Sears Holdings Corp.* 976,229
----------------
2,336,654
----------------
ELECTRONIC PRODUCTION
EQUIPMENT (1.4%)
21,100 Tessera Technologies, Inc.* 545,435
----------------
FINANCIAL CONGLOMERATES (2.1%)
16,600 Brookfield Asset Management
Inc. (Class A) (Canada) 835,478
----------------
GAS DISTRIBUTORS (1.0%)
5,100 Questar Corp. 386,070
----------------
HOME BUILDING (2.9%)
17,900 Desarrolladora Homex
S.A. de C.V. (ADR) (Mexico)* 549,172
858 NVR, Inc.* 602,316
----------------
1,151,488
----------------
HOTELS/RESORTS/
CRUISELINES (3.1%)
23,500 Carnival Corp. (Panama) 1,256,545
----------------
INTERNET RETAIL (1.9%)
16,300 Amazon.com, Inc.* 768,545
----------------
INTERNET SOFTWARE/SERVICES (9.1%)
5,600 Google, Inc. (Class A)* $ 2,323,216
33,600 Yahoo!, Inc.* 1,316,448
----------------
3,639,664
----------------
INVESTMENT BANKS/
BROKERS (4.6%)
2,135 Chicago Mercantile Exchange
Holdings, Inc. 784,591
18,783 Greenhill & Co., Inc. 1,054,853
----------------
1,839,444
----------------
MEDICAL SPECIALTIES (2.3%)
23,000 Dade Behring Holdings, Inc. 940,470
----------------
MISCELLANEOUS COMMERCIAL
SERVICES (6.5%)
22,000 Corporate Executive Board Co.
(The) 1,973,400
15,074 Iron Mountain Inc.* 636,424
----------------
2,609,824
----------------
MOTOR VEHICLES (1.3%)
10,300 Harley-Davidson, Inc. 530,347
----------------
OIL & GAS PRODUCTION (9.4%)
17,082 Southwestern Energy Co.* 613,927
56,600 Ultra Petroleum Corp.
(Canada)* 3,158,280
----------------
3,772,207
----------------
OTHER CONSUMER SERVICES (7.0%)
48,100 eBay, Inc.* 2,080,325
7,500 Strayer Education, Inc. 702,750
457 Homestore Inc.* 2,335
----------------
2,785,410
----------------
PACKAGED SOFTWARE (2.9%)
21,700 Red Hat, Inc.* 591,108
18,400 Salesforce.com Inc.* 589,720
----------------
1,180,828
----------------
PERSONNEL SERVICES (2.1%)
20,300 Monster Worldwide, Inc.* 828,646
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
86
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
PROPERTY - CASUALTY
INSURERS (3.0%)
408 Berkshire Hathaway, Inc.
(Class B)* $ 1,197,684
----------------
RECREATIONAL PRODUCTS (2.4%)
18,000 Electronic Arts, Inc.* 941,580
----------------
RESTAURANTS (1.4%)
11,120 P.F. Chang's China
Bistro, Inc.* 551,886
----------------
SEMICONDUCTORS (1.5%)
10,400 Marvell Technology Group, Ltd.
(Bermuda)* 583,336
----------------
SERVICES TO THE HEALTH
INDUSTRY (2.2%)
14,827 Stericycle, Inc.* 873,014
----------------
SPECIALTY
TELECOMMUNICATIONS (2.6%)
38,018 Crown Castle
International Corp.* 1,023,064
----------------
WIRELESS
TELECOMMUNICATIONS (4.7%)
63,900 America Movil S.A. de C.V.
(Series L) (ADR) (Mexico) 1,869,714
----------------
TOTAL COMMON STOCKS
(COST $29,848,213) 39,095,896
----------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT
$ 919 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05;
proceeds $919,434) (a)
(COST $919,000) $ 919,000
----------------
TOTAL INVESTMENTS
(COST $30,767,213) (b) 100.1% 40,014,896
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1) (30,907)
----- ----------------
NET ASSETS 100.0% $ 39,983,989
===== ================
</Table>
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $30,770,065. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $9,695,047 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $450,216, RESULTING IN NET UNREALIZED
APPRECIATION OF $9,244,831.
SEE NOTES TO FINANCIAL STATEMENTS
87
<Page>
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
Oil & Gas Production $ 3,772,207 9.4%
Internet Software/Services 3,639,664 9.1
Other Consumer Services 2,785,410 7.0
Miscellaneous Commercial Services 2,609,824 6.5
Discount Stores 2,336,654 5.8
Casino/Gaming 2,155,194 5.4
Wireless Telecommunications 1,869,714 4.7
Investment Banks/Brokers 1,839,444 4.6
Advertising/Marketing Services 1,580,079 3.9
Air Freight/Couriers 1,467,743 3.7
Chemicals: Agricultural 1,445,547 3.6
Hotels/Resorts/Cruiselines 1,256,545 3.1
Property - Casualty Insurers 1,197,684 3.0
Home Building 1,151,488 2.9
Packaged Software 1,180,828 2.9
Specialty Telecommunications $ 1,023,064 2.6%
Recreational Products 941,580 2.4
Medical Specialties 940,470 2.3
Repurchase Agreement 919,000 2.3
Services to the Health Industry 873,014 2.2
Financial Conglomerates 835,478 2.1
Personnel Services 828,646 2.1
Internet Retail 768,545 1.9
Semiconductors 583,336 1.5
Restaurants 551,886 1.4
Electronic Production Equipment 545,435 1.4
Motor Vehicles 530,347 1.3
Gas Distributors 386,070 1.0
--------------- -----
$ 40,014,896 100.1%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
88
<Page>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (99.2%)
AUSTRALIA (3.2%)
BEVERAGES: ALCOHOLIC
404,900 McGuigan Simeon Wines Ltd. $ 861,048
----------------
DATA PROCESSING SERVICES
143,000 Computershare Ltd. 712,012
----------------
OTHER CONSUMER SERVICES
146,000 A.B.C. Learning Centres Ltd. 770,845
----------------
TOTAL AUSTRALIA 2,343,905
----------------
BERMUDA (3.3%)
INSURANCE BROKERS/SERVICES
33,900 Willis Group Holdings Ltd. 1,252,266
----------------
MULTI-LINE INSURANCE
37,700 Axis Capital Holdings Ltd. 1,179,256
----------------
TOTAL BERMUDA 2,431,522
----------------
BRITISH VIRGIN ISLANDS (1.5%)
ELECTRONIC EQUIPMENT/INSTRUMENTS
48,200 Nam Tai Electronics, Inc. 1,084,500
----------------
CANADA (2.2%)
BIOTECHNOLOGY
51,900 Angiotech Pharmaceuticals,
Inc.* 682,485
----------------
FOOD: SPECIALTY/CANDY
184,300 SunOpta Inc.* 969,418
----------------
TOTAL CANADA 1,651,903
----------------
DENMARK (1.5%)
MAJOR BANKS
30,700 Danske Bank A/S 1,080,712
----------------
GERMANY (6.0%)
APPAREL/FOOTWEAR
5,300 Adidas-Salomon AG 1,003,523
----------------
FINANCE/RENTAL/LEASING
18,200 Grenkeleasing AG 1,040,280
----------------
FINANCIAL CONGLOMERATES
22,200 Hypo Real Estate Holding AG 1,155,420
----------------
PHARMACEUTICALS: MAJOR
18,000 Schering AG $ 1,205,648
----------------
TOTAL GERMANY 4,404,871
----------------
HONG KONG (6.1%)
AGRICULTURAL COMMODITIES/MILLING
2,502,000 Global Bio-Chem Technology
Group Co., Ltd. 1,097,015
----------------
APPAREL/FOOTWEAR RETAIL
274,500 Esprit Holdings Ltd. 1,950,474
----------------
COMPUTER PROCESSING HARDWARE
1,588,000 Lenovo Group Ltd. 732,104
----------------
WHOLESALE DISTRIBUTORS
344,000 Li & Fung Ltd. 663,202
----------------
TOTAL HONG KONG 4,442,795
----------------
ISRAEL (2.0%)
PHARMACEUTICALS: OTHER
33,700 Teva Pharmaceutical
Industries Ltd. (ADR) 1,449,437
----------------
ITALY (2.6%)
MAJOR BANKS
281,700 UniCredito Italiano SpA 1,940,177
----------------
JAPAN (3.7%)
HOME BUILDING
35,200 Daito Trust Construction
Co., Ltd. 1,819,661
----------------
INDUSTRIAL MACHINERY
42,200 OSG Corp. 874,398
----------------
TOTAL JAPAN 2,694,059
----------------
MEXICO (1.3%)
BEVERAGES: NON-ALCOHOLIC
13,500 Fomento Economico Mexicano,
S.A. de C.V. (ADR) (Units)+ 978,885
----------------
NORWAY (1.1%)
TELECOMMUNICATION EQUIPMENT
129,600 Tandberg ASA 792,584
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
89
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
SINGAPORE (4.2%)
AIRLINES
159,100 Singapore Airlines Ltd. $ 1,186,100
----------------
ELECTRONIC COMPONENTS
117,760 Flextronics International Ltd.* 1,229,414
----------------
MARINE SHIPPING
513,000 Cosco Corp Ltd. 666,194
----------------
TOTAL SINGAPORE 3,081,708
----------------
SOUTH AFRICA (1.1%)
PHARMACEUTICALS: GENERIC DRUGS
156,500 Aspen Pharmacare
Holdings Ltd.* 823,749
----------------
SPAIN (7.0%)
APPAREL/FOOTWEAR RETAIL
25,200 Industria de Diseno Textil, S.A. 821,587
----------------
BROADCASTING
36,900 Antena 3 Television S.A. 879,463
47,000 Gestevision Telecinco S.A. 1,185,814
----------------
2,065,277
----------------
MAJOR BANKS
109,100 Banco Santander Central
Hispano S.A. 1,439,565
----------------
MAJOR TELECOMMUNICATIONS
55,100 Telefonica S.A. 828,760
----------------
TOTAL SPAIN 5,155,189
----------------
TAIWAN (1.7%)
SEMICONDUCTORS
122,800 Taiwan Semiconductor
Manufacturing Co. Ltd.
(ADR) 1,216,948
----------------
UNITED KINGDOM (10.2%)
BEVERAGES: ALCOHOLIC
77,800 SABMiller PLC 1,419,953
----------------
HOTELS/RESORTS/CRUISELINES
19,900 Carnival PLC 1,129,655
----------------
INVESTMENT MANAGERS
39,900 Man Group PLC $ 1,310,947
----------------
MAJOR BANKS
38,500 Royal Bank of Scotland
Group PLC 1,162,296
51,000 Standard Chartered PLC 1,136,106
----------------
2,298,402
----------------
PHARMACEUTICALS: OTHER
105,500 Shire PLC 1,350,219
----------------
TOTAL UNITED KINGDOM 7,509,176
----------------
UNITED STATES (40.5%)
AEROSPACE & DEFENSE
17,210 Northrop Grumman Corp. 1,034,493
24,180 Raytheon Co. 970,827
----------------
2,005,320
----------------
AGRICULTURAL COMMODITIES/
MILLING
53,615 Archer-Daniels-Midland Co. 1,322,146
----------------
APPAREL/FOOTWEAR
40,500 Under Armour, Inc. (Class A)* 1,551,555
----------------
BIOTECHNOLOGY
23,915 Gilead Sciences, Inc.* 1,258,647
----------------
CHEMICALS: AGRICULTURAL
13,530 Monsanto Co. 1,048,981
----------------
CHEMICALS: MAJOR DIVERSIFIED
17,050 Dow Chemical Co. (The) 747,131
----------------
COMPUTER COMMUNICATIONS
54,130 Cisco Systems, Inc.* 926,706
----------------
COMPUTER PROCESSING HARDWARE
30,660 Apple Computer, Inc.* 2,204,147
----------------
DISCOUNT STORES
20,735 Costco Wholesale Corp. 1,025,760
----------------
ELECTRICAL PRODUCTS
14,205 Emerson Electric Co. 1,061,114
----------------
ELECTRONIC COMPONENTS
25,200 Amphenol Corp. (Class A) 1,115,352
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
90
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES
31,860 Waste Management, Inc. $ 966,951
----------------
FINANCIAL CONGLOMERATES
15,780 American Express Co. 812,039
----------------
FOOD: MAJOR DIVERSIFIED
23,645 Kellogg Co. 1,021,937
----------------
FOOD: MEAT/FISH/DAIRY
27,305 Dean Foods Co.* 1,028,306
----------------
MEDIA CONGLOMERATES
84,800 News Corp Inc. (Class A) 1,318,640
----------------
MEDICAL SPECIALTIES
19,950 Bard (C.R.), Inc. 1,315,104
15,805 Fisher Scientific
International, Inc.* 977,697
----------------
2,292,801
----------------
OIL & GAS PRODUCTION
20,110 Burlington Resources, Inc. 1,733,482
----------------
PHARMACEUTICALS: MAJOR
24,550 Johnson & Johnson 1,475,455
----------------
SEMICONDUCTORS
56,320 Intel Corp. 1,405,747
----------------
SPECIALTY STORES
23,180 Bed Bath & Beyond Inc.* 837,957
----------------
TELECOMMUNICATION EQUIPMENT
69,480 Corning, Inc.* 1,365,977
----------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY
20,270 Caterpillar Inc. 1,170,998
----------------
TOTAL UNITED STATES 29,697,149
----------------
TOTAL COMMON STOCKS
(COST $64,420,594) 72,779,269
----------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (0.8%)
REPURCHASE AGREEMENT
$ 550 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05; proceeds
$550,260) (a)
(COST $550,000) $ 550,000
----------------
TOTAL INVESTMENTS
(COST $64,970,594) (b) 100.0% 73,329,269
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.0 23,087
----- ----------------
NET ASSETS 100.0% $ 73,352,356
===== ================
</Table>
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
+ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
STOCKS WITH ATTACHED WARRANTS.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS THE AGGREGATE COST
FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS
$10,108,315 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS
$1,749,640, RESULTING IN NET UNREALIZED APPRECIATION OF $8,358,675.
SEE NOTES TO FINANCIAL STATEMENTS
91
<Page>
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
Major Banks $ 6,758,856 9.2%
Computer Processing Hardware 2,936,251 4.0
Pharmaceuticals: Other 2,799,656 3.8
Apparel/Footwear Retail 2,772,061 3.8
Pharmaceuticals: Major 2,681,103 3.7
Semiconductors 2,622,695 3.6
Apparel/Footwear 2,555,078 3.5
Agricultural Commodities/Milling 2,419,161 3.3
Electronic Components 2,344,766 3.2
Medical Specialties 2,292,801 3.1
Beverages: Alcoholic 2,281,001 3.1
Telecommunication Equipment 2,158,561 2.9
Broadcasting 2,065,277 2.8
Aerospace & Defense 2,005,320 2.7
Financial Conglomerates 1,967,459 2.7
Biotechnology 1,941,132 2.7
Home Building 1,819,661 2.5
Oil & Gas Production 1,733,482 2.4
Media Conglomerates 1,318,640 1.8
Investment Managers 1,310,947 1.8
Insurance Brokers/Services 1,252,266 1.7
Airlines 1,186,100 1.6
Multi-Line Insurance 1,179,256 1.6
Trucks/Construction/Farm Machinery $ 1,170,998 1.6%
Hotels/Resorts/Cruiselines 1,129,655 1.5
Electronic Equipment/Instruments 1,084,500 1.5
Electrical Products 1,061,114 1.5
Chemicals: Agricultural 1,048,981 1.4
Finance/Rental/Leasing 1,040,280 1.4
Food: Meat/Fish/Dairy 1,028,306 1.4
Discount Stores 1,025,760 1.4
Food: Major Diversified 1,021,937 1.4
Beverages: Non-Alcoholic 978,885 1.3
Food: Specialty/Candy 969,418 1.3
Environmental Services 966,951 1.3
Computer Communications 926,706 1.3
Industrial Machinery 874,398 1.2
Specialty Stores 837,957 1.1
Major Telecommunications 828,760 1.1
Pharmaceuticals: Generic Drugs 823,749 1.1
Other Consumer Services 770,845 1.1
Chemicals: Major Diversified 747,131 1.0
Data Processing Services 712,012 1.0
Marine Shipping 666,194 0.9
Wholesale Distributors 663,202 0.9
Repurchase Agreement 550,000 0.8
--------------- -----
$ 73,329,269 100.0%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
92
<Page>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (98.6%)
ADVERTISING/MARKETING
SERVICES (4.8%)
22,746 Getty Images, Inc.* $ 2,030,535
18,400 Lamar Advertising Co.
(Class A)* 848,976
----------------
2,879,511
----------------
AIR FREIGHT/COURIERS (4.6%)
36,300 C.H. Robinson Worlwide, Inc. 1,344,189
20,900 Expeditors International of
Washington, Inc. 1,410,959
----------------
2,755,148
----------------
APPAREL/FOOTWEAR RETAIL (1.0%)
13,650 Chico's FAS, Inc.* 599,644
----------------
BIOTECHNOLOGY (1.9%)
12,200 Gen-Probe Inc.* 595,238
10,100 Techne Corp.* 567,115
----------------
1,162,353
----------------
CASINO/GAMING (6.5%)
59,000 International Game
Technology 1,816,020
17,975 Station Casinos, Inc. 1,218,705
15,140 Wynn Resorts, Ltd.* 830,429
----------------
3,865,154
----------------
CONSTRUCTION MATERIALS (1.0%)
9,550 Rinker Group Ltd. (ADR)
(Australia) 572,809
----------------
DATA PROCESSING SERVICES (1.0%)
12,400 CheckFree Corp.* 569,160
----------------
ELECTRONIC PRODUCTION
EQUIPMENT (1.0%)
22,700 Tessera Technologies, Inc.* 586,795
----------------
FINANCIAL CONGLOMERATES (2.1%)
24,700 Brookfield Asset
Management Inc. (Class A)
(Canada) 1,243,151
----------------
GAS DISTRIBUTORS (1.0%)
8,200 Questar Corp. 620,740
----------------
HOME BUILDING (2.8%)
25,250 Desarrolladora Homex S.A.
de C.V. (ADR) (Mexico)* $ 774,670
1,251 NVR, Inc.* 878,202
----------------
1,652,872
----------------
HOTELS/RESORTS/
CRUISELINES (1.0%)
14,200 Gaylord Entertainment Co.* 618,978
----------------
INSURANCE BROKERS/
SERVICES (2.1%)
22,700 Brown & Brown, Inc. 693,258
12,200 ChoicePoint, Inc.* 543,022
----------------
1,236,280
----------------
INTERNET SOFTWARE/
SERVICES (1.4%)
10,200 Netease.com Inc. (ADR)
(Cayman Islands)* 572,832
12,200 SINA Corp. (Cayman Islands)* 294,752
----------------
867,584
----------------
INVESTMENT BANKS/
BROKERS (3.1%)
28,200 Ameritrade Holding Corp.* 676,800
3,165 Chicago Mercantile Exchange
Holdings, Inc. 1,163,106
----------------
1,839,906
----------------
INVESTMENT MANAGERS (1.6%)
30,081 Calamos Asset Management
Inc. (Class A) 946,047
----------------
MEDICAL SPECIALTIES (2.4%)
35,100 Dade Behring Holdings, Inc. 1,435,239
----------------
MEDICAL/NURSING SERVICES (1.0%)
11,300 DaVita, Inc.* 572,232
----------------
MISCELLANEOUS COMMERCIAL
SERVICES (6.5%)
26,025 Corporate Executive
Board Co. (The) 2,334,443
36,955 Iron Mountain Inc.* 1,560,240
----------------
3,894,683
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
93
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
MISCELLANEOUS
MANUFACTURING (1.4%)
24,500 Pentair, Inc. $ 845,740
----------------
MOTOR VEHICLES (1.6%)
18,300 Harley-Davidson, Inc. 942,267
----------------
MOVIES/ENTERTAINMENT (1.0%)
13,000 International Speedway Corp.
(Class A) 622,700
----------------
OIL & GAS PRODUCTION (7.8%)
35,248 Southwestern Energy Co.* 1,266,813
60,990 Ultra Petroleum Corp.
(Canada)* 3,403,242
----------------
4,670,055
----------------
OTHER CONSUMER SERVICES (6.9%)
19,600 Career Education Corp.* 660,912
5,830 HomeStore, Inc.* 29,735
37,500 Expedia, Inc.* 898,500
19,400 ITT Educational
Services, Inc.* 1,146,734
10,500 Strayer Education, Inc. 983,850
9,300 Weight Watchers
International, Inc.* 459,699
----------------
4,179,430
----------------
PACKAGED SOFTWARE (3.4%)
38,000 Red Hat, Inc.* 1,035,120
30,600 Salesforce.com Inc.* 980,730
----------------
2,015,850
----------------
PERSONNEL SERVICES (3.4%)
49,300 Monster Worldwide, Inc.* 2,012,426
----------------
PROPERTY - CASUALTY
INSURERS (0.8%)
845 White Mountains Insurance
Group, Ltd. (Bermuda) 471,975
----------------
REAL ESTATE DEVELOPMENT (2.2%)
12,075 CB Richard Ellis Group, Inc.
(Class A)* 710,614
8,677 St. Joe Co. (The) 583,268
----------------
1,293,882
----------------
RECREATIONAL PRODUCTS (2.1%)
92,388 Activision, Inc.* $ 1,269,411
----------------
RESTAURANTS (4.0%)
16,700 Cheesecake Factory,
Inc. (The)* 624,413
16,600 P.F. Chang's China Bistro,
Inc.* 823,858
17,600 Wendy's International, Inc. 972,576
----------------
2,420,847
----------------
SEMICONDUCTORS (2.1%)
20,900 Freescale Semiconductor Inc.
(Class A)* 526,471
12,600 Marvell Technology Group, Ltd.
(Bermuda)* 706,734
----------------
1,233,205
----------------
SERVICES TO THE HEALTH
INDUSTRY (2.2%)
22,782 Stericycle, Inc.* 1,341,404
----------------
SPECIALTY STORES (4.3%)
19,600 AutoZone, Inc.* 1,798,300
14,970 Tractor Supply Co.* 792,512
----------------
2,590,812
----------------
SPECIALTY
TELECOMMUNICATIONS (2.5%)
54,982 Crown Castle International
Corp.* 1,479,566
----------------
TOBACCO (1.5%)
21,100 Loews Corp. - Carolina Group 928,189
----------------
WHOLESALE DISTRIBUTORS (1.0%)
16,000 SCP Pool Corp. 595,520
----------------
WIRELESS
TELECOMMUNICATIONS (3.6%)
49,000 NII Holdings, Inc. (Class B)* 2,140,320
----------------
TOTAL COMMON STOCKS
(COST $47,890,255) 58,971,885
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
94
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT
$ 906 Joint repurchase agreement
account 4.25% due 01/03/06
(dated 12/30/05; proceeds
$906,428) (a)
(COST $906,000) $ 906,000
----------------
TOTAL INVESTMENTS
(COST $48,796,255) (b) 100.1% 59,877,885
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1) (57,470)
----- ----------------
NET ASSETS 100.0% $ 59,820,415
===== ================
</Table>
ADR AMERICAN DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $48,819,183. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $12,322,877 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $1,264,175, RESULTING IN NET UNREALIZED
APPRECIATION OF $11,058,702.
SEE NOTES TO FINANCIAL STATEMENTS
95
<Page>
DEVELOPING GROWTH
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
Oil & Gas Production $ 4,670,055 7.8%
Other Consumer Services 4,179,430 6.9
Miscellaneous Commercial Services 3,894,683 6.5
Casino/Gaming 3,865,154 6.5
Advertising/Marketing Services 2,879,511 4.8
Air Freight/Couriers 2,755,148 4.6
Specialty Stores 2,590,812 4.3
Restaurants 2,420,847 4.0
Wireless Telecommunications 2,140,320 3.6
Packaged Software 2,015,850 3.4
Personnel Services 2,012,426 3.4
Investment Banks/Brokers 1,839,906 3.1
Home Building 1,652,872 2.8
Specialty Telecommunications 1,479,566 2.5
Medical Specialties 1,435,239 2.4
Services to the Health Industry 1,341,404 2.2
Real Estate Development 1,293,882 2.2
Recreational Products 1,269,411 2.1
Financial Conglomerates $ 1,243,151 2.1%
Insurance Brokers/Services 1,236,280 2.1
Semiconductors 1,233,205 2.1
Biotechnology 1,162,353 1.9
Investment Managers 946,047 1.6
Motor Vehicles 942,267 1.6
Repurchase Agreement 906,000 1.5
Tobacco 928,189 1.5
Miscellaneous Manufacturing 845,740 1.4
Internet Software/Services 867,584 1.4
Movies/Entertainment 622,700 1.0
Gas Distributors 620,740 1.0
Hotels/Resorts/Cruiselines 618,978 1.0
Apparel/Footwear Retail 599,644 1.0
Wholesale Distributors 595,520 1.0
Electronic Production Equipment 586,795 1.0
Construction Materials 572,809 1.0
Medical/Nursing Services 572,232 1.0
Data Processing Services 569,160 1.0
Property - Casualty Insurers 471,975 0.8
--------------- -----
$ 59,877,885 100.1%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
96
<Page>
(This page has been intentionally left blank.)
97
<Page>
Morgan Stanley Select Dimensions Investment Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
-------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 88,130,819 $ 61,211,590 $ 94,203,880
Investment in affiliates** -- 44,568 671,310
Cash 6,639 100,941+ 7,388
Receivable for:
Investments sold -- -- --
Interest 43,713 659,954 323,514
Dividends -- -- 73,622
Shares of beneficial interest sold 966,367 22,163 6,041
Foreign withholding taxes reclaimed -- -- --
Variation margin -- 859 2,672
Prepaid expenses and other assets 2,506 2,817 3,591
-------------- -------------- --------------
TOTAL ASSETS 89,150,044 62,042,892 95,292,018
-------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased -- 210,428 2,471,284
Shares of beneficial interest redeemed 43,473 312,824 103,322
Investment advisory fee 32,561 16,789 41,257
Variation margin -- -- --
Distribution fee 7,401 5,481 5,937
Administration fee 3,618 4,197 6,347
Transfer agent fee 500 500 500
Accrued expenses and other payables 22,881 113,073 30,000
-------------- -------------- --------------
TOTAL LIABILITIES 110,434 663,292 2,658,647
-------------- -------------- --------------
NET ASSETS $ 89,039,610 $ 61,379,600 $ 92,633,371
============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 89,039,554 $ 85,417,143 $ 76,971,239
Accumulated undistributed net investment
income (net investment loss) 56 480,573 (99,929)
Accumulated net realized gain (loss) -- (20,691,088) 3,409,721
Net unrealized appreciation (depreciation) -- (3,827,028) 12,352,340
-------------- -------------- --------------
NET ASSETS $ 89,039,610 $ 61,379,600 $ 92,633,371
============== ============== ==============
*COST $ 88,130,819 $ 65,025,068 $ 82,120,523
============== ============== ==============
CLASS X SHARES:
Net Assets $ 52,029,914 $ 35,755,422 $ 64,663,299
Shares Outstanding (unlimited authorized
shares of $.01 par value) 52,029,868 4,866,697 3,831,190
NET ASSET VALUE PER SHARE $ 1.00 $ 7.35 $ 16.88
============== ============== ==============
CLASS Y SHARES:
Net Assets $ 37,009,696 $ 25,624,178 $ 27,970,072
Shares Outstanding (unlimited authorized
shares of $.01 par value) 37,009,685 3,497,795 1,660,916
NET ASSET VALUE PER SHARE $ 1.00 $ 7.33 $ 16.84
============== ============== ==============
</Table>
- ----------
** COST OF $44,948, $377,755, $339,988 AND $2,293,491, RESPECTIVELY.
+ INCLUDING $100,000 SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS.
SEE NOTES TO FINANCIAL STATEMENTS
98
<Page>
<Table>
<Caption>
EQUALLY-
DIVIDEND WEIGHTED
UTILITIES GROWTH S&P 500 GROWTH
-------------- -------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 76,057,157 $ 305,342,919 $ 220,245,005 $ 52,841,009
Investment in affiliates** -- -- 873,526 --
Cash 934 342 -- 3,064
Receivable for:
Investments sold -- 512,484 416,392 --
Interest 20,329 2,490 1,093 --
Dividends 164,728 234,575 263,611 65,844
Shares of beneficial interest sold 1,187 263 47,679 22,431
Foreign withholding taxes reclaimed -- 13,042 -- --
Variation margin -- -- -- --
Prepaid expenses and other assets 3,684 9,110 12,563 2,426
-------------- -------------- -------------- --------------
TOTAL ASSETS 76,248,019 306,115,225 221,859,869 52,934,774
-------------- -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased -- -- 302,906 --
Shares of beneficial interest redeemed 89,142 324,331 161,099 9,532
Investment advisory fee 37,381 137,971 22,813 22,878
Variation margin -- -- 11,475 --
Distribution fee 3,494 12,082 21,638 4,660
Administration fee 5,247 21,225 15,208 3,660
Transfer agent fee 500 500 500 500
Accrued expenses and other payables 22,573 41,375 51,296 21,395
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 158,337 537,484 586,935 62,625
-------------- -------------- -------------- --------------
NET ASSETS $ 76,089,682 $ 305,577,741 $ 221,272,934 $ 52,872,149
============== ============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 77,105,038 $ 370,833,541 $ 124,693,377 $ 77,069,561
Accumulated undistributed net investment
income (net investment loss) 16,244 8,286 2,558,833 (57)
Accumulated net realized gain (loss) (28,741,181) (138,182,634) 11,035,369 (33,652,791)
Net unrealized appreciation (depreciation) 27,709,581 72,918,548 82,985,355 9,455,436
-------------- -------------- -------------- --------------
NET ASSETS $ 76,089,682 $ 305,577,741 $ 221,272,934 $ 52,872,149
============== ============== ============== ==============
*COST $ 48,347,576 $ 232,424,371 $ 137,776,042 $ 43,385,573
============== ============== ============== ==============
CLASS X SHARES:
Net Assets $ 59,823,069 $ 249,516,293 $ 120,117,214 $ 31,125,668
Shares Outstanding (unlimited authorized
shares of $.01 par value) 2,791,023 15,141,414 4,671,134 1,778,046
NET ASSET VALUE PER SHARE $ 21.43 $ 16.48 $ 25.71 $ 17.51
============== ============== ============== ==============
CLASS Y SHARES:
Net Assets $ 16,266,613 $ 56,061,448 $ 101,155,720 $ 21,746,481
Shares Outstanding (unlimited authorized
shares of $.01 par value) 759,444 3,406,989 3,970,646 1,254,743
NET ASSET VALUE PER SHARE $ 21.42 $ 16.45 $ 25.48 $ 17.33
============== ============== ============== ==============
<Caption>
AMERICAN CAPITAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES GLOBAL EQUITY GROWTH
-------------- -------------- -------------- --------------
ASSETS:
Investments in securities, at value* $ 227,208,602 $ 40,014,896 $ 73,329,269 $ 59,877,885
Investment in affiliates** 2,645,412 -- -- --
Cash 8,391 2,251 -- 375
Receivable for:
Investments sold -- -- -- --
Interest 1,444 217 -- 214
Dividends 116,338 44,370 67,076 12,185
Shares of beneficial interest sold 200 -- 27,623 29,495
Foreign withholding taxes reclaimed 3,929 -- 30,550 --
Variation margin -- -- -- --
Prepaid expenses and other assets 20,107 1,252 3,926 3,385
-------------- -------------- -------------- --------------
TOTAL ASSETS 230,004,423 40,062,986 73,458,444 59,923,539
-------------- -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased -- -- -- --
Shares of beneficial interest redeemed 289,908 30,620 10,154 48,455
Investment advisory fee 108,928 23,193 57,544 21,680
Variation margin -- -- -- --
Distribution fee 9,281 3,427 1,908 2,273
Administration fee 15,989 2,769 5,004 4,129
Transfer agent fee 500 500 500 500
Accrued expenses and other payables 40,708 18,488 30,978 26,087
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 465,314 78,997 106,088 103,124
-------------- -------------- -------------- --------------
NET ASSETS $ 229,539,109 $ 39,983,989 $ 73,352,356 $ 59,820,415
============== ============== ============== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 427,028,225 $ 115,724,663 $ 59,409,573 $ 79,165,827
Accumulated undistributed net investment
income (net investment loss) 34,807 (47) 463,157 (73)
Accumulated net realized gain (loss) (250,821,518) (84,988,310) 5,117,706 (30,426,969)
Net unrealized appreciation (depreciation) 53,297,595 9,247,683 8,361,920 11,081,630
-------------- -------------- -------------- --------------
NET ASSETS $ 229,539,109 $ 39,983,989 $ 73,352,356 $ 59,820,415
============== ============== ============== ==============
*COST $ 174,263,937 $ 30,767,213 $ 64,970,594 $ 48,796,255
============== ============== ============== ==============
CLASS X SHARES:
Net Assets $ 186,633,236 $ 24,086,746 $ 64,377,615 $ 49,115,795
Shares Outstanding (unlimited authorized
shares of $.01 par value) 10,854,214 2,056,425 3,833,032 2,067,438
NET ASSET VALUE PER SHARE $ 17.19 $ 11.71 $ 16.80 $ 23.76
============== ============== ============== ==============
CLASS Y SHARES:
Net Assets $ 42,905,873 $ 15,897,243 $ 8,974,741 $ 10,704,620
Shares Outstanding (unlimited authorized
shares of $.01 par value) 2,508,542 1,375,932 537,959 456,884
NET ASSET VALUE PER SHARE $ 17.10 $ 11.55 $ 16.68 $ 23.43
============== ============== ============== ==============
</Table>
99
<Page>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
MONEY FLEXIBLE BALANCED
MARKET INCOME GROWTH
-------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 3,040,902 $ 3,720,692 $ 1,377,125
Interest and dividends from affiliates -- 1,069 11,098
Dividends -- 28,187 1,277,093*
-------------- -------------- --------------
TOTAL INCOME 3,040,902 3,749,948 2,665,316
-------------- -------------- --------------
EXPENSES
Investment advisory fee 421,188 210,290 499,567
Distribution fee (Class Y shares) 88,021 65,588 67,199
Administration fee 46,799 52,573 76,856
Professional fees 23,001 40,888 22,542
Shareholder reports and notices 18,247 13,728 17,930
Custodian fees 11,804 33,557 40,049
Trustees' fees and expenses 1,119 772 1,123
Transfer agent fees and expenses 500 500 500
Other 6,741 44,412 18,333
-------------- -------------- --------------
TOTAL EXPENSES 617,420 462,308 744,099
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 2,423,482 3,287,640 1,921,217
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments -- (104,395) 9,861,346
Futures contracts -- 87,595 (175,615)
Foreign exchange transactions -- 163,413 --
-------------- -------------- --------------
NET REALIZED GAIN -- 146,613 9,685,731
-------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments -- (1,698,798) (4,264,145)
Futures contracts -- 38,340 21,659
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies -- 5,815 --
-------------- -------------- --------------
NET APPRECIATION (DEPRECIATION) -- (1,654,643) (4,242,486)
-------------- -------------- --------------
NET GAIN (LOSS) -- (1,508,030) 5,443,245
-------------- -------------- --------------
NET INCREASE $ 2,423,482 $ 1,779,610 $ 7,364,462
============== ============== ==============
</Table>
- ----------
* NET OF FOREIGN WITHHOLDING TAX OF $33,033, $12,543, $12,265, $4,195,
$20,336, $1,511, $82,121 AND $2,182, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
100
<Page>
<Table>
<Caption>
EQUALLY-
DIVIDEND WEIGHTED
UTILITIES GROWTH S&P 500 GROWTH
-------------- -------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 137,846 $ 258,165 $ 79,886 $ 29,038
Interest and dividends from affiliates -- -- 15,717 --
Dividends 2,100,518* 5,926,397* 3,341,228 318,827*
-------------- -------------- -------------- --------------
TOTAL INCOME 2,238,364 6,184,562 3,436,831 347,865
-------------- -------------- -------------- --------------
EXPENSES
Investment advisory fee 448,740 1,692,414 262,242 232,462
Distribution fee (Class Y shares) 40,475 141,066 225,427 39,290
Administration fee 62,981 262,841 174,828 37,194
Professional fees 20,158 27,902 24,601 22,554
Shareholder reports and notices 20,052 56,839 59,200 15,775
Custodian fees 8,470 20,996 40,922 9,942
Trustees' fees and expenses 909 4,098 2,551 516
Transfer agent fees and expenses 500 500 500 500
Other 8,807 19,155 34,688 4,771
-------------- -------------- -------------- --------------
TOTAL EXPENSES 611,092 2,225,811 824,959 363,004
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 1,627,272 3,958,751 2,611,872 (15,139)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 10,568,009 29,123,199 11,421,569 2,602,183
Futures contracts -- -- 105,915 --
Foreign exchange transactions -- -- -- --
-------------- -------------- -------------- --------------
NET REALIZED GAIN 10,568,009 29,123,199 11,527,484 2,602,183
-------------- -------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (315,935) (16,681,483) 2,202,383 4,489,067
Futures contracts -- -- (80,003) --
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies -- -- -- --
-------------- -------------- -------------- --------------
NET APPRECIATION (DEPRECIATION) (315,935) (16,681,483) 2,122,380 4,489,067
-------------- -------------- -------------- --------------
NET GAIN (LOSS) 10,252,074 12,441,716 13,649,864 7,091,250
-------------- -------------- -------------- --------------
NET INCREASE $ 11,879,346 $ 16,400,467 $ 16,261,736 $ 7,076,111
============== ============== ============== ==============
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
-------------- -------------- -------------- --------------
INVESTMENT INCOME:
INCOME
Interest $ 260,484 $ 15,155 $ 69,799 $ 28,403
Interest and dividends from affiliates 26,292 -- -- --
Dividends 1,403,148* 191,129* 1,396,457* 246,245*
-------------- -------------- -------------- --------------
TOTAL INCOME 1,689,924 206,284 1,466,256 274,648
-------------- -------------- -------------- --------------
EXPENSES
Investment advisory fee 1,245,496 246,920 691,474 242,044
Distribution fee (Class Y shares) 101,180 34,654 21,251 22,996
Administration fee 182,836 29,483 60,128 46,104
Professional fees 26,860 21,005 25,955 23,548
Shareholder reports and notices 45,843 14,129 23,733 17,217
Custodian fees 16,874 10,010 18,070 30,018
Trustees' fees and expenses 2,741 422 889 1,151
Transfer agent fees and expenses 500 500 500 500
Other 14,999 4,481 20,600 4,625
-------------- -------------- -------------- --------------
TOTAL EXPENSES 1,637,329 361,604 862,600 388,203
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 52,595 (155,320) 603,656 (113,555)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments 10,792,298 5,418,673 8,204,922 9,390,269
Futures contracts -- -- -- --
Foreign exchange transactions 7,952 -- (124,286) --
-------------- -------------- -------------- --------------
NET REALIZED GAIN 10,800,250 5,418,673 8,080,636 9,390,269
-------------- -------------- -------------- --------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 18,447,651 2,192,107 (1,344,050) 483,072
Futures contracts -- -- -- --
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies (1,005) -- (8,832) --
-------------- -------------- -------------- --------------
NET APPRECIATION (DEPRECIATION) 18,446,646 2,192,107 (1,352,882) 483,072
-------------- -------------- -------------- --------------
NET GAIN (LOSS) 29,246,896 7,610,780 6,727,754 9,873,341
-------------- -------------- -------------- --------------
NET INCREASE $ 29,299,491 $ 7,455,460 $ 7,331,410 $ 9,759,786
============== ============== ============== ==============
</Table>
101
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
-------------------------------- --------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 2,423,482 $ 891,776 $ 3,287,640 $ 3,526,533
Net realized gain (loss) -- -- 146,613 (54,178)
Net change in unrealized appreciation/depreciation -- -- (1,654,643) 1,234,876
-------------- -------------- -------------- --------------
NET INCREASE 2,423,482 891,776 1,779,610 4,707,231
-------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (1,554,481) (660,775) (2,853,279) (3,999,321)
Class Y shares (868,981) (231,005) (1,823,025) (1,962,637)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
-------------- -------------- -------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (2,423,462) (891,780) (4,676,304) (5,961,958)
-------------- -------------- -------------- --------------
Net increase (decrease) from transactions in shares of
beneficial interest (12,373,297) (29,500,076) (6,308,765) (2,384,666)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) (12,373,277) (29,500,080) (9,205,459) (3,639,393)
NET ASSETS:
Beginning of period 101,412,887 130,912,967 70,585,059 74,224,452
-------------- -------------- -------------- --------------
END OF PERIOD $ 89,039,610 $ 101,412,887 $ 61,379,600 $ 70,585,059
============== ============== ============== ==============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ 56 $ 36 $ 480,573 $ 1,013,386
============== ============== ============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
102
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
--------------------------------- --------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,921,217 $ 2,029,479 $ 1,627,272 $ 1,615,827
Net realized gain (loss) 9,685,731 7,293,308 10,568,009 3,923,834
Net change in unrealized appreciation/depreciation (4,242,486) 1,087,476 (315,935) 10,826,751
-------------- -------------- -------------- --------------
NET INCREASE 7,364,462 10,410,263 11,879,346 16,366,412
-------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (1,507,473) (1,745,020) (1,313,166) (1,337,452)
Class Y shares (532,905) (517,526) (304,838) (280,659)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
-------------- -------------- -------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (2,040,378) (2,262,546) (1,618,004) (1,618,111)
-------------- -------------- -------------- --------------
Net increase (decrease) from transactions in shares of
beneficial interest (15,515,138) (12,373,214) (12,874,305) (13,214,499)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) (10,191,054) (4,225,497) (2,612,963) 1,533,802
NET ASSETS:
Beginning of period 102,824,425 107,049,922 78,702,645 77,168,843
-------------- -------------- -------------- --------------
END OF PERIOD $ 92,633,371 $ 102,824,425 $ 76,089,682 $ 78,702,645
============== ============== ============== ==============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (99,929) $ (125,048) $ 16,244 $ (306)
============== ============== ============== ==============
<Caption>
DIVIDEND GROWTH EQUALLY-WEIGHTED S&P 500
--------------------------------- ---------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 3,958,751 $ 5,717,506 $ 2,611,872 $ 1,998,371
Net realized gain (loss) 29,123,199 23,968,536 11,527,484 4,539,624
Net change in unrealized appreciation/depreciation (16,681,483) (607,109) 2,122,380 25,181,978
-------------- -------------- -------------- --------------
NET INCREASE 16,400,467 29,078,933 16,261,736 31,719,973
-------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (3,377,533) (4,953,801) (1,219,310) (1,140,613)
Class Y shares (572,922) (760,026) (707,827) (441,970)
Net realized gain
Class X shares -- -- (1,943,393) --
Class Y shares -- -- (1,375,977) --
-------------- -------------- -------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (3,950,455) (5,713,827) (5,246,507) (1,582,583)
-------------- -------------- -------------- --------------
Net increase (decrease) from transactions in shares of
beneficial interest (73,279,335) (64,541,240) (12,961,790) 2,508,241
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) (60,829,323) (41,176,134) (1,946,561) 32,645,631
NET ASSETS:
Beginning of period 366,407,064 407,583,198 223,219,495 190,573,864
-------------- -------------- -------------- --------------
END OF PERIOD $ 305,577,741 $ 366,407,064 $ 221,272,934 $ 223,219,495
============== ============== ============== ==============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ 8,286 $ 5,006 $ 2,558,833 $ 1,945,336
============== ============== ============== ==============
</Table>
103
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (15,139) $ 146,548 $ 52,595 $ 1,523,351
Net realized gain 2,602,183 3,944,191 10,800,250 19,613,051
Net change in unrealized appreciation/depreciation 4,489,067 (898,297) 18,446,646 (1,729,238)
----------------- ----------------- ----------------- -----------------
NET INCREASE 7,076,111 3,192,442 29,299,491 19,407,164
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares (113,999) (76,820) (1,350,337) (813,707)
Class Y shares (39,568) (3,537) (182,664) (63,498)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (153,567) (80,357) (1,533,001) (877,205)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in
shares of beneficial interest 977,238 (5,345,903) (54,233,048) (68,880,465)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 7,899,782 (2,233,818) (26,466,558) (50,350,506)
NET ASSETS:
Beginning of period 44,972,367 47,206,185 256,005,667 306,356,173
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 52,872,149 $ 44,972,367 $ 229,539,109 $ 256,005,667
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (57) $ 146,548 $ 34,807 $ 1,532,848
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
104
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (155,320) $ (149,171) $ 603,656 $ 522,507
Net realized gain 5,418,673 5,644,119 8,080,636 7,765,089
Net change in unrealized appreciation/depreciation 2,192,107 2,128,100 (1,352,882) (1,992,900)
----------------- ----------------- ----------------- -----------------
NET INCREASE 7,455,460 7,623,048 7,331,410 6,294,696
----------------- ----------------- ----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares -- -- (450,564) (187,657)
Class Y shares -- -- (38,510) (6,397)
Net realized gain
Class X shares -- -- -- --
Class Y shares -- -- -- --
----------------- ----------------- ----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- (489,074) (194,054)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) from transactions in
shares of beneficial interest (6,859,148) (5,009,990) (15,179,555) (15,611,453)
----------------- ----------------- ----------------- -----------------
TOTAL INCREASE (DECREASE) 596,312 2,613,058 (8,337,219) (9,510,811)
NET ASSETS:
Beginning of period 39,387,677 36,774,619 81,689,575 91,200,386
----------------- ----------------- ----------------- -----------------
END OF PERIOD $ 39,983,989 $ 39,387,677 $ 73,352,356 $ 81,689,575
================= ================= ================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (47) $ 1,624 $ 463,157 $ 472,861
================= ================= ================= =================
<Caption>
DEVELOPING GROWTH
-------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (113,555) $ (130,385)
Net realized gain 9,390,269 10,331,339
Net change in unrealized appreciation/depreciation 483,072 1,649,421
----------------- -----------------
NET INCREASE 9,759,786 11,850,375
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class X shares -- --
Class Y shares -- --
Net realized gain
Class X shares -- --
Class Y shares -- --
----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- --
----------------- -----------------
Net increase (decrease) from transactions in
shares of beneficial interest (11,241,461) (11,342,279)
----------------- -----------------
TOTAL INCREASE (DECREASE) (1,481,675) 508,096
NET ASSETS:
Beginning of period 61,302,090 60,793,994
----------------- -----------------
END OF PERIOD $ 59,820,415 $ 61,302,090
================= =================
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME (NET INVESTMENT LOSS) $ (73) $ 1,791
================= =================
</Table>
105
<Page>
SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
MONEY MARKET FLEXIBLE INCOME
------------------------------- --------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
CLASS X SHARES
SHARES
Sold 25,422,553 37,685,076 143,276 288,951
Reinvestment of dividends and distributions 1,554,481 660,775 384,390 527,610
Redeemed (42,891,928) (62,131,314) (1,349,263) (1,955,037)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X (15,914,894) (23,785,463) (821,597) (1,138,476)
============== ============== ============== ==============
AMOUNT
Sold $ 25,422,553 $ 37,685,076 $ 1,070,048 $ 2,190,958
Reinvestment of dividends and distributions 1,554,481 660,775 2,853,279 3,999,321
Redeemed (42,891,928) (62,131,314) (10,076,678) (14,847,279)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X $ (15,914,894) $ (23,785,463) $ (6,153,351) $ (8,657,000)
============== ============== ============== ==============
CLASS Y SHARES
SHARES
Sold 30,390,244 35,158,148 617,267 1,352,342
Reinvestment of dividends and distributions 868,981 231,005 246,385 259,727
Redeemed (27,717,628) (41,103,766) (883,707) (786,215)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y 3,541,597 (5,714,613) (20,055) 825,854
============== ============== ============== ==============
AMOUNT
Sold $ 30,390,244 $ 35,158,148 $ 4,596,574 $ 10,264,647
Reinvestment of dividends and distributions 868,981 231,005 1,823,025 1,962,637
Redeemed (27,717,628) (41,103,766) (6,575,013) (5,954,950)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y $ 3,541,597 $ (5,714,613) $ (155,414) $ 6,272,334
============== ============== ============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
106
<Page>
<Table>
<Caption>
BALANCED GROWTH UTILITIES
--------------------------------- --------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
CLASS X SHARES
SHARES
Sold 153,509 182,919 109,433 94,493
Reinvestment of dividends and distributions 92,265 115,168 62,808 79,241
Redeemed (1,148,143) (1,283,677) (731,587) (945,802)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X (902,369) (985,590) (559,346) (772,068)
============== ============== ============== ==============
AMOUNT
Sold $ 2,504,210 $ 2,757,310 $ 2,198,991 $ 1,577,053
Reinvestment of dividends and distributions 1,507,473 1,745,020 1,313,166 1,337,452
Redeemed (18,690,123) (19,230,565) (14,922,675) (15,529,676)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X $ (14,678,440) $ (14,728,235) $ (11,410,518) $ (12,615,171)
============== ============== ============== ==============
CLASS Y SHARES
SHARES
Sold 159,591 384,916 86,563 153,046
Reinvestment of dividends and distributions 32,645 34,166 14,571 16,608
Redeemed (246,766) (263,108) (173,814) (207,468)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y (54,530) 155,974 (72,680) (37,814)
============== ============== ============== ==============
AMOUNT
Sold $ 2,614,737 $ 5,760,801 $ 1,755,196 $ 2,522,900
Reinvestment of dividends and distributions 532,905 517,526 304,838 280,659
Redeemed (3,984,340) (3,923,306) (3,523,821) (3,402,887)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y $ (836,698) $ 2,355,021 $ (1,463,787) $ (599,328)
============== ============== ============== ==============
<Caption>
DIVIDEND GROWTH EQUALLY-WEIGHTED S&P 500
--------------------------------- ---------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
CLASS X SHARES
SHARES
Sold 290,573 585,391 258,801 604,921
Reinvestment of dividends and distributions 212,823 324,040 132,054 51,356
Redeemed (4,781,282) (5,503,008) (1,539,510) (1,603,447)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X (4,277,886) (4,593,577) (1,148,655) (947,170)
============== ============== ============== ==============
AMOUNT
Sold $ 4,570,165 $ 8,741,228 $ 6,289,680 $ 13,301,341
Reinvestment of dividends and distributions 3,377,533 4,953,801 3,162,703 1,140,613
Redeemed (75,728,076) (82,348,524) (37,656,881) (35,266,843)
-------------- -------------- -------------- --------------
NET DECREASE - CLASS X $ (67,780,378) $ (68,653,495) $ (28,204,498) $ (20,824,889)
============== ============== ============== ==============
CLASS Y SHARES
SHARES
Sold 266,223 836,368 1,133,459 1,404,141
Reinvestment of dividends and distributions 36,130 49,628 87,702 20,044
Redeemed (651,676) (609,582) (586,503) (353,978)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y (349,323) 276,414 634,658 1,070,207
============== ============== ============== ==============
AMOUNT
Sold $ 4,212,365 $ 12,480,219 $ 27,352,074 $ 30,602,353
Reinvestment of dividends and distributions 572,922 760,026 2,083,804 441,970
Redeemed (10,284,244) (9,127,990) (14,193,170) (7,711,193)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) - CLASS Y $ (5,498,957) $ 4,112,255 $ 15,242,708 $ 23,333,130
============== ============== ============== ==============
</Table>
107
<Page>
<Table>
<Caption>
GROWTH AMERICAN OPPORTUNITIES
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 45,621 74,011 160,189 294,249
Reinvestment of dividends 7,520 5,298 91,054 57,424
Redeemed (512,566) (692,429) (3,450,991) (4,841,589)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (459,425) (613,120) (3,199,748) (4,489,916)
================= ================= ================= =================
AMOUNT
Sold $ 701,221 $ 1,062,006 $ 2,445,263 $ 4,131,293
Reinvestment of dividends 113,999 76,820 1,350,336 813,707
Redeemed (7,862,509) (9,833,826) (52,562,192) (67,866,315)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (7,047,289) $ (8,695,000) $ (48,766,593) $ (62,921,315)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 751,355 344,824 106,325 341,328
Reinvestment of dividends 2,633 246 12,367 4,500
Redeemed (224,282) (107,687) (484,568) (775,389)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y 529,706 237,383 (365,876) (429,561)
================= ================= ================= =================
AMOUNT
Sold $ 11,461,513 $ 4,859,789 $ 1,644,441 $ 4,768,395
Reinvestment of dividends 39,568 3,537 182,665 63,498
Redeemed (3,476,554) (1,514,229) (7,293,561) (10,791,043)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ 8,024,527 $ 3,349,097 $ (5,466,455) $ (5,959,150)
================= ================= ================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
108
<Page>
<Table>
<Caption>
CAPITAL OPPORTUNITIES GLOBAL EQUITY
------------------------------------- -------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- ----------------- -----------------
CLASS X SHARES
SHARES
Sold 118,513 213,276 96,667 178,142
Reinvestment of dividends -- -- 29,839 13,104
Redeemed (721,670) (825,656) (1,086,697) (1,299,648)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X (603,157) (612,380) (960,191) (1,108,402)
================= ================= ================= =================
AMOUNT
Sold $ 1,200,955 $ 1,784,560 $ 1,498,231 $ 2,537,436
Reinvestment of dividends -- -- 450,564 187,657
Redeemed (7,112,174) (6,926,163) (16,883,416) (18,510,485)
----------------- ----------------- ----------------- -----------------
NET DECREASE - CLASS X $ (5,911,219) $ (5,141,603) $ (14,934,621) $ (15,785,392)
================= ================= ================= =================
CLASS Y SHARES
SHARES
Sold 155,416 394,029 53,393 178,690
Reinvestment of dividends -- -- 2,566 449
Redeemed (259,330) (378,563) (70,931) (165,283)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y (103,914) 15,466 (14,972) 13,856
================= ================= ================= =================
AMOUNT
Sold $ 1,600,462 $ 3,257,263 $ 812,220 $ 2,526,862
Reinvestment of dividends -- -- 38,510 6,397
Redeemed (2,548,391) (3,125,650) (1,095,664) (2,359,320)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ (947,929) $ 131,613 $ (244,934) $ 173,939
================= ================= ================= =================
<Caption>
DEVELOPING GROWTH
-------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
CLASS X SHARES
SHARES
Sold 66,506 94,520
Reinvestment of dividends -- --
Redeemed (615,572) (778,488)
----------------- -----------------
NET DECREASE - CLASS X (549,066) (683,968)
================= =================
AMOUNT
Sold $ 1,391,587 $ 1,639,068
Reinvestment of dividends -- --
Redeemed (12,779,261) (13,552,390)
----------------- -----------------
NET DECREASE - CLASS X $ (11,387,674) $ (11,913,322)
================= =================
CLASS Y SHARES
SHARES
Sold 68,441 126,054
Reinvestment of dividends -- --
Redeemed (63,548) (93,254)
----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y 4,893 32,800
================= =================
AMOUNT
Sold $ 1,442,286 $ 2,186,269
Reinvestment of dividends -- --
Redeemed (1,296,073) (1,615,226)
----------------- -----------------
NET INCREASE (DECREASE) - CLASS Y $ 146,213 $ 571,043
================= =================
</Table>
109
<Page>
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Select Dimensions Investment Series (the "Fund") is registered
under the Investment Company Act of 1940 as amended (the "Act"), as a
diversified, open-end management investment company. The Fund, which consists of
11 separate portfolios ("Portfolios"), was organized on June 2, 1994, as a
Massachusetts business trust and commenced operations on November 9, 1994, with
the exception of Capital Opportunities which commenced operations on January 21,
1997.
On July 24, 2000, the Fund commenced offering one additional class of shares
(Class Y shares). The two classes are identical except that Class Y shares incur
distribution expenses. Class X shares are generally available to holders of
contracts offered before May 1, 2000. Class Y shares are available to holders of
contracts offered on or after July 24, 2000.
The investment objectives of each Portfolio are as follows:
<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 when consistent with its
primary objective.
Balanced Growth Seeks to provide capital growth with reasonable current income.
Utilities Seeks both capital appreciation and current income.
Dividend Growth Seeks to provide reasonable current income and long-term growth of income and
capital.
Equally-Weighted Seeks to achieve a high level of total return on its assets through a
S&P 500 combination of capital appreciation and current income.
Growth Seeks long-term growth of capital.
American
Opportunities Seeks long-term capital growth consistent with an effort to reduce volatility.
Capital Opportunities Seeks long-term capital growth.
Global Equity Seeks to obtain total return on its assets primarily through long-term capital
growth and to a lesser extent from income.
Developing Growth Seeks long-term capital growth.
</Table>
110
<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 Adviser") determines that the
latest sale price, the bid price or the mean between the last reported bid and
asked price do not reflect a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees.
Occasionally, developments affecting the closing prices of securities and other
assets may occur between the times at which valuations of such securities are
determined (that is, close of the foreign market on which the securities trade)
and the close of business on the NYSE. If developments occur during such periods
that are expected to materially affect the value of such securities, such
valuations may be adjusted to reflect the estimated fair value of such
securities as of the close of the NYSE, as determined in good faith by the
Fund's Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trustees of the Fund; (7) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; and (8) short-term debt securities having a maturity date of more than
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except certain dividends on foreign securities which are recorded as soon as the
Fund is informed after the
111
<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 Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, or U.S. Treasury or federal agency obligations. The Portfolio may also
invest directly with institutions in repurchase agreements. The Portfolio's
custodian receives the collateral, which is marked-to-market daily to determine
that the value of the collateral does not decrease below the repurchase price
plus accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract which is known as variation margin.
Such receipts or payments are recorded by the Fund as unrealized gains or
losses. Upon closing of the contract, the Fund realizes a gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
F. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the
112
<Page>
securities held. Forward contracts are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are recorded as
unrealized foreign currency gain or loss. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
G. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply individually
for each Portfolio with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Accordingly, no federal income tax provision
is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date.
I. EXPENSES -- Direct expenses are charged to the respective Portfolio and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Portfolios.
J. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
annual rates listed below to each Portfolio's net assets determined at the close
of each business day.
Money Market - 0.45% to the portion of the daily net assets not exceeding $250
million; 0.375% to the portion of the daily net assets exceeding $250 million
but not exceeding $750 million; 0.325% to the portion of the daily net assets
exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of
the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion and
0.275% to the portion of the daily net assets in excess of $1.5 billion.
Flexible Income - 0.32%.
Balanced Growth - 0.52% to the portion of the daily net assets not exceeding
$500 million and 0.495% to the portion of the daily net assets in excess of $500
million.
Utilities - 0.57% to the portion of the daily net assets not exceeding $500
million; 0.47% to the portion of the daily net assets exceeding $500 million but
not exceeding $1 billion; 0.445% to the portion of the daily net
113
<Page>
assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion
of the daily net assets exceeding $1.5 billion but not exceeding $2.5 billion;
0.395% to the portion of the daily net assets exceeding $2.5 billion but not
exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding
$3.5 billion but not exceeding $5 billion and 0.345% to the portion of the daily
net assets in excess of $5.0 billion.
Dividend Growth - 0.545% to the portion of the daily net assets not exceeding
$250 million; 0.42% to the portion of the daily net assets exceeding $250
million, but not exceeding $1 billion; 0.395% to the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion and 0.37% to the
portion of the daily net assets in excess of $2 billion.
Equally-Weighted S&P 500 - 0.12% to the portion of the daily net assets not
exceeding $2 billion and 0.10% to the portion of daily net assets in excess of
$2 billion. (Prior to June 1, 2005, 0.12%).
Growth - 0.50% to the portion of the daily net assets not exceeding $1 billion;
0.45% to the portion of the daily net assets exceeding $1 billion but not
exceeding $2 billion; 0.40% to the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion and 0.35% to the portion of the daily net
assets in excess of $3 billion.
American Opportunities - 0.545% to the portion of the daily net assets not
exceeding $250 million; 0.42% to the portion of the daily net assets exceeding
$250 million but not exceeding $2.5 billion; 0.395% to the portion of the daily
net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the
portion of the daily net assets exceeding $3.5 billion but not exceeding $4.5
billion and 0.345% to the portion of the daily net assets in excess of $4.5
billion.
Capital Opportunities - 0.67% to the portion of the daily net assets not
exceeding $500 million; 0.645% to the portion of the daily net assets exceeding
$500 million but not exceeding $2 billion; 0.62% to the portion of the daily net
assets exceeding $2 billion but not exceeding $3 billion and 0.595% to the
portion of the daily net assets in excess of $3 billion.
Global Equity - 0.92%.
Developing Growth - 0.42% to the portion of the daily net assets not exceeding
$500 million and 0.395% to the portion of the daily net assets in excess of $500
million.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, each
Portfolio pays an administration fee, accrued daily and payable monthly, by
applying the annual rate of 0.08% (Money Market 0.05%) to the Portfolio's daily
net assets.
114
<Page>
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. Under the Plan, Class Y shares of each Portfolio bear a
distribution fee which is accrued daily and paid monthly at the annual rate of
0.25% of the average daily net assets of the class.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/prepayments/maturities of portfolio securities, excluding
short-term investments (except for the Money Market Portfolio), for the year
ended December 31, 2005 were as follows:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES OTHER
-------------------------------- ----------------------------------
SALES/PREPAYMENTS SALES/PREPAYMENTS
PURCHASES /MATURITIES PURCHASES /MATURITIES
------------ ----------------- ------------- -----------------
Money Market $ 23,403,382 $ 35,687,633 $ 670,553,512 $ 674,323,798
Flexible Income 17,569,450 13,984,598 29,743,503 34,900,610
Balanced Growth 24,802,459 28,484,266 25,518,660 35,831,252
Utilities 174,057 169,483 28,887,654 41,233,298
Dividend Growth -- -- 121,237,403 196,793,658
Equally-Weighted S&P 500 -- -- 37,231,118 54,987,364
Growth -- -- 38,157,336 38,035,045
American Opportunities -- -- 160,872,630 212,334,106
Capital Opportunities -- -- 32,039,239 39,069,498
Global Equity -- -- 54,907,569 69,390,842
Developing Growth -- -- 58,632,965 70,668,215
</Table>
Equally-Weighted S&P 500 had transactions in Morgan Stanley common stock, an
affiliate of the Investment Adviser, Administrator and Distributor:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS INCOME VALUE
--------- -------- ------------ -------- ----------
$ 61,998 $ 82,641 $ 7,537 $ 8,754 $ 437,806
========= ======== ======== ======== ==========
</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
----------- ---------- ------------ --------- -----------
Flexible Income -- -- -- $ 1,069 $ 44,568
Balanced Growth $ 14,765 $ 485,215 $ 208,336 11,098 671,310
American Opportunities 2,293,491 -- -- 26,292 2,645,412
Equally-Weighted S&P 500 -- 111,893 40,706 6,963 435,720
</Table>
115
<Page>
The following Portfolios had transactions with other Morgan Stanley funds during
the year ended December 31, 2005:
<Table>
<Caption>
NET REALIZED
PURCHASES SALES GAINS
----------- ---------- ------------
Balanced Growth $ 162,395 $ 24,155 $ 1,654
Utilities 259,524 404,388 19,814
Dividend Growth 158,124 433,654 246,402
Growth 14,087 399,927 26,410
American Opportunities 754,057 579,165 87,118
Capital Opportunities 4,788 11,036 6,977
Developing Growth 802,721 16,554 10,334
</Table>
For the year ended December 31, 2005, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., for portfolio
transactions executed on behalf of the Portfolio:
<Table>
<Caption>
DIVIDEND AMERICAN GLOBAL CAPITAL DEVELOPING
UTILITIES GROWTH OPPORTUNITIES EQUITY OPPORTUNITIES GROWTH GROWTH
--------- -------- ------------- -------- ------------- ------ ----------
$ 41,122 $ 42,726 $ 36,454 $ 28,262 $ 823 $ 40 $ 1,637
========= ======== ========= ======== ======= ====== ========
</Table>
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward contracts to facilitate settlement
of foreign currency denominated portfolio transactions or to manage foreign
currency exposure associated with foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Some of the Portfolios may purchase and sell interest rate and index futures
("futures contracts") to facilitate trading, increase or decrease the
Portfolio's market exposure, seek higher investment returns, or to seek to
protect against a decline in the value of the Portfolio's securities or an
increase in prices of securities that may be purchased.
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the value of the underlying securities. Risks
may also arise upon entering into these contracts from the potential inability
of the counterparts to meet the terms of their contracts.
6. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
116
<Page>
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
The tax character of distributions paid for the year ended December 31, 2004 and
December 31, 2005 for all portfolios was the same as the book character shown on
the Statement of Changes except as follows:
For the year ended December 31, 2005
<Table>
<Caption>
EQUALLY-WEIGHTED
S&P 500
----------------
Ordinary income $ 3,065,501
Long-term capital gains 2,181,006
-----------
Total distributions $ 5,246,507
===========
</Table>
As of December 31, 2005, the tax-basis components of accumulated earnings
(losses) were as follows:
<Table>
<Caption>
EQUALLY-
FLEXIBLE BALANCED DIVIDEND WEIGHTED
INCOME GROWTH UTILITIES GROWTH S&P 500
-------------- -------------- -------------- -------------- --------------
Undistributed ordinary income $ 694,386 $ 267,730 $ 22,151 $ 8,746 $ 4,246,715
Undistributed long-term gains -- 4,156,752 -- -- 9,837,820
-------------- -------------- -------------- -------------- --------------
Net accumulated earnings 694,386 4,424,482 22,151 8,746 14,084,535
Capital loss carryforward* (20,187,008) -- (27,805,781) (135,958,357) --
Post-October losses (99) -- -- -- --
Temporary differences (24,107) (138) (107) (495) (284)
Net unrealized appreciation
(depreciation) (4,520,715) 11,237,788 26,768,381 70,694,306 82,495,306
-------------- -------------- -------------- -------------- --------------
Total accumulated earnings (losses) $ (24,037,543) $ 15,662,132 $ (1,015,356) $ (65,255,800) $ 96,579,557
============== ============== ============== ============== ==============
<Caption>
AMERICAN CAPITAL GLOBAL DEVELOPING
GROWTH OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH
-------------- -------------- -------------- -------------- --------------
Undistributed ordinary income -- $ 35,129 -- $ 683,396 --
Undistributed long-term gains -- -- -- 4,949,023 --
-------------- -------------- -------------- -------------- --------------
Net accumulated earnings -- 35,129 -- 5,632,419 --
Foreign tax credit pass-through -- -- -- 81,458 --
Capital loss carryforward* $ (33,577,093) (250,821,492) $ (84,985,455) -- $ (30,404,031)
Post-October losses (5,036) -- -- (50,785) --
Temporary differences (61) (349) (50) (82,233) (83)
Net unrealized appreciation 9,384,778 53,297,596 9,244,831 8,361,924 11,058,702
-------------- -------------- -------------- -------------- --------------
Total accumulated earnings (losses) $ (24,197,412) $ (197,489,116) $ (75,740,674) $ 13,942,783 $ (19,345,412)
============== ============== ============== ============== ==============
</Table>
* As of December 31, 2005, the following Portfolios had a net capital loss
carryforward which may be used to offset future capital gains to the extent
provided by regulations.
117
<Page>
<Table>
<Caption>
(AMOUNTS IN THOUSANDS)
AVAILABLE THROUGH ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Flexible Income $ 153 $ 941 $ 1,681 $ 2,688 $ 6,782 $ 6,161 $ 1,199 $ 582 $ 20,187
Utilities -- -- -- 6,663 21,143 -- -- -- 27,806
Dividend Growth -- -- 34,940 21,046 58,750 21,222 -- -- 135,958
Growth -- -- -- 13,972 16,400 3,145 60 -- 33,577
American
Opportunities -- -- -- 176,036 74,785 -- -- -- 250,821
Capital
Opportunities -- -- -- 27,418 57,567 -- -- -- 84,985
Developing Growth -- -- -- 12,092 18,312 -- -- -- 30,404
</Table>
During the year ended December 31, 2005, the following Portfolios utilized net
capital loss carryforwards: Balanced Growth -- $4,864,899; Utilities --
$10,092,484; Dividend Growth -- $26,747,148; Growth -- $1,130,666 American
Opportunities -- $10,296,746; Capital Opportunities -- $5,424,013; Global Equity
- -- $3,087,214; Developing Growth -- $9,335,089.
At December 31, 2005, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<Table>
<Caption>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
----------------------- -----------------------
POST- LOSS FOREIGN NET
OCTOBER DEFERRALS FROM CURRENCY OPERATING
LOSSES WASH SALES GAINS/LOSSES LOSS
------- -------------- ------------ ---------
Flexible Income - - -
Balanced Growth -
Utilities -
Dividend Growth -
Equally-Weighted S&P 500 -
Growth - - -
American Opportunities -
Capital Opportunities - -
Global Equity - -
Developing Growth - -
</Table>
Additionally, the following Portfolios had other temporary differences: Flexible
Income -- interest on bonds in default; Flexible Income and Balanced Growth --
capital loss deferrals on straddles; Flexible Income, Balanced Growth and
Equally-Weighted S&P 500 -- capital gain/loss from the mark-to-market of futures
contracts. Equally-Weighted S&P 500 -- tax adjustments on real estate investment
trusts (REITs) held by the Portfolio. Flexible Income and Balanced Growth had
permanent differences attributable to the
118
<Page>
reclassification of net losses on paydowns. Dividend Growth, Equally-Weighted
S&P 500, Capital Opportunities and Developing Growth had permanent differences
attributable to tax adjustments on REITs sold by the Portfolios. The following
Portfolios had temporary and permanent differences attributable to book
amortization of premiums/discounts on debt securities: Flexible Income, Balanced
Growth and Utilities.
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<Table>
<Caption>
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME (LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL
---------------------------- ------------------------- ---------------
Flexible Income $ 855,851 $ (855,851) --
Balanced Growth 144,280 (144,280) --
Utilities 7,282 (7,282) --
Dividend Growth (5,016) 5,016 --
Equally-Weighted S&P 500 (71,238) 71,238 --
Growth 22,101 (6,994) $ (15,107)
American Opportunities (17,635) 17,635 --
Capital Opportunities 153,649 11,334 (164,983)
Global Equity (124,286) 124,286 --
Developing Growth 111,691 15,198 (126,889)
</Table>
119
<Page>
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
NET ASSET
FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO
DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS
- ------------ --------- -------------- -------------- ---------- ------------
MONEY MARKET
CLASS X SHARES
2001 $ 1.00 $ 0.04 -- $ 0.04 $ (0.04)
2002 1.00 0.01 -- 0.01 (0.01)
2003 1.00 0.01 -- 0.01 (0.01)
2004 1.00 0.01 -- 0.01 (0.01)
2005 1.00 0.03 -- 0.03 (0.03)
CLASS Y SHARES
2001 1.00 0.04 -- 0.04 (0.04)
2002 1.00 0.01 -- 0.01 (0.01)
2003 1.00 0.00 -- 0.00 (0.00)
2004 1.00 0.01 -- 0.01 (0.01)
2005 1.00 0.02 -- 0.02 (0.02)
FLEXIBLE INCOME
CLASS X SHARES
2001 7.83 0.56 $ (0.88) (0.32) (0.42)
2002 6.99 0.51 0.08 0.59 (0.35)
2003 7.23 0.34 0.62 0.96 (0.39)
2004 7.80 0.38 0.14 0.52 (0.64)
2005 7.68 0.38 (0.17) 0.21 (0.54)
CLASS Y SHARES
2001 7.81 0.52 (0.86) (0.34) (0.41)
2002 6.97 0.48 0.10 0.58 (0.33)
2003 7.22 0.32 0.61 0.93 (0.37)
2004 7.78 0.36 0.13 0.49 (0.62)
2005 7.65 0.36 (0.16) 0.20 (0.52)
BALANCED GROWTH
CLASS X SHARES
2001 14.90 0.44 (0.28) 0.16 (0.44)
2002 14.62 0.36 (2.02) (1.66) (0.38)
2003 12.58 0.27 2.19 2.46 (0.33)
2004 14.71 0.31 1.28 1.59 (0.35)
2005 15.95 0.34 0.95 1.29 (0.36)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
120
<Page>
<Table>
<Caption>
RATIOS TO AVERAGE
NET ASSETS**
TOTAL NET ASSET NET ASSETS -----------------------
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO
ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- -------- ------------- ---------
MONEY MARKET
CLASS X SHARES
2001 -- $ (0.04) $ 1.00 3.88% $ 175,957 0.52% 3.63% N/A
2002 -- (0.01) 1.00 1.34 152,479 0.52 1.34 N/A
2003 -- (0.01) 1.00 0.65 91,730 0.54 0.66 N/A
2004 -- (0.01) 1.00 0.86 67,945 0.55 0.84 N/A
2005 -- (0.03) 1.00 2.73 52,030 0.57 2.68 N/A
CLASS Y SHARES
2001 -- (0.04) 1.00 3.62 31,189 0.77 3.38 N/A
2002 -- (0.01) 1.00 1.09 41,006 0.77 1.09 N/A
2003 -- (0.00) 1.00 0.40 39,183 0.79 0.41 N/A
2004 -- (0.01) 1.00 0.61 33,468 0.80 0.59 N/A
2005 -- (0.02) 1.00 2.48 37,010 0.82 2.43 N/A
FLEXIBLE INCOME
CLASS X SHARES
2001 $ (0.10)++ (0.52) 6.99 (4.06) 56,745 0.49 7.48 114%
2002 -- (0.35) 7.23 8.67 54,669 0.50 7.26 115
2003 -- (0.39) 7.80 13.54 53,270 0.57 4.49 258
2004 -- (0.64) 7.68 7.00 43,658 0.69 4.96 201
2005 -- (0.54) 7.35 2.88 35,755 0.60 5.11 83
CLASS Y SHARES
2001 (0.09)++ (0.50) 6.97 (4.41) 3,859 0.74 7.23 114
2002 -- (0.33) 7.22 8.59 14,626 0.75 7.01 115
2003 -- (0.37) 7.78 13.15 20,955 0.82 4.24 258
2004 -- (0.62) 7.65 6.61 26,927 0.94 4.71 201
2005 -- (0.52) 7.33 2.62 25,624 0.85 4.86 83
BALANCED GROWTH
CLASS X SHARES
2001 -- (0.44) 14.62 1.21 116,002 0.64 2.95 71
2002 -- (0.38) 12.58 (11.49) 84,846 0.66 2.58 161
2003 -- (0.33) 14.71 19.84 84,151 0.68 2.01 124
2004 -- (0.35) 15.95 10.93 75,517 0.69 2.04 62
2005 -- (0.36) 16.88 8.21 64,663 0.70 2.07 55
</Table>
121
<Page>
<Table>
<Caption>
NET ASSET
FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO
DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS
- ------------ --------- -------------- -------------- ---------- ------------
CLASS Y SHARES
2001 $ 14.88 $ 0.39 $ (0.27) $ 0.12 $ (0.41)
2002 14.59 0.32 (2.01) (1.69) (0.34)
2003 12.56 0.23 2.19 2.42 (0.30)
2004 14.68 0.27 1.28 1.55 (0.31)
2005 15.92 0.30 0.95 1.24 (0.32)
UTILITIES
CLASS X SHARES
2001 23.99 0.43 (6.45) (6.02) (0.45)
2002 17.10 0.47 (3.93) (3.46) (0.48)
2003 13.16 0.35 2.31 2.66 (0.36)
2004 15.46 0.36 3.37 3.73 (0.37)
2005 18.82 0.43 2.62 3.05 (0.44)
CLASS Y SHARES
2001 23.99 0.40 (6.48) (6.08) (0.40)
2002 17.09 0.44 (3.93) (3.49) (0.45)
2003 13.15 0.31 2.31 2.62 (0.32)
2004 15.45 0.32 3.37 3.69 (0.33)
2005 18.81 0.38 2.62 3.00 (0.39)
DIVIDEND GROWTH
CLASS X SHARES
2001 15.85 0.27 (1.13) (0.86) (0.28)
2002 14.71 0.26 (2.88) (2.62) (0.26)
2003 11.83 0.24 3.00 3.24 (0.24)
2004 14.83 0.23 0.99 1.22 (0.24)
2005 15.81 0.20 0.67 0.87 (0.20)
CLASS Y SHARES
2001 15.84 0.23 (1.13) (0.90) (0.25)
2002 14.69 0.23 (2.88) (2.65) (0.23)
2003 11.81 0.20 3.01 3.21 (0.21)
2004 14.81 0.20 0.98 1.18 (0.20)
2005 15.79 0.16 0.66 0.82 (0.16)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
122
<Page>
<Table>
<Caption>
RATIOS TO AVERAGE
NET ASSETS**
TOTAL NET ASSET NET ASSETS -----------------------
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO
ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- -------- ------------- ---------
CLASS Y SHARES
2001 -- $ (0.41) $ 14.59 0.86% $ 8,463 0.89% 2.70% 71%
2002 -- (0.34) 12.56 (11.66) 12,327 0.91 2.33 161
2003 -- (0.30) 14.68 19.51 22,898 0.93 1.76 124
2004 -- (0.31) 15.92 10.68 27,308 0.94 1.79 62
2005 -- (0.32) 16.84 7.89 27,970 0.95 1.82 55
UTILITIES
CLASS X SHARES
2001 $ (0.42) (0.87) 17.10 (25.51) 118,964 0.69 2.15 49
2002 -- (0.48) 13.16 (20.37) 66,825 0.70 3.22 77
2003 -- (0.36) 15.46 20.47 63,728 0.71 2.51 91
2004 -- (0.37) 18.82 24.44 63,052 0.71 2.19 29
2005 -- (0.44) 21.43 16.28 59,823 0.72 2.12 38
CLASS Y SHARES
2001 (0.42) (0.82) 17.09 (25.69) 12,471 0.94 1.90 49
2002 -- (0.45) 13.15 (20.58) 10,749 0.95 2.97 77
2003 -- (0.32) 15.45 20.20 13,440 0.96 2.26 91
2004 -- (0.33) 18.81 24.15 15,650 0.96 1.94 29
2005 -- (0.39) 21.42 16.00 16,267 0.97 1.87 38
DIVIDEND GROWTH
CLASS X SHARES
2001 -- (0.28) 14.71 (5.45) 527,738 0.62 1.79 22
2002 -- (0.26) 11.83 (17.92) 341,673 0.64 1.89 22
2003 -- (0.24) 14.83 27.73 356,056 0.66 1.85 42
2004 -- (0.24) 15.81 8.29 307,093 0.65 1.54 44
2005 -- (0.20) 16.48 5.57 249,516 0.63 1.26 38
CLASS Y SHARES
2001 -- (0.25) 14.69 (5.71) 22,602 0.87 1.54 22
2002 -- (0.23) 11.81 (18.15) 29,318 0.89 1.64 22
2003 -- (0.21) 14.81 27.48 51,527 0.91 1.60 42
2004 -- (0.20) 15.79 8.03 59,314 0.90 1.29 44
2005 -- (0.16) 16.45 5.32 56,061 0.88 1.01 38
</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
- ------------ --------- -------------- -------------- ---------- ------------
EQUALLY-WEIGHTED S&P 500
CLASS X SHARES
2001 $ 20.75 $ 0.22 $ (0.56) $ (0.34) $ (0.19)
2002 19.12 0.19 (3.22) (3.03) (0.21)
2003 15.88 0.19 5.59 5.78 (0.21)
2004 21.13 0.23 3.27 3.50 (0.18)
2005 24.45 0.32 1.54 1.86 (0.23)
CLASS Y SHARES
2001 20.72 0.16 (0.55) (0.39) (0.18)
2002 19.05 0.16 (3.22) (3.06) (0.20)
2003 15.79 0.15 5.56 5.71 (0.19)
2004 20.99 0.18 3.23 3.41 (0.15)
2005 24.25 0.26 1.53 1.79 (0.19)
GROWTH
CLASS X SHARES
2001 19.42 (0.01) (2.90) (2.91) --
2002 15.48 0.01 (4.32) (4.31) --
2003 11.17 0.03 2.97 3.00 (0.01)
2004 14.16 0.05 1.03 1.08 (0.03)
2005 15.21 0.01 2.35 2.36 (0.06)
CLASS Y SHARES
2001 19.40 (0.05) (2.90) (2.95) --
2002 15.42 (0.02) (4.30) (4.32) --
2003 11.10 (0.01) 2.96 2.95 --
2004 14.05 0.03 1.01 1.04 (0.01)
2005 15.08 (0.03) 2.32 2.29 (0.04)
AMERICAN OPPORTUNITIES
CLASS X SHARES
2001 28.57 0.09 (7.97) (7.88) (0.05)
2002 14.99 0.04 (3.26) (3.22) (0.09)
2003 11.68 0.04 2.36 2.40 (0.05)
2004 14.03 0.08 1.08 1.16 (0.05)
2005 15.14 0.01 2.15 2.16 (0.11)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
124
<Page>
<Table>
<Caption>
RATIOS TO AVERAGE
NET ASSETS**
TOTAL NET ASSET NET ASSETS -----------------------
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO
ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- -------- ------------- ---------
EQUALLY-WEIGHTED S&P 500
CLASS X SHARES
2001 $ (1.10) $ (1.29) $ 19.12 (1.83)% $ 181,881 0.54% 1.12% 6%
2002 -- (0.21) 15.88 (15.97) 121,065 0.54 1.09 8
2003 (0.32) (0.53) 21.13 37.14 143,019 0.55 1.11 24
2004 -- (0.18) 24.45 16.65 142,320 0.50 1.07 20
2005 (0.37) (0.60) 25.71 7.81 120,117 0.27 1.30 17
CLASS Y SHARES
2001 (1.10) (1.28) 19.05 (2.04) 10,985 0.79 0.87 6
2002 -- (0.20) 15.79 (16.21) 18,843 0.79 0.84 8
2003 (0.32) (0.51) 20.99 36.87 47,554 0.80 0.86 24
2004 -- (0.15) 24.25 16.33 80,900 0.75 0.82 20
2005 (0.37) (0.56) 25.48 7.57 101,156 0.52 1.05 17
GROWTH
CLASS X SHARES
2001 (1.03) (1.03) 15.48 (15.23) 80,096 0.86 (0.04) 81
2002 -- -- 11.17 (27.84) 39,834 0.91 0.08 135
2003 -- (0.01) 14.16 26.90 40,356 0.93 0.21 128
2004 -- (0.03) 15.21 7.64 34,038 0.93 0.37 168
2005 -- (0.06) 17.51 15.55 31,126 0.70 0.05 83
CLASS Y SHARES
2001 (1.03) (1.03) 15.42 (15.46) 4,383 1.11 (0.29) 81
2002 -- -- 11.10 (28.02) 3,520 1.16 (0.17) 135
2003 -- -- 14.05 26.58 6,850 1.18 (0.04) 128
2004 -- (0.01) 15.08 7.38 10,934 1.18 0.12 168
2005 -- (0.04) 17.33 15.21 21,746 0.95 (0.20) 83
AMERICAN OPPORTUNITIES
CLASS X SHARES
2001 (5.65) (5.70) 14.99 (29.47) 463,012 0.65 0.46 393
2002 -- (0.09) 11.68 (21.56) 274,710 0.66 0.27 309
2003 -- (0.05) 14.03 20.57 260,230 0.67 0.33 261
2004 -- (0.05) 15.14 8.29 212,736 0.67 0.60 134
2005 -- (0.11) 17.19 14.39 186,633 0.67 0.06 73
</Table>
125
<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
- ------------ --------- -------------- -------------- ---------- ------------
CLASS Y SHARES
2001 $ 28.55 $ 0.03 $ (7.95) $ (7.92) $ (0.05)
2002 14.93 0.01 (3.25) (3.24) (0.06)
2003 11.63 0.01 2.34 2.35 (0.02)
2004 13.96 0.05 1.06 1.11 (0.02)
2005 15.05 (0.03) 2.15 2.12 (0.07)
CAPITAL OPPORTUNITIES
CLASS X SHARES
2001 15.38 (0.07) (5.52) (5.59) --
2002 9.79 (0.05) (4.24) (4.29) --
2003 5.50 (0.04) 2.33 2.29 --
2004 7.79 (0.03) 1.79 1.76 --
2005 9.55 (0.03) 2.19 2.16 --
CLASS Y SHARES
2001 15.37 (0.09) (5.53) (5.62) --
2002 9.75 (0.07) (4.22) (4.29) --
2003 5.46 (0.05) 2.31 2.26 --
2004 7.72 (0.05) 1.78 1.73 --
2005 9.45 (0.06) 2.16 2.10 --
GLOBAL EQUITY
CLASS X SHARES
2001 17.26 0.04 (2.88) (2.84) (0.11)
2002 12.79 0.04 (2.26) (2.22) (0.01)
2003 10.56 0.04 3.62 3.66 (0.05)
2004 14.17 0.09 1.06 1.15 (0.03)
2005 15.29 0.13 1.49 1.62 (0.11)
CLASS Y SHARES
2001 17.24 (0.01) (2.86) (2.87) (0.10)
2002 12.75 0.01 (2.26) (2.25) --
2003 10.50 0.01 3.60 3.61 (0.02)
2004 14.09 0.06 1.05 1.11 (0.01)
2005 15.19 0.09 1.47 1.56 (0.07)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
126
<Page>
<Table>
<Caption>
RATIOS TO AVERAGE
NET ASSETS**
TOTAL NET ASSET NET ASSETS -----------------------
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO
ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- -------- ------------- ---------
CLASS Y SHARES
2001 $ (5.65) $ (5.70) $ 14.93 (29.67)% $ 30,768 0.90% 0.21% 393%
2002 -- (0.06) 11.63 (21.73) 30,035 0.91 0.02 309
2003 -- (0.02) 13.96 20.25 46,126 0.92 0.08 261
2004 -- (0.02) 15.05 7.96 43,269 0.92 0.35 134
2005 -- (0.07) 17.10 14.16 42,906 0.92 (0.19) 73
CAPITAL OPPORTUNITIES
CLASS X SHARES
2001 -- -- 9.79 (36.39) 55,488 0.80 (0.63) 16
2002 -- -- 5.50 (43.82) 22,097 0.90 (0.71) 103
2003 -- -- 7.79 41.64 25,473 0.87 (0.57) 184
2004 -- -- 9.55 22.59 25,408 0.90 (0.32) 118
2005 -- -- 11.71 22.62 24,087 0.89 (0.33) 87
CLASS Y SHARES
2001 -- -- 9.75 (36.56) 11,410 1.05 (0.88) 16
2002 -- -- 5.46 (44.00) 6,537 1.15 (0.96) 103
2003 -- -- 7.72 41.39 11,302 1.12 (0.82) 184
2004 -- -- 9.45 22.41 13,980 1.15 (0.57) 118
2005 -- -- 11.55 22.22 15,897 1.14 (0.58) 87
GLOBAL EQUITY
CLASS X SHARES
2001 (1.52) (1.63) 12.79 (17.22) 118,747 1.07 0.29 89
2002 -- (0.01) 10.56 (17.37) 75,611 1.08 0.35 44
2003 -- (0.05) 14.17 34.71 83,607 1.08 0.35 72
2004 -- (0.03) 15.29 8.17 73,290 1.11 0.64 48
2005 -- (0.11) 16.80 10.64 64,377 1.12 0.83 75
CLASS Y SHARES
2001 (1.52) (1.62) 12.75 (17.38) 3,825 1.32 0.04 89
2002 -- -- 10.50 (17.57) 3,951 1.33 0.10 44
2003 -- (0.02) 14.09 34.33 7,593 1.33 0.10 72
2004 -- (0.01) 15.19 7.89 8,399 1.36 0.39 48
2005 -- (0.07) 16.68 10.32 8,975 1.37 0.58 75
</Table>
127
<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
2001 $ 25.93 $ (0.01) $ (6.25) $ (6.26) $ (0.22)
2002 16.01 (0.03) (4.41) (4.44) --
2003 11.57 (0.03) 4.82 4.79 --
2004 16.36 (0.03) 3.68 3.65 --
2005 20.01 (0.03) 3.78 3.75 --
CLASS Y SHARES
2001 25.90 (0.05) (6.25) (6.30) (0.21)
2002 15.95 (0.06) (4.40) (4.46) --
2003 11.49 (0.07) 4.80 4.73 --
2004 16.22 (0.07) 3.64 3.57 --
2005 19.79 (0.08) 3.72 3.64 --
</Table>
- ----------
* THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
** REFLECTS OVERALL PORTFOLIO RATIOS FOR INVESTMENT INCOME AND NON-CLASS
SPECIFIC EXPENSES.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
++ DISTRIBUTION FROM PAID-IN CAPITAL.
SEE NOTES TO FINANCIAL STATEMENTS
128
<Page>
<Table>
<Caption>
RATIOS TO AVERAGE
NET ASSETS**
TOTAL NET ASSET NET ASSETS -----------------------
FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO
ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER
DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE
- ------------ ------------- ------------- --------- ------- ---------- -------- ------------- ---------
DEVELOPING GROWTH $ (3.44) $ (3.66) $ 16.01 (25.49)% $ 85,513 0.59% (0.05)% 196%
CLASS X SHARES -- -- 11.57 (27.73) 45,892 0.61 (0.26) 251
2001 -- -- 16.36 41.40 53,996 0.62 (0.20) 193
2002 -- -- 20.01 22.31 52,359 0.64 (0.19) 135
2003 -- -- 23.76 18.69 49,116 0.63 (0.15) 102
2004
2005 (3.44) (3.65) 15.95 (25.67) 2,973 0.84 (0.30) 196
CLASS Y SHARES -- -- 11.49 (27.96) 2,602 0.86 (0.51) 251
2001 -- -- 16.22 41.17 6,798 0.87 (0.45) 193
2002 -- -- 19.79 21.95 8,943 0.89 (0.44) 135
2003 -- -- 23.43 18.40 10,704 0.88 (0.40) 102
2004
2005
</Table>
129
<Page>
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES:
We have audited the accompanying statements of assets and liabilities, of Morgan
Stanley Select Dimensions Investment Series (the "Fund"), including the
portfolios of investments, comprising the Money Market Portfolio, Flexible
Income Portfolio, Balanced Growth Portfolio, Utilities Portfolio, Dividend
Growth Portfolio, Equally-Weighted S&P 500 Portfolio, Growth Portfolio, American
Opportunities Portfolio, Capital Opportunities Portfolio, Global Equity
Portfolio and Developing Growth Portfolio (the "Portfolios"), as of December 31,
2005, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios constituting the Morgan Stanley Select Dimensions Investment
Series as of December 31, 2005, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
FEBRUARY 21, 2006
130
<Page>
MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ----------- ------------ ----------------------- ------------- -----------------------------------
Michael Bozic (64) Trustee Since Private Investor; 197 Director of various business
c/o Kramer Levin Naftalis April 1994 Director or Trustee of organizations.
& Frankel LLP the Retail Funds (since
Counsel to the Independent April 1994) and the
Trustees Institutional Funds
1177 Avenue of the (since July 2003);
Americas formerly Vice Chairman
New York, NY 10036 of Kmart Corporation
(December 1998-October
2000), Chairman and
Chief Executive Officer
of Levitz Furniture
Corporation (November
1995-November 1998)
and President and Chief
Executive Officer of
Hills Department Stores
(May 1991-July 1995);
formerly variously
Chairman, Chief
Executive Officer,
President and Chief
Operating Officer
(1987-1991) of the
Sears Merchandise Group
of Sears, Roebuck & Co.
Edwin J. Garn (73) Trustee Since Consultant; Director or 197 Director of Franklin Covey (time
1031 N. Chartwell Court January 1993 Trustee of the Retail management systems), BMW Bank of
Salt Lake City, UT 84103 Funds (since January North America, Inc. (industrial
1993) and the loan corporation), Escrow Bank USA
Institutional Funds (industrial loan corporation),
(since July 2003); United Space Alliance (joint
member of the Utah venture between Lockheed Martin and
Regional Advisory Board the Boeing Company) and Nuskin Asia
of Pacific Corp. Pacific (multilevel marketing);
(utility company); member of the board of various
formerly Managing civic and charitable organizations.
Director of Summit
Ventures LLC
(2000-2004) (lobbying
and consulting firm);
United States Senator
(R-Utah) (1974-1992)
and Chairman, Senate
Banking Committee
(1980-1986), Mayor of
Salt Lake City, Utah
(1971-1974), Astronaut,
Space Shuttle Discovery
(April 12-19, 1985),
and Vice Chairman,
Huntsman Corporation
(chemical company).
Wayne E. Hedien (71) Trustee Since Retired; Director or 197 Director of The PMI Group Inc.
c/o Kramer Levin Naftalis September Trustee of the Retail (private mortgage insurance);
& Frankel LLP 1997 Funds (since September Trustee and Vice Chairman of The
Counsel to the Independent 1997) and the Field Museum of Natural History;
Trustees Institutional Funds director of various other business
1177 Avenue of the (since July 2003); and charitable organizations.
Americas formerly associated
New York, NY 10036 with the Allstate
Companies (1966-1994),
most recently as
Chairman of The
Allstate Corporation
(March 1993-December
1994) and Chairman and
Chief Executive Officer
of its wholly-owned
subsidiary, Allstate
Insurance Company (July
1989-December 1994).
</Table>
131
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ----------- ------------ ----------------------- ------------- -----------------------------------
Dr. Manuel H. Johnson (56) Trustee Since Senior Partner, Johnson 197 Director of NVR, Inc. (home
c/o Johnson Smick Group, July 1991 Smick International, construction); Director of KFX
Inc. Inc., a consulting Energy; Director of RBS Greenwich
888 16th Street, NW firm; Chairman of the Capital Holdings (financial holding
Suite 740 Audit Committee and company).
Washington, D.C. 20006 Director or Trustee of
the Retail Funds (since
July 1991) and the
Institutional Funds
(since July 2003);
Co-Chairman and a
founder of the Group of
Seven Council (G7C), an
international economic
commission; formerly
Vice Chairman of the
Board of Governors of
the Federal Reserve
System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (63) Trustee Since President, Kearns & 198 Director of Electro Rent
c/o Kearns & Associates July 2003 Associates LLC Corporation (equipment leasing),
LLC (investment The Ford Family Foundation, and the
PMB754 consulting); Deputy UCLA Foundation.
23852 Pacific Coast Chairman of the Audit
Highway Committee and Director
Malibu, CA 90265 or Trustee of the
Retail Funds (since
July 2003) and the
Institutional Funds
(since August 1994);
previously Chairman of
the Audit Committee of
the Institutional Funds
(October 2001-July
2003); formerly CFO of
the J. Paul Getty
Trust.
Michael E. Nugent (69) Trustee Since General Partner of 197 None.
c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P.,
445 Park Avenue a private investment
New York, NY 10022 partnership; Chairman
of the Insurance
Committee and Director
or Trustee of the
Retail Funds (since
July 1991) and the
Institutional Funds
(since July 2001);
formerly Vice
President, Bankers
Trust Company and BT
Capital Corporation
(1984-1988).
Fergus Reid (73) Trustee Since Chairman of Lumelite 198 Trustee and Director of certain
c/o Lumelite Plastics July 2003 Plastics Corporation; investment companies in the
Corporation Chairman of the JPMorgan Funds complex managed by
85 Charles Colman Blvd. Governance Committee J.P. Morgan Investment Management
Pawling, NY 12564 and Director or Trustee Inc.
of the Retail Funds
(since July 2003) and
the Institutional Funds
(since June 1992).
</Table>
132
<Page>
Interested Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ----------- ------------ ----------------------- ------------- -----------------------------------
Charles A. Fiumefreddo Chairman of Since Chairman and Director 197 None.
(72) the Board July 1991 or Trustee of the
c/o Morgan Stanley Trust and Trustee Retail Funds (since
Harborside Financial July 1991) and the
Center, Institutional Funds
Plaza Two, (since July 2003);
Jersey City, NJ 07311 formerly Chief
Executive Officer of
the Retail Funds (until
September 2002).
James F. Higgins (57) Trustee Since Director or Trustee of 197 Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust June 2000 the Retail Funds (since The Equitable Life Assurance
Harborside Financial June 2000) and the Society of the United States
Center, Institutional Funds (financial services).
Plaza Two, (since July 2003);
Jersey City, NJ 07311 Senior Advisor of
Morgan Stanley (since
August 2000); Director
of the Distributor and
Dean Witter Realty
Inc.; previously
President and Chief
Operating Officer of
the Private Client
Group of Morgan Stanley
(May 1999-August
2000), and President
and Chief Operating
Officer of Individual
Securities of Morgan
Stanley (February
1997-May 1999).
</Table>
- ----------------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT ADVISER") (THE
"RETAIL FUNDS").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE
"INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN
SERVING THE RETAIL OR INSTITUTIONAL FUNDS, AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT ADVISER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
ADVISER (INCLUDING, BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT MANAGEMENT
INC.).
133
<Page>
Officers:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- -------------------------- ----------- ------------ ----------------------------------------------------------------------
Ronald E. Robison (66) President Since May President (since September 2005) and Principal Executive Officer of
1221 Avenue of the and 2003 funds in the Fund Complex (since May 2003); Managing Director of
Americas Principal Morgan Stanley & Co. Incorporated and Morgan Stanley; Managing
New York, NY 10020 Executive Director and Director of Morgan Stanley Investment Management Inc.,
Officer Morgan Stanley Distribution Inc. and Morgan Stanley Distributors Inc.;
Managing Director, Chief Administrative Officer and Director of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley Services Company
Inc.; Chief Executive Officer and Director of Morgan Stanley Trust;
Director of Morgan Stanley SICAV (since May 2004); President (since
September 2005) and Principal Executive Officer (since May 2003) of
the Van Kampen Funds; previously, Executive Vice President (July
2003-September 2005) of funds in the Fund Complex and the Van Kampen
Funds. He was also previously President and Director of the
Institutional Funds (March 2001-July 2003), Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and Chief
Executive Officer and Chairman of Van Kampen Investor Services.
J. David Germany (51) Vice Since Managing Director and Chief Investment Officer - Global Fixed Income
25 Cabot Square, President February of Morgan Stanley Investment Management Inc., Morgan Stanley
Canary Wharf, London, 2006 Investment Advisors Inc., and Van Kampen Asset Management. Managing
United Kingdom E144QA Director and Director of Morgan Stanley Investment Management Ltd.
Vice President (since February 2006) of the Morgan Stanley Retail
Funds and Morgan Stanley Institutional Funds.
Dennis F. Shea (52) Vice Since Managing Director and Chief Investment Officer - Global Equity of
1221 Avenue of the President February Morgan Stanley Investment Advisors Inc., Morgan Stanley Investment
Americas 2006 Management Inc. and Van Kampen Asset Management. Vice President (since
New York, NY 10020 February 2006) of the Morgan Stanley Retail Funds and Morgan Stanley
Institutional Funds. Previously, Managing Director and Director of
Global Equity Research at Morgan Stanley.
Barry Fink (50) Vice Since General Counsel (since May 2000) and Managing Director (since December
1221 Avenue of the President February 2000) of Morgan Stanley Investment Management; Managing Director
Americas 1997 (since December 2000) of the Investment Adviser and the Administrator;
New York, NY 10020 Vice President of the Retail Funds; Assistant Secretary of Morgan
Stanley DW; Vice President of the Institutional Funds (since July
2003); Managing Director, Secretary and Director of the Distributor;
previously Secretary (February 1997-July 2003) and General Counsel
(February 1997-April 2004) of the Retail Funds; previously Secretary
(1997-2006) and Director (1997-2005) of the Investment Adviser and the
Administrator; and Secretary and Director of the Distributor
(1997-2005).
Amy R. Doberman (43) Vice Since July Managing Director and General Counsel, U.S. Investment Management;
1221 Avenue of the President 2004 Managing Director (since July 2004) and Secretary (since February
Americas 2006) of Morgan Stanley Investment Management Inc. and the Investment
New York, NY 10020 Adviser, Managing Director and Secretary of the Distributor (since
February 2006); Managing Director (since February 2005) and Secretary
(since February 2006) of the Administrator; Vice President of the
Institutional and Retail Funds (since July 2004); various positions
with the Van Kampen Funds and certain of their service providers;
previously, Managing Director and General Counsel - Americas, UBS
Global Asset Management (July 2000-July 2004).
</Table>
134
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- -------------------------- ----------- ------------ ----------------------------------------------------------------------
Carsten Otto (42) Chief Since Managing Director and U.S. Director of Compliance for Morgan Stanley
1221 Avenue of the Compliance October Investment Management Inc. (since October 2004); Managing Director of
Americas Officer 2004 the Investment Adviser and Morgan Stanley Investment Management Inc.;
New York, NY 10020 formerly Assistant Secretary and Assistant General Counsel of the
Morgan Stanley Retail Funds.
Stefanie V. Chang (39) Vice Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the President 2003 Stanley Investment Management Inc. and the Investment Adviser; Vice
Americas President of the Institutional Funds (since December 1997) and the
New York, NY 10020 Retail Funds (since July 2003); various positions with the Van Kampen
Funds; formerly practiced law with the New York law firm of Rogers &
Wells (now Clifford Chance US LLP).
Francis J. Smith (40) Treasurer Treasurer Executive Director of the Investment Adviser and the Administration
c/o Morgan Stanley Trust and Chief since (since December 2001); previously, Vice President of the Retail Funds
Harborside Financial Financial July 2003 (September 2002-July 2003); Vice President of the Investment Adviser
Center, Officer and Chief and the Administrator (August 2000-November 2001).
Plaza Two, Financial
Jersey City, NJ 07311 Officer
since
September
2002
Thomas F. Caloia (59) Vice Since July Executive Director (since December 2002) and Assistant Treasurer of
c/o Morgan Stanley Trust President 2003 the Investment Adviser, the Distributor and the Administrator;
Harborside Financial previously Treasurer of the Retail Funds (April 1989-July 2003);
Center, formerly First Vice President of the Investment Adviser, the
Plaza Two, Distributor and the Administrator.
Jersey City, NJ 07311
Mary E. Mullin (38) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the 2003 Stanley Investment Management Inc. and the Investment Adviser;
Americas Secretary of the Institutional Funds (since June 1999) and the Retail
New York, NY 10020 Funds (since July 2003); formerly practiced law with the New York law
firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher &
Flom LLP.
</Table>
- ---------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an Officer
for the Retail and Institutional Funds reflect the earliest date the Officer
began serving the Retail or Institutional Funds, as applicable.
135
<Page>
FEDERAL TAX NOTICE - DECEMBER 31, 2005 (UNAUDITED)
During the fiscal year ended December 31, 2005, Equally-Weighted S&P 500
Portfolio paid to its shareholders $0.245 per share from long-term capital
gains.
Additionally, each Portfolio's income dividends had the following qualifying
percentages as indicated below:
<Table>
<Caption>
DIVIDENDS RECEIVED U.S. GOVERNMENT
FUND DEDUCTION% (a) INCOME% (b)
- ---- ------------------ ---------------
Money Market Portfolio 0.00% 0.08%
Flexible Income Portfolio 0.00% 16.43%
Balanced Growth Portfolio 48.50% 22.17%
Utilities Portfolio 100.00% 0.21%
Dividend Growth Portfolio 100.00% 0.00%
Equally-Weighted S&P 500 Portfolio 100.00% 0.00%
Growth Portfolio 100.00% 0.00%
American Opportunities Portfolio 100.00% 0.00%
Capital Opportunities Portfolio 0.00% 0.00%
Global Equity Portfolio 100.00% 0.00%
Developing Growth Portfolio 0.00% 0.00%
</Table>
- ----------
(a) THESE PERCENTAGES REPRESENT THE PORTION OF INCOME DIVIDENDS PAID BY EACH
PORTFOLIO THAT QUALIFIED FOR THE DIVIDENDS RECEIVED DEDUCTION AVAILABLE TO
CORPORATIONS.
(b) THESE PERCENTAGES REPRESENT THE PORTION OF INCOME DIVIDENDS PAID BY EACH
PORTFOLIO THAT WERE ATTRIBUTABLE TO QUALIFYING U.S. GOVERNMENT OBLIGATIONS.
136
<Page>
Trustees
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
Officers
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Ronald E. Robison
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
J. David Germany
VICE PRESIDENT
Dennis F. Shea
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER AND CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Transfer Agent
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
Investment Adviser
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Funds are distributed by Morgan Stanley Distributors Inc.
Morgan Stanley Distributors Inc., member NASD.
<Page>
# 4 0 4 7 4
RA06-00124P-Y12/05
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered
officer.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 169,641 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 540(2) $ (2)
TAX FEES $ 42,107(3) $ (4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 42,647 $
TOTAL $ 212,288 $
</Table>
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 161,566 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 453(2) $ 3,746,495 (2)
TAX FEES $ 43,996(3) $ 79,800 (4)
ALL OTHER FEES $ - $ - (5)
TOTAL NON-AUDIT FEES $ 44,449 $ 3,826,295
TOTAL $ 206,015 $ 3,826,295
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control
with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically data
verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review
of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit
Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
<Page>
not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
<Page>
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
<Page>
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
<Page>
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Select Dimensions Investment Series
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 9, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 9, 2006
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 9, 2006