<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS TWO WORLD TRADE CENTER,
INVESTMENT SERIES NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998
DEAR SHAREHOLDER:
The first half of 1998 saw a great deal of volatility and uncertainty as
financial turmoil in Asia spread across the globe. However, the U.S. stock
market recovered quickly, with the stocks of large American companies benefiting
from the notion that they could provide a safe haven. This positive investor
psychology was coupled with strong fundamental data, such as low inflation,
strong employment figures and rising consumer confidence, which supported higher
equity prices.
In October, an unprecedented number of central banks around the world responded
to a global contraction in the availability of credit by lowering interest rates
in a series of impressive moves, indicating this action could continue into the
first quarter of 1999. Countries as diverse as the United States and China, as
well as all of the countries comprising the European Monetary Union, lowered
rates across the board. More than 60 separate easing moves were recorded.
U.S. EQUITY MARKET
After soaring to a record high of 9,338 in July, the Dow Jones Industrial
Average plunged nearly 1,800 points by the end of August. Several factors
combined to drag down the price of stocks, including slowing profits, the
persistent Asian contagion, Russia's debt default and devaluation of the ruble,
the ongoing White House scandal, and the near-collapse of a major hedge fund,
Long-Term Capital Management. The steadying influence of the "Goldilocks"
economy--an environment that is considered neither too hot nor too cold,
allowing for economic expansion with low inflation--pulled the market out of its
summer slump. During the fourth quarter of 1998, the stock market regained much
of the ground that it had lost during the difficult summer months. For the full
year, the Dow was up 18.16 percent and the S&P 500 was up 28.58 percent.
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
U.S. BOND MARKET
The U.S. economy continued to expand throughout 1998, as employment grew,
personal income climbed and consumers remained resilient. Despite strong
economic growth, inflation did not materialize in large part because of
continued turmoil in the Asian and emerging market economies. As a result, the
Federal Reserve Board left interest rates unchanged until late September when,
in an effort to bolster economic growth, the central bank initiated the first of
three interest rate cuts. While interest rates were left unchanged at the Fed's
December meeting, it is possible that the policy of monetary easing may resume
if and when the economy begins to show signs of weakening.
Against this backdrop, the yield on the five-year U.S. Treasury note declined
117 basis points during 1998 to 4.54 percent, while the yield on the 30-year
U.S. Treasury bond declined 82 basis points, to 5.10 percent.
HIGH-YIELD MARKET
Without question, 1998 was very difficult for high-yield bonds as a result of
the financial market's dramatic "flight-to-quality" in the second half of the
year. Reacting to concerns over sharply declining overseas markets, investors
began exiting riskier investments, such as equities and high yield bonds,
seeking the relative safety of U.S. government securities. While equities
rebounded late in the year, at year end the high-yield market still remained
near its lows, as high-yield investors continued to be very risk averse,
awaiting further evidence of continued economic growth into 1999.
Midway through the year, serious concerns over the rapidly escalating foreign
market crisis emerged, raising questions as to the extent of the impact on both
the U.S. economy and corporate earnings. These concerns resulted in a sharp
correction in the high-yield bond market during the second half, causing
high-yield bond prices to decline as much as 15 percent in many cases, and
driving market yields from their first-half rate of 9 percent, all the way up to
the 12 percent range. The high-yield market itself experienced a
"flight-to-quality" as well, with the middle tier of the market (B-rated issues)
significantly underperforming the upper tier (BB-rated issues), again because of
investors' severe risk aversion. As a result of this volatility and the sharp
decline in interest rates during the year to the 5 percent level, yields in the
high-yield market are near their highest levels in relation to U.S. Treasuries
in nearly 10 years.
MONEY MARKET
Rates available from money market securities were generally stable through the
first three quarters of 1998. With three 25 basis point (quarter of a percentage
point) cuts in the Federal Reserve
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Board's target rate for Federal funds coming in late September, mid-October and
mid-November, money market yields generally declined by 75 basis points during
the final three months of 1998. The central bank's actions were taken in an
effort to stabilize the financial markets following a series of major shocks to
the global system, most recently Russia's currency and debt crisis and Long-Term
Capital Management's near collapse.
ASIA AND JAPAN
Early in 1998, the International Monetary Fund (IMF), with its prescription of
currency stability through a tight monetary policy and its provision of
emergency financing to cover short-term needs, was considered the solution to
the Asian crisis. At the same time, a number of policy initiatives designed to
complement the IMF's actions strengthened investor conviction that Asia was on
the road to recovery.
By the second quarter of 1998, however, this conviction began to wane, as
economic data suggested that the downturn was far more severe than originally
anticipated. Of particular significance was the release of a negative GDP figure
for Hong Kong, which had been viewed as largely insulated from the Asian crisis.
As the year progessed data began to hint that IMF-style policies were failing to
effect a turnaround in Asia's economies and were in some instances actually
aggravating the crisis. A growing disillusionment with the IMF strategy resulted
in a steady abandonment of its doctrine around the region and its replacement
with looser monetary conditions and expansionary fiscal policies.
In Japan, 1998 saw authorities finally begin to address the financial crisis
looming in that country's banking industry, as some institutions were allowed to
fail while others were taken over by the government. Still a problem of enormous
proportions, it now appears that Japan is on the offensive in dealing with
non-performing loans and shaky consumer lenders.
Despite a great deal of discussion among Western economists as to China's
intentions, no currency devaluation materialized. Furthermore, the
China-controlled dollar remained pegged to the U.S. dollar, even though
currencies of surrounding nations were being rapidly devalued. China may have
held firm in anticipation of what now appears to be a solid recovery to growth
rates not seen in several years.
Toward the end of the year, positive external developments lent greater support
to Asia's markets. The cuts in U.S. interest rates and a strengthening Japanese
yen during October enabled Asian currencies to stabilize and local interest
rates to fall. These conditions, which have been the goal of
3
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
the region's policymakers since the currency crisis began, are widely believed
to be preconditions for the resumption of economic growth. In addition, Russia's
default resulted in a reduction in the appetite for risk worldwide, and a
reduction in much of the speculative activity in Asia's currency and equity
markets. Along with a bias toward lower interest rates, this shift has enabled
the risk premium attracted by Asian assets to subside. The result has been a
sharp rebound in the region's markets as liquidity has returned in anticipation
of the beginning of the end of the Asian crisis.
EUROPE
Nineteen ninety-eight was a volatile year for European equities, although strong
positive returns were the ultimate outcome in most markets. The markets were
affected by financial turmoil elsewhere in the world despite the fact that
developments in Europe itself were relatively positive. The first half of the
year saw strongly rising equity markets supported by a variety of benign
influences including falling interest rates, extensive merger and acquisition
activity and generally strong corporate profitability. The smooth progression
toward the launch of the Euro on January 1, 1999 also helped support the stock
markets. Politics generally exerted little influence, despite a continued shift
to left-of-center governments in most European countries (notably Germany and
Italy, both of which joined the United Kingdom and France in electing socialist
administrations). Whatever their political orientation, most European Union
governments were focused on fine tuning economic policy for the launch of the
Euro.
The turmoil in world financial markets in the late third quarter and early in
the fourth quarter of 1998 eroded most of the equity market gains of the year.
Certain European companies were clearly impacted by the deteriorating economic
conditions in Russia, Latin America and other emerging markets but, for the most
part, European businesses were relatively unscathed. The markets' recovery in
the latter part of the fourth quarter reflected a return to confidence by
investors and the realization that, although economic growth in Europe would
likely be affected by the crisis, it would not turn negative. The stock market
recovery was impressive and was given impetus by the prospect of a continuing
easy monetary policy on the part of European central banks.
The outlook for the European stock market remains positive for 1999 although
many issues are being carefully monitored. The actual impact of monetary union
and the launch of the Euro will continue to have a limited impact on equity
markets in 1999 but the policies and responses of the European central banks to
any further financial crises will be closely scrutinized. Similarly the actions
of the mainly socialist European governments will be important in their effects
upon
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
corporate profitability and investment. European merger and acquisition activity
should continue to accelerate, which is generally supportive of equity prices,
inflation and interest rates should stay low, and economic growth will likely
remain positive albeit at lower levels than in 1998.
LATIN AMERICA AND CANADA
For Latin America and Canada, which derive a great portion of their wealth from
high natural resource prices, the greatest surprise of the fourth quarter was
the sustained collapse of oil and industrial commodity values. After a five-year
period of falling copper, nickel, natural gas and crude oil prices, an
acceleration in plummeting prices during the fourth quarter led to record lows
in the value of the Canadian dollar, a potential recession in Mexico in 1999,
and rumors of a Brazilian currency devaluation.
GLOBAL BOND MARKET
Calendar year 1998 began with a crescendo of concern that the Asian financial
crisis would slow world growth and restrain inflation pressures. This backdrop
had been favorable for bond markets into the start of the year. However, bond
markets spent most of the first half of 1998 consolidating as it began to appear
that the global economy might suffer no more than a glancing blow from the Asian
crisis. Throughout this period, the U.S. dollar remained firm as the United
States remains the world's strongest major economy and is considered by
investors to be the port of choice should instability mount.
Indeed, by late summer instability, particularly in Russia, and the residual
effects on poorly positioned hedge funds caused a fresh wave of concern about
the global outlook. The highest quality bonds, U.S. Treasuries and German
government bonds, rose sharply. Lesser-quality bonds lagged or even fell. As the
fourth quarter of 1998 progressed, lesser credits performed better as the
"flight-to-quality" abated. What was clearly different during this latter
episode was that the U.S. dollar weakened primarily on perceptions that the U.S.
economy would be more vulnerable to problems in Latin America. By the end of the
year most investors had grown cautiously optimistic, but remained wary of the
uncertainty surrounding the intermediate-term outlook.
EMERGING MARKETS
Emerging equity markets fell sharply during 1998, as the recessionary fallout of
the Asian currency crisis became more apparent. While the crisis initially
appeared to be confined to Southeast Asia
5
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
currency depreciation, stock market weakness and asset price deflation have
since spread to emerging markets in Europe and Latin America. The sharp currency
devaluations resulted in a collapse of Asian import demand, which triggered a
sharp decline in global commodity prices.
Weaker commodity prices were partly responsible for the transmission of the
crisis to other regions. Commodity exporters, such as Russia and certain Latin
American countries, were hit particularly hard, given their heavy reliance on
oil-related exports for fiscal revenues. As a result, investors became
increasingly concerned about higher fiscal and current account deficits in the
emerging economies. The devaluation of the ruble on August 17, 1998 sent another
wave of concern throughout the global currency markets, putting further downward
pressure on commodity prices. The default on Russian Treasury bills also
resulted in a higher risk premium for the emerging markets as an asset class.
Most emerging equity markets staged a modest recovery during the fourth quarter
as several positive developments helped to improve the outlook for global
economic growth. Following the 25 basis point cut in U.S. interest rates at the
end of September, the Federal Reserve cut its key interest rate by an additional
50 basis points and is expected to gradually continue easing monetary policy
into 1999. In addition, G-7 authorities recently acknowledged that the balance
of risk in the world economy has shifted from high inflation to low growth. This
increased awareness will likely lead to growth-oriented policy measures.
The rallies in emerging markets during the fourth quarter were primarily
liquidity driven as investors with relatively high cash positions re-committed
funds to the global markets, particularly in Asia. The perception that a global
financial catastrophe has been avoided has prompted investors to reduce their
cash positions despite weak fundamentals and a discouraging near-term outlook
for economic growth.
AMERICAN VALUE PORTFOLIO
For the fiscal year ended December 31, 1998, the American Value Portfolio
produced a total return of 30.78 percent, versus 28.58 percent for the Standard
& Poor's Composite Index of 500 Stocks (S&P 500) and 24.94 percent for the
Lipper Variable Annuity Growth Underlying Funds Average. For the fiscal year,
the Portfolio ranked #41 out of 147 Variable Annuity Growth Funds (top 28
percent), according to Lipper. The accompanying chart illustrates the
performance of a $10,000 investment in the Portfolio from inception through the
fiscal year ended December 31, 1998, versus the performance of similar
hypothetical investments in the S&P 500 and the Lipper Variable Annuity Growth
Underlying Funds Average.
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The beginning of the year saw the Portfolio positioned for stronger economic
growth in the United States and Europe. We avoided industries and stocks with
exposure to emerging markets and natural resource-dependent countries where we
foresaw weaker economic growth. Emphasis at this time was on domestic,
consumer-oriented groups, such as retailers, automobiles and housing-related
sectors, which were the beneficiaries of the global decline in interest rates.
Also aiding the performance of these consumer-oriented groups were three major
developments: the lowest unemployment level in 30 years, the highest real-wages
in 30 years, and the greatest net worth appreciation in the post-war era. The
Portfolio maintained a commitment to health care of 10 to 15 percent throughout
the fiscal year given the aging of the population in the United States, which is
a positive secular trend. Also in the first half of the year, the Portfolio had
significant exposure to the more stable growth segments of technology: software,
the Internet and communications equipment. Financial stocks were also a focus on
the
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: AMERICAN VALUE PORTFOLIO
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,069 $9,916 $10,113
December 31, 1995 $13,991 $13,639 $13,391
December 31, 1996 $15,803 $16,769 $16,125
December 31, 1997 $20,848 $22,362 $20,214
December 31, 1998 $27,266 (2) $28,752 $25,256
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
30.78% (1) 27.40% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indicies, as reported by
Lipper Analytical Services.
7
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
basis of positive retirement and savings demographics, as well as the
interest-rate sensitivity of this group.
By mid-year, in anticipation of a worsening outlook, the Portfolio became very
defensive. Technology and financial holdings were significantly reduced, while
holdings in defensive food, beverage, utility and U.S. Treasury Bonds were
added. These adjustments enabled the Portfolio to weather the turbulent period
between July and mid-October.
Late in the year, in response to aggressive monetary easing by central banks
across the globe, as well as more dramatic fiscal moves by the Japanese
government, the Portfolio began to shift back to a more normal, growth-oriented
position. Defensive issues were sold, including U.S. Treasuries. Financial
groups, such as banks, brokerages and life insurance companies were repurchased.
Technology sectors purchased included semiconductors, capital equipment issues,
the Internet and computer companies, many of which had lagged for much of the
year.
BALANCED GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Balanced Growth Portfolio
produced a total return of 14.41 percent, versus 28.58 percent for the Standard
& Poor's Composite Index of 500 Stocks (S&P 500), 8.69 percent for the Lehman
Brothers Aggregate Bond Index and 14.60 percent for the Lipper Variable Annuity
Balanced Underlying Funds Average. The accompanying chart illustrates the
performance of a $10,000 investment in the Portfolio from inception through the
fiscal year ended December 31, 1998, versus the performance of similar
hypothetical investments in the S&P 500, the Lehman Brothers Aggregate Bond
Index and the Lipper Variable Annuity Balanced Underlying Funds Average.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: BALANCED GROWTH PORTFOLIO
FUND S&P 500(3) LEHMAN(4) LIPPER(5)
<S> <C> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000 $10,000
December 31, 1994 $10,060 $9,916 $10,069 $10,081
December 31, 1995 $12,359 $13,639 $11,929 $12,476
December 31, 1996 $14,033 $16,769 $12,362 $14,053
December 31, 1997 $16,542 $22,362 $13,556 $16,716
December 31, 1998 $18,926 (2) $28,752 $14,733 $19,189
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
14.41% (1) 16.65% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S.
Government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage backed securities and asset backed securities.
The performance of the Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(5) The Lipper Variable Annuity Balanced Underlying Funds Average tracks the
performance of funds whose primary objective is to conserve principal by
maintaining at all times a balanced portfolio of both stocks and bonds.
Typically, the stock/bond ratio ranges around 60%/40%, as reported by Lipper
Analytical Services.
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The asset mix of the Portfolio is 62 percent equities and 38 percent
fixed-income securities. The equity component consists of 26 common stocks
spread among 23 different industry groups. During the fiscal year, notable
equity transactions included a liquidation of the Portfolio's position in
Sprint, and the initiation of a position in AT&T.
During the fiscal year, as cash flows permitted, current coupon mortgages were
purchased at attractive levels, enhancing the Portfolio's prospects for
attractive total returns. As of December 31, 1998, the Portfolio's fixed-income
assets were invested as follows: 48 percent in mortgage-backed securities, 24
percent in U.S. Treasury securities, 10 percent in U.S. corporate obligations, 7
percent in U.S. agency obligations and 11 percent in cash equivalents.
DEVELOPING GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Developing Growth Portfolio
produced a total return of 9.04 percent versus 28.58 percent for the Standard &
Poor's Composite Index of 500 Stocks (S&P 500), -2.55 percent for the Russell
2000 Index and 1.48 percent for the Lipper Variable Annuity Small-Cap Underlying
Funds Average. The accompanying chart illustrates the performance of a $10,000
investment in the Portfolio from inception through the fiscal year ended
December 31, 1998, versus the performance of similar hypothetical investments in
the S&P 500, the Russell 2000 Index and the Lipper Variable Annuity Small-Cap
Underlying Funds Average.
Fiscal year 1998 was mostly volatile for small caps. Concerns regarding the
impact of Asia on earnings sent many investors seeking the perceived safety of
larger companies, especially during the turbulence
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: DEVELOPING GROWTH PORTFOLIO
FUND S&P 500(3) RUSSELL 2000(4) LIPPER(5)
<S> <C> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000 $10,000
December 31, 1994 $10,158 $9,916 $10,269 $10,213
December 31, 1995 $15,365 $13,639 $13,190 $13,155
December 31, 1996 $17,355 $16,769 $15,366 $15,760
December 31, 1997 $19,745 $22,362 $18,802 $18,770
December 31, 1998 $21,530(2) $28,752 $18,323 $19,048
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
9.04% (1) 20.34% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Russell 2000 Index is a capitalization weighted index which is comprised
of 2000 of the smallest stocks (on the basis of capitalization) in the
Russell 3000 Index. The performance of the Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Variable Annuity Small-Cap Underlying Funds Average tracks the
performance of funds that by prospectus or portfolio practice invest
primarily in companies with market capitalizations less than $1 billion at
the time of purchase, as reported by Lipper Analytical Services.
9
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
experienced in the third quarter. In an effort to minimize this volatility on
the Portfolio, we continued to focus on domestic issues having little to no
Asian exposure. Also, we maintained the Portfolio's focus on consumer,
technology and health care stocks. This strategy was predicated on the
expectation of continued economic strength, which is primarily the result of
high consumer confidence coupled with abnormally low oil prices.
During the fiscal year, the Portfolio moved toward a more fully invested
posture. Common stock holdings increased from 91.5 percent of net assets on June
30, 1998, to 93.3 percenton December 31. In terms of sector weightings, the
Portfolio's greatest exposure is in the technology and consumer-related areas,
with a combined weighting of approximately 65 percent.
DIVERSIFIED INCOME PORTFOLIO
For the fiscal year ended December 31, 1998, the Diversified Income Portfolio
produced a total return of 4.22 percent, versus 8.44 percent for the Lehman
Brothers Government/Corporate Intermediate Bond Index and 3.34 percent for the
Lipper Variable Annuity General Bond Underlying Funds Average. The accompanying
chart illustrates the performance of a $10,000 investment in the Portfolio from
inception through the fiscal year ended December 31, 1998, versus the
performance of similar hypothetical investments in the Lehman Brothers
Government/Corporate Intermediate Bond Index and the Lipper Variable Annuity
General Bond Underlying Funds Average.
GLOBAL SHORT-TERM COMPONENT. The evolving international situation required
several strategic adjustments in the Portfolio as the fiscal year progressed.
Early in the year, the Portfolio's investments were largely focused on the U.S.
fixed-income market. At that time, the average maturity of the Portfolio's
global
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000:DIVERSIFIED INCOME PORTFOLIO
FUND LEHMAN(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,076 $10,035 $10,016
December 31, 1995 $10,777 $11,574 $11,812
December 31, 1996 $11,806 $12,043 $12,699
December 31, 1997 $12,788 $12,990 $13,909
December 31, 1998 $13,328(2) $14,086 $14,580
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
4.22% (1) 7.18% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers Government/Corporate Intermediate Bond Index tracks the
performance of government and corporate bonds, including U.S. Government
agency and U.S. Treasury securities and corporate and yankee bonds with
maturities of 1 to 10 years. The Index does not include any expenses, fees
or charges. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Variable Annuity General Bond Underlying Funds Average tracks the
performance of funds that do not have any quality or maturity restrictions
and intend to keep the bulk of assets in corporate and government debt
issues, as reported by Lipper Analytical Services.
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MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
bond component was lengthened to approximately 2.65 years. As concerns about the
Asian crisis waned, it became appropriate to shift attention to the European
markets, including peripheral European countries (the United Kingdom, Italy,
Spain and Denmark), as well as New Zealand. As it became apparent that the Asian
crisis was spreading, the Portfolio's global bond investments were concentrated
in the U.S. and German government markets for safety and price appreciation.
Toward the beginning of the fourth quarter, it became apparent that there would
be at least a temporary respite in the international situation. In response,
this segment of the Portfolio was shifted toward more high-grade sectors, which
had lagged during the surge in U.S. and German security prices. In addition, as
the U.S. dollar declined the Portfolio shifted from a policy of hedging most of
its currency exposures to increasingly unhedging European investments in an
effort to capture currency gains.
Going forward, we expect a period of normalcy marked by consolidating interest
and exchange rates, which is expected to allow the yield spreads in high-grade
securities relative to U.S. and German securities to narrow. This would likely
make a more attractive level of income available to the Portfolio. We anticipate
continuing the global bond component's strategy of global diversification while
seeking markets that offer attractive yields, good inflation outlooks and fiscal
discipline. In addition, we will continue to emphasize securities and markets
that offer compelling values and low relative risk.
U.S. GOVERNMENT/MORTGAGE COMPONENT
During the first half of the year, the Portfolio increased its exposure to U.S.
Treasury and agency securities as yields continued to fall as a result of the
world economic turmoil. As the year progressed, the Portfolio utilized new cash
flow to increase its exposure to mortgage-backed securities, where yield spreads
relative to U.S. Treasuries proved attractive.
On December 31, 1998, approximately 60 percent of the U.S. government/mortgage
component's net assets was invested in mortgage-backed securities issued by the
Federal National Mortgage Association (FNMA), Government National Mortgage
Association (GNMA) and Federal Home Loan Mortgage Corp. (FHLMC). Coupons ranged
from 6 to 8 percent. Approximately 30 percent of this segment of the Portfolio
was invested in U.S. Treasury securities, with the balance in U.S. agency
securities.
HIGH YIELD COMPONENT
Although this segment of the Portfolio maintained a significant position in the
more defensive, investment-grade end of the high-yield market, our long-term
core position in the B-rated sector of
11
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
the market was sharply impacted by the market's second half correction. Although
not a good investment performer in 1998, over the years the attractive yield and
appreciation potential of the B-rated segment of the market has proven to be
rewarding.
Looking ahead, we view today's substantially higher, more attractive yields and
significantly discounted bond prices as an investment opportunity, especially in
light of the current low interest rate environment. Given a "soft landing" in
the economy with economic growth continuing into 1999, we expect the high-yield
market to follow the lead of the equity market and rebound to more normal levels
relative to U.S. Treasury securities. Should this scenario materialize, and
high-yield bond prices recover from their present depressed levels, the
high-yield segment of the Portfolio stands to participate not only in today's
high income levels, but stands to potentially provide a degree of capital
appreciation, as well.
DIVIDEND GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Dividend Growth Portfolio
produced a total return of 19.73 percent, versus 28.58 percent for the Standard
& Poor's Composite Index of 500 Stocks (S&P 500) and 16.37 percent for the
Lipper Variable Annuity Growth and Income Underlying Funds Average. The
accompanying chart illustrates the performance of a $10,000 investment in the
Portfolio from inception through the fiscal year ended December 31, 1998, versus
the performance of similar hypothetical investments in the S&P 500 and the
Lipper Variable Annuity Growth and Income Underlying Funds Average.
In our opinion, the Portfolio's relative underperformance of the S&P 500 is
attributable to a lack of exposure to high-technology stocks, which have very
little, if any, current yield. Since inception, the Portfolio has maintained a
fully invested
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: DIVIDEND GROWTH PORTFOLIO
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $9,995 $9,916 $10,117
December 31, 1995 $14,005 $13,639 $13,344
December 31, 1996 $17,435 $16,769 $16,131
December 31, 1997 $21,990 $22,362 $20,520
December 31, 1998 $26,329(2) $28,752 $23,879
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
19.73% (1) 26.33% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
broad-based Index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Lipper Variable Annuity Growth and Income Underlying Funds Average
tracks the performance of funds which combine a growth-of-earnings
orientation and an income requirement for level and/or rising dividends, as
reported by Lipper Analytical Services.
12
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
posture. During the fiscal year, shares of AT&T, Aluminum Company of America,
Associates First Capital, Consolidated Natural Gas and Sears Roebuck were added,
while shares of Sprint and Tricon Global Restaurants (a spin-off from PepsiCo)
were liquidated.
EMERGING MARKETS PORTFOLIO
For the fiscal year ended December 31, 1998, the Emerging Markets Portfolio
produced a total return of -29.03 percent versus -22.02 percent for the
International Finance Corporation (IFC) Investable Emerging Markets Total Return
Index and -28.34 percent for the Lipper Variable Annuity Emerging Markets
Underlying Funds Average. The accompanying chart illustrates the performanceof a
$10,000 investment in the Portfolio from inception through the fiscal year ended
December 31, 1998, versus the performance of similar hypothetical investments in
the IFC Investable Emerging Markets Total Return Index and the Lipper Variable
Annuity Emerging Markets Underlying Funds Average.
The widespread effects of the ongoing turmoil in the global financial markets
convinced the Portfolio's sub-advisor, TCW Funds Management, Inc. (TCW), to
maintain a relatively high cash position in an effort to minimize any negative
impact on the Portfolio while providing a reserve for opportune purchases.
Following the decline in global interest rates in mid-October, the Portfolio's
exposure to Asia was increased, especially Hong Kong-related China plays and
South Korea. The other region of focus was Europe, with an emphasis on Greece,
Poland and Hungary, which rallied during the fourth quarter.
Exposure to Latin America was reduced as a result of growing concerns regarding
Brazil. South Africa continued to remain underweighted.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: EMERGING MARKETS PORTFOLIO
FUND IFCI(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,057 $8,740 $9,301
December 31, 1995 $10,000 $8,004 $8,775
December 31, 1996 $11,768 $8,754 $10,429
December 31, 1997 $11,918 $7,464 $9,947
December 31, 1998 $8,458(2) $5,820 $7,128
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
- -29.03%(1) -3.96%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The International Finance Corporation Investable Emerging Markets Total
Return Index (IFCI) is designed to measure more precisely the returns
foreign portfolio investors might receive from investing in baskets of
stocks that were legally and practically available to them in the emerging
markets of Latin America, East Asia, South Asia, Europe, the Mideast and
Africa. The Index does not include any expenses, fees, or charges. The Index
is unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity Emerging Markets Underlying Funds Average tracks
the performance of funds which seek long-term capital appreciation by
investing at least 65% of their equity portfolio in emerging market shares,
as reported by Lipper Analytical Services.
13
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
As of December 31, 1998, the Portfolio's largest areas of concentration were
Mexico (11.7 percent), Brazil (9.9 percent), South Korea (9.9 percent), Greece
(9.6 percent) and South Africa (9.0 percent). Close behind were Taiwan (6.4
percent), Poland (5.1 percent), Hungary (4.9 percent), Argentina (4.3 percent),
India (3.6 percent), Portugal (3.2 percent) and Hong Kong (2.4 percent). The
Portfolio also held smaller positions in Israel, Chile, Turkey, the Philippines,
Peru, Colombia, Egypt and China. At the end of the quarter, the Portfolio held a
cash position of 7.5%.
GLOBAL EQUITY PORTFOLIO
For the fiscal year ended December 31, 1998, the Global Equity Portfolio
produced a total return of 15.11 percent versus 22.78 percent for the Morgan
Stanley Capital International (MSCI) World Index and 15.84 percent for the
Lipper Variable Annuity Global Underlying Funds Average. The accompanying chart
illustrates the performance of a $10,000 investment in the Portfolio from
inception through the fiscal year ended December 31, 1998, versus the
performance of similar hypothetical investments in the MSCI World Index and the
Lipper Variable Annuity Global Underlying Funds Average.
Particularly strong performance over the past year was seen in Italy (52.5
percent), Spain (49.9 percent) and France (41.5 percent). Markets in Asia began
to recover during the fourth quarter on the strength of firmer currencies,
growing trade surpluses and increased investor sentiment. Korea was the star
performer with the index notching a 157 percent gain, while Hong Kong (-2.9
percent) and Singapore (-3.9 percent) recovered most of their early losses.
Latin American markets were hard hit by falling commodity prices, slowing
economies and
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: GLOBAL EQUITY PORTFOLIO
FUND MSCI WORLD IX(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $9,970 $9,840 $9,969
December 31, 1995 $11,342 $11,681 $11,580
December 31, 1996 $12,639 $13,050 $13,659
December 31, 1997 $13,733 $14,899 $15,467
December 31, 1998 $15,809(2) $18,293 $17,971
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
15.11% (1) 11.69% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International World Index (MSCI) measures
performance for a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand, and the Far East. The Index does not
reflect the deduction of any expenses, fees or charges or reinvestment of
dividends. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Variable Annuity Global Underlying Funds Average tracks the
performance of funds which invest at least 25% of their portfolio in
securities traded outside of the United States and that may own U.S.
securities as well, as reported by Lipper Analytical Services.
14
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
persistent fears of a currency crisis in Brazil. Brazil (-42.1 percent) and
Mexico (-35.8 percent) were among the worst performers. The Japanese market
disappointed investors again, only gaining 5.1 percent as economic data
continued to show the economy contracting. Some optimism is returning after a
blockbuster bailout of Japan's fragile banking system, coupled with a fiscal
stimulus package.
The Portfolio's asset allocation targets for the beginning of 1999 are: Europe
(45 percent, overweighted relative to the MSCI World Index), North America (37
percent, underweighted relative to the Index), Japan (10 percent, market
weighted), Emerging Asia (5 percent, overweighted relative to the Index), Latin
America (1.0 percent, underweighted relative to the Index). A 2.0 percent cash
position is also targeted.
GROWTH PORTFOLIO
For the year ended December 31, 1998, the Growth Portfolio produced a total
return of 13.22 percent, versus 28.58 percent for the Standard & Poor's
Composite Index of 500 Stocks (S&P 500) Index and 24.94 percent for the Lipper
Variable Annuity Growth Underlying Funds Average. The accompanying chart
illustrates the performance of a $10,000 investment in the Portfolio from
inception through the fiscal year ended December 31, 1998, versus the
performance of similar hypothetical investments in the S&P 500 and the Lipper
Variable Annuity Growth Underlying Funds Average.
While 1998 was a disappointing year for the Portfolio, we were encouraged by the
fourth quarter performance, which we believe bodes well for 1999. We spent the
early part of the quarter reducing the Portfolio's cyclical and mid-cap exposure
and adding to our larger capitalization technology and health care holdings. The
Portfolio's sub-advisor, Morgan
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: GROWTH PORTFOLIO
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,067 $9,916 $10,117
December 31, 1995 $11,405 $13,639 $13,344
December 31, 1996 $14,091 $16,769 $16,131
December 31, 1997 $17,343 $22,362 $20,520
December 31, 1998 $19,636(2) $28,752 $25,256
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
13.22% (1) 17.69% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(4) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indicies, as reported by
Lipper Analytical Services.
15
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Stanley Dean Witter Investment Management, Inc. believes that this strategy
positions the Portfolio well for 1999. In particular, performance was boosted by
the quarterly returns of United Technologies, America Online, Cisco Systems and
Tyco International, which rose approximately 43 percent, 178 percent, 50 percent
and 37 percent in the fourth quarter, respectively. But, of course, one quarter
does not a year make and for the fiscal year the Portfolio's return was clearly
disappointing relative to previous periods of outperformance. While some of our
large positions performed well in 1998, these gains were not enough to offset
the disappointing performance of positions such as Cendant and Continental
Airlines.
The Portfolio tends to be broadly diversified by issue (we held 69 equity
securities at December 31) and continues to hold a mix of "classic" growth
stocks such as Microsoft, Intel, Cisco, General Electric (a fourth quarter
addition), Merck and Pfizer. The Portfolio also holds some less traditional
growth names such as United Technologies, Clear Channel and Tyco International,
and stocks that have been beaten down on what the sub-advisor feels are
unfounded fears, such as Philip Morris (ongoing litigation concerns) and United
Technologies (Asia meltdown scares). At year end, the Portfolio's largest
position was United Technologies, which represented 5.8 percent of the
Portfolio. The 10 largest holdings tend to account for nearly 40 percent of the
Portfolio. Over the long term, the sub-advisor believes that this philosophy,
which they refer to as "opportunistic concentration" will result in better
performance going forward.
MID-CAP GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Mid-Cap Growth Portfolio
produced a total return of 5.67 percent, versus 19.11 percent for the Standard &
Poor's Midcap Index and 19.30 percent for the Lipper Variable Annuity Mid-Cap
Underlying
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: MID-CAP GROWTH PORTFOLIO
FUND S&P MIDCAP(3) LIPPER(4)
<S> <C> <C> <C>
January 21, 1997 $10,000 $10,000 $10,000
December 31, 1997 $11,584 $12,852 $11,383
December 31, 1998 $12,241(2) $15,183 $13,592
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
5.67% (1) 10.98% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Midcap Index is a market-value weighted index, the
performance of which is based on the average performance of 400 domestic
stocks chosen for market size, liquidity, and industry group representation.
The performance of the Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity Mid-Cap Underlying Funds Average tracks the
performance of funds which by prospectus or portfolio practice invest
primarily in companies with market capitalizations less than $5 billion at
the time of purchase, as reported by Lipper Analytical Services.
16
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Funds Average. The accompanying chart illustrates the performance of a $10,000
investment in the Portfolio from inception through the fiscal year ended
December 31, 1998, versus the performance of similar hypothetical investments in
the S&P Midcap Index and the Lipper Variable Annuity Mid-Cap Underlying Funds
Average.
Much of the Portfolio's unfavorable relative performance is attributable to the
diversification into the smaller and mid-sized end of the mid-cap arena, which
worked so admirably in fiscal year 1997, but failed to produce returns
commensurate with those of large-cap stocks over the past six months. Similar to
what occurred in large-cap stocks, where the "nifty fifty" names carried the S&P
500 higher, the same situation prevailed within the mid-cap arena, with the
largest mid-cap stocks outperforming the average mid-sized issue.
Over the fiscal year, the Portfolio was heavily weighted in the technology,
financial services and retail sectors, which witnessed disparate price declines
over the period, although each of these areas eventually rebounded strongly. As
of December 31, 1998, the Portfolio's five largest sectors were as follows:
Computer Software & Services (8.1 percent), Computer Software (7.8 percent),
Internet Services (7.0 percent), Generic Drugs (4.6 percent) and Restaurants
(4.0 percent). At the end of the fiscal year the Portfolio owned 74 stocks.
Going forward, we are optimistic about the Portfolio's prospects. We believe
that many of the mid-and small-cap issues in which the Portfolio invests are
attractive on valuation and fundamental bases, and poised for improved
performance.
MONEY MARKET PORTFOLIO
For the fiscal year ended December 31, 1998, the Money Market Portfolio's yield
(net investment income) was 5.02 percent and its 30-day annualized yield for
December was 4.75 percent. The Portfolio's average life was 61 days.
On December 31, 1998, approximately 64 percent of the Portfolio was invested in
high-quality commercial paper, 24 percent in federal agency obligations, 11
percent in short-term bank notes and certificates of deposit of major,
financially strong commercial banks, and the remaining 1 percent in the bankers'
acceptances of such institutions. At the end of the fiscal year, approximately
87 percent of the Portfolio's holdings was due to mature in less than four
months. Consequently, the Portfolio is well positioned for stability of value
with a very high degree of liquidity. Investment yields available to the
Portfolio early in 1999 are expected to be somewhat lower than the averages
achieved during the second half of 1998.
17
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The Portfolio continues to be operated conservatively, without the use of
derivatives or "structured notes," which might fluctuate excessively with
changing interest rates. As always, the Portfolio serves as a useful investment
for liquidity, preservation of capital and a yield that is reflective
ofprevailing money market conditions.
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
For the fiscal year ended December 31, 1998, the North American Government
Securities Portfolio produced a total return of 4.28 percent, versus 7.65
percent for the Lehman Brothers Short (1-5) U.S. Government Index and 5.15
percent for the Lipper Variable Annuity Global Income Underlying Funds Average.
The accompanying chart illustrates the performance of a $10,000 investment in
the Portfolio from inception through the fiscal year ended December 31, 1998,
versus the performance of similar hypothetical investments in the Lehman
Brothers Short (1-5) U.S. Government Index and the Lipper Variable Annuity
Global Income Underlying Funds Average.
On December 31, 1998, essentially 100 percent of the Portfolio was invested in
the United States. The Portfolio continues to emphasize high-quality
mortgage-backed securities, including various types of AAA-rated collateralized
mortgage obligations (CMOs), pass-through securities and adjustable-rate
mortgages (ARMs).
The mortgage-backed sector underperformed the broader fixed-income market for
the majority of
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: NORTH AMERICAN GOVERNMENT SECURITY PORTFOLIO
FUND LEHMAN(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,061 $10,022 $9,844
December 31, 1995 $10,705 $11,291 $11,497
December 31, 1996 $11,171 $11,810 $12,649
December 31, 1997 $11,831 $12,650 $13,194
December 31, 1998 $12,337(2) $13,618 $13,873
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
4.28% (1) 5.20% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers Short (1-5) U.S. Government Index measures the
performance of all U.S. Government agency and U.S. Treasury securities with
maturities of one to five years. The performance of the Index does not
include any expenses, fees or charges. The Index is unmanaged and should not
be considered an investment.
(4) The Lipper Variable Annuity Global Income Underlying Funds Average tracks
the performance of funds that state in their prospectus that they invest
primarily in U.S. dollar and non-U.S. dollar debt securities of issuers
located in at least three countries, one of which may be the United States,
as reported by Lipper Analytical Services.
18
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
1998. This is attributable primarily to rising prepayment rates and
"flight-to-quality" that favored U.S. Treasury securities. Yield spreads between
mortgage-backed securities and U.S. Treasuries widened in October to levels not
seen in more than a decade. Between October and year end, this spread narrowed
somewhat, but remains historically wide. In this environment, call protection
remains critical and the Portfolio continues to emphasize discounts and
securities with prepayment protection. This emphasis has helped the Portfolio
weather previous periods of rapid prepayments and engenders a favorable
near-term outlook for the mortgage-backed sector. As always, the Portfolio
remains concentrated in the highest tiers of fixed-income credit quality.
Given the volatile state of the emerging markets, the Portfolio remained on the
sidelines with respect to investing in Mexico. Similarly, the Portfolio has not
been exposed to Canada during the fiscal year as interest-rate risk and the
ongoing separatist issue in Quebec continue to reduce the investment appeal of
that market. However, we continue to monitor these sectors for relative value
and will reinvest when opportunities arise.
UTILITIES PORTFOLIO
For the fiscal year ended December 31, 1998 the Utilities Portfolio provided a
total return of 22.23 percent versus 28.58 percent for the Standard & Poor's 500
Composite Stock Price Index (S&P 500) and 18.61 for the Lipper Variable Annuity
Utility Underlying Funds Average. For the fiscal year, the Portfolio ranked #5
out of 15 Variable Annuity Utility Funds (top 33 percent), according to Lipper.
The accompanying chart illustrates the performance of a $10,000 investment in
the Portfolio from inception through the fiscal year ended December 31, 1998,
versus the performance of similar
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: UTILITIES PORTFOLIO
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $10,065 $9,916 $10,014
December 31, 1995 $12,888 $13,639 $12,759
December 31, 1996 $13,981 $16,769 $14,133
December 31, 1997 $17,679 $22,362 $17,826
December 31, 1998 $21,609(2) $28,752 $21,143
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
22.23% (1) 20.44% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index, the
performance of which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Variable Annuity Utility Underlying Funds Average tracks the
performance of funds which invest 65% of their equity portfolio in utility
shares, as reported by Lipper Analytical Services.
19
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
hypothetical investments in the S&P 500 and the Lipper Variable Annuity Utility
Underlying Funds Average.
The past year proved to be positive for utility investors, who benefited from
mergers and acquisitions, as well as joint ventures and alliances. In addition
to the attractive fundamentals evident across all utility segments, investors
also participated in the powerful "defensive" appeal and relative stability of
this sector as the broad market experienced waves of high volatility.
Consequently, utilities in general and the Portfolio in particular acted as safe
havens, offering a solid total return during a year of persistent global market
uncertainty. While the Portfolio outperformed many of its peers, it was
surpassed by the broad market, which benefited from a late-year burst of mergers
and acquisitions within a wide array of industries, coupled with a buying frenzy
within the dominant technology-affiliated sectors.
The Portfolio remained fully invested during 1998 in order to take advantage of
the positive industry sentiment and strong overall fundamentals. In terms of
asset allocation, diversification remains a key characteristic and strength of
the Portfolio. At year-end, 90 percent of the Portfolio's net assets was
allocated to utility and utility-related equities. Within the equity component,
49 percent was allocated to telecommunications, 35 percent to electric utilities
and 16 percent to natural gas and other investments. Enhancing the Portfolio's
overall diversification are select foreign securities focusing on the growth
sector of telecommunications, which accounted for 14 percent of net assets. The
Portfolio's high-quality fixed-income holdings represented 5 percent of net
assets, while 4 percent was held in cash and cash equivalents.
In terms of sector performance within the Portfolio, market turbulence was
tempered substantially by strong electric utility returns. The Portfolio's
high-quality electric holdings realized healthy gains as investors sought this
group for its relatively low volatility and improving fundamentals.
Turning to the increasingly dynamic telecommunications sector, performance was
truly a high point for the Portfolio as the group was able to deliver strong
earnings gains despite an uneasy global economic environment. Telecommunications
companies capitalized on strong core business growth and immense demand for the
rapidly emerging "new wave" of broadband (Internet) and other advanced
information/telecom services. Moreover, this sector also experienced a multitude
of merger and acquisition announcements. The Portfolio's well-diversified
international telecommunications position highlighted well-established companies
that were operating in strong economies and were
20
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
focused on the swiftly expanding European telecom market. This foreign segment
contributed meaningfully to the Portfolio's overall performance, as many
overseas companies are capitalizing on the brisk growth and globalization of
worldwide telecommunications infrastructure.
The Portfolio's natural gas segment turned in a mixed performance during the
year. Gas commodity prices and stocks came under pressure from low demand
brought on by unseasonably mild weather and adequate supply. However, certain
companies, Enron for example, provided excellent returns given their highly
successful diversified business performance. As of this update, the outlook for
this group is more positive, since seasonal temperatures have accelerated demand
and stabilized natural gas prices.
During the fiscal year, strong cash inflows enabled the addition of many new
holdings, including Cisco Systems, Level 3 Communications, Global Crossing Ltd.,
Winstar Communications, China Telecom and Niagara Mohawk.
During calendar year 1999, we anticipate a continuation of our strategy to
capitalize on select telecom growth opportunities coupled with building upon the
Portfolio's diversified energy segment. The Portfolio is expected to remain
strategically positioned to benefit from the current environment of steady
growth, temperate inflation and low interest rates. The Portfolio is uniquely
positioned to benefit from the expansive growth occurring across all utility
sectors.
VALUE-ADDED MARKET PORTFOLIO
For the fiscal year ended December 31, 1998, the Value-Added Market Portfolio
produced a total return of 12.19 percent, versus 28.58 percent for the
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: VALUE-ADDED PORTFOLIO
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
November 9, 1994 $10,000 $10,000 $10,000
December 31, 1994 $9,924 $9,916 $10,113
December 31, 1995 $12,617 $13,639 $13,391
December 31, 1996 $14,861 $16,769 $16,125
December 31, 1997 $18,743 $22,362 $20,214
December 31, 1998 $21,028(2) $28,752 $23,879
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
12.19% (1) 19.65% (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index, the
performance of which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Variable Annuity Growth and Income Underlying Funds Average
tracks the performance of funds which combine a growth-of-earnings
orientation and an income requirement for level and/or rising dividends, as
reported by Lipper Analytical Services.
21
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 16.37 percent
for the Lipper Variable Annuity Growth and Income Underlying Funds Average. The
accompanying chart illustrates the performance of a $10,000 investment in the
Portfolio from inception through the fiscal year ended December 31, 1998, versus
the performance of similar hypothetical investments in the S&P 500 and the
Lipper Variable Annuity Growth and Income Underlying Funds Average.
The Portfolio invests in substantially all of the stocks included in the S&P
500. Unlike the S&P 500, the Portfolio equally weights all stock positions,
thereby emphasizing smaller- to mid-sized companies. This strategy has also
resulted in an over-representation in the cyclical and utilities sectors and an
under-representation in the technology and financial sectors. These are the
reasons that the Portfolio underperformed the S&P 500.
The equity market in 1998 was quite narrow, with the top 50 stocks in the S&P
500, consisting of about 50 percent of the market capitalization, representing
over 80 percent of the S&P 500's total return. Large-cap growth companies such
as Microsoft, Lucent, Wal-Mart, IBM, Cisco, Dell and MCI Worldcom were the
market leaders in 1998 and even though the Portfolio holds all of these stocks,
the proportion is much lower vis-a-vis the S&P 500. The relative valuation of
the largest 50 companies is now at a post-World War II high. The
price-to-earnings ratio of these companies is at such high levels that they
surpass the previous peak established in 1972. Also, the last time the relative
price levels of the equally weighted Portfolio versus the
capitalization-weighted S&P 500 was this low was in October of 1990. From 1991
to mid-1994, the equally weighted structure substantially outperfomed the
capitalization-weighted S&P 500.
In the past year, with a slowdown in economic growth, falling interest rates and
earnings growth declining, investors have followed trends rather than
considering more traditional factors such as earnings growth and relative
valuation. In our opinion, based on the high valuation of the largest growth
companies, investors may begin to reduce the average capitalization of their
portfolios and adopt a somewhat more pro-cyclical stance. Such a scenario would
bode well for the Portfolio going forward.
OUTLOOK
Many observers anticipate a slight moderation in the pace of economic activity
during the first half of 1999, with no major adverse surprises in the rate of
inflation. Further, the current relatively low interest rates may support a
small-cap rally. What's more, the small-cap segment of the market appears to be
undervalued and, over the long term, may offer greater growth potential than the
broader market.
22
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
We currently expect real world GDP growth of approximately two percent in 1999,
similar to that of 1998. In 1998, much of Asia experienced a well-publicized
severe recession, while the Americas and Europe enjoyed healthy growth. Much of
Latin America is now experiencing a recession and Europe is slowing. However,
Asia is starting to rebound and its efforts to restructure are progressing.
Further monetary easing is likely to be necessary worldwide, given the ongoing
fragile state of the global economy and signs of price deflation in a number of
countries.
Notwithstanding the market's stunning fourth quarter recovery, the question
remains whether the summer market decline represented the beginning of a classic
bear market and thus heralded a recession for 1999. We do not think so. While a
capital markets credit crunch remains a threat, it does not appear serious
enough to trigger a recession. The economy has sufficient momentum for growth to
continue, albeit at a slower pace.
We appreciate your support of Morgan Stanley Dean Witter Select Dimensions
Investment Series and look forward to continuing to serve your investment needs
and objectives.
Very truly yours,
/s/Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
23
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (64.6%)
ALUMINUM (0.8%)
$ 950 Aluminum Co. of America................................. 5.16% 02/25/99 $ 942,598
------------
BANKING (4.9%)
1,500 Mellon Financial Co..................................... 5.12 03/19/99 1,483,798
1,600 Morgan (J.P.) & Co. Inc................................. 5.52 01/08/99 1,598,317
2,790 Wells Fargo & Co........................................ 5.14-5.36 02/11/99-03/12/99 2,767,367
------------
5,849,482
------------
CONSTRUCTION/AGRICULTURAL/EQUIPMENT/TRUCKS (1.8%)
2,220 Caterpillar Financial Services Ltd...................... 5.19-5.44 01/04/99-02/12/99 2,215,963
------------
DIVERSIFIED FINANCIAL SERVICES (4.9%)
5,950 General Electric Capital Corp........................... 5.15-5.65 01/19/99-03/22/99 5,903,918
------------
FINANCE COMPANIES (4.7%)
1,700 Ciesco, L.P............................................. 5.27 02/05/99 1,691,406
1,300 CIT Group Holdings, Inc................................. 5.24 03/15/99 1,286,424
2,625 Norwest Financial Inc................................... 5.29-5.50 02/03/99-02/04/99 2,611,975
------------
5,589,805
------------
FINANCE - AUTOMOTIVE (18.0%)
6,000 American Honda Finance Corp............................. 5.14-5.51 01/11/99-02/11/99 5,983,051
1,925 Daimler-Benz North America Corp......................... 5.05-5.12 03/08/99-04/20/99 1,899,926
6,035 Ford Motor Credit Co.................................... 5.14-5.31 01/22/99-02/18/99 6,006,569
6,315 General Motors Acceptance Corp.......................... 5.15-527 01/06/99-02/09/99 6,300,199
1,500 Toyota Motor Credit Corp................................ 5.16 01/08/99 1,498,513
------------
21,688,258
------------
FINANCE - CONSUMER (3.9%)
1,635 Avco Financial Services, Inc............................ 5.20 02/16/99 1,624,241
1,060 Household Finance Corp.................................. 5.71 01/07/99 1,058,993
2,000 Household Finance Corp.................................. 5.20 02/22/99 1,985,122
------------
4,668,356
------------
INSURANCE (2.4%)
2,905 American General Finance Corp........................... 5.15-5.22 03/05/99-03/09/99 2,878,166
------------
INTERNATIONAL BANKS (16.3%)
1,500 ABN-AMRO North America Finance Inc...................... 5.17 03/30/99 1,481,300
2,000 Abbey National North America Corp....................... 5.27 01/06/99 1,998,550
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 ANZ (DE) Inc............................................ 6.66% 01/06/99 $ 1,998,153
1,785 Canadian Imperial Holdings Inc.......................... 5.25 02/02/99 1,776,781
2,015 CommerzBank U.S. Finance Inc............................ 5.24 02/04/99 2,005,104
1,745 Dresdner U.S. Finance Inc............................... 5.50 01/05/99 1,743,938
2,000 Internationale Nederlanden (U.S.) Funding Corp.......... 5.16 02/23/99 1,985,013
1,200 Societe Generale N.A. Inc............................... 5.53 01/12/99 1,198,013
3,365 Toronto-Dominion Holdings USA Inc....................... 5.45-5.71 01/19/99-01/28/99 3,353,080
1,500 UBS Finance (DE) Inc.................................... 5.29 01/05/99 1,499,130
550 WestPac Capital Corp.................................... 5.57 01/13/99 548,983
------------
19,588,045
------------
RETAIL (4.9%)
4,550 Sears Roebuck Acceptance Corp........................... 5.24-5.35 01/25/99-02/19/99 4,525,254
1,400 Sears Roebuck Acceptance Corp........................... 5.303 03/08/99 1,386,525
------------
5,911,779
------------
UTILITIES (2.0%)
2,425 National Rural Utilities Cooperative Finance Corp....... 5.43 01/26/99 2,416,024
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $77,652,394)........................................................... 77,652,394
------------
BANKERS' ACCEPTANCES (0.8%)
MAJOR BANKS
1,000 Bank of America NT & SA (AMORTIZED COST $993,467)....... 4.93 02/18/99 993,467
------------
CERTIFICATES OF DEPOSIT (4.3%)
MAJOR BANKS
2,000 Chase Manhattan Bank.................................... 5.25 01/14/99 2,000,000
1,800 Chase Manhattan Bank (USA).............................. 5.12 02/24/99 1,800,000
1,400 Mellon Bank, N.A........................................ 5.13 02/12/99 1,400,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $5,200,000)............................................................ 5,200,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTES (6.7%)
MAJOR BANKS (6.7%)
$ 2,000 F.C.C. National Bank.................................... 5.07% 04/13/99 $ 2,000,000
2,000 First Union National Bank............................... 5.65 01/20/99 2,000,000
2,000 La Salle National Bank.................................. 5.60 02/10/99 2,000,000
2,000 NationsBank, N.A........................................ 5.12 03/17/99 2,000,000
------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $8,000,000)............................................................ 8,000,000
------------
U.S. GOVERNMENT AGENCIES (24.4%)
3,652 Federal Farm Credit Bank................................ 4.82-5.56 04/27/99-12/24/99 3,550,337
1,576 Federal Home Loan Banks................................. 5.46-5.55 01/15/99-06/28/99 1,551,169
6,790 Federal Home Loan Mortgage Corp......................... 4.91-5.15 02/26/99-05/25/99 6,714,230
17,756 Federal National Mortgage Assoc......................... 4.87-5.58 01/11/99-09/22/99 17,439,041
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $29,254,777)........................................................... 29,254,777
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $121,100,638) (a)......................................................... 100.8 % 121,100,638
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.8) (915,810)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 120,184,828
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (7.8%)
U.S. Treasury Note
$ 200 .................................................. 5.50% 02/28/99 $ 200,240
150 .................................................. 5.50 04/15/00 151,583
100 .................................................. 6.00 08/15/99 100,825
200 .................................................. 6.375 05/15/99 201,236
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $650,671)........................................................ 653,884
-----------
MORTGAGE-BACKED SECURITIES (35.2%)
Federal Home Loan Mortgage Corp. PC Gold
55 .................................................. 5.50 11/01/00 54,650
28 .................................................. 6.00 11/01/99 27,780
3 .................................................. 7.00 07/01/00 3,389
233 .................................................. 7.00 09/01/17 237,982
416 .................................................. 7.00 02/01/28 423,844
56 .................................................. 7.50 05/01/11 57,246
107 .................................................. 7.50 06/01/11 109,638
84 .................................................. 7.50 08/01/11 85,959
Federal National Mortgage Assoc.
52 .................................................. 6.00 09/01/00 51,333
46 .................................................. 6.50 07/01/02 46,063
43 .................................................. 7.00 06/01/02 43,486
25 .................................................. 7.00 10/01/02 25,294
79 .................................................. 7.00 01/01/03 80,506
105 .................................................. 7.362 12/01/26 106,516
15 .................................................. 7.42 09/01/26 15,276
16 .................................................. 7.575 07/01/24 16,400
18 .................................................. 7.60 04/01/27 18,045
239 .................................................. 7.623 03/01/27 239,969
17 .................................................. 7.69 05/01/27 16,622
138 .................................................. 7.75 01/01/22 139,043
Government National Mortgage Assoc. II
215 .................................................. 6.625 07/20/27 217,109
217 .................................................. 6.625 08/20/27 219,086
86 .................................................. 6.875 02/20/23 87,163
43 .................................................. 6.875 06/20/25 43,293
41 .................................................. 6.875 01/20/26 41,008
38 .................................................. 6.875 05/20/26 37,938
500 .................................................. 7.50 12/20/28 512,656
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $2,945,445)...................................................... 2,957,294
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (56.9%)
U.S. GOVERNMENT AGENCIES (a) (52.4%)
Federal Farm Credit Bank
$ 300 .................................................. 5.03% 01/12/99 $ 299,539
600 .................................................. 5.06 01/07/99 599,494
200 .................................................. 5.11 01/21/99 199,432
Federal Home Loan Banks
250 .................................................. 5.00 01/06/99 249,826
700 .................................................. 5.03 01/20/99 698,142
300 .................................................. 5.10 01/13/99 299,490
Federal Home Loan Mortgage Corp.
250 .................................................. 4.50 01/04/99 249,906
100 .................................................. 4.95 01/06/99 99,931
600 .................................................. 5.08 01/06/99 599,577
300 .................................................. 5.09 01/07/99 299,746
300 .................................................. 5.11 01/06/99 299,787
Federal National Mortgage Assoc.
250 .................................................. 5.04 02/05/99 248,775
254 .................................................. 5.12 01/15/99 253,494
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $4,397,139)....................................................... 4,397,139
-----------
REPURCHASE AGREEMENT (4.5%)
373 The Bank of New York (dated 12/31/98; proceeds
$373,365) (b) (IDENTIFIED COST $373,199)........ 4.00 01/04/99 373,199
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,770,338)...................................................... 4,770,338
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $8,366,454) (c)............................................................ 99.9 % 8,381,516
OTHER ASSETS IN EXCESS OF LIABILITIES....................................................... 0.1 7,706
------ -----------
NET ASSETS.................................................................................. 100.0 % $ 8,389,222
------ -----------
------ -----------
</TABLE>
- ---------------------
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $367,790 U.S. Treasury Note 5.875% due 02/15/00 valued at
$380,663.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $25,693 and the
aggregate gross unrealized depreciation is $10,631, resulting in net
unrealized appreciation of $15,062.
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (94.5%)
FOREIGN (19.8%)
AUSTRALIA (0.1%)
CABLE TELEVISION
$ 1,300 Australis Holdings Property
Ltd. (a)..................... 15.00++% 11/01/02 $ 65,000
3 Australis Media Ltd. (a)....... 15.75++ 05/15/03 33
-----------
TOTAL AUSTRALIA......................................................... 65,033
-----------
CANADA (1.0%)
CELLULAR TELEPHONE (0.5%)
500 Clearnet Communications Inc.... 14.75++ 12/15/05 430,000
-----------
FOODS & BEVERAGES (0.2%)
250 Sparkling Spring Water......... 11.50 11/15/07 242,500
-----------
INDUSTRIAL SPECIALTIES (0.1%)
750 International Semi-Tech
Microelectronics............. 11.50++ 08/15/03 82,500
-----------
TELECOMMUNICATIONS (0.2%)
200 MetroNet Communications Corp... 12.00 08/15/07 217,500
-----------
TOTAL CANADA............................................................ 972,500
-----------
DENMARK (4.8%)
GOVERNMENT OBLIGATION
DKK 26,000 Kingdom of Denmark............. 8.00 11/15/01 4,516,625
-----------
EUROPE (2.1%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKING
ECU 500 Council of Europe.............. 6.375 11/14/01 631,556
1,100 European Investment Bank (b)... 6.00 04/04/01 1,361,130
-----------
TOTAL EUROPE............................................................ 1,992,686
-----------
FINLAND (0.4%)
FINANCIAL SERVICES
GBP 200 Finnish Export Credit Corp.
(b).......................... 6.75 12/29/00 336,708
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FRANCE (1.0%)
GOVERNMENT OBLIGATIONS
ECU 500 French Treasury Note........... 4.00% 07/12/00 $ 592,965
250 Societe Nationale des Chemins
de Fer de France............. 9.375 03/12/01 329,925
-----------
TOTAL FRANCE............................................................ 922,890
-----------
GERMANY (1.4%)
SMALLER BANKS
500 Bayerische Hypotheken Bank..... 7.00 12/22/00 623,100
GBP 150 Bayerische Hypotheken Bank
(b).......................... 6.75 12/30/99 250,059
100 Bayerische Vereins Bank (b).... 7.50 12/27/00 170,532
150 Deutsche Siedlungs Bank........ 7.50 12/27/00 255,796
-----------
TOTAL GERMANY........................................................... 1,299,487
-----------
NETHERLANDS (0.5%)
SMALLER BANKS (0.3%)
GBP 176 Baden Wurt L-Finance........... 7.75 12/14/00 301,514
-----------
TELECOMMUNICATIONS (0.2%)
$ 200 Versatel Telecommunications
BV........................... 13.25 05/15/08 198,000
-----------
TOTAL NETHERLANDS....................................................... 499,514
-----------
NEW ZEALAND (1.6%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKS
NZD 2,850 International Bank for
Reconstruction & Development
(b).......................... 7.00 09/18/00 1,527,113
-----------
NORWAY (2.3%)
ENERGY (0.1%)
$ 200 Northern Offshore ASA -
144A*........................ 10.00 05/15/05 104,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATION (2.2%)
NOK 15,400 Norway Government Bond......... 7.00% 05/31/01 $ 2,069,211
-----------
TOTAL NORWAY............................................................ 2,173,211
-----------
SWEDEN (2.2%)
GOVERNMENT OBLIGATION
ECU 1,650 Swedish Treasury Bond (b)...... 7.25 06/30/00 2,042,522
-----------
UNITED KINGDOM (2.4%)
OTHER TELECOMMUNICATIONS (0.3%)
$ 300 Esprit Telecom Group PLC....... 10.875 06/15/08 303,000
-----------
SMALLER BANKS (1.9%)
ECU 500 Abbey National Treasury
Service...................... 4.50 08/03/01 599,511
GBP 400 Abbey National Treasury Service
(b).......................... 7.125 03/14/01 680,251
300 Halifax PLC (b)................ 8.375 12/15/99 506,993
-----------
1,786,755
-----------
TRANSPORTATION (0.2%)
$ 600 Alpha Shipping PLC (Series
A)........................... 9.50 02/15/08 174,000
-----------
TOTAL UNITED KINGDOM.................................................... 2,263,755
-----------
TOTAL FOREIGN
(IDENTIFIED COST $19,175,070)........................................... 18,612,044
-----------
UNITED STATES (74.7%)
CORPORATE BONDS (30.5%)
AEROSPACE (0.3%)
300 Sabreliner Corp. - 144A*....... 11.00 06/15/08 267,000
-----------
BROADCAST/MEDIA (1.3%)
300 Interep National Radio Sales -
144A*........................ 10.00 07/01/08 309,000
100 Paxson Communications Corp..... 11.625 10/01/02 102,500
200 Spanish Broadcasting System,
Inc.......................... 12.50 06/15/02 222,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 600 Tri-State Outdoor Media Group,
Inc.......................... 11.00% 05/15/08 $ 597,000
-----------
1,230,500
-----------
CASINO/GAMBLING (1.1%)
250 Argosy Gaming LLC.............. 13.25 06/01/04 280,000
850 Fitzgeralds Gaming Corp.
(Series B)................... 12.25 12/15/04 459,000
115 Lady Luck Gaming (Series SA)... 11.875 03/01/01 117,588
200 Lady Luck Gaming Finance
Corp......................... 11.875 03/01/01 204,500
-----------
1,061,088
-----------
CELLULAR TELEPHONE (1.7%)
300 American Cellular Corp. -
144A*........................ 10.50 05/15/08 297,000
200 Dobson/Sygnet Communications -
144A*........................ 12.25 12/15/08 200,000
500 McCaw International Ltd........ 13.00++ 04/15/07 278,750
300 Nextel Communications, Inc..... 10.65++ 09/15/07 193,500
600 Price Communication Cellular
Holdings..................... 11.25+ 08/15/08 570,000
200 Triton PCS Inc................. 11.00++ 05/01/08 93,500
-----------
1,632,750
-----------
COMPUTERS (0.6%)
400 CHS Electronics, Inc........... 9.875 04/15/05 386,000
200 Unisys Corp.................... 12.00 04/15/03 224,000
-----------
610,000
-----------
CONSUMER/BUSINESS SERVICES (1.6%)
500 Anacomp, Inc. (Series B)....... 10.875 04/01/04 520,000
300 CEX Holdings Inc............... 9.625 06/01/08 276,000
500 Comforce Operating, Inc........ 12.00 12/01/07 500,000
300 Entex Information Services,
Inc. - 144A*................. 12.50 08/01/06 210,000
-----------
1,506,000
-----------
CONSUMER SPECIALTIES (0.7%)
700 Samsonite Corp................. 10.75 06/15/08 609,000
-----------
CONSUMER SUNDRIES (0.3%)
310 Windmere-Durable Holdings,
Inc.......................... 10.00 07/31/08 289,850
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONTAINERS/PACKAGING (0.7%)
$ 325 Berry Plastics Corp............ 12.25% 04/15/04 $ 341,250
300 Premier Graphics Inc. -
144A*........................ 11.50 12/01/05 300,000
-----------
641,250
-----------
DIVERSIFIED MANUFACTURING (1.5%)
300 High Voltage Engineering,
Inc.......................... 10.50 08/15/04 283,500
700 Interlake Corp................. 12.125 03/01/02 714,000
200 J.B. Poindexter & Co., Inc..... 12.50 05/15/04 192,000
325 Jordan Industries, Inc. (Series
B)........................... 11.75++ 04/01/09 206,375
-----------
1,395,875
-----------
ENERGY (1.1%)
300 Texaco Capital, Inc............ 15.00 01/13/99 300,558
500 Transamerican Refining Corp.
(Units)** - 144A*............ 16.00 06/30/03 442,500
300 Transamerican Refining Corp. -
144A*........................ 15.00+ 12/01/03 289,665
-----------
1,032,723
-----------
FINANCE COMPANIES (2.3%)
300 General Electric Capital Corp.
(Series A)................... 15.00 01/21/99 301,209
GBP 800 General Electric Capital Corp.
(b).......................... 6.625 03/16/01 1,351,603
325 KFW International Finance
(b).......................... 7.625 12/29/00 556,825
-----------
2,209,637
-----------
FOOD CHAINS (0.8%)
$ 250 Big V Supermarkets, Inc.
(Series B)................... 11.00 02/15/04 252,500
500 Pueblo Xtra International, Inc.
(Series C)................... 9.50 08/01/03 477,500
-----------
730,000
-----------
FOOD DISTRIBUTORS (0.3%)
300 Fleming Companies, Inc. (Series
B)........................... 10.625 07/31/07 280,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOODS & BEVERAGES (2.0%)
$ 600 Envirodyne Industries, Inc..... 10.25% 12/01/01 $ 498,000
500 General Mills, Inc............. 15.00 01/29/99 503,090
600 Pepsico, Inc................... 15.00 08/06/99 635,814
1,000 Specialty Foods Acquisition
Corp. (Series B)............. 13.00++ 08/15/05 210,000
-----------
1,846,904
-----------
HEALTHCARE (1.5%)
500 Pediatric Services of America,
Inc. (Series A).............. 10.00 04/15/08 355,000
300 Unilab Corp.................... 11.00 04/01/06 311,250
500 Unison Healthcare Corp. - 144A*
(c).......................... 12.25 11/01/06 232,500
300 Universal Hospital Services,
Inc.......................... 10.25 03/01/08 267,000
300 Vencor Operating, Inc.......... 9.875 05/01/05 249,000
-----------
1,414,750
-----------
HOTELS/RESORTS (1.2%)
300 Epic Resorts LLC/Capital
(Series B)................... 13.00 06/15/05 294,000
700 Motels of America, Inc. (Series
B)........................... 12.00 04/15/04 588,000
281 Resort At Summerlin............ 13.00+ 12/15/07 272,725
-----------
1,154,725
-----------
INDUSTRIAL SPECIALTIES (0.9%)
900 Aladdin Gaming/Capital Corp.
(Series B)................... 13.50++ 03/01/10 261,000
350 International Wire Group, Inc.
(Series B)................... 11.75 06/01/05 368,375
250 Outsourcing Services Group,
Inc. - 144A*................. 10.875 03/01/06 237,500
-----------
866,875
-----------
MOVIES/ENTERTAINMENT (0.1%)
250 Stuart Entertainment, Inc.
(Series B)................... 12.50 11/15/04 80,000
-----------
OFFICE EQUIPMENT/SUPPLIES (0.4%)
400 Mosler, Inc.................... 11.00 04/15/03 356,000
-----------
PRINTING/PUBLISHING (0.3%)
250 American Media Operations,
Inc.......................... 11.625 11/15/04 255,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RENTAL/LEASING COMPANIES (0.3%)
$ 300 IBM Credit Corp................ 15.00% 02/02/99 $ 302,076
-----------
RESTAURANTS (0.6%)
200 FRD Acquisition Corp. (Series
B)........................... 12.50 07/15/04 214,000
900 Planet Hollywood International,
Inc.......................... 12.00 04/01/05 351,000
-----------
565,000
-----------
TELECOMMUNICATION EQUIPMENT (0.7%)
1,100 FWT, Inc....................... 9.875 11/15/07 660,000
-----------
TELECOMMUNICATIONS (4.6%)
400 21st Century Telecom Group,
Inc.......................... 12.25++ 02/15/08 168,000
200 Birch Telecom Inc. - 144A*
(Units)**.................... 14.00 06/15/08 184,000
300 CapRock Communications Corp.... 12.00 07/15/08 285,000
300 e. Spire Communications,
Inc.......................... 13.75 07/15/07 294,000
600 Facilicom International, Inc.
(Series B)................... 10.50 01/15/08 486,000
1,700 Firstworld Communications,
Inc.......................... 13.00++ 04/15/08 544,000
250 GST Equipment Funding, Inc..... 13.25 05/01/07 262,500
350 GST Telecommunications, Inc. -
144A*........................ 10.50++ 05/01/08 168,000
300 Hyperion Telecommunication,
Inc. (Series B).............. 13.00++ 04/15/03 214,500
300 Hyperion Telecommunication,
Inc. (Series B).............. 12.25 09/01/04 304,500
400 In-Flight Phone Corp. (Series
B) (d)....................... 14.00 05/15/02 48,000
300 Level 3 Communications, Inc.... 9.125 05/01/08 297,750
150 NextLink Communications,
Inc.......................... 12.50 04/15/06 160,500
300 Optel, Inc..................... 11.50 07/01/08 294,000
300 Primus Telecommunication Group,
Inc.......................... 11.75 08/01/04 310,500
300 Primus Telecommunication Group,
Inc.......................... 9.875 05/15/08 286,500
-----------
4,307,750
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WIRELESS COMMUNICATION (3.6%)
$ 825 Advanced Radio Telecom Corp.... 14.00% 02/15/07 $ 643,500
1,800 CellNet Data Systems Inc....... 14.00++ 10/01/07 504,000
200 Echostar DBS Corp.............. 12.50 07/01/02 231,000
150 Globalstar LP/Capital Corp..... 11.50 06/01/05 113,250
250 Globalstar LP/Capital Corp..... 11.375 02/15/04 188,750
200 Orbcomm Global LP/Capital
Corp......................... 14.00 08/15/04 206,000
300 Paging Network, Inc............ 10.125 08/01/07 292,500
600 TCI Satellite Entertainment
Corp......................... 12.25++ 02/15/07 138,000
400 USA Mobile Communications
Holdings, Inc................ 14.00 11/01/04 412,000
500 Winstar Communications, Inc.... 14.00++ 10/15/05 361,250
250 Winstar Equipment Corp......... 12.50 03/15/04 255,000
-----------
3,345,250
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $31,704,255)........................................... 28,650,503
-----------
MORTGAGE-BACKED SECURITIES (22.5%)
596 Federal Home Loan Mortgage
Corp. (0.6%)................. 7.00 06/01/04 607,957
-----------
Federal National Mortgage
Assoc. (8.3%)
1,785 ............................... 6.00 02/01/11-11/01/28 1,773,582
2,899 ............................... 6.50 04/01/12-06/01/28 2,925,096
2,760 ............................... 7.00 07/01/25-05/01/27 2,814,800
271 ............................... 8.00 07/01/26 280,756
-----------
7,794,234
-----------
Government National Mortgage
Assoc. (13.6%)
4,979 ............................... 6.00 05/15/28-12/15/28 4,935,612
5,430 ............................... 6.50 01/15/24-04/20/28 5,476,167
784 ............................... 7.00 01/15/26-04/15/26 802,388
844 ............................... 7.50 02/15/26-07/15/26 869,664
621 ............................... 8.00 02/15/26-06/15/26 644,657
-----------
12,728,488
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $20,645,306)........................................... $21,130,679
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (21.7%)
Federal Home Loan Banks (0.5%)
$ 500 ............................... 5.53% 01/15/03 507,245
-----------
Federal National Mortgage
Assoc. (b) (3.1%)
500 ............................... 5.60 02/02/01 506,790
NZD 4,520 ............................... 7.00 09/26/00 2,420,327
-----------
2,927,117
-----------
Resolution Funding Corp. (4.3%)
$ 1,000 ............................... 0.00 01/15/05 743,350
2,000 ............................... 0.00 07/15/07 1,308,620
3,000 ............................... 0.00 10/15/07 1,943,550
-----------
3,995,520
-----------
1,000 Tennesee Valley Authority
(1.0%)....................... 0.00 07/15/00 926,450
-----------
U.S. Treasury Notes (12.8%)
5,000 ............................... 4.625 11/30/00 5,007,850
1,800 ............................... 5.75 11/30/02 1,867,500
1,000 ............................... 6.25 08/31/02 1,051,990
2,000 ............................... 6.375 09/30/01 2,089,220
1,900 ............................... 8.00 05/15/01 2,043,108
-----------
12,059,668
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $19,862,728)........................................... 20,416,000
-----------
TOTAL UNITED STATES
(IDENTIFIED COST $72,212,289)........................................... 70,197,182
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $91,387,359)........................................... 88,809,226
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (f) (0.2%)
CASINO/GAMBLING (0.0%)
787 Fitzgerald Gaming Corp.................................................. $ 1,574
-----------
CELLULAR TELEPHONE (0.1%)
342 MetroNet Communications Corp. (Class B) (Canada)........................ 11,286
6,716 Price Communications Corp............................................... 86,888
-----------
98,174
-----------
RETAIL (0.1%)
47,058 County Seat Store , Inc. (e)............................................ 39,717
-----------
TEXTILES (0.0%)
11,192 U.S. Leather, Inc. (e).................................................. 16,788
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $438,257).............................................. 156,253
-----------
CONVERTIBLE PREFERRED STOCKS (0.0%)
ENERGY
6,878 Transcontinental Refining Corp. (Series B)*............................. 413
3,783 Transcontinental Refining Corp. (Series C)*............................. 227
9,973 Transcontinental Refining Corp. (Series D)*............................. 598
20,633 Transcontinental Refining Corp. (Series E)*............................. 1,238
12,000 Transcontinental Refining Corp.*........................................ 8,160
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $10,648)............................................... 10,636
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
<C> <S> <C> <C>
WARRANTS (f) (0.0%)
CABLE TELEVISION (0.0%)
300 Uih Australia/Pacific Inc................................... 05/15/06 3
-----------
CASINO/GAMBLING (0.0%)
9,000 Aladdin Gaming Enterprises - 144A*.......................... 03/01/10 90
100 Fitzgeralds South Inc. - 144A*.............................. 03/15/99 1
-----------
91
-----------
CELLULAR TELEPHONE (0.0%)
500 McCaw International Ltd. - 144A*............................ 04/15/07 5
-----------
HOTELS/RESORTS (0.0%)
300 Epic Resorts LLC/Capital - 144A*............................ 06/15/05 3
250 Resort At Summerlin - 144A*................................. 12/15/07 3
-----------
6
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
OTHER TELECOMMUNICATIONS (0.0%)
1,700 Firstworld Communications, Inc. - 144A*..................... 04/15/08 $ 17
200 Versatel Telecom - 144A* (Netherlands)...................... 05/15/08 2,000
-----------
2,017
-----------
TOTAL WARRANTS
(IDENTIFIED COST $1,260)................................................ 2,122
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- --------- ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (g) (3.0%)
U.S. GOVERNMENT AGENCY
$ 2,850 Federal Farm Credit Bank (AMORTIZED COST
$2,848,931)....................................... 4.50% 01/04/99 2,848,931
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $94,686,455) (H)......................................... 97.7 % 91,827,168
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................ 2.3 2,163,969
------ ------------
NET ASSETS................................................................ 100.0 % $ 93,991,137
------ ------------
------ ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
** Consists of one or more class of securities traded together as a unit;
bonds with attached stocks or warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Issuer in bankruptcy.
(b) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a forward
commitment basis.
(c) Non-income producing security; bond in default.
(d) Non-income producing securities; issuer in bankruptcy.
(e) Acquired through exchange offer.
(f) Non-income producing securities.
(g) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(h) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,156,158 and the
aggregate gross unrealized depreciation is $5,015,445, resulting in net
unrealized depreciation of $2,859,287.
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -----------------------------------------------------------------
<S> <C> <C> <C>
GBP 550,000 $ 915,332 01/07/99 $ 4,818
SEK 8,765,000 $ 1,078,260 01/11/99 (3,787)
NOK 8,045,000 $ 1,064,491 01/11/99 11,113
GBP 2,050,000 $ 3,399,310 01/11/99 6,068
NZD 2,578,000 $ 1,355,822 01/12/99 361
NLG 1,488,000 $ 788,449 01/13/99 (3,781)
NLG 2,161,000 $ 1,146,255 02/08/99 (5,811)
$ 1,080,095 DEM 1,800,000 02/10/99 3,422
$ 1,102,961 ECU 930,000 02/16/99 (10,338)
$ 1,936,761 ECU 1,626,000 02/19/99 (26,157)
$ 708,716 ECU 595,000 02/19/99 (9,572)
NZD 1,362,000 $ 740,519 02/23/99 24,026
NZD 875,000 $ 467,906 02/26/99 7,586
NZD 1,530,000 $ 804,107 03/22/99 (826)
NZD 1,210,000 $ 642,873 04/06/99 6,292
--------------
Net unrealized appreciation............ $ 3,414
--------------
--------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
GBP British Pound.
DKK Danish Krone.
NLG Dutch Guilder.
ECU European Currency Unit.
DEM German Deutschemark.
NZD New Zealand Dollar.
NOK Norwegian Krone.
SEK Swedish Krona.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (64.0%)
ALUMINUM (2.5%)
35,500 Aluminum Co. of America................................................................. $ 2,646,969
-----------
BEVERAGES - NON-ALCOHOLIC (2.6%)
69,000 PepsiCo, Inc............................................................................ 2,824,688
-----------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.5%)
80,000 Deere & Co.............................................................................. 2,650,000
-----------
DEPARTMENT STORES (2.4%)
43,000 May Department Stores Co................................................................ 2,596,125
-----------
DISCOUNT CHAINS (2.8%)
55,000 Dayton-Hudson Corp...................................................................... 2,983,750
-----------
DIVERSIFIED MANUFACTURING (2.6%)
28,000 General Electric Co..................................................................... 2,857,750
-----------
ELECTRIC UTILITIES (4.6%)
56,000 GPU, Inc................................................................................ 2,474,500
64,000 Unicom Corp............................................................................. 2,468,000
-----------
4,942,500
-----------
ELECTRONIC DATA PROCESSING (2.6%)
15,000 International Business Machines Corp.................................................... 2,771,250
-----------
FINANCE COMPANIES (2.7%)
68,000 Associates First Capital Corp. (Class A)................................................ 2,881,500
-----------
FOREST PRODUCTS (2.4%)
51,000 Weyerhaeuser Co......................................................................... 2,591,437
-----------
INTEGRATED OIL COMPANIES (2.4%)
39,000 Atlantic Richfield Co................................................................... 2,544,750
-----------
MAJOR BANKS (4.7%)
48,000 Banc One Corp........................................................................... 2,451,000
43,000 BankAmerica Corp........................................................................ 2,585,375
-----------
5,036,375
-----------
MAJOR CHEMICALS (2.3%)
47,000 Du Pont (E.I.) de Nemours & Co., Inc.................................................... 2,493,937
-----------
MAJOR PHARMACEUTICALS (2.6%)
21,000 Bristol-Myers Squibb Co................................................................. 2,810,062
-----------
MEAT/POULTRY/FISH (2.3%)
79,000 ConAgra, Inc............................................................................ 2,488,500
-----------
METALS FABRICATIONS (2.3%)
134,000 Timken Co............................................................................... 2,529,250
-----------
MILITARY/GOV'T/TECHNICAL (2.5%)
50,000 Raytheon Co. (Class B).................................................................. 2,662,500
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MOTOR VEHICLES (5.1%)
48,000 Ford Motor Co........................................................................... $ 2,817,000
37,000 General Motors Corp..................................................................... 2,647,813
-----------
5,464,813
-----------
MULTI-SECTOR COMPANIES (2.4%)
77,000 Tenneco, Inc............................................................................ 2,622,813
-----------
OIL/GAS TRANSMISSION (2.4%)
46,000 Enron Corp.............................................................................. 2,624,875
-----------
PACKAGE GOODS/COSMETICS (2.5%)
30,000 Procter & Gamble Co..................................................................... 2,739,375
-----------
RAILROADS (2.3%)
60,000 CSX Corp................................................................................ 2,490,000
-----------
TELECOMMUNICATIONS (2.5%)
36,000 AT&T Corp............................................................................... 2,709,000
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $64,651,013)........................................................... 68,962,219
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (3.9%)
BIOTECHNOLOGY (0.0%)
$ 40 Monsanto Co.
8.875% due 12/15/09................................................................... 49,632
-----------
CELLULAR TELEPHONE (0.1%)
120 Northern Telecom Capital
7.40% due 06/15/06.................................................................... 131,377
-----------
ELECTRIC UTILITIES (0.2%)
15 Texas Utilities Electric Co.
7.875% due 04/01/24................................................................... 15,914
150 Union Electric Co.
6.75% due 05/01/08.................................................................... 163,383
-----------
179,297
-----------
ELECTRONIC DATA PROCESSING (0.5%)
500 IBM Corp.
7.00% due 10/30/25.................................................................... 556,175
-----------
FINANCE COMPANIES (0.2%)
100 Abbey National PLC (United Kingdom)
6.69% due 10/17/05.................................................................... 104,546
110 Wells Fargo & Co.
6.875% due 04/01/06................................................................... 117,151
-----------
221,697
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS (0.2%)
$ 15 Mead Corp.
7.125% due 08/01/25................................................................... $ 15,335
200 Willamette Industries, Inc.
7.85% due 07/01/26.................................................................... 219,588
-----------
234,923
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (0.5%)
400 Bear Stearns Co., Inc.
6.50% due 08/01/02.................................................................... 405,904
150 Merrill Lynch & Co., Inc.
6.00% due 01/15/01.................................................................... 151,662
-----------
557,566
-----------
MAJOR BANKS (0.7%)
145 Citicorp
6.375% due 01/15/06................................................................... 148,841
200 NationsBank Corp.
7.50% due 09/15/06.................................................................... 221,074
325 Norwest Corp.
6.80% due 05/15/02.................................................................... 337,097
-----------
707,012
-----------
MAJOR PHARMACEUTICALS (0.1%)
45 Lilly (Eli) & Co.
8.375% due 12/01/06................................................................... 53,639
-----------
MEDIA CONGLOMERATES (0.2%)
180 Walt Disney Co. (Series B)
6.75% due 03/30/06.................................................................... 195,705
-----------
MILITARY/GOV'T/TECHNICAL (0.5%)
150 Lockheed Martin Corp.
7.25% due 05/15/06.................................................................... 160,934
400 Raytheon Co.
6.45% due 08/15/02.................................................................... 410,596
-----------
571,530
-----------
SPECIALTY CHEMICALS (0.2%)
200 Praxair, Inc.
6.90% due 11/01/06.................................................................... 204,836
-----------
TELECOMMUNICATIONS (0.4%)
400 MCI Communication Corp.
6.95% due 08/15/06.................................................................... 427,648
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION (0.1%)
$ 100 General American Transportation Corp.
6.75% due 03/01/06.................................................................... $ 101,120
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $3,946,641)............................................................ 4,192,157
-----------
MORTGAGE-BACKED SECURITIES (18.3%)
1,557 Federal Home Loan Mortgage Corp.
6.00% due 04/01/03.................................................................... 1,566,455
715 Federal Home Loan Mortgage Corp.
7.00% due 08/01/12.................................................................... 731,185
267 Federal Home Loan Mortgage Corp.
7.00% due 04/01/26.................................................................... 272,492
648 Federal Home Loan Mortgage Corp.
7.00% due 12/01/27.................................................................... 660,269
445 Federal National Mortgage Assoc.
6.00% due 04/01/04.................................................................... 447,997
26 Federal National Mortgage Assoc.
6.50% due 01/01/13.................................................................... 26,465
1,414 Federal National Mortgage Assoc.
6.00% due 03/01/13.................................................................... 1,417,756
258 Federal National Mortgage Assoc.
6.50% due 03/01/13.................................................................... 262,005
893 Federal National Mortgage Assoc.
6.50% due 04/01/13.................................................................... 905,278
2,406 Federal National Mortgage Assoc.
6.00% due 05/01/13.................................................................... 2,411,600
653 Federal National Mortgage Assoc.
6.50% due 05/01/13.................................................................... 662,547
41 Federal National Mortgage Assoc.
6.00% due 06/01/13.................................................................... 40,963
937 Federal National Mortgage Assoc.
6.50% due 10/01/17.................................................................... 953,141
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 980 Federal National Mortgage Assoc.
6.50% due 06/01/28.................................................................... $ 986,574
463 Government National Mortgage Assoc.
7.50% due 08/15/27.................................................................... 477,839
393 Government National Mortgage Assoc.
6.00% due 04/15/28.................................................................... 389,995
973 Government National Mortgage Assoc.
6.50% due 04/20/28.................................................................... 976,226
244 Government National Mortgage Assoc.
6.00% due 05/15/28.................................................................... 241,612
347 Government National Mortgage Assoc.
6.00% due 06/15/28.................................................................... 344,364
1,009 Government National Mortgage Assoc.
6.00% due 11/15/28.................................................................... 1,000,206
1,010 Government National Mortgage Assoc.
6.00% due 12/15/28.................................................................... 1,001,162
1,000 Government National Mortgage Assoc.
6.50% due 12/20/28.................................................................... 1,003,437
3,000 Government National Mortgage Assoc.
6.50% due 01/21/29 WI................................................................. 3,010,312
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $19,550,492)........................................................... 19,789,880
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (12.1%)
1,100 Federal Home Loan Banks
5.65% due 02/06/03.................................................................... 1,120,933
1,500 Federal Home Loan Banks
5.96% due 02/05/08.................................................................... 1,561,635
500 Resolution Funding Corp.
0.00% due 10/15/04.................................................................... 376,545
1,705 U.S. Treasury Bond
7.50% due 11/15/24.................................................................... 2,207,890
1,065 U.S. Treasury Bond
6.00% due 02/15/26+................................................................... 1,161,638
1,965 U.S. Treasury Note
6.00% due 06/30/99.................................................................... 1,978,794
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 750 U.S. Treasury Note
7.75% due 01/31/00.................................................................... $ 773,948
385 U.S. Treasury Note
6.625% due 06/30/01................................................................... 403,137
1,400 U.S. Treasury Note
6.625% due 04/30/02+.................................................................. 1,483,272
500 U.S. Treasury Note
5.50% due 05/31/03.................................................................... 516,250
80 U.S. Treasury Note
7.875% due 11/15/04................................................................... 92,686
1,300 U.S. Treasury Note
5.875% due 11/15/05+.................................................................. 1,387,399
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $12,429,286)........................................................... 13,064,127
-----------
SHORT-TERM INVESTMENT (4.1%)
REPURCHASE AGREEMENT
4,458 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $4,459,542) (a)
(IDENTIFIED COST $4,457,561).......................................................... 4,457,561
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $105,034,993) (b)......................................................... 102.4 % 110,465,944
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (2.4) (2,613,827)
------ ------------
NET ASSETS................................................................................. 100.0 % $107,852,117
------ ------------
------ ------------
</TABLE>
- ---------------------
WI Security purchased on a "when-issued" basis.
+ Some or all of these securities are segregated in connection with the
purchase of "when-issued" securities.
(a) Collateralized by $4,499,610 U.S. Treasury Note 6.75% due 06/30/99 valued
at $4,546,713.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,137,381 and the
aggregate gross unrealized depreciation is $3,706,430, resulting in net
unrealized appreciation of $5,430,951.
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (89.9%)
ELECTRIC UTILITIES (31.0%)
16,000 AES Corp. (The)*........................................................................ $ 758,000
14,000 Allegheny Energy, Inc................................................................... 483,000
10,000 American Electric Power Co.............................................................. 470,625
12,000 BEC Energy.............................................................................. 494,250
20,000 CalEnergy, Inc.*........................................................................ 693,750
15,000 Carolina Power & Light Co............................................................... 705,937
10,000 Central & South West Corp............................................................... 274,375
11,500 CINERGY Corp............................................................................ 395,312
15,000 CLECO Corp.............................................................................. 514,687
12,000 CMS Energy Corp......................................................................... 581,250
14,000 Consolidated Edison, Inc................................................................ 740,250
15,000 Dominion Resources, Inc................................................................. 701,250
17,500 DQE, Inc................................................................................ 768,906
13,355 Duke Energy Corp........................................................................ 855,555
18,000 Edison International.................................................................... 501,750
10,500 Enersis S.A. (ADR) (Chile).............................................................. 271,031
7,500 Entergy Corp............................................................................ 233,437
15,000 FPL Group, Inc.......................................................................... 924,375
14,000 GPU, Inc................................................................................ 618,625
15,000 Houston Industries Inc.................................................................. 481,875
7,500 Illinova Corp........................................................................... 187,500
30,000 Independent Energy Holdings
PLC (ADR) (United Kingdom)*........................................................... 270,000
15,000 Interstate Energy Corp.................................................................. 483,750
15,000 IPALCO Enterprises, Inc................................................................. 829,687
10,000 Kansas City Power & Light Co............................................................ 296,250
31,700 LG&E Energy Corp........................................................................ 897,506
17,300 Metzler Group, Inc. (The)*.............................................................. 841,213
12,000 Nevada Power Co......................................................................... 312,000
11,000 New Century Energies, Inc............................................................... 536,250
10,000 New England Electric System............................................................. 481,250
25,000 Niagara Mohawk Power Corp.*............................................................. 403,125
24,000 NIPSCO Industries, Inc.................................................................. 730,500
20,000 Northwestern Corp....................................................................... 528,750
24,000 OGE Energy Corp......................................................................... 694,500
12,000 PacifiCorp.............................................................................. 252,750
7,500 Peco Energy Co.......................................................................... 312,187
9,500 PG & E Corp............................................................................. 299,250
9,500 Pinnacle West Capital Corp.............................................................. 402,562
12,500 Public Service Company of New Mexico.................................................... 255,469
6,000 Public Service Enterprise Group, Inc.................................................... 240,000
22,000 SCANA Corp.............................................................................. 709,500
16,000 Sierra Pacific Resources................................................................ 608,000
15,000 Southern Co............................................................................. 435,937
22,000 TECO Energy, Inc........................................................................ 620,125
11,000 Texas Utilities Co...................................................................... 513,562
10,000 TNP Enterprises, Inc.................................................................... 379,375
14,000 Unicom Corp............................................................................. 539,875
40,000 USEC Inc................................................................................ 555,000
14,000 Utilicorp United, Inc................................................................... 513,625
13,000 Western Resources, Inc.................................................................. 432,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
16,000 Wisconsin Energy Corp................................................................... $ 503,000
-----------
26,532,988
-----------
NATURAL GAS (12.2%)
20,000 AGL Resources, Inc...................................................................... 461,250
10,000 Cabot Oil & Gas Corp. (Class A)......................................................... 150,000
6,000 Consolidated Natural Gas Co............................................................. 324,000
10,000 Eastern Enterprises..................................................................... 437,500
12,622 El Paso Energy Corp..................................................................... 439,403
16,912 Enron Corp.............................................................................. 965,041
7,000 Ente Nazionale Idrocarburi SpA ENI (ADR) (Italy)........................................ 474,250
10,000 Exxon Corp.............................................................................. 731,250
15,999 Indiana Energy Inc...................................................................... 393,975
31,600 KeySpan Energy.......................................................................... 979,600
12,000 KN Energy, Inc.......................................................................... 436,500
19,000 MCN Energy Group Inc.................................................................... 362,187
14,000 New Jersey Resources Corp............................................................... 553,000
15,000 North Carolina Natural Gas Corp......................................................... 497,812
13,750 Northwest Natural Gas Co................................................................ 354,062
24,000 Questar Corp............................................................................ 465,000
10,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 478,750
24,541 Sempra Energy........................................................................... 622,728
7,000 South Jersey Industries, Inc............................................................ 183,313
15,000 Washington Gas Light Co................................................................. 406,875
10,000 Williams Companies, Inc................................................................. 311,875
16,000 YPF Sociedad Anomina (ADR) (Argentina).................................................. 447,000
-----------
10,475,371
-----------
REAL ESTATE INVESTMENT TRUST (0.7%)
15,000 Brandywine Realty Trust................................................................. 268,125
10,000 Mack-Cali Realty Corp................................................................... 308,750
-----------
576,875
-----------
TELECOMMUNICATIONS (44.0%)
10,000 AirTouch Communications, Inc.*.......................................................... 721,250
14,000 Alcatel Alsthom (ADR) (France).......................................................... 342,125
14,160 ALLTEL Corp............................................................................. 846,945
9,000 Ameritech Corp.......................................................................... 570,375
15,000 AT&T Corp............................................................................... 1,128,750
15,000 BCE, Inc. (Canada)...................................................................... 569,063
11,144 Bell Atlantic Corp...................................................................... 633,119
10,000 BellSouth Corp.......................................................................... 498,750
20,000 Cellnet Data Systems, Inc.*............................................................. 100,000
6,000 Cellular Communications International, Inc.*............................................ 408,000
13,750 Century Telephone Enterprises, Inc...................................................... 928,125
13,000 China Telecom (Hong Kong) Ltd. (ADR)*................................................... 451,750
22,000 Cincinnati Bell, Inc.................................................................... 831,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Cisco Systems, Inc.*.................................................................... $ 928,125
19,200 COLT Telecom Group plc (ADR) (United Kingdom)*.......................................... 1,152,000
12,000 Commonwealth Telephone Enterprises, Inc.*............................................... 394,500
12,000 COMSAT Corp............................................................................. 432,000
30,000 Crown Castle International Corp.*....................................................... 697,500
12,000 Deutsche Telekom AG (ADR) (Germany)..................................................... 393,000
15,000 Dycom Industries, Inc.*................................................................. 856,875
11,900 Esat Telecom Group PLC (ADR) (Ireland)*................................................. 447,738
8,200 France Telecom S.A. (ADR) (France)...................................................... 647,288
15,000 Frontier Corp........................................................................... 510,000
5,000 General Motors Corp. (Class H) (Hughes Electronics)..................................... 198,438
20,000 Global Crossing Ltd. (Bermuda)*......................................................... 900,000
14,000 Grupo Iusacell, S.A. de C.V. (Series L) (ADR) (Mexico)*................................. 99,750
6,500 GTE Corp................................................................................ 438,344
6,000 Harris Corp............................................................................. 219,750
20,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR) (Greece)*...................... 265,000
25,000 Hyperion Telecommunications, Inc.*...................................................... 378,125
12,000 ICG Communications, Inc.*............................................................... 258,000
20,000 ITC DeltaCom, Inc.*..................................................................... 302,500
12,000 Level 3 Communications, Inc.*........................................................... 516,750
8,292 Lucent Technologies Inc................................................................. 912,120
10,000 Magyar Tavkozlesi RT (MATAV) (ADR) (Hungary)............................................ 298,125
33,860 MCI WorldCom, Inc.*..................................................................... 2,429,455
10,000 McLeodUSA, Inc. (Class A)*.............................................................. 310,000
12,000 MediaOne Group Inc.*.................................................................... 564,000
20,000 MetroNet Communications Corp. (Class B) (Canada)*....................................... 660,000
10,000 Motorola, Inc........................................................................... 610,625
18,000 Nextel Communications, Inc. (Class A)*.................................................. 425,250
11,000 NEXTLINK Communications, Inc. (Class A)*................................................ 312,125
10,000 Omnipoint Corp.*........................................................................ 93,125
10,000 Pacific Gateway Exchange, Inc.*......................................................... 480,625
4,000 Philips Electronics NV (ADR) (Netherlands).............................................. 270,750
10,000 Portugal Telecom S.A. (ADR) (Portugal).................................................. 446,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Powertel, Inc.*......................................................................... $ 136,250
20,000 Primus Telecommunications Group, Inc.*.................................................. 326,250
22,325 Qwest Communications International, Inc.*............................................... 1,114,855
15,000 RCN Corp.*.............................................................................. 265,313
8,000 Royal PTT Nederland NV (ADR) (Netherlands).............................................. 402,000
10,000 RSL Communications, Ltd. (Class A) (Bermuda)*........................................... 293,750
7,000 Saville Systems PLC (ADR) (Ireland)*.................................................... 132,563
20,428 SBC Communications, Inc................................................................. 1,095,452
7,000 Sprint Corp. (FON Group)................................................................ 588,875
3,500 Sprint Corp. (PCS Group)*............................................................... 80,938
10,000 Tele Danmark AS (ADR) (Denmark)......................................................... 678,750
12,000 Tele-Communications, Inc. (Class A)*.................................................... 663,750
4,000 Telecomunicacoes Brasileiras S.A.-Telebras (ADR) (Brasil)*.............................. 290,750
5,100 Telefonica Espana S.A. (ADR) (Spain).................................................... 690,413
12,000 Teleglobe Inc........................................................................... 432,000
9,000 Telephone & Data Systems, Inc........................................................... 404,438
15,000 Teligent, Inc. (Class A)*............................................................... 431,250
5,000 Telstra Corp. Ltd. (ADR) (Australia)*................................................... 463,750
10,000 The Associated Group, Inc.*............................................................. 423,750
5,327 U.S. West, Inc.......................................................................... 344,257
7,000 United States Cellular Corp.*........................................................... 266,000
10,000 Vanguard Cellular Systems, Inc. (Class A)*.............................................. 257,500
4,000 Vodafone Group PLC (ADR) (United Kingdom)............................................... 644,500
20,000 Western Wireless Corp. (Class A)........................................................ 438,750
20,000 Winstar Communications, Inc.*........................................................... 778,750
8,000 World Access, Inc.*..................................................................... 171,000
-----------
37,694,114
-----------
WATER SUPPLY (2.0%)
22,000 American Water Works Company, Inc....................................................... 742,500
11,000 E'Town Corp............................................................................. 521,125
15,000 Philadelphia Suburban Corp.............................................................. 443,438
-----------
1,707,063
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $54,621,372)........................................................... 76,986,411
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (0.4%)
ELECTRIC UTILITIES
6,000 Alabama Power Capital Trust I (Series Q) $1.84.......................................... $ 153,750
1,000 Duquesne Capital LP (Series A) $2.094................................................... 26,000
2,500 Public Service Electric & Gas Capital (Series B) $2.00.................................. 63,594
5,000 Virginia Power Capital $2.013........................................................... 127,812
-----------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $363,687).............................................................. 371,156
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (4.7%)
ELECTRIC UTILITIES (1.3%)
$ 100 Florida Power & Light Co.
7.05% due 12/01/26.................................................................... 102,357
500 Niagara Mohawk Power Corp.
8.00% due 06/01/04.................................................................... 550,130
500 Salton Sea Funding Co. - 144A**
7.475% due 11/30/18................................................................... 499,065
-----------
1,151,552
-----------
TELECOMMUNICATIONS (3.4%)
500 Aliant Communications, Inc.
6.75% due 04/01/28.................................................................... 530,560
500 LCI International, Inc.
7.25% due 06/15/07.................................................................... 509,060
250 Sprint Capital Corp.
6.125% due 11/15/08................................................................... 255,232
1,000 Sprint Capital Corp.
6.875% due 11/15/28................................................................... 1,039,660
500 WorldCom, Inc.
6.95% due 08/15/28.................................................................... 537,705
-----------
2,872,217
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $3,897,527)............................................................ 4,023,769
-----------
U.S. GOVERNMENT AGENCY (0.0%)
25 Tennessee Valley Authority (Series 95-A)
8.00% due 03/31/45
(IDENTIFIED COST $25,000)............................................................. 26,188
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.6%)
U.S. GOVERNMENT AGENCY (a) (1.2%)
$ 1,000 Federal National Mortgage Assoc. 5.09% due 01/07/99 (AMORTIZED COST $999,152)........... $ 999,152
-----------
REPURCHASE AGREEMENT (3.4%)
2,947 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,948,017) (b)
(IDENTIFIED COST $2,946,707).......................................................... 2,946,707
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,945,859)............................................................ 3,945,859
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $62,853,445).............................................................. 99.6 % 85,353,383
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.4 329,802
------ ------------
NET ASSETS................................................................................. 100.0 % $ 85,683,185
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $2,974,500 U.S. Treasury Note 6.75% due 06/30/99 valued
at $3,005,641.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $23,940,363 and the
aggregate gross unrealized depreciation is $1,440,425, resulting in net
unrealized appreciation of $22,499,938.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.9%)
AEROSPACE (2.6%)
170,000 United Technologies Corp............................................................... $ 18,487,500
------------
ALUMINUM (2.5%)
245,000 Aluminum Co. of America................................................................ 18,267,812
------------
BEVERAGES - NON-ALCOHOLIC (2.6%)
468,000 PepsiCo, Inc........................................................................... 19,158,750
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.6%)
564,000 Deere & Co............................................................................. 18,682,500
------------
CONSUMER ELECTRONICS/APPLIANCES (2.4%)
320,000 Whirlpool Corp......................................................................... 17,720,000
------------
DEPARTMENT STORES (5.0%)
300,000 May Department Stores Co............................................................... 18,112,500
430,000 Sears, Roebuck & Co.................................................................... 18,275,000
------------
36,387,500
------------
DIVERSIFIED MANUFACTURING (7.5%)
192,000 General Electric Co.................................................................... 19,596,000
235,000 Honeywell, Inc......................................................................... 17,698,437
240,000 Minnesota Mining & Manufacturing Co.................................................... 17,070,000
------------
54,364,437
------------
ELECTRIC UTILITIES (4.8%)
400,000 GPU, Inc............................................................................... 17,675,000
438,000 Unicom Corp............................................................................ 16,890,375
------------
34,565,375
------------
ELECTRONIC DATA PROCESSING (2.7%)
107,000 International Business Machines Corp................................................... 19,768,250
------------
FINANCE COMPANIES (2.7%)
460,000 Associates First Capital Corp. (Class A)............................................... 19,492,500
------------
FOOD CHAINS (2.6%)
510,000 American Stores Co..................................................................... 18,838,125
------------
FOREST PRODUCTS (2.5%)
355,000 Weyerhaeuser Co........................................................................ 18,038,437
------------
INTEGRATED OIL COMPANIES (7.3%)
260,000 Atlantic Richfield Co.................................................................. 16,965,000
240,000 Exxon Corp............................................................................. 17,550,000
208,000 Mobil Corp............................................................................. 18,122,000
------------
52,637,000
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR BANKS (4.8%)
341,000 Bank One Corp.......................................................................... $ 17,412,313
290,000 BankAmerica Corp....................................................................... 17,436,250
------------
34,848,563
------------
MAJOR CHEMICALS (2.4%)
190,000 Dow Chemical Co........................................................................ 17,278,125
------------
MAJOR PHARMACEUTICALS (5.1%)
360,000 Abbott Laboratories.................................................................... 17,640,000
340,000 American Home Products Corp............................................................ 19,146,250
------------
36,786,250
------------
MOTOR VEHICLES (5.3%)
195,000 DaimlerChrysler AG (Germany)........................................................... 18,732,188
329,000 Ford Motor Co.......................................................................... 19,308,188
------------
38,040,376
------------
MULTI-LINE INSURANCE (2.5%)
220,000 Lincoln National Corp.................................................................. 17,998,750
------------
MULTI-SECTOR COMPANIES (2.6%)
547,300 Tenneco, Inc........................................................................... 18,642,406
------------
NATURAL GAS (2.4%)
320,000 Consolidated Natural Gas Co............................................................ 17,280,000
------------
OFFICE EQUIPMENT/SUPPLIES (2.7%)
300,000 Pitney Bowes, Inc...................................................................... 19,818,750
------------
OIL REFINERIES/MARKETING (2.6%)
615,000 USX-Marathon Group..................................................................... 18,526,875
------------
OIL/GAS TRANSMISSION (2.6%)
330,000 Enron Corp............................................................................. 18,830,625
------------
OTHER METALS/MINERALS (2.3%)
330,000 Phelps Dodge Corp...................................................................... 16,788,750
------------
PACKAGED FOODS (2.4%)
290,000 Quaker Oats Company (The).............................................................. 17,255,000
------------
PAINTS/COATINGS (2.3%)
291,000 PPG Industries, Inc.................................................................... 16,950,750
------------
PHOTOGRAPHIC PRODUCTS (2.4%)
240,000 Eastman Kodak Co....................................................................... 17,280,000
------------
RAILROADS (2.4%)
425,000 CSX Corp............................................................................... 17,637,500
------------
TELECOMMUNICATIONS (4.9%)
230,000 AT&T Corp.............................................................................. 17,307,500
316,000 Bell Atlantic Corp..................................................................... 17,952,750
------------
35,260,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TOBACCO (2.4%)
319,000 Philip Morris Companies, Inc........................................................... $ 17,066,500
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $618,446,655)......................................................... 722,697,656
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
$ 3,890 The Bank of New York 4.00%
due 01/04/99 (dated 12/31/98;
proceeds $3,891,258)
(IDENTIFIED COST $3,889,529) (A)..................................................... 3,889,529
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $622,336,184) (B)........................................................ 100.5 % 726,587,185
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.5) (3,302,107)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 723,285,078
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Collateralized by $3,926,210 U.S. Treasury Note 6.75% due 06/30/99 valued
at $3,967,319.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $124,567,822 and the
aggregate gross unrealized depreciation is $20,316,821, resulting in net
unrealized appreciation of $104,251,001.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.0%)
ACCIDENT & HEALTH INSURANCE (0.5%)
7,400 Provident Companies, Inc............................................................... $ 307,100
8,600 Torchmark Corp......................................................................... 303,688
6,000 UNUM Corp.............................................................................. 350,250
------------
961,038
------------
ADVERTISING (0.4%)
4,900 Interpublic Group of Companies, Inc.................................................... 390,775
6,600 Omnicom Group, Inc..................................................................... 382,800
------------
773,575
------------
AEROSPACE (0.8%)
9,400 Boeing Co.............................................................................. 306,675
3,700 Lockheed Martin Corp................................................................... 313,575
4,200 Northrop Grumman Corp.................................................................. 307,125
3,600 United Technologies Corp............................................................... 391,500
------------
1,318,875
------------
AIR FREIGHT/DELIVERY SERVICES (0.2%)
4,400 FDX Corp.*............................................................................. 391,600
------------
AIRLINES (0.7%)
5,500 AMR Corp.*............................................................................. 326,562
6,000 Delta Air Lines, Inc................................................................... 312,000
15,600 Southwest Airlines Co.................................................................. 350,025
5,800 US Airways Group Inc.*................................................................. 301,600
------------
1,290,187
------------
ALCOHOLIC BEVERAGES (0.8%)
5,700 Anheuser-Busch Companies, Inc.......................................................... 374,062
5,100 Brown-Forman Corp. (Class B)........................................................... 386,006
7,400 Coors (Adolph) Co. (Class B)........................................................... 417,637
9,700 Fortune Brands, Inc.................................................................... 306,762
------------
1,484,467
------------
ALUMINUM (0.6%)
11,500 Alcan Aluminium Ltd. (Canada).......................................................... 311,219
4,700 Aluminum Co. of America................................................................ 350,444
5,800 Reynolds Metals Co..................................................................... 305,587
------------
967,250
------------
APPAREL (0.8%)
25,000 Fruit of the Loom, Inc. (Class A)*..................................................... 345,313
10,000 Liz Claiborne, Inc..................................................................... 315,625
18,000 Russell Corp........................................................................... 365,625
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,500 VF Corp................................................................................ $ 304,688
------------
1,331,251
------------
AUTO PARTS: O.E.M. (0.8%)
9,200 Dana Corp.............................................................................. 376,050
4,300 Eaton Corp............................................................................. 303,956
5,500 Johnson Controls, Inc.................................................................. 324,500
5,800 TRW, Inc............................................................................... 325,887
------------
1,330,393
------------
AUTOMOTIVE AFTERMARKET (0.5%)
15,000 Cooper Tire & Rubber Co................................................................ 306,562
9,100 Genuine Parts Co....................................................................... 304,281
6,000 Goodyear Tire & Rubber Co.............................................................. 302,625
------------
913,468
------------
BEVERAGES - NON-ALCOHOLIC (0.5%)
4,500 Coca Cola Co........................................................................... 300,938
7,800 Coca-Cola Enterprises Inc.............................................................. 278,850
8,500 PepsiCo, Inc........................................................................... 347,969
------------
927,757
------------
BIOTECHNOLOGY (0.2%)
3,700 Amgen Inc.*............................................................................ 386,650
------------
BOOKS/MAGAZINE (0.3%)
5,700 Harcourt General, Inc.................................................................. 303,169
7,900 Meredith Corp.......................................................................... 299,213
------------
602,382
------------
BROADCASTING (0.4%)
10,000 CBS Corp............................................................................... 327,500
7,400 Clear Channel Communications, Inc.*.................................................... 403,300
------------
730,800
------------
BUILDING MATERIALS (0.2%)
9,500 Owens Corning.......................................................................... 336,656
------------
BUILDING MATERIALS/DIY CHAINS (0.4%)
6,300 Home Depot, Inc........................................................................ 385,481
7,500 Lowe's Companies, Inc.................................................................. 383,906
------------
769,387
------------
BUILDING PRODUCTS (0.5%)
4,900 Armstrong World Industries, Inc........................................................ 295,531
5,500 Georgia-Pacific Corp................................................................... 322,094
10,200 Masco Corp............................................................................. 293,250
------------
910,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CABLE TELEVISION (0.6%)
6,600 Comcast Corp. (Class A Special)........................................................ $ 387,337
7,100 Tele-Communications, Inc. (Class A)*................................................... 392,719
7,300 MediaOne Group Inc.*................................................................... 343,100
------------
1,123,156
------------
CASINO/GAMBLING (0.4%)
23,000 Harrah's Entertainment, Inc.*.......................................................... 360,812
21,000 Mirage Resorts, Inc.*.................................................................. 313,687
------------
674,499
------------
CELLULAR TELEPHONE (0.6%)
5,700 AirTouch Communications, Inc.*......................................................... 411,113
14,800 Nextel Communications, Inc. (Class A)*................................................. 349,650
13,800 Sprint Corp. (PCS Group)............................................................... 319,125
------------
1,079,888
------------
CLOTHING/SHOE/ACCESSORY STORES (1.0%)
6,400 Gap, Inc. (The)........................................................................ 360,000
11,000 Limited (The), Inc..................................................................... 320,375
10,500 Nordstrom, Inc......................................................................... 364,219
13,700 TJX Companies, Inc..................................................................... 397,300
38,000 Venator Group, Inc.*................................................................... 244,625
------------
1,686,519
------------
COMPUTER COMMUNICATIONS (0.8%)
8,200 3Com Corp.*............................................................................ 367,462
5,800 Ascend Communications, Inc.*........................................................... 381,350
38,000 Cabletron Systems, Inc.*............................................................... 318,250
4,200 Cisco Systems, Inc.*................................................................... 389,812
------------
1,456,874
------------
COMPUTER SOFTWARE (1.9%)
8,300 Adobe Systems, Inc..................................................................... 388,025
9,600 Autodesk, Inc.......................................................................... 409,200
7,000 BMC Software, Inc.*.................................................................... 311,937
8,700 Computer Associates International, Inc................................................. 370,837
2,800 Microsoft Corp.*....................................................................... 387,975
21,600 Novell, Inc.*.......................................................................... 391,500
8,200 Oracle Corp.*.......................................................................... 353,625
25,000 Parametric Technology Corp.*........................................................... 406,250
20,000 PeopleSoft, Inc.*...................................................................... 377,500
------------
3,396,849
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER/VIDEO CHAINS (0.4%)
7,700 Circuit City Stores, Inc............................................................... $ 384,519
7,200 Tandy Corp............................................................................. 296,550
------------
681,069
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (1.3%)
14,200 Case Corp.............................................................................. 309,737
7,500 Caterpillar, Inc....................................................................... 345,000
8,600 Cummins Engine Co., Inc................................................................ 305,300
10,500 Deere & Co............................................................................. 347,812
3,500 NACCO Industries, Inc. (Class A)....................................................... 322,000
10,900 Navistar International Corp.*.......................................................... 310,650
8,000 PACCAR, Inc............................................................................ 327,000
------------
2,267,499
------------
CONSUMER ELECTRONICS/APPLIANCES (0.4%)
6,100 Maytag Corp............................................................................ 379,725
6,000 Whirlpool Corp......................................................................... 332,250
------------
711,975
------------
CONSUMER SPECIALTIES (0.2%)
13,300 Jostens, Inc........................................................................... 348,294
------------
CONSUMER SUNDRIES (0.2%)
7,500 American Greetings Corp. (Class A)..................................................... 307,969
------------
CONTAINERS/PACKAGING (1.2%)
8,800 Ball Corp.............................................................................. 402,600
8,200 Bemis Company, Inc..................................................................... 311,087
10,000 Crown Cork & Seal Co., Inc............................................................. 308,125
10,500 Owens-Illinois, Inc.*.................................................................. 321,562
7,800 Sealed Air Corp.*...................................................................... 398,288
6,200 Temple-Inland, Inc..................................................................... 367,737
------------
2,109,399
------------
CONTRACT DRILLING (0.4%)
18,800 Helmerich & Payne, Inc................................................................. 364,250
32,000 Rowan Companies, Inc.*................................................................. 320,000
------------
684,250
------------
DEPARTMENT STORES (1.1%)
10,400 Dillard's, Inc. (Class A).............................................................. 295,100
6,700 Federated Department Stores, Inc.*..................................................... 291,869
5,100 May Department Stores Co............................................................... 307,912
6,000 Kohl's Corp............................................................................ 368,625
6,100 Penney (J.C.) Co., Inc................................................................. 285,937
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
8,000 Sears, Roebuck & Co.................................................................... $ 340,000
------------
1,889,443
------------
DISCOUNT CHAINS (1.2%)
16,000 Consolidated Stores Corp.*............................................................. 323,000
5,200 Costco Companies, Inc.*................................................................ 375,375
7,500 Dayton Hudson Corp..................................................................... 406,875
12,500 Dollar General Corp.................................................................... 295,312
20,200 Kmart Corp.*........................................................................... 309,313
4,800 Wal-Mart Stores, Inc.*................................................................. 390,900
------------
2,100,775
------------
DIVERSIFIED COMMERCIAL SERVICES (0.2%)
5,900 Paychex, Inc........................................................................... 303,481
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.4%)
8,100 Harris Corp............................................................................ 296,662
6,700 Rockwell International Corp............................................................ 325,369
------------
622,031
------------
DIVERSIFIED FINANCIAL SERVICES (0.6%)
3,400 American Express Co.................................................................... 347,650
5,600 Providian Financial Corp............................................................... 420,000
3,100 Transamerica Corp...................................................................... 358,050
------------
1,125,700
------------
DIVERSIFIED MANUFACTURING (2.0%)
11,000 Aeroquip-Vickers, Inc.................................................................. 329,313
14,900 Allegheny Teledyne Inc................................................................. 304,519
7,000 AlliedSignal, Inc...................................................................... 310,188
6,200 Cooper Industries, Inc................................................................. 295,662
5,600 Danaher Corp........................................................................... 304,150
8,400 Dover Corp............................................................................. 307,650
5,400 FMC Corp.*............................................................................. 302,400
8,700 ITT Industries, Inc.................................................................... 345,825
4,000 Minnesota Mining & Manufacturing Co.................................................... 284,500
18,200 Thermo Electron Corp.*................................................................. 308,263
5,200 Tyco International Ltd................................................................. 392,275
------------
3,484,745
------------
DRUG STORE CHAIN (0.9%)
7,100 CVS Corp............................................................................... 390,500
8,500 Longs Drug Stores Corp................................................................. 318,750
8,000 Rite Aid Corp.......................................................................... 396,500
6,600 Walgreen Co............................................................................ 386,513
------------
1,492,263
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS (0.5%)
4,800 EMC Corp.*............................................................................. $ 408,000
13,400 Seagate Technology, Inc.*.............................................................. 405,350
------------
813,350
------------
E.D.P. SERVICES (1.0%)
4,400 Automatic Data Processing, Inc......................................................... 352,825
5,500 Ceridian Corp.*........................................................................ 383,969
4,500 Computer Sciences Corp.*............................................................... 289,969
7,400 Electronic Data Systems Corp........................................................... 371,850
10,500 First Data Corp........................................................................ 332,719
------------
1,731,332
------------
ELECTRIC UTILITIES (5.4%)
6,400 AES Corp. (The)*....................................................................... 303,200
7,500 Ameren Corp............................................................................ 320,156
6,300 American Electric Power Co............................................................. 296,494
10,500 Baltimore Gas & Electric Co............................................................ 324,188
6,700 Carolina Power & Light Co.............................................................. 315,319
12,300 Central & South West Corp.............................................................. 337,481
8,700 CINergy Corp........................................................................... 299,063
7,000 Consolidated Edison, Inc............................................................... 370,125
7,700 Dominion Resources, Inc................................................................ 359,975
8,000 DTE Energy Co.......................................................................... 343,000
5,000 Duke Power Co.......................................................................... 320,313
10,700 Edison International................................................................... 298,263
12,000 Entergy Corp........................................................................... 373,500
10,100 FirstEnergy Corp....................................................................... 328,881
4,800 FPL Group, Inc......................................................................... 295,800
8,000 GPU, Inc............................................................................... 353,500
11,000 Houston Industries, Inc................................................................ 353,375
6,100 New Century Energies, Inc.............................................................. 297,375
22,000 Niagara Mohawk Power Corp.*............................................................ 354,750
12,000 Northern States Power Co............................................................... 333,000
14,300 PacifiCorp............................................................................. 301,194
9,500 PG & E Corp............................................................................ 299,250
9,500 PECO Energy Co......................................................................... 395,438
13,800 PP&L Resources, Inc.................................................................... 384,675
8,900 Public Service Enterprise Group, Inc................................................... 356,000
12,100 Southern Co............................................................................ 351,656
7,000 Texas Utilities Co..................................................................... 326,813
9,500 Unicom Corp............................................................................ 366,344
------------
9,359,128
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL PRODUCTS (0.6%)
5,500 Emerson Electric Co.................................................................... $ 344,094
10,700 Raychem Corp........................................................................... 345,744
7,000 Thomas Betts Corp...................................................................... 303,187
------------
993,025
------------
ELECTRONIC COMPONENTS (0.2%)
7,500 AMP, Inc............................................................................... 390,469
------------
ELECTRONIC DATA PROCESSING (2.1%)
9,000 Apple Computer, Inc.*.................................................................. 368,437
9,400 COMPAQ Computer Corp................................................................... 394,212
22,500 Data General Corp.*.................................................................... 369,844
5,100 Dell Computer Corp.*................................................................... 373,256
6,500 Gateway 2000, Inc.*.................................................................... 332,719
5,000 Hewlett-Packard Co..................................................................... 341,562
2,100 International Business Machines Corp................................................... 387,975
26,000 Silicon Graphics, Inc.*................................................................ 334,750
4,600 Sun Microsystems, Inc.*................................................................ 393,587
11,400 Unisys Corp.*.......................................................................... 392,587
------------
3,688,929
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.5%)
9,000 Applied Materials, Inc.*............................................................... 384,188
9,400 KLA-Tencor Corp.*...................................................................... 407,725
------------
791,913
------------
ENGINEERING & CONSTRUCTION (0.4%)
7,100 Fluor Corp............................................................................. 302,194
23,500 Foster Wheeler Corp.................................................................... 309,906
------------
612,100
------------
ENVIRONMENTAL SERVICES (0.4%)
10,300 Browning-Ferris Industries, Inc........................................................ 292,906
7,200 Waste Management, Inc.................................................................. 335,700
------------
628,606
------------
FARMING/SEEDS/MILLING (0.3%)
18,000 Archer-Daniels-Midland Co.............................................................. 309,375
10,800 Pioneer Hi-Bred International, Inc..................................................... 291,600
------------
600,975
------------
FINANCE COMPANIES (1.6%)
8,200 Associates First Capital Corp. (Class A)............................................... 347,475
3,000 Capital One Financial Corp............................................................. 345,000
6,700 Countrywide Credit Industries, Inc..................................................... 336,256
5,100 Fannie Mae............................................................................. 377,400
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,000 Freddie Mac............................................................................ $ 386,625
8,800 Household International, Inc........................................................... 348,700
15,000 MBNA Corp.............................................................................. 374,062
7,500 SLM Holding Corp....................................................................... 360,000
------------
2,875,518
------------
FINANCIAL PUBLISHING/SERVICES (0.6%)
9,900 Dun & Bradstreet Corp.................................................................. 312,469
9,200 Equifax, Inc........................................................................... 314,525
3,700 McGraw-Hill, Inc....................................................................... 376,937
------------
1,003,931
------------
FLUID CONTROLS (0.2%)
10,000 Parker-Hannifin Corp................................................................... 327,500
------------
FOOD CHAINS (1.4%)
6,100 Albertson's, Inc....................................................................... 388,494
10,300 American Stores Co..................................................................... 380,456
6,700 Fred Meyer, Inc.*...................................................................... 403,675
10,600 Great Atlantic & Pacific Tea Co., Inc.................................................. 314,025
6,600 Kroger Co.*............................................................................ 399,300
4,800 Safeway, Inc.*......................................................................... 292,500
7,700 Winn-Dixie Stores, Inc................................................................. 345,537
------------
2,523,987
------------
FOOD DISTRIBUTORS (0.4%)
13,400 Supervalu, Inc......................................................................... 375,200
12,800 Sysco Corp............................................................................. 351,200
------------
726,400
------------
FOREST PRODUCTS (0.4%)
16,600 Louisiana-Pacific Corp................................................................. 303,988
6,500 Weyerhaeuser Co........................................................................ 330,281
------------
634,269
------------
HOME BUILDING (0.8%)
8,600 Centex Corp............................................................................ 387,537
8,500 Fleetwood Enterprises, Inc............................................................. 295,375
11,100 Kaufman & Broad Home Corp.............................................................. 319,125
12,600 Pulte Corp............................................................................. 350,437
------------
1,352,474
------------
HOME FURNISHINGS (0.8%)
8,000 National Service Industries, Inc....................................................... 304,000
8,500 Newell Co.............................................................................. 350,625
10,400 Rubbermaid, Inc........................................................................ 326,950
20,800 Tupperware Corp........................................................................ 341,900
------------
1,323,475
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOSPITAL/NURSING MANAGEMENT (0.6%)
11,900 Columbia/HCA Healthcare Corp........................................................... $ 294,525
13,400 HCR Manor Care, Inc.................................................................... 393,625
11,600 Tenet Healthcare Corp.*................................................................ 304,500
------------
992,650
------------
HOTELS/RESORTS (0.5%)
6,200 Carnival Corp. (Class A)............................................................... 297,600
15,000 Hilton Hotels Corp..................................................................... 286,875
9,900 Marriott International, Inc............................................................ 287,100
------------
871,575
------------
INDUSTRIAL MACHINERY/ COMPONENTS (0.7%)
33,400 Harnischfeger Industries, Inc.......................................................... 340,263
5,000 Illinois Tool Works Inc................................................................ 290,000
7,100 Ingersoll-Rand Co...................................................................... 333,256
16,500 Milacron, Inc.......................................................................... 317,625
------------
1,281,144
------------
INDUSTRIAL SPECIALTIES (0.6%)
10,300 Ecolab, Inc............................................................................ 372,731
13,500 Millipore Corp......................................................................... 383,906
14,500 Pall Corp.............................................................................. 367,031
------------
1,123,668
------------
INSURANCE BROKERS/SERVICES (0.4%)
5,400 AON Corp............................................................................... 299,025
5,400 Marsh & McLennan Companies, Inc........................................................ 315,562
------------
614,587
------------
INTEGRATED OIL COMPANIES (2.0%)
6,200 Amerada Hess Corp...................................................................... 308,450
6,100 Amoco Corp............................................................................. 368,288
4,600 Atlantic Richfield Co.................................................................. 300,150
3,800 Chevron Corp........................................................................... 315,163
4,200 Exxon Corp.*........................................................................... 307,125
8,500 Kerr-McGee Corp........................................................................ 325,125
4,100 Mobil Corp............................................................................. 357,213
7,000 Phillips Petroleum Co.................................................................. 298,375
6,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)*......................................... 287,250
5,500 Texaco, Inc............................................................................ 290,813
10,300 Unocal Corp............................................................................ 300,631
------------
3,458,583
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT BANKERS/BROKERS/ SERVICES (1.0%)
8,000 Bear Stearns Companies, Inc............................................................ $ 299,000
8,500 Lehman Brothers Holdings, Inc.......................................................... 374,531
5,000 Merrill Lynch & Co., Inc............................................................... 333,750
5,200 Morgan Stanley Dean Witter & Co. (Note 3).............................................. 369,200
6,600 Schwab (CHARLES) Corp.................................................................. 370,837
------------
1,747,318
------------
INVESTMENT MANAGERS (0.2%)
9,000 Franklin Resources, Inc................................................................ 288,000
------------
LIFE INSURANCE (0.8%)
4,800 American General Corp.................................................................. 374,400
10,100 Conseco, Inc........................................................................... 308,681
5,100 Jefferson-Pilot Corp................................................................... 382,500
4,600 SunAmerica Inc......................................................................... 373,175
------------
1,438,756
------------
MAJOR BANKS (4.6%)
10,000 Bank of New York Co., Inc.............................................................. 402,500
7,500 Bank One Corp.......................................................................... 382,969
6,400 Bank America Corp...................................................................... 384,800
7,800 BankBoston Corp........................................................................ 303,713
4,200 Bankers Trust New York Corp............................................................ 358,837
9,600 BB&T Corp.............................................................................. 387,000
5,400 Chase Manhattan Corp................................................................... 367,537
7,700 Citigroup, Inc......................................................................... 381,150
4,650 Comerica, Inc.......................................................................... 317,072
6,432 First Union Corp....................................................................... 391,146
7,200 Fleet Financial Group, Inc............................................................. 321,750
9,900 Huntington Bancshares, Inc............................................................. 297,619
9,400 KeyCorp................................................................................ 300,800
4,800 Mellon Bank Corp....................................................................... 330,000
2,900 Morgan (J.P.) & Co., Inc............................................................... 304,681
4,100 National City Corp..................................................................... 297,250
5,500 PNC Bank Corp.......................................................................... 297,688
6,600 Republic New York Corp................................................................. 300,713
4,400 State Street Corp...................................................................... 306,075
6,700 Summit Bancorp......................................................................... 292,706
4,200 SunTrust Banks, Inc.................................................................... 321,300
8,400 U.S. Bancorp........................................................................... 298,200
3,700 Wachovia Corp.......................................................................... 323,518
9,900 Wells Fargo & Co....................................................................... 395,381
------------
8,064,405
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR CHEMICALS (1.2%)
3,500 Dow Chemical Co........................................................................ $ 318,281
5,200 Du Pont (E.I.) de Nemours & Co., Inc................................................... 275,925
7,000 Eastman Chemical Co.................................................................... 313,250
11,000 Hercules, Inc.......................................................................... 301,125
6,700 Monsanto Co............................................................................ 318,250
9,300 Rohm & Haas Co......................................................................... 280,163
6,900 Union Carbide Corp..................................................................... 293,250
------------
2,100,244
------------
MAJOR PHARMACEUTICALS (2.3%)
7,800 Abbott Laboratories.................................................................... 382,200
6,100 American Home Products Corp............................................................ 343,506
5,300 Baxter International, Inc.............................................................. 340,856
2,900 Bristol-Myers Squibb Co................................................................ 388,056
4,100 Johnson & Johnson...................................................................... 343,887
4,200 Lilly (Eli) & Co....................................................................... 373,275
2,600 Merck & Co., Inc.*..................................................................... 383,987
3,100 Pfizer, Inc.*.......................................................................... 388,856
6,900 Pharmacia & Upjohn, Inc................................................................ 390,712
6,600 Schering-Plough Corp................................................................... 364,650
4,500 Warner-Lambert Co...................................................................... 338,344
------------
4,038,329
------------
MAJOR U.S. TELECOMMUNICATIONS (2.2%)
6,400 ALLTEL Corp............................................................................ 382,800
6,200 Ameritech Corp......................................................................... 392,925
5,000 AT&T Corp.............................................................................. 376,250
6,400 Bell Atlantic Corp..................................................................... 363,600
8,000 BellSouth Corp......................................................................... 399,000
5,500 GTE Corp............................................................................... 370,906
5,300 MCI WorldCom, Inc...................................................................... 380,275
7,200 SBC Communications, Inc................................................................ 386,100
4,500 Sprint Corp. (FON Group)............................................................... 378,563
6,000 U.S. West, Inc......................................................................... 387,750
------------
3,818,169
------------
MANAGED HEALTH CARE (0.5%)
3,900 Aetna Inc.............................................................................. 306,637
16,900 Humana, Inc.*.......................................................................... 301,031
6,800 United Healthcare Corp................................................................. 292,825
------------
900,493
------------
MEAT/POULTRY/FISH (0.2%)
10,000 ConAgra, Inc........................................................................... 315,000
------------
MEDICAL EQUIPMENT & SUPPLIES (0.2%)
5,100 Medtronic, Inc......................................................................... 378,675
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SPECIALTIES (1.9%)
8,000 ALZA Corp. (Class A)*.................................................................. $ 418,000
8,000 Bard (C.R.), Inc....................................................................... 396,000
6,700 Bausch & Lomb, Inc..................................................................... 402,000
8,600 Becton, Dickinson & Co................................................................. 367,113
9,900 Biomet, Inc............................................................................ 397,856
11,300 Boston Scientific Corp.*............................................................... 302,981
3,600 Guidant Corp........................................................................... 396,900
12,600 Mallinckrodt Group, Inc................................................................ 388,237
11,000 St. Jude Medical, Inc.*................................................................ 304,563
------------
3,373,650
------------
MEDICAL/DENTAL DISTRIBUTORS (0.2%)
5,100 Cardinal Health, Inc................................................................... 386,962
------------
MEDICAL/NURSING SERVICES (0.2%)
20,000 Healthsouth Corp.*..................................................................... 308,750
------------
METALS FABRICATIONS (0.2%)
16,400 Timken Co.............................................................................. 309,550
------------
MID - SIZED BANKS (1.1%)
5,362 Fifth Third Bancorp.................................................................... 382,378
6,500 Mercantile Bancorporation, Inc......................................................... 299,813
4,500 Northern Trust Corp.................................................................... 392,625
7,500 Regions Financial Corp................................................................. 302,344
12,900 Synovus Financial Corp................................................................. 314,438
7,000 Union Planters Corp.................................................................... 317,187
------------
2,008,785
------------
MILITARY/GOV'T/TECHNICAL (0.6%)
12,900 EG & G, Inc............................................................................ 358,781
6,600 General Dynamics Corp.................................................................. 386,925
5,800 Raytheon Co. (Class B)................................................................. 308,850
------------
1,054,556
------------
MOTOR VEHICLES (0.4%)
6,500 Ford Motor Co.......................................................................... 381,469
4,400 General Motors Corp.................................................................... 314,875
------------
696,344
------------
MOVIES/ENTERTAINMENT (1.0%)
12,500 King World Productions Inc.*........................................................... 367,969
8,400 Seagram Co. Ltd. (Canada).............................................................. 319,200
6,300 Time Warner, Inc....................................................................... 390,994
5,300 Viacom, Inc. (Class B)*................................................................ 392,200
10,000 Walt Disney Co......................................................................... 300,000
------------
1,770,363
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-LINE INSURANCE (1.1%)
8,500 Allstate Corp.......................................................................... $ 328,313
3,525 American International Group, Inc...................................................... 340,603
4,500 CIGNA Corp............................................................................. 347,906
6,000 Hartford Financial Services Group, Inc................................................. 329,250
3,600 Lincoln National Corp.................................................................. 294,525
6,900 SAFECO Corp............................................................................ 296,269
------------
1,936,866
------------
MULTI-SECTOR COMPANIES (1.3%)
10,400 Crane Co............................................................................... 313,950
3,600 General Electric Co.................................................................... 367,425
4,000 Honeywell, Inc......................................................................... 301,250
3,500 Loews Corp............................................................................. 343,875
12,000 McDermott International, Inc........................................................... 296,250
9,400 Tenneco, Inc........................................................................... 320,188
4,300 Textron, Inc........................................................................... 326,531
------------
2,269,469
------------
NATURAL GAS (1.1%)
5,500 Consolidated Natural Gas Co............................................................ 297,000
7,800 Eastern Enterprises.................................................................... 341,250
7,500 Nicor Inc.............................................................................. 316,875
8,500 ONEOK, Inc............................................................................. 307,063
8,500 Peoples Energy Corp.................................................................... 338,938
12,000 Sempra Energy.......................................................................... 304,500
------------
1,905,626
------------
NEWSPAPERS (1.0%)
6,200 Dow Jones & Co., Inc................................................................... 298,375
4,600 Gannett Co., Inc....................................................................... 304,463
6,100 Knight-Ridder, Inc..................................................................... 311,863
8,800 New York Times Co. (Class A)........................................................... 305,250
5,200 Times Mirror Co. (Class A)............................................................. 291,200
4,900 Tribune Co............................................................................. 323,400
------------
1,834,551
------------
OFFICE EQUIPMENT/SUPPLIES (0.6%)
6,600 Avery Dennison Corp.................................................................... 297,413
6,000 Pitney Bowes, Inc...................................................................... 396,375
3,200 Xerox Corp............................................................................. 377,600
------------
1,071,388
------------
OIL & GAS PRODUCTION (1.0%)
12,000 Apache Corp............................................................................ 303,750
10,000 Anardarko Petroleum Corp............................................................... 308,750
8,200 Burlington Resources, Inc.............................................................. 293,663
16,800 Occidental Petroleum Corp.............................................................. 283,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
23,100 Oryx Energy Co.*....................................................................... $ 310,406
35,000 Union Pacific Resources Group, Inc..................................................... 317,187
------------
1,817,256
------------
OIL REFINERIES/MARKETING (0.6%)
6,000 Ashland, Inc........................................................................... 290,250
8,600 Sunoco Inc............................................................................. 310,138
12,000 USX-Marathon Group..................................................................... 361,500
------------
961,888
------------
OIL/GAS TRANSMISSION (1.0%)
10,000 Coastal Corp........................................................................... 349,375
5,900 Columbia Energy Group.................................................................. 340,725
6,500 Enron Corp............................................................................. 370,906
11,200 Sonat, Inc............................................................................. 303,100
10,400 Williams Companies, Inc................................................................ 324,350
------------
1,688,456
------------
OILFIELD SERVICES/EQUIPMENT (0.6%)
19,000 Baker Hughes, Inc...................................................................... 336,063
12,800 Halliburton Co......................................................................... 379,200
7,000 Schlumberger, Ltd...................................................................... 322,875
------------
1,038,138
------------
OTHER CONSUMER SERVICES (0.6%)
7,900 Block (H.&R.), Inc..................................................................... 355,500
19,500 Cendant Corp.*......................................................................... 371,719
8,000 Service Corp. International............................................................ 304,500
------------
1,031,719
------------
OTHER METALS/MINERALS (0.9%)
20,000 ASARCO, Inc............................................................................ 301,250
32,000 Cyprus Amax Minerals Co................................................................ 320,000
30,000 Freeport-McMoran Copper & Gold, Inc. (Class B)......................................... 313,125
28,700 Inco Ltd. (Canada)..................................................................... 303,144
5,800 Phelps Dodge Corp...................................................................... 295,075
------------
1,532,594
------------
OTHER PHARMACEUTICALS (0.2%)
5,700 Allergan, Inc.......................................................................... 369,075
------------
OTHER SPECIALTY STORES (0.8%)
10,500 AutoZone, Inc.*........................................................................ 345,844
25,000 Pep Boys-Manny, Moe & Jack............................................................. 392,188
6,600 Staples, Inc.*......................................................................... 288,338
19,000 Toys 'R' Us, Inc.*..................................................................... 320,625
------------
1,346,995
------------
OTHER TRANSPORTATION (0.2%)
30,600 Laidlaw, Inc. (Canada)................................................................. 307,912
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGE GOODS/COSMETICS (1.6%)
11,700 Alberto-Culver Co. (Class B)........................................................... $ 312,244
8,400 Avon Products, Inc..................................................................... 371,700
3,400 Clorox Co.............................................................................. 397,162
3,900 Colgate-Palmolive Co................................................................... 362,212
6,700 Gillette Co............................................................................ 323,694
7,600 International Flavors & Fragrances Inc................................................. 335,825
6,300 Kimberly-Clark Corp.................................................................... 343,350
3,600 Procter & Gamble Co.................................................................... 328,725
------------
2,774,912
------------
PACKAGED FOODS (1.6%)
5,400 BestFoods.............................................................................. 287,550
6,000 Campbell Soup Co....................................................................... 330,000
4,500 General Mills, Inc..................................................................... 349,875
5,300 Heinz (H.J.) Co........................................................................ 300,113
8,700 Kellogg Co............................................................................. 296,888
5,700 Quaker Oats Company (The).............................................................. 339,150
9,500 Ralston-Ralston Purina Group........................................................... 307,563
10,600 Sara Lee Corp.......................................................................... 298,788
4,400 Unilever N.V. (Netherlands)............................................................ 364,925
------------
2,874,852
------------
PAINTS/COATINGS (0.4%)
5,700 PPG Industries, Inc.................................................................... 332,025
13,000 Sherwin-Williams Co.................................................................... 381,875
------------
713,900
------------
PAPER (1.7%)
10,000 Boise Cascade Corp..................................................................... 310,000
7,800 Champion International Corp............................................................ 315,900
9,000 Fort James Corp........................................................................ 360,000
7,000 International Paper Co................................................................. 313,688
11,000 Mead Corp.............................................................................. 322,438
8,000 Potlatch Corp.......................................................................... 295,000
5,900 Union Camp Corp........................................................................ 398,250
11,100 Westvaco Corp.......................................................................... 297,619
9,500 Willamette Industries, Inc............................................................. 318,250
------------
2,931,145
------------
PHOTOGRAPHIC PRODUCTS (0.4%)
4,200 Eastman Kodak Co....................................................................... 302,400
18,000 Polaroid Corp.......................................................................... 336,375
------------
638,775
------------
PRECIOUS METALS (0.9%)
16,400 Barrick Gold Corp. (Canada)............................................................ 319,800
71,000 Battle Mountain Gold Co................................................................ 292,875
34,000 Homestake Mining Co.................................................................... 312,375
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
18,500 Newmont Mining Corp.................................................................... $ 334,156
26,500 Placer Dome Inc. (Canada).............................................................. 304,750
------------
1,563,956
------------
PRECISION INSTRUMENTS (0.4%)
4,100 Perkin-Elmer Corp...................................................................... 400,006
13,100 Tektronix, Inc......................................................................... 393,819
------------
793,825
------------
PRINTING FORMS (0.5%)
9,000 Deluxe Corp............................................................................ 329,063
7,200 Donnelley (R.R.) & Sons Co............................................................. 315,450
29,000 Moore Corp. Ltd. (Canada).............................................................. 319,000
------------
963,513
------------
PROPERTY - CASUALTY INSURANCE (0.9%)
147 Berkshire Hathaway, Inc................................................................ 345,450
4,600 Chubb Corp............................................................................. 298,425
8,400 Cincinnati Financial Corp.............................................................. 307,650
2,300 Progressive Corp....................................................................... 389,563
9,000 St. Paul Companies, Inc................................................................ 312,750
------------
1,653,838
------------
RAILROADS (0.7%)
9,000 Burlington Northern Santa Fe Corp...................................................... 303,750
7,200 CSX Corp............................................................................... 298,800
10,000 Norfolk Southern Corp.................................................................. 316,875
6,900 Union Pacific Corp..................................................................... 310,931
------------
1,230,356
------------
RECREATIONAL PRODUCTS/TOYS (0.6%)
15,600 Brunswick Corp......................................................................... 386,100
9,300 Hasbro, Inc............................................................................ 335,962
13,000 Mattel, Inc............................................................................ 296,562
------------
1,018,624
------------
RENTAL/LEASING COMPANIES (0.2%)
11,700 Ryder System, Inc...................................................................... 304,200
------------
RESTAURANTS (0.8%)
21,000 Darden Restaurants, Inc................................................................ 378,000
5,100 McDonald's Corp........................................................................ 390,788
8,000 Tricon Global Restaurants, Inc.*....................................................... 401,000
14,500 Wendy's International, Inc............................................................. 316,281
------------
1,486,069
------------
SAVINGS & LOAN ASSOCIATIONS (0.4%)
3,500 Golden West Financial Corp............................................................. 320,906
10,500 Washington Mutual, Inc................................................................. 400,969
------------
721,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (1.3%)
14,200 Advanced Micro Devices, Inc.*.......................................................... $ 410,912
3,200 Intel Corp............................................................................. 379,200
19,400 LSI Logic Corp.*....................................................................... 312,825
7,600 Micron Technology, Inc.*............................................................... 384,275
26,500 National Semiconductor Corp.*.......................................................... 357,750
4,600 Texas Instruments, Inc................................................................. 393,587
------------
2,238,549
------------
SERVICES TO THE HEALTH INDUSTRY (0.6%)
11,600 HBO & Co............................................................................... 332,775
5,200 IMS Health Inc......................................................................... 392,275
7,000 Shared Medical Systems Corp............................................................ 349,125
------------
1,074,175
------------
SHOE MANUFACTURING (0.4%)
7,300 Nike, Inc. (Class B)................................................................... 296,106
23,000 Reebok International Ltd. (United Kingdom)*............................................ 342,125
------------
638,231
------------
SPECIALTY CHEMICALS (1.6%)
8,200 Air Products & Chemicals, Inc.......................................................... 328,000
15,200 Engelhard Corp......................................................................... 296,400
8,800 Goodrich (B.F.) Co..................................................................... 315,700
21,500 Grace (W. R.) & Co..................................................................... 337,281
7,500 Great Lakes Chemical Corp.............................................................. 300,000
12,700 Morton International, Inc.............................................................. 311,150
10,200 Nalco Chemical Co...................................................................... 316,200
8,800 Praxair, Inc........................................................................... 310,200
10,000 Sigma-Aldrich Corp..................................................................... 292,500
------------
2,807,431
------------
SPECIALTY FOODS/CANDY (0.3%)
4,700 Hershey Foods Corp..................................................................... 292,281
3,400 Wrigley (Wm.) Jr. Co. (Class A)........................................................ 304,513
------------
596,794
------------
SPECIALTY INSURERS (0.4%)
4,500 MBIA, Inc.............................................................................. 295,031
9,000 MGIC Investment Corp................................................................... 358,312
------------
653,343
------------
SPECIALTY STEEL (0.2%)
7,100 Nucor Corp............................................................................. 307,075
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL/IRON ORE (0.7%)
55,000 Armco Inc.............................................................................. $ 240,625
38,900 Bethlehem Steel Corp.*................................................................. 325,788
13,500 USX-U.S. Steel Group, Inc.............................................................. 310,500
24,000 Worthington Industries, Inc............................................................ 300,000
------------
1,176,913
------------
TELECOMMUNICATION EQUIPMENT (1.7%)
20,000 Andrew Corp.*.......................................................................... 330,000
8,700 Corning, Inc........................................................................... 391,500
11,400 General Instrument Corp.*.............................................................. 386,887
3,500 Lucent Technologies Inc................................................................ 385,000
6,000 Motorola, Inc.......................................................................... 366,375
7,800 Northern Telecom Ltd. (Canada)......................................................... 390,975
15,100 Scientific-Atlanta, Inc................................................................ 344,469
5,500 Tellabs, Inc.*......................................................................... 377,095
------------
2,972,301
------------
TELECOMMUNICATIONS (0.2%)
10,600 Frontier Corp.......................................................................... 360,400
------------
TEXTILES (0.2%)
7,100 Springs Industries, Inc. (Class A)..................................................... 294,206
------------
TOBACCO (0.6%)
7,200 Philip Morris Companies, Inc........................................................... 385,200
10,500 RJR Nabisco Holdings Corp.............................................................. 311,719
11,200 UST, Inc............................................................................... 390,600
------------
1,087,519
------------
TOOLS/HARDWARE (0.8%)
6,300 Black & Decker Corp.................................................................... 353,194
7,900 Briggs & Stratton Corp................................................................. 394,013
8,600 Snap-On, Inc........................................................................... 299,387
10,700 Stanley Works.......................................................................... 296,925
------------
1,343,519
------------
WHOLESALE DISTRIBUTOR (0.3%)
7,400 Grainger (W.W.), Inc................................................................... 308,025
35,000 IKON Office Solutions, Inc............................................................. 299,688
------------
607,713
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $132,363,447)......................................................... 169,631,168
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.6%)
REPURCHASE AGREEMENT
$ 2,800 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,800,409 (a)
(IDENTIFIED COST $2,799,165)......................................................... $ 2,799,165
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $135,162,612) (B)........................................................ 98.6 % 172,430,333
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 1.4 2,393,489
------ -------------
NET ASSETS................................................................................ 100.0 % $ 174,823,822
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $2,825,570 U.S. Treasury Note 6.75% due 06/30/99 valued
at $2,855,149.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate appreciation is $46,892,377 and the aggregate gross
unrealized depreciation is $9,624,656, resulting in net unrealized
appreciation of $37,267,721.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.5%)
AEROSPACE (2.7%)
9,400 Cordant Technologies, Inc............................................................... $ 352,500
20,400 Gulfstream Aerospace Corp.*............................................................. 1,086,300
-----------
1,438,800
-----------
AIRLINES (1.0%)
15,500 Continental Airlines, Inc. (Class B)*................................................... 519,250
-----------
BEVERAGES - NON-ALCOHOLIC (2.2%)
6,700 Coca Cola Co............................................................................ 448,061
20,500 Coca-Cola Enterprises Inc............................................................... 732,875
-----------
1,180,936
-----------
BIOTECHNOLOGY (1.1%)
11,400 Genzyme Corp. (General Division)*....................................................... 566,437
-----------
BROADCASTING (11.5%)
12,700 Chancellor Media Corp.*................................................................. 607,219
52,300 Clear Channel Communications, Inc.*..................................................... 2,850,350
7,500 Comcast Corp. (Class A Special)......................................................... 440,156
4,500 Comcast Corp. (Class A)................................................................. 258,187
18,300 General Motors Corp. (Class H)*......................................................... 726,281
17,800 Tele-Communications Liberty Media Group (Class A)*...................................... 819,913
8,000 Tele-Communications, Inc. (Class A)*.................................................... 442,500
-----------
6,144,606
-----------
BUILDING MATERIALS/DIY CHAINS (1.7%)
14,900 Home Depot, Inc. (The).................................................................. 911,694
-----------
COMPUTER COMMUNICATIONS (2.5%)
14,525 Cisco Systems, Inc.*.................................................................... 1,348,102
-----------
COMPUTER HARDWARE (3.5%)
16,000 Compaq Computer Corp.................................................................... 671,000
6,500 Dell Computer Corp.*.................................................................... 475,719
4,000 International Business Machines Corp.................................................... 739,000
-----------
1,885,719
-----------
COMPUTER SOFTWARE (3.9%)
12,900 Microsoft Corp.*........................................................................ 1,787,456
6,500 Oracle Corp.*........................................................................... 280,313
-----------
2,067,769
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (1.7%)
4,900 America Online, Inc.*................................................................... $ 709,275
12,400 Novell, Inc.*........................................................................... 224,750
-----------
934,025
-----------
CONSUMER/BUSINESS SERVICES (3.9%)
767 Berkshire Hathaway, Inc.*............................................................... 1,801,275
15,533 Nielsen Media Research, Inc............................................................. 279,594
-----------
2,080,869
-----------
DISCOUNT CHAINS (0.5%)
3,700 Costco Companies, Inc.*................................................................. 267,094
-----------
DIVERSIFIED FINANCIAL SERVICES (3.4%)
12,300 American Express Co..................................................................... 1,257,675
11,300 Citigroup Inc........................................................................... 559,350
-----------
1,817,025
-----------
DIVERSIFIED MANUFACTURING (11.9%)
7,300 Textron, Inc............................................................................ 554,344
35,700 Tyco International Ltd.................................................................. 2,693,119
28,600 United Technologies Corp................................................................ 3,110,250
-----------
6,357,713
-----------
ELECTRICAL PRODUCTS (2.8%)
14,700 General Electric Co..................................................................... 1,500,319
-----------
ELECTRONICS (2.6%)
17,400 Litton Industries, Inc.*................................................................ 1,135,350
15,300 Loral Space & Communications Ltd. (Bermuda)*............................................ 272,531
-----------
1,407,881
-----------
GENERIC DRUGS (1.5%)
7,500 Amgen Inc.*............................................................................. 783,750
-----------
HEALTHCARE PRODUCTS & SERVICES (0.6%)
3,600 Johnson & Johnson....................................................................... 301,950
-----------
INSURANCE (0.9%)
8,100 Reinsurance Group of America, Inc....................................................... 492,075
-----------
INTEGRATED OIL COMPANIES (0.5%)
3,700 Exxon Corp.............................................................................. 270,562
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (0.6%)
4,700 Merrill Lynch & Co., Inc................................................................ 313,725
-----------
INVESTMENT MANAGERS (0.5%)
8,900 Pimco Advisors Holdings L.P............................................................. 277,012
-----------
MAJOR BANKS (0.9%)
4,100 First Union Corp........................................................................ 249,331
6,100 Fleet Financial Group, Inc.............................................................. 272,594
-----------
521,925
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR PHARMACEUTICALS (6.1%)
7,600 Lilly (Eli) & Co........................................................................ $ 675,450
8,900 Merck & Co., Inc........................................................................ 1,314,419
10,200 Pfizer, Inc............................................................................. 1,279,462
-----------
3,269,331
-----------
MAJOR U.S. TELECOMMUNICATIONS (2.4%)
17,000 AT&T Corp............................................................................... 1,279,250
-----------
MEDICAL EQUIPMENT & SUPPLIES (1.2%)
10,300 Bausch & Lomb, Inc...................................................................... 618,000
-----------
MOVIES/ENTERTAINMENT (1.6%)
13,800 Time Warner, Inc........................................................................ 856,462
-----------
MULTI-LINE INSURANCE (5.0%)
2,400 American Bankers Insurance Group, Inc................................................... 116,101
26,100 Loews Corp.............................................................................. 2,564,325
-----------
2,680,426
-----------
NEWSPAPERS (0.6%)
3,700 Pulitzer Publishing Co.................................................................. 320,512
-----------
OFFICE EQUIPMENT/SUPPLIES (2.9%)
22,500 Knoll, Inc.*............................................................................ 666,563
13,300 Pitney Bowes, Inc....................................................................... 878,631
-----------
1,545,194
-----------
PACKAGED FOODS (1.6%)
6,200 Quaker Oats Company (The)............................................................... 368,900
15,400 Ralston-Ralston Purina Group............................................................ 498,575
-----------
867,475
-----------
PHOTOGRAPHIC PRODUCTS (0.6%)
4,200 Eastman Kodak Co........................................................................ 302,400
-----------
PROPERTY - CASUALTY INSURANCE (1.6%)
9,800 Ace, Ltd. (Bermuda)..................................................................... 337,488
8,200 Allstate Corp........................................................................... 316,725
1,200 Progressive Corp........................................................................ 203,250
-----------
857,463
-----------
RESTAURANTS (0.1%)
1,000 Brinker International, Inc.*............................................................ 28,875
-----------
RETAIL - SPECIALTY (2.9%)
16,050 Gap, Inc. (The)......................................................................... 902,813
6,500 Staples, Inc.*.......................................................................... 283,969
23,300 Toys 'R' Us, Inc.*...................................................................... 393,188
-----------
1,579,970
-----------
SEMICONDUCTORS (3.0%)
12,700 Intel Corp.............................................................................. 1,504,950
1,400 Uniphase Corp.*......................................................................... 97,125
-----------
1,602,075
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (1.3%)
1,100 Lucent Technologies Inc................................................................. $ 121,000
9,600 Motorola, Inc........................................................................... 586,200
-----------
707,200
-----------
TELECOMMUNICATIONS (1.6%)
12,300 MCI WorldCom, Inc.*..................................................................... 882,525
-----------
TOBACCO (2.6%)
26,300 Philip Morris Companies, Inc............................................................ 1,407,050
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $43,584,064)........................................................... 52,193,446
-----------
PREFERRED STOCK (0.4%)
NEWSPAPERS
8,000 News Corporation Ltd. (The) (ADR) (Australia) (IDENTIFIED COST $185,047)................ 197,500
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT
$ 1,611 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $1,611,959) (a)
(IDENTIFIED COST $1,611,243).......................................................... 1,611,243
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $45,380,354) (B).......................................................... 100.9 % 54,002,189
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (0.9) (498,411)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 53,503,778
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $1,587,892 U.S. Treasury Note 5.875% due 02/15/00 valued
at $1,643,468.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,151,048 and the
aggregate gross unrealized depreciation is $529,213, resulting in net
unrealized appreciation of $8,621,835.
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.9%)
ADVERTISING (0.4%)
20,000 Interpublic Group of Companies, Inc.................................................... $ 1,595,000
------------
AEROSPACE (0.7%)
43,800 General Dynamics Corp.................................................................. 2,567,775
------------
AIRLINES (0.2%)
37,400 Southwest Airlines Co.................................................................. 839,162
------------
BANKING (1.4%)
38,500 Bank of New York Co., Inc.............................................................. 1,549,625
25,000 Chase Manhattan Corp. (The)............................................................ 1,701,562
12,000 Fifth Third Bancorp.................................................................... 855,750
12,000 First Union Corp....................................................................... 729,750
------------
4,836,687
------------
BIOTECHNOLOGY (3.3%)
26,000 Amgen Inc.*............................................................................ 2,717,000
14,000 Biogen, Inc.*.......................................................................... 1,160,250
1,700 Genentech, Inc. (Special)*............................................................. 135,469
34,000 Genzyme Corp. (General Division)*...................................................... 1,689,375
20,000 IDEC Pharmaceuticals Corp.*............................................................ 940,000
18,000 Immunex Corp.*......................................................................... 2,254,500
15,000 MedImmune, Inc.*....................................................................... 1,490,625
27,000 PathoGenesis Corp.*.................................................................... 1,539,000
------------
11,926,219
------------
BROADCASTING (2.5%)
37,000 Chancellor Media Corp.*................................................................ 1,769,062
70,000 Clear Channel Communications, Inc.*.................................................... 3,815,000
50,000 Tele-Communications Liberty Media Group (Class A)*..................................... 2,303,125
33,000 USA Networks, Inc.*.................................................................... 1,091,062
------------
8,978,249
------------
CABLE TELEVISION (3.6%)
73,000 Comcast Corp. (Class A Special)........................................................ 4,284,187
63,100 Cox Communications, Inc. (Class A)*.................................................... 4,361,787
77,000 Time Warner, Inc....................................................................... 4,778,812
------------
13,424,786
------------
COMPUTER HARDWARE (7.3%)
108,000 Compaq Computer Corp................................................................... 4,529,250
23,000 Dell Computer Corp.*................................................................... 1,683,312
25,000 Flextronics International, Ltd.*....................................................... 2,137,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
11,100 Hewlett-Packard Co..................................................................... $ 758,269
25,000 International Business Machines Corp................................................... 4,618,750
11,500 Jabil Circuit, Inc.*................................................................... 858,187
29,000 Sanmina Corp.*......................................................................... 1,805,250
35,200 SCI Systems, Inc.*..................................................................... 2,032,800
42,000 Solectron Corp.*....................................................................... 3,903,375
55,000 Sun Microsystems, Inc.*................................................................ 4,705,937
------------
27,032,630
------------
COMPUTER SOFTWARE (3.9%)
30,000 Citrix Systems, Inc.*.................................................................. 2,910,000
45,000 Compuware Corp.*....................................................................... 3,512,812
14,800 Great Plains Software, Inc.*........................................................... 714,100
12,100 Legato Systems, Inc.*.................................................................. 797,087
42,000 Microsoft Corp.*....................................................................... 5,819,625
14,000 Veritas Software Corp.*................................................................ 837,375
------------
14,590,999
------------
CONSUMER ELECTRONICS/APPLIANCES (0.8%)
16,000 Electronic Arts Inc.*.................................................................. 896,000
36,000 Maytag Corp............................................................................ 2,241,000
------------
3,137,000
------------
CONSUMER SUNDRIES (2.4%)
55,000 Anheuser-Busch Companies, Inc.......................................................... 3,609,375
15,000 Clorox Co.............................................................................. 1,752,187
21,000 Estee Lauder Companies, Inc. (Class A)................................................. 1,795,500
32,000 Philip Morris Companies, Inc........................................................... 1,712,000
------------
8,869,062
------------
CONSUMER/BUSINESS SERVICES (1.8%)
26,000 Automatic Data Processing, Inc......................................................... 2,084,875
25,000 Ceridian Corp.*........................................................................ 1,745,312
20,750 Outdoor Systems, Inc.*................................................................. 622,500
42,100 Paychex, Inc........................................................................... 2,165,519
------------
6,618,206
------------
DIVERSIFIED MANUFACTURING (0.4%)
15,000 United Technologies Corp............................................................... 1,631,250
------------
DRUG STORE CHAIN (2.8%)
52,000 CVS Corp............................................................................... 2,860,000
12,400 Duane Reade, Inc.*..................................................................... 477,400
92,400 Rite Aid Corp.......................................................................... 4,579,575
43,000 Walgreen Co............................................................................ 2,518,187
------------
10,435,162
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS (2.4%)
55,000 EMC Corp.*............................................................................. $ 4,675,000
101,000 Seagate Technology, Inc.*.............................................................. 3,055,250
80,000 Western Digital Corp.*................................................................. 1,205,000
------------
8,935,250
------------
E.D.P. SERVICES (0.5%)
27,800 Computer Sciences Corp.*............................................................... 1,791,362
------------
ELECTRONIC PRODUCTION EQUIPMENT (3.2%)
110,000 Applied Materials, Inc.*............................................................... 4,695,625
53,000 ASM Lithography Holding NV (Netherlands)*.............................................. 1,616,500
34,000 KLA-Tencor Corp.*...................................................................... 1,474,750
40,000 Novellus Systems, Inc.*................................................................ 1,975,000
42,000 Teradyne, Inc.*........................................................................ 1,779,750
6,600 Veeco Instruments, Inc.*............................................................... 348,150
------------
11,889,775
------------
ENERGY (0.9%)
25,000 Exxon Corp............................................................................. 1,828,125
15,500 Mobil Corp............................................................................. 1,350,437
------------
3,178,562
------------
FINANCIAL SERVICES (9.0%)
40,000 Associates First Capital Corp. (Class A)............................................... 1,695,000
11,000 Capital One Financial Corp............................................................. 1,265,000
16,600 CIT Group, Inc. (The) (Series A)....................................................... 528,088
30,000 E*TRADE Group, Inc.*................................................................... 1,402,500
43,000 Fannie Mae............................................................................. 3,182,000
21,000 Franklin Resources, Inc................................................................ 672,000
63,600 Freddie Mac............................................................................ 4,098,225
25,000 General Electric Co.................................................................... 2,551,563
23,700 Lehman Brothers Holdings, Inc.......................................................... 1,044,281
49,800 Merrill Lynch & Co., Inc............................................................... 3,324,150
45,100 Paine Webber Group, Inc................................................................ 1,741,988
67,500 Providian Financial Corp............................................................... 5,062,500
119,050 Schwab (CHARLES) Corp.................................................................. 6,689,122
10,000 The MONY Group Inc.*................................................................... 313,125
------------
33,569,542
------------
FOOD CHAINS (2.3%)
80,300 Fred Meyer, Inc.*...................................................................... 4,838,075
61,000 Safeway Inc.*.......................................................................... 3,717,188
------------
8,555,263
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS (0.7%)
18,800 Georgia-Pacific Corp................................................................... $ 1,100,975
100,000 Jefferson Smurfit Group PLC (Ireland).................................................. 178,837
38,000 Willamette Industries, Inc............................................................. 1,273,000
------------
2,552,812
------------
HEALTHCARE (0.9%)
9,400 CIGNA Corp............................................................................. 726,738
67,000 Health Management Associates, Inc. (Class A)*.......................................... 1,448,875
14,000 Wellpoint Health Networks, Inc.*....................................................... 1,218,000
------------
3,393,613
------------
HOME BUILDING (0.3%)
40,000 Kaufman & Broad Home Corp.............................................................. 1,150,000
------------
INSURANCE (3.1%)
4,000 Aegon N.V. (ARS) (Netherlands)......................................................... 489,000
12,000 Aegon NV (Netherlands)................................................................. 1,472,306
28,300 American General Corp.................................................................. 2,207,400
26,000 American International Group, Inc...................................................... 2,512,250
6,400 AXA (France)........................................................................... 927,586
17,000 Equitable Companies, Inc............................................................... 983,875
33,000 Hartford Financial Services Group, Inc................................................. 1,810,875
10,300 Nationwide Financial Services, Inc. (Class A).......................................... 532,381
45,000 Societa Assicuratrice Industriale SpA (Italy).......................................... 542,267
------------
11,477,940
------------
INTERNET SERVICES (4.0%)
39,000 America Online, Inc.*.................................................................. 5,645,250
17,000 At Home Corp. (Series A)*.............................................................. 1,251,625
2,200 Concur Technologies, Inc.*............................................................. 65,450
15,000 Inktomi Corp.*......................................................................... 1,949,063
38,000 Intuit Inc.*........................................................................... 2,755,000
2,550 Ticketmaster Online-CitySearch, Inc. (Series B)*....................................... 145,350
14,000 Yahoo! Inc.*........................................................................... 3,316,250
------------
15,127,988
------------
MAJOR PHARMACEUTICALS (4.9%)
20,000 ALZA Corp.*............................................................................ 1,045,000
24,000 American Home Products Corp............................................................ 1,351,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,000 Bristol-Myers Squibb Co................................................................ $ 936,688
29,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 2,017,313
56,000 Forest Laboratories, Inc.*............................................................. 2,978,500
30,000 Glaxo Wellcome PLC (United Kingdom).................................................... 1,027,320
19,000 Lilly (Eli) & Co....................................................................... 1,688,625
29,000 Pfizer, Inc............................................................................ 3,637,688
20,000 Pharmacia & Upjohn, Inc................................................................ 1,132,500
25,000 SmithKline Beecham PLC (United Kingdom)................................................ 347,739
28,000 Warner-Lambert Co...................................................................... 2,105,250
------------
18,268,123
------------
MEDIA CONGLOMERATES (0.8%)
39,000 Viacom, Inc. (Class B)*................................................................ 2,886,000
------------
MEDICAL EQUIPMENT & SUPPLIES (1.9%)
28,800 Bausch & Lomb, Inc..................................................................... 1,728,000
23,000 Guidant Corp........................................................................... 2,535,750
40,000 Medtronic, Inc......................................................................... 2,970,000
------------
7,233,750
------------
MOTOR VEHICLES (1.7%)
57,000 Ford Motor Co.......................................................................... 3,345,188
43,000 General Motors Corp.................................................................... 3,077,188
------------
6,422,376
------------
RESTAURANTS (1.2%)
14,600 McDonald's Corp........................................................................ 1,118,725
46,000 Outback Steakhouse, Inc.*.............................................................. 1,828,500
33,000 Tricon Global Restaurants, Inc.*....................................................... 1,654,125
------------
4,601,350
------------
RETAIL (8.8%)
33,000 Abercrombie & Fitch Co. (Class A)*..................................................... 2,334,750
11,000 Amazon.com, Inc.*...................................................................... 3,533,063
89,200 Ann Taylor Stores Corp.*............................................................... 3,517,825
30,000 Bed Bath & Beyond Inc.*................................................................ 1,021,875
37,000 Costco Companies, Inc.*................................................................ 2,670,938
61,000 Gap, Inc. (The)........................................................................ 3,431,250
35,000 Gucci Group NV (Netherlands)........................................................... 1,701,875
62,000 Home Depot, Inc. (The)................................................................. 3,793,625
31,000 Linens 'N Things, Inc.*................................................................ 1,228,375
91,000 Lowe's Companies, Inc.................................................................. 4,658,063
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
53,000 Wal-Mart Stores, Inc................................................................... $ 4,316,188
10,000 Williams-Sonoma, Inc.*................................................................. 403,125
------------
32,610,952
------------
SEMICONDUCTORS (7.1%)
59,000 Altera Corp.*.......................................................................... 3,584,250
41,000 Analog Devices, Inc.*.................................................................. 1,286,375
28,000 Applied Micro Circuits Corp.*.......................................................... 948,500
38,000 Intel Corp............................................................................. 4,503,000
22,000 Linear Technology Corp................................................................. 1,969,000
47,000 Maxim Integrated Products, Inc.*....................................................... 2,050,375
8,000 Micrel, Inc.*.......................................................................... 440,000
72,000 Micron Technology, Inc.*............................................................... 3,640,500
49,400 Texas Instruments, Inc................................................................. 4,226,788
56,000 Xilinx, Inc.*.......................................................................... 3,643,500
------------
26,292,288
------------
TELECOMMUNICATION EQUIPMENT (5.9%)
35,000 Ascend Communications, Inc.*........................................................... 2,301,250
13,500 Broadcom Corp. (Class A)*.............................................................. 1,625,063
74,000 Cisco Systems, Inc.*................................................................... 6,868,125
26,000 Lucent Technologies Inc................................................................ 2,860,000
54,000 Newbridge Networks Corp. (Canada)*..................................................... 1,640,250
12,000 Nokia Corp. (ADR) (Class A) (Finland).................................................. 1,445,250
29,000 PMC - Sierra, Inc.*.................................................................... 1,827,000
73,000 RF Micro Devices, Inc.*................................................................ 3,353,438
4,000 Xircom, Inc.*.......................................................................... 136,000
------------
22,056,376
------------
TELECOMMUNICATIONS (6.8%)
44,000 Ameritech Corp......................................................................... 2,788,500
59,000 AT&T Corp.............................................................................. 4,439,750
46,000 Bell Atlantic Corp..................................................................... 2,613,375
58,000 BellSouth Corp......................................................................... 2,892,750
60,000 MCI WorldCom, Inc.*.................................................................... 4,305,000
36,200 Sprint Corp. (FON Group)............................................................... 3,045,325
15,000 Sprint Corp. (PCS Group)*.............................................................. 346,875
57,000 U.S. West, Inc......................................................................... 3,683,625
30,000 Winstar Communications, Inc.*.......................................................... 1,168,125
------------
25,283,325
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $298,506,069)......................................................... 363,758,834
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (6.3%)
U.S. GOVERNMENT AGENCY
$ 23,400 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $23,391,225)....... $ 23,391,225
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $321,897,294) (B)........................................................ 104.2 % 387,150,059
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (4.2) (15,517,150)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 371,632,909
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
ARS American Regulatory Shares.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $67,311,630 and the
aggregate gross unrealized depreciation is $2,058,865, resulting in net
unrealized appreciation of $65,252,765.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- ----------------------------------------------------
<S> <C> <C> <C>
$ 1,387,577 GBP 833,129 01/08/99 ($7,998)
<CAPTION>
CURRENCY ABBREVIATION:
<S> <C> <C> <C>
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
MID-CAP GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.5%)
ACCIDENT & HEALTH INSURANCE (2.1%)
7,000 ALFAC, Inc.............................................................................. $ 308,000
5,000 UNUM Corp............................................................................... 291,875
-----------
599,875
-----------
ADVERTISING (2.4%)
8,300 Lamar Advertising Co.*.................................................................. 309,175
12,000 Outdoor Systems, Inc.*.................................................................. 360,000
-----------
669,175
-----------
AUTO PARTS: O.E.M. (0.9%)
4,300 Federal Mogul Corp...................................................................... 255,850
-----------
BIOTECHNOLOGY (2.0%)
2,500 Biogen, Inc.*........................................................................... 207,187
14,000 Chiron Corp.*........................................................................... 365,750
-----------
572,937
-----------
BROADCASTING (2.3%)
10,000 Jacor Communications, Inc.*............................................................. 643,750
-----------
BUILDING MATERIALS (2.2%)
10,500 Southdown, Inc.......................................................................... 621,469
-----------
CLOTHING/SHOE/ACCESSORY STORES (2.0%)
8,000 Abercrombie & Fitch Co. (Class A)*...................................................... 566,000
-----------
COMPUTER COMMUNICATIONS (2.1%)
3,000 Apple Computer, Inc.*................................................................... 122,812
7,000 Ascend Communications, Inc.*............................................................ 460,250
-----------
583,062
-----------
COMPUTER HARDWARE (1.7%)
10,000 American Power Conversion Corp.*........................................................ 483,750
-----------
COMPUTER SOFTWARE (7.8%)
15,000 CheckFree Holdings Corp.*............................................................... 348,750
8,000 Citrix Systems, Inc.*................................................................... 776,000
6,000 Compuware Corp.*........................................................................ 468,375
4,500 Legato Systems, Inc.*................................................................... 296,437
4,500 Network Associates, Inc.*............................................................... 298,406
-----------
2,187,968
-----------
COMPUTER SOFTWARE & SERVICES (8.1%)
5,600 At Home Corp. (Series A)*............................................................... 412,300
11,000 Check Point Software Technologies Ltd. (Israel)*........................................ 501,875
14,000 General Instrument Corp.*............................................................... 475,125
8,500 I2 Technologies, Inc.*.................................................................. 257,656
9,200 NCR Corp.*.............................................................................. 384,100
9,500 Rational Software Corp.*................................................................ 250,562
-----------
2,281,618
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER/VIDEO CHAINS (2.7%)
9,000 Quantum Corp.*.......................................................................... $ 190,687
10,500 Synopsys, Inc.*......................................................................... 568,312
-----------
758,999
-----------
CONSUMER/BUSINESS SERVICES (0.9%)
5,500 Metzler Group, Inc. (The)*.............................................................. 267,437
-----------
CONTRACT DRILLING (0.6%)
26,000 Global Industries, Ltd.*................................................................ 159,250
-----------
DIVERSIFIED COMMERCIAL SERVICES (1.1%)
8,500 HA-LO Industries, Inc.*................................................................. 319,812
-----------
DIVERSIFIED FINANCIAL SERVICES (2.9%)
5,000 FINOVA Group, Inc....................................................................... 269,688
7,200 Providian Financial Corp................................................................ 540,000
-----------
809,688
-----------
DRUG STORE CHAINS (3.3%)
8,600 Duane Reade, Inc.*...................................................................... 331,100
9,000 Express Scripts, Inc. (Class A)*........................................................ 595,125
-----------
926,225
-----------
ELECTRIC UTILITIES (2.1%)
6,800 AES Corp. (The)*........................................................................ 322,150
3,500 Jabil Circuit, Inc.*.................................................................... 261,188
-----------
583,338
-----------
ELECTRICAL PRODUCTS (0.6%)
10,000 FORE Systems, Inc.*..................................................................... 182,500
-----------
ELECTRONIC COMPONENTS (0.5%)
1,400 Solectron Corp.*........................................................................ 130,113
-----------
ELECTRONIC DATA PROCESSING (3.0%)
9,500 Gemstar International Group Ltd. (Virgin Islands)*...................................... 543,281
8,000 Microchip Technology, Inc.*............................................................. 295,000
-----------
838,281
-----------
GENERIC DRUGS (4.6%)
5,000 Forest Laboratories, Inc.*.............................................................. 265,938
18,000 Mylan Laboratories, Inc................................................................. 567,000
7,500 Watson Pharmaceuticals, Inc.*........................................................... 471,563
-----------
1,304,501
-----------
HOME BUILDING (1.2%)
12,000 Kaufman & Broad Home Corp............................................................... 345,000
-----------
INTERNET SERVICES (7.0%)
2,500 America Online, Inc.*................................................................... 361,875
7,500 CSG Systems International, Inc.*........................................................ 590,625
6,000 Earthlink Network, Inc.*................................................................ 340,875
6,500 Infoseek Corp.*......................................................................... 320,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
MID-CAP GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,500 MindSpring Enterprises, Inc.*........................................................... $ 274,781
400 Yahoo! Inc.*............................................................................ 94,750
-----------
1,983,031
-----------
INVESTMENT BANKERS/BROKERS/
SERVICES (0.4%)
3,000 Paine Webber Group, Inc................................................................. 115,875
-----------
MAJOR U.S. TELECOMMUNICATIONS (1.5%)
11,000 Winstar Communications, Inc.*........................................................... 428,313
-----------
MEDICAL SPECIALTIES (0.8%)
8,000 IDEXX Laboratories, Inc.*............................................................... 214,000
-----------
MEDICAL/NURSING SERVICES (3.9%)
18,000 Renal Care Group, Inc.*................................................................. 522,000
20,000 Total Renal Care Holdings, Inc.*........................................................ 591,250
-----------
1,113,250
-----------
MID - SIZED BANKS (1.0%)
3,000 Firstar Corp............................................................................ 279,750
-----------
MULTI-LINE INSURANCE (1.5%)
8,500 American Bankers Insurance Group, Inc................................................... 411,188
-----------
OFFICE EQUIPMENT/SUPPLIES (2.2%)
4,000 Lexmark International Group, Inc. (Class A)*............................................ 402,000
5,900 Office Depot, Inc.*..................................................................... 217,931
-----------
619,931
-----------
OTHER PHARMACEUTICALS (2.1%)
10,000 Medicis Pharmaceutical Corp. (Class A)*................................................. 596,250
-----------
OTHER SPECIALTY STORES (1.2%)
8,000 Staples, Inc.*.......................................................................... 349,500
-----------
RAILROAD EQUIPMENT (0.3%)
2,500 Trinity Industries, Inc................................................................. 96,250
-----------
RESTAURANTS (4.0%)
5,500 CKE Restaurants, Inc.................................................................... 161,906
16,000 Outback Steakhouse, Inc.*............................................................... 636,000
7,500 Papa John's International, Inc.*........................................................ 330,000
-----------
1,127,906
-----------
RETAIL (2.2%)
500 Amazon.com, Inc.*....................................................................... 160,594
7,500 Best Buy Co., Inc.*..................................................................... 460,313
-----------
620,907
-----------
RETAIL - SPECIALTY (2.7%)
20,000 Eagle Hardware & Garden, Inc.*.......................................................... 647,500
10,000 PETsMART, Inc.*......................................................................... 107,500
-----------
755,000
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (3.2%)
12,500 Advanced Micro Devices, Inc.*........................................................... $ 361,719
3,000 Broadcom Corp. (Class A)*............................................................... 361,125
3,500 Veeco Instruments, Inc.*................................................................ 184,625
-----------
907,469
-----------
SERVICES TO THE HEALTH INDUSTRY (1.6%)
9,000 Bard (C.R.), Inc........................................................................ 445,500
-----------
SPECIALTY FOODS/CANDY (0.6%)
8,000 Foodmaker, Inc.*........................................................................ 176,500
-----------
TELECOMMUNICATION EQUIPMENT (1.2%)
11,100 American Tower Corp. (Class A)*......................................................... 328,144
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $21,666,531)........................................................... 26,659,362
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.5%)
U.S. GOVERNMENT AGENCY
$ 700 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $699,738)........... 699,738
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $22,366,269) (B).......................................................... 97.0 % 27,359,100
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 3.0 838,537
------ ------------
NET ASSETS................................................................................. 100.0 % $ 28,197,637
------ ------------
------ ------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $5,164,227 and the
aggregate gross unrealized depreciation is $171,396, resulting in net
unrealized appreciation of $4,992,831.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (95.6%)
ARGENTINA (0.3%)
TELECOMMUNICATIONS
15,000 Telefonica de Argentina S.A. (ADR)...................................... $ 419,063
------------
AUSTRALIA (1.2%)
BANKING
60,000 Australia & New Zealand Banking Group Ltd............................... 391,849
------------
DIVERSIFIED FINANCIAL SERVICES
132,000 Tyndall Australia Ltd................................................... 201,795
------------
TELECOMMUNICATIONS
400,000 Cable & Wireless Optus Ltd.*............................................ 838,978
------------
TOTAL AUSTRALIA......................................................... 1,432,622
------------
CANADA (1.8%)
BIOTECHNOLOGY
44,900 BioChem Pharma, Inc.*................................................... 1,285,262
------------
LIFE INSURANCE
60,000 Great-West Lifeco Inc................................................... 1,019,275
------------
TOTAL CANADA............................................................ 2,304,537
------------
DENMARK (1.6%)
MAJOR PHARMACEUTICALS
7,000 Novo-Nordisk AS (Series B).............................................. 920,476
------------
TELECOMMUNICATIONS
16,700 Tele Danmark A/S (ADR).................................................. 1,133,512
------------
TOTAL DENMARK........................................................... 2,053,988
------------
FINLAND (0.7%)
TELECOMMUNICATION EQUIPMENT
7,000 Nokia Corp. (ADR) (Class A)............................................. 843,063
------------
FRANCE (5.4%)
AEROSPACE
24,000 Thomson CSF............................................................. 1,030,651
------------
AUTO PARTS: O.E.M.
7,500 Valeo S.A............................................................... 591,014
------------
INTEGRATED OIL COMPANIES
8,300 Elf Aquitaine S.A....................................................... 959,400
------------
MOTOR VEHICLES
18,000 Renault S.A............................................................. 808,417
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-LINE INSURANCE
8,000 AXA..................................................................... $ 1,159,482
------------
MULTI-SECTOR COMPANIES
3,500 Suez Lyonnaise des Eaux................................................. 718,951
2,200 Vivendi................................................................. 570,795
------------
1,289,746
------------
RETAIL
9,300 Etablissements Economiques du Casino Guichard-Perrachon S.A............. 968,490
------------
TOTAL FRANCE............................................................ 6,807,200
------------
GERMANY (2.4%)
APPAREL
300 Hugo Boss AG (Pref.).................................................... 576,646
------------
BANKING
20,000 Commerzbank AG.......................................................... 633,109
------------
MOTOR VEHICLES
9,000 Volkswagen AG........................................................... 719,005
------------
MULTI-SECTOR COMPANIES
20,000 RWE AG.................................................................. 1,096,228
------------
TOTAL GERMANY........................................................... 3,024,988
------------
GREECE (0.5%)
TELECOMMUNICATIONS
50,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR)*............... 662,500
------------
HONG KONG (2.6%)
BANKING
200,000 Dao Heng Bank Group Ltd................................................. 618,336
------------
MULTI-SECTOR COMPANIES
125,000 Hutchison Whampoa, Ltd.................................................. 883,452
150,000 New World Development Co., Ltd.......................................... 377,585
200,000 Shanghai Industrial Holdings Ltd........................................ 404,048
------------
1,665,085
------------
NATURAL GAS DISTRIBUTION
266,200 Hong Kong & China Gas Co., Ltd.......................................... 338,480
12,100 Hong Kong & China Gas Co., Ltd. (Warrants due 09/30/99)*................ 797
------------
339,277
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES
123,000 CLP Holdings Ltd........................................................ $ 612,888
------------
TOTAL HONG KONG......................................................... 3,235,586
------------
ITALY (3.9%)
BANKING
100,000 Banca Commerciale Italiana.............................................. 690,323
------------
CELLULAR TELEPHONE
90,000 Telecom Italia Mobile SpA............................................... 664,890
------------
LIFE INSURANCE
24,000 Assicurazioni Generali.................................................. 1,002,786
------------
OIL & GAS PRODUCTION
13,000 ENI SpA (ADR)........................................................... 880,750
------------
TELECOMMUNICATIONS
200,000 Telecom Italia SpA...................................................... 1,707,642
------------
TOTAL ITALY............................................................. 4,946,391
------------
JAPAN (9.9%)
ALCOHOLIC BEVERAGES
100,000 Kirin Brewery Co., Ltd.................................................. 1,272,085
------------
CELLULAR TELEPHONE
300 NTT Mobile Communication Network, Inc................................... 1,232,332
------------
CONSUMER ELECTRONICS/APPLIANCES
55,000 Pioneer Electronic Corp................................................. 920,715
11,000 Sony Corp............................................................... 799,735
170,000 Toshiba Corp............................................................ 1,010,689
------------
2,731,139
------------
DIVERSIFIED COMMERCIAL SERVICES
5,000 Secom Co................................................................ 413,428
------------
ELECTRONIC COMPONENTS
7,000 TDK Corp................................................................ 638,781
------------
ELECTRONIC PRODUCTION EQUIPMENT
30,000 Tokyo Electron Ltd...................................................... 1,136,926
------------
INDUSTRIAL MACHINERY/COMPONENTS
27,000 Minebea Co., Ltd........................................................ 308,640
------------
MAJOR PHARMACEUTICALS
40,000 Banyu Pharmaceutical Co., Ltd........................................... 742,049
27,000 Yamanouchi Pharmaceutical Co., Ltd...................................... 868,198
------------
1,610,247
------------
MEDICAL SPECIALTIES
32,000 Terumo Corp............................................................. 751,943
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHOTOGRAPHIC PRODUCTS
20,000 Fuji Photo Film Co...................................................... $ 742,049
------------
SEMICONDUCTORS
10,000 Rohm Co., Ltd........................................................... 909,011
------------
TELECOMMUNICATIONS
190 DDI Corp................................................................ 704,947
------------
TOTAL JAPAN............................................................. 12,451,528
------------
MEXICO (0.9%)
BEVERAGES - NON-ALCOHOLIC
200,000 Grupo Continental, S.A. (Series CP)..................................... 483,838
75,000 Pepsi-Gemex S.A. de C.V. (ADR).......................................... 585,938
------------
TOTAL MEXICO............................................................ 1,069,776
------------
NETHERLANDS (3.4%)
DIVERSIFIED FINANCIAL SERVICES
21,000 ING Groep NV............................................................ 1,279,330
------------
LIFE INSURANCE
9,200 Aegon NV................................................................ 1,128,768
------------
MEDIA CONGLOMERATES
18,000 Ver Ned Utigev Ver Bezit NV............................................. 678,053
5,300 Wolters Kluwer NV....................................................... 1,133,035
------------
1,811,088
------------
TOTAL NETHERLANDS....................................................... 4,219,186
------------
PORTUGAL (1.4%)
BUILDING MATERIALS
22,000 Cimpor-Cimentos de Portugal, SGPS, S.A.................................. 702,402
------------
TELECOMMUNICATIONS
5,000 Telecel-Comunicacoes Pessoais S.A.*..................................... 1,022,261
------------
TOTAL PORTUGAL.......................................................... 1,724,663
------------
SINGAPORE (0.9%)
BANKING
100,000 Overseas Chinese Banking Corp., Ltd..................................... 678,993
------------
REAL ESTATE
100,000 City Developments Ltd................................................... 433,465
------------
TOTAL SINGAPORE......................................................... 1,112,458
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPAIN (3.9%)
BANKING
60,000 Banco Central Hispanoamericano S.A...................................... $ 712,423
------------
ENGINEERING & CONSTRUCTION
18,000 Fomento De Construcciones Y Contratas S.A............................... 1,338,172
------------
FOOD CHAINS
30,000 Centros Comerciales Pryca S.A........................................... 930,167
------------
TELECOMMUNICATIONS
6,267 Telefonica de Espana S.A. (ADR)......................................... 848,517
------------
UTILITIES
38,800 Endesa S.A.............................................................. 1,028,032
------------
TOTAL SPAIN............................................................. 4,857,311
------------
SWEDEN (2.3%)
CLOTHING/SHOE/ACCESSORY STORES
4,200 Hennes & Mauritz AB (B Shares).......................................... 343,069
------------
DIVERSIFIED FINANCIAL SERVICES
50,000 OM Gruppen AB........................................................... 629,280
------------
MAJOR PHARMACEUTICALS
65,000 Astra AB (B Shares)..................................................... 1,323,339
------------
METALS FABRICATIONS
53,000 S.K.F. AB (B Shares).................................................... 617,990
------------
TOTAL SWEDEN............................................................ 2,913,678
------------
SWITZERLAND (5.0%)
BANKING
3,300 UBS AG (Registered)..................................................... 1,013,906
------------
BUILDING MATERIALS
500 Holderbank Financiere Glarus AG (B Shares).............................. 591,919
------------
ENGINEERING & CONSTRUCTION
340 Schindler Holdings AG (Part Cert.)...................................... 544,594
300 Schindler Holdings AG (Registered)...................................... 511,103
------------
1,055,697
------------
MAJOR PHARMACEUTICALS
494 Novartis AG............................................................. 971,096
80 Roche Holdings AG....................................................... 976,192
------------
1,947,288
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
4,000 Swisscom AG............................................................. $ 1,674,554
------------
TOTAL SWITZERLAND....................................................... 6,283,364
------------
UNITED KINGDOM (13.0%)
AEROSPACE
240,543 Rolls-Royce PLC......................................................... 991,805
------------
BANKING
64,000 Abbey National PLC...................................................... 1,363,932
50,630 National Westminster Bank PLC........................................... 971,685
------------
2,335,617
------------
CELLULAR TELEPHONE
80,607 Vodafone Group PLC...................................................... 1,302,737
------------
CLOTHING/SHOE/ACCESSORY STORES
50,000 Dixons Group PLC........................................................ 700,032
------------
DIVERSIFIED COMMERCIAL SERVICES
51,000 Compass Group PLC....................................................... 581,444
------------
DIVERSIFIED ELECTRONIC PRODUCTS
90,000 General Electric Co. PLC................................................ 808,493
------------
DIVERSIFIED FINANCIAL SERVICES
16,608 HSBC Holdings PLC....................................................... 413,774
------------
E.D.P. SERVICES
72,000 SEMA Group PLC.......................................................... 704,619
------------
ELECTRIC UTILITIES
70,000 National Power PLC...................................................... 600,429
------------
ENGINEERING & CONSTRUCTION
140,000 Siebe PLC............................................................... 549,428
------------
INTEGRATED OIL COMPANIES
150,000 Shell Transport & Trading Co. PLC....................................... 917,162
------------
INVESTMENT BANKERS/BROKERS/SERVICES
5,700 Garban PLC*............................................................. 21,803
------------
MAJOR PHARMACEUTICALS
30,000 Zeneca Group PLC........................................................ 1,300,047
------------
MEDIA CONGLOMERATES
85,000 Reed International PLC.................................................. 661,532
------------
MILITARY/GOV'T/TECHNICAL
120,000 Racal Electronics PLC................................................... 691,504
------------
MULTI-LINE INSURANCE
18,000 Britannic Plc........................................................... 389,865
36,000 CGU PLC................................................................. 560,953
71,110 Royal & Sun Alliance Insurance Group PLC................................ 577,863
------------
1,528,681
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NEWSPAPERS
57,000 United News & Media PLC................................................. $ 497,416
------------
OTHER METALS/MINERALS
110,000 Antofagasta Holdings PLC................................................ 327,868
------------
PACKAGE GOODS/COSMETICS
46,000 Reckitt & Colman PLC.................................................... 606,324
------------
TELECOMMUNICATIONS
20,700 Esat Telecom Group PLC (ADR) (Ireland)*................................. 778,837
------------
TOTAL UNITED KINGDOM.................................................... 16,319,552
------------
UNITED STATES (34.5%)
AEROSPACE
9,200 Lockheed Martin Corp.................................................... 779,700
------------
ALUMINUM
17,900 Aluminum Co. of America................................................. 1,334,669
------------
BANKING
20,600 Chase Manhattan Corp. (The)............................................. 1,402,087
------------
BEVERAGES - NON-ALCOHOLIC
24,100 PepsiCo, Inc............................................................ 986,594
------------
BIOTECHNOLOGY
14,100 Genentech, Inc. (Special)*.............................................. 1,123,594
------------
BROADCASTING
27,600 General Motors Corp. (Class H)*......................................... 1,095,375
------------
COMPUTER COMMUNICATIONS
23,175 Cisco Systems, Inc.*.................................................... 2,150,930
------------
COMPUTER HARDWARE
21,900 Gateway 2000, Inc.*..................................................... 1,121,006
------------
DIVERSIFIED FINANCIAL SERVICES
15,000 American Express Co..................................................... 1,533,750
26,800 Citigroup Inc........................................................... 1,326,600
------------
2,860,350
------------
DIVERSIFIED MANUFACTURING
18,700 Honeywell, Inc.......................................................... 1,408,344
------------
ELECTRONIC DATA PROCESSING
25,000 Hewlett-Packard Co...................................................... 1,707,812
22,100 Sun Microsystems, Inc.*................................................. 1,890,931
------------
3,598,743
------------
FINANCE COMPANIES
16,100 Fannie Mae.............................................................. 1,191,400
------------
INTEGRATED OIL COMPANIES
15,400 Atlantic Richfield Co................................................... 1,004,850
17,200 Chevron Corp............................................................ 1,426,525
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
13,900 Exxon Corp.............................................................. $ 1,016,437
15,700 Mobil Corp.............................................................. 1,367,862
------------
4,815,674
------------
MAJOR CHEMICALS
11,800 Dow Chemical Co......................................................... 1,073,062
20,200 Monsanto Co............................................................. 959,500
------------
2,032,562
------------
MAJOR PHARMACEUTICALS
25,600 Abbott Laboratories..................................................... 1,254,400
22,800 American Home Products Corp............................................. 1,283,925
------------
2,538,325
------------
MOTOR VEHICLES
18,500 Ford Motor Co........................................................... 1,085,719
------------
MOVIES/ENTERTAINMENT
45,000 Walt Disney Co.......................................................... 1,350,000
------------
PACKAGE GOODS/COSMETICS
12,300 Colgate-Palmolive Co.................................................... 1,142,363
------------
PACKAGED FOODS
16,800 General Mills, Inc...................................................... 1,306,200
------------
PAPER
28,200 Champion International Corp............................................. 1,142,100
------------
RETAIL - SPECIALTY
50,200 Bed Bath & Beyond Inc.*................................................. 1,709,938
34,200 Gap, Inc. (The)......................................................... 1,923,750
------------
3,633,688
------------
SAVINGS & LOAN ASSOCIATIONS
14,600 Golden West Financial Corp.............................................. 1,338,638
35,180 Washington Mutual, Inc.................................................. 1,343,436
------------
2,682,074
------------
SEMICONDUCTORS
11,600 Intel Corp.............................................................. 1,374,600
------------
SERVICES TO THE HEALTH INDUSTRY
38,200 HBO & Co................................................................ 1,095,863
------------
TOTAL UNITED STATES..................................................... 43,251,960
------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(IDENTIFIED COST $93,909,714)........................................... 119,933,414
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.3%)
U.S. GOVERNMENT AGENCY (a) (4.2%)
$ 5,300 Federal Home Loan Banks 4.30% due 01/04/99 (AMORTIZED COST
$5,298,101)........................................................... $ 5,298,101
------------
REPURCHASE AGREEMENT (0.1%)
153 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98;
proceeds $153,146) (b) (IDENTIFIED COST $153,078)..................... 153,078
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $5,451,179)............................................ 5,451,179
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $99,360,893) (C)......................................................... 99.9 % 125,384,593
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.1 137,619
------ -------------
NET ASSETS................................................................................ 100.0 % $ 125,522,212
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $150,859 U.S. Treasury Note 5.875% due 02/15/00 valued at
$156,140.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $28,066,424 and the
aggregate gross unrealized depreciation is $2,042,724, resulting in net
unrealized appreciation of $26,023,700.
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
GLOBAL EQUITY
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Aerospace......................................................................... $ 2,802,156 2.2 %
Alcoholic Beverages............................................................... 1,272,085 1.0
Aluminum.......................................................................... 1,334,669 1.1
Apparel........................................................................... 576,646 0.5
Auto Parts: O.E.M................................................................. 591,014 0.5
Banking........................................................................... 8,476,645 6.8
Beverages - Non-Alcoholic......................................................... 2,056,370 1.6
Biotechnology..................................................................... 2,408,856 1.9
Broadcasting...................................................................... 1,095,375 0.9
Building Materials................................................................ 1,294,320 1.0
Cellular Telephone................................................................ 3,199,959 2.6
Clothing/Shoe/Accessory Stores.................................................... 1,043,100 0.8
Computer Communications........................................................... 2,150,930 1.7
Computer Hardware................................................................. 1,121,006 0.9
Consumer Electronics/Appliances................................................... 2,731,140 2.2
Diversified Commercial Services................................................... 994,872 0.8
Diversified Electronic Products................................................... 808,493 0.6
Diversified Financial Services.................................................... 5,384,529 4.3
Diversified Manufacturing......................................................... 1,408,344 1.1
E.D.P. Services................................................................... 704,619 0.6
Electric Utilities................................................................ 600,429 0.5
Electronic Components............................................................. 638,781 0.5
Electronic Data Processing........................................................ 3,598,744 2.9
Electronic Production Equipment................................................... 1,136,926 0.9
Engineering & Construction........................................................ 2,943,297 2.3
Finance Companies................................................................. 1,191,400 1.0
Food Chains....................................................................... 930,167 0.7
Industrial Machinery/Components................................................... 308,640 0.2
Integrated Oil Companies.......................................................... 6,692,237 5.3
Investment Bankers/Brokers/Services............................................... 21,803 0.0
Life Insurance.................................................................... 3,150,828 2.5
Major Chemicals................................................................... 2,032,562 1.6
Major Pharmaceuticals............................................................. 9,639,722 7.7
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media Conglomerates............................................................... $ 2,472,620 2.0 %
Medical Specialties............................................................... 751,943 0.6
Metals Fabrications............................................................... 617,990 0.5
Military/Gov't/Technical.......................................................... 691,504 0.6
Motor Vehicles.................................................................... 2,613,141 2.1
Movies/Entertainment.............................................................. 1,350,000 1.1
Multi-Line Insurance.............................................................. 2,688,164 2.1
Multi-Sector Companies............................................................ 4,051,059 3.2
Natural Gas Distribution.......................................................... 339,277 0.3
Newspapers........................................................................ 497,416 0.4
Oil & Gas Production.............................................................. 880,750 0.7
Other Metals/Minerals............................................................. 327,868 0.3
Package Goods/Cosmetics........................................................... 1,748,687 1.4
Packaged Foods.................................................................... 1,306,200 1.0
Paper............................................................................. 1,142,100 0.9
Photographic Products............................................................. 742,049 0.6
Real Estate....................................................................... 433,465 0.3
Repurchase Agreement.............................................................. 153,078 0.1
Retail............................................................................ 968,490 0.8
Retail - Specialty................................................................ 3,633,687 2.9
Savings & Loan Associations....................................................... 2,682,074 2.1
Semiconductors.................................................................... 2,283,611 1.8
Services to the Health Industry................................................... 1,095,862 0.9
Telecommunication Equipment....................................................... 843,061 0.7
Telecommunications................................................................ 9,790,812 7.8
U.S. Government Agency............................................................ 5,298,101 4.2
Utilities......................................................................... 1,640,920 1.3
------------ ---
$125,384,593 99.9 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $119,355,971 95.1 %
Preferred Stocks.................................................................. 576,646 0.5
Rights & Warrants................................................................. 797 0.0
Short-Term Investments............................................................ 5,451,179 4.3
------------ ---
$125,384,593 99.9 %
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (93.3%)
ADVERTISING (2.0%)
14,000 DoubleClick Inc.*....................................................................... $ 622,125
11,000 Lamar Advertising Co.*.................................................................. 409,750
20,000 Outdoor Systems, Inc.*.................................................................. 600,000
-----------
1,631,875
-----------
AIRLINES (0.4%)
15,970 Midwest Express Holdings, Inc.*......................................................... 420,211
-----------
APPAREL (1.1%)
9,300 Fossil, Inc.*........................................................................... 265,050
22,700 Quiksilver, Inc.*....................................................................... 681,000
-----------
946,050
-----------
BIOTECHNOLOGY (4.1%)
26,500 BioChem Pharma Inc. (Canada)*........................................................... 758,562
24,900 Medco Research, Inc.*................................................................... 647,400
21,100 Millennium Pharmaceuticals, Inc.*....................................................... 543,325
10,600 PathoGenesis Corp.*..................................................................... 604,200
15,000 SangStat Medical Corp.*................................................................. 318,750
5,000 Sepracor, Inc.*......................................................................... 440,312
-----------
3,312,549
-----------
BOOKS/MAGAZINE (0.7%)
34,000 CMP Media Inc. (Class A)*............................................................... 612,000
-----------
BROADCASTING (2.0%)
12,000 Jacor Communications, Inc.*............................................................. 772,500
20,000 Medialink Worldwide Inc.*............................................................... 335,000
18,000 Westwood One, Inc.*..................................................................... 549,000
-----------
1,656,500
-----------
CATALOG/SPECIALTY DISTRIBUTION (0.8%)
18,700 Micro Warehouse, Inc.*.................................................................. 631,125
-----------
COMPUTER HARDWARE (2.1%)
20,000 Adaptec, Inc.*.......................................................................... 350,000
9,000 Hutchinson Technology Inc.*............................................................. 318,375
30,000 Maxtor Corp.*........................................................................... 421,875
17,000 National Computer Systems, Inc.......................................................... 624,750
-----------
1,715,000
-----------
COMPUTER SOFTWARE (11.3%)
25,300 Avant! Corp.*........................................................................... 401,637
15,000 AXENT Technologies, Inc.*............................................................... 463,125
16,000 BroadVision, Inc.*...................................................................... 517,000
13,000 Check Point Software Technologies Ltd. (Israel)*........................................ 593,125
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Citrix Systems, Inc.*................................................................... $ 970,000
24,000 Entrust Technologies Inc.*.............................................................. 564,000
15,000 GeoTel Communications Corp.*............................................................ 555,000
10,000 Intuit Inc.*............................................................................ 725,000
15,000 IONA Technologies PLC (ADR) (Ireland)*.................................................. 570,000
7,100 MAPICS, Inc.*........................................................................... 117,150
25,800 Micromuse Inc.*......................................................................... 499,875
20,000 New Era of Networks, Inc.*.............................................................. 875,000
7,000 Peregrine Systems, Inc.*................................................................ 324,187
15,000 Rogue Wave Software, Inc.*.............................................................. 129,375
5,000 Segue Software, Inc.*................................................................... 100,000
12,000 Siebel Systems, Inc.*................................................................... 406,500
30,000 Symantec Corp.*......................................................................... 648,750
6,700 VERTAS Software Corp.*.................................................................. 400,744
9,000 Visio Corp.*............................................................................ 324,000
-----------
9,184,468
-----------
COMPUTER SOFTWARE & SERVICES (3.5%)
20,000 Dendrite International, Inc.*........................................................... 495,000
10,000 Mercury Interactive Corp.*.............................................................. 631,250
23,500 Pegasus Systems, Inc.*.................................................................. 840,125
29,000 Software AG Systems, Inc.*.............................................................. 525,625
20,000 VideoServer, Inc.*...................................................................... 370,000
-----------
2,862,000
-----------
CONSUMER/BUSINESS SERVICES (6.1%)
19,074 American Management Systems, Inc.*...................................................... 762,960
13,000 Concord EFS, Inc.*...................................................................... 550,875
24,000 Hagler Bailly, Inc.*.................................................................... 492,000
22,000 Iron Mountain, Inc.*.................................................................... 781,000
19,000 Metzler Group, Inc. (The)*.............................................................. 923,875
20,500 Nichols Research Corp.*................................................................. 425,375
8,000 The BISYS Group, Inc.*.................................................................. 412,000
24,000 USWeb Corp.*............................................................................ 630,000
-----------
4,978,085
-----------
DIVERSIFIED COMMERCIAL SERVICES (4.5%)
10,000 Abacus Direct Corp.*.................................................................... 456,875
40,000 Alternative Resources Corp.*............................................................ 425,000
9,000 Charles River Associates Inc.*.......................................................... 196,875
20,000 Convergys Corp.*........................................................................ 447,500
12,000 HA-LO Industries, Inc.*................................................................. 451,500
14,000 Lason, Inc.*............................................................................ 814,625
25,000 Nielsen Media Research, Inc............................................................. 450,000
14,000 Pharmaceutical Product Development, Inc.*............................................... 420,875
-----------
3,663,250
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. SERVICES (0.5%)
40,000 4Front Technologies, Inc.*.............................................................. $ 435,000
-----------
EDUCATION (3.1%)
18,300 Apollo Group, Inc. (Class A)*........................................................... 618,769
30,000 CBT Group PLC (ADR) (Ireland)*.......................................................... 446,250
32,000 Education Management Corp.*............................................................. 752,000
12,000 ITT Educational Services, Inc.*......................................................... 408,000
10,000 Sylvan Learning Systems, Inc.*.......................................................... 305,000
-----------
2,530,019
-----------
ELECTRICAL PRODUCTS (0.5%)
13,000 AFC Cable Systems, Inc.*................................................................ 435,500
-----------
ELECTRONIC COMPONENTS (1.9%)
25,000 CommScope, Inc.*........................................................................ 420,312
8,000 Flextronics International, Ltd.*........................................................ 684,000
13,000 Pittway Corp. (Class A)................................................................. 429,812
-----------
1,534,124
-----------
ELECTRONIC PRODUCTION EQUIPMENT (1.1%)
17,000 ATMI, Inc.*............................................................................. 429,250
12,000 Etec Systems, Inc.*..................................................................... 477,000
-----------
906,250
-----------
ENGINEERING & CONSTRUCTION (2.7%)
10,000 Dycom Industries, Inc.*................................................................. 571,250
63,700 International FiberCom, Inc.*........................................................... 465,806
34,000 Metromedia Fiber Network, Inc. (Class A)*............................................... 1,130,500
-----------
2,167,556
-----------
ENTERTAINMENT & LEISURE TIME (2.8%)
40,000 Callaway Golf Co........................................................................ 410,000
12,000 Cinar Films, Inc. (Class B) (Canada)*................................................... 300,000
13,000 Pinnacle Systems, Inc.*................................................................. 458,250
13,000 Steiner Leisure Ltd.*................................................................... 415,187
24,900 THQ, Inc.*.............................................................................. 694,087
-----------
2,277,524
-----------
ENVIRONMENTAL SERVICES (0.5%)
11,500 Casella Waste Systems Inc., (Class A)*.................................................. 421,187
-----------
FINANCE (0.5%)
7,000 FINOVA Group, Inc....................................................................... 377,562
-----------
HOME BUILDING (0.8%)
27,000 D.R. Horton, Inc........................................................................ 621,000
-----------
HOME FURNISHINGS (0.6%)
17,000 Select Comfort Corp.*................................................................... 450,500
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE (1.8%)
9,000 American Bankers Insurance Group, Inc................................................... $ 435,375
7,427 Delphi Financial Group, Inc. (Class A)*................................................. 389,453
6,800 Executive Risk, Inc..................................................................... 373,575
11,000 Fremont General Corp.................................................................... 272,250
-----------
1,470,653
-----------
INTERNET SERVICES (3.4%)
10,000 At Home Corp. (Series A)*............................................................... 736,250
8,000 CMGI Inc.*.............................................................................. 852,000
16,000 Concentric Network Corp.*............................................................... 534,000
6,000 Excite, Inc.*........................................................................... 252,000
7,000 Lycos, Inc.*............................................................................ 388,500
-----------
2,762,750
-----------
INVESTMENT BANKERS/BROKERS/ SERVICES (0.5%)
17,000 Hambrecht & Quist Group*................................................................ 385,687
-----------
MAJOR PHARMACEUTICALS (1.2%)
7,000 Coulter Pharmaceutical, Inc.*........................................................... 206,500
20,000 Shire Pharmaceuticals Group PLC (ADR) (United Kingdom)*................................. 392,500
18,000 Zonagen, Inc.*.......................................................................... 339,750
-----------
938,750
-----------
MANAGED HEALTH CARE (0.5%)
25,000 Oxford Health Plans, Inc.*.............................................................. 368,750
-----------
MEDICAL EQUIPMENT & SUPPLIES (6.7%)
21,500 ArthroCare Corp.*....................................................................... 459,562
11,000 Bard (C.R.), Inc........................................................................ 544,500
24,000 Haemonetics Corp.*...................................................................... 546,000
9,000 Henry Schein, Inc.*..................................................................... 398,250
45,100 Orthofix International N.V.*............................................................ 620,125
20,000 Owens & Minor, Inc...................................................................... 315,000
19,000 PSS World Medical, Inc.*................................................................ 435,812
18,000 ResMed, Inc.*........................................................................... 814,500
21,000 STERIS Corp.*........................................................................... 597,187
23,250 Xomed Surgical Products, Inc.*.......................................................... 742,547
-----------
5,473,483
-----------
METALS FABRICATIONS (0.4%)
14,600 Tower Automotive, Inc.*................................................................. 364,087
-----------
OIL & GAS PRODUCTION (0.2%)
7,000 Evergreen Resources, Inc.*.............................................................. 123,375
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PRECIOUS METALS (0.8%)
30,000 Ashanti Goldfield Co., Ltd. (GDR) (Ghana)............................................... $ 281,250
40,000 Battle Mountain Gold Co................................................................. 165,000
20,000 Placer Dome Inc. (Canada)............................................................... 230,000
-----------
676,250
-----------
PRINTING/FORMS (2.1%)
45,000 American Bank Note Holographics, Inc.*.................................................. 787,500
14,000 Consolidated Graphics, Inc.*............................................................ 945,875
-----------
1,733,375
-----------
REAL ESTATE INVESTMENT TRUST (1.0%)
15,565 Golf Trust of America, Inc.............................................................. 431,929
15,000 Public Storage, Inc..................................................................... 405,938
-----------
837,867
-----------
RESTAURANTS (0.1%)
7,000 Friendly Ice Cream Corp.*............................................................... 42,438
-----------
RETAIL - SPECIALTY (3.6%)
12,000 BJ's Wholesale Club, Inc.*.............................................................. 555,750
9,800 Cost Plus, Inc.*........................................................................ 305,025
14,500 CSK Auto Corp.*......................................................................... 386,969
15,000 Eagle Hardware & Garden, Inc.*.......................................................... 485,625
13,900 Guitar Center, Inc.*.................................................................... 341,419
12,200 Linens 'N Things, Inc.*................................................................. 483,425
20,000 Trans World Entertainment Corp.*........................................................ 380,000
-----------
2,938,213
-----------
SAVINGS & LOAN ASSOCIATIONS (0.5%)
20,000 Dime Community Bancshares............................................................... 411,250
-----------
SEMICONDUCTORS (5.3%)
30,000 Aeroflex Inc.*.......................................................................... 453,750
17,000 Analog Devices, Inc.*................................................................... 533,375
2,200 Broadcom Corp. (Class A)*............................................................... 264,825
15,000 MIPS Technologies, Inc.*................................................................ 479,063
5,500 PMC - Sierra, Inc.*..................................................................... 346,500
15,000 Power Integrations, Inc,*............................................................... 375,938
20,000 Sawtek, Inc.*........................................................................... 350,000
3,000 Semtech Corp.*.......................................................................... 106,500
11,000 TranSwitch Corp.*....................................................................... 427,625
20,000 Vishay Intertechnology, Inc.*........................................................... 290,000
16,000 Vitesse Semiconductor Corp.*............................................................ 728,000
-----------
4,355,576
-----------
SHOE MANUFACTURING (0.3%)
20,000 Wolverine World Wide, Inc............................................................... 265,000
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY FOODS/CANDY (0.6%)
15,600 Earthgrains Co.......................................................................... $ 482,625
-----------
TELECOMMUNICATION EQUIPMENT (3.0%)
46,000 Advanced Fibre Communications, Inc.*.................................................... 500,250
37,300 ANTEC Corp.*............................................................................ 750,663
35,000 California Microwave, Inc.*............................................................. 323,750
18,000 Polycom, Inc.*.......................................................................... 401,625
19,000 Proxim, Inc.*........................................................................... 507,063
-----------
2,483,351
-----------
TELECOMMUNICATIONS (3.8%)
23,500 Inter-Tel, Inc.......................................................................... 549,313
25,000 ITC DeltaCom, Inc.*..................................................................... 378,125
7,000 IXC Communications, Inc.*............................................................... 234,063
15,100 MetroNet Communications Corp. (Class B) (Canada)*....................................... 498,300
16,000 NEXTLINK Communications, Inc. (Class A)*................................................ 454,000
22,000 PSINet, Inc.*........................................................................... 459,250
25,000 SkyTel Communications Inc.*............................................................. 548,438
-----------
3,121,489
-----------
WATER SUPPLY (1.1%)
3,700 American States Water Co................................................................ 100,825
8,000 Aquarian Co............................................................................. 328,000
9,500 E'Town Corp............................................................................. 450,063
-----------
878,888
-----------
WHOLESALE DISTRIBUTOR (1.0%)
16,500 MSC Industrial Direct Co., Inc.*........................................................ 373,313
20,000 School Specialty, Inc.*................................................................. 427,500
-----------
800,813
-----------
WIRELESS COMMUNICATION (1.8%)
18,000 Vanguard Cellular Systems, Inc. (Class A)*.............................................. 463,500
20,000 Western Wireless Corp. (Class A)*....................................................... 438,750
15,000 Winstar Communications, Inc.*........................................................... 584,063
-----------
1,486,313
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $55,540,509)........................................................... 76,170,318
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (2.6%)
$ 2,000 U.S. Treasury Note 5.625% due 05/15/08 (IDENTIFIED COST $2,153,515)..................... $ 2,131,860
-----------
SHORT-TERM INVESTMENTS (3.9%)
U.S. GOVERNMENT AGENCY (a) (3.7%)
3,000 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $2,998,875)......... 2,998,875
-----------
REPURCHASE AGREEMENT (0.2%)
164 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $164,498) (b)
(IDENTIFIED COST $164,425)............................................................ 164,425
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,163,300)............................................................ 3,163,300
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $60,857,324) (C).......................................................... 99.8 % 81,465,478
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.2 159,681
------ ------------
NET ASSETS................................................................................. 100.0 % $ 81,625,159
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $162,041 U.S. Treasury Note 5.875% due 02/15/00 valued at
$167,713.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $21,772,178 and the
aggregate gross unrealized depreciation is $1,164,024, resulting in net
unrealized appreciation of $20,608,154.
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (92.5%)
ARGENTINA (4.3%)
ALCOHOLIC BEVERAGES
5,825 Quilmes Industrial (Quinsa) S.A. (ADR)................................................ $ 54,245
-----------
BANKING
2,877 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B) (ADR).......................... 49,988
2,100 Banco Frances del Rio de La Plato S.A. (ADR).......................................... 43,575
-----------
93,563
-----------
INTEGRATED OIL COMPANIES
6,175 Yacimentos Petroliferos Fiscales S.A. (ADR)........................................... 172,514
-----------
MULTI-SECTOR COMPANIES
18,700 Perez Companc S.A. (Class B).......................................................... 79,176
-----------
OIL/GAS TRANSMISSION
1,700 Transportadora de Gas del Sur S.A. (ADR).............................................. 17,212
-----------
TELECOMMUNICATIONS
2,160 Telecom Argentina Stet - France Telecom S.A. (Class B) (ADR).......................... 59,400
3,175 Telefonica de Argentina S.A. (ADR).................................................... 88,702
-----------
148,102
-----------
TOTAL ARGENTINA....................................................................... 564,812
-----------
BRAZIL (9.9%)
BANKING
103,000 Banco Itau S.A. (Pref.)............................................................... 50,305
3,500 Uniao de Bancos Brasileiros S.A. (GDR)................................................ 50,531
-----------
100,836
-----------
ELECTRIC UTILITIES
8,212 Companhia Energetica de Minas Gerais S.A. (ADR) (Pref.)............................... 155,002
9,900,000 Companhia Paranaense de Energia - Copel (Pref.)....................................... 71,300
-----------
226,302
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES
118,000 Itausa - Investmentos Itau S.A. (Pref.)............................................... $ 65,447
-----------
INTEGRATED OIL COMPANIES
865,000 Petroleo Brasileiro S.A. (Pref.)...................................................... 98,100
-----------
OTHER METALS/MINERALS
5,000 Companhia Vale do Rio Doce S.A. (Debentures)*......................................... --
5,600 Companhia Vale do Rio Doce S.A. (Pref.)............................................... 71,854
-----------
71,854
-----------
TELECOMMUNICATIONS
950,000 Embratel Participacoes S.A.*.......................................................... 8,257
7,062,000 Embratel Participacoes S.A. (Pref.)*.................................................. 96,459
950,000 Tele Celular Sul Participacoes S.A.*.................................................. 881
4,642,000 Tele Celular Sul Participacoes S.A. (Pref.)*.......................................... 7,839
950,000 Tele Centro Sul Participacoes S.A.*................................................... 6,291
14,742,000 Tele Centro Sul Participacoes S.A. (Pref.)*........................................... 128,016
950,000 Tele Norte Leste Participacoes S.A.*.................................................. 7,786
7,620,000 Tele Norte Leste Participacoes S.A. (Pref.)*.......................................... 95,250
13,900,000 Tele Sudeste Celular Participacoes S.A. (Pref.)*...................................... 58,684
950,000 Telemig Celular Participacoes S.A.*................................................... 669
17,742,000 Telemig Celular Participacoes S.A. (Pref.)*........................................... 19,681
950,000 Telesp Celular Participacoes S.A.*.................................................... 4,089
12,982,000 Telesp Celular Participacoes S.A. (Pref.)*............................................ 95,646
950,000 Telesp Participacoes S.A.*............................................................ 12,190
9,482,000 Telesp Participacoes S.A. (Pref.)*.................................................... 215,857
-----------
757,595
-----------
TOTAL BRAZIL.......................................................................... 1,320,134
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CHILE (2.8%)
ALCOHOLIC BEVERAGES
3,620 Vina Concha Y Toro (ADR).............................................................. $ 93,667
-----------
BEVERAGES - NON-ALCOHOLIC
2,840 Embotelladora Andina S.A. (Series A) (ADR)............................................ 41,180
-----------
FOOD CHAINS
4,600 Distribucion Y Servicio D&S S.A. (ADR)*............................................... 52,900
-----------
GENERIC DRUGS
5,170 Laboratorio Chile S.A. (ADR).......................................................... 74,319
-----------
TELECOMMUNICATIONS
5,108 Cia de Telecommunicaciones de Chile S.A. (ADR)........................................ 105,672
-----------
TOTAL CHILE........................................................................... 367,738
-----------
CHINA (0.9%)
UTILITIES
147,000 Beijing Datang Power Generation Co., Ltd.............................................. 44,119
196,000 Huaneng Power International, Inc. (Class H)*.......................................... 69,579
-----------
TOTAL CHINA........................................................................... 113,698
-----------
COLOMBIA (0.6%)
BANKING
16,700 Bancolombia S.A. (ADR)................................................................ 78,281
-----------
EGYPT (0.6%)
BUILDING MATERIALS
5,200 Suez Cement Co. (GDR) - 144A**........................................................ 74,100
-----------
GREECE (9.6%)
BANKING
3,720 Alpha Credit Bank..................................................................... 388,001
1,959 National Bank of Greece S.A........................................................... 440,539
-----------
828,540
-----------
BUILDING MATERIALS
1,960 Titan Cement Co. S.A.................................................................. 150,419
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
9,252 Hellenic Telecommunication Organization S.A........................................... $ 246,038
1,700 Panafon Hellenic Telecom S.A.*........................................................ 45,511
-----------
291,549
-----------
TOTAL GREECE.......................................................................... 1,270,508
-----------
HONG KONG (2.4%)
ELECTRONIC DATA PROCESSING
300,000 Legend Holdings Ltd................................................................... 105,530
-----------
REAL ESTATE
108,000 China Resources Enterprise Ltd........................................................ 168,694
-----------
TELECOMMUNICATIONS
28,000 China Telecom Ltd..................................................................... 48,434
-----------
TOTAL HONG KONG....................................................................... 322,658
-----------
HUNGARY (4.9%)
BANKING
3,700 OTP Bank RT........................................................................... 184,923
-----------
OIL & GAS
8,700 MOL Magyar Olaj-es Gazipari RT (GDR) - 144A**......................................... 240,120
-----------
SPECIALTY CHEMICALS
4,000 Pannonplast RT........................................................................ 112,928
-----------
TELECOMMUNICATIONS
3,700 Magyar Tavkozlesi RT (ADR) (Hungary).................................................. 110,306
-----------
TOTAL HUNGARY......................................................................... 648,277
-----------
INDIA (3.6%)
TELECOMMUNICATIONS
7,900 Mahanagar Telephone Nigam Ltd. (GDR) 144A**........................................... 96,380
12,100 Videsh Sanchar Nigam Ltd. (GDR)*...................................................... 148,225
-----------
244,605
-----------
TEXTILES
41,000 Reliance Industries Ltd. (GDR)*....................................................... 232,470
-----------
TOTAL INDIA........................................................................... 477,075
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ISRAEL (2.8%)
BANKING
105,150 Bank Hapoalim Ltd..................................................................... $ 190,492
-----------
CLOTHING/SHOE/ACCESSORY STORES
7,615 Blue Square Chain Investments & Properties Ltd.*...................................... 91,420
-----------
DIVERSIFIED ELECTRONIC PRODUCTS
4,470 NICE-Systems Ltd. (ADR)*.............................................................. 95,826
-----------
TOTAL ISRAEL.......................................................................... 377,738
-----------
MEXICO (11.7%)
ALCOHOLIC BEVERAGES
61,400 Grupo Modelo S.A. de C.V. (Series C).................................................. 130,242
-----------
BEVERAGES - NON-ALCOHOLIC
2,200 Coca-Cola Femsa S.A. de C.V. (ADR).................................................... 29,150
5,050 Fomento Economico Mexicano, S.A. de C.V. (ADR)........................................ 134,456
5,334 Panamerican Beverages, Inc. (Class A)................................................. 116,348
-----------
279,954
-----------
BROADCASTING
5,820 Grupo Televisa S.A. de C.V. (GDR)..................................................... 143,681
-----------
BUILDING MATERIALS
23,100 Apasco S.A. de C.V.................................................................... 81,433
27,460 Cemex S.A. de C.V. (B Shares)......................................................... 68,927
-----------
150,360
-----------
OTHER SPECIALTY STORES
154,300 Cifra S.A. de C.V. (Series C)......................................................... 190,148
22,300 Organizacion Soriana S.A. de C.V. (Series B).......................................... 72,081
-----------
262,229
-----------
PAPER
48,900 Kimberly-Clark de Mexico S.A. de C.V. (A Shares)...................................... 156,085
-----------
SPECIALTY FOODS/CANDY
57,200 Grupo Industrial Bimbo S.A. de C.V. (Series A)........................................ 109,778
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
6,520 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)..................................... $ 317,443
-----------
TOTAL MEXICO.......................................................................... 1,549,772
-----------
PERU (0.8%)
BUILDING MATERIALS
52,475 Cementos Lima, S.A.................................................................... 62,547
-----------
OTHER METALS/MINERALS
6,720 Compania de Minas Buenaventura S.A. (B Shares)........................................ 40,476
-----------
TOTAL PERU............................................................................ 103,023
-----------
PHILIPPINES (2.0%)
RESTAURANTS
190,000 Jollibee Foods Co. (Warrants due 03/25/03)*........................................... 88,258
-----------
TELECOMMUNICATIONS
3,520 Philippine Long Distance Telephone Co................................................. 90,838
-----------
UTILITIES
26,300 Manila Electric Co. (B Shares)........................................................ 84,839
-----------
TOTAL PHILIPPINES..................................................................... 263,935
-----------
POLAND (5.1%)
BANKING
3,400 Bank Przemyslowo-Handlowy S.A......................................................... 201,769
-----------
TELECOMMUNICATIONS
30,600 Telekomunikacja Polska S.A. (GDR)*.................................................... 156,825
-----------
WHOLESALE DISTRIBUTOR
30,000 Elektrim Spolka Akcyjna S.A........................................................... 325,250
-----------
TOTAL POLAND.......................................................................... 683,844
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PORTUGAL (3.2%)
BANKING
6,500 Banco Comercial Portugues S.A......................................................... $ 199,874
2,915 Banco Espirito Santo e Comercial de Lisboa, S.A....................................... 90,490
4,510 Banco Pinto & Sotto Mayor, S.A........................................................ 85,523
-----------
375,887
-----------
UTILITIES
2,000 EDP-Electricidade de Portugal, S.A.................................................... 44,042
-----------
TOTAL PORTUGAL........................................................................ 419,929
-----------
SOUTH AFRICA (9.0%)
ALCOHOLIC BEVERAGES
17,146 South African Breweries Ltd........................................................... 286,956
-----------
BANKING
12,257 Nedcor Ltd............................................................................ 208,674
-----------
LIFE INSURANCE
14,460 Liberty Life Association of Africa Ltd................................................ 199,008
-----------
MULTI-SECTOR COMPANIES
115,706 New Clicks Holdings Ltd............................................................... 113,042
-----------
OTHER METALS/MINERALS
7,645 Anglo American Platinum Corporation Ltd............................................... 104,826
-----------
PRECIOUS METALS
3,410 Anglo American Corporation of South Africa Ltd........................................ 96,063
2,316 Anglogold Ltd......................................................................... 90,192
-----------
186,255
-----------
TELECOMMUNICATION EQUIPMENT
24,200 Allied Technologies Ltd............................................................... 48,314
82,147 New Africa Investments Ltd. (N Shares)................................................ 50,247
-----------
98,561
-----------
TOTAL SOUTH AFRICA.................................................................... 1,197,322
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (9.9%)
ELECTRICAL PRODUCTS
6,369 Samsung Display Devices Co............................................................ $ 314,735
-----------
ELECTRIC UTILITIES
18,100 Korea Electric Power Corp............................................................. 449,483
-----------
MAJOR CHEMICALS
18,900 L.G. Chemical Ltd..................................................................... 206,325
-----------
STEEL/IRON ORE
5,610 Pohang Iron & Steel Co., Ltd.......................................................... 346,768
-----------
TELECOMMUNICATIONS
100 Korea Telecom Corp.*.................................................................. 3,167
-----------
TOTAL SOUTH KOREA..................................................................... 1,320,478
-----------
TAIWAN (6.4%)
COMPUTER/VIDEO CHAINS
4,000 Synnex Technology International Corp. (GDR)*.......................................... 71,000
-----------
ELECTRONIC COMPONENTS
25,200 Siliconware Precision Industries Co. (GDR)*........................................... 264,600
-----------
ELECTRONIC DATA PROCESSING
29,150 Asustek Computer Inc. (GDR)........................................................... 270,366
64 Asustek Computer Inc. (GDR) - 144A**.................................................. 594
-----------
270,960
-----------
MUTUAL FUNDS
4,700 The Taiwan Index Fund Ltd............................................................. 43,475
-----------
SEMICONDUCTORS
14,010 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR).................................... 198,768
-----------
TOTAL TAIWAN.......................................................................... 848,803
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TURKEY (2.0%)
BANKING
2,700,000 Akbank T.A.S.......................................................................... $ 54,831
-----------
FINANCE
14,900,000 Dogan Yayin Holdings*................................................................. 75,647
-----------
FOOD CHAINS
91,700 Migros Turk T.A.S..................................................................... 91,656
-----------
PROPERTY - CASUALTY INSURANCE
1,600,000 Aksigorta A.S......................................................................... 48,739
-----------
TOTAL TURKEY.......................................................................... 270,873
-----------
VIETNAM (0.0%)
MUTUAL FUNDS
1,800 Lazard Vietnam Fund Ltd............................................................... --
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(IDENTIFIED COST $13,176,917) (A).......................................................... 92.5 % 12,272,998
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 7.5 999,307
------ ------------
NET ASSETS................................................................................. 100.0 % $ 13,272,305
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,455,639 and the
aggregate gross unrealized depreciation is $2,359,558, resulting in net
unrealized depreciation of $903,919.
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
EMERGING MARKETS
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Alcoholic Beverages............................................................... $ 565,110 4.3 %
Banking........................................................................... 2,317,796 17.5
Beverages - Non-Alcoholic......................................................... 321,134 2.4
Broadcasting...................................................................... 143,681 1.1
Building Materials................................................................ 437,426 3.3
Clothing/Shoe/Accessory Stores.................................................... 91,420 0.7
Computer/Video Chains............................................................. 71,000 0.5
Diversified Electronic Products................................................... 95,826 0.7
Electric Utilities................................................................ 675,785 5.1
Electrical Products............................................................... 314,735 2.4
Electronic Components............................................................. 264,600 2.0
Electronic Data Processing........................................................ 376,490 2.8
Finance........................................................................... 75,647 0.6
Financial Services................................................................ 65,447 0.5
Food Chains....................................................................... 144,556 1.1
Generic Drugs..................................................................... 74,319 0.6
Integrated Oil Companies.......................................................... 270,614 2.0
Life Insurance.................................................................... 199,008 1.5
Major Chemicals................................................................... 206,325 1.6
Multi-Sector Companies............................................................ 192,218 1.4
Mutual Funds...................................................................... 43,475 0.3
Oil - Exploration & Production.................................................... 240,120 1.8
Oil/Gas Transmission.............................................................. 17,212 0.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Metals/Minerals............................................................. $ 217,156 1.6 %
Other Specialty Stores............................................................ 262,229 2.0
Paper............................................................................. 156,085 1.2
Precious Metals................................................................... 186,255 1.4
Property - Casualty Insurance..................................................... 48,739 0.4
Real Estate....................................................................... 168,694 1.3
Restaurants....................................................................... 88,258 0.7
Semiconductors.................................................................... 198,768 1.5
Specialty Chemicals............................................................... 112,928 0.8
Specialty Foods/Candy............................................................. 109,778 0.8
Steel/Iron Ore.................................................................... 346,768 2.6
Telecommunication Equipment....................................................... 98,561 0.7
Telecommunications................................................................ 2,274,536 17.1
Textiles.......................................................................... 232,470 1.8
Utilities......................................................................... 242,579 1.8
Wholesale Distributor............................................................. 325,250 2.5
------------ ---
$ 12,272,998 92.5 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks...................................................................... $10,955,300 82.5 %
Preferred Stocks................................................................... 1,229,440 9.3
Rights & Warrants.................................................................. 88,258 0.7
----------- ---
$12,272,998 92.5 %
----------- ---
----------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
(This page has been left blank intentionally.)
83
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at value
*.................... $121,100,638 $8,381,516 $91,827,168 $110,465,944 $ 85,353,383
Cash................... 2,084 -- 664,576** -- --
Receivable for:
Investments sold... -- -- -- -- --
Shares of
beneficial
interest sold.... 238,137 -- 159,696 73,955 258,330
Dividends.......... -- -- -- 102,090 110,757
Interest........... 155,162 26,726 1,494,321 331,272 42,039
Foreign withholding
taxes
reclaimed........ -- -- -- -- 10,391
Unrealized appreciation
on open forward
foreign currency
contracts............ -- -- 63,686 -- --
Prepaid expenses and
other assets......... 5,736 102 8,226 1,246 1,113
Deferred organizational
expenses............. 1,374 1,374 1,374 1,374 1,374
Receivable from
affiliate............ -- -- -- -- --
------------ ----------- ------------ ------------ ------------
TOTAL ASSETS...... 121,503,131 8,409,718 94,219,047 110,975,881 85,777,387
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments
purchased........ -- -- -- 3,012,552 --
Shares of
beneficial
interest
repurchased...... 1,241,348 334 14,905 20,567 28,511
Compensated forward
foreign currency
contracts........ -- -- 94,349 -- --
Investment
management
fees............. 51,840 4,454 31,604 53,333 44,326
Payable to bank........ -- -- -- -- --
Unrealized depreciation
on open forward
foreign currency
contracts............ -- -- 60,272 -- --
Accrued expenses and
other payables....... 25,115 15,708 26,780 37,312 21,365
------------ ----------- ------------ ------------ ------------
TOTAL
LIABILITIES....... 1,318,303 20,496 227,910 3,123,764 94,202
------------ ----------- ------------ ------------ ------------
NET ASSETS:
Paid-in-capital........ 120,184,715 8,352,447 96,280,837 89,562,413 62,417,478
Accumulated
undistributed net
investment income
(net investment
loss)................ 113 30,818 740,817 250,069 117,223
Accumulated
undistributed net
realized gain
(accumulated net
realized loss)....... -- (9,105) (173,260) 12,608,684 648,546
Net unrealized
appreciation
(depreciation)....... -- 15,062 (2,857,257) 5,430,951 22,499,938
------------ ----------- ------------ ------------ ------------
NET ASSETS........ $120,184,828 $8,389,222 $93,991,137 $107,852,117 $ 85,683,185
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
*IDENTIFIED
COST.............. $121,100,638 $8,366,454 $94,686,455 $105,034,993 $ 62,853,445
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
SHARES OF
BENEFICIAL
INTEREST
OUTSTANDING....... 120,184,715 826,319 9,461,101 6,584,329 4,579,609
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
NET ASSET VALUE PER
SHARE
(UNLIMITED AUTHORIZED
SHARES OF $.01 PAR
VALUE)................. $1.00 $10.15 $9.93 $16.38 $18.71
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
</TABLE>
- ------------------
** Including foreign currency of $22,516.
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at value
*.................... $726,587,185 $172,430,333 $54,002,189 $387,150,059 $27,359,100 $125,384,593 $81,465,478 $12,272,998
Cash................... -- -- -- 72,428 76,985 -- -- 1,007,265
Receivable for:
Investments sold... -- 7,971,204 703,199 2,253,749 1,575,777 -- 303,600 9,874
Shares of
beneficial
interest sold.... 513,433 29,607 10,368 680,905 16,694 108,041 142,767 1,863
Dividends.......... 1,239,350 221,571 43,469 102,133 2,680 83,491 10,394 20,833
Interest........... 432 311 179 -- -- 17 14,625 --
Foreign withholding
taxes
reclaimed........ -- -- -- 28,697 -- 99,548 -- --
Unrealized appreciation
on open forward
foreign currency
contracts............ -- -- -- -- -- -- -- --
Prepaid expenses and
other assets......... 21,356 4,447 1,134 12,835 1,933 1,421 3,464 926
Deferred organizational
expenses............. 1,374 1,374 1,374 1,374 -- 1,374 1,374 1,374
Receivable from
affiliate............ -- -- -- -- 17,569 -- -- --
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
TOTAL ASSETS...... 728,363,130 180,658,847 54,761,912 390,302,180 29,050,738 125,678,485 81,941,702 13,315,133
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
LIABILITIES:
Payable for:
Investments
purchased........ 4,324,890 5,194,921 1,144,341 18,274,475 833,046 -- 237,187 --
Shares of
beneficial
interest
repurchased...... 342,855 56,929 8,379 166,992 1,046 18,796 16,423 1,770
Compensated forward
foreign currency
contracts........ -- -- -- -- -- -- -- --
Investment
management
fees............. 352,745 72,013 34,439 183,105 -- 102,334 31,989 13,800
Payable to bank........ -- 465,333 -- -- -- -- -- --
Unrealized depreciation
on open forward
foreign currency
contracts............ -- -- -- -- -- -- -- --
Accrued expenses and
other payables....... 57,562 45,829 70,975 44,699 19,009 35,143 30,944 27,258
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
TOTAL
LIABILITIES....... 5,078,052 5,835,025 1,258,134 18,669,271 853,101 156,273 316,543 42,828
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSETS:
Paid-in-capital........ 553,275,042 130,891,723 41,618,075 267,074,857 25,955,091 103,938,295 62,301,476 19,455,506
Accumulated
undistributed net
investment income
(net investment
loss)................ 853,057 183,347 3,871 7,077 7,295 28,138 7,110 (2,344)
Accumulated
undistributed net
realized gain
(accumulated net
realized loss)....... 64,905,978 6,481,031 3,259,997 39,297,660 (2,757,580) (4,474,238) (1,291,581) (5,276,475)
Net unrealized
appreciation
(depreciation)....... 104,251,001 37,267,721 8,621,835 65,253,315 4,992,831 26,030,017 20,608,154 (904,382)
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSETS........ $723,285,078 $174,823,822 $53,503,778 $371,632,909 $28,197,637 $125,522,212 $81,625,159 $13,272,305
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
*IDENTIFIED
COST.............. $622,336,184 $135,162,612 $45,380,354 $321,897,294 $22,366,269 $ 99,360,893 $60,857,324 $13,176,917
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
SHARES OF
BENEFICIAL
INTEREST
OUTSTANDING....... 32,805,517 9,111,849 2,934,577 15,944,705 2,376,967 8,546,128 3,921,506 1,678,582
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSET VALUE PER
SHARE
(UNLIMITED AUTHORIZED
SHARES OF $.01 PAR
VALUE)................. $22.05 $19.19 $18.23 $23.31 $11.86 $14.69 $20.81 $7.91
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
</TABLE>
85
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest............... $ 5,484,859 $357,842 $ 6,584,351 $ 2,011,419 $ 356,972
Dividends.............. -- -- -- 1,190,885 1,496,942*
----------- -------------- ------------ ----------- ------------
TOTAL INCOME...... 5,484,859 357,842 6,584,351 3,202,304 1,853,914
----------- -------------- ------------ ----------- ------------
EXPENSES
Investment management
fee.................. 492,661 41,048 313,337 554,456 412,581
Professional fees...... 18,407 16,145 17,142 42,135 18,075
Custodian fees......... 11,323 10,703 28,299 19,491 13,819
Shareholder reports and
notices.............. 11,491 1,088 8,872 14,857 4,379
Trustees' fees and
expenses............. 558 -- 570 729 470
Transfer agent fees and
expenses............. 500 500 500 500 500
Organizational
expenses............. 1,606 1,606 1,606 1,606 1,606
Other.................. 2,254 1,353 11,384 4,511 1,829
----------- -------------- ------------ ----------- ------------
TOTAL EXPENSES.... 538,800 72,443 381,710 638,285 453,259
Less: amounts
reimbursed/waived.... -- -- -- -- --
----------- -------------- ------------ ----------- ------------
NET EXPENSES...... 538,800 72,443 381,710 638,285 453,259
----------- -------------- ------------ ----------- ------------
NET INVESTMENT
INCOME............ 4,946,059 285,399 6,202,641 2,564,019 1,400,655
----------- -------------- ------------ ----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on:
Investments........ 96 1,246 409,753 12,637,891 648,615
Foreign exchange
transactions..... -- -- (301,301) -- --
----------- -------------- ------------ ----------- ------------
NET GAIN (LOSS)... 96 1,246 108,452 12,637,891 648,615
----------- -------------- ------------ ----------- ------------
Net change in
unrealized
appreciation/depreciation
on:
Investments........ -- (24,395) (3,183,638) (3,521,872) 11,747,508
Translation of
forward foreign
currency
contracts, other
assets and
liabilities
denominated in
foreign
currencies....... -- -- (56,748) -- --
----------- -------------- ------------ ----------- ------------
NET APPRECIATION
(DEPRECIATION).... -- (24,395) (3,240,386) (3,521,872) 11,747,508
----------- -------------- ------------ ----------- ------------
NET GAIN (LOSS)... 96 (23,149) (3,131,934) 9,116,019 12,396,123
----------- -------------- ------------ ----------- ------------
NET INCREASE
(DECREASE)............. $ 4,946,155 $262,250 $ 3,070,707 $11,680,038 $ 13,796,778
----------- -------------- ------------ ----------- ------------
----------- -------------- ------------ ----------- ------------
</TABLE>
- ------------------
* Net of foreign withholding tax of $19,218, $7,285, $35,622, $587, $168,834,
$1,749 and $23,975, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest............... $ 333,766 $ 296,420 $ 95,138 $ 1,897,644 $ 96,865 $ 575,082 $ 455,511 $ 94,953
Dividends.............. 15,363,732 2,494,684* 401,083 1,798,430* 42,091* 1,870,076* 169,357* 334,753*
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
TOTAL INCOME...... 15,697,498 2,791,104 496,221 3,696,074 138,956 2,445,158 624,868 429,706
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
EXPENSES
Investment management
fee.................. 3,794,294 797,292 376,026 1,802,876 180,804 1,158,905 401,774 218,826
Professional fees...... 19,132 17,987 29,578 20,108 15,305 18,482 18,447 20,071
Custodian fees......... 50,736 23,331 26,636 51,637 33,384 63,746 36,659 47,694
Shareholder reports and
notices.............. 71,821 16,565 10,602 22,678 5,172 15,115 11,229 5,310
Trustees' fees and
expenses............. 5,829 1,294 45,548 2,281 -- 1,015 688 --
Transfer agent fees and
expenses............. 500 500 500 500 500 500 500 500
Organizational
expenses............. 1,606 1,606 1,606 1,606 -- 1,606 1,606 1,606
Other.................. 6,013 16,291 1,854 6,714 1,107 21,055 2,195 9,557
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
TOTAL EXPENSES.... 3,949,931 874,866 492,350 1,908,400 236,272 1,280,424 473,098 303,564
Less: amounts
reimbursed/waived.... -- -- -- -- (236,272) -- -- --
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET EXPENSES...... 3,949,931 874,866 492,350 1,908,400 -- 1,280,424 473,098 303,564
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET INVESTMENT
INCOME............ 11,747,567 1,916,238 3,871 1,787,674 138,956 1,164,734 151,770 126,142
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on:
Investments........ 65,404,292 6,592,408 3,308,989 40,392,336 (2,490,436) (3,068,168) (1,185,922) (4,282,112)
Foreign exchange
transactions..... -- -- -- 44 -- (2,436) -- (65,660)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET GAIN (LOSS)... 65,404,292 6,592,408 3,308,989 40,392,380 (2,490,436) (3,070,604) (1,185,922) (4,347,772)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
Net change in
unrealized
appreciation/depreciation
on:
Investments........ 31,880,861 9,340,718 2,556,804 37,572,280 3,446,115 16,922,614 7,288,857 (2,129,565)
Translation of
forward foreign
currency
contracts, other
assets and
liabilities
denominated in
foreign
currencies....... -- -- -- 550 -- 8,488 -- 12,912
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET APPRECIATION
(DEPRECIATION).... 31,880,861 9,340,718 2,556,804 37,572,830 3,446,115 16,931,102 7,288,857 (2,116,653)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET GAIN (LOSS)... 97,285,153 15,933,126 5,865,793 77,965,210 955,679 13,860,498 6,102,935 (6,464,425)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET INCREASE
(DECREASE)............. $109,032,720 $17,849,364 $5,869,664 $79,752,884 $1,094,635 $15,025,232 $6,254,705 $(6,338,283)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
</TABLE>
87
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY MARKET GOVERNMENT SECURITIES
---------------------------- -------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------- -------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 4,946,059 $ 4,711,014 $ 285,399 $ 219,391
Net realized gain
(loss)............... 96 -- 1,246 (1,271)
Net change in
unrealized
appreciation/depreciation.. -- -- (24,395) 44,134
------------- ------------ ----------- -----------
NET INCREASE...... 4,946,155 4,711,014 262,250 262,254
------------- ------------ ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (4,946,009) (4,710,989) (270,457) (222,788)
Net realized gain...... (96) -- -- --
------------- ------------ ----------- -----------
TOTAL............. (4,946,105) (4,710,989) (270,457) (222,788)
------------- ------------ ----------- -----------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 160,543,866 120,256,057 5,217,638 1,648,694
Reinvestment of
dividends and
distributions........ 4,946,105 4,710,989 270,457 222,788
Cost of shares
repurchased.......... (129,350,587) (127,923,366) (2,182,113) (991,209)
------------- ------------ ----------- -----------
NET INCREASE
(DECREASE)........ 36,139,384 (2,956,320) 3,305,982 880,273
------------- ------------ ----------- -----------
TOTAL INCREASE
(DECREASE)........ 36,139,434 (2,956,295) 3,297,775 919,739
NET ASSETS:
Beginning of period.... 84,045,394 87,001,689 5,091,447 4,171,708
------------- ------------ ----------- -----------
END OF PERIOD..... $ 120,184,828 $ 84,045,394 $ 8,389,222 $ 5,091,447
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 113 $ 63 $ 30,818 $ 15,876
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold................... 160,543,866 120,256,057 513,927 162,979
Issued in reinvestment
of dividends and
distributions........ 4,946,105 4,710,989 26,678 22,097
Repurchased............ (129,350,587) (127,923,366) (214,966) (98,049)
------------- ------------ ----------- -----------
NET INCREASE
(DECREASE)............. 36,139,384 (2,956,320) 325,639 87,027
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DIVERSIFIED INCOME BALANCED GROWTH UTILITIES
------------------------- ------------------------ ------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------- ------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 6,202,641 $ 3,763,814 $ 2,564,019 $ 1,183,842 $ 1,400,655 $ 1,137,314
Net realized gain
(loss)................. 108,452 (326,813) 12,637,891 1,883,756 648,615 872,891
Net change in unrealized
appreciation/depreciation.. (3,240,386) 431,079 (3,521,872) 5,626,407 11,747,508 8,023,362
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE........ 3,070,707 3,868,080 11,680,038 8,694,005 13,796,778 10,033,567
------------ ----------- ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (5,803,603) (3,642,497) (2,431,401) (1,157,698) (1,364,710) (1,156,425)
Net realized gain........ (99,333) (92,958) (1,884,145) (164,839) (698,541) (140,005)
------------ ----------- ----------- ----------- ----------- -----------
TOTAL............... (5,902,936) (3,735,455) (4,315,546) (1,322,537) (2,063,251) (1,296,430)
------------ ----------- ----------- ----------- ----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 43,957,759 37,352,457 38,742,816 32,245,427 34,192,413 12,711,349
Reinvestment of dividends
and distributions...... 5,902,936 3,735,455 4,315,546 1,322,537 2,063,251 1,296,430
Cost of shares
repurchased............ (15,324,330) (11,052,734) (13,894,173) (8,509,024) (13,071,951) (7,665,054)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE
(DECREASE).......... 34,536,365 30,035,178 29,164,189 25,058,940 23,183,713 6,342,725
------------ ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE).......... 31,704,136 30,167,803 36,528,681 32,430,408 34,917,240 15,079,862
NET ASSETS:
Beginning of period...... 62,287,001 32,119,198 71,323,436 38,893,028 50,765,945 35,686,083
------------ ----------- ----------- ----------- ----------- -----------
END OF PERIOD....... $ 93,991,137 $62,287,001 $107,852,117 $71,323,436 $85,683,185 $50,765,945
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 740,817 $ 433,907 $ 250,069 $ 117,451 $ 117,223 $ 81,278
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 4,342,229 3,651,731 2,464,618 2,274,595 2,031,983 904,097
Issued in reinvestment of
dividends and
distributions.......... 583,849 366,945 273,422 93,933 122,896 95,848
Repurchased.............. (1,515,732) (1,079,349) (898,886) (598,705) (781,200) (551,585)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE
(DECREASE)............... 3,410,346 2,939,327 1,839,154 1,769,823 1,373,679 448,360
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
</TABLE>
89
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DIVIDEND GROWTH VALUE-ADDED MARKET
-------------------------- -------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------- -------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 11,747,567 $ 8,348,134 $ 1,916,238 $ 1,612,380
Net realized gain
(loss)............... 65,404,292 25,772,008 6,592,408 2,211,559
Net change in
unrealized
appreciation/depreciation... 31,880,861 50,279,373 9,340,718 20,050,469
------------ ------------ ------------- ---------------
NET INCREASE...... 109,032,720 84,399,515 17,849,364 23,874,408
------------ ------------ ------------- ---------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (11,679,096) (8,067,138) (1,902,826) (1,545,598)
Net realized gain...... (26,160,355) (13,688,414) (2,322,935) (214,735)
------------ ------------ ------------- ---------------
TOTAL............. (37,839,451) (21,755,552) (4,225,761) (1,760,333)
------------ ------------ ------------- ---------------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 192,533,628 216,990,147 42,071,121 56,658,607
Reinvestment of
dividends and
distributions........ 37,839,451 21,755,552 4,225,761 1,760,333
Cost of shares
repurchased.......... (96,700,375) (41,071,424) (26,412,836) (12,733,322)
------------ ------------ ------------- ---------------
NET INCREASE...... 133,672,704 197,674,275 19,884,046 45,685,618
------------ ------------ ------------- ---------------
TOTAL INCREASE.... 204,865,973 260,318,238 33,507,649 67,799,693
NET ASSETS:
Beginning of period.... 518,419,105 258,100,867 141,316,173 73,516,480
------------ ------------ ------------- ---------------
END OF PERIOD..... $723,285,078 $518,419,105 $ 174,823,822 $141,316,173
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 853,057 $ 784,586 $ 183,347 $ 169,935
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
SHARES ISSUED AND
REPURCHASED:
Sold................... 9,213,959 11,751,312 2,296,136 3,510,750
Issued in reinvestment
of dividends and
distributions........ 1,805,072 1,203,410 228,033 110,135
Repurchased............ (4,697,895) (2,163,103) (1,458,807) (765,113)
------------ ------------ ------------- ---------------
NET INCREASE........... 6,321,136 10,791,619 1,065,362 2,855,772
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
</TABLE>
- ------------------
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
GLOBAL
GROWTH AMERICAN VALUE MID-CAP GROWTH EQUITY
---------------------------- -------------------------- ------------------------- -----------
1998 1997 1998 1997 1998 1997* 1998
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------- -----------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 3,871 $ 39,493 $ 1,787,674 $ 722,602 $ 138,956 $ 156,690 $ 1,164,734
Net realized gain
(loss)................. 3,308,989 1,290,619 40,392,380 28,077,637 (2,490,436) (41,862) (3,070,604)
Net change in unrealized
appreciation/depreciation... 2,556,804 4,281,360 37,572,830 18,351,924 3,446,115 1,546,716 16,931,102
------------- ------------ ------------ ------------ ----------- ------------ -----------
NET INCREASE........ 5,869,664 5,611,472 79,752,884 47,152,163 1,094,635 1,661,544 15,025,232
------------- ------------ ------------ ------------ ----------- ------------ -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... -- (51,873) (1,947,082) (581,955) (152,597) (136,942) (1,517,727)
Net realized gain........ (1,299,815) (131,373) (24,723,150) (3,287,899) (224,094) -- (422,276)
------------- ------------ ------------ ------------ ----------- ------------ -----------
TOTAL............... (1,299,815) (183,246) (26,670,232) (3,869,854) (376,691) (136,942) (1,940,003)
------------- ------------ ------------ ------------ ----------- ------------ -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 17,430,665 28,816,261 112,225,756 83,771,943 14,883,943 20,630,739 38,348,277
Reinvestment of dividends
and distributions...... 1,299,815 183,246 26,670,232 3,869,854 376,691 136,942 1,940,003
Cost of shares
repurchased............ (10,107,664) (12,331,431) (50,359,365) (21,814,303) (7,016,976) (3,056,248) (30,080,763)
------------- ------------ ------------ ------------ ----------- ------------ -----------
NET INCREASE........ 8,622,816 16,668,076 88,536,623 65,827,494 8,243,658 17,711,433 10,207,517
------------- ------------ ------------ ------------ ----------- ------------ -----------
TOTAL INCREASE...... 13,192,665 22,096,302 141,619,275 109,109,803 8,961,602 19,236,035 23,292,746
NET ASSETS:
Beginning of period...... 40,311,113 18,214,811 230,013,634 120,903,831 19,236,035 -- 102,229,466
------------- ------------ ------------ ------------ ----------- ------------ -----------
END OF PERIOD....... $ 53,503,778 $ 40,311,113 $371,632,909 $230,013,634 $28,197,637 $ 19,236,035 $125,522,212
------------- ------------ ------------ ------------ ----------- ------------ -----------
------------- ------------ ------------ ------------ ----------- ------------ -----------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 3,871 -- $ 7,077 $ 166,525 $ 7,295 $ 19,748 $ 28,138
------------- ------------ ------------ ------------ ----------- ------------ -----------
------------- ------------ ------------ ------------ ----------- ------------ -----------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 1,021,903 1,878,945 5,366,406 4,775,976 1,315,016 1,956,099 2,738,834
Issued in reinvestment of
dividends and
distributions.......... 75,659 12,436 1,333,903 238,084 33,289 12,916 135,036
Repurchased.............. (597,280) (801,820) (2,436,239) (1,234,165) (658,565) (281,788) (2,210,444)
------------- ------------ ------------ ------------ ----------- ------------ -----------
NET INCREASE............. 500,282 1,089,561 4,264,070 3,779,895 689,740 1,687,227 663,426
------------- ------------ ------------ ------------ ----------- ------------ -----------
------------- ------------ ------------ ------------ ----------- ------------ -----------
<CAPTION>
1997
<S> <C>
- -------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 778,723
Net realized gain
(loss)................. 206,968
Net change in unrealized
appreciation/depreciation 4,447,711
------------
NET INCREASE........ 5,433,402
------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (731,065)
Net realized gain........ (128,304)
------------
TOTAL............... (859,369)
------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 51,953,057
Reinvestment of dividends
and distributions...... 859,369
Cost of shares
repurchased............ (14,403,393)
------------
NET INCREASE........ 38,409,033
------------
TOTAL INCREASE...... 42,983,066
NET ASSETS:
Beginning of period...... 59,246,400
------------
END OF PERIOD....... $102,229,466
------------
------------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 310,005
------------
------------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 4,006,028
Issued in reinvestment of
dividends and
distributions.......... 66,503
Repurchased.............. (1,101,520)
------------
NET INCREASE............. 2,971,011
------------
------------
</TABLE>
91
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DEVELOPING
GROWTH
------------
1998
<S> <C>
- ------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 151,770
Net realized gain
(loss)............... (1,185,922)
Net change in
unrealized
appreciation/depreciation... 7,288,857
------------
NET INCREASE
(DECREASE)........ 6,254,705
------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (180,742)
Net realized gain...... (120,681)
Paid-in-capital........ --
------------
TOTAL............. (301,423)
------------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 16,665,137
Reinvestment of
dividends and
distributions........ 301,423
Cost of shares
repurchased.......... (23,985,095)
------------
NET INCREASE
(DECREASE)........ (7,018,535)
------------
TOTAL INCREASE
(DECREASE)........ (1,065,253)
NET ASSETS:
Beginning of period.... 82,690,412
------------
END OF PERIOD..... $ 81,625,159
------------
------------
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................. $ 7,110
------------
------------
SHARES ISSUED AND
REPURCHASED:
Sold................... 861,579
Issued in reinvestment
of dividends and
distributions........ 16,369
Repurchased............ (1,272,373)
------------
NET INCREASE
(DECREASE)............. (394,425)
------------
------------
<CAPTION>
EMERGING MARKETS
------------------------
1997 1998 1997
<S> <C> <C> <C>
- ----------------------- ------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 181,401 $ 126,142 $ 120,967
Net realized gain
(loss)............... 2,009,657 (4,347,772) (594,755)
Net change in
unrealized
appreciation/deprecia 6,889,489 (2,116,653) (156,630)
----------- ----------- -----------
NET INCREASE
(DECREASE)........ 9,080,547 (6,338,283) (630,418)
----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (145,319) (146,105) (113,623)
Net realized gain...... -- (48,814) --
Paid-in-capital........ -- (70,872) --
----------- ----------- -----------
TOTAL............. (145,319) (265,791) (113,623)
----------- ----------- -----------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 32,654,294 3,482,891 13,701,773
Reinvestment of
dividends and
distributions........ 145,319 265,791 113,623
Cost of shares
repurchased.......... (20,164,427) (7,686,938) (6,496,911)
----------- ----------- -----------
NET INCREASE
(DECREASE)........ 12,635,186 (3,938,256) 7,318,485
----------- ----------- -----------
TOTAL INCREASE
(DECREASE)........ 21,570,414 (10,542,330) 6,574,444
NET ASSETS:
Beginning of period.... 61,119,998 23,814,635 17,240,191
----------- ----------- -----------
END OF PERIOD..... $82,690,412 $13,272,305 $23,814,635
----------- ----------- -----------
----------- ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................. $ 36,082 $ (2,344) $ 85,508
----------- ----------- -----------
----------- ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold................... 1,800,018 368,627 1,094,065
Issued in reinvestment
of dividends and
distributions........ 9,034 27,733 8,961
Repurchased............ (1,113,498) (823,654) (536,332)
----------- ----------- -----------
NET INCREASE
(DECREASE)............. 695,554 (427,294) 566,694
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Select Dimensions Investment Series (the "Fund"),
formerly Dean Witter Select Dimensions Investment Series, is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The shares of the Fund are only sold to Hartford
Life Insurance Company and ITT Hartford Life and Annuity Insurance Company for
allocation to certain of its separate accounts to fund variable annuity
contracts and variable life insurance policies they issue.
The Fund, which consists of 13 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 Mid-Cap Growth which commenced
operations on January 21, 1997.
The investment objectives of each Portfolio are as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<C> <S>
Money Market Seeks high current income, preservation of capital and liquidity
by investing in short-term money market instruments.
North American Seeks to earn a high level of current income while maintaining
Government relatively low volatility of principal by primarily investing in
Securities investment grade fixed income securities issued or guaranteed by
the U.S., Canadian or Mexican governments.
Diversified Seeks, as a primary objective, to earn a high level of current
Income income and, as a secondary objective, to maximize total return,
but only to the extent consistent with its primary objective, by
equally allocating its assets among three separate groupings of
fixed income securities.
Balanced Seeks to achieve capital growth with reasonable current income by
Growth investing in common stock of companies which have a record of
(formerly paying dividends and have the potential for increasing dividends,
Balanced)* securities convertible into common stock and in investment grade
fixed income securities. Prior to March 2, 1998, the investment
objective was to achieve high total return through a combination
of income and capital appreciation by investing in a diversified
portfolio of common stocks and investment grade fixed income
securities.
Utilities Seeks to provide current income and long-term growth of income and
capital by investing in equity and fixed income securities of
companies in the public utilities industry.
Dividend Seeks to provide reasonable current income and long-term growth of
Growth income and capital by investing primarily in common stock of
companies with a record of paying dividends and the potential for
increasing dividends.
Value-Added Seeks to achieve a high level of total return on its assets
Market through a combination of capital appreciation and current income
by investing, on an equally-weighted basis, in a diversified
portfolio of common stocks of the companies which are represented
in the Standard & Poor's 500 Composite Stock Price Index.
</TABLE>
93
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<C> <S>
Growth Seeks long-term growth of capital by investing primarily in common stocks and
(formerly Core securities convertible into common stocks issued by domestic and foreign
Equity) companies.
American Value Seeks long-term capital growth consistent with an effort to reduce volatility by
investing principally in common stock of companies in industries which, at the
time of the investment, are believed to be undervalued in the marketplace.
Mid-Cap Seeks long-term capital appreciation by investing primarily in equity securities
Growth of mid-cap companies (that is, companies whose equity market capitalization falls
within the range of $250 million to $5 billion).
Global Equity Seeks a high level of total return on its assets primarily through long-term
capital growth and, to a lesser extent, from income, through investments in all
types of common stocks and equivalents (such as convertible securities and
warrants), preferred stocks and bonds and other debt obligations of domestic and
foreign companies and governments and international organizations.
Developing Seeks long-term capital growth by investing primarily in common stocks of smaller
Growth and medium-sized companies that, in the opinion of the Investment Manager, have
the potential for growing more rapidly than the economy and which may benefit from
new products or services, technological developments or changes in management.
Emerging Seeks long-term capital appreciation by investing primarily in equity securities
Markets of companies in emerging market countries. The Portfolio may invest up to 35% of
its total assets in high risk fixed income securities that are rated below
investment grade or are unrated.
</TABLE>
* On February 26, 1998, shareholders approved a change in the investment
objective.
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.
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
security listed or traded on the New York, American or other domestic or foreign
stock exchange is valued at its latest sale price on that exchange prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest available bid price prior to the time of
94
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
valuation; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., or (in the case of Growth) by Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM"), or (in the case of North American Government
Securities and Emerging Markets) by TCW Funds Management Inc. ("TCW"), that sale
or bid prices are not reflective of 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 Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain of the securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; and (5) short-term debt securities having a maturity date
of more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except certain dividends on foreign securities which are recorded as soon as the
Fund is informed after the ex-dividend date. Interest income is accrued daily
except where collection is not expected. The Money Market Portfolio amortizes
premiums and accretes discounts over the life of the respective securities;
gains and losses realized upon the sale of securities are based on amortized
cost. For all other Portfolios, discounts are accreted over the life of the
respective securities.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Portfolios
investing in foreign currency denominated transactions are translated into U.S.
dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and 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.
95
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
The resultant exchange gains and losses are included in the Statement of
Operations as realized and unrealized gain/loss on foreign exchange
transactions. Pursuant to U.S. Federal income tax regulations, certain 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
Portfolios do not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the changes in the market
prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are included
in the Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Portfolios record 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.
E. FEDERAL INCOME TAX STATUS -- 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 all of its taxable income to
its shareholders. Accordingly, no federal income tax provision is required.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
G. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of approximately $96,000 ($8,000 for each respective Portfolio,
excluding Mid-Cap Growth) which have been reimbursed for the full amount
thereof, exclusive of amounts waived of approximately $22,000
96
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
($1,833 for each respective Portfolio, excluding Mid-Cap Growth). Such expenses
have been deferred and are being amortized by the straight-line method over a
period not to exceed five years from the commencement of operations.
H. 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.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to each Portfolio's net assets determined at the close of
each business day:
<TABLE>
<CAPTION>
ANNUAL ANNUAL
PORTFOLIO RATE PORTFOLIO RATE
- ---------------------------------------- ------ ---------------------------------------- ------
<S> <C> <C> <C>
Money Market............................ 0.50 % Growth ................................. 0.80*%
North American Government Securities.... 0.65 American Value ......................... 0.625
Diversified Income...................... 0.40 Mid-Cap Growth ......................... 0.75
Balanced Growth......................... 0.60* Global Equity .......................... 1.00
Utilities............................... 0.65 Developing Growth ...................... 0.50
Dividend Growth......................... ** Emerging Markets ....................... 1.25
Value-Added Market...................... 0.50
</TABLE>
- ----------------
* Effective March 2, 1998, the Agreement was amended to reduce the annual
rate from 0.75% of daily net assets to 0.60% of daily net assets for
Balanced Growth, and from 0.85% of daily net assets to 0.80% of daily net
assets for Growth.
** Effective May 1, 1998, the Agreement was amended to reduce the annual rate
from 0.625% of the daily net assets to 0.625% to the portion of the daily
net assets not exceeding $500 million and 0.50% of the portion of daily net
assets in excess of $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under Sub-Advisory Agreements between MSDWIM and the Investment Manager and TCW
and the Investment Manager, MSDWIM provides Growth and TCW provides North
American Government Securities and Emerging Markets with investment advice and
portfolio management relating to the Portfolios' investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for their services provided pursuant to the Sub-Advisory Agreements, the
97
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
Investment Manager pays MSDWIM and TCW monthly compensation equal to 40% of its
monthly compensation. Prior to March 2, 1998 TCW acted as sub-advisor to both
Growth and Balanced Growth. As compensation for its services under the
Sub-Advisory Agreements, the Investment Manager paid TCW 40% of its monthly
compensation.
The Investment Manager has undertaken to reimburse all operating expenses and
waive the compensation provided for in its Investment Management Agreement with
Mid-Cap Growth until such time as the Portfolio has $50 million of net assets or
April 30, 1999, whichever comes first. At December 31, 1998, included in the
Statements of Assets and Liabilities is a receivable from an affiliate which
represents expense reimbursements due to the Portfolio.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities of portfolio securities, excluding short-term
investments (except for the Money Market Portfolio), for the year ended December
31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT SECURITIES OTHER
------------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Money Market............................ $45,946,262 $ 17,245,691 $635,319,250 $ 631,626,126
North American Government Securities.... 2,074,196 2,444,328 -- --
Diversified Income...................... 37,570,032 28,527,638 76,562,274 54,786,647
Balanced Growth......................... 24,098,714 8,720,034 83,119,366 70,967,243
Utilities............................... -- -- 34,209,085 11,721,729
Dividend Growth......................... -- -- 353,914,246 240,342,099
Value-Added Market...................... -- 39,356 40,264,892 21,785,906
Growth.................................. -- -- 105,026,135 97,743,598
American Value.......................... 101,801,772 121,461,966 849,346,644 765,458,947
Mid-Cap Growth.......................... -- -- 81,539,991 71,945,319
Global Equity........................... 750,103 774,612 93,916,522 83,752,467
Developing Growth....................... 4,441,633 2,558,068 137,043,763 137,285,921
Emerging Markets........................ -- -- 18,007,796 19,525,507
</TABLE>
Included in the aforementioned sales of portfolio securities of Value-Added
Market are sales of Morgan Stanley Dean Witter & Co., an affiliate of the
Investment Manager, of $96,695, as well as a realized gain of $66,835.
98
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
For the year ended December 31, 1998, the following Portfolios incurred
brokerage commissions with Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING
GROWTH UTILITIES GROWTH VALUE GROWTH EQUITY GROWTH
- ------------ ----------- ------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 31,211 $ 15,178 $ 112,033 $ 92,265 $ 12,282 $ 13,946 $ 25,879
- ------------ ----------- ------------- ----------- ----------- ----------- -------
- ------------ ----------- ------------- ----------- ----------- ----------- -------
</TABLE>
Included at December 31, 1998 in the payable for investments purchased and
receivable for investments sold were $44,204 and $901,317, respectively, for
Mid-Cap Growth and $7,360,083 and $468,144, respectively, for American Value for
unsettled trades with DWR. Included at December 31, 1998 in the payable for
investments purchased was $4,324,890 for Dividend Growth, for unsettled trades
with DWR.
For the year ended December 31, 1998, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH UTILITIES GROWTH GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
- ------------ ----------- ----------- ------------- ------------- ----------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7,785 $ 250 $ 80,317 $ 45 $ 185,891 $ 9,208 $ 9,579 $ 10,445 $ 2,855
------ ----- ----------- --- ------------- ----------- --------- ------- ------
------ ----- ----------- --- ------------- ----------- --------- ------- ------
</TABLE>
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent.
4. FEDERAL INCOME TAX STATUS
At December 31, 1998, the following Portfolios had an approximate net capital
loss carryover which may be used to offset future capital gains to the extent
provided by regulations:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
AVAILABLE THROUGH ------------------------------
DECEMBER 31, 2004 2005 2006 TOTAL
- -------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
North American Government Securities $ 5 $ 2 -- $ 7
Diversified Income -- -- 164 164
Mid-Cap Growth -- -- $2,388 2,388
Global Equity -- -- 3,935 3,935
Developing Growth -- -- 1,207 1,207
Emerging Markets -- -- 4,785 4,785
</TABLE>
During the year ended December 31, 1998, the North American Government
Securities Portfolio utilized approximately $3,000 of its net capital loss
carryover.
99
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
Net capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Portfolios' next taxable year. The following Portfolios incurred and will
elect to defer post-October losses during fiscal 1998: Capital: North American
Government Securities -- $2,000; Utilities -- $130,000; Growth -- $956,000;
Global Equity -- $426,000; Emerging Markets -- $290,000; Currency: Diversified
Income $280,000; American Value $8,000.
At December 31, 1998, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
----------------------------- ----------------------
POST-OCTOBER LOSS DEFERRALS FOREIGN CURRENCY
LOSSES FROM WASH SALES GAINS/LOSSES
------------ --------------- ----------------------
<S> <C> <C> <C>
North American Government Securities.... -
Diversified Income...................... - - -
Balanced Growth......................... -
Utilities............................... -
Dividend Growth......................... -
Value-Added............................. -
Growth.................................. - -
American Value.......................... - -
Mid-Cap Growth.......................... -
Global Equity........................... - - -
Developing Growth....................... -
Emerging Markets........................ - - -
</TABLE>
Additionally, Diversified Income had temporary differences attributable to the
mark-to-market of open forward foreign currency exchange contracts and
compensated forward foreign currency exchange contracts. Mid-Cap Growth and
Global Equity had permanent differences attributable to tax adjustments on
passive foreign investment companies sold by the Portfolios and American Value
had permanent differences attributable to tax equalization debits.
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED PAID-IN
INVESTMENT GAIN (LOSS) CAPITAL
------------ ------------ ------------
<S> <C> <C> <C>
Diversified Income...................... $ (92,128 ) $ 92,128 --
American Value.......................... (40 ) (4,133,929 ) $ 4,133,969
Mid-Cap Growth.......................... 1,188 (1,188 ) --
Global Equity........................... 71,126 (69,366 ) (1,760)
Emerging Markets........................ (67,889 ) 67,889 --
</TABLE>
100
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward foreign currency contracts
("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.
At December 31, 1998, American Value and Diversified Income had outstanding
forward contracts.
At December 31, 1998, Emerging Markets' cash balance consisted principally of
interest bearing deposits with Chase Manhattan Bank N.A., the Portfolio's
custodian.
101
<PAGE>
MORGAN STANLEY DEAN WITTER 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
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL DIVIDENDS
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1994 (a) $ 1.00 $ 0.01 -- $ 0.01 $(0.01) -- $(0.01)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1998 1.00 0.05 -- 0.05 (0.05) -- (0.05)
NORTH AMERICAN GOVERNMENT SECURITIES
1994 (a) 10.00 0.06 -- 0.06 (0.02) -- (0.02)
1995 10.04 0.53 $ 0.11 0.64 (0.50) -- (0.50)
1996 10.18 0.52 (0.09) 0.43 (0.52) -- (0.52)
1997 10.09 0.48 0.09 0.57 (0.49) -- (0.49)
1998 10.17 0.46 (0.03) 0.43 (0.45) -- (0.45)
DIVERSIFIED INCOME
1994 (a) 10.00 0.08 -- 0.08 (0.03) -- (0.03)
1995 10.05 0.57 0.11 0.68 (0.51) -- (0.51)
1996 10.22 0.80 0.13 0.93 (0.82) $(0.01) (0.83)
1997 10.32 0.80 0.02 0.82 (0.83) (0.02) (0.85)
1998 10.29 0.79 (0.37) 0.42 (0.77) (0.01) (0.78)
BALANCED GROWTH
1994 (a) 10.00 0.08 (0.02) 0.06 (0.02) -- (0.02)
1995 10.04 0.40 1.85 2.25 (0.40) -- (0.40)
1996 11.89 0.33 1.25 1.58 (0.33) (0.07) (0.40)
1997 13.07 0.29 2.01 2.30 (0.30) (0.04) (0.34)
1998 15.03 0.44 1.68 2.12 (0.43) (0.34) (0.77)
UTILITIES
1994 (a) 10.00 0.07 -- 0.07 (0.03) -- (0.03)
1995 10.04 0.45 2.30 2.75 (0.44) -- (0.44)
1996 12.35 0.43 0.60 1.03 (0.43) (0.01) (0.44)
1997 12.94 0.39 2.96 3.35 (0.40) (0.05) (0.45)
1998 15.84 0.37 3.06 3.43 (0.37) (0.19) (0.56)
DIVIDEND GROWTH
1994 (a) 10.00 0.08 (0.09) (0.01) (0.02) -- (0.02)
1995 9.97 0.36 3.57 3.93 (0.36) -- (0.36)
1996 13.54 0.34 2.94 3.28 (0.35) (0.02) (0.37)
1997 16.45 0.38 3.80 4.18 (0.38) (0.68) (1.06)
1998 19.57 0.39 3.38 3.77 (0.39) (0.90) (1.29)
VALUE-ADDED MARKET
1994 (a) 10.00 0.06 (0.14) (0.08) (0.02) -- (0.02)
1995 9.90 0.31 2.34 2.65 (0.31) -- (0.31)
1996 12.24 0.23 1.93 2.16 (0.23) (0.01) (0.24)
1997 14.16 0.23 3.43 3.66 (0.23) (0.03) (0.26)
1998 17.56 0.22 1.90 2.12 (0.22) (0.27) (0.49)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
RATIOS TO AVERAGE NET (AFTER EXPENSES WERE
ASSETS
(BEFORE EXPENSES WERE ASSUMED)
NET ASSETS ASSUMED) ------------------------
NET ASSET END OF ------------------------- NET PORTFOLIO
YEAR ENDED VALUE END TOTAL PERIOD NET INVESTMENT INVESTMENT TURNOVER
DECEMBER 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1994 (a) $ 1.00 0.76%(1) $ 1,234 2.50%*(2) 3.33%*(2) -- 5.83%(2) N/A
1995 1.00 6.10 42,089 0.81 5.11 -- 5.92 N/A
1996 1.00 5.07 87,002 0.59 4.94 0.57% 4.96 N/A
1997 1.00 5.21 84,045 0.55 5.08 0.55 5.08 N/A
1998 1.00 5.16 120,185 0.55 5.02 0.55 5.02 N/A
NORTH AMERICAN
GOVERNMENT
SECURITIES
1994 (a) 10.04 0.61(1) 122 2.50*(2) 1.78*(2) -- 4.28(2) --
1995 10.18 6.40 1,288 2.50* 3.24* -- 5.74 18%
1996 10.09 4.35 4,172 1.45 4.55 0.50 5.50 48
1997 10.17 5.91 5,091 1.26 4.75 1.26 4.75 27
1998 10.15 4.28 8,389 1.15 4.52 1.15 4.52 51
DIVERSIFIED
INCOME
1994 (a) 10.05 0.76(1) 402 2.50*(2) 3.08*(2) -- 5.58(2) --
1995 10.22 6.96 8,972 1.33 5.95 -- 7.28 33
1996 10.32 9.54 32,119 0.71 8.26 0.50 8.47 69
1997 10.29 8.32 62,287 0.55 8.09 0.55 8.09 110
1998 9.93 4.22 93,991 0.49 7.92 0.49 7.92 111
BALANCED GROWTH
1994 (a) 10.04 0.60(1) 796 2.50*(2) 2.90*(2) -- 5.40(2) --
1995 11.89 22.86 16,311 1.39 2.45 -- 3.84 99
1996 13.07 13.54 38,893 0.90 2.35 0.50 2.75 88
1997 15.03 17.87 71,323 0.86 2.13 0.86 2.13 64
1998 16.38 14.41 107,852 0.71 2.87 0.71 2.87 93
UTILITIES
1994 (a) 10.04 0.65(1) 498 2.50*(2) 2.79*(2) -- 5.29(2) --
1995 12.35 28.05 17,959 1.43 3.01 -- 4.44 3
1996 12.94 8.48 35,686 0.80 3.16 0.50 3.46 15
1997 15.84 26.45 50,766 0.76 2.83 0.76 2.83 34
1998 18.71 22.23 85,683 0.71 2.21 0.71 2.21 19
DIVIDEND GROWTH
1994 (a) 9.97 (0.05) (1) 1,378 2.50*(2) 3.28*(2) -- 5.78(2) --
1995 13.54 40.13 78,694 0.83 2.80 -- 3.63 4
1996 16.45 24.49 258,101 0.67 2.44 0.67 2.44 39
1997 19.57 26.12 518,419 0.65 2.11 0.65 2.11 26
1998 22.05 19.73 723,285 0.63 1.87 0.63 1.87 39
VALUE-ADDED
MARKET
1994 (a) 9.90 (0.76) (1) 349 2.50*(2) 1.25*(2) -- 3.75(2) --
1995 12.24 27.14 23,970 1.46 1.64 -- 3.10 4
1996 14.16 17.78 73,516 0.64 1.69 0.56 1.77 4
1997 17.56 26.12 141,316 0.58 1.49 0.58 1.49 8
1998 19.19 12.19 174,824 0.55 1.20 0.55 1.20 14
</TABLE>
<TABLE>
<C> <S>
- ---------------------
</TABLE>
EMPTY FOOTNOTE
103
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL DIVIDENDS
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH
1994 (a) $ 10.00 $ 0.07 -- $ 0.07 $(0.02) -- $(0.02)
1995 10.05 0.26 $ 1.05 1.31 (0.29) -- (0.29)
1996 11.07 0.08 2.52 2.60 (0.08) $(0.04) (0.12)
1997 13.55 0.09 3.09 3.18 (0.10) (0.07) (0.17)
1998 16.56 0.00 2.16 2.16 0.00 (0.49) (0.49)
AMERICAN VALUE
1994 (a) 10.00 0.06 0.01 0.07 (0.02) -- (0.02)
1995 10.05 0.21 3.66 3.87 (0.21) -- (0.21)
1996 13.71 0.08 1.68 1.76 (0.10) (0.07) (0.17)
1997 15.30 0.07 4.73 4.80 (0.06) (0.35) (0.41)
1998 19.69 0.13 5.57 5.70 (0.14) (1.94) (2.08)
MID-CAP GROWTH
1997 (b) 10.00 0.18 1.39 1.57 (0.17) -- (0.17)
1998 11.40 0.06 0.57 0.63 (0.07) (0.10) (0.17)
GLOBAL EQUITY
1994 (a) 10.00 0.07 (0.10) (0.03) (0.03) -- (0.03)
1995 9.94 0.29 1.05 1.34 (0.29) -- (0.29)
1996 10.99 0.15 1.10 1.25 (0.17) (0.01) (0.18)
1997 12.06 0.12 0.92 1.04 (0.11) (0.02) (0.13)
1998 12.97 0.14 1.81 1.95 (0.18) (0.05) (0.23)
DEVELOPING GROWTH
1994 (a) 10.00 0.08 0.08 0.16 (0.03) -- (0.03)
1995 10.13 0.24 4.88 5.12 (0.25) -- (0.25)
1996 15.00 0.02 1.92 1.94 (0.04)++ (0.02) (0.06)
1997 16.88 0.05 2.27 2.32 (0.04) -- (0.04)
1998 19.16 0.03 1.69 1.72 (0.04) (0.03) (0.07)
EMERGING MARKETS
1994 (a) 10.00 0.06 -- 0.06 (0.02) -- (0.02)
1995 10.04 0.29 (0.33) (0.04) (0.31) -- (0.31)
1996 9.69 0.16 1.51 1.67 (0.16) -- (0.16)
1997 11.20 0.06 0.11 0.17 (0.06) -- (0.06)
1998 11.31 0.07 (3.33) (3.26) (0.11)+++ (0.03) (0.14)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
(a) For the period November 9, 1994 (commencement of operations) through December 31, 1994.
(b) For the period January 21, 1997 (commencement of operations) through December 31, 1997.
+ Calculated based on the net asset value as of the last business day of the period.
++ Includes distributions from paid-in-capital of $0.01.
+++ Includes distributions from paid-in-capital of $0.04.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
RATIOS TO AVERAGE NET (AFTER EXPENSES WERE
ASSETS
(BEFORE EXPENSES WERE ASSUMED)
NET ASSETS ASSUMED) ------------------------
NET ASSET END OF ------------------------- NET PORTFOLIO
YEAR ENDED VALUE END TOTAL PERIOD NET INVESTMENT INVESTMENT TURNOVER
DECEMBER 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH
1994 (a) $ 10.05 0.67%(1) $ 316 2.50%*(2) 2.32%*(2) -- 4.82%(2) --
1995 11.07 13.29 3,956 2.50* (0.64) * -- 1.86 39%
1996 13.55 23.56 18,215 1.22 (0.03) 0.50% 0.69 47
1997 16.56 23.07 40,311 1.01 0.13 1.01 0.13 55
1998 18.23 13.22 53,504 1.06 0.01 1.06 0.01 223
AMERICAN VALUE
1994 (a) 10.05 0.69(1) 823 2.50*(2) 1.60*(2) -- 4.10(2) 10(1)
1995 13.71 38.95 38,235 0.96 1.11 -- 2.07 174
1996 15.30 12.95 120,904 0.71 0.52 0.69 0.54 232
1997 19.69 31.93 230,014 0.68 0.42 0.68 0.42 262
1998 23.31 30.78 371,633 0.66 0.62 0.66 0.62 325
MID-CAP GROWTH
1997 (b) 11.40 15.84(1) 19,236 1.12(2) 0.65(2) -- 1.77(2) 104(1)
1998 11.86 5.67 28,198 0.98 (0.40) -- 0.58 323
GLOBAL EQUITY
1994 (a) 9.94 (0.30) (1) 1,194 2.50*(2) 2.20*(2) -- 4.70(2) --
1995 10.99 13.76 17,074 1.69 1.09 -- 2.78 74
1996 12.06 11.43 59,246 1.25 0.69 0.72 1.22 62
1997 12.97 8.66 102,229 1.13 0.91 1.13 0.91 87
1998 14.69 15.11 125,522 1.10 1.01 1.10 1.01 80
DEVELOPING
GROWTH
1994 (a) 10.13 1.58(1) 380 2.50*(2) 2.31*(2) -- 4.81(2) 3(1)
1995 15.00 51.26 17,412 1.24 0.86 -- 2.10 80
1996 16.88 12.95 61,120 0.68 (0.04) 0.58 0.06 146
1997 19.16 13.77 82,690 0.60 0.26 0.60 0.26 149
1998 20.81 9.04 81,625 0.59 0.19 0.59 0.19 193
EMERGING
MARKETS
1994 (a) 10.04 0.57(1) 448 2.50*(2) 2.22*(2) -- 4.72(2) --
1995 9.69 (0.57) 4,092 2.50* 0.18* -- 2.68 36
1996 11.20 17.69 17,240 2.02 (0.10) 0.50 1.42 46
1997 11.31 1.27 23,815 1.71 0.49 1.71 0.49 91
1998 7.91 (29.03) 13,272 1.73 0.72 1.73 0.72 116
</TABLE>
<TABLE>
<C> <S>
- ---------------------
(a) For the period November 9, 1994 (commencement of operations) through December 31, 1994.
(b) For the period January 21, 1997 (commencement of operations) through December 31, 1997.
+ Calculated based on the net asset value as of the last business day of the period.
++ Includes distributions from paid-in-capital of $0.01.
+++ Includes distributions from paid-in-capital of $0.04.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
</TABLE>
EMPTY FOOTNOTE
105
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Money Market Portfolio, North
American Government Securities Portfolio, Diversified Income Portfolio, Balanced
Growth Portfolio (formerly Balanced Portfolio), Utilities Portfolio, Dividend
Growth Portfolio, Value-Added Market Portfolio, Growth Portfolio (formerly Core
Equity Portfolio), American Value Portfolio, Mid-Cap Growth Portfolio, Global
Equity Portfolio, Developing Growth Portfolio and Emerging Markets Portfolio
(constituting Morgan Stanley Dean Witter Select Dimensions Investment Series,
formerly Dean Witter Select Dimensions Investment Series, hereafter referred to
as the "Fund") at December 31, 1998, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 10, 1999
106
<PAGE>
Trustees
------------------------------------------------------------
<TABLE>
<S> <C>
Michael Bozic Dr. Manuel H. Johnson
Charles A. Fiumefreddo Michael E. Nugent
Edwin J. Garn Philip J. Purcell
John R. Haire John L. Schroeder
Wayne E. Hedien
</TABLE>
Officers
------------------------------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Thomas F. Caloia
TREASURER
<TABLE>
<S> <C>
Transfer Agent Independent Accountants
------------------------------------------------ ------------------------------------------------
Morgan Stanley Dean Witter Trust FSB PricewaterhouseCoopers LLP
Harborside Financial Center--Plaza Two 1177 Avenue of the Americas
Jersey City, New Jersey 07311 New York, New York 10036
</TABLE>
Investment Manager
------------------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
Sub-Advisors
------------------------------------------------------------
North American Government Securities
and Emerging Markets Portfolios
----------------------------------
TCW Funds Management, Inc.
Growth Portfolio
--------------
Morgan Stanley Dean Witter Investment Management Inc.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
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Hartford Life
Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
#40474
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MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS
INVESTMENT SERIES
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SELECT
DIMENSIONS
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ANNUAL REPORT
DECEMBER 31, 1998
MORGAN STANLEY DEAN WITTER
