<PAGE>
MORGAN STANLEY
DEAN WITTER
--------------------------------------------------------------
<TABLE>
<S> <C>
DIRECTORS OFFICERS
Barton M. Biggs Harold J. Schaaff, Jr.
CHAIRMAN OF THE BOARD PRESIDENT
Chairman, Director and Managing Stefanie V. Chang
Director, Morgan Stanley Dean VICE PRESIDENT
Witter Investment Management Inc.
and Morgan Stanley Dean Witter
Investment Management Limited;
Managing Director, Morgan Stanley Arthur J. Lev
& Co. Incorporated VICE PRESIDENT
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones Joseph P. Stadler
Partner, Richards & O'Neil, LLP VICE PRESIDENT
Graham E. Jones
Senior Vice President,
BGK Properties
John A. Levin Mary E. Mullin
Chairman and Chief SECRETARY
Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director Belinda A. Brady
Hammond Kennedy Whitney TREASURER
William G. Morton, Jr.
Chairman and Chief
Executive Officer,
Boston Stock Exchange Robin L. Conkey
Samuel T. Reeves ASSISTANT TREASURER
Chief Executive Officer,
Pinnacle Trading, L.L.C.
Fergus Reid
Chairman and Chief Executive
Officer, LumeLite Plastics
Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND
ADMINISTRATOR
Morgan Stanley Dean Witter
Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
Morgan Stanley & Co., Incorporated
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
</TABLE>
FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE, OR FOR ASSISTANCE
WITH YOUR ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786 OR
VISIT OUR WEBSITE AT WWW.MSDW.COM/IM
MORGAN STANLEY DEAN WITTER
STRATEGIC ADVISER FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
President's Letter................ 1
Managers' Reports and Portfolio of
Investments by Portfolio:
Conservative Portfolio.......... 3
Moderate Portfolio.............. 6
Aggressive Portfolio............ 9
Statement of Assets and
Liabilities....................... 12
Statement of Operations........... 13
Statement of Changes in Net
Assets............................ 14
Financial Highlights.............. 15
Notes to Financial Statements..... 18
</TABLE>
This report is authorized for distribution only when preceded or accompanied by
the prospectus of the Morgan Stanley Dean Witter Strategic Adviser Fund, Inc. To
receive a prospectus, which contains more complete information such as charges,
expenses, risk considerations and describes in detail each of the Portfolio's
investment policies to the prospective investor please call 1(800) 548-7786.
Please read the prospectus carefully before you invest or send money.
--------------------------------------------------------------------------------
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to present the Fund's Semi-Annual Report for the six months ended
June 30, 2000. Our Fund offers three Portfolios that are intended to provide
investors a range of asset allocation strategies designed to accommodate
different investors' philosophies, goals and risk tolerances. Set forth below is
a general market review for the first half of 2000.
MARKET REVIEW
Global equity and bond markets experienced a volatile first half of 2000. The
equity market euphoria of late 1999 continued into the first weeks of 2000, as
Y2K passed uneventfully and growth seemed to remain strong. However, rising
interest rates in the U.S. and increasing inflation fears finally caught up to
the market in March. In the ensuing hostile market environment, highly priced
new economy stocks suffered most, and global equities fell 10.5% from the peak
before stabilizing in June. Global equities finished the first half with returns
of -2.6% (based on the MSCI World Index). The S&P 500 Index returned -0.4% for
the first half. The MSCI EAFE Index also fared poorly, returning -4.1%, as
Japanese economic performance disappointed investors, and the Euro continued to
weaken. The weakness of non-U.S. stock market performance in the first half was
exacerbated by the continued fall of the Euro, which fell from parity versus the
U.S. dollar to 0.88 before regaining ground to 0.95 by the end of the second
quarter. The strong performers of 1999 were also hard hit by the contagion of
technology volatility from the United States. Japan fell 5.4%, while non-Japan
Asia fell 14.2%. The expected growth slowdown in the U.S. led investors to fear
weaker global demand for Asia's exports, particularly technology-related
products. Emerging markets, which had seen a strong 1999 on better economic
growth faltered as well, being negatively affected by the hostile environment in
the U.S., returning -8.0%. European stocks performed relatively better,
returning -3.1%, despite weaker currencies, as the economy remained resilient
and inflation dormant. Although economic fundamentals in the non-U.S. regions
were positive throughout the second quarter, capital markets worldwide continue
to be strongly influenced by U.S. fundamentals and sentiment.
Fixed income faced a challenging first half amidst fears of more Fed tightening
and increasing inflation. Anticipation of economic slowdown was reflected in the
U.S. bond market. As interest rates peaked, spreads began to widen in
anticipation of a recession-driven deterioration of credit quality. The
announcement of Treasury bond buy-backs further intensified the situation by
creating a supply shortfall at the long end of the Treasury curve. Treasuries
(+5.4%) outperformed corporates (+2.4%), mortgages (+4.3%), and high yield debt
(-1.4%). However, signs of a potential soft landing in June helped to stabilize
the market. The Lehman Brothers Aggregate Bond Index returned 4.0% in the first
half, outperforming equities. A surprising exception to the trend of widening
spreads experienced during the first half of the year was emerging market debt
(+8.1%), which outperformed due to improving economic performance of developing
countries.
As the equity market turned, in March, a rotation of leadership also took place.
Growth stocks, which had dominated the market since 1994, lost ground to value
stocks. As inflation continued to rise and the Federal Reserve made clear its
goal to slow the U.S. economy, fears of profit disappointments drove investors
to revalue overpriced growth stocks. The technology sector, the most overpriced
growth segment, fell 26% from peak to trough globally during this period. In
this environment of expected slowing growth, defensive sectors, such as health
care and utilities, outperformed other sectors.
--------------------------------------------------------------------------------
1
<PAGE>
MARKET OUTLOOK
We are now in a period of synchronized global growth, similar to the global boom
economy of 1986-1987. While the growth environment is beneficial for corporate
earnings, the attendant inflationary pressures have caused central banks to
embark on a tightening trend. Recent data in the U.S. indicates that the tighter
monetary environment has begun to have a real impact on the economy. After
several quarters of strong and resilient growth at a 5-6% pace, the economy is
showing signs of slowing to a more sustainable level. Inflation, which had begun
to rear its head in both headline and core CPI, now shows signs of moderating.
Although markets have now priced in a soft landing scenario, we remain cautious
and await further economic data. In the last two years, a second quarter
slowdown has been followed by re-acceleration in the third quarter. Unit labor
cost pressures have been low, despite the tightest labor market in over 20
years, but may already be rising. Strong growth would put further pressure on
the tight labor market, and accelerate labor cost pressures. In this event, we
would expect that the Fed, ever vigilant in its fight against inflation, would
be forced to raise interest rates further, and perhaps force a harder landing
than many now expect. Although the economic backdrops in Europe and Asia are
strikingly different than that of the U.S., foreign markets continue to take
their cue from the U.S. capital markets. In this way, economic policy in the
U.S. has a disproportionate effect on global equity markets.
On a global basis, equity valuations are below their highs, but remain very
extended. This is particularly true for the U.S. and Europe, and for select
sectors such as Technology and Telecom. Fixed income real yields are at fair
value, after rallying in June. As the economy in the U.S. cools, bonds will
benefit from a better inflation outlook, and remain sheltered from the impact of
potentially slowing earnings.
Portfolio manager commentary, performance statistics and other useful
information for each of the Fund's Portfolios are presented later in this
Report. We hope you find the enclosed Report informative. As always we very much
appreciate your continued support of the Fund.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT
July 2000
--------------------------------------------------------------------------------
2
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Fixed Income 77.3%
U.S. Equity 14.5%
International Equity 2.4%
International Fixed Income 1.9%
Other 3.9%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN 1-3 YEAR
GOVERNMENT BOND INDEX AND THE COMPOSITE INDEX(1)
-----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
-------- -------- ---------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A....... 1.29% 6.03% 7.08%
PORTFOLIO--CLASS B....... 1.19 5.88 6.80
LEHMAN 1-3 YEAR
GOVERNMENT BOND
INDEX.................. 3.00 4.85 5.18
COMPOSITE INDEX.......... 1.97 4.88 7.76
</TABLE>
1.The Lehman 1-3 Year Government Bond Index is comprised of government agency
and treasury securities with maturities of 1-3 years. The Composite Index is
comprised of 70% of the Lehman 1-3 Year Government Bond Index, 20% of the S&P
500 Index and 10% of the Salomon High Yield Market Index.
2.Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
----------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The Conservative Portfolio seeks the highest level of long-term total return
that is consistent with a relatively conservative level of risk. The Portfolio
invests primarily in certain fixed income portfolios, and, to a lesser degree,
certain equity portfolios of the Morgan Stanley Dean Witter Institutional
Fund, Inc. ("MSDWIF") Class A shares and the MAS Funds Institutional Class
shares. The Portfolio's assets are normally allocated within the ranges of
75%-85% fixed income and 15%-25% equities. The allocations are expected to be
relatively static with subtle periodic adjustments in response to market
developments. An investment in the Portfolio will be directly impacted by the
investment performance of the underlying Funds in which it invests. An
investment in the Portfolio is subject to all the risks of an investment in the
underlying Funds.
For the six months ended June 30, 2000, the Portfolio had a total return 1.29%
for the Class A shares and 1.19% for the Class B shares compared to 3.00% for
the Lehman 1-3 Year Government Bond Index (the "Lehman Index") and 1.97% for the
Composite Index. For the one year ended June 30, 2000, the Portfolio had a total
return of 6.03% for the Class A shares and 5.88% for the Class B shares compared
to 4.85% for the Lehman Index and 4.88% for the Composite Index. For the period
from inception on December 31, 1997 through June 30, 2000, the Portfolio had an
average annual total return of 7.08% for the Class A shares and 6.80% for the
Class B shares compared to 5.18% for the Lehman Index and 7.76% for the
Composite Index.
Our asset allocation during the first half of 2000 began with an overweight in
equities and ended in more of a neutral allocation to equity and fixed income.
We started the year with a strong growth orientation within equities, then began
increasing exposure to value late in the first quarter. We also held a small
opportunistic position in non-U.S. equities. As of June 30, our allocation to
U.S. equity funds was 14.5%, our allocation to non-U.S. equities funds was 2.4%.
Our allocation to
--------------------------------------------------------------------------------
Conservative Portfolio
3
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO (CONT.)
high yield funds and emerging market debt funds was 10.1%, while our allocation
to high quality U.S. fixed income funds was 69.1%.
The underperformance of the Portfolio was due to both security selection within
the underlying mutual funds and to allocation decisions. The primary driver of
underperformance was our opportunistic allocation away from U.S. equities to
non-U.S. markets. Although economic fundamentals in the non-U.S. area were
stronger than those in the U.S., these markets suffered far worse during market
gyrations. The MSDWIF Active International Allocation Portfolio fell 6.8%
year-to-date, through June 30, as Japan faltered and European currencies
weakened. The MSDWIF Asian Equity Portfolio (-9.73%) and the MSDWIF Emerging
Markets Portfolio (-4.77%) also stagnated as investors feared a slowing
U.S. economy would stall these markets' economic recovery, and higher
U.S. interest rates crowded out investment in risky emerging countries. The year
started with a 2% position in the MSDWIF Emerging Markets Portfolio, which was
gradually eliminated by June 30, and we still maintain the near 1% position in
MSDWIF Asian Equity Portfolio which we initiated in the first quarter. On the
security selection side, the MSDWIF U.S. Equity Plus Portfolio was a significant
contributor to underperformance, returning -2.19% year-to-date, lagging the
-0.4% return for the S&P 500 Index. The MAS Limited Duration Portfolio, which
represented nearly 70% of the Portfolio, underperformed its benchmark, returning
2.7%, behind the Lehman Index, which rose 3.0%. The MAS High Yield Portfolio
also lagged returning -1.7% relative to -1.4% for the Salomon High Yield Market
Index.
Several allocation and security selection strategies partially offset the
negative effects described above. These included opportunistic allocations to
the MSDWIF Emerging Markets Debt Portfolio (+7.0%), which outperformed
U.S. bonds, the MAS Mid Cap Growth Portfolio (+5.6%), the MAS Mid Cap Value
Portfolio (+6.4%), and the MAS Small Cap Growth Portfolio (+4.1%), which
outperformed large cap strategies. On the security selection side, the MSDWIF
Equity Growth Portfolio (+6.1%) and the MSDWIF Value Equity Portfolio (+2.9%)
both outperformed the S&P 500 Index (-0.4%).
Our investment strategy continues to have a neutral position in overall equity
exposure, with a slightly higher growth orientation relative to our increased
positions in value. Within U.S. equities, we are holding core positions in
MSDWIF Equity Growth and MSDWIF Value Equity Portfolios, and opportunistic
positions in MAS Mid Cap Growth and MAS Mid Cap Value Portfolios. The
overvaluation in the U.S. equity market remains concentrated in large cap growth
sectors and we find mid and small cap stocks to be more attractive on a relative
basis. We maintain an opportunistic allocation to non-U.S. equity markets as we
expect the positive fundamentals in these markets to be recognized by the
markets later this year. Within U.S. fixed income, we remain primarily short
duration. Although U.S. spread products represent attractive value, we are wary
that a slowing U.S. economy could continue to pressure corporate debt quality.
We are more bullish on emerging market debt relative to U.S. high yield debt, as
emerging markets continue to show better economic fundamentals.
Francine J. Bovich
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Conservative Portfolio
4
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
---------------------------------------------------------------------------------
INVESTMENTS (96.1%)
U.S. FIXED INCOME FUNDS (77.3%)
29,922 MAS High Yield Portfolio, Institutional Class .............. $ 249
209,364 MAS Limited Duration Portfolio, Institutional Class ........ 2,108
------
2,357
------
INTERNATIONAL FIXED INCOME FUNDS (1.9%)
17,800 MSDWIF Emerging Markets Debt Portfolio, Class A............. 57
------
U.S. EQUITY FUNDS (14.5%)
1,842 MAS Mid Cap Growth Portfolio, Institutional Class .......... 61
3,363 MAS Mid Cap Value Portfolio, Institutional Class ........... 79
6,335 MSDWIF Equity Growth Portfolio, Class A..................... 168
6,512 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 79
5,617 MSDWIF Value Equity Portfolio, Class A...................... 55
------
442
------
INTERNATIONAL EQUITY FUNDS (2.4%)
3,220 MSDWIF Active International Allocation Portfolio,
Class A................................................... 43
2,383 MSDWIF Asian Equity Portfolio, Class A...................... 31
------
74
------
TOTAL INVESTMENTS (96.1%) (Cost $2,956)................................ 2,930
OTHER ASSETS AND LIABILITIES -- NET (3.9%)............................. 119
------
NET ASSETS (100%)...................................................... $3,049
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Conservative Portfolio
5
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
MODERATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Fixed Income 47.0%
U.S. Equity 34.4%
International Equity 15.6%
International Fixed Income 1.0%
Other 2.0%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX
AND THE COMPOSITE INDEX(1)
-----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE
ANNUAL
YTD ONE YEAR SINCE INCEPTION
------------- --------- ---------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A... 0.28% 9.34% 10.26%
PORTFOLIO--CLASS B... 0.19 9.09 9.98
S&P 500 INDEX........ -0.42 7.25 19.18
COMPOSITE INDEX...... 0.52 6.87 11.47
</TABLE>
1. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These companies are a representative
sample of some 100 industries, chosen mainly for market size, liquidity and
industry group representation. The Composite Index is comprised of 40% of the
Lehman Intermediate Government/Corporate Bond Index, 35% of the S&P 500
Index, 15% of the Morgan Stanley Capital International (MSCI) Europe,
Australasia and Far East (EAFE) Index and 10% of the Salomon High Yield
Market Index.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
----------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The Moderate Portfolio seeks the highest level of long-term total return
consistent with a relatively moderate level of risk primarily through investment
in a mix of fixed income and equity portfolios of the Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") Class A shares and the MAS Funds
Institutional Class shares. The Portfolio's assets are normally allocated within
the range of 45%-55% equities and 45%-55% fixed income. The allocations are
expected to be relatively static with subtle periodic adjustments in response to
market developments. An investment in the Portfolio will be directly impacted by
the investment performance of the underlying Funds in which it invests. An
investment in the Portfolio is subject to all the risks of an investment in the
underlying Funds.
For the six months ended June 30, 2000, the Portfolio had a total return of
0.28% for the Class A shares and 0.19% for the Class B shares compared to -0.42%
for the S&P 500 Index and 0.52% for the Composite Index. For the one year ended
June 30, 2000, the Portfolio had a total return of 9.34% for the Class A shares
and 9.09% for the Class B shares compared to 7.25% for the S&P 500 Index and
6.87% for the Composite Index. For the period from inception on December 31,
1997 through June 30, 2000, the Portfolio had an average annual total return of
10.26% for the Class A shares and 9.98% for the Class B shares compared to
19.18% for the S&P 500 Index and 11.47% for the Composite Index.
Our asset allocation during the first half of 2000 began with an overweight in
equities and ended in more of a neutral allocation to equity and fixed income.
We started the year with a strong growth orientation within equities, then began
increasing exposure to value late in the first quarter. We also maintained our
overweight position in non-U.S. equities. As of June 30, our allocation to U.S.
equity funds was 34.4%, and our allocation to non-U.S. equities funds was 15.6%.
Our allocation to high
--------------------------------------------------------------------------------
Moderate Portfolio
6
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
MODERATE PORTFOLIO (CONT.)
yield and emerging market debt funds was 9.7%, while our allocation to high
quality U.S. fixed income funds was 38.3%.
The underperformance of the Portfolio was due to both security selection within
the underlying funds and to allocation decisions. The primary driver of
underperformance was our overweight to non-U.S. equity markets. Although
economic fundamentals in the non-U.S. area were stronger than those in the U.S.,
these markets suffered far worse during market gyrations. The MSDWIF Active
International Allocation Portfolio fell 6.8% year-to-date through June 30, as
Japan faltered and European currencies weakened. The MSDWIF Asian Equity
Portfolio (-9.73%) and the MSDWIF Emerging Markets Portfolio (-4.77%) also
stagnated as investors feared a slowing U.S. economy would stall these markets'
economic recovery, and higher U.S. interest rates crowded out investment in
risky emerging countries. The year started with a 2.7% position in MSDWIF
Emerging Markets Portfolio, which was gradually eliminated by June 30, and we
added a 1% position in MSDWIF Asian Equity Portfolio during the first quarter.
On the security selection side, the MSDWIF U.S. Equity Plus Portfolio was a
significant contributor to underperformance, returning -2.19% year-to-date,
lagging the -0.4% return for the S&P 500. The MAS Intermediate Duration
Portfolio, which represented nearly 38% of the Portfolio, underperformed its
benchmark, returning 2.0%, behind the Lehman Intermediate Government/ Corporate
Bond Index, which rose 3.2%. The MAS High Yield Portfolio also lagged, returning
-1.7% relative to -1.4% for the Salomon High Yield Market Index.
Several allocation and security selection strategies partially offset the
negative effects described above. These included opportunistic allocations to
the MSDWIF Emerging Markets Debt Portfolio (+7.0%), which outperformed U.S.
bonds, a new position in the MAS Mid Cap Value Portfolio (+6.4%), and a reduced
position in the MAS Small Cap Growth Portfolio (+4.1%), both of which
outperformed large cap strategies. On the security selection side, the MSDWIF
Equity Growth Portfolio (+6.1%) and the MSDWIF Value Equity Portfolio (+2.9%)
both outperformed the S&P 500 Index (-0.4%).
Our investment strategy continues to have a neutral position in overall equity
exposure, with a slightly higher growth orientation relative to our increased
positions in value. Within U.S. equities, we are holding core positions in
MSDWIF Equity Growth and MSDWIF Value Equity Portfolios, and opportunistic
positions in the MAS Small Cap Growth and MAS Mid Cap Value Portfolios. The
overvaluation in the U.S. equity market remains concentrated in large cap growth
sectors and we find mid and small cap stocks to be more attractive on a relative
basis. We maintain an overweight to non-U.S. equity markets, including an
opportunistic allocation to developing markets, as we expect the positive
fundamentals in these markets to be recognized by the markets later this year.
Within U.S. fixed income, we remain primarily medium term duration. Although
U.S. spread products represent attractive value, we are wary that a slowing
U.S. economy could continue to pressure corporate debt quality. We are more
bullish on emerging market debt relative to U.S. high yield debt, as emerging
markets continue to show better economic fundamentals.
Francine J. Bovich
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Moderate Portfolio
7
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MODERATE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
---------------------------------------------------------------------------------
INVESTMENTS (98.0%)
U.S. FIXED INCOME FUNDS (47.0%)
68,749 MAS High Yield Portfolio, Institutional Class .............. $ 572
265,645 MAS Intermediate Duration Portfolio, Institutional Class ... 2,532
------
3,104
------
INTERNATIONAL FIXED INCOME FUNDS (1.0%)
21,360 MSDWIF Emerging Markets Debt Portfolio, Class A............. 69
------
U.S. EQUITY FUNDS (34.4%)
7,839 MAS Mid Cap Value Portfolio, Institutional Class............ 183
2,895 MAS Small Cap Growth Portfolio, Institutional Class ........ 150
36,109 MSDWIF Equity Growth Portfolio, Class A..................... 961
37,757 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 456
52,789 MSDWIF Value Equity Portfolio, Class A...................... 521
------
2,271
------
INTERNATIONAL EQUITY FUNDS (15.6%)
49,403 MSDWIF Active International Allocation Portfolio,
Class A................................................... 656
4,425 MSDWIF Asian Equity Portfolio, Class A...................... 57
24,106 MSDWIF International Magnum Portfolio, Class A.............. 321
------
1,034
------
TOTAL INVESTMENTS (98.0%) (Cost $6,383)................................ 6,478
OTHER ASSETS AND LIABILITIES -- NET (2.0%)............................. 131
------
NET ASSETS (100%)...................................................... $6,609
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Moderate Portfolio
8
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Fixed Income 15.6%
U.S. Equity 48.8%
International Equity 34.0%
International Fixed Income 1.0%
Other 0.6%
</TABLE>
PERFORMANCE COMPARED TO THE MSCI WORLD INDEX
AND THE COMPOSITE INDEX(1)
---------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
AVERAGE
ANNUAL
YTD ONE YEAR SINCE INCEPTION
-------------- --------- ---------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A.... -0.08% 18.80% 16.18%
PORTFOLIO--CLASS B.... -0.16 18.44 15.93
MSCI WORLD INDEX...... -2.56 12.19 18.07
COMPOSITE INDEX....... -0.81 11.07 15.03
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/ Pacific region, including
dividends. The Composite Index is comprised of 50% of the Russell 3000 Index,
25% of the Morgan Stanley Capital International (MSCI) Europe, Australasia
and Far East (EAFE) Index, 15% of the Lehman Aggregate Bond Index and 10% of
the IFC Investable Emerging Markets Index.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
------------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The Aggressive Portfolio seeks the highest level of long-term capital
appreciation that is consistent with a relatively high level of risk primarily
through investment in certain equity portfolios, and, to a lesser degree,
certain fixed income portfolios of the Morgan Stanley Dean Witter Institutional
Fund, Inc. ("MSDWIF") Class A shares and the MAS Funds Institutional Class
shares. The Portfolio's assets are normally allocated within the range of
80%-90% equities and 10%-20% fixed income. The allocations are expected to be
relatively static with subtle periodic adjustments in response to market
developments. An investment in the Portfolio will be directly impacted by the
invested performance of the underlying Funds in which it invests. An investment
in the Portfolio is subject to all the risks of an investment in the underlying
Funds.
For the six months ended June 30, 2000, the Portfolio had a total return of
-0.08% for Class A shares and -0.16% for Class B shares compared to -2.56% for
the MSCI World Index and -0.81% for the Composite Index. For the one year ended
June 30, 2000, the Portfolio had a total return of 18.80% for the Class A shares
and 18.44% for the Class B shares compared to 12.19% for the MSCI World Index
and 11.07% for the Composite Index. For the period from inception on
December 31, 1997 through June 30, 2000, the Portfolio had an average annual
total return of 16.18% for the Class A shares and 15.93% for the Class B shares
compared to 18.07% for the MSCI World Index and 15.03% for the Composite Index.
Our asset allocation in the first half of 2000 modestly overweight equities
while underweighting fixed income. We started the year with a strong growth
orientation within equities, then began increasing exposure to value late in the
first quarter. We also maintained our overweight position in non-U.S. equities.
As of June 30, our allocation to U.S. equity funds was 48.8%, with a 34.0%
allocation to non-U.S. equity funds, including emerging markets. Our exposure to
U.S. fixed income funds was 15.6%.
--------------------------------------------------------------------------------
Aggressive Portfolio
9
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO (CONT.)
The outperformance of the Portfolio was primarily due to strong security
selection within the underlying mutual funds and secondarily to successful
marginal allocation decisions. The MSDWIF Equity Growth Portfolio which
represented nearly 17.9% of the Portfolio, was the largest contributor to
outperformance, returning 6.14% year-to-date through June 30, exceeding the
-0.4% return for the S&P 500 Index. In addition, the increased exposure to the
MSDWIF Value Equity Portfolio from 6% to 10% added favorably to performance as
it outperformed the S&P 500 Index by 3.3%. While we took some gains in the MAS
Small Cap Growth Portfolio, the near 5% position still had a positive impact on
returns as it outperformed the Russell 2000 Index by nearly 100 basis points.
The MSDWIF International Magnum Portfolio fell 2.3% year-to-date, outperforming
MSCI EAFE, which fell 4.1% for the same period. The MSDWIF International Magnum
Portfolio's emphasis on value oriented companies in Europe and underweight in
Japanese banks enable the Portfolio to navigate the turbulent markets
successfully.
Several allocation and security selection strategies partially offset the
positive effects described above. On the security selection side, the MSDWIF
U.S. Equity Plus Portfolio was a significant detraction from performance,
returning -2.19% year-to-date, lagging the -0.4% return for the S&P 500 Index.
The MAS Fixed Income Portfolio also underperformed its benchmark, returning
3.1%, behind the Salomon Broad Investment Grade Index, which rose 3.9%. Lastly,
both the MAS Mid Cap Growth and MAS Mid Cap Value Portfolios which represented
10% of the Portfolio underperformed the S&P Mid Cap Index by over 250 basis
points. On the allocation side, an opportunistic allocation to the MSDWIF Asian
Equity Portfolio detracted from performance as the Portfolio fell 9.73% in the
first half. Although Asian markets continue to experience strong economic
growth, their positive fundamentals were overwhelmed by NASDAQ's gyrations.
Our investment strategy continues to have a neutral position in overall equity
exposure, with a slightly higher growth orientation relative to our increased
positions in value. Within U.S. equities, we are holding core positions in
MSDWIF Equity Growth and MSDWIF Value Equity Portfolios, as well as the
MAS Small Cap Growth, MAS Mid Cap Growth and MAS Mid Cap Value Portfolios. We
maintain a slightly overweighted position to non-U.S. equity markets as we
expected these economies to surpass the U.S. in the year 2000. Within
U.S. fixed income, we have reduced duration slightly with the addition of the
MAS Limited Duration Portfolio, as we feel long bonds are at fair value after
the rally in June. We continue to hold an opportunistic allocation to emerging
market debt, as we expect continued strong economic performance in this region.
Francine J. Bovich
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Aggressive Portfolio
10
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
---------------------------------------------------------------------------------
INVESTMENTS (99.4%)
U.S. EQUITY FUNDS (48.8%)
13,540 MAS Mid Cap Growth Portfolio, Institutional Class .......... $ 447
11,650 MAS Mid Cap Value Portfolio, Institutional Class ........... 272
6,861 MAS Small Cap Growth Portfolio, Institutional Class ........ 356
48,711 MSDWIF Equity Growth Portfolio, Class A..................... 1,297
36,675 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 443
74,318 MSDWIF Value Equity Portfolio, Class A...................... 733
------
3,548
------
INTERNATIONAL EQUITY FUNDS (34.0%)
87,628 MSDWIF Active International Allocation Portfolio,
Class A................................................... 1,164
4,765 MSDWIF Asian Equity Portfolio, Class A...................... 62
37,147 MSDWIF Emerging Markets Portfolio, Class A.................. 682
42,293 MSDWIF International Magnum Portfolio, Class A.............. 563
------
2,471
------
U.S. FIXED INCOME FUNDS (15.6%)
90,057 MAS Fixed Income Portfolio, Institutional Class ............ 996
13,903 MAS Limited Duration Portfolio, Institutional Class......... 140
------
1,136
------
INTERNATIONAL FIXED INCOME FUNDS (1.0%)
21,360 MSDWIF Emerging Markets Debt Portfolio, Class A............. 68
------
TOTAL INVESTMENTS (99.4%) (Cost $6,591)................................ 7,223
OTHER ASSETS AND LIABILITIES -- NET (0.6%)............................. 43
------
NET ASSETS (100%)...................................................... $7,266
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Aggressive Portfolio
11
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at Cost...................................... $2,956 $6,383 $6,591
==========================================================================================================================
Investments, at Value..................................... $2,930 $6,478 $7,223
Cash...................................................... 16 89 16
Receivable for Investment Sold............................ 73 156 241
Deferred Organization Costs............................... 49 49 49
Receivable from Investment Adviser........................ 13 16 18
--------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................................ 3,081 6,788 7,547
--------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for Investments Purchased......................... -- (137) (240)
Payable for Shares Redeemed............................... -- (1) (2)
Professional Fees Payable................................. (19) (22) (23)
Shareholder Reporting Fees Payable........................ (11) (16) (13)
Custodian Fees Payable.................................... (2) (3) (3)
--------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES........................................... (32) (179) (281)
--------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $3,049 $6,609 $7,266
==========================================================================================================================
NET ASSETS CONSIST OF:
Paid in Capital........................................... $3,055 $6,434 $6,340
Undistributed (Accumulated) Net Investment Income
(Loss).................................................. (33) 88 10
Accumulated Net Realized Gain (Loss)...................... 53 (8) 284
Unrealized Appreciation (Depreciation) on Investments..... (26) 95 632
--------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $3,049 $6,609 $7,266
==========================================================================================================================
CLASS A:
------------------------------------------------------------
NET ASSETS.................................................. $2,440 $5,954 $6,519
SHARES ISSUED AND OUTSTANDING ($0.001 PAR VALUE)
(Authorized 1,500,000 shares)............................. 238 555 530
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE........................................... $10.22 $10.72 $12.29
==========================================================================================================================
CLASS B:
------------------------------------------------------------
NET ASSETS.................................................. $ 609 $ 655 $ 747
SHARES ISSUED AND OUTSTANDING ($0.001 PAR VALUE)
(Authorized 1,500,000 shares)............................. 60 61 61
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE........................................... $10.20 $10.70 $12.28
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
12
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from Underlying Funds........................... $ 86 $ 94 $ 18
Interest.................................................. -- -- 1
--------------------------------------------------------------------------------------------------------------------------
Total Income........................................... 86 94 19
--------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administrative Fees:
Basic Fee.............................................. 5 7 8
Less: Fees Waived...................................... (5) (7) (8)
---- ---- -----
-- -- --
Filing and Registration Fees............................... 20 18 19
Amortization of Organizational Costs....................... 10 10 10
Shareholder Reporting...................................... 8 12 11
Professional Fees.......................................... 2 7 9
Custodian Fees............................................. 2 3 5
Distribution Fees on Class B Shares........................ 1 1 1
Other Expenses............................................. 2 2 1
Expenses Reimbursed by Adviser............................. (39) (45) (44)
--------------------------------------------------------------------------------------------------------------------------
Total Net Expenses...................................... 6 8 12
--------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 80 86 7
--------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS):
Investments Sold.......................................... (31) 22 201
--------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION):
Investments............................................... (5) (88) (226)
--------------------------------------------------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)............................... (36) (66) (25)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................ $ 44 $ 20 $ (18)
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
13
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000) (000) (000)
---------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS:
Net Investment
Income.............. $ 80 $ 233 $ 86 $ 218 $ 7 $ 75
Net Realized
Gain/(Loss)......... (31) 156 22 497 201 884
Change in Unrealized
Appreciation
(Depreciation)...... (5) (9) (88) 187 (226) 807
---------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in Net
Assets Resulting
from Operations..... 44 380 20 902 (18) 1,766
---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
CLASS A:
Net Investment
Income.............. -- (298) -- (419) -- (382)
Net Realized Gain..... -- (54) -- (220) -- (382)
In Excess of Net
Realized Gain....... -- (27) -- (28) -- --
CLASS B:
Net Investment
Income.............. -- (40) -- (47) -- (44)
Net Realized Gain..... -- (7) -- (26) -- (46)
In Excess of Net
Realized Gain....... -- (4) -- (3) -- --
---------------------------------------------------------------------------------------------------------------------------
Total Distributions... -- (430) -- (743) -- (854)
---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:(1)
CLASS A:
Subscribed............ 1,650 2,969 1,371 2,574 2,895 2,464
Distributions
Reinvested.......... -- 378 -- 667 -- 764
Redeemed.............. (3,661) (2,029) (1,156) (2,248) (2,559) (2,035)
CLASS B:
Distributions
Reinvested.......... -- 52 -- 76 -- 90
---------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in
Capital Share
Transactions........ (2,011) 1,370 215 1,069 336 1,283
---------------------------------------------------------------------------------------------------------------------------
Total Increase
(Decrease) in Net
Assets.............. (1,967) 1,320 235 1,228 318 2,195
NET ASSETS:
Beginning of Period... 5,016 3,696 6,374 5,146 6,948 4,753
---------------------------------------------------------------------------------------------------------------------------
End of Period......... $ 3,049 $ 5,016 $ 6,609 $ 6,374 $ 7,266 $ 6,948
===========================================================================================================================
Undistributed net
investment income/
accumulated net
investment loss
included in end of
period net assets... $ (33) $ (113) $ 88 $ 2 $ 10 $ 3
---------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE
TRANSACTIONS:
CLASS A:
Shares Subscribed.... 163 283 129 236 236 214
Shares Issued on
Reinvesting
Distributions...... -- 38 -- 64 -- 65
Shares Redeemed...... (363) (191) (109) (202) (210) (175)
---------------------------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in
Class A Shares
Outstanding........ (200) 130 20 98 26 104
===========================================================================================================================
CLASS B:
Shares Issued on
Reinvesting
Distributions...... -- 5 -- 7 -- 8
---------------------------------------------------------------------------------------------------------------------------
Net Increase in
Class B Shares
Outstanding........ -- 5 -- 7 -- 8
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
14
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED YEAR ENDED ONE DAY ENDED
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.09 $ 10.18 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.08 0.56 0.35 --
Net Realized and Unrealized Gain...... 0.05 0.31 0.42 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... 0.13 0.87 0.77 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.76) (0.46) --
Net Realized Gain..................... -- (0.13) (0.11) --
In Excess of Net Realized Gain........ -- (0.07) (0.02) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (0.96) (0.59) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 10.22 $ 10.09 $ 10.18 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ 1.29% 8.69% 7.76% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)... $ 2,440 $ 4,414 $ 3,141 $ 517
Ratio of Expenses to Average Net Assets
(1)................................... 0.27%(a) 0.31% 0.32% 0.00%(a)
Investment Income to Average Net Assets
(1) .................................. 4.11%(a) 5.02% 5.31% 0.00%(a)
Portfolio Turnover...................... 32% 61% 129% 0%
--------------------------------
(1) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income............................ $ 0.04 $ 0.27 $ 0.27 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 2.48%(a) 2.74% 4.45% 0.00%(a)
Net Invetment Income to Average Net
Assets............................ 1.91%(a) 2.59% 1.21% 0.00%(a)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED YEAR ENDED ONE DAY ENDED
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.08 $ 10.18 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.20 0.50 0.52 --
Net Realized and Unrealized Gain...... (0.08) 0.33 0.23 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... 0.12 0.83 0.75 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.73) (0.44) --
Net Realized Gain..................... -- (0.13) (0.11) --
In Excess of Net Realized Gain........ -- (0.07) (0.02) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (0.93) (0.57) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 10.20 $ 10.08 $ 10.18 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ 1.19% 8.33% 7.52% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands)......................... $ 609 $ 602 $ 555 $ 516
Ratio of Expenses to Average Net
Assets (2) ......................... 0.54%(a) 0.56% 0.57% 0.00%(a)
Investment Income to Average Net
Assets (2) ......................... 4.08%(a) 4.73% 5.06% 0.00%(a)
Portfolio Turnover.................... 32% 61% 129% 0%
--------------------------------
(2) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net
Investment Income............... $ 0.14 $ 0.25 $ 0.42 $ 0.00
Ratios Before Expense Limitiation:
Expenses to Average Net Assets.... 3.26%(a) 2.90% 4.70% 0.00%(a)
Net Investment Income to Average
Net Assets...................... 1.38%(a) 2.39% 0.96% 0.00%(a)
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
The ratios of expenses to average net assets do not reflect the
expenses of the Underlying Funds attributable to the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
15
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
MODERATE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, YEAR ENDED ONE DAY ENDED
(UNAUDITED) 1999+ DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.69 $ 10.49 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.14 0.39 0.28 --
Net Realized and Unrealized Gain...... (0.11) 1.23 0.71 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... 0.03 1.62 0.99 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.89) (0.43) --
Net Realized Gain..................... -- (0.47) (0.03) --
In Excess of Net Realized Gain........ -- (0.06) (0.04) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (1.42) (0.50) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 10.72 $ 10.69 $ 10.49 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ 0.28% 15.79% 9.93% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)... $ 5,954 $ 5,720 $ 4,580 $ 517
Ratio of Expenses to Average Net Assets
(1)................................... 0.22%(a) 0.23% 0.25% 0.00%(a)
Ratio of Net Investment Income to
Average Net Assets (1)................ 2.71%(a) 3.59% 4.26% 0.00%(a)
Portfolio Turnover...................... 35% 87% 139% 0%
--------------------------------
(1) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income............................ $ 0.08 $ 0.26 $ 0.22 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 1.84%(a) 2.58% 3.63% 0.00%(a)
Net Investment Income to Average Net
Assets............................ 1.10%(a) 1.23% 0.88% 0.00%(a)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, YEAR ENDED ONE DAY ENDED
(UNAUDITED) 1999+ DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.68 $ 10.48 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.13 0.37 0.42 --
Net Realized and Unrealized Gain...... (0.11) 1.23 0.53 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... 0.02 1.60 0.95 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.87) (0.40) --
Net Realized Gain..................... -- (0.47) (0.03) --
In Excess of Net Realized Gain........ -- (0.06) (0.04) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (1.40) (0.47) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 10.70 $ 10.68 $ 10.48 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ 0.19% 15.54% 9.57% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)... $ 655 $ 654 $ 566 $ 516
Ratio of Expenses to Average Net Assets
(2) .................................. 0.47%(a) 0.48% 0.50% 0.00%(a)
Ratio of Net Investment Income to
Average Net Assets (2) ............... 2.47%(a) 3.35% 4.01% 0.00%(a)
Portfolio Turnover...................... 35% 87% 139% 0%
--------------------------------
(2) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income............................ $ 0.09 $ 0.26 $ 0.35 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 2.09%(a) 2.81% 3.88% 0.00%(a)
Net Investment Income to Average Net
Assets............................ 0.85%(a) 1.02% 0.63% 0.00%(a)
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
+ Per share amounts for the year ended December 31, 1999 are
based on average shares outstanding.
The ratios of expense to average net assets do not reflect
the expenses of the Underlying Funds attributable to the
Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
16
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED YEAR ENDED ONE DAY ENDED
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 12.30 $ 10.49 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.01 0.24 0.13 --
Net Realized and Unrealized Gain...... (0.02) 3.29 0.70 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... (0.01) 3.53 0.83 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.86) (0.24) --
Net Realized Gain..................... -- (0.86) (0.01) --
In Excess of Net Realized Gain........ -- -- (0.09) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (1.72) (0.34) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 12.29 $ 12.30 $ 10.49 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ (0.08)% 34.31% 8.38% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)... $ 6,519 $ 6,200 $ 4,194 $ 517
Ratio of Expenses to Average Net Assets
(1)................................... 0.26%(a) 0.28% 0.31% 0.00%(a)
Ratio of Net Investment Income to
Average Net Assets (1)................ 0.22%(a) 1.36% 2.18% 0.00%(a)
Portfolio Turnover...................... 30% 106% 188% 0%
--------------------------------
(1) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income............................ $ 0.09 $ 0.42 $ 0.23 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 1.83%(a) 2.66% 4.19% 0.00%(a)
Net Investment Income (Loss) to
Average Net Assets................ (1.27)%(a) (1.03)% (1.69)% 0.00%(a)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED YEAR ENDED ONE DAY ENDED
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 12.30 $ 10.50 $ 10.00 $ 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. -- 0.19 0.20 --
Net Realized and Unrealized Gain...... (0.02) 3.30 0.62 --
---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... (0.02) 3.49 0.82 --
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................. -- (0.83) (0.22) --
Net Realized Gain..................... -- (0.86) (0.01) --
In Excess of Net Realized Gain........ -- -- (0.09) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (1.69) (0.32) --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $ 12.28 $ 12.30 $ 10.50 $ 10.00
=================================================================================================================================
TOTAL RETURN............................ (0.16)% 33.88% 8.23% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)... $ 747 $ 748 $ 559 $ 516
Ratio of Expenses to Average Net Assets
(2)................................... 0.51%(a) 0.53% 0.56% 0.00%(a)
Ratio of Net Investment Income to
Average Net Assets (2)................ (0.04)%(a) 1.00% 1.93% 0.00%(a)
Portfolio Turnover...................... 30% 106% 188% 0%
--------------------------------
(2) Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income............................ $ 0.09 $ 0.46 $ 0.41 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 2.06%(a) 2.93% 4.44% 0.00%(a)
Net Investment Income (Loss) to
Average Net Assets................ (1.52)%(a) (1.39)% (1.94)% 0.00%(a)
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
The ratios of expenses to average net assets do not reflect the
expenses of the Underlying Funds attributable to the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
17
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Morgan Stanley Dean Witter Strategic Adviser Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund is a type of mutual fund often described
as a "fund of funds." The Fund consists of three separate investment portfolios:
Conservative Portfolio, Moderate Portfolio and Aggressive Portfolio, (each a
"Portfolio" and collectively, the "Portfolios") that invest primarily in
different combinations of the Class A shares of certain investment portfolios of
Morgan Stanley Dean Witter Institutional Fund, Inc. ("MSDWIF") and Institutional
Class shares of certain investment portfolios of MAS Funds (each an "Underlying
Fund" and collectively, the "Underlying Funds"). The MAS Funds are managed by an
affiliate of the Investment Adviser. The Fund currently offers two classes of
shares, Class A and Class B shares. Both classes have identical voting rights
(except shareholders of a Class have exclusive voting rights regarding any
matter relating solely to that Class of shares), dividend, liquidation and other
rights. The investment objective of the Conservative, Moderate and Aggressive
Portfolios is to seek the highest level of long-term total return that is
consistent with a relatively conservative level, moderate level or high level of
risk, respectively.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
1. SECURITY VALUATION: Investments in the Underlying Funds are valued at the net
asset value per share of the Underlying Fund at the close of each valuation day.
Short-term securities with a maturity date of less than 60 days are valued at
amortized cost which approximates market value.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable and tax-exempt income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The Portfolios of the Fund may enter into repurchase
agreements under which the Portfolio lends excess cash and takes possession of
securities with an agreement that the counterparty will repurchase such
securities. In connection with transactions in repurchase agreements, a bank as
custodian for the Fund takes possession of the underlying securities which are
held as collateral, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. In the event of default or bankruptcy by the counterparty to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. ORGANIZATIONAL COSTS: The Fund incurred organizational costs of approximately
$297,000 which have been capitalized and allocated equally to each Portfolio.
Such costs are being amortized on a straight line basis over a period of five
years beginning on December 31, 1997, the date the Fund commenced operations.
Morgan Stanley Dean Witter Investment Management Inc. has agreed that in the
event any of its initial shares which comprised the Fund at inception are
redeemed, the proceeds on redemption will be reduced by the pro-rata portion of
any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the initial shares held at time of redemption.
--------------------------------------------------------------------------------
18
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
5. OTHER: Realized gains and losses from the sale of the Underlying Funds are
determined on the specific identified cost basis. Dividend income and capital
gain distributions from the Underlying Funds are recorded on the ex-dividend
date. Most expenses of the Fund can be directly attributed to a particular
Portfolio. Expenses which cannot be directly attributed are apportioned among
the Portfolios based upon relative net assets. Income, expenses (other than
class specific expenses) and realized and unrealized gains or losses are
allocated to each class of shares of a Portfolio based upon their relative net
assets. Distributions from the Portfolios are recorded on the ex-distribution
date.
The amount and character of income and capital gain distributions to be paid by
the Fund are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for the character and timing
of the recognition of gains or losses on investments.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among undistributed net investment income
(loss), accumulated net realized gain (loss) and paid in capital. Permanent book
and tax differences, if any, are not included in ending undistributed net
investment income (loss) for the purpose of calculating net investment income
(loss) per share in the Financial Highlights.
B. INVESTMENT ADVISER AND ADMINISTRATOR: Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management" or the "Adviser"), a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., allocates the Portfolios'
investments in the Underlying Funds within the applicable ranges for each
Portfolio, at no charge, under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). The Adviser also provides the Fund with
administrative services pursuant to an administrative agreement for a monthly
fee which on an annual basis equals 0.15% of the average daily net assets of
each Portfolio, plus reimbursement of out-of-pocket expenses. Under an agreement
between the Adviser and The Chase Manhattan Bank ("Chase"), Chase provides
certain administrative services to the Fund through its corporate affiliate
Chase Global Funds Services Company ("CGFSC"). For such services, the Adviser
pays CGFSC a portion of the fee the Adviser receives from the Fund. Certain
employees of CGFSC are officers of the Fund.
The Adviser has agreed to reduce fees payable to it and to reimburse the
Portfolios, if necessary, if the annual operating expenses of the Portfolios
plus the operating expenses of the Underlying Funds attributable to the shares
owned by the Portfolios, expressed as a percentage of average daily net assets,
exceed the maximum annual ratios indicated as follows:
<TABLE>
<CAPTION>
MAXIMUM
EXPENSE RATIO
-------------------
PORTFOLIO CLASS A CLASS B
--------- -------- --------
<S> <C> <C>
Conservative Portfolio................. 0.80% 1.05%
Moderate Portfolio..................... 0.90% 1.15%
Aggressive Portfolio................... 1.10% 1.35%
</TABLE>
C. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., and an affiliate of
MSDW Investment Management, serves as the distributor of the Fund and provides
Class B shareholders of each applicable Portfolio with distribution services
pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Investment Company Act of 1940, as amended. Under the Plan, the Distributor
is entitled to receive from each Portfolio, a distribution fee, which is accrued
daily and paid quarterly, at an annual rate of 0.25% of the Class B shares'
average daily net assets.
D. CUSTODIAN: Chase serves as the custodian of the investments and cash of the
Portfolios.
--------------------------------------------------------------------------------
19
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
E. PURCHASES AND SALES: For the six months ended June 30, 2000, purchases and
sales of Underlying Funds were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
--------- ---------- --------
<S> <C> <C>
Conservative Portfolio................. $1,259 $3,236
Moderate Portfolio..................... 2,447 2,226
Aggressive Portfolio................... 2,393 2,112
</TABLE>
For the six months ended June 30, 2000, the Fund had no purchases and sales of
long-term U.S. Government securities.
F. OTHER: At June 30, 2000, cost, unrealized appreciation, unrealized
depreciation, and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
UNREALIZED
UNREALIZED UNREALIZED APPREC.
COST APPREC. DEPREC. (DEPREC.)
PORTFOLIO (000) (000) (000) (000)
--------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Conservative
Portfolio........... $2,956 $ 27 $ (53) $(26)
Moderate Portfolio... 6,383 261 (166) 95
Aggressive
Portfolio........... 6,591 665 (33) 632
</TABLE>
Certain Portfolios have investments in Underlying Funds which invest in
high-yield and/or foreign securities, including emerging markets.
Investments in high-yield securities are accompanied by a greater degree of
credit risk and the risk tends to be more sensitive to economic conditions than
higher-rated securities. In addition, these investments tend to have thinner
trading markets which may result in less availability of price quotations and a
risk that amounts realized upon disposition of a security will differ from such
quotations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated and
U.S. security market transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
From time to time, certain Portfolios of the Fund have shareholders that hold a
significant portion of a Portfolio's outstanding shares. Investment activities
of these shareholders could have a material impact on those Portfolios.
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS:
On July 5, 2000, PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund. The reports of PricewaterhouseCoopers LLP on the financial
statements of the Fund for the past two fiscal years contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. In connection with its audits
for the two most recent fiscal years and through July 5, 2000, there have been
no disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years. The Fund, with the
approval of its Board of Directors and Audit Committee engaged Ernst & Young LLP
as its independent accountants.
--------------------------------------------------------------------------------
20
