<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1994
FILE NO.: 2-82510
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 17 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18 /X/
------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Post-Effective
Amendment becomes effective
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_X_ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED THE RULE 24F-2 NOTICE FOR
ITS FISCAL YEAR ENDED DECEMBER 31, 1993 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JANUARY 20, 1994.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
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<S> <C>
PART A PROSPECTUS
1. ......................................... Cover Page
2. ......................................... Prospectus Summary
3. ......................................... Financial Highlights
4. ......................................... Investment Objectives and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary
5. ......................................... The Fund and Its Management; Investment Objectives and Policies
6. ......................................... Dividends, Distributions and Taxes; Additional Information
7. ......................................... Purchase of Fund Shares; Prospectus Summary
8. ......................................... Redemption of Fund Shares
9. ......................................... Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ......................................... Cover Page
11. ......................................... Table of Contents
12. ......................................... The Fund and Its Management
13. ......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. ......................................... The Fund and Its Management; Trustees and Officers
15. ......................................... The Fund and Its Management; Trustees and Officers
16. ......................................... The Fund and Its Management; Custodian and Transfer Agent;
Independent Accountants
17. ......................................... Portfolio Transactions and Brokerage
18. ......................................... Description of Shares of the Fund
19. ......................................... Purchase and Redemption of Fund Shares; Financial Statements
20. ......................................... Dividends, Distributions and Taxes
21. ......................................... Purchase and Redemption of Fund Shares
22. ......................................... Performance Information
23. ......................................... Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS DATED FEBRUARY 11, 1994
DEAN WITTER VARIABLE INVESTMENT SERIES
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550 OR (800) 526-3143
Dean Witter Variable Investment Series (the "Fund") is an open-end
diversified management investment company which is intended to provide a broad
range of investment alternatives with its eleven separate Portfolios, each of
which has distinct investment objectives and policies.
- THE MONEY MARKET PORTFOLIO
- THE QUALITY INCOME PLUS PORTFOLIO
- THE HIGH YIELD PORTFOLIO
- THE UTILITIES PORTFOLIO
- THE DIVIDEND GROWTH PORTFOLIO
- THE CAPITAL GROWTH PORTFOLIO
- THE GLOBAL DIVIDEND GROWTH PORTFOLIO
- THE EUROPEAN GROWTH PORTFOLIO
- THE PACIFIC GROWTH PORTFOLIO
- THE EQUITY PORTFOLIO
- THE MANAGED ASSETS PORTFOLIO
There can be no assurance that the investment objectives of the Portfolios
will be achieved. SEE "Prospectus Summary" and "Investment Objectives and
Policies."
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTORS IN THE HIGH YIELD PORTFOLIO SHOULD CAREFULLY CONSIDER THE RELATIVE
RISKS OF INVESTING IN HIGH YIELD SECURITIES, WHICH ARE COMMONLY KNOWN AS JUNK
BONDS. BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE
PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS IN THE HIGH YIELD
PORTFOLIO SHOULD ALSO BE COGNIZANT OF THE FACT THAT SUCH SECURITIES ARE NOT
GENERALLY MEANT FOR SHORT-TERM INVESTING AND SHOULD ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THE HIGH YIELD PORTFOLIO.
SHARES OF THE PORTFOLIOS OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
Currently, the shares of the Fund will be sold only to (1) Northbrook Life
Insurance Company ("Northbrook") to fund the benefits under certain flexible
premium deferred variable annuity contracts it issues, and to (2) Allstate Life
Insurance Company of New York ("Allstate New York") to fund the benefits under
certain flexible premium deferred variable annuity contracts it issues. The
variable annuity contracts issued by Northbrook and Allstate New York (the
"Companies") are sometimes referred to as the "Variable Annuity Contracts" or
the "Contracts." In the future, shares may be sold to affiliated and/or
non-affiliated entities of the Companies. The Companies will invest in shares of
the Fund in accordance with allocation instructions received from Contract
Owners, which allocation rights are further described in the accompanying
Prospectus for the Variable Annuity Contracts. The Companies will redeem shares
to the extent necessary to provide benefits under the Contracts.
This Prospectus sets forth concisely the information you should know before
allocating your investment under your Contract to the Fund. It should be read
and retained for future reference. Additional information about the Fund is
contained in the Statement of Additional Information, dated February 11, 1994,
which has been filed with the Securities and Exchange Commission, and which is
available at no charge upon request of the Fund at the address or telephone
numbers listed above. The Statement of Additional Information is incorporated
herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
DEAN WITTER INTERCAPITAL INC. -- Investment Manager
This Prospectus must be accompanied by a current Prospectus for the Variable
Annuity Contracts issued by Northbrook Life Insurance Company or Allstate Life
Insurance Company of New York. Both Prospectuses should be read and retained for
future reference.
<PAGE>
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION, IN CONNNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
AND THE STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING IN ANY
STATE IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
TABLE OF CONTENTS
Prospectus Summary/2
Financial Highlights/5
The Fund and its Management/7
Investment Objectives and Policies/8
The Money Market Portfolio/8
The Quality Income Plus Portfolio/10
The High Yield Portfolio/12
The Utilities Portfolio/15
The Dividend Growth Portfolio/17
The Capital Growth Portfolio/18
The Global Dividend Growth Portfolio/19
The European Growth Portfolio/20
The Pacific Growth Portfolio/21
The Equity Portfolio/23
The Managed Assets Portfolio/24
General Portfolio Techniques/25
Investment Restrictions/36
Determination of Net Asset Value/38
Purchase of Fund Shares/39
Redemption of Fund Shares/40
Dividends, Distributions and Taxes/40
Performance Information/42
Additional Information/42
Appendix--Ratings of Investments/44
PROSPECTUS SUMMARY
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<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business
Fund trust, and is an open-end diversified management investment company. The Fund is
comprised of eleven separate Portfolios: the Money Market Portfolio, the Quality
Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the
Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio,
the Equity Portfolio and the Managed Assets Portfolio (see pages 8, 10, 12, 15,
17, 18, 19, 20, 21, 23 and 24). The Trustees of the Fund may establish
additional Portfolios at any time. To the extent that shares are sold to the
Companies in order to fund the benefits under Contracts, the structure of the
Fund permits Contract Owners, within the limitations described in the Contracts,
to allocate the investments underlying the Contracts in response to or in
anticipation of changes in market or economic conditions. See the accompanying
Prospectus for the Variable Annuity Contracts for a description of the
relationship between increases or decreases in the net asset value of Fund
shares and any distributions on such shares, and benefits provided under a
Contract.
Each Portfolio is managed for investment purposes as if it were a separate fund
issuing a separate class of shares of beneficial interest, with $.01 par value.
The assets of each Portfolio are segregated, so that an interest in the Fund is
limited to the assets of the Portfolio in which shares are held and
shareholders, such as the Companies, are each entitled to a pro rata share of
all dividends and distributions arising from the net investment income and
capital gains, if any, of such Portfolio (see pages 40 and 42).
------------------------------------------------------------------------------------------------
Investment Each Portfolio has distinct investment objectives and policies, and is subject
Objectives, to various investment restrictions, some of which apply to all the Portfolios.
Policies, THE MONEY MARKET PORTFOLIO seeks high current income, preservation of capital
Restrictions and liquidity by investing in short-term money market instruments. THE QUALITY
and Risks INCOME PLUS PORTFOLIO seeks, as its primary objective, to earn a high level of
current income and, as a secondary objective,
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
capital appreciation, but only when consistent with its primary objective, by
investing primarily in U.S. Government securities and higher-rated fixed-income
securities and by writing covered options on such securities. THE HIGH YIELD
PORTFOLIO seeks, as a primary objective, to earn a high level of current income
and, as a secondary objective, seeks capital appreciation, but only when
consistent with its primary objective, by investing primarily in lower-rated
fixed-income securities, which are commonly known as junk bonds. THE UTILITIES
PORTFOLIO seeks to provide current income and long-term growth of income and
capital by investing primarily in equity and fixed-income securities of
companies engaged in the public utilities industry. THE DIVIDEND GROWTH
PORTFOLIO seeks to provide reasonable current income and long-term growth of
income and capital by investing primarily in common stock of companies with a
record of paying dividends and the potential for increasing dividends. THE
CAPITAL GROWTH PORTFOLIO seeks long-term capital growth by investing primarily
in common stocks. THE GLOBAL DIVIDEND GROWTH PORTFOLIO seeks to provide
reasonable current income and long-term growth of income and capital by
investing primarily in common stock of companies, issued by issuers worldwide,
with a record of paying dividends and the potential for increasing dividends.
THE EUROPEAN GROWTH PORTFOLIO seeks to maximize the capital appreciation of its
investments by investing primarily in securities issued by issuers located in
Europe. THE PACIFIC GROWTH PORTFOLIO seeks to maximize the capital appreciation
of its investments by investing primarily in securities issued by issuers
located in Asia, Australia and New Zealand. THE EQUITY PORTFOLIO seeks, as a
primary objective, capital growth through investments in common stock and, as a
secondary objective, income but only when consistent with its primary objective.
THE MANAGED ASSETS PORTFOLIO seeks a high total investment return through a
fully managed investment policy utilizing equity securities, investment grade
fixed-income securities and money market securities, and the writing of covered
options on such securities and the collateralized sale of stock index options.
The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital Growth
Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio,
the Pacific Growth Portfolio and the Managed Assets Portfolio may purchase put
and call options and may enter into transactions involving interest rate futures
contracts and bond index futures contracts and options thereon as a means of
hedging against changes in the market value of the Portfolio's investments. The
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio may also hedge against such changes by entering into
transactions involving stock index futures contracts and options thereon, and
(except for the European Growth Portfolio and the Pacific Growth Portfolio)
options on stock indexes. Investment in the Quality Income Plus Portfolio, the
High Yield Portfolio, the Utilities Portfolio, the Dividend Growth Portfolio,
the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific Growth Portfolio, the Equity Portfolio and the
Managed Assets Portfolio may involve more risk than investment in the Money
Market Portfolio. Investors in the High Yield Portfolio should carefully
consider the relative risks of investing in high yield securities and should be
cognizant of the fact that such securities are not generally meant for
short-term investing (see the discussion of lower-rated securities beginning on
page 12). Contract Owners are also directed to the discussion of options and
futures transactions (page 31), repurchase agreements (page 28), foreign
securities (page 25), forward foreign currency exchange contracts (page 27),
public utilities securities (page 16), warrants (page 30), zero coupon
securities (page 30), when-issued and delayed delivery securities and forward
commitments (page 28) and "when, as and if issued" securities (page 29),
concerning risks associated with such securities and management techniques. The
Fund is a single diversified investment company, consisting of eleven
Portfolios, and each Portfolio itself is diversified. Diversification does not
eliminate investment risk. Contract Owners should review the investment
objectives and policies of the Portfolios carefully and consider their ability
to assume the risks involved in allocating the investments underlying the
Contracts (see pages 8, 10, 12, 15, 17, 18, 19, 20, 21, 23 and 24).
</TABLE>
3
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<TABLE>
<S> <C>
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the
Manager Fund, and its wholly-owned subsidiary, Dean Witter Services Company Inc., serve
in various investment management, advisory, management and administrative
capacities to seventy-nine investment companies and other portfolios with assets
of approximately $71.2 billion at December 31, 1993. For its services as
Investment Manager, InterCapital receives a monthly advisory fee at an annual
rate of 0.50% of the daily net assets of each of the Money Market Portfolio, the
Quality Income Plus Portfolio, the High Yield Portfolio, the Equity Portfolio
and the Managed Assets Portfolio, at an annual rate of 0.625% of the daily net
assets of the Dividend Growth Portfolio, at an annual rate of 0.65% of the daily
net assets of each of the Utilities Portfolio and the Capital Growth Portfolio,
at an annual rate of 0.75% of the daily net assets of the Global Dividend Growth
Portfolio, and at an annual rate of 1.0% of the daily net assets of each of the
European Growth Portfolio and the Pacific Growth Portfolio. Morgan Grenfell
Investment Services Limited has been retained by the Investment Manager as
Sub-Adviser to the European Growth Portfolio and the Pacific Growth Portfolio to
provide investment advice and manage the portfolios, subject to the overall
supervision of the Investment Manager. Morgan Grenfell Investment Services
Limited currently manages assets in excess of $7.5 billion primarily for U.S.
corporate and public employee plans, endowments, investment companies and
foundations. The Sub-Adviser receives a monthly fee from the Investment Manager
equal to 40% of the Investment Manager's monthly fee in respect of each of the
European Growth Portfolio and the Pacific Growth Portfolio. (see page 7).
------------------------------------------------------------------------------------------------
Shareholders Currently, shares of the Fund are sold only to (1) Northbrook Life Insurance
Company ("Northbrook") for allocation to Northbrook Variable Annuity Account and
Northbrook Variable Annuity Account II to fund the benefits under certain
flexible premium variable annuity contracts issued by Northbrook, and to (2)
Allstate Life Insurance Company of New York ("Allstate New York") for allocation
to Allstate Life of New York Variable Annuity Account and Allstate Life of New
York Variable Annuity Account II to fund the benefits under certain flexible
premium deferred variable annuity contracts issued by Allstate New York. (The
Northbrook Variable Annuity Account, the Northbrook Variable Annuity Account II,
the Allstate Life of New York Variable Annuity Account and the Allstate Life of
New York Variable Annuity Account II are sometimes referred to individually as
an "Account" and collectively as the "Accounts.") Accordingly, the interest of
the Contract Owner with respect to the Fund is subject to the terms of the
Contract and is described in the accompanying Prospectus for the Variable
Annuity Contracts, which should be reviewed carefully by a person considering
the purchase of a Contract. The accompanying Prospectus for the Variable Annuity
Contracts describes the relationship between increases or decreases in the net
asset value of Fund shares and any distributions on such shares, and the
benefits provided under a Contract. The rights of Northbrook and Allstate New
York (the "Companies") as shareholders of the Fund should be distinguished from
the rights of a Contract Owner which are described in the Contract. In the
future, shares may be allocated to certain other separate accounts or sold to
affiliated and/or non-affiliated entities of the Companies in connection with
variable annuity contracts or variable life insurance contracts. As long as
shares of the Fund are sold only to the Companies, the terms "shareholder" or
"shareholders" in this Prospectus shall refer to the Companies. It is
conceivable that in the future it may become disadvantageous for both variable
life and variable annuity contract separate accounts to invest in the same
underlying fund (see page 39).
------------------------------------------------------------------------------------------------
Purchases and Dean Witter Distributors Inc. is the distributor of the Fund's shares. Shares of
Redemptions the Fund are sold and redeemed at net asset value, I.E., without sales charge
(see pages 39 and 40).
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION, AND THE
ACCOMPANYING PROSPECTUS FOR THE VARIABLE ANNUITY CONTRACTS.
4
<PAGE>
FINANCIAL HIGHLIGHTS
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The following per share data and ratios for a share of beneficial interest
outstanding throughout each period for each of the Money Market Portfolio, the
Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities
Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the
European Growth Portfolio, the Equity Portfolio and the Managed Assets Portfolio
have been audited by Price Waterhouse, independent accountants. The financial
highlights should be read in conjunction with the financial statements, notes
thereto, and the unqualified report of independent accountants,
which are contained in the Statement of Additional Information. Further
information about the performance of the Portfolios of the Fund is contained in
the Fund's Annual Report to Shareholders, which may be obtained without charge
upon request to the Fund. See the discussion under the caption "Charges and
Other Deductions" in the accompanying prospectus for the Variable Annuity
Contracts for a description of charges which may be imposed on the Contracts by
the applicable Account. Any such charges are not reflected in the financial
highlights below.
<TABLE>
<CAPTION>
REALIZED
NET ASSET AND
YEAR VALUE INVESTMENT UNREALIZED TOTAL FROM TOTAL DIVIDENDS
ENDED BEGINNING INCOME-- GAIN INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
DEC. 31 OF PERIOD NET (LOSS)--NET OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ----------- ----------- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
1984* $ 1.00 $ .077 $ -0- $ .077 $ (.077) $ -0- $ (.077)
1985 1.00 .076 -0- .076 (.076) -0- (.076)
1986 1.00 .062 -0- .062 (.062) -0- (.062)
1987 1.00 .061 -0- .061 (.061) -0- (.061)
1988 1.00 .070 -0- .070 (.070) -0- (.070)
1989 1.00 .086 -0- .086 (.086) -0- (.086)
1990 1.00 .076 -0- .076 (.076) -0- (.076)
1991 1.00 .056 -0- .056 (.056) -0- (.056)
1992 1.00 .034 -0- .034 (.034) -0- (.034)
1993 1.00 .027 -0- .027 (.027) -0- (.027)
QUALITY INCOME PLUS PORTFOLIO
1987** 10.00 .64 (.39) .25 (.64) -0- (.64)
1988 9.61 .85 (.16) .69 (.85) -0- (.85)
1989 9.45 .88 .28 1.16 (.88) -0- (.88)
1990 9.73 .86 (.24) .62 (.86) -0- (.86)
1991 9.49 .85 .85 1.70 (.85) -0- (.85)
1992 10.34 .77 .05 .82 (.77) -0- (.77)
1993 10.39 .69 .64 1.33 (.69) -0- (.69)
HIGH YIELD PORTFOLIO
1984* 10.00 .92 .23 1.15 (.92) -0- (.92)
1985 10.23 1.17 1.50 2.67 (1.17) (.01) (1.18)
1986 11.72 1.09 .90 1.99 (1.09) (.56) (1.65)
1987 12.06 .91 (1.15) (.24) (.91) (.94) (1.85)
1988 9.97 1.14 (.05) 1.09 (1.14) -0- (1.14)
1989 9.92 1.30 (2.40) (1.10) (1.30) -0- (1.30)
1990 7.52 1.13 (2.91) (1.78) (1.13) (.06)++ (1.19)
1991 4.55 .70 1.81 2.51 (.70) (.11)++ (.81)
1992 6.25 .96 .18 1.14 (.96) -0- (.96)
1993 6.43 .81 .68 1.49 (.81) -0- (.81)
UTILITIES PORTFOLIO
1990*** 10.00 .47 (.04) .43 (.41) -0- (.41)
1991 10.02 .54 1.45 1.99 (.54) -0- (.54)
1992 11.47 .51 .88 1.39 (.52) -0- (.52)
1993 12.34 .49 1.43 1.92 (.50) (.02) (.52)
DIVIDEND GROWTH PORTFOLIO
1990*** 10.00 .33 (1.10) (.77) (.30) -0- (.30)
1991 8.93 .36 2.08 2.44 (.37) -0- (.37)
1992 11.00 .37 .51 .88 (.37) -0- (.37)
1993 11.51 .36 1.27 1.63 (.36) -0- (.36)
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSETS ---------------------
YEAR NET ASSET TOTAL AT END OF NET
ENDED VALUE END INVESTMENT PERIOD INVESTMENT PORTFOLIO
DEC. 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME TURNOVER RATE
----------- --------- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
1984* $ 1.00 7.63%(1) $ 13,433 1.33%(2) 9.77%(2) N/A
1985 1.00 7.85 16,386 .74 7.57 N/A
1986 1.00 6.39 42,194 .69 6.03 N/A
1987 1.00 6.26 69,467 .65 6.26 N/A
1988 1.00 7.23 77,304 .62 7.04 N/A
1989 1.00 9.05 76,701 .58 8.67 N/A
1990 1.00 7.89 118,058 .57 7.60 N/A
1991 1.00 5.75 104,277 .57 5.62 N/A
1992 1.00 3.43 96,151 .59 3.38 N/A
1993 1.00 2.75 129,925 .57 2.71 N/A
QUALITY INCOME PLUS PORTFOLIO
1987** 9.61 2.62(1) 24,094 .35(2)(4) 8.33(2) 265 %
1988 9.45 7.32 28,037 .73 8.87 277
1989 9.73 12.78 48,784 .70 9.09 242
1990 9.49 6.84 57,407 .66 9.09 166
1991 10.34 18.75 81,918 .60 8.39 105
1992 10.39 8.26 163,368 .58 7.41 148
1993 11.03 12.99 487,647 .56 6.17 219
HIGH YIELD PORTFOLIO
1984* 10.23 11.97(1) 44,823 .89(2) 11.89(2) 77
1985 11.72 27.42 101,253 .64 10.50 237
1986 12.06 18.13 204,754 .56 9.10 164
1987 9.97 (3.02) 191,631 .53 7.66 287
1988 9.92 10.83 192,290 .56 11.06 140
1989 7.52 (12.44) 96,359 .55 13.94 54
1990 4.55 (25.54) 27,078 .69 17.98 42
1991 6.25 58.14 34,603 1.01 12.29 300
1992 6.43 18.35 40,042 .74 14.05 204
1993 7.11 24.08 90,200 .60 11.80 177
UTILITIES PORTFOLIO
1990*** 10.02 4.52(1) 37,597 .40(2)(5) 6.38(2) 46
1991 11.47 20.56 68,449 .80 5.23 25
1992 12.34 12.64 153,748 .73 4.63 26
1993 13.74 15.69 490,934 .71 3.75 11
DIVIDEND GROWTH PORTFOLIO
1990*** 8.93 (7.81)(1) 57,282 .54(2)(5) 4.50(2) 19
1991 11.00 27.76 98,023 .73 3.61 6
1992 11.51 8.16 192,551 .69 3.42 4
1993 12.78 14.34 483,145 .68 3.01 6
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
5
<PAGE>
Financial Highlights (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REALIZED
NET ASSET AND
YEAR VALUE INVESTMENT UNREALIZED TOTAL FROM TOTAL DIVIDENDS
ENDED BEGINNING INCOME-- GAIN INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
DEC. 31 OF PERIOD NET (LOSS)--NET OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ----------- ----------- ----------- ------------ ---------------- ----------------
CAPITAL GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
1991**** $ 10.00 $ .15 $ 2.67 $ 2.82 $ (.13) $ -0- $ (.13)
1992 12.69 .07 .13 .20 (.08) (.02) (.10)
1993 12.79 .08 (.98) (.90) (.08) -0- (.08)
EUROPEAN GROWTH PORTFOLIO
1991**** 10.00 .25 (.13) .12 (.23) -0- (.23)
1992 9.89 .08 .32 .40 (.10) (.01) (.11)
1993 10.18 .12 3.98 4.10 (.12) (.13) (.25)
EQUITY PORTFOLIO
1984* 10.00 .41 .72 1.13 (.34) -0- (.34)
1985 10.79 .43 2.01 2.44 (.46) (.03) (.49)
1986 12.74 .39 1.74 2.13 (.39) (.07) (.46)
1987 14.41 .30 (.94) (.64) (.33) (.95) (1.28)
1988 12.49 .39 .83 1.22 (.35) -0- (.35)
1989 13.36 .71 1.77 2.48 (.70) -0- (.70)
1990 15.14 .48 (1.03) (.55) (.49) -0- (.49)
1991 14.10 .20 8.05 8.25 (.21) -0- (.21)
1992 22.14 .23 (.47) (.24) (.24) (1.86) (2.10)
1993 19.80 .15 3.63 3.78 (.15) (1.28) (1.43)
MANAGED ASSETS PORTFOLIO
1987** 10.00 .48 (.35) .13 (.48) -0- (.48)
1988 9.65 .70 .51 1.21 (.64) -0- (.64)
1989 10.22 .84 .20 1.04 (.79) (.06) (.85)
1990 10.41 .61 (.46) .15 (.67) (.08) (.75)
1991 9.81 .47 2.24 2.71 (.50) -0- (.50)
1992 12.02 .44 .41 .85 (.45) (.13) (.58)
1993 12.29 .38 .86 1.24 (.38) (.47) (.85)
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSETS ---------------------
YEAR NET ASSET TOTAL AT END OF NET
ENDED VALUE END INVESTMENT PERIOD INVESTMENT PORTFOLIO
DEC. 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME TURNOVER RATE
----------- --------- ---------- ---------- ----------- -------- -------------
CAPITAL GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
1991**** $ 12.69 28.41%(1) $ 18,400 -0-%(2)(6) 1.82%(2) 32 %
1992 12.79 1.64 45,105 .86 .62 22
1993 11.81 (6.99) 50,309 .74 .78 36
EUROPEAN GROWTH PORTFOLIO
1991**** 9.89 1.34(1) 3,653 -0-(2)(6) 3.18(2) 77
1992 10.18 3.99 10,686 1.73 .74 97
1993 14.03 40.88 79,052 1.28 .97 77
EQUITY PORTFOLIO
1984* 10.79 11.27(1) 7,652 1.47(2)(3) 5.59(2) 112
1985 12.74 23.66 30,045 .73 3.99 73
1986 14.41 16.85 43,266 .63 2.72 89
1987 12.49 (6.23) 52,502 .59 2.02 63
1988 13.36 9.84 39,857 .65 2.77 162
1989 15.14 18.83 58,316 .60 4.85 81
1990 14.10 (3.62) 41,234 .62 3.38 130
1991 22.14 59.05 63,524 .64 1.09 214
1992 19.80 .05 77,527 .62 1.22 286
1993 22.15 19.72 182,828 .58 .69 265
MANAGED ASSETS PORTFOLIO
1987** 9.65 1.23(1) 27,016 .38(2)(4) 6.73(2) 172
1988 10.22 12.79 61,947 .66 7.29 310
1989 10.41 10.67 88,712 .57 8.38 282
1990 9.81 1.56 68,447 .58 6.10 163
1991 12.02 28.26 87,779 .60 4.34 86
1992 12.29 7.24 136,741 .58 3.74 87
1993 12.68 10.38 287,502 .57 3.11 57
</TABLE>
- ------------
* March 9, 1984 (Commencement of Operations) through December 31, 1984.
** March 1, 1987 (Commencement of Operations) through December 31, 1987.
*** March 1, 1990 (Commencement of Operations) through December 31, 1990.
**** March 1, 1991 (Commencement of Operations) through December 31, 1991.
+ Does not reflect the deduction of sales load.
++ Distribution from capital.
(1) Not annualized.
(2) Annualized.
(3) Net of expense reimbursement. If the Investment Manager had not
reimbursed the Equity Portfolio for expenses in excess of the applicable
expense limitation, the ratio of expenses to average net assets would
have been 2.19%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1987 through August 26, 1987, the
ratio of expenses to average net assets would have been .74% ($.06) for
the Quality Income Plus Portfolio and .74% ($.06) for the Managed Assets
Portfolio.
(5) If the Investment Manager had not assumed all expenses and waived the
management fee for the periods March 1, 1990 through August 31, 1990 for
the Utilities Portfolio and March 1, 1990 through June 26, 1990 for the
Dividend Growth Portfolio, the ratio of expenses to average net assets
would have been .75% ($.06) for the Utilities Portfolio and .74% ($.05)
for the Dividend Growth Portfolio.
(6) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1991 through December 31, 1991,
the ratio of expenses to average net assets would have been 1.60% ($.13)
for the Capital Growth Portfolio and 4.12% ($.32) for the European Growth
Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS
Note: Information is not included for the Global Dividend Growth Portfolio and
the Pacific Growth Portfolio because those Portfolios did not commence
operations prior to the date of this Prospectus.
6
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Variable Investment Series (the "Fund") is an open-end
diversified management investment company. The Fund is a Trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on February 25, 1983.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to seventy-nine investment companies, twenty-seven of
which are listed on the New York Stock Exchange, with combined total assets of
approximately $69.2 billion at December 31, 1993. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
With regard to the European Growth Portfolio and the Pacific Growth
Portfolio, under Sub-Advisory Agreements between Morgan Grenfell Investment
Services Limited (the "Sub-Adviser") and the Investment Manager, the Sub-Adviser
provides the European Growth Portfolio with investment advice and portfolio
management relating to that Portfolio's investments in securities issued by
issuers located in Europe and in other countries located elsewhere around the
world, and provides the Pacific Growth Portfolio with investment advice and
portfolio management relating to that Portfolio's investments in securities
issued by issuers located in Asia, Australia and New Zealand and in countries
located elsewhere around the world, in each case subject to the overall
supervision of the Investment Manager. The Sub-Adviser, whose address is 20
Finsbury Circus, London, England, currently manages assets in excess of $7.5
billion primarily for U.S. corporate and public employee benefit plans,
endowments, investment companies and foundations. The Sub-Adviser is an indirect
subsidiary of Deutsche Bank AG, the largest commercial bank in Germany.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager (and, for the European Growth Portfolio and
the Pacific Growth Portfolio, by the Sub-Adviser) to ensure that the Fund's
general investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund currently
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.50% to the net assets of each of the Money Market
Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the
Equity Portfolio and the Managed Assets Portfolio, by applying the annual rate
of 0.625% to the net assets of the Dividend Growth Portfolio, by applying the
annual rate of 0.65% to the net assets of each of the Utilities Portfolio and
the Capital Growth Portfolio, by applying the annual rate of 0.75% to the net
assets of the Global Dividend Growth Portfolio, and by applying the annual rate
of 1.0% to the net assets of each of the European Growth Portfolio and the
Pacific Growth Portfolio, in each case determined as of the close of each
business day. As compensation for its
7
<PAGE>
services provided to the European Growth Portfolio and the Pacific Growth
Portfolio pursuant to the Sub-Advisory Agreements in respect of those
Portfolios, the Investment Manager pays the Sub-Adviser monthly compensation
equal to 40% of its monthly compensation in respect of each of the European
Growth Portfolio and the Pacific Growth Portfolio.
For the year ended December 31, 1993, the Fund accrued total compensation to
the Investment Manager amounting to 0.50% of the average daily net assets of
each of the Money Market Portfolio, the Quality Income Plus Portfolio, the High
Yield Port-
folio, the Equity Portfolio and the Managed Assets Portfolio, 0.625% of the
average daily net assets of the Dividend Growth Portfolio, 0.65% of the average
daily net assets of each of the Utilities Portfolio and the Capital Growth
Portfolio and 1.0% of the average daily net assets of the European Growth
Portfolio. The total expenses of the Money Market Portfolio amounted to 0.57% of
its average daily net assets, the total expenses of the Quality Income Plus
Portfolio amounted to 0.56% of its average daily net assets, the total expenses
of the High Yield Portfolio amounted to 0.60% of its average daily net assets,
the total expenses of the Equity Portfolio amounted to 0.58% of its average
daily net assets, the total expenses of the Managed Assets Portfolio amounted to
0.57% of its average daily net assets, the total expenses of the Dividend Growth
Portfolio amounted to 0.68% of its average daily net assets, the total expenses
of the Utilities Portfolio amounted to 0.71% of its average daily net assets,
the total expenses of the Capital Growth Portfolio amounted to 0.74% of its
average daily net assets, and the total expenses of the European Growth
Portfolio amounted to 1.29% of its average daily net assets.
The Global Dividend Growth Portfolio and the Pacific Growth Portfolio did
not commence operations prior to the date of this Prospectus. The Investment
Manager has undertaken to assume all operating expenses of each of these
Portfolios (except for any brokerage fees) and waive the compensation provided
for each of these Portfolios in its Management Agreement with the Fund until
such time as the Portfolio has $50 million of net assets or until six months
from the date of the Portfolio's commencement of operations, whichever occurs
first.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
The investment objectives of the Money Market Portfolio are high current
income, preservation of capital and liquidity. The Money Market Portfolio seeks
to achieve those objectives by investing in the following money market
instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal Land
Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (see the discussion of foreign securities under "General Portfolio
Techniques" below);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
prin-
8
<PAGE>
cipal amount of the obligation is insured by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation, limited to
$100,000 principal amount per certificate and to 10% or less of the Portfolio's
total assets in all such obligations and in all illiquid assets, in the
aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the highest grade by Moody's Investors
Service, Inc. ("Moody's"), or, if not rated, issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's;
CORPORATE OBLIGATIONS. Corporate obligations, rated at least A by S&P or
Moody's, maturing in one year or less.
See the Appendix for an explanation of S&P and Moody's ratings.
VARIABLE RATE OBLIGATIONS. The interest rates payable on certain securities
in which the Money Market Portfolio may invest are not fixed and may fluctuate
based upon changes in market rates. Obligations of this type are called
"variable rate" obligations. The interest rate payable on a variable rate
obligation is adjusted either at predesignated periodic intervals or whenever
there is a change in the market rate of interest on which the interest rate
payable is based.
The Money Market Portfolio may enter into repurchase agreements and purchase
securities on a when-issued or delayed delivery basis, in each case in
accordance with the description of those techniques (and subject to the risks)
set forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
The investment objectives and policies stated above may not be changed
without the approval of the shareholders of the Money Market Portfolio. The
Money Market Portfolio may not invest in securities other than the types of
securities listed above and is subject to other specific investment restrictions
as detailed under "Investment Restrictions" below and in the Statement of
Additional Information.
Although the Money Market Portfolio will not generally be managed with a
policy of active short-term trading, it may dispose of any portfolio security
prior to its maturity if, on the basis of a revised credit evaluation of the
issuer or other circumstances or considerations, the Investment Manager believes
such disposition advisable.
The Money Market Portfolio is expected to have a high portfolio turnover due
to the short maturities of securities purchased, but this should not affect
income or net asset value as brokerage commissions are not normally charged on
the purchase or sale of money market instruments.
The Money Market Portfolio will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of varying
maturities and risks. The Money Market Portfolio will not, however, invest in
securities that mature in more than one year from the date of purchase (see
"Determination of Net Asset Value"). The amounts invested in obligations of
various maturities of one year or less will depend on management's evaluation of
the risks involved. Longer-term issues, while generally paying higher interest
rates, are subject to greater fluctuations in value resulting from general
changes in interest rates than shorter-term issues. Thus, when rates on new debt
securities increase, the value of outstanding securities may decline, and vice
versa. Such changes may also occur, but to a lesser degree, with short-term
issues. These changes, if realized, may cause fluctuations in the amount of
daily dividends and, in extreme cases, could cause the net asset value per share
to decline (see "Determination of Net Asset Value"). Longer-term issues also
increase the risk that the issuer may be unable to pay an installment of
interest or principal at maturity. Also, in the event of unusually large
redemption demands, such securities may have to be sold at a loss prior to
maturity, or the Money Market Portfolio might have to borrow money and incur
interest expenses. Either occurrence would adversely impact the amount of daily
9
<PAGE>
dividend and could result in a decline in net asset value per share or the
redemption by the Money Market Portfolio of shares held in a shareholder's
account. The Money Market Portfolio will attempt to minimize these risks by
investing in longer-term securities when it appears to management that interest
rates on such securities are not likely to increase substantially during the
period of expected holding, and then only in securities of high quality which
are readily marketable. However, there can be no assurance that the Money Market
Portfolio will be successful in achieving this or its other objectives.
THE QUALITY INCOME PLUS PORTFOLIO
The primary investment objective of the Quality Income Plus Portfolio is to
earn a high level of current income, by investing primarily in U.S. Government
securities and other fixed-income securities. As a secondary objective, the
Quality Income Plus Portfolio will seek capital appreciation but only when
consistent with its primary objective. There is no assurance that the objectives
will be achieved. The objectives of the Quality Income Plus Portfolio are
fundamental policies of the Portfolio and, as such, may not be changed without
the approval of the shareholders of the Quality Income Plus Port-
folio.
The Quality Income Plus Portfolio has also adopted the following investment
policies which are not fundamental policies and may be changed by the Trustees
of the Fund without shareholder approval.
In seeking to achieve its objectives, the Quality Income Plus Portfolio will
normally invest at least 65% of its net assets in a combination of U.S.
Government securities and debt securities (including straight debt securities
and debt securities convertible into common stock) which have a rating at the
time of purchase within the three highest grades as determined by Moody's
Investors Service, Inc. (Aaa, Aa or A) or Standard & Poor's Corporation (AAA, AA
or A) or which, if not rated, are deemed to be of comparable quality by the
Fund's Trustees. However, any security which subsequently receives a rating as
low as Baa(3) by Moody's or BBB-by S&P (the lowest investment grade ratings)
will be eliminated from the portfolio at such time as the Investment Manager
determines that it is practicable to sell the security without undue market or
tax consequences to the Quality Income Plus Portfolio. A description of
corporate bond ratings is contained in the Appendix. U.S. Government securities
which may be purchased include zero coupon securities (see "General Portfolio
Techniques" below and in the Statement of Additional Information).
Generally, as prevailing interest rates rise, the value of the U.S.
Government and other debt securities held by the Quality Income Plus Portfolio,
and concomitantly, the net asset value of the Portfolio's shares, will fall.
Such securities with longer maturities generally tend to produce higher yields
and are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Portfolio is not limited
as to the maturities of the U.S. Government and other debt securities in which
it may invest.
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration.
10
<PAGE>
The maturities of such obligations range from three months to thirty years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Banks.
Certain of the U.S. Government securities in which the Quality Income Plus
Portfolio may invest; e.g., certificates issued by GNMA, FNMA and FHLMC, are
"mortgage-backed securities," which evidence an interest in a specific pool of
mortgages. These certificates are, in most cases, "pass-through" instruments,
wherein the issuing agency guarantees the timely payment of principal and
interest on mortgages underlying the certificates, whether or not such amounts
are collected by the issuer on the underlying mortgages.
The average life of such certificates varies with the maturities of the
underlying mortgage instruments, which may be up to thirty years. This average
life is likely to be substantially shorter than the original maturity of the
mortgage pools underlying the certificates, as a pool's duration may be
shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the prevailing level of interest rates, general economic conditions,
the location and age of the mortgage and other social and demographic
conditions. For example, during periods of declining interest rates, mortgage
prepayments can be expected to accelerate. As prepayment rates vary widely, it
is not possible to accurately predict the average life of a particular pool. The
net asset value of shares of the Quality Income Plus Portfolio and the
Portfolio's ability to achieve its investment objectives may be adversely
affected by mortgage prepayments.
While the Quality Income Plus Portfolio will invest primarily in U.S.
Government and other debt securities, it may invest up to 35% of its portfolio
(including options on debt instruments, options on futures contracts and futures
contracts) in money market instruments, including commercial paper, certificates
of deposit, bankers' acceptances and other obligations of domestic banks or
domestic branches of foreign banks, or foreign branches of domestic banks, in
each case having total assets of at least $500 million, and obligations issued
or guaranteed by the United States Government, and in obligations of foreign
governments or their respective instrumentalities or agencies, including
American Depository Receipts (ADRs) (see "General Portfolio Techniques" below
and in the Statement of Additional Information). Moreover, and notwithstanding
any of the above, the Quality Income Plus Portfolio may invest in money market
instruments without limitation when market conditions dictate a "defensive"
investment strategy.
The Quality Income Plus Portfolio may enter into repurchase agreements,
purchase securities on a when-issued or delayed delivery basis or a "when, as
and if issued" basis, and purchase or sell securities on a forward commitment
basis, in each case in accordance with the description of those techniques (and
subject to the risks) set forth under "General Portfolio Techniques" below and
in the Statement of Additional Information.
BORROWING. The Quality Income Plus Portfolio may borrow money, but only
from a bank and in an amount up to 25% of the Portfolio's gross assets
11
<PAGE>
taken at the lower of market value or cost, not including the amount borrowed.
When the Portfolio borrows it will be because it seeks additional income by
leveraging its investments through purchasing securities with the borrowed
funds. The Quality Income Plus Portfolio will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Investment Company Act of
1940, as amended (the "Act").
THE HIGH YIELD PORTFOLIO
The primary investment objective of the High Yield Portfolio is to earn a
high level of current income by investing in a professionally managed
diversified portfolio consisting principally of fixed-income securities, which
may include both non-convertible and convertible debt securities and preferred
stocks. As a secondary objective, the High Yield Portfolio will seek capital
appreciation, but only when consistent with its primary objective. Capital
appreciation may result, for example, from an improvement in the credit standing
of an issuer whose securities are held in the portfolio of the High Yield
Portfolio or from a general decline in interest rates, or a combination of both.
Conversely, capital depreciation may result, for example, from a lowered credit
standing or a general rise in interest rates, or a combination of both. There is
no assurance that the objectives will be achieved.
The objectives of the High Yield Portfolio may not be changed without the
approval of the shareholders of the High Yield Portfolio. The following policies
may be changed by the Trustees of the Fund without shareholder approval:
The higher yields sought by the High Yield Portfolio are generally
obtainable from securities rated in the lower categories by recognized rating
services. The High Yield Portfolio seeks high current income by investing
principally in fixed-income securities, as described above, which are rated Baa
or lower by Moody's Investors Service, Inc. ("Moody's"), or BBB or lower by
Standard & Poor's Corporation ("S&P"). Fixed-income securities rated Baa by
Moody's or BBB by S&P have speculative characteristics greater than those of
more highly-rated bonds, while fixed-income securities rated Ba or BB or lower
by Moody's and S&P, respectively, are considered to be speculative investments.
Furthermore, the High Yield Portfolio does not have any minimum quality rating
standard for its investments. As such, the High Yield Portfolio may invest in
securities rated as low as Caa, Ca or C by Moody's or CCC, CC, C or CI by S&P.
Fixed-income securities rated Caa or Ca by Moody's may already be in default on
payment of interest or principal, while bonds rated C by Moody's, their lowest
bond rating, can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Bonds rated CI by S&P,
their lowest bond rating, are no longer making interest payments. For a further
discussion of the characteristics and risks associated with high yield
securities, see "Special Investment Considerations" below. A description of
corporate bond ratings is contained in the Appendix.
Non-rated securities will also be considered for investment by the High
Yield Portfolio when the Investment Manager believes that the financial
condition of the issuers of such securities, or the protection afforded by the
terms of the securities themselves, makes them appropriate investments for the
High Yield Portfolio.
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fact that there are fluctuations in net asset
value of any portfolio of fixed-income securities resulting from the inverse
relationship between price and yield of fixed-income securities; that is, when
the general level of interest rates rises, the prices of outstanding
fixed-income securities generally decline, and when interest rates fall, prices
generally rise.
The ratings of fixed-income securities by Moody's and S&P are a generally
accepted
barom-
12
<PAGE>
eter of credit risk. However, as the creditworthiness of issuers of lower-rated
fixed-income securities is more problematical than that of the issuers of
higher-rated fixed-income securities, the achievements of the High Yield
Portfolio's investment objectives will be more dependent upon the Investment
Manager's own credit analysis than would be the case with a mutual fund
investing primarily in higher quality bonds. The Investment Manager will utilize
a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any security
currently held by the High Yield Portfolio or potentially purchasable by the
Portfolio.
In determining which securities to purchase or hold for the portfolio of the
High Yield Portfolio and in seeking to reduce the credit and interest rate
risks, the Investment Manager will rely on information from various sources,
including: the rating of the security; research, analysis and appraisals of
brokers and dealers, including Dean Witter Reynolds Inc.; the views of the
Trustees of the Fund and others regarding economic developments and interest
rate trends; and the Investment Manager's own analysis of factors it deems
relevant. The extent to which the Investment Manager is successful in reducing
depreciation or losses arising from either interest rate or credit risks depends
in part on the Investment Manager's portfolio management skills and judgment in
evaluating the factors affecting the value of securities. No assurance can be
given regarding the degree of success that will be achieved.
Consistent with its primary investment objective, the High Yield Portfolio
anticipates that, under normal conditions, at least 65% of the value of its
total assets will be invested in the lower-rated and non-rated fixed-income
securities (including zero coupon securities) previously described. However,
when the yields derived from such securities and those derived from higher-rated
issues are relatively narrow, the High Yield Portfolio may invest in the
higher-rated issues since they may provide similar yields with somewhat less
risk.
Pending investment of proceeds of sale of shares of the High Yield Portfolio
or of its portfolio securities or at other times when market conditions dictate
a more "defensive" investment strategy, the High Yield Portfolio may invest
without limit in money market instruments, including commercial paper of
corporations organized under the laws of any state or political subdivision of
the United States, certificates of deposit, bankers' acceptances and other
obligations of domestic banks or domestic branches of foreign banks, or foreign
branches of domestic banks, in each case having total assets of at least $500
million, and obligations issued or guaranteed by the United States Government,
or foreign governments or their respective instrumentalities or agencies. The
yield on these securities will generally tend to be lower than the yield on
other securities that can be purchased by the High Yield Portfolio.
The High Yield Portfolio may enter into repurchase agreements, invest in
foreign securities (including American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers), purchase securities on a when-issued or delayed
delivery basis, or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of those investments and techniques (and subject to the risks) set
forth under "General Portfolio Techniques" below and in the Statement of
Additional Information. The High Yield Portfolio may purchase unit offerings
(where corporate debt securities are offered as a unit with convertible
securities, preferred or common stocks, warrants, or any combination thereof)
(see the discussion of warrants under "General Portfolio Techniques" below).
PUBLIC UTILITIES. The High Yield Portfolio's investments in public
utilities, if any, may be subject to certain risks (see the description of the
risks associated with investment in public utilities set forth below under "The
Utilities Portfolio").
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<PAGE>
SPECIAL INVESTMENT CONSIDERATIONS. Because of the special nature of the
High Yield Portfolio's investment in high yield securities, commonly known as
junk bonds, the Investment Manager must take account of certain special
considerations in assessing the risks associated with such investments. Although
the growth of the high yield securities market in the 1980s had paralleled a
long economic expansion, recently many issuers have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on
the high yield bond market and on the value of the high yield securities held by
the High Yield Portfolio, as well as on the ability of the securities' issuers
to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the High
Yield Portfolio defaults, the Portfolio may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of high yield
securities and a concomitant volatility in the net asset value of a share of the
High Yield Portfolio. Moreover, the market prices of certain of the High Yield
Portfolio's portfolio securities which are structured as zero coupon and
payment-in-kind securities are affected to a greater extent by interest rate
changes and thereby tend to be more volatile than securities which pay interest
periodically and in cash (see "Dividends, Distributions and Taxes" for a
discussion of the tax ramifications of investments in such securities and see
"General Portfolio Techniques" below and in the Statement of Additional
Information for a discussion of zero coupon securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The illiquidity of the market may
also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the High Yield Portfolio to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on the
market for higher yield bonds. For example, recent legislation requires
federally-insured savings and loan associations to divest their investments in
high yield bonds. This legislation and other proposed legislation may have an
adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the High Yield Portfolio.
During the fiscal year ended December 31, 1993, the monthly dollar weighted
average ratings of the debt obligations held by the High Yield Portfolio,
expressed as a percentage of the Portfolio's total investments, were as follows:
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ----- --------------------
AAA/Aaa................................................. 4.2
AA/Aa................................................... --
A/A..................................................... --
BBB/Baa................................................. --
BB/Ba................................................... 10.1
B/B..................................................... 74.2
CCC/Caa................................................. 11.5
CC/Ca................................................... --
C/C..................................................... --
D....................................................... --
Unrated................................................. --
-----
100.0
14
<PAGE>
THE UTILITIES PORTFOLIO
The investment objective of the Utilities Port-
folio is to provide current income and long-term growth of income and capital,
by investing primarily in equity and fixed-income securities of companies
engaged in the public utilities industry. The objective of the Utilities
Portfolio may not be changed without the approval of the shareholders of the
Utilities Portfolio. The term "public utilities industry" consists of companies
engaged in the manufacture, production, generation, transmission, sale and
distribution of gas and electric energy, as well as companies engaged in the
communications field, including telephone, telegraph, satellite, microwave and
other companies providing communication facilities for the public, but excluding
public broadcasting companies. For purposes of the Utilities Portfolio, a
company will be considered to be in the public utilities industry if, during the
most recent twelve month period, at least 50% of the company's gross revenues,
on a consolidated basis, is derived from the public utilities industry. The
following investment policies may be changed by the Trustees of the Fund without
shareholder approval:
In seeking to achieve its objective, the Utilities Portfolio will normally
invest at least 65% of its total assets in securities of companies in the public
utilities industry. The Investment Manager believes the Utilities Portfolio's
investment policies are suited to benefit from certain characteristics and
historical performance of the securities of public utility companies. Many of
these companies have historically set a pattern of paying regular dividends and
increasing their common stock dividends over time, and the average common stock
dividend yield of utilities historically has substantially exceeded that of
industrial stocks. The Investment Manager believes that these factors may not
only provide current income but also generally tend to moderate risk and thus
may enhance the opportunity for appreciation of securities owned by the
Utilities Portfolio, although the potential for capital appreciation has
historically been lower for many utility stocks compared with most industrial
stocks. There can be no assurance that the historical investment performance of
the public utilities industry will be indicative of future events and
performance. There can be no assurance that the investment objective of the
Utilities Portfolio will be achieved.
The Utilities Portfolio will invest in both equity securities (common stocks
and securities convertible into common stock) and fixed income securities (bonds
and preferred stock) in the public utilities industry. The Utilities Portfolio
does not have any set policies to concentrate within any particular segment of
the utilities industry. The Utilities Portfolio will shift its asset allocation
without restriction between types of utilities and between equity and
fixed-income securities based upon the Investment Manager's determination of how
to achieve the Utilities Portfolio's investment objective in light of prevailing
market, economic and financial conditions. For example, at a particular time the
Investment Manager may choose to allocate up to 100% of the Utilities
Portfolio's assets in a particular type of security (for example, equity
securities) or in a specific utility industry segment (for example, electric
utilities).
Criteria to be utilized by the Investment Manager in the selection of equity
securities include the following screens: earnings and dividend growth; book
value; dividend discount; and price/earnings relationships. In addition, the
Investment Manager makes continuing assessments of management, the prevailing
regulatory framework and industry trends. The Investment Manager may also
utilize computer-based equity selection models in connection with stock
allocation in the equity portion of the portfolio. In keeping with the Utilities
Portfolio's objective, if in the opinion of the Investment Manager favorable
conditions for capital growth of equity securities are not prevalent at a
particular time, the Utilities Portfolio may allocate its assets predominantly
or exclusively in debt securities with the aim of obtaining current income as
well as preserving capital and thus benefiting long term growth of capital.
15
<PAGE>
The Utilities Portfolio may purchase equity securities sold on the New York,
American and other stock exchanges and in the over-the-counter market.
Fixed-income securities in which the Utilities Portfolio may invest are debt
securities and preferred stocks, which are rated at the time of purchase Baa or
better by Moody's Investors Service, Inc. or BBB or better by Standard & Poor's
Corporation or which, if unrated, are deemed to be of comparable quality by the
Fund's Trustees (see "General Portfolio Techniques" below for a discussion of
the characteristics and risks of investments in fixed-income securities rated
Baa or BBB). Under normal circumstances the average weighted maturity of the
debt portion of the portfolio is expected to be in excess of seven years. A
description of corporate bond ratings is contained in the Appendix.
While the Utilities Portfolio will invest primarily in the securities of
public utility companies, under ordinary circumstances it may invest up to 35%
of its total assets in U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies and
instrumentalities, including zero coupon securities), money market instruments,
repurchase agreements, options and futures (see "General Portfolio Techniques"
below and in the Statement of Additional Information). U.S. Government
securities are described above and in the Statement of Additional Information
under the caption "The Quality Income Plus Portfolio." The Utilities Portfolio
may acquire warrants attached to other securities purchased by the Portfolio
(see "General Portfolio Techniques" below).
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the Utilities Portfolio's
securities holdings. During such periods, the Utilities Portfolio may adopt a
temporary "defensive" posture in which greater than 35% of its total assets are
invested in cash or money market instruments which would be eligible investments
for the Fund's Money Market Portfolio (as set forth above under "The Money
Market Portfolio").
The Utilities Portfolio may enter into repurchase agreements, invest in
foreign securities (including American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers), purchase securities on a when-issued or delayed
delivery basis or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of those investments and techniques (and subject to the risks) set
forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
PUBLIC UTILITIES INDUSTRY. The public utilities industry as a whole has
certain characteristics and risks particular to that industry. Unlike industrial
companies, the rates which utility companies may charge their customers
generally are subject to review and limitation by governmental regulatory
commissions. Although rate changes of a utility usually fluctuate in approximate
correlation with financing costs, due to political and regulatory factors rate
changes ordinarily occur only following a delay after the changes in financing
costs. This factor will tend to favorably affect a utility company's earnings
and dividends in times of decreasing costs, but conversely will tend to
adversely affect earnings and dividends when costs are rising. In addition, the
value of public utility debt securities (and, to a lesser extent, equity
securities) tends to have an inverse relationship to the movement of interest
rates.
Among the risks affecting the utilities industry are the following: risks of
increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and the effects of
regulatory changes, such as the possible adverse effects of
16
<PAGE>
profits on recent increased competition within the telecommunications, electric
and natural gas industries and the uncertainties resulting from companies within
these industries diversifying into new domestic and international businesses, as
well as from agreements by many such companies linking future rate increases to
inflation or other factors not directly related to the actual operating profits
of the enterprise.
THE DIVIDEND GROWTH PORTFOLIO
The investment objective of the Dividend Growth Portfolio is to provide
reasonable current income and long-term growth of income and capital. There is
no assurance that the objective will be achieved. The Dividend Growth Portfolio
seeks to achieve its investment objective primarily through investments in
common stock of companies with a record of paying dividends and the potential
for increasing dividends. Net asset value of the Dividend Growth Portfolio's
shares will fluctuate with changes in market values of portfolio securities. The
Dividend Growth Portfolio will attempt to avoid speculative securities or those
with speculative characteristics.
The investment objective of the Dividend Growth Portfolio may not be changed
without the approval of the shareholders of the Dividend Growth Portfolio. The
following policies may be changed by the Trustees of the Fund without
shareholder approval:
(1) Up to 30% of the value of the Dividend Growth Portfolio's total assets
may be invested in: (a) convertible debt securities, convertible preferred
securities, warrants (see "General Portfolio Techniques" below), U.S. Government
securities (securities issued or guaranteed as to principal and interest by the
United States or its agencies and instrumentalities), corporate debt securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. or BBB or better by Standard & Poor's Corporation or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (see
"General Portfolio Techniques" below for a discussion of the characteristics and
risks of investments in fixed-income securities rated Baa or BBB) and/or money
market instruments which would be eligible investments for the Fund's Money
Market Portfolio (as set forth above under "The Money Market Portfolio") when,
in the opinion of the Investment Manager, the projected total return on such
securities is equal to or greater than the expected total return on equity
securities or when such holdings might be expected to reduce the volatility of
the portfolio (for purposes of this provision, the term "total return" means the
difference between the cost of a security and the aggregate of its market value
and dividends received); or (b) in money market instruments under any one or
more of the following circumstances: (i) pending investment of proceeds of sale
of the Dividend Growth Portfolio's shares or of portfolio securities; (ii)
pending settlement of purchases of portfolio securities; or (iii) to maintain
liquidity for the purpose of meeting anticipated redemptions.
(2) Notwithstanding any of the foregoing limitations, the Dividend Growth
Portfolio may invest more than 30% of the value of its total assets in money
market instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions.
The Dividend Growth Portfolio may enter into repurchase agreements, invest
in American Depository Receipts (ADRs), purchase securities on a when-issued or
delayed delivery basis or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of those investments and techniques (and subject to the risks) set
forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
The Dividend Growth Portfolio is authorized to engage in transactions
involving options and futures contracts which would be eligible for use by the
Managed Assets Portfolio. These transactions are described under "Options and
Futures
Transac-
17
<PAGE>
tions" under "General Portfolio Techniques" below and in the Statement of
Additional Information. The Dividend Growth Portfolio does not, however,
presently intend to engage in such options and futures transactions and will not
do so unless and until the Fund's prospectus were revised to reflect this.
THE CAPITAL GROWTH PORTFOLIO
The investment objective of the Capital Growth Portfolio is long-term
capital growth. There is no assurance that the objective will be achieved. The
investment objective of the Capital Growth Portfolio may not be changed without
the approval of the shareholders of the Capital Growth Portfolio. The following
policies may be changed by the Board of Trustees without shareholder approval:
The Capital Growth Portfolio seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
common stocks. As part of its management of the Portfolio, the Investment
Manager will utilize a two-stage computerized screening process. The first stage
of the process involves the screening of a database of approximately 3,000
companies for those companies demonstrating a history of consistent growth in
earnings and revenues for the past ten years. The smaller group of companies
resulting from the foregoing screen are then applied against two additional
screens designed to measure current earnings momentum and current price
valuations, respectively, in order to further refine the list of companies for
potential investment by the Capital Growth Portfolio. (Current earnings momentum
refers to the rate of change in earnings growth over the prior four quarters and
current price valuations refers to the current price of a company's stock in
relation to a theoretical value based upon current dividends, projected growth
rates and the rate of inflation.) Subject to the Portfolio's investment
objective, the Investment Manager, without notice, may modify the foregoing
screening process and/or may utilize additional or different screening processes
in connection with the investment of the Portfolio's assets. Dividend income
will not be a consideration in the selection of stocks for purchase.
Although the Capital Growth Portfolio will invest primarily in common
stocks, the Portfolio may invest up to 35% of its total assets (taken at current
value and subject to restrictions appearing elsewhere in this Prospectus), in
U.S. Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies or instrumentalities, including
zero coupon securities) and corporate debt securities which are rated at the
time of purchase Baa or better by Moody's Investors Service, Inc. or BBB or
better by Standard & Poor's Corporation or which, if unrated, are deemed to be
of comparable quality by the Fund's Trustees (see "General Portfolio Techniques"
below for a discussion of the characteristics and risks of investments in
fixed-income securities rated Baa or BBB), convertible securities, money market
instruments, repurchase agreements, options and futures (see "General Portfolio
Techniques" below and in the Statement of Additional Information). The Capital
Growth Portfolio may also purchase unit offerings (where corporate debt
securities are offered as a unit with convertible securities, preferred or
common stocks, warrants, or any combination thereof) (see the discussion of
warrants under "General Portfolio Techniques" below). U.S. Government securities
are described above and in the Statement of Additional Information under "The
Quality Income Plus Portfolio."
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the Capital Growth
Portfolio's securities holdings. During such periods, the Capital Growth
Portfolio may adopt a temporary "defensive" posture in which greater than 35% of
its total assets are invested in cash or money market instruments which would be
eligible investments for the Fund's Money Market Portfolio (as set forth above
under "The Money Market Portfolio").
The Capital Growth Portfolio may enter into repurchase agreements, invest in
foreign securities
18
<PAGE>
(including American Depository Receipts (ADRs), European Depository Receipts
(EDRs) or other similar securities convertible into securities of foreign
issuers), purchase securities on a when-issued or delayed delivery basis or a
"when, as and if issued" basis, and purchase or sell securities on a forward
commitment basis, in each case in accordance with the description of those
investments and techniques (and subject to the risks) set forth under "General
Portfolio Techniques" below and in the Statement of Additional Information.
THE GLOBAL DIVIDEND GROWTH PORTFOLIO
The investment objective of the Global Dividend Growth Portfolio is to
provide reasonable current income and long-term growth of income and capital.
This objective is fundamental and may not be changed without shareholder
approval. There is no assurance that the objective will be achieved. The Global
Dividend Growth Portfolio seeks to achieve its investment objective primarily
through investments in common stock of companies, issued by issuers worldwide,
with a record of paying dividends and the potential for increasing dividends.
The following policies may be changed by the Trustees of the Fund without
shareholder approval:
The Global Dividend Growth Portfolio will invest at least 65% of its total
assets in dividend-paying equity securities issued by issuers located in various
countries around the world. The Portfolio's investment portfolio will also be
invested in at least three separate countries.
The Global Dividend Growth Portfolio will maintain a flexible investment
policy and, based on a worldwide investment strategy, will invest in a
diversified portfolio of securities of companies located throughout the world.
The Investment Manager will seek those companies with what, in its opinion, is a
strong record of earnings. The percentage of the Global Dividend Growth
Portfolio's assets invested in particular geographic sectors will shift from
time to time in accordance with the judgement of the Investment Manager.
Up to 35% of the value of the Global Dividend Growth Portfolio's total
assets may be invested in: (a) investment grade convertible debt securities,
convertible preferred securities, warrants (see "General Portfolio Techniques"
below), U.S. Government securities (securities issued or guaranteed as to
principal and interest by the United States or its agencies and
instrumentalities, including zero coupon U.S. Government securities),
fixed-income securities issued by foreign governments and international
organizations, investment grade corporate debt securities and/or money market
instruments when, in the opinion of the Investment Manager, the projected total
return on such securities is equal to or greater than the expected total return
on equity securities or when such holdings might be expected to reduce the
volatility of the portfolio (for purposes of this provision, the term "total
return" means the difference between the cost of a security and the aggregate of
its market value and dividends received) and forward foreign currency exchange
contracts, futures contracts and options (see "General Portfolio Techniques"
below and in the Statement of Additional Information); or (b) money market
instruments under any one or more of the following circumstances: (i) pending
investment of proceeds of sale of the Portfolio's shares or of portfolio
securities; (ii) pending settlement of purchases of portfolio securities; or
(iii) to maintain liquidity for the purpose of meeting anticipated redemptions.
The term investment grade consists of debt instruments rated Baa or higher by
Moody's Investors Service, Inc. or BBB or higher by Standard & Poor's
Corporation or, if not rated, determined to be of comparable quality by the
Investment Manager (see "General Portfolio Techniques" below for a discussion of
the characteristics and risks of investments in fixed-income securities rated
Baa or BBB). U.S. Government securities are described above and in the Statement
of Additional Information under "The Quality Income Plus Portfolio."
The Global Dividend Growth Portfolio may also invest in securities of
foreign issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar
securi-
19
<PAGE>
ties convertible into securities of foreign issuers, purchase equity and
fixed-income securities which are issued in private placements and invest up to
10% of its total assets in securities issued by other investment companies (see
the discussion of these securities under "General Portfolio Techniques" below).
Notwithstanding the Global Dividend Growth Portfolio's investment objective
of seeking total return, the Portfolio may, for "defensive" purposes, without
limitation, invest in: obligations of the United States Government, its agencies
or instrumentalities; cash and cash equivalents in major currencies; repurchase
agreements; and money market instruments which would be eligible investments for
the Fund's Money Market Portfolio (as set forth above under "The Money Market
Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities).
The Global Dividend Growth Portfolio may enter into repurchase agreements,
purchase securities on a when-issued or delayed delivery basis or a "when, as
and if issued" basis, and purchase or sell securities on a forward commitment
basis, in each case in accordance with the description of those investments and
techniques (and subject to the risks) set forth under "General Portfolio
Techniques" below and in the Statement of Additional Information.
THE EUROPEAN GROWTH PORTFOLIO
The investment objective of the European Growth Portfolio is to maximize the
capital appreciation of its investments. There is no assurance that the
objective will be achieved. The investment objective of the European Growth
Portfolio may not be changed without the approval of the shareholders of the
European Growth Portfolio. The following policies may be changed by the Board of
Trustees without shareholder approval:
The European Growth Portfolio seeks to achieve its investment objective by
investing at least 65% of its total assets in securities issued by issuers
located in countries located in Europe. Such issuers will include companies (i)
which are organized under the laws of a European country and have a principal
office in a European country, or (ii) which derive 50% or more of their total
revenues from business in Europe, or (iii) the equity securities of which are
traded principally on a stock exchange in Europe.
The principal countries in which such issuers will be located are France,
the United Kingdom, Germany, the Netherlands, Spain, Sweden, Switzerland and
Italy. The European Growth Portfolio may invest up to 35% of its total assets at
any time in the securities (including up to 25% in government securities) of
issuers located in each of the following countries: France, the United Kingdom
and
Germany.
The securities invested in will primarily consist of equity securities
issued by companies based in European countries, but may also include fixed-
income securities issued or guaranteed by European governments (including zero
coupon treasury securities), when it is deemed that such investments are
consistent with the European Growth Portfolio's investment objective. For
example, there may be times when the Investment Manager or the Sub-Adviser
determines that the prices of government securities are more likely to
appreciate than those of equity securities. Such an occasion might arise when
inflation concerns have led to general increases in interest rates. Such
fixed-income securities which will be purchased by the Portfolio are likely to
be obligations of the treasuries of one of the major European nations. In
addition, the European Growth Portfolio may invest in fixed-income securities
which are, either alone or in combination with a warrant, option or other right,
convertible into the common stock of a European issuer, when the Investment
Manager or the Sub-Adviser determines that such securities are more likely to
appreciate in value than the common stock of such issuers or
20
<PAGE>
when the Investment Manager or the Sub-Adviser wishes to hedge the risk inherent
in the direct purchase of the equity of a given issuer. The European Growth
Portfolio will select convertible securities of issuers whose common stock has,
in the opinion of the Investment Manager or the Sub-Adviser, a superior
investment potential. The European Growth Portfolio may also purchase equity and
fixed-income securities which are issued in private placements and warrants or
other securities conveying the right to purchase common stock, and may invest up
to 10% of its total assets in securities issued by other investment companies
(see the discussion of these securities under "General Portfolio Techniques"
below).
The remainder of the assets of the European Growth Portfolio, equalling, at
times, up to 35% of the Portfolio's total assets, may be invested in equity
and/or governmental and convertible securities issued by issuers located
anywhere in the world (with the exception of South Africa), including the United
States, including zero coupon U.S. Government securities, subject to the
Portfolio's investment objective. In addition, this portion of the portfolio
will consist of various other financial instruments such as forward foreign
currency exchange contracts, futures contracts and options (see "General
Portfolio Techniques" below and in the Statement of Additional Information).
U.S. Government securities are described above and in the Statement of
Additional Information under "The Quality Income Plus Portfolio."
It is anticipated that the securities held by the European Growth Portfolio
in its portfolio will be denominated, principally, in liquid European
currencies. Such currencies include the German mark, French franc, British
pound, Dutch guilder, Swiss franc, Swedish krona, Italian lira, and Spanish
peseta. In addition, the Portfolio may hold securities denominated in the
European Currency Unit (a weighted composite of the currencies of member states
of the European Monetary System). Securities of issuers within a given country
may be denominated in the currency of a different country.
The European Growth Portfolio may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers (see the discussion of these securities under "General Portfolio
Techniques" below).
There may be periods during which market conditions warrant reduction of
some or all of the European Growth Portfolio's securities holdings. During such
periods, the Portfolio may adopt a temporary "defensive" posture in which
greater than 35% of its total assets are invested in cash or money market
instruments which would be eligible investments for the Fund's Money Market
Portfolio (as set forth above under "The Money Market Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities).
The European Growth Portfolio may enter into repurchase agreements, purchase
securities on a when-issued or delayed delivery basis or a "when, as and if
issued" basis, and purchase or sell securities on a forward commitment basis, in
each case in accordance with the description of those investments and techniques
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
THE PACIFIC GROWTH PORTFOLIO
The investment objective of the Pacific Growth Portfolio is to maximize the
capital appreciation of its investments. There is no assurance that the
objective will be achieved. The investment objective of the Pacific Growth
Portfolio may not be changed without the approval of the shareholders of the
Pacific Growth Portfolio. The following policies may be changed by the Board of
Trustees without shareholder approval:
21
<PAGE>
The Pacific Growth Portfolio seeks to achieve its investment objective by
investing at least 65% of its total assets in securities issued by issuers
located in Asia, Australia and New Zealand. Such issuers will include companies
which are organized under the laws of an Asian country, Australia or New Zealand
and have a principal office in an Asian country, Australia or New Zealand, or
which derive 50% or more of their total revenues from business in an Asian
country, Australia or New Zealand.
The principal countries in which such issuers will be located are Japan,
Australia, Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia,
Taiwan and South Korea. The Pacific Growth Portfolio may invest up to 35% of its
total assets in issuers located in each of Australia and Japan.
The securities invested in will primarily consist of equity securities
issued by companies based in Asian countries, Australia and New Zealand which
the Investment Manager and/or Sub-Adviser believe are most likely to help the
Pacific Growth Portfolio meet its investment objective, but may also include
fixed-income securities issued or guaranteed by (I.E., are the direct
obligations of) the governments of such countries (including zero coupon
treasury securities), when it is deemed by the Investment Manager or Sub-Adviser
that such investments are consistent with the Portfolio's investment objective.
For example, there may be times when the Investment Manager or Sub-Adviser
determines that the prices of government securities are more likely to
appreciate than those of equity securities. Such an occasion might arise when
inflation concerns have led to general increases in interest rates. Such fixed-
income securities which will be purchased by the Portfolio are likely to be
obligations of the treasuries of Australia or Japan. In addition, the Pacific
Growth Portfolio may invest in fixed-income securities which are, either alone
or in combination with a warrant, option or other right, convertible into the
common stock of an issuer, when the Investment Manager or the Sub-Adviser
determines that such securities are more likely to appreciate in value than the
common stock of such issuers or when the Investment Manager or Sub-Adviser
wishes to hedge the risk inherent in the direct purchase of the equity of a
given issuer, by receiving a steady stream of interest payments. The Pacific
Growth Portfolio will select convertible securities of issuers whose common
stock has, in the opinion of the Investment Manager or Sub-Adviser, a potential
to appreciate in price. The Pacific Growth Portfolio may also purchase equity
and fixed-income securities which are issued in private placements and warrants
or other securities conveying the right to purchase common stock, and may invest
up to 10% of its total assets in securities issued by other investment companies
(see the discussion of these securities under "General Portfolio Techniques"
below).
The decisions of the Investment Manager and Sub-Adviser to invest in
securities for the Pacific Growth Portfolio will be based on a general strategy
of selecting those issuers which they believe have shown a high rate of growth
in earnings. Moreover, securities will primarily be selected which possess, on
both an absolute basis and as compared with other securities in their region and
around the world, attractive price/earnings, price/cash flow and price/ revenue
ratios.
The remainder of the assets of the Pacific Growth Portfolio, equalling, at
times, up to 35% of the Portfolio's total assets, may be invested in equity
and/or fixed-income and convertible securities issued by issuers located
anywhere in the world (with the exception of South Africa), including the United
States, including zero coupon U.S. government securities, subject to the Fund's
investment objective. In addition, this portion of the portfolio will consist of
various other financial instruments such as forward foreign currency exchange
contracts, futures contracts and options (see "General Portfolio Techniques"
below and in the Statement of Additional Information). U.S. government
securities are described above and in the Statement of Additional Information
under "The Quality Income Plus Portfolio."
It is anticipated that the securities held by the Pacific Growth Portfolio
in its portfolio will be
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<PAGE>
denominated, principally, in the liquid Asian currencies and the Australian
dollar. Such currencies include the Japanese yen, Malaysian ringgit, Singapore
dollar, Hong Kong dollar, Thai baht, Philippine peso, Indonesia rupiah, Taiwan
dollar and South Korean won. Securities of issuers within a given country may be
denominated in the currency of a different country.
The Pacific Growth Portfolio may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers (see the discussion of these securities under "General Portfolio
Techniques" below).
There may be periods during which market conditions warrant reduction of
some or all of the Pacific Growth Portfolio's securities holdings. During such
periods, the Portfolio may adopt a temporary "defensive" posture in which
greater than 35% of its net assets are invested in cash or money market
instruments that would be eligible investments for the Fund's Money Market
Portfolio (as set forth above under "The Money Market Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities). In particular, the foreign securities in
which the Pacific Growth Portfolio will be investing may be issued by issuers
located in developing countries. Compared to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Prices on these securities tend to be
especially volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
The Pacific Growth Portfolio may enter into repurchase agreements, purchase
securities on a when-issued or delayed delivery basis or a "when, as and if
issued" basis, and purchase or sell securities on a forward commitment basis, in
each case in accordance with the description of those investments and techniques
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
THE EQUITY PORTFOLIO
The portfolio of the Equity Portfolio will be actively managed by the
Investment Manager with a view to achieving the Equity Portfolio's primary
investment objective of growth of capital through investments in common stock of
companies believed by the Investment Manager to have potential for superior
growth. As a secondary objective, the Equity Portfolio will seek income, but
only when consistent with its primary objective. There can be no assurance that
the objectives will be achieved.
The investment objectives of the Equity Portfolio may not be changed without
the approval of the shareholders of the Equity Portfolio. The following policies
may be changed by the Trustees of the Fund without shareholder approval:
Consistent with its primary investment objective, the Equity Portfolio will
invest principally in common stocks, under most conditions, but may also invest
in corporate debt securities which are rated at the time of purchase Aa or
better by Moody's Investors Service, Inc. or AA or better by Standard & Poor's
Corporation (the Portfolio may continue to hold a security even if its quality
rating is reduced by a rating service below those specified; see "The High Yield
Portfolio " above for a discussion of the risks of holding lower-rated
securities), U.S. Government securities (securities issued or guaranteed as to
principal and interest by the United States, its agencies or instrumentalities),
preferred stocks, securities convertible into common stock, including
convertible debt obligations and convertible preferred stocks, and warrants (see
the discussion of warrants under "General Portfolio
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<PAGE>
Techniques" below). The Equity Portfolio will invest at least 65% of its net
assets at all times, except for temporary and defensive purposes, in equity
securities and securities convertible into equity securities. In determining the
percentage of the Equity Portfolio's assets to be invested in equity securities,
the Investment Manager may employ valuation models based on various economic and
market indicators. Equity assets will be distributed among high-quality,
large-capitalization, dividend-oriented stocks, stocks of small-and medium-sized
growth-oriented companies, and stocks which it believes to be undervalued
regardless of capitalization size. Funds will be allocated among these different
approaches based on the Investment Manager's evaluation of economic and market
trends and on valuation parameters such as price/earnings ("P/E") ratios,
price/book ratios, dividend yields, P/E to growth rate ratios, and/or dividend
discount models. While the Equity Portfolio may not invest in securities of
foreign issuers, it may invest in (a) securities of Canadian issuers registered
under the Securities Exchange Act of 1934 and (b) American Depository Receipts
(ADRs) (see the discussion of ADRs under "General Portfolio Techniques" below).
In order to maintain a liquid position or in periods in which general market
conditions warrant, in the opinion of the Investment Manager, the adoption of a
temporary "defensive" posture, part of the assets of the Equity Portfolio may be
invested in money market instruments, including obligations issued or guaranteed
as to principal or interest by the United States, its agencies or
instrumentalities, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of $1 billion or more, and
short-term commercial paper of corporations organized under the laws of any
state or political subdivision of the United States.
The Equity Portfolio may enter into repurchase agreements, purchase
securities on a when-issued or delayed delivery basis or a "when, as and if
issued" basis, and purchase or sell securities on a forward commitment basis, in
each case in accordance with the description of those techniques (and subject to
the same risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
THE MANAGED ASSETS PORTFOLIO
The investment objective of the Managed Assets Portfolio is to seek a high
total investment return through a fully managed investment policy utilizing
equity, fixed-income and money market securities, and the writing of covered
call and put options. This is a fundamental policy and cannot be changed without
the approval of the shareholders of the Managed Assets Portfolio. Total
investment return consists of current income (including dividends, interest and,
in the case of discounted instruments, discount accruals) and capital
appreciation. There can be no assurance that the investment objective of the
Managed Assets Portfolio will be achieved. The following policies may be changed
by the Trustees of the Fund without shareholder approval:
From time to time, the Investment Manager may vary the composition of the
Managed Assets Portfolio based on an evaluation of economic and market trends
and the anticipated relative total return available from a particular type of
security. Therefore, at any given time, the Managed Assets Portfolio may be
substantially invested in equity securities, fixed-income securities, or money
market instruments.
The achievement of the Managed Assets Portfolio's investment objective
depends on the ability of the Investment Manager to assess the effect of
economic and market trends on different sectors of the market. The Investment
Manager will employ an asset allocation model to assist it in making its
allocation determinations. For example, it is anticipated that, generally: (1)
the equity allocation of the Managed Assets Portfolio's assets will rise as
prevailing interest rates decline, the rate of inflation declines, the total
investment return of equities rises and the total investment return of
fixed-income and money market securities declines; (2) the fixed-income
allo-
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<PAGE>
cation of the Managed Assets Portfolio's assets will rise as prevailing interest
rates decline, the rate of inflation declines, the total investment return of
equities declines and the total investment return of fixed-income securities
rises; and (3) the money market allocation of the Managed Assets Portfolio's
assets will rise as prevailing interest rates rise, the rate of inflation rises,
the total investment return of equities and fixed-income securities falls and
the total investment return of money market instruments rises.
Fixed-income securities in which the Managed Assets Portfolio may invest are
intermediate and long-term debt securities, preferred stocks, securities
convertible into common stock (including convertible debt obligations and
convertible preferred stocks) and warrants, which are rated at the time of
purchase Baa or better by Moody's Investors Service, Inc. or BBB or better by
Standard & Poor's Corporation or which, if unrated, are deemed to be of
comparable quality by the Fund's Trustees. A description of corporate bond
ratings is contained in the Appendix. See the discussion of warrants and the
characteristics and risks of investments in fixed-income securities rated Baa or
BBB under "General Portfolio Techniques" below. The Managed Assets Portfolio may
invest in money market securities which would be eligible investments for the
Fund's Money Market Portfolio (as set forth above under "The Money Market
Portfolio"). The Investment Manager, in selecting stocks for the portfolio of
the Managed Assets Portfolio, will consider earnings, dividends, cash flow and
relative valuations.
The Managed Assets Portfolio may enter into repurchase agreements, invest in
foreign securities, invest in futures contracts and options, purchase securities
on a when-issued or delayed delivery basis or a "when, as and if issued" basis,
and purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of those investments and techniques (and subject
to the risks) set forth under " General Portfolio Techniques" below and in the
Statement of Additional Information.
GENERAL PORTFOLIO TECHNIQUES
FOREIGN SECURITIES. The European Growth Portfolio and the Pacific Growth
Portfolio will invest primarily in foreign securities. The Global Dividend
Growth Portfolio will invest a substantial portion of its assets in foreign
securities. The Capital Growth Portfolio may invest up to 25% of the value of
its total assets, at the time of purchase, in foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts (described below), on which there is no
such limit; investments in certain Canadian issuers may be speculative due to
certain political risks and may be subject to substantial price fluctuations).
The Capital Growth Portfolio's investments in unlisted foreign securities are
subject to the overall restrictions applicable to investments in illiquid
securities (see "Investment Restrictions"). Each of the High Yield Portfolio and
the Managed Assets Portfolio may invest up to 20% of its total assets in
securities issued by foreign governments and other foreign issuers and in
foreign currency issues of domestic issuers, but not more than 10% of its total
assets in such securities, whether issued by a foreign or a domestic issuer,
which are denominated in foreign currency. The Quality Income Plus Portfolio may
invest up to 35% of its total assets (taken together with certain other
investments) in securities issued by foreign governments or their respective
instrumentalities or agencies, but not more than 10% of its total assets in such
securities which are denominated in foreign currency. The Utilities Portfolio
may invest up to 10% of the value of its total assets, at the time of purchase,
in foreign securities. The Quality Income Plus Portfolio and the High Yield
Portfolio may invest in money market obligations of domestic branches of foreign
banks, or foreign branches of domestic banks, including Eurodollar Certificates
of Deposit, as set forth above under the description of these Portfolios. The
Money Market Portfolio, the Utilities Portfolio, the Dividend Growth Portfolio,
the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific
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<PAGE>
Growth Portfolio and the Managed Assets Portfolio may invest in Eurodollar
certificates of deposit issued by foreign branches of domestic banks having
total assets of $1 billion or more.
Foreign securities investments may be affected by changes in currency rates
or exchange control regulations, changes in governmental administration or
economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates of
exchange between the currencies of different nations will affect the value of a
Portfolio's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of a Portfolio's assets denominated in that currency and thereby impact
upon the Portfolio's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of a
Portfolio will be conducted on a spot basis or, in the case of the Global
Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, through forward foreign currency exchange contracts (described below)
or futures contracts (described below under "Options and Futures Transactions").
A Portfolio will incur certain costs in connection with these currency
transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Portfolio assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe, especially as they
relate to changes in the structure of the European Economic Community and the
anticipated development of a unified common market, may have profound effects
upon the value of a large segment of the Global Dividend Growth Portfolio and
the European Growth Portfolio, in particular. Continued progress in the
evolution of, for example, a united European common market may be slowed by
unanticipated political or social events and may, therefore, adversely affect
the value of certain of the securities held by a Portfolio. Foreign companies
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about such companies. Moreover,
foreign companies are not subject to uniform accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Portfolio trades effected in such markets. Inability to dispose
of portfolio securities due to settlement delays could result in losses to a
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments. To the extent a Portfolio purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions, and future international political and
eco-
26
<PAGE>
nomic developments which might adversely affect the payment of principal or
interest.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio may
engage in transactions involving forward foreign currency exchange contracts
("forward contracts"). A forward contract involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio may enter into forward contracts as a
hedge against fluctuations in future foreign exchange rates.
The Portfolios will enter into forward contracts under various
circumstances. When a Portfolio enters into a contract for the purchase or sale
of a security denominated in a foreign currency, it may, for example, desire to
"lock in" the price of the security in U.S. dollars or some other foreign
currency which the Portfolio is temporarily holding in its portfolio. By
entering into a forward contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency involved in the
underlying security transactions, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar or other currency which is being used for the security
purchase and the foreign currency in which the security is denominated during
the period between the date on which the security is purchased or sold and the
date on which payment is made or received.
At other times, when, for example, it is believed that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, a Portfolio may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities (or securities which the Portfolio has purchased for its portfolio)
denominated in such foreign currency. Under identical circumstances, the
Portfolio may enter into a forward contract to sell, for a fixed amount of U.S.
dollars or other currency, an amount of foreign currency other than the currency
in which the securities to be hedged are denominated approximating the value of
some or all of the portfolio securities to be hedged. This method of hedging,
called "cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when a Portfolio anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the currency
in which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency.
Lastly, the Portfolios are permitted to enter into forward contracts with
respect to currencies in which certain of their portfolio securities are
denominated and on which options have been written (see "Options and Futures
Transactions" below and in the Statement of Additional Information).
In all of the above circumstances, if the currency in which portfolio
securities (or anticipated portfolio securities) are denominated rises in value
with respect to the currency which is being purchased (or sold), then the
Portfolio will have realized fewer gains than had the Portfolio not entered into
the forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Global
Dividend Growth Portfolio, the European Growth Portfolio
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<PAGE>
and the Pacific Growth Portfolio are not required to enter into such
transactions with regard to their foreign currency-denominated securities and
will not do so unless deemed appropriate by the Investment Manager or, in the
case of the European Growth Portfolio and the Pacific Growth Portfolio, the Sub-
Adviser. The Portfolios generally will not enter into a forward contract with a
term of greater than one year, although they may enter into forward contracts
for periods of up to five years. The Portfolios may be limited in their ability
to enter into hedging transactions involving forward contracts by the Internal
Revenue Code requirements relating to qualifications as a regulated investment
company (see "Dividends, Distributions and Taxes").
AMERICAN DEPOSITORY RECEIPTS AND EUROPEAN DEPOSITORY RECEIPTS. The Quality
Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the
Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio
may also invest in securities of foreign issuers in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs) or other similar
securities convertible into securities of foreign issuers. In addition, the
Dividend Growth Portfolio and the Equity Portfolio may invest in ADRs. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each of the Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio may
invest up to 10% of its total assets in securities issued by other investment
companies. Such investments are necessary in order to participate in certain
foreign markets where foreigners are prohibited from investing directly in the
securities of individual issuers. The Portfolio will incur any indirect expenses
incurred through investment in an investment company, such as the payment of a
management fee (which may result in the payment of an additional advisory fee).
Furthermore, it should be noted that foreign investment companies are not
subject to the U.S. securities laws and may be subject to fewer or less
stringent regulations than U.S. investment companies.
REPURCHASE AGREEMENTS. Each Portfolio of the Fund may enter into repurchase
agreements, which may be viewed as a type of secured lending by the Portfolio,
and which typically involve the acquisition by the Portfolio of debt securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Portfolio will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
Portfolio will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Portfolio to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
specifying the required value of the collateral underlying the agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, each Portfolio of the Fund may
purchase securities on a when-issued or delayed delivery basis or may purchase
or sell securities on a forward commitment basis. When
28
<PAGE>
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of the commitment. While a Portfolio will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, a Portfolio may sell the securities before the
settlement date, if it is deemed advisable. The securities so purchased or sold
are subject to market fluctuation and no interest accrues to the purchaser
during this period. At the time a Portfolio makes the commitment to purchase or
sell securities on a when-issued, delayed delivery or forward commitment basis,
it will record the transaction and thereafter reflect the value, each day, of
such security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities,
their value may be more or less than the purchase or sale price. A Portfolio
will also establish a segregated account with its custodian bank in which it
will continually maintain cash or cash equivalents or other high grade debt
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. An increase in the
percentage of a Portfolio's assets committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis may increase the
volatility of the Portfolio's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio (other than the Money
Market Portfolio) may purchase securities on a "when, as and if issued" basis
under which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio until the Investment Manager determines that the
issuance of the security is probable, whereupon the accounting treatment for
such commitment will be the same as for a commitment to purchase a security on a
when-issued, delayed delivery or forward commitment basis, described above and
in the Statement of Additional Information. An increase in the percentage of a
Portfolio's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
INVESTMENTS IN SECURITIES RATED BAA BY MOODY'S OR BBB BY S&P. The Utilities
Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio and the Managed Assets Portfolio may invest a
portion of their assets in fixed-income securities rated at the time of purchase
Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P"). Investments in fixed-income securities
rated either Baa by Moody's or BBB by S&P (the lowest credit ratings designated
"investment grade") may have speculative characteristics and, therefore, changes
in economic conditions or other circumstances are more likely to weaken their
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. If a bond held by a
Portfolio is downgraded by a rating agency to a rating of below Baa or BBB, the
Portfolio will retain such security in its portfolio until the Investment
Manager determines that it is practicable to sell the security without undue
market or tax consequences to the Portfolio. The risks of holding lower-rated
securities are described above under "The High Yield Portfolio."
PRIVATE PLACEMENTS. As a fundamental policy, which may be changed only by
the shareholders of the affected Portfolios, each of the Quality Income Plus
Portfolio, the Dividend Growth Portfolio, the Equity Portfolio and the Managed
Assets Portfolio may invest up to 5% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or which are
otherwise not readily marketable. These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Portfolio
29
<PAGE>
from disposing of them promptly at reasonable prices. The Portfolio may have to
bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
As a non-fundamental policy, which may be changed by the Trustees of the
Fund, each of the Utilities Portfolio, the Capital Growth Portfolio and the
Global Dividend Growth Portfolio may invest up to 5%, the European Growth
Portfolio may invest up to 10%, and each of the High Yield Portfolio and the
Pacific Growth Portfolio may invest up to 15%, of its total assets in private
placements or restricted securities. (With regard to these six Portfolios,
securities eligible for resale pursuant to Rule 144A under the Securities Act,
and determined to be liquid pursuant to the procedures discussed in the
following paragraph, are not subject to the foregoing restriction.)
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the ten Portfolios named above to sell restricted
securities to qualified institutional buyers without limitation. The Investment
Manager, pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by any
of these Portfolios. If a restricted security is determined to be "liquid", such
security will not be included within the category "illiquid securities", which
is limited by the Fund's investment restrictions to 10% of the total assets of
each of these Portfolios other than the High Yield Portfolio, and which under
current policy is limited to 15% of the net assets of the High Yield Portfolio.
ZERO COUPON SECURITIES. A portion of the U.S. Government securities
purchased by the Quality Income Plus Portfolio, the Utilities Portfolio, the
Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio and a portion of the fixed-
income securities purchased by the High Yield Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio may be zero coupon securities. Such
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. The interest earned
on such securities is, implicitly, automatically compounded and paid out at
maturity. While such compounding at a constant rate eliminates the risk of
receiving lower yields upon reinvestment of interest if prevailing interest
rates decline, the owner of a zero coupon security will be unable to participate
in higher yields upon reinvestment of interest received on interest-paying
securities if prevailing interest rates rise. For this reason, zero coupon
securities are subject to substantially greater price fluctuations during
periods of changing prevailing interest rates than are comparable securities
which pay interest currently.
WARRANTS. Each Portfolio (other than the Money Market Portfolio and the
Quality Income Plus Portfolio) may acquire warrants attached to other securities
and, in addition, each of the Dividend Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio,
the Equity Portfolio and the Managed Assets Portfolio may invest up to 5% of the
value of its total assets in warrants not attached to other securities,
including up to 2% of such assets in warrants not listed on either the New York
or American Stock Exchange. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporation issuing them. If warrants remain unexercised at the
end of the exercise period, they will lapse and the Portfolio's investment in
them will be lost. The prices of warrants do not necessarily move parallel to
the prices of the underlying securities.
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OPTIONS AND FUTURES TRANSACTIONS
As noted above, each of the Quality Income Plus Portfolio, the Utilities
Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Managed
Assets Portfolio may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities (the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio and the Managed Assets Portfolio may also write covered put and call
options on stock indexes) and purchase options of the same or similar series to
effect closing transactions, and may hedge against potential changes in the
market value of its investments (or anticipated investments) by purchasing put
and call options on securities which it holds (or has the right to acquire) in
its portfolio and engaging in transactions involving interest rate futures
contracts and bond index futures contracts and options on such contracts. The
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio may also hedge against such changes by entering into
transactions involving stock index futures contracts and options thereon, and
(except for the European Growth Portfolio and the Pacific Growth Portfolio)
options on stock indexes. The Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio may also hedge against
potential changes in the market value of the currencies in which their
investments (or anticipated investments) are denominated by purchasing put and
call options on currencies and engaging in transactions involving currencies
futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on Exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Portfolio the right to buy from the OCC (in the
U.S.) or other clearing corporation or exchange the underlying security covered
by the option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration of the option.
The writer (seller) of the option would then have the obligation to sell to the
OCC (in the U.S.) or other clearing corporation or exchange the underlying
security at that exercise price prior to the expiration date of the option,
regardless of its then current market price. Ownership of a listed put option
would give the Portfolio the right to sell the underlying security to the OCC
(in the U.S.) or other clearing corporation or exchange at the stated exercise
price. Upon notice of exercise of the put option, the writer of the put would
have the obligation to purchase the underlying security from the OCC (in the
U.S.) or other clearing corporation or exchange at the exercise price.
Exchange-listed options are issued by the OCC (in the U.S.) or other
clearing corporation or exchange which assures that all transactions in such
options are properly executed. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Portfolio. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Portfolio and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities (or,
in the case of the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio, the currency) underlying an option it
has written, in accordance with the terms of that option, the Portfolio would
lose the premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC option transactions only with
member banks of the Federal Reserve System or primary dealers in U.S. Government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or whose obligations are
guaran-
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teed by an entity having capital of at least $50 million.
COVERED CALL WRITING. The Quality Income Plus Portfolio, the Utilities
Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Managed
Assets Portfolio are permitted to write covered call options on portfolio
securities, without limit, in order to aid them in achieving their investment
objectives. In the case of the Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio, such options may be
denominated in either U.S. dollars or foreign currencies and may be on the U.S.
dollar and foreign currencies. As a writer of a call option, the Portfolio has
the obligation, upon notice of exercise of the option, to deliver the security
(or amount of currency) underlying the option prior to the expiration date of
the option (certain listed and OTC put options written by a Portfolio will be
exercisable by the purchaser only on a specific date).
COVERED PUT WRITING. As a writer of covered put options, the Quality Income
Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio or the Managed Assets Portfolio incurs an obligation to buy the
security underlying the option from the purchaser of the put, at the option's
exercise price at any time during the option period, at the purchaser's election
(certain listed and OTC put options written by a Portfolio will be exercisable
by the purchaser only on a specific date). The Quality Income Plus Portfolio,
the Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio
and the Managed Assets Portfolio will write put options for two purposes: (1) to
receive the income derived from the premiums paid by purchasers; and (2) when
the Portfolio's management wishes to purchase the security underlying the option
at a price lower than its current market price, in which case the Portfolio will
write the covered put at an exercise price reflecting the lower purchase price
sought. The aggregate value of the obligations underlying the puts determined as
of the date the options are sold will not exceed 50% of a Portfolio's net
assets.
PURCHASING CALL AND PUT OPTIONS. The Quality Income Plus Portfolio may
purchase listed and OTC call and put options in amounts equalling up to 10% of
its total assets. Each of the Capital Growth Port-folio, the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio
may purchase such call and put options in amounts equalling up to 5% of its
total assets. Each of the Utilities Portfolio, the Global Dividend Growth
Portfolio, and the Managed Assets Portfolio may purchase such call and put
options and options on stock indexes in amounts equalling up to 10% of its total
assets, with a maximum of 5% of its total assets invested in the purchase of
stock index options. These Portfolios may purchase call options either to close
out a covered call position or to protect against an increase in the price of a
security a Portfolio anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security the Global Dividend Growth Portfolio, the
European Growth Portfolio or the Pacific Growth Portfolio anticipates purchasing
is denominated vis-a-vis the currency in which the exercise price is
denominated. The Portfolio may purchase put options on securities which it holds
(or has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security. Similarly, each of the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio
may purchase put options on currencies in which securities it holds are
denominated only to protect itself against a decline in value of such currency
vis-a-vis the currency in which the exercise price is denominated. The
Portfolios may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions. There are no other
limits on the ability of these Portfolios to purchase call and put options.
STOCK INDEX OPTIONS. The Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend
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Growth Portfolio and the Managed Assets Portfolio may invest in options on stock
indexes, which are similar to options on stock except that, rather than the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or lesser than, in the case of
a put, the exercise price of the option. See "Risks of Options on Indexes," in
the Statement of Additional Information.
FUTURES CONTRACTS. The Quality Income Plus Portfolio, the Utilities
Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Managed
Assets Portfolio may purchase and sell interest rate futures contracts that are
currently traded, or may in the future be traded, on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, and bills and GNMA
Certificates and bond index futures contracts that are traded on U.S. commodity
exchanges on such indexes as the Moody's Investment-Grade Corporate Bond Index.
The Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, The Pacific Growth Portfolio
and the Managed Assets Portfolio may also purchase and sell stock index futures
contracts that are currently traded, or may in the future be traded, on U.S.
commodity exchanges on such indexes as the S&P 500 Index and the New York Stock
Exchange Composite Index. The Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio may also purchase and sell
futures contracts that are currently traded, or may in the future be traded, on
foreign commodity exchanges on such underlying securities as common stocks or
any foreign government fixed-income security, on various currencies ("currency
futures") and on such indexes of foreign equity and fixed-income securities as
may exist or come into being, such as the Financial Times Equity Index. As a
futures contract purchaser, a Portfolio incurs an obligation to take delivery of
a specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. As a seller of a futures contract, a
Portfolio incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio will
purchase or sell interest rate futures contracts and bond index futures
contracts for the purpose of hedging their fixed-income portfolio (or
anticipated portfolio) securities against changes in prevailing interest rates
or, in the case of the Utilities Portfolio and the Managed Assets Portfolio, to
facilitate asset reallocations into and out of the fixed-income area. The
Utilities Portfolio, the Capital Growth Portfolio, the Global Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Managed
Assets Portfolio will purchase or sell stock index futures contracts for the
purpose of hedging their equity portfolio (or anticipated portfolio) securities
against changes in their prices or, in the case of the Utilities Portfolio and
the Managed Assets Portfolio, to facilitate asset reallocations into and out of
the equity area. The Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio will purchase or sell currency
futures on currencies in which their portfolio securities (or anticipated
portfolio securities) are denominated for the purposes of hedging against
anticipated changes in currency exchange rates.
OPTIONS ON FUTURES CONTRACTS. The Quality Income Plus Portfolio, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the
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<PAGE>
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. The Quality Income
Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio and the Managed Assets Portfolio will only purchase and write
options on futures contracts for identical purposes to those set forth above for
the purchase of a futures contract (purchase of a call option or sale of a put
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or to close out a long or short position in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. A Portfolio may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges limit the amount by which the price of a futures contract may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased.
The extent to which a Portfolio may enter into transactions involving
options and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification of each Portfolio as a regulated investment
company and the Fund's intention to qualify each Portfolio as such. See
"Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
Quality Income Plus Portfolio, the Utilities Portfolio, the Capital Growth
Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio,
the Pacific Growth Portfolio and the Managed Assets Portfolio for the purpose of
hedging their portfolio securities are not speculative in nature, there are
risks inherent in the use of such instruments. One such risk is that the
Portfolio's management could be incorrect in its expectations as to the
direction or extent of various interest rate movements or the time span within
which the movements take place. For example, if a Portfolio sold interest rate
futures contracts for the sale of securities in anticipation of an increase in
interest rates, and then interest rates went down instead, causing bond prices
to rise, the Portfolio would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the portfolio securities (and, in the case of the Global
Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, the securities' denominated currencies). Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Portfolio seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio, by entering into transactions in foreign futures and
options markets, will incur risks similar to those discussed above under
"Foreign Securities."
New options and futures contracts and other financial products and various
combinations thereof continue to be developed. The Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio and the Managed Assets Portfolio may invest in any such options,
futures and products as may be developed to the extent consistent with their
investment objectives and applicable regulatory requirements, and the Fund will
make any and all pertinent disclosures relating to such investments in its
Pro-
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<PAGE>
spectus and/or Statement of Additional Information. Except as otherwise noted
above, there are no limitations on the ability of any of these Portfolios to
invest in options, futures and options on futures.
PORTFOLIO TRADING
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving the investment objectives of the
respective Portfolios, each Portfolio may sell portfolio securities without
regard to the length of time they have been held whenever such sale will in the
opinion of the Investment Manager (or, in the case of the European Growth
Portfolio and the Pacific Growth Portfolio, the Sub-Adviser) strengthen the
Portfolio's position and contribute to its investment objectives. In determining
which securities to purchase for the Portfolios or hold in a Portfolio, the
Investment Manager and, in the case of the European Growth Portfolio and the
Pacific Growth Portfolio, the Sub-Adviser will rely on information from various
sources, including research, analysis and appraisals of brokers and dealers, the
views of Trustees of the Fund and others regarding economic developments and
interest rate trends, and the Investment Manager's and, in the case of the
European Growth Portfolio and the Pacific Growth Portfolio, the Sub-Adviser's
own analysis of factors they deem relevant.
Personnel of the Investment Manager and, in the case of the European Growth
Portfolio and the Pacific Growth Portfolio, the Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Brokerage commissions are not normally charged on the purchase or sale of
money market instruments and U.S. Government obligations, or on currency
conversions, but such transactions will involve costs in the form of spreads
between bid and asked prices. Orders for transactions in portfolio securities
and commodities may be placed for the Fund with a number of brokers and dealers,
including Dean Witter Reynolds Inc. ("DWR"), the principal underwriter of the
Variable Annuity Contracts and a broker-dealer affiliate of InterCapital, and
four affiliated broker-dealers of the Sub-Adviser of the European Growth
Portfolio and the Pacific Growth Portfolio (Deutsche Bank AG; Deutsche Bank
Capital Markets Ltd.; C.J. Lawrence, Morgan Grenfell Inc.; and Morgan Grenfell
Asia and Partners Pte. Limited). Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain money
market instruments with DWR. In addition, the Fund may incur brokerage
commissions on transactions conducted through DWR and the four above-mentioned
affiliated broker-dealers of the Sub-Adviser of the European Growth Portfolio
and the Pacific Growth Portfolio.
The Money Market Portfolio is expected to have a high portfolio turnover due
to the short maturities of securities purchased, but this should not affect
income or net asset value as brokerage commissions are not normally charged on
the purchase or sale of money market instruments. It is not anticipated that the
portfolio turnover rates of the Portfolios will exceed the following percentages
in any year: Quality Income Plus Portfolio: 300%; High Yield Portfolio: 300%;
Utilities Portfolio: 100%; Dividend Growth Portfolio: 90%; Capital Growth
Portfolio: 200%; Global Dividend Growth Portfolio: 40%; European Growth
Portfolio: 100%; Pacific Growth Portfolio: 100%; Equity Portfolio: 300%; and
Managed Assets Portfolio: 300%. A portfolio turnover rate exceeding 100% in any
one year is greater than that of many other investment companies. Each Portfolio
of the Fund will incur underwriting discount costs (on underwritten securities)
and/or brokerage costs commensurate with its portfolio turnover rate. The
expenses of the Global Dividend Growth Portfolio, the European Growth Portfolio
and the Pacific Growth Portfolio relating to their portfolio management are
likely to be greater than those incurred by other investment companies investing
primarily in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing in foreign
markets are generally higher than in the United States. Short-term gains and
losses may result from portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implications of the Portfolios' trading
policies. A more extensive discussion of the Portfolios' brokerage policies is
set forth in the Statement of Additional Information.
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<PAGE>
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of certain of the Portfolios of the Fund: Paula LaCosta, Vice
President of InterCapital, has been the primary portfolio manager of the Quality
Income Plus Portfolio for over five years and has been managing portfolios
comprised of fixed-income securities at InterCapital for over five years; Peter
M. Avelar, Senior Vice President of InterCapital, has been the primary portfolio
manager of the High Yield Portfolio since December, 1990 and has been managing
portfolios comprised of fixed-income securities at InterCapital since December,
1990; prior thereto Mr. Avelar managed portfolios of such securities at
PaineWebber Asset Management (March, 1989 - December, 1990) and Delaware
Investment Advisers (June, 1987 - March, 1989); Edward F. Gaylor, Senior Vice
President of InterCapital, has been the primary portfolio manager of the
Utilities Portfolio since its inception and has been managing portfolios
comprised of equity and other securities at InterCapital for over five years;
Paul D. Vance, Senior Vice President of InterCapital, has been the primary
portfolio manager of the Dividend Growth Portfolio and the Capital Growth
Portfolio since their inceptions, has been designated as the primary portfolio
manager of the Global Dividend Growth Portfolio and has been managing portfolios
comprised of equity and other securities at InterCapital for over five years;
John C. Armitage, a Director of Morgan Grenfell Asset Management Limited, the
parent of the Sub-Adviser, has been the primary portfolio manager of the
European Growth Portfolio since its inception and has been managing portfolios
consisting of equity portfolios based in Europe for the Sub-Adviser for over
five years; Graham D. Bamping, a Director of the Sub-Adviser, has been
designated as the primary portfolio manager of the Pacific Growth Portfolio and
has been managing equity portfolios based in the Pacific Basin for the
Sub-Adviser for over five years; Anita H. Kolleeny, Senior Vice President of
InterCapital, has been the primary portfolio manager of the Equity Portfolio for
over five years and has been managing portfolios comprised of equity and other
securities at InterCapital for over five years; Kenton J. Hinchliffe, Senior
Vice President of InterCapital, has been the primary portfolio manager of the
Managed Assets Portfolio for over five years and has been managing portfolios
comprised of equity and other securities at InterCapital for over five years.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies of each Portfolio. Under
the Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed with respect to a Portfolio without the vote of a majority of
the outstanding voting securities of that Portfolio, as defined in the Act.
Each Portfolio of the Fund may not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities), or purchase more than 10%
of the voting securities, or more than 10% of any class of security, of any
issuer (for this purpose all outstanding debt securities of an issuer are
considered as one class and all preferred stock of an issuer are considered as
one class). With regard to the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, these limitations apply only as to 75% of the Portfolio's total
assets.
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attain-
of its investment objective, a Portfolio may invest up to 25% of its total
assets (valued at the time of investment) in any one industry classification
used by that Portfolio for investment purposes. This restriction does not apply
to obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, or, in the case of the Money Market Portfolio, to
domestic bank obligations (not including obligations issued by foreign branches
of such
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<PAGE>
banks) or, in the case of the Utilities Portfolio, to the utilities industry, in
which industry the Portfolio will concentrate.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
4. Purchase or sell commodities or commodity futures contracts, or oil, gas
or mineral exploration or developmental programs, except that a Portfolio may
invest in the securities of companies which operate, invest in, or sponsor such
programs, and the Quality Income Plus Portfolio, the Utilities Portfolio, the
Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio
and the Managed Assets Portfolio may purchase futures contracts and related
options thereon and the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio may purchase currency futures
contracts and related options thereon.
5. Borrow money (except insofar as the European Growth Portfolio and the
Pacific Growth Portfolio may be deemed to have borrowed by entrance into a
reverse repurchase agreement up to an amount not exceeding 10% of the
Portfolio's total assets), except from banks for temporary or emergency purposes
or to meet redemption requests which might otherwise require the untimely
disposition of securities, and, in the case of the Portfolios other than the
Quality Income Plus Portfolio, not for investment or leveraging, provided that
borrowing in the aggregate (other than, in the case of the Quality Income Plus
Portfolio, for investment or leveraging) may not exceed 5% of the value of the
Portfolio's total assets (including the amount borrowed) at the time of such
borrowing.
6. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial margin for futures are not deemed to be pledges of
assets.)
7. Purchase securities on margin (but the Portfolios may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the Quality Income Plus Portfolio, the Utilities Portfolio, the
Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio
and the Managed Assets Portfolio of initial or variation margin in connection
with futures contracts or related options thereon is not considered the purchase
of a security on margin.
8. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or, in the
case of the Global Dividend Growth Portfolio, the European Growth Portfolio and
the Pacific Growth Portfolio, in accordance with the provisions of Section 12(d)
of the Act and any Rules promulgated thereunder (E.G., each of these Portfolios
may not invest in more than 3% of the outstanding voting securities of any
investment company).
Each of the Quality Income Plus Portfolio, the Dividend Growth Portfolio,
the Equity Portfolio and the Managed Assets Portfolio may not invest more than
5% of the value of its total assets in securities which are restricted as to
disposition under the Federal securities laws or otherwise, provided that this
restriction shall not apply to securities received as a result of a corporate
reorganization or similar transaction affecting readily marketable securities
already held by the Portfolio; however, these Portfolios will attempt to dispose
in an orderly fashion of any securities received under these circumstances to
the extent that such securities, together with other illiquid securities, exceed
10% of the Portfolio's total assets.
Each of the Utilities Portfolio, the Capital Growth Portfolio and the
European Growth Portfolio may not invest more than 10% of its total assets in
"illiquid securities" (securities for which market quotations are not readily
available) and repurchase agreements which have a maturity of longer than seven
days. In addition, no more than 15% of the European
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<PAGE>
Growth Portfolio's net assets will be invested in such illiquid securities and
foreign securities not traded on a recognized domestic or foreign exchange.
Generally, OTC options and the assets used as "cover" for written OTC options
are illiquid securities. However, these Portfolios are permitted to treat the
securities they use as cover for written OTC options as liquid provided they
follow a procedure whereby they will sell OTC options only to qualified dealers
who agree that the Portfolio may repurchase such options at a maximum price to
be calculated pursuant to a predetermined formula set forth in the option
agreement. The formula may vary from agreement to agreement, but is generally
based on a multiple of the premium received by the Portfolio for writing the
option plus the amount, if any, of the option's intrinsic value. An OTC option
is considered an illiquid asset only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The High Yield Portfolio may not acquire any common stocks, except (a) when
attached to or included in a unit with fixed-income securities; (b) when
acquired upon conversion of fixed-income securities; or (c) when acquired upon
exercise of warrants attached to fixed-income securities. However, the High
Yield Portfolio may retain common stocks so acquired but not in excess of 10% of
its total assets. While the Equity Portfolio may not invest in securities of
foreign issuers, it may invest in (a) securities of Canadian issuers registered
under the Securities Exchange Act of 1934 and (b) American Depository Receipts.
All percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total assets does not
require elimination of any security from the Portfolio.
DETERMINATION OF NET ASSET VALUE
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The net asset value per share is calculated separately for each Portfolio.
In general, the net asset value per share is computed by taking the value of all
the assets of the Portfolio, subtracting all liabilities, dividing by the number
of shares outstanding and adjusting the result to the nearest cent. The Fund
will compute the net asset value per share of each Portfolio once daily at 4:00
p.m., New York time, on days the New York Stock Exchange is open for trading.
The net asset value per share will not be determined on Good Friday and on such
other Federal and non-Federal holidays as are observed by the New York Stock
Exchange.
The Money Market Portfolio utilizes the amortized cost method in valuing its
portfolio securities, which method involves valuing a security at its cost
adjusted by a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00. However, there can
be no assurance that the $1.00 net asset value will be maintained.
In the calculation of the net asset value of the Portfolios other than the
Money Market Portfolio: (1) an equity portfolio security listed or traded on the
New York or American Stock Exchange 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 by the Trustees); and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price prior to the time of valuation. In either (1) or (2) above,
when market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager (or, in the case of the
European Growth Portfolio and the Pacific Growth Portfolio, by the Sub-Adviser)
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 Fund's
Board of Trustees. Valuation of securities for which market quotations
38
<PAGE>
are not readily available may also be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors). For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts stated
in foreign currency are translated into U.S. dollar equivalents at the
prevailing market rates as of the morning of valuation. Dividends receivable are
accrued as of the ex-dividend date except for certain dividends from foreign
securities which are accrued as soon as the Fund is informed of such dividends
after the ex-dividend date.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the portfolio securities of each Portfolio other than the Money
Market Portfolio may be valued by an outside pricing service approved by the
Fund's Trustees. The pricing service utilizes a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research evaluations by its staff, including review of broker-dealer market
price quotations, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
Investments in the Fund may be made only by (1) Northbrook Life Insurance
Company ("Northbrook") for allocation to Northbrook Variable Annuity Account and
Northbrook Variable Annuity Account II, separate accounts established and
maintained by Northbrook for the purpose of funding variable annuity contracts
it issues, and by (2) Allstate Life Insurance Company of New York ("Allstate New
York") for allocation to Allstate Life of New York Variable Annuity Account and
Allstate Life of New York Variable Annuity Account II, separate accounts
established and maintained by Allstate New York for the purpose of funding
variable annuity contracts it issues. Persons desiring to purchase annuity
contracts funded by any Portfolio of the Fund should read this Prospectus in
conjunction with the Prospectus of the flexible premium deferred annuity
contracts issued by Northbrook or Allstate New York (the "Companies").
In the future, shares of the Portfolios of the Fund may be allocated to
certain other separate accounts or sold to affiliated and/or non-affiliated
entities of the Companies in connection with variable annuity contracts or
variable life insurance contracts. It is conceivable that in the future it may
become disadvantageous for both variable life and variable annuity contract
separate accounts to invest in the same underlying fund. Although neither the
Companies nor the Fund currently foresee any such disadvantage, if the shares of
the Fund are offered in connection with variable life insurance contracts, the
Fund's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflict between the interests of variable annuity
contract owners and variable life insurance contract owners and to determine
what action, if any, should be taken in response thereto.
Shares of each Portfolio of the Fund are offered to the Companies for
allocation to the Accounts without sales charge at the respective net asset
values of the Portfolios next determined after receipt by the Fund of the
purchase payment in the manner set forth above under "Determination of Net Asset
Value." In the interest of economy and convenience, certificates representing
the Fund's shares will not be physically issued. Dean Witter Distributors Inc.
(the "Distributor") acts without remuneration from the Fund as the exclusive
Distributor of the Fund's shares. (The Distributor is a wholly-owned subsidiary
of DWDC and an affiliate of Dean Witter Reynolds Inc., which is the principal
underwriter of the variable annuity contracts issued by the Companies.) The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
39
<PAGE>
REDEMPTION OF FUND SHARES
- --------------------------------------------------------------------------------
Shares of any Portfolio of the Fund can be redeemed by the Companies at any
time for cash, without sales charge, at the net asset value next determined
after receipt of the redemption request. (For information regarding charges
which may be imposed upon the Contracts by the applicable Account, see the
accompanying Prospectus for the Variable Annuity Contracts.)
The Fund reserves the right to suspend the right of redemption or to
postpone the date of payment upon redemption of the shares of any Portfolio for
any period during which the New York Stock Exchange is closed (other than
weekend and holiday closings) or trading on that Exchange is restricted, or
during which an emergency exists (as determined by the Securities and Exchange
Commission) as a result of which disposal of the portfolio securities owned by
the Portfolio is not reasonably practicable or it is not reasonably practicable
for the Portfolio to determine the value of its net assets, or for such other
period as the Securities and Exchange Commission may by order permit for the
protection of shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to distribute substantially
all of the net investment income and net realized capital gains, if any, of each
Portfolio. Dividends from net investment income and any distributions of
realized capital gains will be paid in additional shares of the Portfolio paying
the dividend or making the distribution and credited to the shareholder's
account.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared, payable on each day the New York Stock Exchange is
open for business to shareholders of record as of the close of business the
preceding business day. Net income, for dividend purposes, includes accrued
interest and accretion of original issue and market discount, less the
amortization of market premium and the estimated expenses of the Money Market
Portfolio. The amount of dividend may fluctuate from day to day and may be
omitted on some days if realized losses on portfolio securities exceed the Money
Market Portfolio's net investment income. Dividends are automatically reinvested
daily in additional shares of the Money Market Portfolio at the net asset value
per share at the close of business that day. Any net realized capital gains will
be declared and paid at least once per calendar year; net short-term gains may
be paid more frequently, with the distribution of dividends from net investment
income.
QUALITY INCOME PLUS PORTFOLIO. Dividends from net investment income on the
Quality Income Plus Portfolio will be declared, payable on each day the New York
Stock Exchange is open for business to shareholders of record as of the close of
business the preceding business day. The Portfolio will pay quarterly dividends
of realized net short-term capital gains, if any. Such dividends may include a
portion of the premiums received by the Portfolio from expired call and put
options written by the Portfolio on U.S. Government and other debt securities,
and of the net gains realized on closing purchase transactions with respect to
such options. Any net realized long-term capital gains will be declared and paid
at least once per calendar year.
HIGH YIELD PORTFOLIO. Dividends from net investment income on the High
Yield Portfolio will be declared, payable on each day the New York Stock
Exchange is open for business to shareholders of record as of the close of
business the preceding business day. Any net realized capital gains will be
declared and paid at least once per calendar year.
UTILITIES PORTFOLIO, DIVIDEND GROWTH PORTFOLIO, CAPITAL GROWTH PORTFOLIO,
GLOBAL DIVIDEND GROWTH PORTFOLIO, EUROPEAN GROWTH PORTFOLIO, PACIFIC GROWTH
PORTFOLIO and EQUITY PORTFOLIO. Dividends from net investment income, if any,
on the Utilities Portfolio, the Dividend Growth Portfolio, the Capital Growth
Portfolio, the Global Dividend Growth Portfolio, the
40
<PAGE>
European Growth Portfolio, the Pacific Growth Portfolio and the Equity Portfolio
will be declared and paid monthly, and any net realized capital gains will be
declared and paid at least once per calendar year.
MANAGED ASSETS PORTFOLIO. Dividends from net investment income, if any, on
the Managed Assets Portfolio will be declared and paid monthly, and the
Portfolio will pay quarterly dividends of realized net short-term capital gains,
if any. Such dividends may include a portion of the premiums received by the
Portfolio from expired call options written by the Portfolio on portfolio
securities, and of the net gains realized on closing purchase transactions with
respect to such options. Any net realized long-term capital gains will be
declared and paid at least once per calendar year.
TAXES. Because the Fund intends to distribute substantially all of the net
investment income and capital gains of each Portfolio and otherwise continue to
qualify each Portfolio as a regulated investment company under Subchapter M of
the Internal Revenue Code (the "Code"), it is not expected that any Portfolio of
the Fund will be required to pay any Federal income tax on such income and
capital gains.
Gains or losses on a Portfolio's transactions in certain listed options and
on futures and options on futures generally are treated as 60% long-term and 40%
short-term. When a Portfolio engages in options and futures transactions,
various tax regulations applicable to the Portfolio may have the effect of
causing the Portfolio to recognize a gain or loss for tax purposes before that
gain or loss is realized, or to defer recognition of a realized loss for tax
purposes. Recognition, for tax purposes, of an unrealized loss may result in a
lesser amount of the realized net short-term gains of the Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio or the Managed Assets Portfolio being available for distribution.
These Portfolios intend to make certain elections which may minimize the impact
of these rules but which could also result in a higher portion of the
Portfolio's gains being treated as short-term capital gains.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of a Portfolio's gross income be derived from the sale or
other disposition of securities held for less than three months. This
requirement may limit the ability of the Quality Income Plus Portfolio, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio to engage in options and futures transactions.
With respect to investments by the Quality Income Plus Portfolio, the High
Yield Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio and the Pacific
Growth Portfolio in zero coupon bonds and investment by the High Yield Portfolio
in payment-in-kind bonds, the Portfolios accrue income prior to any actual cash
payments by their issuers. In order to continue to comply with Subchapter M of
the Code and remain able to forego payment of Federal income tax on their income
and capital gains, each Portfolio must distribute all of its net investment
income, including income accrued from zero coupon and payment-in-kind bonds. As
such, these Portfolios may be required to dispose of some of their portfolio
securities under disadvantageous circumstances to generate the cash required for
distribution.
Dividends, interest and capital gains received by a Portfolio on investments
in foreign issuers or which are denominated in foreign currency may give rise to
withholding and other taxes imposed by foreign countries, which may or may not
be refunded to the Portfolio.
Since the Companies are the only shareholders of the Fund, no discussion is
stated herein as to the Federal income tax consequences at the shareholder
level. For information concerning the Federal income tax consequences to holders
of variable annuity or variable life insurance contracts, see the accompanying
Prospectus for the Variable Annuity Contracts.
41
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the "yield" and "effective yield" of
the Money Market Portfolio. Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the Money
Market Portfolio refers to the income generated by an investment in the
Portfolio over a given period (which period will be stated in the
advertisement). This income is then annualized. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in the Money Market Portfolio is assumed to be reinvested each
week within a 365-day period. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
Money Market Portfolio's "yield" and "effective yield" do not reflect the
deduction of any charges which may be imposed on the Contracts by the applicable
Account and are therefore not equivalent to total return under a Contract (for a
description of such charges, see the accompanying Prospectus for the Contracts).
From time to time the Fund may quote the "total return" of each Portfolio in
advertisements and sales literature. The total return of a Portfolio is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of a Portfolio refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in the Portfolio of $1,000 over periods of one and five years, as
well as over the life of the Portfolio. Average annual total return reflects all
income earned by the Portfolio, any appreciation or depreciation of the
Portfolio's assets and all expenses incurred by the Portfolio for the stated
periods. It also assumes reinvestment of all dividends and distributions paid by
the Portfolio. However, average annual total return does not reflect the
deduction of any charges which may be imposed on the Contracts by the applicable
Account which, if reflected, would reduce the performance quoted.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by the applicable Account. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of a
Portfolio. The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
independent organizations, such as Lipper Analytical Services, Inc.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The shares of beneficial interest of the Fund, with $0.01 par value, are
divided into eleven separate Portfolios, and the shares of each Portfolio are
equal as to earnings, assets and voting privileges with all other shares of that
Portfolio. There are no conversion, pre-emptive or other subscription rights.
Upon liquidation of the Fund or any Portfolio, shareholders of a Portfolio are
entitled to share pro rata in the net assets of that Portfolio available for
distribution to shareholders after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
The assets received by the Fund on the sale of shares of each Portfolio and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are allocated to each Portfolio, and constitute the assets of such
Portfolio. The assets of each Portfolio are required to be segregated on the
Fund's books of account.
Additional Portfolios (the proceeds of which would be invested in separate,
independently managed portfolios with distinct investment objectives, policies
and restrictions) may be offered in the future, but such additional offerings
would not affect the interests of the current shareholders in the existing
Portfolios.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote.
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<PAGE>
On matters relating to all the Portfolios but affecting the Portfolios
differently, separate votes by Portfolio are required. Approval of an Investment
Management Agreement and a change in fundamental policies would be regarded as
matters requiring separate voting by each Portfolio. To the extent required by
law, Northbrook Life Insurance Company and Allstate Life Insurance Company of
New York, which are the only shareholders of the Fund, will vote the shares of
the Fund held in each Account in accordance with instructions from Contract
Owners, as more fully described under the caption "Voting Rights" in the
accompanying Prospectus for the Variable Annuity Contracts. The Trustees of the
Fund have been elected by Northbrook Life Insurance Company and Allstate Life
Insurance Company of New York, pursuant to the instructions of Contract Owners.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or address set forth on the front cover of
this Prospectus.
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APPENDIX -- RATINGS OF INVESTMENTS
- --------------------------------------------------------------------------------
Moody's Investors Service Inc. ("Moody's")
Bond Ratings
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
CONDITIONAL RATING: Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches.
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Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Standard & Poor's Corporation ("Standard & Poor's")
Bond Ratings
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although they
are somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than for debt in
higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative grade
debt. However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and
repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent
upon favorable business, financial and economic conditions to meet timely payments of
interest and repayments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and repay
principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is assigned
an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on
which to base a rating or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes followed by a "p"
which indicates that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no comment on
the likelihood or risk of default upon failure of such completion.
</TABLE>
Commercial Paper Ratings
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished
46
<PAGE>
by the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
</TABLE>
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 11, 1994 [LOGO]
- --------------------------------------------------------------------------------
THE DEAN WITTER VARIABLE INVESTMENT SERIES (the "Fund") is an open-end
diversified management investment company which is intended to provide a broad
range of investment alternatives with its eleven separate Portfolios, each of
which has distinct investment objectives and policies:
-THE MONEY MARKET PORTFOLIO seeks high current income, preservation of
capital and liquidity by investing in short-term money market instruments.
-THE QUALITY INCOME PLUS PORTFOLIO seeks, as its primary objective, to earn
a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective, by
investing primarily in debt securities issued by the U.S. Government, its
agencies and instrumentalities and in fixed-income securities rated A or
higher by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or non-rated securities of comparable quality.
-THE HIGH YIELD PORTFOLIO seeks, as its primary objective, to earn a high
level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective, by
investing principally in fixed-income securities which are rated in the
lower categories by established rating services [Baa or lower by Moody's or
BBB or lower by S&P] or non-rated securities of comparable quality.
-THE UTILITIES PORTFOLIO seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and
fixed-income securities of companies engaged in the public utilities
industry.
-THE DIVIDEND GROWTH PORTFOLIO seeks to provide reasonable current income
and long-term growth of income and capital by investing primarily in common
stock of companies with a record of paying dividends and the potential for
increasing dividends.
-THE CAPITAL GROWTH PORTFOLIO seeks to provide long-term capital growth by
investing principally in common stocks.
-THE GLOBAL DIVIDEND GROWTH PORTFOLIO seeks to provide reasonable current
income and long-term growth of income and capital by investing primarily in
common stock of companies, issued by issuers worldwide, with a record of
paying dividends and the potential for increasing dividends.
-THE EUROPEAN GROWTH PORTFOLIO seeks to maximize the capital appreciation of
its investments by investing primarily in securities issued by issuers
located in Europe.
-THE PACIFIC GROWTH PORTFOLIO seeks to maximize the capital appreciation of
its investments by investing primarily in securities issued by issuers
located in Asia, Australia and New Zealand.
-THE EQUITY PORTFOLIO seeks, as its primary objective, capital growth
through investments in common stock and, as a secondary objective, income
but only when consistent with its primary objective.
-THE MANAGED ASSETS PORTFOLIO seeks a high total investment return through a
fully managed investment policy utilizing equity securities, fixed-income
securities rated Baa or higher by Moody's or BBB or higher by S&P (or
non-rated securities of comparable quality), and money market securities.
There can be no assurance that these investment objectives will be achieved.
See "Investment Practices and Policies."
A Prospectus for the Fund dated February 11, 1994, which provides the basic
information you should know before allocating your investment under your
Variable Annuity Contract to the Fund, may be obtained without charge from the
Fund at its address or telephone number listed below or from the Fund's
Distributor, Dean Witter Distributors Inc., or from Dean Witter Reynolds Inc. at
any of its branch offices. This Statement of Additional Information is not a
Prospectus. It contains information in addition to and more detailed than that
set forth in the Prospectus for the Fund. It is intended to provide you
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectuses for the Fund and for the
Variable Annuity Contracts.
Dean Witter
Variable Investment Series
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 8
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 32
Portfolio Transactions and Brokerage................................................... 34
Purchase and Redemption of Fund Shares................................................. 37
Dividends, Distributions and Taxes..................................................... 40
Performance Information................................................................ 42
Description of Shares of the Fund...................................................... 45
Custodians and Transfer Agent.......................................................... 46
Independent Accountants................................................................ 46
Reports to Shareholders................................................................ 46
Legal Counsel.......................................................................... 46
Experts................................................................................ 47
Registration Statement................................................................. 47
Report of Independent Accountants...................................................... 49
Financial Statements -- December 31, 1993.............................................. 50
</TABLE>
------------------------
Currently, the shares of the Fund will be sold only to (1) Northbrook Life
Insurance Company ("Northbrook") for allocation to Northbrook Variable Annuity
Account and Northbrook Variable Annuity Account II to fund the benefits under
certain flexible premium deferred variable annuity contracts issued by
Northbrook, and to (2) Allstate Life Insurance Company of New York ("Allstate
New York") for allocation to Allstate Life of New York Variable Annuity Account
and Allstate Life of New York Variable Annuity Account II to fund the benefits
under certain flexible premium deferred variable annuity contracts issued by
Allstate New York. (The Northbrook Variable Annuity Account, the Northbrook
Variable Annuity Account II, the Allstate Life of New York Variable Annuity
Account and the Allstate Life of New York Variable Annuity Account II are
sometimes referred to as the "Accounts." The variable annuity contracts issued
by Northbrook and Allstate New York are sometimes referred to as the "Variable
Annuity Contracts" or the "Contracts". Northbrook and Allstate New York are
sometimes referred to as the "Companies.") In the future, shares may be
allocated to certain other separate accounts or sold to affiliated and/ or
non-affiliated entities of the Companies in connection with variable annuity
contracts or variable life insurance contracts. The Companies will invest in
shares of the Fund in accordance with allocation instructions received from
Contract Owners, which allocation rights are further described in the Prospectus
for the Variable Annuity Contracts issued by Northbrook or Allstate New York
which accompanies the Prospectus for the Fund. The Companies will redeem shares
to the extent necessary to provide benefits under the Contracts. It is
conceivable that in the future it may become disadvantageous for both variable
life insurance and variable annuity contract separate accounts to invest in the
same underlying fund. Although neither the Companies nor the Fund currently
foresee any such disadvantage, if the shares of the Fund are offered in
connection with variable life insurance contracts, the Fund's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflict between the interests of variable annuity contract owners and variable
life insurance contract owners and to determine what action, if any, should be
taken in response thereto.
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was organized under the laws of the Commonwealth of Massachusetts
on February 25, 1983 under the name Dean Witter Variable Annuity Investment
Series and is a trust of the type commonly knows as a "Massachusetts Business
Trust." On February 23, 1988, the Trustees of the Fund adopted an Amendment to
the Declaration of Trust of the Fund changing the name of the Fund to Dean
Witter Variable Investment Series.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation. In
an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolios are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to periodic review by the Fund's Board of Trustees.
In addition, Trustees of the Fund provide guidance on economic factors and
interest rate trends. Information as to these Trustees and officers is contained
under the caption, "Trustees and Officers."
Northbrook Life Insurance Company, an Illinois corporation, and Allstate
Life Insurance Company of New York, a New York corporation, which are the only
shareholders of the Fund, are wholly-owned subsidiaries of Allstate Life
Insurance Company, an Illinois corporation, which in turn is a wholly-owned
subsidiary of Allstate Insurance Company, an Illinois corporation. With the
exception of directors' qualifying shares, all of the outstanding capital stock
of Allstate Insurance Company is owned by The Allstate Corporation, which is a
majority-owned subsidiary of Allstate Holdings Inc., which is a wholly-owned
subsidiary of Sears, Roebuck and Co.
The Investment Manager is also the investment manager or investment adviser
of the following investment companies: Dean Witter Liquid Asset Fund Inc., Dean
Witter High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean
Witter Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities
Trust, Dean Witter Natural Resource Development Securities Inc., Dean Witter
Dividend Growth Securities Inc., Dean Witter American Value Fund, Dean Witter
U.S. Government Money Market Trust, Dean Witter World Wide Investment Trust,
Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S. Government
Securities Trust, Dean Witter California Tax-Free Income Fund, Dean Witter
Equity Income Trust, Dean Witter New York Tax-Free Income Fund, Dean Witter
Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean Witter
Value-Added Market Series, Dean Witter Utilities Fund, Dean Witter Managed
Assets Trust, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
Strategist Fund, Dean Witter World Wide Income Trust, Dean Witter Intermediate
Income Securities, Dean Witter Capital Growth Securities, Dean Witter New York
Municipal Money Market Trust, Dean Witter European Growth Fund Inc., Dean Witter
Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement
Series, Dean Witter Global Dividend Growth Securities, Dean Witter Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund, InterCapital Income
Securities Inc., High Income Advantage Trust, High Income Advantage Trust II,
High Income Advantage Trust III, Dean Witter Government Income Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal Trust,
InterCapital Insured Municipal Income Trust, InterCapital California Insured
Municipal Income Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Quality Municipal Income Trust, InterCapital Quality Municipal
Securities, InterCapital
Cali-
3
<PAGE>
fornia Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, Active Assets Money Trust, Active Assets Tax-Free Trust, Active
Assets California Tax-Free Trust, Active Assets Government Securities Trust,
Municipal Income Trust, Municipal Income Trust II, Municipal Income Trust III,
Municipal Income Opportunities Trust, Municipal Income Opportunities Trust II,
Municipal Income Opportunities Trust III, Municipal Premium Income Trust and
Prime Income Trust. The foregoing investment companies, together with the Fund,
are collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and
TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i)
sub-adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which are not available for purchase in the United States
or by American citizens outside the United States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the assets of each Portfolio (other than the European
Growth Portfolio and the Pacific Growth Portfolio, discussed below), including
the placing of orders for the purchase and sale of portfolio securities. The
Investment Manager obtains and evaluates such information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously manage the assets of these Portfolios of the
Fund in a manner consistent with their investment objectives and policies.
Pursuant to the Management Agreement with the Investment Manager, the Fund
has retained the Investment Manager to supervise the investment of the assets of
each of the European Growth Portfolio and the Pacific Growth Portfolio. The
Investment Manager, through consultation with Morgan Grenfell Investment
Services Limited (the "Sub-Adviser") and through its own portfolio management
staff, obtains and evaluates such information and advice relating to the
economy, securities markets and specific securities as it considers necessary or
useful to continuously oversee the management of the assets of the European
Growth Portfolio and the Pacific Growth Portfolio in a manner consistent with
their investment objectives.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
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 service, heat, light, power and other utilities provided to the
Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. The foregoing
internal reorganization did not result in any change in the nature or scope of
the administrative services being provided to the Fund or any of the fees being
paid by the Fund for the overall services being performed under the terms of the
existing Management Agreement.
4
<PAGE>
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Adviser of the European Growth Portfolio and
the Pacific Growth Portfolio pursuant to the Sub-Advisory Agreements (see
below), or by the Distributor of the Fund's shares, Dean Witter Distributors
Inc. ("Distributors" or the "Distributor"), (see "Purchase and Redemption of
Fund Shares -- The Distributor") will be paid by the Fund. Each Portfolio pays
all other expenses incurred in its operation and a portion of the Fund's general
administration expenses allocated on the basis of the asset size of the
respective Portfolios. Expenses that are borne directly by a Portfolio include,
but are not limited to: charges and expenses of any registrar, custodian, share
transfer and dividend disbursing agent; brokerage commissions; certain taxes;
registration costs of the Portfolio and its shares under federal and state
securities laws; shareholder servicing costs; charges and expenses of any
outside service used for pricing of the shares of the Portfolio; interest on
borrowings by the Portfolio; fees and expenses of legal counsel, including
counsel to the Trustees who are not interested persons of the Fund or of the
Investment Manager (or the Sub-Adviser) (not including compensation or expenses
of attorneys who are employees of the Investment Manager (or the Sub-Adviser))
and independent accountants; and all other expenses attributable to a particular
Portfolio. Expenses which are allocated on the basis of size of the respective
Portfolios include the costs and expenses of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager (or the Sub-Adviser) or any corporate affiliate of the
Investment Manager (or the Sub-Adviser); state franchise taxes; Securities and
Exchange Commission fees; membership dues of industry associations; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Fund which inure to its benefit; and all other costs of the Fund's
operations properly payable by the Fund and allocable on the basis of size of
the respective Portfolios. Depending on the nature of a legal claim, liability
or lawsuit, litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to the Portfolio or
allocated on the basis of the size of the respective Portfolios. The Trustees
have determined that this is an appropriate method of allocation of expenses.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of (a) 0.50% to the net assets of each of the Money Market Portfolio, the
Quality Income Plus Portfolio, the High Yield Portfolio, the Equity Portfolio
and the Managed Assets Portfolio, (b) 0.625% to the net assets of the Dividend
Growth Portfolio, (c) 0.65% to the net assets of each of the Utilities Portfolio
and the Capital Growth Portfolio, (d) 0.75% to the net assets of the Global
Dividend Growth Portfolio, and (e) 1.0% to the net assets of each of the
European Growth Portfolio and the Pacific Growth Portfolio, in each case
determined as of the close of each business day. The Management Agreement also
provides that if the total operating expenses of a Portfolio, exclusive of
taxes, interest, brokerage fees and certain legal claims and liabilities and
litigation and indemnification expenses, as described in the Management
Agreement, for the fiscal year exceed either 1.5% of the first $30,000,000 of
average daily net assets of the Portfolio and 1% of any excess over $30,000,000
(in the case of the Money Market Portfolio, the Quality Income Plus Portfolio,
the High Yield Portfolio, the Utilities Portfolio, the Dividend Growth
Portfolio, the Equity Portfolio and the Managed Assets Portfolio) or 2.5% of the
first $30,000,000 of average daily net assets of the Portfolio, 2% of the next
$70,000,000 and 1.5% of any excess over $100,000,000 (in the case of the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio), the Investment Manager will
reimburse the Portfolio for the amount of such excess, up to the amount of the
management fee for such Portfolio for that year. Such amount, if any, will be
calculated daily and credited on a monthly basis. For the fiscal years ended
December 31, 1991, 1992 and 1993, the amount of compensation accrued to the
Investment Manager under the Management Agreements in effect for the
then-existing Portfolios was $2,495,937 ($586,020 for the Money Market
Portfolio, $332,609 for the Quality Income Plus Portfolio, $161,903 for the High
Yield Portfolio, $321,019 for the Utilities Portfolio, $468,677 for the Dividend
Growth Portfolio, $246,677 for the Equity Portfolio and $379,032 for the Managed
Assets Portfolio),
5
<PAGE>
$3,905,032 ($493,310 for the Money Market Portfolio, $560,529 for the Quality
Income Plus Portfolio, $200,715 for the High Yield Portfolio, $647,139 for the
Utilities Portfolio, $857,259 for the Dividend Growth Portfolio, $195,815 for
the Capital Growth Portfolio, $79,736 for the European Growth Portfolio,
$326,795 for the Equity Portfolio and $543,734 for the Managed Assets
Portfolio), and $9,000,323 ($535,284 for the Money Market Portfolio, $1,676,538
for the Quality Income Plus Portfolio, $311,460 for the High Yield Portfolio,
$2,195,197 for the Utilities Portfolio, $2,049,082 for the Dividend Growth
Portfolio, $302,274 for the Capital Growth Portfolio, $290,371 for the European
Growth Portfolio, $581,935 for the Equity Portfolio and $1,058,182 for the
Managed Assets Portfolio), respectively. No Portfolio exceeded the applicable
expense limitation during the fiscal years ended December 31, 1991, 1992 and
1993. The Investment Manager assumed all expenses of the Capital Growth
Portfolio and the European Growth Portfolio and waived the compensation provided
for in the then-effective Management Agreements in respect of these Portfolios
for the period from their commencement of operations on March 1, 1991 through
December 31, 1991.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
thereunder, the Investment Manager is not liable to the Fund or any of its
investors for any act or omission by the Investment Manager or for any losses
sustained by the Fund or its investors. The Management Agreement in no way
restricts the Investment Manager from acting as investment manager or adviser to
others.
Pursuant to Sub-Advisory Agreements between the Investment Manager and
Morgan Grenfell Investment Services Limited (the "Sub-Adviser"), the Sub-Adviser
has been retained, subject to the overall supervision of the Investment Manager
and the Trustees of the Fund, (a) to continuously furnish investment advice
concerning individual security selections, asset allocations and overall
economic trends with respect to Europe and to manage the portion of the assets
of the European Growth Portfolio invested in securities issued by issuers
located in Europe, subject to the supervision of the Investment Manager, and (b)
to continuously furnish investment advice concerning individual security
selections, asset allocations and overall economic trends with respect to
Pacific basin issuers and to manage the portion of the assets of the Pacific
Growth Portfolio invested in securities issued by issuers located in Asia,
Australia and New Zealand, subject to the supervision of the Investment Manager.
On occasion, the Sub-Adviser will also provide the Investment Manager with
investment advice concerning potential investment opportunities for the Fund
which are available outside of Europe, Asia, Australia and New Zealand.
Morgan Grenfell Investment Services Limited ("MGIS") was organized as a
British corporation in 1972 and currently manages assets of approximately $7.6
billion primarily for U.S. corporate and public employee benefit plans,
endowments and foundations. MGIS' principal office is located at 20 Finsbury
Circus, London, England. MGIS is a subsidiary of London-based Morgan Grenfell
Asset Management Limited which is itself a subsidiary of London-based Morgan
Grenfell Group plc (which is owned by Deutsche Bank AG, an international
commercial and investment banking group) and is registered as an investment
adviser under the Investment Advisers Act of 1940. In 1838 Morgan Grenfell was
founded to provide merchant banking services, primarily trade financing between
Great Britain and the United States. In 1958, its investment management arm
began operations. In recent years Morgan Grenfell Group plc has achieved a
prominent position in the securities industry by providing investment and
commercial banking services, financial services, and discretionary management
and advisory services covering all of the world's leading securities markets.
Morgan Grenfell Asset Management Limited, through its various investment
management subsidiaries, which have extensive experience in global investment
management, is currently managing in excess of $41.8 billion worldwide.
Both the Investment Manager and the Sub-Adviser have authorized any of their
directors, officers and employees who have been elected as Trustees or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished to the European Growth Portfolio and the Pacific Growth Portfolio by
the Investment Manager and the Sub-Adviser may be furnished by directors,
officers and employees of the Investment Manager and the Sub-Adviser. In
connection with the services rendered by the Sub-Adviser, the Sub-Adviser bears
the following expenses: (a) the salaries and expenses
6
<PAGE>
of its personnel; and (b) all expenses incurred by it in connection with
performing the services provided by it as Sub-Adviser, as described above.
As full compensation for the services and facilities furnished to the
European Growth Portfolio, the Pacific Growth Portfolio and the Investment
Manager and expenses of these Portfolios and the Investment Manager assumed by
the Sub-Adviser, the Investment Manager pays the Sub-Adviser monthly
compensation equal to 40% of the Investment Manager's monthly compensation
payable under the Management Agreement in respect of the European Growth
Portfolio and the Pacific Growth Portfolio. Pursuant to the Sub-Advisory
Agreements, if any reimbursement is made by the Investment Manager to the
European Growth Portfolio or the Pacific Growth Portfolio as a result of the
Portfolio exceeding the expense limitation, the Investment Manager will be
reimbursed for 40% of such payment by the Sub-Adviser.
The present Management Agreement and the present Sub-Advisory Agreement in
respect of the European Growth Portfolio were initially approved by the Board of
Trustees on October 30, 1992 and by Northbrook and, Allstate New York, pursuant
to the instructions of Contract Owners, at a Special Meeting of Shareholders
held on January 13, 1993. The Agreements are substantially identical to prior
investment management agreements and a sub-advisory agreement that had been
initially approved as follows: A management agreement previously in effect for
the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield
Portfolio, the Equity Portfolio and the Managed Assets Portfolio had been
initially approved by the Board of Trustees on April 19, 1983, and an amendment
thereto had been approved by the Board of Trustees on January 17, 1984. That
management agreement, as so amended, had been approved with respect to the Money
Market Portfolio, the High Yield Portfolio and the Equity Portfolio by
Northbrook Life Insurance Company, the then sole shareholder, on February 9,
1984, and by Northbrook, pursuant to the instructions of Contract Owners, at a
Special Meeting of Shareholders held on December 18, 1984. That management
agreement had been initially approved with respect to the Quality Income Plus
Portfolio and the Managed Assets Portfolio by the Board of Trustees on December
15, 1986, and by Northbrook, pursuant to the instructions of Contract Owners, at
a Special Meeting of Shareholders held on May 31, 1988. Management agreements
previously in effect for the Utilities Portfolio and the Dividend Growth
Portfolio had been initially approved by the Board of Trustees on October 26,
1989, by Northbrook, as the then sole shareholder of each Portfolio, on February
6, 1990 and by Northbrook and Allstate New York, pursuant to the instructions of
Contract Owners, at a Special Meeting of Shareholders held on June 20, 1991.
Management agreements previously in effect for the Capital Growth Portfolio and
the European Growth Portfolio and a sub-advisory agreement previously in effect
in respect of the European Growth Portfolio had been initially approved by the
Board of Trustees on January 22, 1991, by Northbrook, as the then sole
shareholder of each Portfolio, on February 7, 1991 and by Northbrook and
Allstate New York, pursuant to the instructions of Contract Owners, at a Special
Meeting of Shareholders held on June 20, 1991.
The present Management Agreement and the present Sub-Advisory Agreement in
respect of the European Growth Portfolio took effect on June 30, 1993 upon the
spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC. The
Management and Sub-Advisory Agreements may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, by the holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager.
Each Agreement will automatically terminate in the event of its assignment (as
defined in the Act). Under their terms, each Agreement will continue in effect
until April 30, 1994, and from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of each Portfolio
(or, in the case of the Sub-Advisory Agreement in respect of the European Growth
Portfolio, the outstanding shares of the European Growth Portfolio), or by the
Trustees of the Fund; provided that in either event such continuance is approved
annually by the vote of a majority of the Trustees of the Fund who are not
parties to the Agreement or "interested persons" (as defined in the Act) of any
such party (the "Independent Trustees"), which vote must be cast in person at a
meeting called for the purpose of voting on such approval. If the question of
continuance of the Management Agreement (or adoption of any new Management
Agreement) is presented to shareholders, continuance (or
7
<PAGE>
adoption) with respect to a Portfolio shall be effective only if approved by a
majority vote of the outstanding voting securities of that Portfolio. If the
shareholders of any one or more of the Portfolios should fail to approve the
Management Agreement, the Investment Manager may nonetheless serve as Investment
Manager with respect to any Portfolio whose shareholders approved the Management
Agreement. The Management Agreement was approved with respect to the Global
Dividend Growth Portfolio and the Pacific Growth Portfolio by the Board of
Trustees on January 28, 1994. The Sub-Advisory Agreement in respect of the
Pacific Growth Portfolio was approved by the Board of Trustees on January 28,
1994 and by Northbrook as the sole shareholder of the Portfolio on February 8,
1994. The Sub-Advisory Agreement in respect of the Pacific Growth Portfolio is
subject to the same renewal and termination provisions as those of the
Management Agreement and the Sub-Advisory Agreement in respect of the European
Growth Portfolio and will automatically terminate in the event of its assignment
(as defined in the Act). To the extent required by law, Northbrook and Allstate
New York, which are the only shareholders of the Fund, will vote the shares of
the Fund held by them in the Accounts in accordance with instructions from
Contract Owners, as more fully described under the caption "Voting Rights" in
the Prospectuses for the Contracts.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the Management Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the Dean Witter Funds and the TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Jack F. Bennett Retired; Director or Trustee of the Dean Witter Funds; formerly Senior
Trustee Vice President and Director of Exxon Corporation (1975-January, 1989)
141 Taconic Road and Under Secretary of the U.S. Treasury for Monetary Affairs
Greenwich, Connecticut (1974-1975); Director of Philips Electronics N.V., Tandem Computers
Inc. and Massachusetts Mutual Insurance Company; director or trustee of
various other not-for-profit and business organizations.
Charles A. Fiumefreddo* Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, Distributors and DWSC; Executive Vice President and Director of DWR;
President, Chief Executive Officer Chairman, Director or Trustee, President and Chief Executive Officer of
and Trustee the Dean Witter Funds; Chairman, Chief Executive Officer and Trustee of
Two World Trade Center the TCW/DW Funds; Chairman and Director of Dean Witter Trust Company;
New York, New York Director and/or officer of various DWDC subsidiaries; formerly
Executive Vice President and Director of DWDC (until February, 1993).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Edwin J. Garn Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
2000 Eagle Gate Tower (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January, 1993); Member
of the board of various civic and charitable organizations.
John R. Haire Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
439 East 51st Street Witter Funds; Trustee of the TCW/DW Funds; formerly President, Council
New York, New York for Aid to Education (1978-October, 1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation (insurance)
and Bowne & Co., Inc. (printing).
Dr. John E. Jeuck Retired; Director or Trustee of the Dean Witter Funds; formerly Robert
Trustee Law Professor of Business Administration, Graduate School of Business,
70 East Cedar Street University of Chicago (until July, 1989); Business consultant.
Chicago, Illinois
Dr. Manuel H. Johnson Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Koch Professor of International Economics and Director of the Center
7521 Old Dominion Drive for Global Market Studies at George Mason University (since September,
Maclean, Virginia 1990); Co-Chairman and a founder of the Group of Seven Council (G7C),
an international economic commission (since September, 1990); Director
or Trustee of the Dean Witter Funds; Trustee of the TCW/DW Funds;
Director of Greenwich Capital Markets Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal Reserve System
(February, 1986-August, 1990) and Assistant Secretary of the U.S.
Treasury (1982-1988).
Paul Kolton Director or Trustee of the Dean Witter Funds; Chairman of the Audit
Trustee Committee and Chairman of the Committee of the Independent Trustees and
9 Hunting Ridge Road Trustee of the TCW/DW Funds; formerly Chairman of the Financial
Stamford, Connecticut Accounting Standards Advisory Council; and Chairman and Chief Executive
Officer of the American Stock Exchange; Director of UCC Investors
Holding Inc. (Uniroyal Chemical Company, Inc.); director or trustee of
various not-for-profit organizations.
Michael E. Nugent General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership (since April, 1988); Director or Trustee of the Dean Witter
237 Park Avenue Funds; Trustee of the TCW/DW Funds; formerly Vice President, Bankers
New York, New York Trust Company and BT Capital Corporation (September, 1984-March, 1988);
Director of various business organizations.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Albert T. Sommers Senior Fellow and Economic Counselor (formerly Senior Vice President
Trustee and Chief Economist) of The Conference Board, a not-for-profit business
845 Third Avenue research organization; President, Albert T. Sommers, Inc., an economic
New York, New York consulting firm; Director or Trustee of the Dean Witter Funds;
Chairman, Price Advisory Committee of the Council on Wage and Price
Stability (December, 1979-December, 1980); Economic Adviser, The Ford
Foundation; Director of Grow Group, Inc. (chemicals), MSI, Inc.
(medical services) and Westbridge Capital, Inc. (insurance).
Edward R. Telling* Retired; Director or Trustee of the Dean Witter Funds; formerly
Sears Tower Chairman of the Board of Directors and Chief Executive Officer (until
Chicago, Illinois December, 1985) and President (from January, 1981-
March, 1982 and from February, 1984-August, 1984) of Sears, Roebuck and
Co.; formerly Director of Sears, Roebuck and Co.
Sheldon Curtis Senior Vice President, Secretary and General Counsel of InterCapital
Vice President, Secretary and and DWSC; Senior Vice President and Secretary of Dean Witter Trust
General Counsel Company; Senior Vice President, Assistant Secretary and Assistant
Two World Trade Center General Counsel of Distributors; Assistant Secretary of DWDC and DWR;
New York, New York Vice President, Secretary and General Counsel of the Dean Witter Funds
and the TCW/DW Funds.
Peter M. Avelar Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital (December, 1990-April, 1992), Senior Portfolio Manager,
New York, New York First Vice President of PaineWebber Asset Management (March,
1989-December, 1990) and Senior Portfolio Manager, Vice President of
Delaware Investment Advisors (June, 1987-March, 1989).
Thomas H. Connelly Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Kenton J. Hinchliffe Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Paul D. Vance Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Anita H. Kolleeny Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of Dean Witter American Value Fund; previously Vice President
Two World Trade Center of InterCapital.
New York, New York
Rochelle G. Siegel Senior Vice President of InterCapital (since May, 1990); Vice President
Vice President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Paula LaCosta Vice President of InterCapital (since April, 1992); Vice President of
Vice President Dean Witter Utilities Fund ; previously Assistant Vice President of
Two World Trade Center InterCapital.
New York, New York
Thomas F. Caloia First Vice President (since May, 1991) and Assistant Treasurer (since
Treasurer April, 1988) of InterCapital; First Vice President and Treasurer of
Two World Trade Center DWSC; Treasurer of the Dean Witter Funds and the TCW/DW Funds;
New York, New York previously Vice President of InterCapital.
- ---------
<FN>
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Investment Company Act of 1940, as amended.
</TABLE>
In addition, Robert M. Scanlan, President of InterCapital, and David A.
Hughey and Edmund C. Puckhaber, Executive Vice Presidents of InterCapital, are
Vice Presidents of the Fund, and Barry Fink, First Vice President of
InterCapital, and Marilyn K. Cranney, Lawrence Lafer, LouAnne D. McInnis and
Ruth Rossi, Vice Presidents and Assistant General Counsels of InterCapital, are
Assistant Secretaries of the Fund.
The Fund pays each Trustee who is not an employee or retired employee of the
Investment Manager or an affiliated company an annual fee of $1,200 ($1,600
prior to December 31, 1993) plus $50 for each meeting of the Board of Trustees,
the Audit Committee or the Committee of the Independent Trustees attended by the
Trustee in person (the Fund pays the Chairman of the Audit Committee an
additional annual fee of $1,000 ($1,200 prior to December 31, 1993) and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $2,400, in each case inclusive of the Committee meeting fees). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with attending such meetings. Trustees and officers of the
Fund who are or have been employed by the Investment Manager or an affiliated
company receive no compensation or expense reimbursement from the Fund. The Fund
has adopted a retirement program under which an Independent Trustee who retires
after a minimum required period of service would be entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72) based upon length of service and computed as a percentage of one-fifth
of the total compensation earned by such Trustee for service to the Fund in the
five-year period prior to the date of the Trustee's retirement. No Independent
Trustee has retired since the adoption of the program and no payments by the
Fund have been made under the program to any Trustee. For the fiscal year ended
December 31, 1993, the Fund accrued a total of $35,432 for Trustees' fees and
expenses and benefits under the retirement program. As of the date of this
Statement of Additional Information, Northbrook Life Insurance Company and
Allstate Life Insurance Company of New York owned all of the outstanding shares
of the Fund, for allocation to the Accounts, and none of the Fund's officers or
Trustees was a Contract Owner under the Accounts.
11
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
Each Portfolio of the Fund is subject to the diversification requirements of
Section 817(h) of the Internal Revenue Code relating to the favorable tax
treatment of variable annuity contracts. Regulations issued under such section
require each Portfolio to invest no more than 55% of its assets in any one
investment; no more than 70% of its assets in any two investments; no more than
80% of its total assets in any three investments; and no more than 90% of its
total assets in any four investments. For purposes of the regulations, all
securities of the same issuer are treated as a single investment. In addition,
the Portfolios are subject to the diversification requirements of the Act, as
described under the heading "Investment Restrictions" below and in the
Prospectus.
The investment objectives and policies of each Portfolio are set forth in
the Prospectus under the caption "Investment Objectives and Policies." There can
be no assurance that the Portfolios' investment objectives will be achieved.
QUALITY INCOME PLUS PORTFOLIO
As discussed in the Prospectus, certain of the U.S. Government securities
purchased by the Quality Income Plus Portfolio are "mortgaged-backed
securities", which evidence an interest in a specific pool of mortgages. Such
securities are issued by the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC").
GNMA CERTIFICATES. GNMA Certificates evidence an interest in a specific
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers Home Administration or guaranteed by the Veterans Administration ("VA").
Scheduled payments of principal and interest are made to the registered holders
of GNMA Certificates. The GNMA Certificates that the Quality Income Plus
Portfolio will invest in are of the modified pass-through type. GNMA guarantees
the timely payment of monthly installments of principal and interest on modified
pass-through certificates at the time such payments are due, whether or not such
amounts are collected by the issuer on the underlying mortgages. The National
Housing Act provides that the full faith and credit of the United States is
pledged to the timely payment of principal and interest by GNMA of amounts due
on these GNMA Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments, with maximum maturities of 30 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of prepayments or
refinancing of such mortgages or foreclosure. Such prepayments are passed
through to the registered holder with the regular monthly payments of principal
and interest, which has the effect of reducing future payments. Due to the GNMA
guarantee, foreclosures impose no risk to principal investments.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. The
occurrence of mortgage prepayments is affected by such factors as the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. As prepayment rates vary
widely, it is not possible to accurately predict the average life of a
particular pool. However, statistics indicate that the average life of the type
of mortgages backing the majority of GNMA Certificates is approximately 12
years. For this reason, it is standard practice to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year. Pools
of mortgages with other maturities or different characteristics will have
varying assumptions for average life. The assumed average life of pools of
mortgages having terms of less than 30 years is less than 12 years, but
typically not less than 5 years.
The coupon rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Such fees in the aggregate usually amount to approximately .50 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of
12
<PAGE>
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of a pool of mortgage-related securities.
Conversely, in periods of rising rates, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the pool. Reinvestment
by the Quality Income Plus Portfolio of prepayments may occur at higher or lower
interest rates than the original investment. Historically, actual average life
has been consistent with the 12-year assumption referred to above. The actual
yield of each GNMA Certificate is influenced by the prepayment experience of the
mortgage pool underlying the Certificates. Interest on GNMA Certificates is paid
monthly, rather than semiannually, as is the case with traditional bonds.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in
1970 through enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgages
participation certificates ("PCs") and guaranteed mortgages certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. The FHLMC guarantees timely monthly payment of interest on PC's and the
full return of principal when due. PC's have an assumed average life similar to
GNMA Certificates.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
FNMA SECURITIES. The Federal National Mortgage Association was established
in 1938 to create a secondary market in mortgages insured by the FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. FNMA Certificates have an
assumed average life similar to GNMA Certificates.
LEVERAGING. As discussed in the Prospectus, the Quality Income Plus
Portfolio may borrow money, but only from a bank and in an amount up to 25% of
the Portfolio's gross assets taken at the lower of market value or cost, not
including the amount borrowed, to seek additional income by leveraging its
investments through purchasing securities with the borrowed funds. Such
borrowings will be subject to current margin requirements of the Federal Reserve
Board and where necessary the Portfolio may use any or all of its securities as
collateral for such borrowings. Any investment gains (and/or investment income)
made with the additional monies in excess of interest paid will cause the net
asset value of the Portfolio's shares (and/or the Portfolio's net income per
share) to rise to a greater extent than would otherwise be the case. Conversely,
if the investment performance of the additional monies fails to cover their cost
to the Portfolio, net asset value (and/or net income per share) will decrease to
a greater extent than would otherwise be the case. This is the speculative
factor involved in leverage.
The Quality Income Plus Portfolio will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Act. If due to market
fluctuations or other reasons, the value of the Portfolio's assets (including
the proceeds of borrowings) becomes at any time less than three times the amount
of any outstanding bank debt, the Portfolio, within three business days, will
reduce its bank debt to the extent necessary to meet the required 300% asset
coverage. In restoring the 300% asset coverage, the Portfolio may have to sell a
portion of its investments at a time when it may be disadvantageous to do so.
The investment policy provides that the Portfolio may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker of
any part of the purchase price of a security.
In addition to borrowings for leverage, the Portfolio may also borrow from
banks an additional amount as a temporary measure for extraordinary or emergency
purposes, and for these purposes, in no event an amount greater than 5% of gross
assets taken at the lower of market value or cost. The
13
<PAGE>
Quality Income Plus Portfolio did not borrow any money during the fiscal year
ended December 31, 1993.
HIGH YIELD PORTFOLIO
As discussed in the Prospectus, the High Yield Portfolio will invest
principally in fixed-income securities rated Baa or lower by Moody's Investor's
Service Inc. ("Moody's"), or BBB or lower by Standard & Poor's Corporation
("S&P"). Lower-rated securities involve a higher degree of risk than those
securities with higher ratings. The ratings of fixed-income securities by
Moody's and S&P are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint.
Such limitations include the following: the rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions; there is frequently a lag between the time a rating is assigned and
the time it is updated; and there may be varying degrees of difference in credit
risk of securities in each rating category. The Investment Manager will attempt
to reduce the overall portfolio credit risk through diversification and
selection of portfolio securities based on considerations mentioned below.
While the ratings provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating the interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuation in net asset value of the shares of the High Yield Portfolio. The
extent of the fluctuation is determined by a complex interaction of a number of
factors. The Investment Manager will evaluate those factors it considers
relevant and will make portfolio changes when it deems it appropriate in seeking
to reduce the risk of depreciation in the value of the portfolio of the High
Yield Portfolio. However, in seeking to achieve the Portfolio's primary
objective, there will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities in the
portfolio will be unavoidable. Moreover, medium and lower-rated securities and
non-rated securities of comparable quality tend to be subject to wider
fluctuations in yield and market values than higher-rated securities. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of the portfolio of
the High Yield Portfolio.
GENERAL PORTFOLIO TECHNIQUES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As discussed in the
Prospectus, the Global Dividend Growth Portfolio, the European Growth Portfolio
and the Pacific Growth Portfolio may enter into forward foreign currency
exchange contracts ("forward contracts") as a hedge against fluctuations in
future foreign exchange rates. Each of these Portfolios will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large, commercial banks) and their customers. Such forward
contracts will only be entered into with United States banks and their foreign
branches or foreign banks whose assets total $1 billion or more. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
When management of the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio believes that the currency of a
particular foreign country may suffer a substantial movement against the U.S.
dollar, it may enter into a forward contract to purchase or sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. Under normal circumstances,
14
<PAGE>
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, the management of the Global Dividend Growth Portfolio, the
European Growth Portfolio and the Pacific Growth Portfolio believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. The
Portfolio's custodian bank will place cash, U.S. Government securities or other
appropriate liquid high grade debt securities in a segregated account of the
Fund in an amount equal to the value of the Portfolio's total assets committed
to the consummation of forward contracts entered into under the circumstances
set forth above. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Portfolio's
commitments with respect to such contracts.
Where, for example, the Portfolio is hedging a portfolio position consisting
of foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Portfolio of a foreign currency, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency. It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
If the Portfolio purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied to
the exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Portfolio has written a call option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of the
security on which a call currency option has been written declining in value to
a greater extent than the value of the premium received for the options. The
Portfolio will maintain with its Custodian, at all times, cash, U.S. Government
securities, or other high grade debt obligations in a segregated account equal
in value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although each Portfolio values its assets daily in terms of U.S. dollars,
the Portfolios do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. Each Portfolio will, however, do so from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the spread between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to
15
<PAGE>
sell a foreign currency to the Portfolio at one rate, while offering a lesser
rate of exchange should the Portfolio desire to resell that currency to the
dealer.
REPURCHASE AGREEMENTS. As discussed in the Prospectus, when cash may be
available to a Portfolio for only a few days, it may be invested by the
Portfolio in repurchase agreements until such time as it may otherwise be
invested or used for payments of obligations of the Portfolio. These agreements,
which may be viewed as a type of secured lending by the Portfolio, typically
involve the acquisition by the Portfolio of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Portfolio will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral"), which is held by the Portfolio's custodian bank, at a specified
price and at a fixed time in the future, usually not more than seven days from
the date of purchase. The Portfolio will receive interest from the institution
until the time when the repurchase is to occur. Although such date is deemed by
the Portfolio to be the maturity date of a repurchase agreement, the maturities
of securities subject to repurchase agreements are not subject to any limits and
may exceed one year. While repurchase agreements involve certain risks not
associated with direct investments in debt securities, the Portfolios follow
procedures designed to minimize such risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions, whose financial conditions will be continually
monitored. In addition, the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. In the event of a default
or bankruptcy by a selling financial institution, the Portfolio will seek to
liquidate such collateral. However, the exercising of the right by a Portfolio
to liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Portfolio could suffer a
loss. It is the current policy of each Portfolio not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Portfolio, amounts to more than 10%
of its total assets. The investments by a Portfolio in repurchase agreements may
at times be substantial when, in the view of the Investment Manager, liquidity,
tax or other considerations warrant.
REVERSE REPURCHASE AGREEMENTS. Each of the Quality Income Plus Portfolio,
the European Growth Portfolio and the Pacific Growth Portfolio may also use
reverse repurchase agreements as part of its investment strategy. Reverse
repurchase agreements involve sales by the Portfolio of portfolio assets
concurrently with an agreement by the Portfolio to repurchase the same assets at
a later date at a fixed price. Generally, the effect of such a transaction is
that the Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. Opportunities to achieve this advantage may not
always be available, and the Portfolio intends to use the reverse repurchase
technique only when it will be to its advantage to do so. The Portfolio will
establish a segregated account with its custodian bank in which it will maintain
cash or cash equivalents or other portfolio securities (i.e., U.S. Government
securities) equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements are considered borrowings by the
Portfolio and for purposes other than meeting redemptions may not exceed 10% of
the Portfolio's total assets. Neither the Quality Income Plus Portfolio nor the
European Growth Portfolio entered into any reverse repurchase agreements during
the fiscal year ended December 31, 1993 and no Portfolio has any present
intention of entering into reverse repurchase agreements in the foreseeable
future.
CONVERTIBLE SECURITIES. Each Portfolio other than the Money Market
Portfolio may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege),
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
16
<PAGE>
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the security will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the price
of the underlying equity security. Convertible securities may be purchased by a
Portfolio at varying price levels above their investment values and/or their
conversion values in keeping with the Portfolio's objectives.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and subject to Investment Restriction (1) below, each Portfolio of
the Fund may lend its portfolio securities to brokers, dealers and other
financial institutions, provided that such loans are callable at any time by the
Portfolio, and are at all times secured by cash or cash equivalents, which are
maintained in a segregated account pursuant to applicable regulations and that
are equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Portfolio continues to
receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. A Portfolio will not lend portfolio securities having a
value of more than 10% of its total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Portfolio on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Portfolio
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made of
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Portfolio.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Portfolio will follow the policy of calling the loaned securities,
in whole or in part as may be appropriate, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Portfolio's investment in such loaned securities. The
Portfolio will pay reasonable finder's, administrative and custodial fees in
connection with a loan of its securities. No Portfolio of the Fund lent any of
its portfolio securities during the fiscal year ended December 31, 1993 and the
Portfolios have no intention of doing so in the foreseeable future.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, each Portfolio of the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of commitment, but delivery and payment can take place a month or more
after the date of the commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Portfolio makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, the Fund will record the transaction and thereafter
reflect the value, each day, of such security purchased or, if a sale, the
proceeds to be received, in determining the net asset value of the Portfolio. At
the time of delivery of the securities, the value may be more or less than the
purchase or sale price. The Portfolio will also establish a segregated account
with its custodian bank in which it will continually maintain cash or U.S.
Government securities or other high grade debt portfolio
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securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis; subject to this
requirement, a Portfolio may purchase securities on such basis without limit. An
increase in the percentage of a Portfolio's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Portfolio's net asset value. The Investment Manager and the
Board of Trustees do not believe that a Portfolio's net asset value or income
will be adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, each
Portfolio other than the Money Market Portfolio may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Portfolio
until the Investment Manager determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in determining
the net asset value of the Portfolio, will reflect the value of the security
daily. At such time, the Portfolio will also establish a segregated account with
its custodian bank in which it will maintain cash or U.S. Government securities
or other high grade debt portfolio securities equal in value to recognized
commitments for such securities. The value of the Portfolio's commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Portfolio, may not exceed 5% of the value
of the Portfolio's total assets at the time the initial commitment to purchase
such securities is made (see "Investment Restrictions" in the Prospectus).
Subject to the foregoing restrictions, these Portfolios may purchase securities
on such basis without limit. An increase in the percentage of a Portfolio's
assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value. The Investment Manager
and the Board of Trustees do not believe that the net asset value of these
Portfolios will be adversely affected by their purchase of securities on such
basis. These Portfolios may also sell securities on a "when, as and if issued"
basis provided that the issuance of the security will result automatically from
the exchange or conversion of a security owned by the Portfolio at the time of
the sale.
ZERO COUPON SECURITIES. A portion of the U.S. Government securities
purchased by the Quality Income Plus Portfolio, the Utilities Portfolio, the
Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio may be "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. In addition, a portion of the fixed-income securities purchased by the
High Yield Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio may be "zero coupon" securities. "Zero coupon" securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. A zero coupon security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Portfolios) of a zero coupon security accrue a portion of
the discount at which the security was purchased as income each year even though
the Fund receives no interest payments in cash on the security during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of
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receipts or certificates representing undivided interests in these instruments
(which instruments are generally held by a bank in a custodial or trust
account).
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, each of the Quality Income Plus Portfolio,
the Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio
and the Managed Assets Portfolio may write covered call options against
securities held in its portfolio and covered put options on eligible portfolio
securities (the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portolio, and the Managed Assets Portfolio may also write
covered put and call options on stock indexes) and purchase options of the same
series to effect closing transactions, and may hedge against potential changes
in the market value of investments (or anticipated investments) by purchasing
put and call options on portfolio (or eligible portfolio) securities and
engaging in transactions involving interest rate futures contracts and bond
index futures contracts and options on such contracts. In addition, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio may also hedge against such changes by entering into
transactions involving stock index futures contracts and options thereon, and
(except for the European Growth Portfolio and the Pacific Growth Portfolio)
options on stock indexes. The European Growth Portfolio and the Pacific Growth
Portfolio may also hedge against potential changes in the market value of the
currencies in which their investments (or anticipated investments) are
denominated by purchasing put and call options on currencies and engaging in
transactions involving currencies futures contracts and options on such
contracts.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Portfolio,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Portfolio will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Portfolio to cover an option position in any but the nearest expiration
month may cease to represent cover for the option in the event of a decline in
the GNMA coupon rate at which new pools are originated under the FHA/VA loan
ceiling in effect at any given time, as such decline may increase the
prepayments made on other mortgage pools. If this should occur, the Portfolio
will no longer be covered, and the Portfolio will either enter into a closing
purchase transaction or replace such Certificate with a Certificate which
represents cover. When the Portfolio closes out its position or replaces such
Certificate, it may realize an unanticipated loss and incur transaction costs.
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OPTIONS ON FOREIGN CURRENCIES. The Global Dividend Growth Portfolio, the
European Growth Portfolio and the Pacific Growth Portfolio may purchase and
write options on foreign currencies for purposes similar to those involved with
investing in forward foreign currency exchange contracts. For example, in order
to protect against declines in the dollar value of portfolio securities which
are denominated in a foreign currency, the Global Dividend Growth Portfolio, the
European Growth Portfolio or the Pacific Growth Portfolio may purchase put
options on an amount of such foreign currency equivalent to the current value of
the portfolio securities involved. As a result, the Portfolio would be enabled
to sell the foreign currency for a fixed amount of U.S. dollars, thereby
"locking in" the dollar value of the portfolio securities (less the amount of
the premiums paid for the options). Conversely, these Portfolios may purchase
call options on foreign currencies in which securities they anticipate
purchasing are denominated to secure a set U.S. dollar price for such securities
and protect against a decline in the value of the U.S. dollar against such
foreign currency. These Portfolios may also purchase call and put options to
close out written option positions.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio may also write call options on foreign currency to
protect against potential declines in its portfolio securities which are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which a security is denominated and the U.S. dollar, then a
loss to the Portfolio occasioned by such value decline would be ameliorated by
receipt of the premium on the option sold. At the same time, however, the
Portfolio gives up the benefit of any rise in value of the relevant portfolio
securities above the exercise price of the option and, in fact, only receives a
benefit from the writing of the option to the extent that the value of the
portfolio securities falls below the price of the premium received. The European
Growth Portfolio may also write options to close out long call option positions.
The markets in foreign currency options are relatively new and the ability
of the Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although a Portfolio
will not purchase or write such options unless and until, in the opinion of the
management of the Portfolio, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. As stated in the Prospectus, the Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio and the Managed Assets Portfolio are permitted to write covered
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call options on portfolio securities, and the Global Dividend Growth Portfolio,
the European Growth Portfolio and the Pacific Growth Portfolio are permitted to
write covered call options on the U.S. dollar and foreign currencies, in each
case without limit, in order to aid in achieving their investment objectives.
Generally, a call option is "covered" if the Portfolio owns, or has the right to
acquire, without additional cash consideration (or for additional cash
consideration held for the Portfolio by its Custodian in a segregated account)
the underlying security (currency) subject to the option except that in the case
of call options on U.S. Treasury Bills, a Portfolio might own U.S. Treasury
Bills of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the securities (currency) deliverable under the call
option. A call option is also covered if the Portfolio holds a call on the same
security (currency) as the underlying security of the written option, where the
exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark-to-market difference is maintained by the Portfolio in
cash, U.S. Government securities or other high grade debt obligations which the
Portfolio holds in a segregated account maintained with the Portfolio's
Custodian.
The Portfolio will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Quality Income Plus Portfolio, the Utilities Portfolio,
the Capital Growth Portfolio the Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio to achieve a high current
income return for their shareholders and the Managed Assets Portfolio to achieve
a more consistent average total return than would be realized from holding the
underlying securities (and, in the case of the Global Dividend Growth Portfolio,
the European Growth Portfolio and the Pacific Growth Portfolio, currencies)
alone. Moreover, the premium received will offset a portion of the potential
loss incurred by the Portfolio if the securities (currencies) underlying the
option are ultimately sold (exchanged) by the Portfolio at a loss. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or, in the case of the Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio, the
currencies in which they are denominated) upon which call options have been
written increases, the Portfolio may receive a lower total return from the
portion of its portfolio upon which calls have been written than it would have
had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Portfolio may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Portfolio to write another call option
on the underlying security (currency) with either a different exercise price or
expiration date or both. The Portfolio may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security (currency). Conversely, a gain resulting
from a closing purchase transaction could be offset in whole or in part or
exceeded by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference
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between the purchase price of the underlying security (currency) and the
proceeds of the sale of the security (currency) plus the premium received when
the option was written, less the commission paid.
Options written by a Portfolio normally have expiration dates of up to to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
(currency) at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Quality Income Plus Portfolio, the Utilities Portfolio, the
Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific Growth Portfolio or the Managed Assets Portfolio
incurs an obligation to buy the security underlying the option from the
purchaser of the put, at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Portfolio will be exercisable by the purchaser only on a specific
date). A put is "covered" if the Portfolio maintains, in a segregated account
maintained on its behalf at its Custodian, cash, U.S. Government securities or
other high grade debt obligations in an amount equal to at least the exercise
price of the option, at all times during the option period. Similarly, a written
put position could be covered by the Portfolio by its purchase of a put option
on the same security as the underlying security of the written option, where the
exercise price of the purchased option is equal to or more than the exercise
price of the put written or less than the exercise price of the put written if
the mark-to-market difference is maintained by the Portfolio in cash, U.S.
Government securities or other high grade debt obligations which the Portfolio
holds in a segregated account maintained at its Custodian. In writing puts, the
Portfolio assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Portfolio may be required, at any
time, to make payment of the exercise price against delivery of the underlying
security. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio will
write put options for two purposes: (1) to receive the income derived from the
premiums paid by purchasers; and (2) when the Investment Manager (or, for the
European Growth Portfolio and the Pacific Growth Portfolio, the Sub-Adviser)
wishes to purchase the security underlying the option at a price lower than its
current market price, in which case the Portfolio will write the covered put at
an exercise price reflecting the lower purchase price sought. The potential gain
on a covered put option is limited to the premium received on the option (less
the commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Quality
Income Plus Portfolio may purchase listed and OTC call and put options in
amounts equalling up to 10% of its total assets. Each of the Capital Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio may
purchase such call and put options in amounts equalling up to 5% of its total
assets. Each of the Utilities Portfolio, the Global Dividend Growth Portfolio
and the Managed Assets Portfolio may purchase such call and put options and
options on stock indexes in amounts equalling 10% of its total assets, with a
maximum of 5% of its total assets invested in the purchase of stock index
options. These Portfolios may purchase call options in order to close out a
covered call position (see "Covered Call Writing" above) or purchase call
options on securities they intend to purchase. Each of the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio
may purchase a call option on foreign currency to hedge against an adverse
exchange rate move of the currency in which the security it anticipates
purchasing is denominated vis-a-vis the currency in which the exercise price is
denominated. The purchase of the call option to effect a closing transaction on
a call written over-the-counter may be a listed or an OTC option. In either
case, the call purchased is likely to be on the same securities
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(currencies) and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Portfolio.
Each of the Quality Income Plus Portfolio, the Utilities Portfolio, the
Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio
may purchase put options on securities (and, in the case of the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, on currencies) which it holds (or has the right to acquire) in its
portfolio only to protect itself against a decline in the value of the security
(currency). If the value of the underlying security (currency) were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Portfolio would incur no additional loss. These
Portfolios may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addition, a
Portfolio may sell a put option which it has previously purchased prior to the
sale of the securities (currencies) underlying such option. Such a sale would
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option when it was purchased. Any such gain or loss could be offset in whole
or in part by a change in the market value of the underlying security
(currency). If a put option purchased by a Portfolio expired without being sold
or exercised, the Portfolio would realize a loss.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or, in the case of the Global Dividend Growth Portfolio,
the European Growth Portfolio and the Pacific Growth Portfolio, the value of the
security's denominated currency) increase, but has retained the risk of loss
should the price of the underlying security (or, in the case of the Global
Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, the value of the security's denominated currency) decline. The
covered put writer also retains the risk of loss should the market value of the
underlying security decline below the exercise price of the option less the
premium received on the sale of the option. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A secured put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting
over-the-counter option would continue to bear the risk of decline in the market
price of the underlying security until the option expires or is exercised. In
addition, a covered writer would be unable to utilize the amount held in cash or
U.S. Government securities or other high grade short-term obligations securities
as security for the put option for other investment purposes until the exercise
or expiration of the option.
A Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, a Portfolio
may be able to purchase an offsetting option which does not close out its
position as a writer but constitutes an asset of equal value to the obligation
under the option written. If the Portfolio is not able to either enter into a
closing purchase transaction or purchase an offsetting position, it will be
required to maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to do so, until a
closing transaction can be entered into (or the option is exercised or expires).
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Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in options, the Portfolio could experience delays and/or losses
in liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by a Portfolio,
the Portfolio could experience a loss of all or part of the value of the option.
Transactions are entered into by a Portfolio only with brokers or financial
institutions deemed creditworthy by the Portfolio's management.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which a Portfolio may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
STOCK INDEX OPTIONS. The Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio and the Managed Assets Portfolio may invest
in options on stock indexes. As stated in the Prospectus, options on stock
indexes are similar to options on stock except that, rather than the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The
multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and a gain or loss depends on price movements in the
stock market generally (or in a particular segment of the market) rather than
the price movements in individual stocks. Currently, options are traded on,
among other indexes, the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." Options on
broad-based stock indexes provide the Portfolio with a means of protecting the
Portfolio against the risk of market-wide price movements. If the
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Investment Manager anticipates a market decline, the Portfolio could purchase a
stock index put option. If the expected market decline materialized, the
resulting decrease in the value of the Portfolio's portfolio would be offset to
the extent of the increase in the value of the put option. If the Investment
Manager anticipates a market rise, the Portfolio may purchase a stock index call
option to enable the Portfolio to participate in such rise until completion of
anticipated common stock purchases by the Portfolio. Purchases and sales of
stock index options also enable the Investment Manager to more speedily achieve
changes in a Portfolio's equity positions.
The Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio and the Managed Assets Portfolio will write put options on
stock indexes only if such positions are covered by cash, U.S. Government
securities or other high grade debt obligations equal to the aggregate exercise
price of the puts, or by a put option on the same stock index with a strike
price no lower than the strike price of the put option sold by the Portfolio,
which cover is held for the Portfolio in a segregated account maintained for it
by its Custodian. All call options on stock indexes written by a Portfolio will
be covered either by a portfolio of stocks substantially replicating the
movement of the index underlying the call option or by holding a separate call
option on the same stock index with a strike price no higher than the strike
price of the call option sold by the Portfolio.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio and the Managed Assets
Portfolio cannot provide in advance for their potential settlement obligations
by acquiring and holding the underlying securities. A call writer can offset
some of the risk of its writing position by holding a diversified portfolio of
stocks similar to those on which the underlying index is based. However, most
investors cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same stocks as the underlying index, and, as a result, bear a risk
that the value of the securities held will vary from the value of the index.
Even if an index call writer could assemble a stock portfolio that exactly
reproduced the composition of the underlying index, the writer still would not
be fully covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the writer will not learn that it has
been assigned until the next business day, at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be required
to pay cash in an amount based on the closing index value on the exercise date;
and by the time it learns that it has been assigned, the index may have
declined, with a corresponding decline in the value of its stock portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
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FUTURES CONTRACTS. As stated in the Prospectus, the Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio and the Managed Assets Portfolio may purchase and sell interest rate
futures contracts that are traded, or may in the future be traded, on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds, notes,
bills and GNMA Certificates and bond index futures contracts that are traded, or
may in the future be traded, on U.S. commodity exchanges on such indexes as the
Moody's Investment-Grade Corporate Bond Index. These Portfolios may also
purchase and sell stock index futures contracts that are traded on U.S.
commodity exchanges on such indexes as the S&P 500 Index and the New York Stock
Exchange Composite Index. The Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio may also purchase and sell
futures contracts that are currently traded, or may in the future be traded, on
foreign commodity exchanges on such underlying securities as common stocks or
any foreign government fixed-income security, on various currencies ("currency
futures") and on such indexes of foreign equity and fixed-income securities as
may exist or come into being, such as the Financial Times Equity Index.
As a futures contract purchaser, a Portfolio incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, a Portfolio incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio will
purchase or sell interest rate futures contracts for the purpose of hedging
their fixed-income portfolio (or anticipated portfolio) securities against
changes in prevailing interest rates or, in the case of the Utilities Portfolio
and the Managed Assets Portfolio, to alter the Portfolio's asset allocation in
fixed-income securities. If it is anticipated that interest rates may rise and,
concomitantly, the price of certain of its portfolio securities fall, a
Portfolio may sell an interest rate futures contract or a bond index futures
contract. If declining interest rates are anticipated, or if the Investment
Manager wishes to increase the Utilities Portfolio's, or the Managed Assets
Portfolio's, allocation of fixed-income securities, a Portfolio may purchase an
interest rate futures contract or a bond index futures contract to protect
against a potential increase in the price of securities the Portfolio intends to
purchase. Subsequently, appropriate securities may be purchased by the Portfolio
in an orderly fashion; as securities are purchased, corresponding futures
positions would be terminated by offsetting sales of contracts.
The Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio
and the Managed Assets Portfolio will purchase or sell stock index futures
contracts for the purpose of hedging their equity portfolio (or anticipated
portfolio) securities against changes in their prices. If the Investment Manager
anticipates that the prices of stock held by a Portfolio may fall or wishes to
decrease the Utilities Portfolio's, or the Managed Assets Portfolio's, asset
allocation in equity securities, the Portfolio may sell a stock index futures
contract. Conversely, if the Investment Manager wishes to increase the assets of
the Utilities Portfolio or the Managed Assets Portfolio which are invested in
stocks or as a hedge against anticipated prices rises in those stocks which the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio or the
Managed Assets Portfolio intends to purchase, the Portfolio may purchase stock
index futures contracts. This allows the Portfolio to purchase equities, in
accordance with the asset allocations of the Portfolio's management, in an
orderly and efficacious manner.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio will purchase or sell currency futures on currencies in
which their portfolio securities (or anticipated portfolio securities) are
denominated for the purposes of hedging against anticipated changes in currency
exchange rates. These Portfolios will enter into currency futures contracts for
the same reasons as set forth under the heading "Forward Foreign Currency
Exchange Contracts" above for entering into forward foreign currency exchange
contracts; namely, to "lock-in" the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
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currency exchange rate movement of a portfolio security's (or anticipated
portfolio security's) denominated currency vis-a-vis a different currency.
In addition to the above, interest rate and bond index and stock index (and
currency) futures contracts will be bought or sold in order to close out a short
or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the open or close
of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of security (or, in the case of
the Global Dividend Growth Portfolio, the European Growth Portfolio or the
Pacific Growth Portfolio, currency) and the same delivery date. If the sale
price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
(currency) and the same delivery date. If the offsetting sale price exceeds the
purchase price, the purchaser would realize a gain, whereas if the purchase
price exceeds the offsetting sale price, the purchaser would realize a loss.
There is no assurance that a Portfolio will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. When the Quality Income Plus Portfolio,
the Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio or
the Managed Assets Portfolio enters into a futures contract it is initially
required to deposit with its Custodian, in an account in the name of the broker
performing the transaction, an "initial margin" of cash or U.S. Government
securities or other high grade short-term obligations equal to approximately 2%
of the contract amount. Initial margin requirements are established by the
Exchanges on which futures contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Portfolio upon the proper termination of
the futures contract. The margin deposits made are marked to market daily and
the Portfolio may be required to make subsequent deposits of cash or U.S.
Government securities, called "variation margin", with the Portfolio's futures
contract clearing broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be purchased on
debt securities such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with
Maturities between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates
of Deposit.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Quality Income
Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio and the Managed Assets Portfolio may invest in bond index
futures contracts, and the Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio and the Managed Assets Portfolio may invest in stock index
futures contracts. An index futures contract sale creates an obligation by the
Portfolio, as seller, to deliver cash at a specified future time. An index
futures contract purchase would create an obligation by the Portfolio, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Portfolio is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are
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required to be reflected in cash in the form of variation margin payments. The
Portfolio may be required to make additional margin payments during the term of
the contract.
At any time prior to expiration of the futures contract, the Portfolio may
elect to close the position by taking an opposite position which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio and the Portfolio realizes a loss or a
gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond Index
on the Chicago Board of Trade.
CURRENCY FUTURES. As noted above, the Global Dividend Growth Portfolio, the
European Growth Portfolio and the Pacific Growth Portfolio may invest in foreign
currency futures. Generally, foreign currency futures provide for the delivery
of a specified amount of a given currency, on the exercise date, for a set
exercise price denominated in U.S. dollars or other currency. Foreign currency
futures contracts would be entered into for the same reason and under the same
circumstances as forward foreign currency exchange contracts. The Portfolio's
management will assess such factors as cost spreads, liquidity and transaction
costs in determining whether to utilize futures contracts or forward contracts
in its foreign currency transactions and hedging strategy. Currently, currency
futures exist for, among other foreign currencies, the Japanese yen, German
mark, Canadian dollar, British pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Portfolio must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulation
regarding the maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the European
Growth Portfolio will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the Portfolio's management, the
market for such options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts.
OPTIONS ON FUTURES CONTRACTS. The Quality Income Plus Portfolio, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Managed Assets Portfolio may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option. Upon the exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
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The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio will
only purchase and write options on futures contracts for identical purposes to
those set forth above for the purchase of a futures contract (purchase of a call
option or sale of a put option) and the sale of a futures contract (purchase of
a put option or sale of a call option), or to close out a long or short position
in futures contracts. If, for example, the Investment Manager (or, in the case
of the European Growth Portfolio and the Pacific Growth Portfolio, the
Sub-Adviser) wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of a Portfolio's
fixed-income portfolio, it might write a call option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Portfolio's management seeks to hedge. Any premiums received in
the writing of options on futures contracts may, of course, augment the income
of the Portfolio and thereby provide a further hedge against losses resulting
from price declines in portions of its portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Quality Income
Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio and the Managed Assets Portfolio may not enter into futures
contracts or purchase related options thereon if, immediately thereafter, the
amount committed to margin plus the amount paid for premiums for unexpired
options on futures contracts exceeds 5% of the value of the Portfolio's total
assets, after taking into account unrealized gains and unrealized losses on such
contracts it has entered into, provided, however, that in the case of an option
that is in-the-money (the exercise price of the call (put) option is less (more)
than the market price of the underlying security) at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. However, there is no
overall limitation on the percentage of a Portfolio's assets which may be
subject to a hedge position. In addition, in accordance with the regulations of
the Commodity Futures Trading Commission ("CFTC") under which the Fund is
exempted from registration as a commodity pool operator, these Portfolios may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of the Portfolio's portfolio. If the CFTC
changes its regulations so that a Portfolio would be permitted to write options
on futures contracts for income purposes without CFTC registration, these
Portfolios may engage in such transactions for those purposes. Except as
described above, there are no other limitations on the use of futures and
options thereon by these Portfolios.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Quality Income Plus Portfolio, the Utilities Portfolio,
the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European
Growth Portfolio, the Pacific Growth Portfolio and the Managed Assets Portfolio
may sell a futures contract to protect against the decline in the value of
securities (or, in the case of the Global Dividend Growth Portfolio, the
European Growth Portfolio and the Pacific Growth Portfolio, the currency in
which securities are denominated) held by the Portfolio. However, it is possible
that the futures market may advance and the value of securities (or, in the case
of the Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio, the currency in which they are denominated) held in
the Portfolio may decline. If this occurred, the Portfolio would lose money on
the futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio or the Managed Assets Portfolio
purchases a futures contract to hedge against the increase in value of
securities it intends to buy (or the currency in which they are denominated),
and the value of such securities
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(currency) decreases, then the Portfolio may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
In order to assure that the Quality Income Plus Portfolio, the Utilities
Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Managed
Assets Portfolio are utilizing futures transactions for hedging purposes as such
is defined by the Commodity Futures Trading Commission either: (1) a substantial
majority (i.e. approximately 75%) of all anticipatory hedge transactions
(transactions in which the Portfolio does not own at the time of the
transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts or call options
thereon will be completed by the purchase of securities which are the subject of
the hedge, or (2) the underlying value of all long positions in futures
contracts will not exceed the total value of: (a) all short-term debt
obligations held by the Portfolio; (b) cash held by the Portfolio; (c) cash
proceeds due to the Portfolio on investments within thirty days; (d) the margin
deposited on the contracts; and (e) any unrealized appreciation in the value of
the contracts.
If a Portfolio maintains a short position in a futures contract or has sold
a call option on a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or other high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities (currencies) underlying the futures contract or the exercise price of
the option. Such a position may also be covered by owning the securities
(currencies) underlying the futures contract (in the case of a stock index
futures contract a portfolio of securities substantially replicating the
relevant index), or by holding a call option permitting the Portfolio to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if a Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other high grade debt obligations equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the
Portfolio by its Custodian. Alternatively, the Portfolio could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Portfolio.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on open
futures positions. In such situations, if the Portfolio has insufficient cash,
it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the Portfolio's ability to effectively hedge its portfolio.
With regard to the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio, futures contracts and options
thereon which are purchased or sold on foreign commodities exchanges may have
greater price volatility than their U.S. counterparts. Furthermore, foreign
commodities exchanges may be less regulated and under less governmental scrutiny
than U.S. exchanges. Brokerage commissions, clearing costs and other transaction
costs may be higher on foreign exchanges. Greater margin requirements may limit
the ability of these Portfolios to enter into certain commodity transactions on
foreign exchanges. Moreover, differences in clearance and delivery requirements
on foreign exchanges may occasion delays in the settlement of the Portfolio's
transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
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with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, the Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by a
Portfolio only with brokers or financial institutions deemed creditworthy by the
Portfolio's management.
While the futures contracts and options transactions to be engaged in by a
Portfolio for the purpose of hedging the Portfolio's portfolio securities are
not speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and, for the
Global Dividend Growth Portfolio, the European Growth Portfolio and the Pacific
Growth Portfolio, the currencies in which they are denominated) is that the
prices of securities and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the cash
prices of the Portfolio's portfolio securities (and the currencies in which they
are denominated). Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest rates
against which the Portfolio seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Quality Income
Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio or the Managed Assets Portfolio and the movements in the prices
of the securities (currencies) which are the subject of the hedge. If
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationship between the debt securities and futures
markets could result. Price distortions could also result if investors in
futures contracts opt to make or take delivery of underlying securities rather
than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Quality
Income Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio and the Managed Assets Portfolio may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel or prevent a Portfolio from closing out a
contract which may result in reduced gain or increased loss to the Portfolio.
The absence of a liquid market in futures contracts might cause these Portfolios
to make or take delivery of the underlying securities (currencies) at a time
when it may be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Quality
Income Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio or the Managed Assets Portfolio because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss to the Portfolio notwithstanding that
the purchase or sale of a futures contract would not result in a loss, as in the
instance where there is no movement in the prices of the futures contract or
underlying securities (currencies).
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PORTFOLIO TURNOVER. Although the Fund does not intend to engage in
short-term trading of portfolio securities as a means of achieving the
investment objectives of the respective Portfolios, each Portfolio may sell
portfolio securities without regard to the length of time they have been held
whenever such sale will in the Investment Manager's opinion strengthen the
Portfolio's position and contribute to its investment objectives. A 100%
turnover rate would occur, for example, if all the portfolio securities of a
Portfolio (other than short-term money market securities) were replaced once
during the fiscal year. Based on this definition, it is anticipated that the
Money Market Portfolio's policy of investing in securities with remaining
maturities of less than one year will not result in a quantifiable portfolio
turnover rate. It is not anticipated that the portfolio turnover rates of the
Portfolios will exceed the following percentages in any one year: Quality Income
Plus Portfolio: 300%; High Yield Portfolio: 300%; Utilities Portfolio: 100%;
Dividend Growth Portfolio: 90%; Capital Growth Portfolio: 200%; Global Dividend
Growth Portfolio: 40%; European Growth Portfolio: 100%; Pacific Growth
Portfolio: 100%; Equity Portfolio: 300%; and Managed Assets Portfolio: 300%.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies of the Portfolios, except as otherwise indicated. Under the
Act, a fundamental policy may not be changed with respect to a Portfolio without
the vote of a majority of the outstanding voting securities of that Portfolio,
as defined in the Act. Such a majority is defined as the lesser of (a) 67% or
more of the shares of the Portfolio present at a meeting of shareholders of the
Fund, if the holders of more than 50% of the outstanding shares of the Portfolio
are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Portfolio. For purposes of the following restrictions and those
contained in the Prospectus: (i) all percentage limitations apply immediately
after a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in the
amount of total or net assets does not require elimination of any security from
the portfolio.
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio of the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of
debt obligations in which the Portfolio may invest consistent with its
investment objectives and policies; (b) by investing in repurchase
agreements; or (c) by lending its portfolio securities, not in excess of 10%
of the value of a Portfolio's total assets, made in accordance with
guidelines adopted by the Fund's Board of Trustees, including maintaining
collateral from the borrower equal at all times to the current market value
of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Trustee of the Fund or any officer or director of the
Investment Manager owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers, Trustees and directors who own more than 1/2
of 1% own in the aggregate more than 5% of the outstanding securities of
such issuer.
3. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or
which invest in real estate or interests therein, including Real Estate
Investment Trusts (REIT's), and securities which are secured by real estate
or interests therein.
4. Engage in the underwriting of securities except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
5. Invest for the purposes of exercising control or management of
another company.
6. Participate on a joint or a joint and several basis in any
securities trading account. The "bunching" of orders of two or more
Portfolios (or of one or more Portfolios and of other accounts under the
investment management of InterCapital) for the sale or purchase of portfolio
securities shall not be considered participating in a joint securities
trading account.
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<PAGE>
7. Issue senior securities as defined in the Act except insofar as the
Portfolio may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement (or, in the case of the Quality
Income Plus Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, a reverse repurchase agreement); (b) borrowing money in
accordance with restrictions described above; (c) purchasing any security on
a when-issued, delayed delivery or forward commitment basis; (d) lending
portfolio securities; or (e) purchasing or selling futures contracts,
forward foreign exchange contracts or options, if such investments are
otherwise permitted for the Portfolio.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY
The Money Market Portfolio may not:
1. Invest in securities other than those listed in the description of
its investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase
agreements having a term of one year or less from the date of delivery, the
securities subject to the agreement may have maturity dates in excess of one
year from the date of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale [i.e., restricted securities].
4. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
RESTRICTION APPLICABLE TO THE QUALITY INCOME PLUS PORTFOLIO ONLY
The Quality Income Plus Portfolio may not acquire any common stocks except
when acquired upon conversion of fixed-income securities. The Quality Income
Plus Portfolio will attempt to dispose in an orderly fashion of any common
stocks acquired under these circumstances.
RESTRICTIONS APPLICABLE TO THE HIGH YIELD PORTFOLIO ONLY
The High Yield Portfolio may not:
1. Acquire any common stocks, except (a) when attached to or included
in a unit with fixed-income securities; (b) when acquired upon conversion of
fixed-income securities; or (c) when acquired upon exercise of warrants
attached to fixed-income securities. The High Yield Portfolio may retain
common stocks so acquired but not in excess of 10% of its total assets.
2. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
RESTRICTION APPLICABLE TO THE DIVIDEND GROWTH PORTFOLIO ONLY
The Dividend Growth Portfolio may not invest more than 5% of the value of
its total assets in warrants, including not more than 2% of such assets in
warrants not listed on either the New York or American Stock Exchange. However,
the acquisition of warrants attached to other securities is not subject to this
restriction.
RESTRICTIONS APPLICABLE TO THE EQUITY PORTFOLIO ONLY
The Equity Portfolio may not:
1. Invest more than 5% of the value of its total assets in warrants,
including not more than 2% of such assets in warrants not listed on either
the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
2. Purchase non-convertible corporate bonds unless rated at the time of
purchase Aa or better by Moody's or AA or better by S&P, or purchase
commercial paper unless issued by a U.S. corporation and rated at the time
of purchase Prime-1 by Moody's or A-1 by S&P, although it may continue to
hold a security if its quality rating is reduced by a rating service below
those specified.
3. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
33
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Manager and, for the European Growth Portfolio and the Pacific Growth Portfolio,
the Sub-Adviser are responsible for decisions to buy and sell securities for
each Portfolio of the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. For its fiscal years ended
December 31, 1991, 1992 and 1993, the Fund paid a total of $491,337 ($4,713 for
the High Yield Portfolio, $97,963 for the Utilities Portfolio, $53,810 for the
Dividend Growth Portfolio, $23,057 for the Capital Growth Portfolio, $10,832 for
the European Growth Portfolio, $200,530 for the Equity Portfolio and $100,432
for the Managed Assets Portfolio), $976,734 (none for the High Yield Portfolio,
$223,732 for the Utilities Portfolio, $103,003 for the Dividend Growth
Portfolio, $44,073 for the Capital Growth Portfolio, $35,431 for the European
Growth Portfolio, $372,881 for the Equity Portfolio and $197,614 for the Managed
Assets Portfolio) and $2,050,339 ($3,097 for the High Yield Portfolio, $585,651
for the Utilities Portfolio, $381,554 for the Dividend Growth Portfolio, $61,231
for the Capital Growth Portfolio, $162,525 for the European Growth Portfolio,
$591,926 for the Equity Portfolio and $264,355 for the Managed Assets
Portfolio), respectively, in brokerage commissions. The Money Market Portfolio
and the Quality Income Plus Portfolio did not pay any brokerage commissions
during any of these periods.
Purchases of money market instruments are made from dealers, underwriters
and issuers; sales, if any, prior to maturity, are made to dealers and issuers.
The Fund does not normally incur brokerage commission expense on such
transactions. Money market instruments are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer.
The Investment Manager and, for the European Growth Portfolio and the
Pacific Growth Portfolio, the Sub-Adviser currently serve as investment advisors
to a number of clients, including other investment companies, and may in the
future act as investment manager or adviser to others. It is the practice of the
Investment Manager or the Sub-Adviser to cause purchase and sale transactions to
be allocated among the Portfolios of the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the
Portfolios of the Fund and other client accounts, the main factors considered
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and the opinions
of the persons responsible for managing the portfolios of the Fund and other
client accounts. This procedure may, under certain circumstances, have an
adverse effect on the Fund.
The policy of the Fund regarding purchases and sales of securities for the
various Portfolios is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager (or the Sub-Adviser) from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager (or the Sub-Adviser) relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
34
<PAGE>
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
In seeking to implement the policies of the Portfolios of the Fund, the
Investment Manager or the Sub-Adviser effects transactions with those brokers
and dealers who the Investment Manager or the Sub-Adviser believes provide the
most favorable prices and are capable of providing efficient executions. If the
Investment Manager or the Sub-Adviser believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund, the Investment Manager or the
Sub-Adviser. Such services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities.
The information and services received by the Investment Manager and the
Sub-Adviser are from brokers and dealers may be of benefit to the Investment
Manager or the Sub-Adviser in the management of accounts of some of its other
clients and may not in all cases benefit a Portfolio of the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Investment Manager or the Sub-Adviser and thus reduce its expenses, it is of
indeterminable value and the fees paid to the Investment Manager and the
Sub-Adviser are not reduced by any amount that may be attributable to the value
of such services. For its fiscal year ended December 31, 1993, the Fund directed
the payment of $1,209,060 in brokerage commissions in connection with
transactions in the aggregate amount of $692,111,633 to brokers because of
research services provided, as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
DIRECTED IN CONNECTION AGGREGATE DOLLAR AMOUNT
WITH RESEARCH SERVICES OF TRANSACTIONS FOR
PROVIDED WHICH SUCH COMMISSIONS
FOR FISCAL YEAR WERE PAID FOR FISCAL
NAME OF PORTFOLIO ENDED 12/31/93 YEAR ENDED 12/31/93
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Utilities Portfolio.................. $ 412,921 $ 186,801,909
Dividend Growth Portfolio............ $ 189,129 $ 120,701,004
Capital Growth Portfolio............. $ 24,409 $ 11,918,474
Equity Portfolio..................... $ 405,343 $ 259,228,180
Managed Assets Portfolio............. $ 177,258 $ 113,462,066
</TABLE>
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During its fiscal years ended December 31, 1991, 1992 and
1993, the Fund did not effect any principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR and/or four affiliated broker-dealers of the Sub-Adviser of
the European Growth Portfolio and the Pacific Growth Portfolio-- Deutsche Bank
A.G., Deutsche Bank Capital Markets Ltd., Lawrence (C.J.), Morgan Grenfell Inc.
and Morgan Grenfell Asia and Partners Pte. Limited. In order for these brokers
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration received by them must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow these
brokers to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Trustees of the Fund, including a majority of
35
<PAGE>
the Trustees who are not "interested" persons of the Fund, as defined in the
Act, have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to these brokers are consistent
with the foregoing standard. The Fund does not reduce the management fee it pays
to the Investment Manager by any amount of the brokerage commissions it may pay
to these brokers. For its fiscal years ended December 31, 1991 and 1992, the
Fund paid a total of $88,928 ($12,375 for the Utilities Portfolio, $10,720 for
the Dividend Growth Portfolio, $12,352 for the Capital Growth Portfolio, $38,118
for the Equity Portfolio and $15,363 for the Managed Assets Portfolio) and
$245,379 ($58,717 for the Utilities Portfolio, $33,195 for the Dividend Growth
Portfolio, $16,175 for the Capital Growth Portfolio, $90,592 for the Equity
Portfolio and $46,700 for the Managed Assets Portfolio), respectively, in
brokerage commissions to DWR. For its fiscal year ended December 31, 1993 the
Fund paid a total of $451,989 in brokerage commissions to DWR for transactions
as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
DOLLAR AMOUNT OF EXECUTED
BROKERAGE COMMISSIONS PAID PERCENTAGE OF AGGREGATE TRADES ON WHICH BROKERAGE
TO DWR FOR FISCAL YEAR BROKERAGE COMMISSIONS FOR COMMISSIONS WERE PAID FOR
NAME OF PORTFOLIO ENDED 12/31/93 FISCAL YEAR ENDED 12/31/93 FISCAL YEAR ENDED 12/31/93
- ------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Utilities Portfolio...... $ 92,190 15.74 % 21.00 %
Dividend Growth
Portfolio............... $ 152,045 39.85 % 47.60 %
Capital Growth
Portfolio............... $ 28,363 46.32 % 57.99 %
Equity Portfolio......... $ 117,990 19.93 % 25.57 %
Managed Assets
Portfolio............... $ 61,401 23.23 % 25.93 %
</TABLE>
For its fiscal years ended December 31, 1991 and 1992, the Fund paid a total
of $11,419 ($2,870 for the Utilities Portfolio, $1,062 for the Dividend Growth
Portfolio, $2,514 for the Capital Growth Portfolio, $1,410 for the Equity
Portfolio and $3,563 for the Managed Assets Portfolio) and $2,716 ($910 for the
Utilities Portfolio, $189 for the Capital Growth Portfolio, $840 for the Equity
Portfolio and $777 for the Managed Assets Portfolio), respectively, in brokerage
commissions to Lawrence (C.J.), Morgan Grenfell Inc. For its fiscal year ended
December 31, 1993, the Fund did not pay any brokerage commissions to Lawrence
(C.J.), Morgan Grenfell Inc.
During the fiscal year ended December 31, 1993, the Money Market Portfolio,
the Equity Portfolio and the Managed Assets Portfolio purchased commercial paper
issued by Goldman Sachs & Co., the Quality Income Plus Portfolio purchased bonds
issued by Shearson Lehman Bros. Holdings Inc. and Morgan Stanley Group Inc., and
the Utilities Portfolio purchased commercial paper issued by Merrill Lynch
Pierce Fenner & Smith and Prudential Funding Corp., which issuers were among the
ten brokers or the ten dealers which executed transactions for or with the Fund
or the applicable Portfolio in the largest dollar amounts during the year. At
December 31, 1993, the Money Market Portfolio held commercial paper issued by
Goldman Sachs & Co. with a market value of $5,472,806, and the Quality Income
Plus Portfolio held bonds issued by Morgan Stanley Group Inc. with a market
value of $7,860,910, and a bond issued by Shearson Lehman Bros. Holdings Inc.
with a market value of $5,460,950.
36
<PAGE>
PURCHASE AND REDEMPTION OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, investments in the Fund may be made only by
(1) Northbrook Life Insurance Company ("Northbrook"), for allocation to
Northbrook Variable Annuity Account and Northbrook Variable Annuity Account II,
separate accounts established and maintained by Northbrook for the purpose of
funding variable annuity contracts it issues, and by (2) Allstate Life Insurance
Company of New York ("Allstate New York") for allocation to Allstate Life of New
York Variable Annuity Account and Allstate Life of New York Variable Annuity
Account II, separate accounts established and maintained by Allstate New York
for the purpose of funding variable annuity contracts it issues. (These separate
accounts are sometimes referred to individually as an "Account" and collectively
as the "Accounts".) Shares of each Portfolio of the Fund are offered to
Northbrook and Allstate New York (the "Companies") without sales charge at the
respective net asset values of the Portfolios next determined after receipt by
the Fund of the purchase payment in the manner set forth under the caption
"Determination of Net Asset Value" below and in the Prospectus. Shares of any
Portfolio of the Fund can be redeemed by the Companies at any time for cash,
without sales charge, at the net asset value next determined after receipt of
the redemption request. Such payment may be postponed or the right of redemption
suspended at times when normal trading is not taking place on the New York Stock
Exchange, as discussed in the Prospectus. (For information regarding charges
which may be imposed upon the Contracts by the applicable Account, see the
Prospectus for the Variable Annuity Contracts which accompanies the Prospectus
of the Fund.)
THE DISTRIBUTOR
As discussed in the Prospectus, Dean Witter Distributors Inc. (the
"Distributor"), a Delaware corporation, acts without remuneration from the Fund
as the exclusive Distributor of the Fund's shares, pursuant to a Distribution
Agreement entered into by the Fund and the Distributor on June 30, 1993. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of DWDC. The
Trustees who are not, and were not at the time they voted, interested persons of
the Fund, as defined in the Act, (the "Independent Trustees") approved, at their
meeting held on October 30, 1992, the current Distribution Agreement appointing
the Distributor as exclusive distributor of the Fund's shares and providing for
the Distributor to bear distribution expenses not borne by the Fund. The
Distribution Agreement took effect on June 30, 1993 upon the spin-off by Sears,
Roebuck and Co. of its remaining shares of DWDC. By its terms, the Distribution
Agreement has an initial term ending April 30, 1994, and provides that it will
remain in effect from year to year thereafter if approved by the Board.
The Distributor pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the net asset value of the shares of the
each Portfolio is determined once daily at 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open for
37
<PAGE>
trading. The New York Stock Exchange currently observes the following holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
As discussed in the Prospectus, the Money Market Portfolio utilizes the
amortized cost method in valuing its portfolio securities for purposes of
determining the net asset value of its shares. The Money Market Portfolio
utilizes the amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in market value,
generally in connection with changes in interest rates. The amortized cost
method of valuation involves valuing a security at its cost at the time of
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Portfolio would receive if it
sold the investment. During such periods, the yield to investors in the Money
Market Portfolio may differ somewhat from that obtained in a similar company
which uses mark-to-market values for all of its portfolio securities. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in the Money Market
Portfolio would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company and existing investors would
receive less (more) investment income. The purpose of this method of calculation
is to facilitate the maintenance of a constant net asset value per share of
$1.00.
The use of the amortized cost method to value the portfolio securities of
the Money Market Portfolio and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "Rule") and is
conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Portfolio's shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Portfolio's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust, reducing the number of outstanding shares of the Money
Market Portfolio) to eliminate or reduce to the extent reasonably practicable
material dilution or other unfair results to investors or existing shareholders
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the Money Market Portfolio's capital the necessary
shares that represent the amount of excess upon such determination. Each
Contract Owner will be deemed to have agreed to such contribution in these
circumstances by allocating investment under his or her Contract to the Money
Market Portfolio.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Money Market
Portfolio's interest in the instrument is subject to market action) until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument that is
subject to
38
<PAGE>
a demand feature is deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
An Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b)(i) is rated in the two
highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a short-term rating
with respect to the security or class of debt obligations of the issuer; or (ii)
if only one NRSRO has issued a short-term rating with respect to the security,
then by that NRSRO; (c) was a long-term security at the time of issuance whose
issuer has outstanding a short-term debt obligation which is comparable in
priority and security and has a rating as specified in clause (b) above; or (d)
if no rating is assigned by any NRSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Board to be of comparable quality to
any such rated security. The Money Market Portfolio will limit its investments
to securities that meet the requirements for Eligible Securities including the
required ratings by S&P or Moody's, as set forth in the prospectus.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the Money Market Portfolio will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and (ii)
no more than the greater of 1% of total assets, or $1 million, in the securities
on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
The Rule further requires that the Money Market Portfolio limit its
investments to U.S. dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are Eligible Securities. The Rule also
requires the Portfolio to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and precludes the purchase of any instrument with
a remaining maturity of more than 397 days. (An Investment Restriction of the
Fund further precludes the Portfolio from investing in securities maturing more
than one year from the date of purchase.) Should the disposition of a portfolio
security result in a dollar-weighted average portfolio maturity of more than 90
days, the Portfolio will invest its available cash in such a manner as to reduce
such maturity to 90 days or less as soon as is reasonably practicable.
If the Board determines that it is no longer in the best interests of the
Money Market Portfolio and its shareholders to maintain a stable price of $1 per
share or if the Board believes that maintaining such price no longer reflects a
market-based net asset value per share, the Board has the right to change from
an amortized cost basis of valuation to valuation based on market quotations.
The Fund will notify shareholders of the Portfolio of any such change.
As stated in the Prospectus, in the calculation of the net asset value of
the Portfolios other than the Money Market Portfolio, short-term debt securities
with remaining maturities of sixty days or less at the time of purchase are
valued at amortized cost, unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt securities
will be valued on a mark-to-market basis until such time as they reach a
remaining maturity of sixty days, whereupon they will be valued at amortized
cost using
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their value on the 61st day unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their latest bid and asked prices.
Unlisted options on debt securities and all options on equity securities are
valued at the mean between their latest bid and asked prices. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the Trustees determine that such price does not reflect their market value, in
which case they will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
a Portfolio's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of a Portfolio's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income on the Money Market Portfolio will be declared payable on each day the
New York Stock Exchange is open for business to shareholders of record as of the
close of business the preceding business day. Net income, for dividend purposes,
includes accrued interest and accretion of original issue and market discount,
less the amortization of market premium and the estimated expenses of the Money
Market Portfolio. Net income will be calculated immediately prior to the
determination of net asset value per share of the Money Market Portfolio (see
"Determination of Net Asset Value" above and in the Prospectus). The amount of
dividend may fluctuate from day to day and may be omitted on some days if
realized losses on portfolio securities exceed the Money Market Portfolio's net
investment income. The Trustees may revise the above dividend policy, or
postpone the payment of dividends, if the Money Market Portfolio should have or
anticipate any large unexpected expense, loss or fluctuation in net assets which
in the opinion of the Trustees might have a significant adverse effect on
shareholders. On occasion, in order to maintain a constant $1.00 per share net
asset value, the Trustees may direct that the number of outstanding shares of
the Money Market Portfolio be reduced in each shareholder's account. Such
reduction may result in taxable income to a shareholder in excess of the net
increase (i.e., dividends, less such reductions), if any, in the shareholder's
account for a period. Furthermore, such reduction may be realized as a capital
loss when the shares are liquidated. Any net realized capital gains will be
declared and paid at least once per calendar year, except that net short-term
gains may be paid more frequently, with the distribution of dividends from net
investment income.
OTHER PORTFOLIOS. The dividend policies of the Quality Income Plus
Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Dividend
Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the
Equity Portfolio and the Managed Assets Portfolio are discussed in the
Prospectus. In computing interest income, these Portfolios will not accrete any
discount or amortize any premium resulting from the purchase of debt securities
except those original issue discounts for which accretion is required for
federal income tax purposes. Additionally, with respect to market discount on
bonds, a portion of any capital gain realized upon disposition may be
recharacterized as taxable ordinary income in accordance with the provisions of
the Internal Revenue Code (the "Code"). Dividends, interest and capital gains
received by the Global
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Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio may give rise to withholding and other taxes imposed by foreign
countries. Realized gains and losses on security transactions are determined on
the identified cost method.
Gains or losses on sales of securities by the Fund will be long-term gains
or losses if the securities have been held by the Fund for more than twelve
months. Gains or losses on the sale of securities held for twelve months or less
will be short-term gains or losses.
OPTIONS AND FUTURES. Exchange-traded futures contracts, listed options on
futures contracts and certain listed options are classified as "Section 1256"
contracts under the Code. Unless the Portfolio makes an election as discussed
below, the character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts would
generally be treated as long-term capital gain or loss to the extent of 60
percent thereof and short-term capital gain or loss to the extent of 40 percent
thereof and such Section 1256 contracts would also be required to be marked-to-
market at the end of the Fund's fiscal year, for purposes of federal income tax
calculations.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation rules.
When call options written by a Portfolio, or put options purchased by a
Portfolio, are exercised, the gain or loss realized on the sales of the
underlying securities may be either short-term or long-term, depending upon the
holding period of the securities. In determining the amount of gain or loss, the
sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.
If a Portfolio holds a security which is offset by a Section 1256 contract,
the Portfolio would be deemed to hold a "mixed straddle" position, as such is
defined in the Code. A Portfolio may elect to identify its mixed straddle
positions pursuant to Section 1256(d) of the Code and thereby avoid application
of both the mark-to-market and 60 percent-40 percent taxation rules. The
Portfolio may also make certain other elections with respect to mixed straddles
which could avoid or limit the application of certain rules which could, in
certain circumstances, cause deferral or disallowance of losses, change
long-term capital gains into short-term capital gains, or change short-term
capital losses into long-term capital losses.
Whether the portfolio security constituting part of the identified mixed
straddle is deemed to have been held for less than three months for purposes of
determining qualification of the Portfolio as a regulated investment company
will be determined generally by the actual holding period of the security. In
certain circumstances, entering into a mixed straddle could result in the
recognition of unrealized gain or loss which would be taken into account in
determining the amount of income available for the Portfolio's distributions,
and can result in an amount which is greater or less than the Portfolio's net
realized gains being available for distribution. If an amount which is less than
the Portfolio's net realized gains is available for distribution, the Portfolio
may elect to distribute more than such available amount, up to the full amount
of such net realized gains. Such a distribution may, in part, constitute a
return of capital to the shareholders. If the Portfolio does not elect to
identify a mixed straddle, no recognition of gain or loss on the securities in
its portfolio will result when the mixed straddle is entered into. However, any
losses realized on the straddle will be governed by a number of tax rules which
might, under certain circumstances, defer or disallow the losses in whole or in
part, change long-term gains into short-term gains, or change short-term losses
into long-term losses. A deferral or disallowance of recognition of a realized
loss may result in an amount being available for the Portfolio's distributions
which is greater than the Portfolio's net realized gains.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS (GLOBAL DIVIDEND
GROWTH PORTFOLIO, EUROPEAN GROWTH PORTFOLIO AND PACIFIC GROWTH PORTFOLIO). In
general, gains from foreign currencies and from foreign currency options,
foreign currency futures and forward foreign exchange contracts relating to
investments in stock, securities or foreign currencies are currently considered
to be qualifying income for purposes of determining whether each of the Global
Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio qualifies as a regulated investment company. It is currently unclear,
however, who will be treated as the issuer of certain foreign currency
instruments or how foreign currency options, futures, or forward foreign
currency contracts will be valued for purposes of the
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regulated investment company diversification requirements applicable to the
Portfolio. The Fund may request a private letter ruling from the Internal
Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Portfolio's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Portfolio's net capital gain. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
affected Portfolio would not be able to make any ordinary dividend
distributions.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio may be subject to taxes in foreign countries in which
they invest. In addition, if the European Growth Portfolio were deemed to be a
resident of the United Kingdom for United Kingdom tax purposes or if the
Portfolio were treated as being engaged in a trading activity through an agent
in the United Kingdom, there is a risk that the United Kingdom would attempt to
tax all or a portion of the Portfolio's gains or income. In light of the terms
and conditions of the Investment Management and Sub-Advisory Agreements, it is
believed that any such risk is minimal.
If any of the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio invests in an entity which is
classified as a "passive foreign investment company" ("PFIC") for U.S. tax
purposes, the application of certain technical tax provisions applying to such
companies could result in the imposition of federal income tax with respect to
such investments at the Portfolio level which could not be eliminated by
distributions to shareholders. The U.S. Treasury issued proposed regulation
section 1.1291-8 which establishes a mark-to-market regime which allows
investment companies investing in PFIC's to avoid most, if not all, of the
difficulties posed by the PFIC rules. In any event, it is not anticipated that
any taxes on a Portfolio with respect to investments in PFIC's would be
significant.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The annualized current yield of the Money Market Portfolio, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated seven-day period,
the net change, exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends declared therefrom,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge which
reflects deductions from shareholder accounts (such as management fees), and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7).
The Money Market Portfolio's annualized effective yield, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining (for the same stated seven-day
period as for the current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with dividends and any
dividends declared therefrom, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Money Market Portfolio in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the Money
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<PAGE>
Market Portfolio and changes in interest rates on such investments, but also on
changes in the Portfolio's expenses during the period.
Yield information may be useful in reviewing the performance of the Money
Market Portfolio and for providing a basis for comparison with other investment
alternatives. However unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Portfolio's
yield fluctuates. Furthermore, the quoted yield does not reflect charges which
may be imposed on the Contracts by the applicable Account and therefore is not
equivalent to total return under a Contract (for a description of such charges,
see the Prospectus for the Contracts which accompanies the Prospectus for the
Fund).
The current yield of the Money Market Portfolio for the seven days ending
December 31, 1993 was 2.74%. The effective annual yield on 2.74% is 2.77%,
assuming daily compounding.
As discussed in the Prospectus, from time to time the Fund may quote the
"total return" of each Portfolio in advertising and sales literature. A
Portfolio's "average annual total return" represents an annualization of the
Portfolio's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Portfolio's
operations, if shorter than any of the foregoing. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
However, average annual total return does not reflect the deduction of any
charges which may be imposed on the Contracts by the applicable Account which,
if quoted, would reduce the performance quoted. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result.
The average annual total returns of the Money Market Portfolio, the High
Yield Portfolio and the Equity Portfolio for the one year period ended December
31, 1993, for the five year period ended December 31, 1993, and for the period
from March 9, 1984 (commencement of these Portfolios' operations) through
December 31, 1993, were 2.75%, 5.75% and 6.53%, respectively, for the Money
Market Portfolio; 24.08%, 8.66% and 10.85%, respectively, for the High Yield
Portfolio; and 19.72%, 16.89% and 13.99%, respectively, for the Equity
Portfolio. The average annual total returns of the Quality Income Plus Portfolio
and the Managed Assets Portfolio for the one year period ended December 31,
1993, for the five year period ended December 31, 1993 and for the period from
March 1, 1987 (commencement of these Portfolios' operations) through December
31, 1993, were 12.99%, 11.85% and 10.08%, respectively, for the Quality Income
Plus Portfolio and 10.38%, 11.29% and 10.26%, respectively, for the Managed
Assets Portfolio. The average annual total returns of the Utilities Portfolio
and the Dividend Growth Portfolio for the one year period ended December 31,
1993 and for the period from March 1, 1990 (commencement of these Portfolios'
operations) through December 31, 1993 were 15.69% and 13.81%, respectively, for
the Utilities Portfolio and 14.34% and 10.30%, respectively, for the Dividend
Growth Portfolio. The average annual total returns of the Capital Growth
Portfolio and the European Growth Portfolio for one year period ended December
31, 1993 and for the period from March 1, 1991 (commencement of these
Portfolios' operations) through December 31, 1993 were -6.99% and 7.07%,
respectively, for the Capital Growth Portfolio; and 40.88% and 14.95%,
respectively, for the European Growth Portfolio.
Until August 26, 1987, the Investment Manager assumed certain expenses of
the Quality Income Plus Portfolio and the Managed Assets Portfolio and waived
its management fee in respect of those portfolios. Had those Portfolios borne
these expenses and paid the management fee prior to that date the average annual
total returns for the Quality Income Plus Portfolio and the Managed Assets
Portfolio for the period from March 1, 1987 through December 31, 1993 would have
been 10.03% and 10.19%, respectively. Until August 31, 1990, the Investment
Manager assumed certain expenses of the Utilities Portfolio and waived its
management fee in respect of that Portfolio. Had the Portfolio borne these
expenses and paid the management fee prior to that date, the average annual
total return for the Utilities Portfolio for the period from March 1, 1990
through December 31, 1993 would have been 13.67%. Until
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<PAGE>
June 26, 1990, the Investment Manager assumed certain expenses of the Dividend
Growth Portfolio and waived its management fee in respect of that Portfolio. Had
the Portfolio borne these expenses and paid the management fee prior to that
date, the average annual total return for the Dividend Growth Portfolio for the
period from March 1, 1990 through December 31, 1993 would have been 10.23%.
Until December 31, 1991, the Investment Manager assumed certain expenses of the
Capital Growth Portfolio and the European Growth Portfolio and waived its
management fee in respect of those Portfolios. Had those Portfolios borne these
expenses and paid the management fee prior to that date, the average annual
total returns for the Capital Growth Portfolio and the European Growth Portfolio
for the period from March 1, 1990 through December 31, 1993 would have been
6.63% and 14.14%, respectively.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by an Account. The Fund may also compute the aggregate total returns
of the Portfolios for specified periods by determining the aggregate percentage
rate which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without the reduction for any charges imposed on the Contracts by
the applicable Account) by the initial $1,000 investment and subtracting 1 from
the result. Based on the foregoing calculation, the total returns for the fiscal
year ended December 31, 1993 were 2.75% for the Money Market Portfolio; 12.99%
for the Quality Income Plus Portfolio; 24.08% for the High Yield Portfolio;
15.69% for the Utilities Portfolio; 14.34% for the Dividend Growth Portfolio;
- -6.99% for the Capital Growth Portfolio; 40.88% for the European Growth
Portfolio; 19.72% for the Equity Portfolio; and 10.38% for the Managed Assets
Portfolio; the total returns for the five year period ended December 31, 1993
were 32.23% for the Money Market Portfolio; 75.01% for the Quality Income Plus
Portfolio; 51.40% for the High Yield Portfolio; 118.21% for the Equity
Portfolio; and 70.64% for the Managed Assets Portfolio; and the total returns
from commencement of the Portfolios' operations through December 31, 1993 were
86.06% for the Money Market Portfolio; 92.76% for the Quality Income Plus
Portfolio; 174.27% for the High Yield Portfolio; 64.22% for the Utilities
Portfolio; 45.67% for the Dividend Growth Portfolio; 21.39% for the Capital
Growth Portfolio; 48.47% for the European Growth Portfolio; 261.33% for the
Equity Portfolio; and 94.84% for the Managed Assets Portfolio.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of a Portfolio by adding 1 to the
Portfolio's aggregate total return to date (expressed as a decimal) and
multiplying by $10,000, $50,000 or $100,000, as the case may be. Investments of
$10,000, $50,000 and $100,000 in each Portfolio of the Fund at inception of the
Portfolio would have grown to the following amounts at December 31, 1993: Money
Market Portfolio: $18,606, $93,029 and $186,058, respectively; Quality Income
Plus Portfolio: $19,276, $96,380 and $192,760, respectively; High Yield
Portfolio: $27,427, $137,135 and $274,270, respectively; Utilities Portfolio:
$16,422, $82,110 and $164,220, respectively; Dividend Growth Portfolio: $14,567,
$72,835 and $145,670, respectively; Capital Growth Portfolio: $12,139, $60,695
and $121,390, respectively; European Growth Portfolio: $14,847, $74,235 and
$148,470, respectively; Equity Portfolio: $36,133, $180,665 and $361,330,
respectively; and Managed Assets Portfolio: $19,484, $97,420 and $194,840,
respectively.
The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
independent organizations.
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DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of separate Portfolios and to divide or combine
the shares of any Portfolio into a greater or lesser number of shares of that
Portfolio without thereby changing the proportionate beneficial interests in
that Portfolio. As discussed in the Prospectus, the shares of beneficial
interest of the Fund are divided into eleven separate Portfolios, and the shares
of each Portfolio have equal rights and privileges with all other shares of that
Portfolio. Each share of a Portfolio represents an equal proportional interest
in that Portfolio with each other share. Upon liquidation of the Fund or any
Portfolio, shareholders of a Portfolio are entitled to share pro rata in the net
assets of that Portfolio available for distribution to shareholders. Shares have
no preemptive or conversion rights. The right of redemption is described above
and in the Prospectus. Shares of each Portfolio are fully paid and
non-assessable by the Fund. The Trustees are authorized to classify unissued
shares of the Fund by assigning them to a Portfolio for issuance.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares and additional classes of shares within any series,
as described in the Prospectus. Such additional offerings would not affect the
interests of the current shareholders in the existing Portfolios. All
consideration received by the Fund for shares of any additional Portfolios, and
all assets in which such consideration is invested, would belong to that
Portfolio (subject only to the rights of creditors of the Fund) and would be
subject to the liabilities related thereto. Pursuant to the Act, shareholders of
any additional Portfolio would normally have to approve the adoption of any
management contract relating to such Portfolio and of any changes in the
investment policies related thereto.
Shares of each Portfolio entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders have the right to vote
on the election of Trustees of the Fund and on any and all matters on which by
law or the provisions of the Fund's By-Laws they may be entitled to vote. To the
extent required by law, Northbrook Life Insurance Company and Allstate Life
Insurance Company of New York, which are the only shareholders of the Fund, will
vote the shares of the Fund held in each Account in accordance with instructions
from Contract Owners, as more fully described under the caption "Voting Rights"
in the Prospectus for the Variable Annuity Contracts. Shareholders of all
Portfolios vote for a single set of Trustees. The Trustees of the Fund have most
recently been elected by Northbrook Life Insurance Company and Allstate Life
Insurance Company of New York, pursuant to the instructions of Contract Owners,
at a Special Meeting of Shareholders held on January 13, 1993. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees, and they may at any time lengthen their own terms or make their terms
of unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
Fund. Under certain circumstances the Trustees may be removed by action of the
Trustees. Under certain circumstances the shareholders may call a meeting to
remove Trustees and the Fund is required to provide assistance in communicating
with shareholders about such a meeting.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
With respect to the submission to shareholder vote of a matter requiring
separate voting by Portfolio, the matter shall have been effectively acted upon
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio votes for the approval of the matter, notwithstanding that:
(1) the matter has not been approved by a majority of the outstanding voting
securities of any other Portfolio; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
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<PAGE>
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Trust shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
CUSTODIANS AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of the assets of each Portfolio other than the Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio. The
Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the Custodian
of the assets of the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio in the United States and around the
world. As Custodian, The Chase Manhattan Bank has contracted with various
foreign banks and depositories to hold portfolio securities of non-U.S. issuers
on behalf of those Portfolios. All of a Portfolio's cash balances with the
Custodians in excess of $100,000 are unprotected by Federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts; reinvesting
dividends; processing account registration changes; handling purchase and
redemption transactions; tabulating proxies; and maintaining shareholder records
and lists. For these services Dean Witter Trust Company receives a fee from each
Portfolio of the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse, 1177 Avenue of the Americas, New York, New York 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Statements showing the portfolio of each Portfolio and other information
will be furnished, at least semi-annually, to Contract Owners, and annually such
statements will be audited by independent accountants whose selection must be
approved annually by the Fund's Trustees. The Fund's fiscal year ends on
December 31.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
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EXPERTS
- --------------------------------------------------------------------------------
The annual financial statements of the Fund for the year ended December 31,
1993, which are included in this Statement of Additional Information and
incorporated by reference in the Prospectus, have been so included and
incorporated in reliance on the report of Price Waterhouse, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
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DEAN WITTER VARIABLE INVESTMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Variable Investment Series
In our opinion, the accompanying statement 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 the Money Market Portfolio, the
Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities
Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the
European Growth Portfolio, the Equity Portfolio, and the Managed Assets
Portfolio (constituting Dean Witter Variable Investment Series, hereafter
referred to as the "Fund") at December 31, 1993, 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 indicated, 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 audits 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 owned at December 31, 1993 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 8, 1994
49
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY QUALITY
MARKET INCOME PLUS HIGH YIELD UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified
cost $130,334,737, $555,756,259, $97,886,321,
$460,847,634, $437,283,701, $49,149,416,
$73,813,258, $183,271,753, and $274,759,819,
respectively) (Note 1)........................ $130,334,737 $565,561,400 $ 88,515,986 $497,619,970
Cash............................................ 1,034 -- -- --
Receivable for:
Investments sold (Note 3)..................... -- 1,160,038 -- --
Interest...................................... -- 7,139,836 1,582,578 991,601
Shares of beneficial interest sold............ 5,684 158,529 242,176 91,115
Principal paydowns............................ -- 15,265 -- --
Dividends..................................... -- -- -- 1,606,159
Foreign withholding taxes reclaimed........... -- -- -- --
Prepaid expenses and other assets............... 5,903 5,951 3,384 4,299
------------ ------------ ------------ ------------
TOTAL ASSETS............................ 130,347,358 574,041,019 90,344,124 500,313,144
------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased (Note 3)................ -- 85,922,447 -- 8,826,805
Shares of beneficial interest repurchased..... 314,865 51,792 120 148,826
Payable to bank................................. -- -- -- --
Investment management fees payable (Note 2)..... 52,914 202,290 36,737 262,829
Accrued expenses and other payables (Note 3).... 54,492 217,959 106,866 140,650
------------ ------------ ------------ ------------
TOTAL LIABILITIES....................... 422,271 86,394,488 143,723 9,379,110
------------ ------------ ------------ ------------
NET ASSETS:
Paid in capital................................. 129,925,002 470,430,381 167,033,904 450,588,803
Accumulated undistributed realized gains
(losses)--net................................. -- 7,410,431 (67,497,283) 2,223,366
Unrealized appreciation (depreciation)--net..... -- 9,805,141 (9,370,335) 36,772,336
Accumulated undistributed investment
income--net................................... 85 578 34,115 1,349,529
------------ ------------ ------------ ------------
NET ASSETS.............................. $129,925,087 $487,646,531 $ 90,200,401 $490,934,034
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING....... 129,925,002 44,202,872 12,692,791 35,718,712
------------ ------------ ------------ ------------
NET ASSET VALUE PER SHARE (unlimited authorized
shares of $.01 par value)..................... $1.00 $11.03 $7.11 $13.74
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Dean Witter Variable Investment Series
(the "Fund") is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company and is comprised of
nine Portfolios: the Money Market Portfolio, the Quality Income Plus Portfolio,
the High Yield Portfolio, the Utilities Portfolio, the Dividend Growth
Portfolio, the Capital Growth Portfolio, the European Growth Portfolio, the
Equity Portfolio and the Managed Assets Portfolio. The Fund was organized on
February 25, 1983 as a Massachusetts business trust and the Money Market, High
Yield, and Equity Portfolios commenced operations on March 9, 1984. The Quality
Income Plus and Managed Assets Portfolios commenced operations on March 1, 1987.
The Utilities and Dividend Growth Portfolios commenced operations on March 1,
1990 and the Capital Growth and European Growth Portfolios commenced operations
on March 1, 1991. All shares of the portfolios are owned by Northbrook Life
Insurance Company ("Northbrook"), or Allstate Life Insurance Company of New York
("Allstate New York") for allocation to Northbrook Variable Annuity Account as
the underlying investment for
50
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND CAPITAL EUROPEAN MANAGED
GROWTH GROWTH GROWTH EQUITY ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (identified
cost $130,334,737, $555,756,259, $97,886,321,
$460,847,634, $437,283,701, $49,149,416,
$73,813,258, $183,271,753, and $274,759,819,
respectively) (Note 1)........................ $487,067,203 $ 50,280,065 $ 80,706,175 $195,730,137 $288,591,096
Cash............................................ 65,727 -- -- -- --
Receivable for:
Investments sold (Note 3)..................... 230,122 271,243 1,434,161 2,618,753 --
Interest...................................... 759,526 -- 9,813 134,713 528,270
Shares of beneficial interest sold............ 711,010 76,072 630,492 225,986 87,914
Principal paydowns............................ -- -- -- -- --
Dividends..................................... 1,076,498 85,185 97,911 70,604 276,719
Foreign withholding taxes reclaimed........... -- -- 34,545 -- --
Prepaid expenses and other assets............... 1,839 5,073 -- 4,515 4,224
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS............................ 489,911,925 50,717,638 82,913,097 198,784,708 289,488,223
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased (Note 3)................ 6,387,942 140,177 3,166,072 15,818,899 1,756,700
Shares of beneficial interest repurchased..... -- 16,803 41,306 -- 12,892
Payable to bank................................. -- 197,467 528,398 -- --
Investment management fees payable (Note 2)..... 247,672 26,724 60,613 73,332 118,575
Accrued expenses and other payables (Note 3).... 131,171 27,629 64,319 64,613 97,707
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES....................... 6,766,785 408,800 3,860,708 15,956,844 1,985,874
------------ ------------ ------------ ------------ ------------
NET ASSETS:
Paid in capital................................. 434,458,025 49,506,852 68,663,150 155,059,170 266,889,041
Accumulated undistributed realized gains
(losses)--net................................. (1,891,505) (389,715) 2,641,419 15,116,085 6,070,167
Unrealized appreciation (depreciation)--net..... 49,783,502 1,130,649 6,880,648 12,458,384 13,831,277
Accumulated undistributed investment
income--net................................... 795,118 61,052 867,172 194,225 711,864
------------ ------------ ------------ ------------ ------------
NET ASSETS.............................. $483,145,140 $ 50,308,838 $ 79,052,389 $182,827,864 $287,502,349
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING....... 37,793,203 4,259,434 5,634,890 8,255,004 22,668,551
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE PER SHARE (unlimited authorized
shares of $.01 par value)..................... $12.78 $11.81 $14.03 $22.15 $12.68
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
the variable annuity contracts issued by Northbrook and flexible premium
deferred variable annuity contracts issued by Allstate New York, respectively.
Northbrook and Allstate New York are subsidiaries of Sears, Roebuck and Co.
("Sears"). Prior to June 30, 1993, the Fund's Investment Manager, Dean Witter
InterCapital Inc. (the "Investment Manager"), formerly the InterCapital Division
of Dean Witter Reynolds, Inc., and Distributor, Dean Witter Distributors, Inc.
(the "Distributor"), were indirect subsidiaries of Sears. On June 30, 1993,
Sears spun-off its remaining 80% ownership in Dean Witter, Discover & Co., the
parent company of the Investment Manager and Distributor, to existing Sears
stockholders.
The following is a summary of the significant accounting policies:
(A) VALUATION OF INVESTMENTS--The Money Market Portfolio: Portfolio
securities are valued at amortized cost, which approximates market value.
The Quality Income Plus, High Yield, Utilities, Dividend Growth, Capital
Growth, European Growth, Equity and Managed Assets Portfolios: (1) an equity
portfolio security listed or traded on the New York or American Stock
Exchange or other domestic or foreign
51
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY QUALITY
MARKET INCOME PLUS HIGH YIELD UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest........................................ $ 3,514,869 $ 22,561,165 $ 7,724,230 $ 3,158,348
Dividends....................................... -- -- -- 11,881,516*
------------ ------------ ------------ ------------
TOTAL INCOME................................ 3,514,869 22,561,165 7,724,230 15,039,864
------------ ------------ ------------ ------------
EXPENSES
Investment management fees (Note 2)............. 535,284 1,676,538 311,460 2,195,197
Professional fees............................... 28,509 32,851 31,026 24,872
Shareholder reports and notices................. 11,080 19,921 1,710 26,700
Trustees' fees and expenses (Note 3)............ 4,555 6,869 2,494 5,436
Custodian fees.................................. 17,298 43,402 10,387 21,917
Transfer agent fees (Note 3).................... 500 500 500 500
Registration fees............................... 10,901 98,177 12,920 104,631
Other........................................... 654 3,808 990 2,033
------------ ------------ ------------ ------------
TOTAL EXPENSES.............................. 608,781 1,882,066 371,487 2,381,286
------------ ------------ ------------ ------------
INVESTMENT INCOME--NET.................. 2,906,088 20,679,099 7,352,743 12,658,578
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET (NOTE 1):
Realized gain (loss) on investments--net........ -- 8,180,477 (4,735,637) 2,261,234
Realized gain on option contracts
written--net................................... -- -- -- --
Realized gain on foreign exchange
transactions--net.............................. -- -- -- --
------------ ------------ ------------ ------------
Total realized gain (loss)--net............. -- 8,180,477 (4,735,637) 2,261,234
Change in unrealized appreciation or
depreciation on:
Investments--net.............................. -- 4,200,907 9,877,901 19,355,022
Written options............................... -- -- -- --
Translation of other assets and liabilities
denominated in foreign currencies--net...... -- -- -- --
------------ ------------ ------------ ------------
NET GAIN (LOSS)............................. -- 12,381,384 5,142,264 21,616,256
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 2,906,088 $ 33,060,483 $ 12,495,007 $ 34,274,834
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------
* Net of $95,189, $48,883, $68,147, $2,045 and $34,839 in foreign withholding
tax, respectively.
** Net of $4,978 in foreign withholding tax.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 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
valuation; (3) listed options on debt securities are valued at the latest
sale price on the exchange on which they are listed unless no sales of such
options have taken place that day, in which case they will be valued at the
mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean
between their latest bid and asked prices; (4) a futures contract is valued
at the latest sale price on the commodities exchange on which it trades
unless the Trustees determine that such price does not reflect its market
value, in which case it will be valued at its fair value as determined by
the Trustees; (5) when market quotations are not readily available,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Fund's Trustees; 6) certain of the Fund's portfolio securities may be
valued by an outside pricing service approved by the Fund's Trustees. The
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND CAPITAL EUROPEAN MANAGED
GROWTH GROWTH GROWTH EQUITY ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest........................................ $ 2,347,716 $ 19,376 $ 147,551** $ 677,477 $ 4,469,289
Dividends....................................... 9,753,901* 688,310 506,707* 805,327* 3,316,305*
------------ ------------ ------------ ------------ ------------
TOTAL INCOME................................ 12,101,617 707,686 654,258 1,482,804 7,785,594
------------ ------------ ------------ ------------ ------------
EXPENSES
Investment management fees (Note 2)............. 2,049,082 302,274 290,371 581,935 1,058,182
Professional fees............................... 30,023 24,228 27,215 24,359 32,468
Shareholder reports and notices................. 34,862 3,542 1,151 10,606 24,972
Trustees' fees and expenses (Note 3)............ 6,200 730 161 3,922 5,065
Custodian fees.................................. 21,501 9,054 32,343 26,628 27,858
Transfer agent fees (Note 3).................... 500 500 500 500 500
Registration fees............................... 85,730 3,023 19,688 29,688 45,141
Other........................................... 3,133 590 601 1,248 2,818
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES.............................. 2,231,031 343,941 372,030 678,886 1,197,004
------------ ------------ ------------ ------------ ------------
INVESTMENT INCOME--NET.................. 9,870,586 363,745 282,228 803,918 6,588,590
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET (NOTE 1):
Realized gain (loss) on investments--net........ 1,384,492 (240,483) 2,921,085 15,242,235 8,034,397
Realized gain on option contracts
written--net................................... -- -- 5,371 -- --
Realized gain on foreign exchange
transactions--net.............................. -- -- 693,880 -- --
------------ ------------ ------------ ------------ ------------
Total realized gain (loss)--net............. 1,384,492 (240,483) 3,620,336 15,242,235 8,034,397
Change in unrealized appreciation or
depreciation on:
Investments--net.............................. 30,925,020 (3,491,305) 6,867,941 3,236,728 5,370,815
Written options............................... -- -- (4,463) -- --
Translation of other assets and liabilities
denominated in foreign currencies--net...... -- -- (10,272) -- --
------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS)............................. 32,309,512 (3,731,788) 10,473,542 18,478,963 13,405,212
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 42,180,098 $ (3,368,043) $ 10,755,770 $ 19,282,881 $ 19,993,802
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
pricing service utilizes a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameter, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service; and (7) short-term debt
securities having a maturity date of more than sixty days are valued on a
"mark-to-market" basis, that is, at prices based on market quotations for
securities of similar type, yield, quality and maturity, until sixty days
prior to maturity and thereafter at amortized value. 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 on the identified cost
method. Dividend income is recorded on the ex-dividend date, except for
certain dividends from 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. In determining
53
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1992
<TABLE>
<CAPTION>
QUALITY INCOME
MONEY MARKET PORTFOLIO PLUS PORTFOLIO HIGH YIELD PORTFOLIO
-------------------------- -------------------------- --------------------------
1993 1992 1993 1992 1993 1992
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Investment income--net...... $ 2,906,088 $ 3,340,475 $ 20,679,099 $ 8,358,915 $ 7,352,743 $ 5,638,817
Realized gain (loss)--net... -- -- 8,180,477 1,425,195 (4,735,637) (2,735,572)
Change in unrealized
appreciation or
depreciation--net.......... -- -- 4,200,907 (488,292) 9,877,901 3,484,859
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net
assets resulting from
operations............. 2,906,088 3,340,475 33,060,483 9,295,818 12,495,007 6,388,104
------------ ------------ ------------ ------------ ------------ ------------
Dividends and distributions to
shareholders from:
Investment income--net...... (2,906,087) (3,340,485) (20,733,963) (8,306,548) (7,316,733) (5,638,817)
Realized gain--net.......... -- -- -- -- -- --
Paid in capital............. -- -- -- -- -- (24,809)
------------ ------------ ------------ ------------ ------------ ------------
(2,906,087) (3,340,485) (20,733,963) (8,306,548) (7,316,733) (5,663,626)
------------ ------------ ------------ ------------ ------------ ------------
Transactions in shares of
beneficial
interest:
Net proceeds from sales..... 110,933,469 55,821,577 305,118,024 82,974,696 43,270,397 8,628,243
Reinvestment of dividends
and distributions.......... 2,906,086 3,340,483 20,733,884 8,306,547 7,316,732 5,663,626
Cost of shares
repurchased................ (80,065,561) (67,288,300) (13,899,740) (10,820,607) (5,607,128) (9,577,189)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net
assets from
transactions in shares
of beneficial
interest............... 33,773,994 (8,126,240) 311,952,168 80,460,636 44,980,001 4,714,680
------------ ------------ ------------ ------------ ------------ ------------
Total increase
(decrease)........... 33,773,995 (8,126,250) 324,278,688 81,449,906 50,158,275 5,439,158
NET ASSETS:
Beginning of period......... 96,151,092 104,277,342 163,367,843 81,917,937 40,042,126 34,602,968
------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD (including
undistributed net
investment income of $85
and $84; $578 and $55,442;
$34,115 and $(1,895);
$1,349,529 and $570,112;
$795,118 and $352,872;
$61,052 and $35,481;
$867,172 and $156,577;
$194,225 and $151,113 and
$711,864 and $462,866,
respectively).............. $129,925,087 $ 96,151,092 $487,646,531 $163,367,843 $ 90,200,401 $ 40,042,126
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold........................ 110,933,469 55,821,577 27,855,790 8,050,389 6,223,673 1,267,088
Issued in reinvestment of
dividends and
distributions.............. 2,906,086 3,340,483 1,881,374 808,170 1,053,326 832,332
Repurchased................. (80,065,561) (67,288,300) (1,260,583) (1,051,319) (809,003) (1,414,463)
------------ ------------ ------------ ------------ ------------ ------------
Net increase
(decrease)............. 33,773,994 (8,126,240) 28,476,581 7,807,240 6,467,996 684,957
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
UTILITIES PORTFOLIO
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Investment income--net...... $ 12,658,578 $ 4,613,417
Realized gain (loss)--net... 2,261,234 476,228
Change in unrealized
appreciation or
depreciation--net.......... 19,355,022 9,930,195
------------ ------------
Net increase in net
assets resulting from
operations............. 34,274,834 15,019,840
------------ ------------
Dividends and distributions to
shareholders from:
Investment income--net...... (11,879,161) (4,364,959)
Realized gain--net.......... (454,570) --
Paid in capital............. -- --
------------ ------------
(12,333,731) (4,364,959)
------------ ------------
Transactions in shares of
beneficial
interest:
Net proceeds from sales..... 315,722,662 74,860,552
Reinvestment of dividends
and distributions.......... 12,333,731 4,364,959
Cost of shares
repurchased................ (12,811,170) (4,581,889)
------------ ------------
Net increase in net
assets from
transactions in shares
of beneficial
interest............... 315,245,223 74,643,622
------------ ------------
Total increase
(decrease)........... 337,186,326 85,298,503
NET ASSETS:
Beginning of period......... 153,747,708 68,449,205
------------ ------------
END OF PERIOD (including
undistributed net
investment income of $85
and $84; $578 and $55,442;
$34,115 and $(1,895);
$1,349,529 and $570,112;
$795,118 and $352,872;
$61,052 and $35,481;
$867,172 and $156,577;
$194,225 and $151,113 and
$711,864 and $462,866,
respectively).............. $490,934,034 $153,747,708
------------ ------------
------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold........................ 23,293,456 6,509,419
Issued in reinvestment of
dividends and
distributions.............. 902,622 383,493
Repurchased................. (934,385) (403,887)
------------ ------------
Net increase
(decrease)............. 23,261,693 6,489,025
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
net investment income, the Money Market Portfolio amortizes premiums and
discounts on securities owned; gains and losses realized upon sale of such
securities are based on their amortized cost. The Quality Income Plus, High
Yield, Utilities, Dividend Growth, Capital Growth, European Growth, Equity
and Managed Assets Portfolios do not amortize premiums or accrue discounts
on fixed income securities in the portfolio, except those original issue
discounts for which amortization is required for federal income tax
purposes; gains and losses realized upon sale of such securities are based
on their identified cost. Additionally, with respect to market discount on
bonds, a portion of any capital gain realized upon disposition may be
recharacterized as investment income.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND GROWTH PORTFOLIO CAPITAL GROWTH PORTFOLIO EUROPEAN GROWTH PORTFOLIO
-------------------------- -------------------------- --------------------------
1993 1992 1993 1992 1993 1992
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Investment
income--net.......... $ 9,870,586 $ 4,687,188 $ 363,745 $ 187,939 $ 282,228 $ 58,623
Realized gain
(loss)--net.......... 1,384,492 (1,585,163) (240,483) 10,509 3,620,336 124,133
Change in unrealized
appreciation or
depreciation--net.... 30,925,020 8,566,758 (3,491,305) 1,828,625 6,853,206 (111,683)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in
net assets
resulting from
operations....... 42,180,098 11,668,783 (3,368,043) 2,027,073 10,755,770 71,073
------------ ------------ ------------ ------------ ------------ ------------
Dividends and
distributions to
shareholders from:
Investment
income--net.......... (9,428,340) (4,535,358) (338,174) (184,354) (258,172 ) (66,052)
Realized gain--net.... -- -- -- (49,053) (199,841 ) (12,486)
Paid in capital....... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
(9,428,340) (4,535,358) (338,174) (233,407) (458,013 ) (78,538)
------------ ------------ ------------ ------------ ------------ ------------
Transactions in shares
of beneficial
interest:
Net proceeds from
sales................ 260,254,121 91,915,940 24,319,197 28,254,879 59,000,547 9,392,087
Reinvestment of
dividends and
distributions........ 9,428,340 4,535,358 338,174 233,407 458,013 78,554
Cost of shares
repurchased.......... (11,840,572) (9,056,491) (15,747,254) (3,576,670) (1,390,412 ) (2,430,005)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in
net assets from
transactions in
shares of
beneficial
interest......... 257,841,889 87,394,807 8,910,117 24,911,616 58,068,148 7,040,636
------------ ------------ ------------ ------------ ------------ ------------
Total increase
(decrease)..... 290,593,647 94,528,232 5,203,900 26,705,282 68,365,905 7,033,171
NET ASSETS:
Beginning of period... 192,551,493 98,023,261 45,104,938 18,399,656 10,686,484 3,653,313
------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD
(including
undistributed net
investment income of
$85 and $84; $578 and
$55,442; $34,115 and
$(1,895); $1,349,529
and $570,112;
$795,118 and
$352,872; $61,052 and
$35,481; $867,172 and
$156,577; $194,225
and $151,113 and
$711,864 and
$462,866,
respectively)........ $483,145,140 $192,551,493 $ 50,308,838 $ 45,104,938 $79,052,389 $10,686,484
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
SHARES ISSUED AND
REPURCHASED:
Sold.................. 21,274,912 8,221,658 2,077,229 2,360,929 4,664,827 909,337
Issued in reinvestment
of dividends and
distributions........ 767,569 405,424 29,150 19,979 38,773 7,435
Repurchased........... (979,408) (809,973) (1,374,613) (303,434) (118,865 ) (236,051)
------------ ------------ ------------ ------------ ------------ ------------
Net increase
(decrease)....... 21,063,073 7,817,109 731,766 2,077,474 4,584,735 680,721
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
EQUITY PORTFOLIO MANAGED ASSETS PORTFOLIO
-------------------------- --------------------------
1993 1992 1993 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Investment
income--net.......... $ 803,918 $ 793,977 $ 6,588,590 $ 4,072,311
Realized gain
(loss)--net.......... 15,242,235 6,003,596 8,034,397 6,242,360
Change in unrealized
appreciation or
depreciation--net.... 3,236,728 (5,776,162) 5,370,815 (2,516,919)
------------ ------------ ------------ ------------
Net increase in
net assets
resulting from
operations....... 19,282,881 1,021,411 19,993,802 7,797,752
------------ ------------ ------------ ------------
Dividends and
distributions to
shareholders from:
Investment
income--net.......... (760,806) (806,303) (6,339,592) (4,029,532)
Realized gain--net.... (6,092,158) (6,090,407) (7,347,526) (1,127,378)
Paid in capital....... -- -- -- --
------------ ------------ ------------ ------------
(6,852,964) (6,896,710) (13,687,118) (5,156,910)
------------ ------------ ------------ ------------
Transactions in shares
of beneficial
interest:
Net proceeds from
sales................ 96,261,692 23,153,349 137,119,451 46,866,138
Reinvestment of
dividends and
distributions........ 6,852,964 6,896,710 13,687,118 5,156,910
Cost of shares
repurchased.......... (10,243,552) (10,171,532) (6,351,926) (5,702,279)
------------ ------------ ------------ ------------
Net increase in
net assets from
transactions in
shares of
beneficial
interest......... 92,871,104 19,878,527 144,454,643 46,320,769
------------ ------------ ------------ ------------
Total increase
(decrease)..... 105,301,021 14,003,228 150,761,327 48,961,611
NET ASSETS:
Beginning of period... 77,526,843 63,523,615 136,741,022 87,779,411
------------ ------------ ------------ ------------
END OF PERIOD
(including
undistributed net
investment income of
$85 and $84; $578 and
$55,442; $34,115 and
$(1,895); $1,349,529
and $570,112;
$795,118 and
$352,872; $61,052 and
$35,481; $867,172 and
$156,577; $194,225
and $151,113 and
$711,864 and
$462,866,
respectively)........ $182,827,864 $ 77,526,843 $287,502,349 $136,741,022
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES ISSUED AND
REPURCHASED:
Sold.................. 4,485,338 1,188,114 10,942,015 3,874,536
Issued in reinvestment
of dividends and
distributions........ 336,539 390,496 1,102,080 427,092
Repurchased........... (483,237) (531,726) (506,227) (471,239)
------------ ------------ ------------ ------------
Net increase
(decrease)....... 4,338,640 1,046,884 11,537,868 3,830,389
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
(C) OPTIONS AND FUTURES--(1) Options on debt obligations, equities and
foreign currency: When the Fund writes a call or a put option, an amount
equal to the premium received is included in the Fund's Statement of Assets
and Liabilities as an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. If an option which the Fund has written either
expires on its stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security or currency, and the liability related to such option is
extinguished. If a call option which the Fund has written is exercised, the
Fund realizes a gain or loss from the sale
55
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
of the underlying security or currency and the proceeds from such sale are
increased by the premium originally received. If a put option which the Fund
has written is exercised, the amount of the premium originally received will
reduce the cost of the security which the Fund purchases upon exercise of
the option; (2) Options on futures contracts: The Fund is required to
deposit U.S. Government securities, "initial margin" and "variation margin,"
with respect to put and call options on futures contracts written. If an
option which the Fund has written expires on its stipulated expiration date,
the Fund realizes a gain. If a call or put option which the Fund has written
is exercised, premiums received will decrease the unrealized loss or
increase the unrealized gain on the future. If the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying futures contract, and the liability related to such option is
extinguished; (3) Futures contracts: A futures contract is an agreement
between two parties to buy and sell financial instruments at a set price on
a future date. Upon entering into such a contract the Fund is required to
pledge to the broker cash or U.S. Government securities equal to the minimum
"initial margin" requirements of the applicable futures exchange. Pursuant
to the contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin", and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed.
The premium paid by the Fund for the purchase of a call or a put option
is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked-to-market to reflect the current market
value of the option. If an option which the Fund has purchased expires on
the stipulated expiration date, the Fund will realize a loss in the amount
of the cost of the option. If the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss, depending on whether the
proceeds from the closing sale transaction are greater or less than the cost
of the option. If the Fund exercises a put option, it will realize a gain or
loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. If the Fund exercises
a call option, the cost of the security which the Fund purchases upon
exercise will be increased by the premium originally paid.
(D) FOREIGN CURRENCY TRANSLATION--The books and records of the European
Growth Portfolio are maintained in U.S. dollars as follows: (1) the foreign
currency market value of investment securities, other assets and liabilities
and forward contracts stated in foreign currencies are translated at the
exchange rates at the end of the period; and (2) purchases, sales, income
and expenses are translated at the rate of exchange prevailing on the
respective dates of such transactions. The resultant exchange gains and
losses are included in the Statement of Operations. Pursuant to U.S. Federal
income tax regulations, certain net foreign exchange gains/losses included
in realized and unrealized gain/loss in the Statement of Operations for the
year ended December 31, 1993 are included in or are a reduction of ordinary
income for federal income tax purposes.
(E) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The European Growth
Portfolio may enter into forward foreign currency contracts as a hedge
against fluctuations in foreign exchange rates. All forward contracts are
valued daily at the appropriate exchange rates and any resulting unrealized
currency gains or losses are reflected in the Portfolio's accounts. The
Portfolio records realized gains or losses on delivery of the currency.
(F) REPURCHASE AGREEMENTS--The Fund's custodian takes possession on behalf
of the Fund of the collateral pledged for investments in repurchase
agreements. It is the policy of the Fund to value the
56
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to the repurchase price
plus accrued interest. In the event of default of the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation.
(G) 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.
(H) 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 reclassifications.
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.
(I) EXPENSES--Direct expenses are charged to the respective Portfolio and
general corporate expenses are allocated on the basis of relative net
assets.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS--Pursuant to an Investment
Management Agreement (the "Agreement"), Dean Witter InterCapital Inc. (the
"Investment Manager"), formerly the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), manages the Fund's investments. Under the Agreement, the
Fund pays its Investment Manager a monthly management fee, calculated and
accrued daily, by applying the annual rate of 1.0% to the net assets of the
European Growth Portfolio, 0.50% to the net assets of each of the Money Market
Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the
Equity Portfolio and the Managed Assets Portfolio, 0.65% to the net assets of
the Utilities and Capital Growth Portfolios, and 0.625% to the net assets of the
Dividend Growth Portfolio, in each case determined as of the close of each
business day. 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 a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the European Growth Portfolio with investment advice and portfolio management
relating to the Portfolio's investments in securities, subject to the overall
supervision of the Investment Manager. As compensation for its services provided
pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
57
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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, 1993
were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES/MATURITIES
-------------- --------------
<S> <C> <C> <C>
Money Market $ 814,691,627 $784,117,583
Quality Income Plus 1,061,307,474 738,417,698 Includes purchases/sales of U.S. Government
agencies/obligations of $732,505,700 and $614,619,899,
respectively.
High Yield 138,684,889 103,636,422 Includes purchases/sales of U.S. Government obligations of
$3,230,000 and -0-, respectively.
Utilities 331,064,290 37,468,644
Dividend Growth 283,970,128 18,927,792 Includes purchases/sales of U.S. Government obligations of
$22,965,313 and $8,040,000, respectively.
Capital Growth 25,619,823 16,853,631
European Growth 69,276,693 20,960,866 Additionally, the Portfolio purchased and sold $2,052,115
and $2,360,215 of put options, respectively.
Equity 359,352,556 284,653,568 Includes purchases/sales of U.S. Government obligations of
$16,440,938 and $11,306,250, respectively.
Managed Assets 140,473,893 74,522,939 Includes purchases/sales of U.S. Government
agencies/obligations of $11,749,722 and $9,170,508
respectively.
</TABLE>
Transactions in written options on foreign equities for the European Growth
Portfolio were as follows:
<TABLE>
<CAPTION>
# OF CONTRACTS PREMIUMS
-------------- ----------
<S> <C> <C>
Options written: outstanding at beginning
of period................................ 120 $ 5,371
Options written........................... -0- -0-
Options closed............................ (120 ) (5,371)
----- ----------
Options written: outstanding at end of
period................................... -0- -0-
----- ----------
----- ----------
</TABLE>
For the year ended December 31, 1993, the Utilities, Dividend Growth,
Capital Growth, Equity and Managed Assets Portfolios incurred brokerage
commissions of $92,190, $152,045, $28,363, $117,990 and $61,401, respectively,
to Dean Witter Reynolds Inc. for portfolio transactions executed on behalf of
such Portfolios.
Included in the Utilities, Dividend Growth, Capital Growth, Equity and
Managed Assets Portfolios' payables for investments purchased and included in
the Dividend Growth, Capital Growth and Equity Portfolios' receivable for
investments sold are $481,720, $5,962,692, $61,677, $7,981,827, $1,756,700,
$230,122, $205,243 and $107,591, respectively, for unsettled trades with Dean
Witter Reynolds Inc. at December 31, 1993.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. For the year ended December 31, 1993,
each of the Money Market, Quality Income Plus, High Yield, Utilities, Dividend
Growth, Capital Growth, European Growth, Equity and Managed Assets Portfolios
incurred transfer agent fees of $500.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Fund who will have
served as an independent Trustee for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the year ended December 31, 1993, included in Trustees' fees and expenses in the
Statement of Operations for the Money Market, Quality Income Plus, High Yield,
Utilities, Dividend Growth, Equity and Managed Assets Portfolios, amounted to
$2,683, $2,161, $1,081, $1,102, $1,712, $1,540 and $2,198, respectively. At
December 31, 1993, the Fund had an accrued pension liability for the Money
Market, Quality Income Plus, High
58
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
Yield, Utilities, Dividend Growth, Equity and the Managed Assets Portfolios in
the amount of $10,534, $5,952, $3,521, $3,537, $5,503, $4,245 and $6,798,
respectively, which is included in accrued expenses in the Statement of Assets
and Liabilities.
4. FEDERAL INCOME TAXES--At December 31, 1993, the High Yield Portfolio had a
net capital loss carryover of approximately $7,297,000, which will be available
through December 31, 1996 and a net capital loss carryover of approximately
$10,694,000, which will be available through December 31, 1997. The High Yield
and Dividend Growth Portfolios had net capital loss carryovers of approximately
$34,291,000, and $1,372,000, respectively, which will be available through
December 31, 1998. The High Yield Portfolio had a net capital loss carryover of
approximately $7,336,000, which will be available through December 31, 1999. The
High Yield Portfolio had a net capital loss carryover of approximately
$3,057,000 which will be available through December 31, 2000. The High Yield
Portfolio had a net capital loss carryover of approximately $4,736,000 which
will be available through December 31, 2001. Such capital loss carryovers may be
used to offset future capital gains, to the extent provided by regulations.
During the year ended December 31, 1993, the Quality Income Plus, Dividend
Growth and Capital Growth Portfolios utilized net capital loss carryovers of
approximately $668,000, $163,000 and $96,000, respectively. Capital losses
incurred after October 31 within the taxable year are deemed to arise on the
first business day of the Portfolios' next taxable year. The Quality Income
Plus, Utilities and Capital Growth Portfolios incurred and will elect to defer
net capital losses of approximately $39,000, $418,000, and $165,000,
respectively, during such period in fiscal 1993. To the extent that these
carryover losses are used to offset future capital gains, it is probable that
the gains so offset will not be distributed to shareholders.
The primary reason(s) for significant temporary book/tax differences are as
follows:
<TABLE>
<CAPTION>
POST-OCTOBER
CAPITAL LOSSES WASH SALES
--------------- ------------
<S> <C> <C>
Capital Growth........................................................... - -
Dividend Growth.......................................................... -
Equity................................................................... -
Managed Assets........................................................... -
Quality Income Plus...................................................... -
Utilities................................................................ -
</TABLE>
The primary reason for significant permanent book/tax differences are as
follows:
<TABLE>
<CAPTION>
DIVIDEND FOREIGN CURRENCY
REDESIGNATIONS GAINS/LOSSES
--------------- -----------------
<S> <C> <C>
Equity Portfolio................................................... -
European Growth Portfolio.......................................... -
High Yield Portfolio............................................... -
Managed Assets Portfolio........................................... -
</TABLE>
59
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS FOR ALL PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1992, the CUMULATIVE effect of permanent book/tax
reclassifications charged/ (credited) was as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED
INVESTMENT GAINS
INCOME (LOSSES) PAID-IN-CAPITAL
------------- ------------- --------------
<S> <C> <C> <C>
Equity Portfolio........................................ (103,402) 226 103,176
European Growth Portfolio............................... (156,577) 156,577 --
High Yield Portfolio.................................... 1,895 331,505 (333,400)
Managed Assets Portfolio................................ (204,090) 183,098 20,992
</TABLE>
To reflect reclassifications arising from permanent book/tax differences for
the year ended December 31, 1993, the European Growth Portfolio charged
accumulated undistributed net realized gains and credited undistributed net
investment income for approximately $687,000.
5. DIVIDENDS AND DISTRIBUTIONS--The Money Market, Quality Income Plus and High
Yield Portfolios declare daily dividends of substantially all of their net
investment income. Such dividends are payable to shareholders of record as of
the close of business the preceding day. The Utilities, Dividend Growth, Capital
Growth, European Growth, Equity and Managed Assets Portfolios declare and
distribute monthly, substantially all of their net investment income. Net
realized capital gains, if any, from all nine portfolios are distributed at
least annually.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK--As of December 31, 1993,
the European Growth Portfolio had outstanding forward foreign currency exchange
contracts ("forward contracts") as a hedge against changes in foreign exchange
rates. Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts.
<TABLE>
<S> <C> <C>
1993 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended December 31, 1993, the Utilities, European Growth,
Equity and Managed Assets Portfolios paid to shareholders $0.01964, $0.0204, $0.9129
and $0.4111 per share from long-term capital gains, respectively.
</TABLE>
60
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Money Market Portfolio DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD ON
AMOUNT (IN AND DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
--------------- ----------------------------- ------------- ---------------
<C> <S> <C> <C>
BANKERS' ACCEPTANCES (A) (22.8%)
COMMERCIAL BANKS
$4,248 CoreStates Bank N.A.
Philadelphia
2/1/94 to 3/30/94.......... 3.37 to 3.38 % $ 4,224,368
5,000 Bank of New York
1/18/94 to 3/14/94......... 3.25 to 3.30 4,977,730
2,000 First Bank National Assoc.
4/22/94.................... 3.26 1,980,082
2,000 Harris Trust & Savings Bank
1/3/94..................... 3.24 1,999,642
1,700 Mellon Bank N.A.
4/21/94.................... 3.38 1,682,703
1,500 NationsBank of North
Carolina, N.A.
3/18/94.................... 3.25 1,489,867
1,500 NBD Bank N.A.
2/14/94.................... 3.28 1,494,042
5,907 PNC Bank N.A.
3/23/94 to 5/24/94......... 3.27 to 3.37 5,839,626
1,000 U.S. Nat'l Bank of Oregon
1/19/94.................... 3.23 998,400
5,000 U.S. Bank of Washington, N.A.
2/2/94 to 4/7/94........... 3.23 to 3.28 4,968,275
---------------
TOTAL BANKERS' ACCEPTANCES
(AMORTIZED COST $29,654,735).............. 29,654,735
---------------
COMMERCIAL PAPER (A) (63.1%)
AUTOMOTIVE: FINANCE (3.3%)
4,270 Ford Motor Credit Company
1/25/94 to 2/18/94......... 3.23 to 3.39 4,254,522
---------------
BANKS: COMMERCIAL (13.6%)
3,440 ABN AMRO N.A. Fin. Inc.
1/24/94 to 3/14/94......... 3.22 to 3.37 3,423,597
2,000 BNP U.S. Finance Corp.
1/4/94..................... 3.38 1,999,447
2,955 Canadian Imperial Holdings
Inc.
1/27/94.................... 3.24 2,948,171
2,500 National Australia Funding
(Delaware) Inc.
1/14/94.................... 3.37 2,496,975
2,000 Societe Generale N.A. Inc.
1/11/94.................... 3.35 1,998,167
4,820 Toronto Dominion Holdings
(USA) Inc.
3/17/94 to 5/23/94......... 3.32 to 3.34 4,771,706
---------------
17,638,063
---------------
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD ON
AMOUNT (IN AND DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
--------------- ----------------------------- ------------- ---------------
<C> <S> <C> <C>
BANK HOLDING COMPANIES (7.4%)
$3,585 BankAmerica Corp.
1/31/94.................... 3.34 % $ 3,575,201
2,000 Bankers Trust N.Y. Corp.
1/12/94.................... 3.35 1,997,989
2,000 NationsBank Corp.
1/20/94.................... 3.23 1,996,622
2,000 Norwest Corporation
1/13/94.................... 3.37 1,997,767
---------------
9,567,579
---------------
BROKERAGE (8.4%)
5,500 Goldman Sachs Group L.P.
2/11/94 to 3/9/94.......... 3.35 to 3.38 5,472,806
5,490 Morgan Stanley Group Inc.
1/26/94 to 3/16/94......... 3.32 to 3.40 5,463,823
---------------
10,936,629
---------------
DRUG (1.5%)
2,000 Lilly, (Eli) & Co.
2/8/94..................... 3.20 1,993,350
---------------
FINANCE: DIVERSIFIED (20.9%)
2,580 American Express Credit Corp.
1/10/94 to 1/19/94......... 3.21 to 3.24 2,577,138
5,295 American General Finance
Corp.
1/5/94 to 2/3/94........... 3.21 to 3.41 5,287,885
5,700 Avco Financial Services Inc.
2/15/94 to 2/24/94......... 3.23 to 3.26 5,675,338
5,290 CIT Group Holdings Inc.
2/23/94 to 5/2/94.......... 3.25 to 3.38 5,249,119
5,815 General Electric Capital
Corp.
2/1/94 to 2/28/94.......... 3.19 to 3.37 5,793,456
2,600 ITT Financial Corp.
1/5/94 to 1/21/94.......... 3.21 to 3.25 2,597,212
---------------
27,180,148
---------------
FOOD AND BEVERAGE (2.6%)
3,500 Anheuser-Busch Cos., Inc.
6/15/94 to 6/20/94......... 3.35 to 3.38 3,446,375
---------------
TELEPHONE (5.4%)
3,000 American Telephone &
Telegraph Co.
1/6/94 to 2/16/94.......... 3.27 to 3.39 2,994,960
4,000 NYNEX Corp.
1/7/94 to 2/18/94.......... 3.23 to 3.38 3,990,320
---------------
6,985,280
---------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $82,001,946).............. 82,001,946
---------------
</TABLE>
61
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Money Market Portfolio DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD ON
AMOUNT (IN AND DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
--------------- ----------------------------- ------------- ---------------
U.S. GOVERNMENT AGENCIES (A) (14.4%)
<C> <S> <C> <C>
$ 3,610 Federal Farm Credit Bank
7/18/94 to 8/4/94.......... 3.37 to 3.43 % $ 3,541,720
1,535 Federal Home Loan Banks
8/4/94..................... 3.45 1,504,381
3,000 Federal Home Loan Mortgage
Corp.
4/25/94 to 11/23/94........ 3.40 to 3.62 2,947,279
10,845 Federal National Mortgage
Association
1/28/94 to 9/28/94......... 3.14 to 3.51 10,684,676
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $18,678,056).............. 18,678,056
---------------
<CAPTION>
VALUE
---------------
<C> <S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST $130,334,737)
(B).......................................... 100.3 % $ 130,334,737
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS....................................... (0.3 ) (409,650)
------ ---------------
NET ASSETS..................................... 100.0 % $ 129,925,087
------ ---------------
------ ---------------
</TABLE>
- ------------
(a) Bankers' Acceptances, Commercial Paper, and U.S. Government Agencies were
purchased on a discount basis. The rates shown have been adjusted to reflect
a bond equivalent yield.
(b) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Quality Income Plus Portfolio DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (59.8%)
AUTOMOTIVE INDUSTRY (1.5%)
$ 3,000 Ford Motor Co. ... 9.50 % 9/15/11 $ 3,838,920
1,000 Ford Motor Co. ... 8.875 1/15/22 1,174,190
1,000 General Motors
Acceptance
Corp. .......... 9.625 12/ 1/00 1,177,450
1,000 General Motors
Acceptance
Corp. .......... 9.40 7/15/21 1,187,880
-------------
7,378,440
-------------
BANK HOLDING COMPANIES (12.3%)
1,000 Banc One Corp. ... 8.74 9/15/03 1,162,650
2,000 Banc One,
Milwaukee, NA... 6.625 4/15/03 2,030,480
1,000 BankAmerica
Corp. .......... 9.625 2/13/01 1,184,460
1,000 BankAmerica
Corp. .......... 7.75 7/15/02 1,074,360
1,000 BankAmerica
Corp. .......... 7.875 12/ 1/02 1,083,080
2,000 Boatmen's
Bancshares,
Inc. ........... 9.25 11/ 1/01 2,364,160
2,000 Boatmen's
Bancshares,
Inc. ........... 6.75 3/15/03 2,036,840
1,000 Comerica, Inc. ... 7.25 10/15/02 1,055,670
3,000 Comerica, Inc. ... 7.125 12/ 1/13 2,945,520
1,000 CoreStates
Financial
Corp. .......... 9.625 2/15/01 1,191,420
6,000 CoreStates
Financial
Corp. .......... 5.875 10/15/03 5,759,820
4,000 Fleet Mortgage
Group, Inc. .... 6.50 9/15/99 4,070,560
2,000 Golden West
Financial
Corp. .......... 7.00 1/15/00 2,077,580
2,000 Huntington
National
Bank ........... 7.625 1/15/03 2,152,700
3,000 Marshall & Ilsley
Corp. .......... 6.375 7/15/03 2,994,480
2,000 Mellon Bank, NA... 6.75 6/ 1/03 2,031,460
5,000 Nationsbank Corp. 6.50 8/15/03 4,991,600
1,000 NBD Bancorp,
Inc. ........... 7.25 8/15/04 1,071,100
3,145 PNC Funding
Corp. .......... 9.875 3/ 1/01 3,803,815
1,000 Republic NY
Corp. .......... 7.875 12/12/01 1,111,290
4,000 Republic NY
Corp. .......... 5.875 10/15/08 3,781,000
1,000 Society National
Bank............ 7.85 11/ 1/02 1,093,410
5,000 State Street
Boston Corp..... 5.95 9/15/03 4,851,700
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 2,000 Wachovia Corp..... 7.00 % 12/15/99 $ 2,116,420
2,000 Wachovia Corp..... 6.375 4/15/03 2,018,480
-------------
60,054,055
-------------
BEVERAGES--SOFT DRINKS (0.2%)
1,000 Coca-Cola
Enterprises..... 8.50 2/ 1/22 1,147,720
-------------
BROADCAST MEDIA (0.2%)
1,000 Paramount
Communications,
Inc. ........... 8.25 8/ 1/22 977,290
-------------
COMPUTER EQUIPMENT (0.8%)
4,000 Digital Equipment
Corp. .......... 7.75 4/ 1/23 4,021,040
-------------
ETHICAL DRUGS & DISTRIBUTORS (0.4%)
910 Marion Merrell
Corp. .......... 9.11 8/ 1/05 1,055,535
1,000 McKesson Corp. ... 8.625 2/ 1/98 1,100,000
-------------
2,155,535
-------------
FINANCE & BROKERAGE (8.9%)
5,000 Aetna Life &
Casualty Co..... 7.25 8/15/23 4,957,450
2,000 American Express
Co. ............ 8.625 5/15/22 2,252,020
1,000 Associates Corp.
North America... 6.75 10/15/99 1,040,340
1,000 The Bear Stearns
Companies,
Inc. ........... 9.125 4/15/98 1,129,600
1,000 General Electric
Capital
Corp. .......... 8.125 5/15/12 1,128,580
3,500 Household
Financial
Corp. .......... 7.75 6/ 1/99 3,799,215
2,000 Household
Financial
Corp. .......... 8.95 9/15/99 2,284,120
1,000 Morgan Stanley
Group, Inc. .... 9.25 3/ 1/98 1,121,760
2,000 Morgan Stanley
Group, Inc. .... 7.00 10/ 1/13 1,924,600
5,000 Morgan Stanley
Group, Inc. .... 7.25 10/15/23 4,814,550
2,000 Norwest Financial,
Inc. ........... 7.00 1/15/03 2,083,480
5,000 Norwest Financial,
Inc. ........... 6.65 10/15/23 4,663,100
3,000 Primerica Corp.... 7.75 6/15/99 3,259,290
5,000 Shearson Lehman
Bros. Holdings,
Inc. ........... 8.375 2/15/99 5,460,950
3,000 Source One
Mortgage
Services........ 9.00 6/ 1/12 3,496,050
-------------
43,415,105
-------------
</TABLE>
63
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Quality Income Plus Portfolio DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
FINANCIAL & DATA SERVICING (0.6%)
$ 3,000 Equifax, Inc. .... 6.50 % 6/15/03 $ 3,019,950
-------------
FOOD SERVICES (1.0%)
2,000 Archer-Daniels-
Midland Co. .... 0.00 5/ 1/02 1,192,520
2,000 Grand Metropolitan
Investment
Corp............ 8.00 9/15/22 2,180,620
1,000 McDonald's Corp... 8.875 4/ 1/11 1,193,810
-------------
4,566,950
-------------
HEALTHCARE--DIVERSIFIED (0.7%)
2,000 Kaiser Foundation
Health Plan,
Inc. ........... 9.00 11/ 1/01 2,309,620
1,000 Kaiser Foundation
Health Plan,
Inc. ........... 9.55 7/15/05 1,244,220
-------------
3,553,840
-------------
INDUSTRIALS (9.4%)
7,000 Amoco Canada
Petroleum Co. .. 6.75 9/ 1/23 6,679,190
1,000 Bass America,
Inc. ........... 6.75 8/ 1/99 1,037,730
1,000 Boeing Co. ....... 7.95 8/15/24 1,095,070
1,000 BP North America,
Inc. ........... 7.875 5/15/02 1,103,770
1,000 Burlington
Resources,
Inc. ........... 8.50 10/ 1/01 1,131,550
1,000 Caterpillar,
Inc. ........... 9.375 7/15/01 1,180,440
3,000 Caterpillar,
Inc. ........... 8.00 2/15/23 3,231,240
1,000 Corning, Inc. .... 8.875 8/15/21 1,200,900
1,000 Dow Capital BV.... 8.70 5/15/22 1,137,120
6,000 Gillette Co....... 5.75 10/15/05 5,788,860
2,000 Kimberly Clark
Corp. .......... 7.875 2/ 1/23 2,157,980
1,000 Knight Ridder,
Inc. ........... 8.50 9/ 1/01 1,118,620
2,000 Martin Marietta
Corp. .......... 7.375 4/15/13 2,047,820
1,000 Maytag Corp. ..... 9.75 5/15/02 1,191,730
1,000 Motorola, Inc. ... 7.60 1/ 1/07 1,108,330
1,000 Pepsico, Inc. .... 6.25 9/ 1/99 1,024,680
3,000 Times Mirror
Co. ............ 7.375 7/ 1/23 3,048,120
3,500 Westvaco Corp. ... 7.75 2/15/23 3,598,560
3,000 Westvaco Corp. ... 7.00 8/15/23 2,855,850
2,000 Weyerhaeuser
Co. ............ 7.50 3/ 1/13 2,092,620
2,000 Weyerhaeuser
Co. ............ 7.25 7/ 1/13 2,043,600
-------------
45,873,780
-------------
OIL INTEGRATED--DOMESTIC (0.5%)
821 Mobil Oil
Corp. .......... 9.17 2/29/00 886,546
1,000 Texaco Capital,
Inc............. 9.75 3/15/20 1,295,200
-------------
2,181,746
-------------
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
PHARMACEUTICAL (1.4%)
$ 2,000 Bristol--Myers
Squibb Co. ..... 7.150% 6/15/23 $ 2,074,820
5,000 Zeneca Wilmington,
Inc. 7.00 11/15/23 4,852,300
-------------
6,927,120
-------------
REAL ESTATE INVESTMENT TRUST (1.0%)
5,000 Kimco Realty
Corp. .......... 6.50 10/ 1/03 4,827,550
-------------
RETAIL--DEPARTMENT STORES (3.6%)
1,000 Dayton Hudson
Corp. .......... 9.25 8/15/11 1,154,700
1,000 Dayton Hudson
Corp. .......... 9.00 10/ 1/21 1,174,180
1,000 Dayton Hudson
Corp. .......... 8.50 12/ 1/22 1,072,140
2,000 Dillard Department
Stores, Inc. ... 7.85 10/ 1/12 2,166,980
2,000 K Mart Corp. ..... 7.95 2/ 1/23 2,125,500
1,000 Penney, J.C.,
Inc. ........... 5.375 11/15/98 984,930
1,000 Penney, J.C.,
Inc. ........... 9.75 6/15/21 1,216,190
1,000 Penney, J.C.,
Inc. ........... 8.25 8/15/22 1,075,460
3,000 Walmart Stores,
Inc. ........... 7.49 6/21/07 3,333,810
3,000 Walmart Stores,
Inc. ........... 7.25 6/ 1/13 3,088,950
-------------
17,392,840
-------------
TRANSPORTATION (1.4%)
1,000 AMR Corp. ........ 10.20 3/15/20 1,166,390
1,000 Consolidated Rail
Corp. .......... 9.75 6/15/20 1,293,420
1,000 Delta Air Lines,
Inc............. 10.375 2/ 1/11 1,117,430
1,000 Norfolk Southern
Corp. .......... 7.875 2/15/04 1,127,220
2,000 Union Pacific
Corp. .......... 7.875 2/ 1/23 2,099,680
-------------
6,804,140
-------------
UTILITIES--ELECTRIC (14.0%)
1,000 Chugach Electric
Association,
Inc. ........... 9.14 3/15/22 1,176,420
2,000 Dayton Power &
Light Co. ...... 8.15 1/15/26 2,140,680
6,000 Duke Power Co. 7.00 7/ 1/33 5,790,660
2,000 Florida Power &
Light Co. ...... 7.875 1/ 1/13 2,073,580
6,000 Florida Power &
Light Co. ...... 7.05 12/ 1/26 5,808,120
2,000 Georgia Power Co. 8.625 6/ 1/22 2,142,240
1,000 Houston Lighting &
Power Co........ 8.75 3/ 1/22 1,116,200
2,000 Houston Lighting &
Power Co........ 7.75 3/15/23 2,052,900
3,000 Jersey Central
Power & Light
Co.............. 6.75 11/ 1/25 2,792,100
</TABLE>
64
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Quality Income Plus Portfolio DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 5,000 Northern States
Power Co........ 5.75 % 12/ 1/00 $ 4,991,450
1,000 Pacific Gas &
Electric Co. ... 8.25 11/ 1/22 1,087,400
5,000 Pacific Gas &
Electric Co. ... 7.05 3/ 1/24 4,931,100
1,000 Pacific Gas &
Electric Co. ... 8.00 10/ 1/25 1,054,790
5,000 Pacific Gas &
Electric Co. ... 7.25 8/ 1/26 4,938,650
2,000 Pennsylvania Power
& Light Co. .... 7.875 2/ 1/23 2,097,700
3,000 Potomac Electric
Power Co. ...... 6.875 10/15/24 2,839,620
3,000 Public Service
Electric & Gas
Co. ............ 7.875 11/ 1/01 3,324,240
2,000 Public Service
Electric & Gas
Co. ............ 7.50 3/ 1/23 2,001,520
5,000 Public Service
Electric & Gas
Co. ............ 7.00 9 1/24 4,804,600
2,000 South California
Edison Co. ..... 7.25 3/ 1/26 1,975,400
2,000 South Carolina
Electric & Gas
Co. ............ 7.625 6/ 1/23 2,026,980
1,000 South Carolina
Electric & Gas
Co. ............ 7.50 6/15/23 1,001,110
2,000 Virginia Electric
& Power Co. .... 6.75 10/ 1/23 1,855,480
1,000 Western Resource,
Inc. ........... 7.65 4/15/23 1,018,760
1,000 Wisconsin Electric
Power Co. ...... 7.25 8/ 1/04 1,100,090
2,000 Wisconsin Electric
Power Co. ...... 7.70 12/15/27 2,099,280
-------------
68,241,070
-------------
UTILITIES--TELEPHONE (1.9%)
4,000 Alltel Corp. ..... 6.50 11/ 1/13 3,798,880
1,000 American Telephone
& Telegraph
Co. ............ 8.125 7/15/24 1,088,750
1,000 GTE Corp. ........ 10.25 11/ 1/20 1,250,120
1,000 GTE Corp. ........ 8.75 11/ 1/21 1,151,000
2,000 U.S West
Communications,
Inc. ......... 6.875 9/15/33 1,867,800
-------------
9,156,550
-------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$282,716,066).......................... 291,694,721
-------------
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES &
OBLIGATIONS (35.2%)
$ 1,000 Federal Home Loan
Mortgage
Corp. .......... 7.14 % 12/15/07 $ 1,077,500
141 Federal Home Loan
Mortgage 5/ 1/19-
Corp. .......... 11.50 6/ 1/20 159,279
1,000 Federal Home Loan
Mortgage Corp.
(CMO Series 1046
F).............. 7.00 12/15/19 1,020,630
1,000 Federal Home Loan
Mortgage Corp.
(CMO Series 1177
HA)............. 7.50 2/15/18 1,016,870
13,000 Federal National
Mortgage
Association..... 6.50 2/14/24 12,833,438
27,000 Federal National
Mortgage
Association..... 7.00 1/13/24 27,379,688
10,893 Federal National
Mortgage 12/ 1/22-
Association 1... 7.50 1/13/24 11,253,767
5,000 Federal National
Mortgage
Association 15
year............ 6.00 1/20/08 4,960,938
5,000 Federal National
Mortgage
Association 15
year............ 6.00 2/17/08 4,945,313
2,000 Federal National
Mortgage
Association
Principal
Stripped........ 8.40 + 8/21/01 1,763,125
5,000 Government
National
Mortgage
Association 1... 6.00 1/19/23 4,817,188
19,986 Government
National
Mortgage 11/15/23-
Association 1... 6.50 12/15/23 19,798,802
20,489 Government
National
Mortgage 8/15/23-
Association 1... 7.00 1/19/24 20,815,823
13,922 Government
National
Mortgage 6/15/22-
Association 1... 7.50 8/15/23 14,439,884
</TABLE>
65
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Quality Income Plus Portfolio DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 2,000 Government
National
Mortgage
Association 1... 8.00 % 1/19/23 $ 2,105,625
1,171 Government
National
Mortgage 1/15/17-
Association 1... 8.50 11/15/21 1,242,175
4,280 Government
National
Mortgage 6/15/16-
Association 1... 9.00 2/15/21 4,578,660
916 Government
National
Mortgage 7/15/17-
Association 1... 9.50 4/15/20 989,931
516 Government
National
Mortgage 5/15/16-
Association 1... 10.00 4/15/19 569,241
5,000 Private Export
Funding
Services........ 5.48 9/15/03 4,970,200
1,000 Resolution Funding
Corp............ 0.00 7/15/04 518,992
1,000 Student Loan
Marketing
Association*.... 12.05 3/19/96 726,250
1,000 Tennessee Valley
Authority....... 7.75 12/15/22 1,039,688
1,000 U.S. Treasury
Bond............ 7.75 2/15/95 1,042,656
5,000 U.S. Treasury
Bond............ 7.625 11/15/22 5,707,030
12,000 U.S. Treasury
Bond............ 6.25 8/15/23 11,842,500
3,000 U.S. Treasury
Note............ 7.50 5/15/02 3,356,250
3,000 U.S. Treasury
Note............ 5.75 8/15/03 2,989,687
1,000 U.S. Treasury
Strip........... 0.00 5/15/01 659,803
5,000 U.S. Treasury
Strip........... 0.00 11/15/01 3,187,714
-------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(IDENTIFIED COST $170,578,721)......... $ 171,808,647
-------------
FOREIGN GOVERNMENT AGENCIES &
OBLIGATIONS (5.7%)
1,000 Hydro Quebec...... 9.40 2/ 1/21 1,227,930
1,000 Hydro Quebec...... 8.25 1/15/27 1,101,000
7,000 Italy-Republic.... 6.875 9/27/23 6,645,380
3,000 Province of New
Brunswick....... 6.75 8/15/13 2,898,450
3,000 Province of Nova
Scotia.......... 8.75 4/ 1/22 3,455,040
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 3,000 Province of
Ontario......... 7.75 % 6/ 4/02 $ 3,264,000
9,000 Province of
Quebec.......... 7.50 7/15/23 9,149,400
-------------
TOTAL FOREIGN GOVERNMENT AGENCIES &
OBLIGATIONS (IDENTIFIED COST
$27,799,600)........................... 27,741,200
-------------
SHORT - TERM INVESTMENTS (15.3%)
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (11.6%)
27,500 Federal Home
Loan Mortgage
Corp.(a)........ 3.13 1/13/94 27,471,308
1,000 Student Loan
Marketing
Association*.... 14.25 3/ 7/94 707,500
4,500 Tennessee Valley
Authority(a).... 3.18 2/16/94 4,481,715
5,000 U.S. Treasury
Bill(a)......... 3.025 1/20/94 4,981,514
5,000 U.S. Treasury
Bill(a)......... 3.035 1/20/94 4,986,230
4,000 U.S. Treasury
Bill(a)......... 3.04 1/20/94 3,988,966
4,000 U.S. Treasury
Bill(a)......... 3.03 2/10/94 3,967,562
3,000 U.S. Treasury
Bill(a)......... 3.04 2/10/94 2,976,254
3,000 U.S. Treasury
Bill(a)......... 3.03 3/10/94 2,983,445
-------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(IDENTIFIED COST $56,889,534).......... 56,544,494
-------------
COMMERCIAL PAPER (A) (3.1%)
AUTOMOTIVE FINANCE
4,000 Ford Motor Credit
Co.............. 3.188 1/13/94 3,995,760
3,000 Ford Motor Credit
Co.............. 3.209 1/19/94 2,995,200
1,000 Ford Motor Credit
Co.............. 3.209 1/20/94 998,311
-------------
7,989,271
-------------
FINANCE--DIVERSIFIED
2,000 General Electric
Capital Corp.... 3.188 1/13/94 1,997,880
2,000 General Electric
Capital Corp.... 3.175 2/14/94 1,992,276
-------------
3,990,156
-------------
FINANCE--ENERGY
3,000 Chevron Oil
Financial Co.... 3.188 1/13/94 2,996,820
-------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST
$14,976,247)........................... 14,976,247
-------------
</TABLE>
66
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--Quality Income Plus Portfolio DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -------------
REPURCHASE AGREEMENT (0.6%)
<C> <S> <C> <C> <C>
$ 2,796 The Bank of New York 2.75% due 1/3/94
(Identified Cost $2,796,091) (dated
12/31/93; proceeds $2,796,732;
collateralized by $2,805,106 U.S.
Treasury Note 5.125% due 3/31/98 valued
at $2,852,013)......................... $ 2,796,091
-------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL SHORT - TERM INVESTMENTS
(IDENTIFIED COST $74,661,872)......... 74,316,832
---------------
VALUE
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $555,756,259) (B)..................... 116.0 % $ 565,561,400
LIABILITIES IN EXCESS OF OTHER ASSETS........
(16.0 ) (77,914,869)
------ ---------------
NET ASSETS................................... 100.0 % $ 487,646,531
------ ---------------
------ ---------------
</TABLE>
- ------------
+ Currently zero coupon bond under terms of initial offering.
* Principal exchange rate linked security.
(a) Securities were purchased on a discount basis. The interest rates shown have
been adjusted to reflect a bond equivalent yield.
(b) The aggregate cost of investments for federal income tax purposes is
$556,720,103; the aggregate gross unrealized appreciation is $13,550,745 and
the aggregate gross unrealized depreciation is $4,709,448, resulting in net
unrealized appreciation of $8,841,297.
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--High Yield Portfolio DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) COUPON RATE MATURITY DATE VALUE
- ------------- --------------- --------------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (85.8%)
AEROSPACE (6.6%)
$ 3,000 GPA Del, Inc. ................ 8.75% 12/15/98 $ 2,287,500
2,000 PA Holdings
Corp. ...................... 13.75 7/15/99 2,132,500
1,500 Sabreliner Corp. ............. 12.50 4/15/03 1,545,000
---------------
5,965,000
---------------
AIRLINES (0.2%)
548 Trans World Airlines, Inc. ... 8.00+ 11/ 3/00 208,167
---------------
BUILDING & CONSTRUCTION (3.6%)
3,100 American Standard, Inc. ...... 14.25 6/30/03 3,270,500
---------------
CABLE & TELECOMMUNICATIONS (3.5%)
2,000 Cablevision Systems Corp. .... 14.00 11/15/03 2,090,000
1,000 Marcus Cable.................. 11.875 10/ 1/05 1,040,000
---------------
3,130,000
---------------
CHEMICALS (2.5%)
2,000 Georgia Gulf Corp. ........... 15.00 4/15/00 2,220,000
---------------
COMPUTER EQUIPMENT (0.4%)
1,450 Memorex Telex Corp.(b)........ 10.00+ 2/15/98 318,936
---------------
CONSUMER PRODUCTS (0.6%)
500 Playtex Family Products
Corp. ...................... 14.75 12/15/97 528,750
---------------
CONSUMER SERVICES (1.7%)
1,500 Envirotest Systems Corp. ..... 9.625 4/ 1/03 1,560,000
---------------
CONTAINERS (3.2%)
2,000 Crown Packaging-- 144A**...... 12.25++ 11/ 1/03 900,000
4,000 Ivex Packaging Corp.
(Series B).................. 13.25++ 3/15/05 1,960,000
---------------
2,860,000
---------------
ENTERTAINMENT, GAMING & LODGING (12.1%)
3,000 Aztar Mortgage Funding,
Inc. ....................... 13.50 9/15/96 3,150,000
1,000 Belle Casino, Inc. --144 A**.. 12.00 10/15/00 990,000
1,000 Boomtown, Inc. --144 A**...... 11.50 11/ 1/03 1,017,500
1,000 Casino America, Inc. ......... 11.50 11/15/01 1,010,000
2,000 Fair Lanes, Inc. ............. 11.875 8/15/97 1,360,000
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) COUPON RATE MATURITY DATE VALUE
- ------------- --------------- --------------- ---------------
<C> <S> <C> <C> <C>
$ 2,000 Treasury Bay Gaming & Resorts,
Inc.--
144 A**..................... 12.25% 11/15/00 $ 2,000,000
1,500 Trump Plaza Holding Assoc. ... 12.50+ 6/15/03 1,395,000
1 Trump's Taj Mahal Funding,
Inc. ....................... 11.35+ 11/15/99 570
---------------
10,923,070
---------------
FOOD & BEVERAGE (0.6%)
1,000 Specialty Foods............... 13.00++ 08/15/05 500,000
---------------
FOREST & PAPER PRODUCTS (4.8%)
800 Container Corp. .............. 15.50++ 12/ 1/04 1,552,000
3,000 Fort Howard Corp. ............ 14.125++ 11/ 1/04 2,775,000
---------------
4,327,000
---------------
HEALTHCARE--DIVERSIFIED (0.6%)
500 Epic Healthcare Group,
Inc. ....................... 15.00 2/ 1/01 531,250
---------------
HEALTHCARE--PRODUCTS (6.1%)
3,000 Alco Health Services Corp. ... 14.50 9/15/99 3,330,000
2,000 Scherer R.P. Corp. ........... 14.00 11/ 1/99 2,175,000
---------------
5,505,000
---------------
MANUFACTURING (3.5%)
2,000 Snydergeneral Corp. .......... 14.25 11/15/00 2,100,000
1,000 Talley Industries, Inc. ...... 12.25++ 10/15/05 585,000
500 Uniroyal Technology Corp. .... 11.75 6/ 1/03 513,750
---------------
3,198,750
---------------
MANUFACTURING--DIVERSIFIED (9.4%)
2,000 Interlake Corp. .............. 12.125 3/ 1/02 2,025,000
3,000 Jordan Industries, Inc. ...... 11.75++ 8/ 1/05 1,785,000
3,000 MS Essex Holdings, Inc. ...... 16.00++ 5/15/04 2,625,000
1,000 Roadmaster Industries,
Inc. ....................... 11.75 7/15/02 1,002,500
1,549 Thermadyne Industries, Inc.
(b) ........................ 12.75+* 11/ 1/99 1,070,843
---------------
8,508,343
---------------
OIL & GAS (1.7%)
1,500 Presidio Oil Co. ............. 14.05*** 07/15/02 1,575,000
---------------
</TABLE>
68
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--High Yield Portfolio DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) COUPON RATE MATURITY DATE VALUE
- ------------- --------------- --------------- ---------------
RESTAURANTS (6.3%)
<C> <S> <C> <C> <C>
$ 4,000 American Restaurant Group
Holdings (Units)--
144A** ..................... 14.00++% 12/15/05 $ 2,050,000
2,000 Carrols Corp. ................ 11.50 8/15/03 2,047,500
1,000 Flagstar Corp. ............... 11.25 11/ 1/04 1,020,000
500 Foodmaker, Inc. .............. 14.25 5/15/98 532,500
---------------
5,650,000
---------------
RETAIL (5.6%)
1,000 Cole National Group Corp. .... 11.25 10/ 1/01 1,030,000
2,000 Cort Furniture Rental Corp.
(Series Unit)............... 12.00 9/ 1/00 2,019,980
2,000 County Seat Stores Co.
(Units)..................... 12.00 10/ 1/01 1,960,000
---------------
5,009,980
---------------
RETAIL--FOOD CHAINS (8.0%)
2,000 Big Bear Stores Co. .......... 13.75 6/15/99 2,145,000
2,000 Food 4 Less Holdings, Inc. ... 15.25++ 12/15/04 1,290,000
15,000 Grand Union Capital Corp.
(Series A).................. 0.00 1/15/07 1,800,000
2,000 Purity Supreme, Inc. (Series
B).......................... 11.75 8/ 1/99 1,960,000
---------------
7,195,000
---------------
TEXTILES (2.1%)
2,000 JPS Textiles Group, Inc. ..... 10.85 6/ 1/99 1,935,000
---------------
TRANSPORTATION (2.7%)
1,250 Greyhound Lines, Inc.
(Conv.) .................... 8.50 3/31/07 1,475,000
2,000 Transtar Holdings (Series A
Units)-- 144A**............. 13.375++ 12/15/03 990,000
---------------
2,465,000
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $78,506,483).................................... 77,384,746
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- ---------------
<C> <S> <C> <C> <C>
PREFERRED STOCK (D)(0.1%)
AIRLINES (0.1%)
19,893 Trans World Airlines, Inc. $12.00 (Identified Cost $103,338) .... $ 54,706
---------------
COMMON STOCKS (1.3%)
AIRLINES (0.1%)
11,977 Trans World Airlines, Inc. (d) .................................. 67,371
---------------
BUILDING & CONSTRUCTION (0.4%)
13,538 USG Corp. (a) ................................................... 395,987
---------------
ENTERTAINMENT, GAMING & LODGING (0.1%)
4,000 Trump Taj Mahal, Inc. Class A (a) ............................... 100,000
71,890 Vagabonds Inns Inc. Class D (c)(d)............................... 72
---------------
100,072
---------------
FOOD & BEVERAGE (0.0%)
15,000 Specialty Foods ................................................. 30,000
---------------
FOREST & PAPER PRODUCTS (0.1%)
9,504 Gaylord Container Corp. Class A (a) ............................. 43,362
---------------
HEALTHCARE--DIVERSIFIED (0.6%)
20,309 Charter Medical Corp. (a) ....................................... 525,495
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $9,458,763)................................... 1,162,287
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS EXPIRATION DATE
- ------------- ---------------
<C> <S> <C> <C> <C>
WARRANTS (A)(0.6%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. (d)........................... 4/15/03 30,000
---------------
BUILDING & CONSTRUCTION (0.2%)
7,016 National Gypsum
Corp. (d) ................................... 7/ 1/00 115,763
6,320 USG Corp. (d).................................. 5/ 6/98 105,860
---------------
221,623
---------------
CONTAINERS (0.1%)
2,000 Crown Packaging-- 144A** ...................... 10/15/03 50,000
---------------
ENTERTAINMENT, GAMING & LODGING (0.1%)
1,000 Belle Casino, Inc-- 144A**..................... 10/15/03 20,000
3,263 Casino America, Inc............................ 10/15/03 19,986
100 Trump Plaza Holding Assoc...................... 6/15/96 70,000
---------------
109,986
---------------
FOREST & PAPER PRODUCTS (0.2%)
50,484 Gaylord Container Corp. (d).................... 10/15/03 183,005
---------------
MANUFACTURING (0.0%)
5,000 Uniroyal Technology Corp. ..................... 6/ 1/03 10,000
---------------
RETAIL--FOOD CHAINS (0.0%)
6,931 Purity Supreme, Inc (d)........................ 8/ 1/97 346
---------------
TOTAL WARRANTS
(IDENTIFIED COST $386,263)..................................... 604,960
---------------
</TABLE>
69
<PAGE>
Dean Witter Variable Investment Series
Portfolio of Investments--High Yield Portfolio DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------- ---------------
SHORT-TERM INVESTMENTS (10.3%)
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATION (3.5%)
$ 3,000 U.S. Treasury Note 13.125% due 5/15/94 (Identified Cost
$3,230,000).................................................... $ 3,107,813
---------------
COMMERCIAL PAPER (E) (6.5%)
AUTOMOTIVE FINANCE (4.0%)
3,600 Ford Motor Credit Co. 3.352% due 1/3/94........ 3,599,330
---------------
U.S. GOVERNMENT AGENCY (2.5%)
2,300 Federal Farm Credit Bank 3.091% due 1/5/94..... 2,299,210
---------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $5,898,540).................................... 5,898,540
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------- ---------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT (0.3%)
$ 303 The Bank of New York 2.75% due 1/3/94 (Identified Cost $302,934)
(dated 12/31/93; proceeds $303,003; collateralized by $303,902
U.S. Treasury Note 5.125% due 3/31/98 valued at $308,993)...... $ 302,934
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $9,431,474).......................
9,309,287
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $97,886,321)(F)...................................... 98.1 % 88,515,986
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............. 1.9 1,684,415
------ ---------------
NET ASSETS.................................................. 100.0 % $ 90,200,401
------ ---------------
------ ---------------
</TABLE>
- ------------
* Adjustable rate. Rate shown is the rate in effect at December 31, 1993.
** Resale is restricted to qualified institutional investors.
*** Floating rate. Coupon is linked to the Gas Index. Rate shown is the rate in
effect at December 31, 1993
+ Payment in kind securities.
++ Currently zero coupon bond under terms of initial offering.
(a) Non-income producing security.
(b) Non-income producing, bond in default.
(c) Non-income producing, issuer in bankruptcy.
(d) Acquired through exchange offer.
(e) Commercial paper was purchased on a discount basis. The rate shown has been
adjusted to reflect a bond equivalent yield.
(f) The aggregate cost for federal income tax purposes is $97,973,009; the
aggregate gross unrealized appreciation is $1,704,133 and the aggregate
gross unrealized depreciation is $11,161,156, resulting in net unrealized
depreciation of $9,457,023.
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--UTILITIES PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) COUPON RATE MATURITY DATE VALUE
- ------------- --------------- --------------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (11.5%)
UTILITIES--ELECTRIC (8.6%)
$ 2,000 Arizona Public Service
Company..................... 7.250% 8/ 1/23 $ 1,920,120
2,000 Arizona Public Service
Company..................... 8.000 2/ 1/25 2,084,680
5,000 Arkansas Power & Light
Company..................... 7.000 10/ 1/23 4,653,450
1,000 Central Power & Light
Company..................... 7.500 4/ 1/23 1,013,980
2,000 Consumer Power Company........ 7.375 9/15/23 1,933,240
2,000 Dayton Power & Light
Company..................... 7.875 2/15/24 2,073,420
1,000 Dayton Power & Light
Company..................... 8.150 1/15/26 1,070,340
2,000 Florida Power & Light
Company..................... 7.050 12/ 1/26 1,936,040
1,000 Georgia Power Company......... 8.625 6/ 1/22 1,071,120
1,000 Illinois Power Company........ 8.750 7/ 1/21 1,101,690
1,000 New York State Electric & Gas
Corp. ...................... 8.875 11/ 1/21 1,122,980
1,000 Niagara Mohawk Power Corp. ... 7.375 8/ 1/03 1,049,860
1,000 Old Dominion Electric
Company..................... 8.760 12/ 1/22 1,165,640
2,000 Pacific Gas & Electric
Company..................... 8.750 1/ 1/01 2,315,540
4,000 Pacific Gas & Electric
Company..................... 7.250 8/ 1/26 3,950,920
1,000 Pennsylvania Power & Light
Company..................... 7.875 2/ 1/23 1,048,850
2,000 Philadelphia Electric
Company..................... 7.750 5/ 1/23 1,995,200
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) COUPON RATE MATURITY DATE VALUE
- ------------- --------------- --------------- ---------------
<C> <S> <C> <C> <C>
$ 500 Public Service Company of New
Hampshire................... 9.170% 5/15/98 $ 558,320
2,000 South Carolina Electric & Gas
Company..................... 7.625 6/ 1/23 2,026,980
1,000 Texas Utilities Company....... 7.460 1/ 1/15 1,017,690
1,000 Union Electric Company........ 8.250 10/15/22 1,097,290
2,000 Western Resources, Inc........ 7.650 4/15/23 2,037,520
3,000 Wisconsin Electric Power
Company..................... 7.050 8/ 1/24 2,911,350
1,000 Wisconsin Electric Power
Company..................... 7.700 12/15/27 1,049,640
---------------
42,205,860
---------------
UTILITIES--NATURAL GAS (0.4%)
1,000 Enron Corp. .................. 7.625 9/10/04 1,076,660
1,000 Panhandle Eastern Pipeline
Company..................... 7.950 3/15/23 1,024,420
---------------
2,101,080
---------------
UTILITIES--TELEPHONE (2.5%)
1,000 American Telephone & Telegraph
Company .................... 8.125 1/15/22 1,086,450
2,000 GTE Corp...................... 7.830 5/ 1/23 2,094,580
5,000 Southern New England Telephone
Company..................... 7.250 12/15/33 4,942,000
2,000 Sprint Corp. ................. 9.250 4/15/22 2,384,020
2,000 U.S. West Communications,
Inc. ....................... 6.875 9/15/33 1,867,800
---------------
12,374,850
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $55,384,840).................................. 56,681,790
---------------
</TABLE>
71
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--UTILITIES PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ------------- ---------------
PREFERRED STOCK (0.1%)
<C> <S> <C> <C> <C>
UTILITIES--ELECTRIC (0.1%)
4,000 Cleveland Electric Illuminating Co. Series N, $9.125 (Identified
Cost $408,000)................................................. $ 407,500
---------------
COMMON STOCKS (83.4%)
UTILITIES--ELECTRIC (40.8%)
55,000 Atlantic Energy, Inc. ........................................... 1,196,250
230,000 Baltimore Gas & Electric Company................................. 5,836,250
265,000 CMS Energy Corp. ................................................ 6,658,125
125,000 Carolina Power & Light Company................................... 3,765,625
140,000 Centerior Energy Corp. .......................................... 1,837,500
165,000 Central & South West Corp. ...................................... 4,991,250
130,000 Consolidated Edison Company of New York, Inc. ................... 4,176,250
205,000 DPL, Inc. ....................................................... 4,228,125
135,000 DQE, Inc. ....................................................... 4,657,500
150,000 Detroit Edison Company........................................... 4,500,000
200,000 Entergy Corp. ................................................... 7,200,000
145,000 FPL Group, Inc. ................................................. 5,673,125
175,000 General Public Utilities Corp. .................................. 5,403,125
115,000 Hawaiian Electric Industries, Inc. .............................. 4,125,625
145,000 Houston Industries, Inc. ........................................ 6,905,625
265,000 Illinois Power Company........................................... 5,863,125
145,000 IPALCO Enterprises, Inc. ........................................ 5,147,500
160,000 Kansas City Power & Light Company................................ 3,680,000
185,000 Long Island Lighting Company..................................... 4,509,375
150,000 Montana Power Company............................................ 3,862,500
180,000 NIPSCO Industries, Inc. ......................................... 5,917,500
110,000 New England Electric System...................................... 4,303,750
110,000 New York State Electric & Gas Corp. ............................. 3,382,500
240,000 Niagara Mohawk Power Corp. ...................................... 4,860,000
100,000 Northeast Utilities.............................................. 2,375,000
255,000 PSI Resources, Inc............................................... 6,757,500
150,000 Pacific Gas & Electric Company................................... 5,268,750
310,000 Pacificorp....................................................... 5,967,500
240,000 Pinnacle West Capital Corp....................................... 5,370,000
110,000 Portland General Corp. .......................................... 2,255,000
130,000 Potomac Electric Power Company................................... 3,477,500
220,000 Public Service Company of Colorado............................... 7,067,500
215,000 Public Service Company of New Mexico*............................ 2,418,750
155,000 Public Service Enterprise Group, Inc............................. 4,960,000
100,000 Puget Sound Power & Light Company................................ 2,487,500
145,000 SCEcorp.......................................................... 2,900,000
120,000 San Diego Gas & Electric Company................................. 3,015,000
90,000 SCANA Corp. ..................................................... 4,477,500
140,000 Southern Company................................................. 6,177,500
<CAPTION>
NUMBER
OF SHARES VALUE
- ------------- ---------------
<C> <S> <C> <C> <C>
140,000 Texas Utilities Electric Company................................. $ 6,055,000
120,000 United Illuminating Company...................................... 4,830,000
170,000 Western Resources Corp. ......................................... 5,928,750
210,000 Wisconsin Energy Corp............................................ 5,801,250
---------------
200,270,625
---------------
UTILITIES--NATURAL GAS (12.1%)
90,000 Apache Corp. .................................................... 2,103,750
120,000 Burlington Resources, Inc. ...................................... 5,085,000
120,000 Columbia Gas System*............................................. 2,685,000
145,000 El Paso Natural Gas Company...................................... 5,220,000
180,000 ENSERCH Corp. ................................................... 2,925,000
65,000 Equitable Resource, Inc.......................................... 2,380,625
100,000 Louisiana Land & Exploration..................................... 4,012,500
130,000 Panhandle Eastern Corp........................................... 3,071,250
100,000 Questar Corp. ................................................... 3,300,000
200,000 Seagull Energy Corp.*............................................ 5,075,000
145,000 Tenneco, Inc. ................................................... 7,630,625
145,000 TransCanada Pipelines Ltd. ...................................... 2,229,375
70,000 Transco Energy Company........................................... 988,750
85,000 UGI Corp. ....................................................... 1,912,500
110,000 USX-Delhi Group.................................................. 1,691,250
150,000 Union Texas Petroleum Holdings, Inc.............................. 3,056,250
250,000 Williams Companies, Inc. ........................................ 6,093,750
---------------
59,460,625
---------------
TELECOMMUNICATIONS (30.5%)
225,000 ALLTEL Corp. .................................................... 6,637,500
130,000 American Telephone & Telegraph Company........................... 6,825,000
185,000 BCE, Inc. ....................................................... 6,451,875
300,000 Cable & Wireless PLC ADR+........................................ 7,200,000
155,000 Century Telephone Enterprises, Inc. ............................. 3,991,250
55,000 Cincinnati Bell, Inc. ........................................... 990,000
180,000 Comcast Corp. (Class A).......................................... 6,502,500
85,000 Compania De Telefonos De Chile ADR+.............................. 8,659,375
155,000 Comsat Corp...................................................... 4,611,250
110,000 Ericsson (L.M.) TEL ADR+......................................... 4,413,750
165,000 GTE Corp. ....................................................... 5,775,000
80,000 General Instruments Corp. ....................................... 4,490,000
110,000 MCI Communications Corp. ........................................ 3,093,750
100,000 MFS Communications Co., Inc.*.................................... 3,250,000
115,000 McCaw Cellular Communications (Class A)*......................... 5,778,750
180,000 Northern Telecom Ltd. ........................................... 5,557,500
140,000 NYNEX Corp. ..................................................... 5,617,500
130,000 Pacific Telesis Group, Inc. ..................................... 7,020,000
115,000 Rochester Telephone Corp. ....................................... 5,189,375
185,000 Southern New England Telecommunications Corp. ................... 6,683,125
</TABLE>
72
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--UTILITIES PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ------------- ---------------
<C> <S> <C> <C> <C>
130,000 Southwestern Bell Corp. ......................................... $ 5,395,000
245,000 Tele-Communications, Inc. (Class A)*............................. 7,380,625
95,000 Telecommunications Corp. of New Zealand Ltd. ADR+................ 4,809,375
165,000 Telefonos De Mexico SA Series L ADR+............................. 11,137,500
135,000 Telephone Data Systems, Inc. .................................... 7,036,875
110,000 U.S. West, Inc. ................................................. 5,046,250
---------------
149,543,125
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $373,798,489)................................. 409,274,375
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (6.4%)
COMMERCIAL PAPER (A)(6.3%)
AUTOMOTIVE FINANCE (1.5%)
$ 7,575 Ford Motor Credit Co. 3.203% due 1/11/94......................... 7,568,267
---------------
FINANCE--DIVERSIFIED (4.8%)
5,500 American General Finance Corp. 3.224% due 1/ 4/94................ 5,498,524
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------- ---------------
<C> <S> <C> <C> <C>
$ 18,000 General Electric Capital Corp. 3.402% due 1/3/94................. $ 17,996,600
---------------
23,495,124
---------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $31,063,391)................................... 31,063,391
---------------
REPURCHASE AGREEMENT (0.1%)
193 The Bank of New York 2.75% due 1/ 3/94 (dated 12/31/93: proceeds
$192,958: collateralized by $193,531 U.S. Treasury Note 5.125%
due 3/31/98 valued at $196,772) (Identified Cost $192,914)..... 192,914
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $31,256,305)....... 31,256,305
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST $460,847,634)(B).............. 101.4 % 497,619,970
LIABILITIES IN EXCESS OF OTHER ASSETS............................ (1.4 ) (6,685,936)
------ -------------
NET ASSETS....................................................... 100.0 % $ 490,934,034
------ -------------
------ -------------
</TABLE>
- ------------
* Non-income producing security.
+ American Depository Receipt.
(a) Commercial paper was purchased on a discount basis. The interest rates shown
have been adjusted to reflect a bond equivalent yield.
(b) The aggregate cost for federal income tax purposes is $460,887,456; the
aggregate gross unrealized appreciation is $45,950,925 and the aggregate
gross unrealized depreciation is $9,218,411, resulting in net unrealized
appreciation of $36,732,514.
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--DIVIDEND GROWTH PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ---------------
<C> <S> <C>
COMMON STOCKS (91.2%)
AIRCRAFT & AEROSPACE (3.9%)
145,000 Raytheon Co. ............................................... $ 9,570,000
150,000 United Technologies Corp. .................................. 9,300,000
---------------
18,870,000
---------------
ALUMINUM (2.0%)
139,000 Aluminum Co. of America..................................... 9,643,125
---------------
AUTO PARTS (1.9%)
136,000 TRW, Inc. .................................................. 9,418,000
---------------
AUTOMOBILES (3.9%)
146,000 Ford Motor Co. ............................................. 9,417,000
172,000 General Motors Corp. ....................................... 9,438,500
---------------
18,855,500
---------------
BANKING (3.9%)
206,100 BankAmerica Corp. .......................................... 9,557,888
118,000 Bankers Trust N.Y. Corp. ................................... 9,336,750
---------------
18,894,638
---------------
BEVERAGES (2.0%)
235,000 PepsiCo, Inc. .............................................. 9,605,625
---------------
CHEMICALS (6.0%)
166,800 Dow Chemical Co. (The)...................................... 9,465,900
240,500 Grace (W.R.) & Co. ......................................... 9,770,313
129,000 PPG Industries, Inc. ....................................... 9,787,875
---------------
29,024,088
---------------
COMPUTER EQUIPMENT (2.0%)
173,000 International Business Machines Corp........................ 9,774,500
---------------
CONGLOMERATES (4.1%)
87,400 Minnesota Mining & Manufacturing Co......................... 9,504,750
193,500 Tenneco, Inc. .............................................. 10,182,938
---------------
19,687,688
---------------
COSMETICS (2.0%)
163,700 Gillette Co. (The).......................................... 9,760,612
---------------
DRUGS (6.1%)
338,000 Abbott Laboratories......................................... 9,971,000
146,800 American Home Products Corp. ............................... 9,505,300
168,200 Bristol-Myers Squibb Co. ................................... 9,776,625
---------------
29,252,925
---------------
ELECTRIC--MAJOR (3.6%)
94,600 General Electric Co. ....................................... 9,921,175
525,000 Westinghouse Electric Corp. ................................ 7,415,625
---------------
17,336,800
---------------
FINANCE (2.1%)
306,000 Household International, Inc. .............................. 9,983,250
---------------
FOODS (4.0%)
138,700 Quaker Oat's Co. (The)...................................... 9,847,700
377,000 Sara Lee Corp. ............................................. 9,425,000
---------------
19,272,700
---------------
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ---------------
<C> <S> <C>
FOREST PRODUCTS (2.0%)
137,300 Georgia Pacific Corp. ...................................... $ 9,439,375
---------------
HOUSEHOLD PRODUCTS (2.0%)
168,900 Procter & Gamble Co. ....................................... 9,627,300
---------------
INSURANCE (2.0%)
159,000 Aetna Life & Casualty Co. .................................. 9,599,625
---------------
NATURAL GAS (2.0%)
269,000 El Paso Natural Gas Co. .................................... 9,684,000
---------------
NATURAL GAS--PIPELINES (2.1%)
428,000 Panhandle Eastern Corp. .................................... 10,111,500
---------------
OFFICE EQUIPMENT & SUPPLIES (2.0%)
233,000 Pitney-Bowes, Inc. ......................................... 9,640,375
---------------
OIL & GAS PRODUCTS (2.0%)
225,000 Burlington Resources, Inc. ................................. 9,534,375
---------------
OIL--DOMESTIC (1.9%)
87,000 Atlantic Richfield Co. ..................................... 9,156,750
---------------
OIL--INTERNATIONAL (5.9%)
152,000 Exxon Corp. ................................................ 9,576,000
123,500 Mobil Corp. ................................................ 9,756,500
89,400 Royal Dutch Petroleum Co. .................................. 9,331,125
---------------
28,663,625
---------------
PAPER & FOREST PRODUCTS (2.0%)
211,500 Weyerhaeuser Co. ........................................... 9,438,187
---------------
PHOTOGRAPHY (2.1%)
181,000 Eastman Kodak Co. .......................................... 10,136,000
---------------
RAILROADS (2.0%)
169,000 Burlington Northern, Inc. .................................. 9,780,875
---------------
RETAIL (4.1%)
454,800 K-Mart Corp. ............................................... 9,664,500
406,000 Woolworth Corp. ............................................ 10,302,250
---------------
19,966,750
---------------
TELECOMMUNICATIONS (5.8%)
159,800 Bell Atlantic Corp. ........................................ 9,428,200
273,000 GTE Corp. .................................................. 9,555,000
199,500 U.S. West, Inc. ............................................ 9,152,062
---------------
28,135,262
---------------
TOBACCO (1.9%)
169,000 Philip Morris Cos., Inc. ................................... 9,421,750
---------------
UTILITIES--ELECTRIC (3.9%)
336,000 Commonwealth Edison Co. .................................... 9,492,000
245,000 FPL Group, Inc. ............................................ 9,585,625
---------------
19,077,625
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $393,148,542)............................ 440,792,825
---------------
</TABLE>
74
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--DIVIDEND GROWTH PORTFOLIO DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (7.6%)
$ 2,000 U.S. Treasury Bond................. 8.125 % 8/15/19 $ 2,380,313
5,000 U.S. Treasury Bond................. 8.00 11/15/21 5,919,531
5,000 U.S. Treasury Bond................. 7.125 2/15/23 5,407,031
8,000 U.S. Treasury Bond................. 6.25 8/15/23 7,895,000
10,000 U.S. Treasury Note................. 4.25 7/31/95 10,025,000
5,000 U.S. Treasury Note................. 6.375 1/15/99 5,249,219
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST
$34,736,875)....................................... 36,876,094
------------
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (A)(2.0%)
ENERGY (0.3%)
$ 1,400 Exxon Supply Co. .................. 3.201 % 1/ 3/94 $ 1,399,751
------------
FINANCE--ENERGY (1.7%)
8,000 Chevron Oil Finance Co. ........... 3.302 1/ 3/94 7,998,533
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $9,398,284)........................ 9,398,284
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST
$437,283,701)(B)......................... 100.8 % 487,067,203
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS................................... (0.8 ) (3,922,063)
------- -------------
NET ASSETS................................. 100.0 % $ 483,145,140
------- -------------
------- -------------
</TABLE>
- ------------
(a) Commercial Paper was purchased on a discount basis. The rates shown have
been adjusted to reflect a bond equivalent yield.
(b) The aggregate cost for federal income tax purpose is $437,803,312; the
aggregate gross unrealized appreciation is $52,895,118 and the aggregate
unrealized depreciation is $3,631,227, resulting in net unrealized
appreciation of $49,263,891.
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--CAPITAL GROWTH PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (98.0%)
ADVERTISING (2.3%)
36,800 Interpublic Group of Cos., Inc.................................. $ 1,177,600
-----------
APPAREL (2.4%)
36,500 Cintas Corp. ................................................... 1,222,750
-----------
AUTOMOTIVE (2.4%)
31,600 Genuine Parts................................................... 1,188,950
-----------
BANKING (7.0%)
30,300 Banc One Corp. ................................................. 1,185,488
43,800 Central Fidelity Banks, Inc. ................................... 1,215,450
22,100 Fifth Third Bancorp ............................................ 1,138,150
-----------
3,539,088
-----------
BEVERAGES--SOFT DRINKS (2.3%)
24,000 Anheuser-Busch Cos., Inc. ...................................... 1,179,000
-----------
BUSINESS SYSTEMS (2.4%)
40,900 General Motors Corp., Class "E"................................. 1,196,325
-----------
CHEMICALS--SPECIALTY (4.8%)
32,700 Nalco Chemical.................................................. 1,226,250
25,500 Sigma-Aldrich, Inc. ............................................ 1,211,250
-----------
2,437,500
-----------
COMPUTER SERVICES (2.3%)
20,700 Automatic Data Processing, Inc. ................................ 1,143,675
-----------
CONSUMER SERVICES (2.4%)
29,500 Block (H & R), Inc. ............................................ 1,202,125
-----------
COSMETICS (2.4%)
10,700 International Flavors/Fragrances ............................... 1,217,125
-----------
DISTRIBUTION (2.3%)
39,500 Sysco Corp. .................................................... 1,155,375
-----------
DRUGS & HEALTHCARE (6.2%)
40,100 Abbott Laboratories............................................. 1,182,950
19,570 Block Drugs, Inc., (Class A).................................... 724,090
25,900 Forest Labs, Inc.*.............................................. 1,233,488
-----------
3,140,528
-----------
ELECTRONICS (6.7%)
37,200 Dionex Corp*.................................................... 1,162,500
57,100 EG & G, Inc. ................................................... 1,049,212
20,300 Grainger (W.W.), Inc. .......................................... 1,167,250
-----------
3,378,962
-----------
ENTERTAINMENT (2.5%)
34,100 Circus Circus Entrp.*........................................... 1,261,700
-----------
FOODS (11.7%)
45,500 ConAgra, Inc. ................................................. 1,200,062
30,100 Smucker (J.M.) Co., (Class A)................................... 673,488
22,000 Smucker (J.M.) Co., (Class B)................................... 462,000
16,900 Tootsie Roll Industries, Inc. .................................. 1,199,900
49,000 Tyson Foods, Inc., (Class A).................................... 1,163,750
27,100 Wrigley (W.W.) Jr., (Class A)................................... 1,195,788
-----------
5,894,988
-----------
<CAPTION>
NUMBER
OF SHARES VALUE
- ---------- -----------
<C> <S> <C>
HOUSEHOLD PRODUCTS (2.4%)
34,100 Rubbermaid, Inc. .............................................. $ 1,184,975
------------
INSURANCE (2.3%)
73,800 Crawford & Co., (Class B)...................................... 1,171,575
------------
MACHINERY--DIVERSIFIED (2.4%)
29,000 Thermo Electron Co.*........................................... 1,218,000
------------
MANUFACTURED HOUSING (2.4%)
50,100 Clayton Homes, Inc.*........................................... 1,214,925
------------
MANUFACTURING (2.4%)
42,800 Federal Signal Corp. .......................................... 1,198,400
------------
MEDICAL EQUIPMENT (2.6%)
45,800 Stryker Corp. ................................................. 1,282,400
------------
MEDICAL PRODUCTS & SUPPLIES (2.3%)
112,900 Biomet, Inc.*.................................................. 1,157,225
------------
RESTAURANTS (4.6%)
67,200 International Dairy Queen, (Class A)*.......................... 1,176,000
20,000 McDonald's Corp. .............................................. 1,140,000
------------
2,316,000
------------
RETAIL (2.4%)
45,400 Wal-Mart Stores, (Class A) .................................... 1,135,000
------------
RETAIL--DEPARTMENT STORES (2.5%)
32,800 Dillard Dept. Stores, (Class A)................................ 1,246,400
------------
RETAIL--DRUG STORES (2.3%)
28,300 Walgreen Co. .................................................. 1,156,762
------------
SUPERMARKETS (2.3%)
44,100 Albertson's, Inc. ............................................. 1,179,675
------------
TOBACCO (4.7%)
20,800 Philip Morris Cos., Inc. ...................................... 1,159,600
42,700 UST, Inc. ..................................................... 1,184,925
------------
2,344,525
------------
UTILITIES (2.3%)
32,695 Citizens Utilities Co. of Delaware, (Series A)................. 588,520
30,565 Citizens Utilities Co. of Delaware, (Series B)................. 550,170
------------
1,138,690
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $48,149,594) ............................... 49,280,243
------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- ----------
<C> <S> <C>
COMMERCIAL PAPER (A)(1.9%)
ENERGY (1.9%)
$ 1,000 Exxon Supply Co. 3.2% due 1/3/94 (Amortized Cost $999,822)..... 999,822
------------
TOTAL INVESTMENTS (IDENTIFIED
COST $49,149,416)(B)............................................. 99.9 % 50,280,065
OTHER ASSETS IN EXCESS OF LIABILITIES.............................. 0.1 28,773
------ ------------
NET ASSETS......................................................... 100.0 % $ 50,308,838
------ ------------
------ ------------
</TABLE>
- -------------
* Non-income producing security.
(a) Commercial Paper was purchased on a discount basis. The rate shown has been
adjusted to reflect a bond equivalent yield.
(b) The aggregate cost for federal income tax purposes is $49,512,309; the
aggregate gross unrealized appreciation is $3,579,400 and the aggregate
gross unrealized depreciation is $2,811,644, resulting in net unrealized
appreciation of $767,756.
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EUROPEAN GROWTH PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS,
WARRANTS AND BONDS (86.9%)
AUSTRIA (2.4%)
ELECTRIC UTILITIES
7,500 Evn Energieversorgung Ni........... $ 962,879
15,500 Oester Elex CI A................... 943,478
-------------
1,906,357
-------------
BELGIUM (2.1%)
RETAIL STORES
9,520 Colruyt SA......................... 1,578,772
-------------
DENMARK (1.4%)
MULTI-INDUSTRY
14,000 Sophus Berendsen................... 1,110,095
-------------
FINLAND (0.1%)
ELECTRONICS
2,000 Nokia AB (Pref.)................... 99,777
-------------
FRANCE (4.7%)
AUTOMOTIVE
1,505 Renault SA......................... 613,351
-------------
BROADCAST MEDIA
2,380 Nrj SA............................. 205,259
-------------
FINANCIAL SERVICES
5,405 Credit Local de France............. 446,676
-------------
INSURANCE
7,873 Scor SA............................ 818,787
900 SA Francaise De Reassurance........ 127,843
-------------
946,630
-------------
MERCHANDISING
1,625 Agache (Societe Financiere)........ 200,600
-------------
MULTI-INDUSTRY
2,700 Eurafrance......................... 1,057,445
-------------
TEXTILES
3,500 Hermes International*.............. 275,277
-------------
TOTAL FRANCE....................... 3,745,238
-------------
GERMANY (5.6%)
BUSINESS SERVICES
101 Sap AG (Pref.)..................... 94,515
-------------
FOOD, BEVERAGE, TOBACCO
& HOUSEHOLD PRODUCTS
638 Binding Brauerei AG................ 212,703
860 Holsten Brauerei AG................ 271,886
-------------
484,589
-------------
INSURANCE
652 Koelnische Rueckers AG............. 304,694
-------------
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
PHARMACEUTICAL
3,100 Gehe A.G........................... $ 917,687
1,120 Schering AG........................ 739,714
-------------
1,657,401
-------------
RETAIL
975 Ave Allgemeine Handels Der Verba... 473,573
1,080 Hornback Holding AG (Pref.)........ 1,039,834
1,020 Oppermann Versandhaus*............. 147,163
-------------
1,660,570
-------------
RETAIL STORES
367 Hornbach Baumarkt Holding.......... 232,052
-------------
TOTAL GERMANY...................... 4,433,821
-------------
ITALY (5.4%)
ELECTRICAL EQUIPMENT
57,800 Ansaldo Trans...................... 168,488
-------------
ELECTRICAL UTILITIES
110,000 Edison SPA......................... 477,772
-------------
ELECTRICAL ELECTRONICS
10,625 Gewiss............................. 105,677
-------------
FOREIGN GOVERNMENT OBLIGATION
ITL 305,000M Italy Republic 12.00% due 1/1/98... 197,963
-------------
HOUSEHOLD FURNISHINGS AND APPLIANCES
32,700 Industrie Natuzzi SPA ADR*+........ 903,338
-------------
MANUFACTURING
25,500 Fila Holdings, SPA ADR*+........... 392,062
-------------
PUBLISHING
24,000 Silvio Berlusconi Editore*......... 204,285
-------------
TELECOMMUNICATIONS
65,480 MedioBanca International (Warrants
3/30/98)*........................ 80,511
702,750 Sip Itl 1000....................... 1,475,764
377,000 Sip Itl (Warrants 12/31/94)*....... 132,095
164,000 Softe SA (Warrants 3/24/97)*....... 145,905
-------------
1,834,275
-------------
TOTAL ITALY........................ 4,283,860
-------------
LUXEMBOURG (0.5%)
FINANCIAL SERVICES
290,000 Intrum Justitia, PLC............... 406,500
-------------
NETHERLANDS (6.2%)
BUSINESS SERVICES
8,000 Randstad Holdings.................. 240,592
-------------
INSURANCE
15,500 Aegon NV........................... 840,659
33,250 International Nederlanden.......... 1,587,973
990 International Nederlanden
(Pref.)*......................... 4,169
-------------
2,432,801
-------------
</TABLE>
77
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EUROPEAN GROWTH PORTFOLIO DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
PHARMACEUTICAL
43,750 OPG (Apoth. Coop.) UA.............. $ 1,261,760
-------------
PUBLISHING
840 Elsevier........................... 78,680
-------------
TRANSPORTATION
23,310 Boskalis Westminster............... 553,630
12,900 Boskalis Westminster (Pref.)....... 306,384
-------------
860,014
-------------
TOTAL NETHERLANDS.................. 4,873,847
-------------
NORWAY (4.0%)
BANKING
94,000 Sparebanken NK 100*................ 1,897,325
-------------
INSURANCE
12,400 Vital Forsikring................... 141,609
-------------
PUBLISHING
6,700 Schibsted.......................... 306,947
-------------
TELECOMMUNICATIONS
2,035 Alcatel............................ 64,045
-------------
TRANSPORTATION
30,395 Havenlager......................... 16,145
30,395 Helikopter Service................. 409,674
36,300 Smedvig Tankships*................. 308,501
-------------
734,320
-------------
TOTAL NORWAY....................... 3,144,246
-------------
SPAIN (5.3%)
BANKING
2,120 Banco Popular ESP.................. 238,602
-------------
ELECTRIC UTILITIES
281,000 Fuerzas Electricas De Catoluna, Sec
A. .............................. 1,693,268
-------------
FINANCIAL SERVICES
1,180 Banco de Andalucia................. 131,074
44 Banco Pastor SA (Registered)....... 2,092
-------------
133,166
-------------
OIL--RELATED
45,000 Repsol SA,......................... 1,388,850
-------------
METAL & MINING
8,000 Acerinox........................... 612,932
6,600 Hullas del Coto Cortes Minas....... 137,952
-------------
750,884
-------------
TOTAL SPAIN........................ 4,204,770
-------------
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
SWEDEN (5.1%)
BANKING
41,550 Skand Enskilda Bknser A*........... $ 278,719
8,225 Svenska Handelsbank*............... 110,347
-------------
389,066
-------------
BUSINESS SERVICES
18,000 Getinge Industries*................ 403,201
-------------
ENTERTAINMENT & LEISURE TIME
16,290 Kinnevik Industriforvatnings (B
Shares).......................... 353,189
-------------
PHARMACEUTICAL
90,525 Astra AB (A Shares)................ 2,060,294
37,000 Astra AB (B Shares)................ 824,369
-------------
2,884,663
-------------
TOTAL SWEDEN....................... 4,030,119
-------------
SWITZERLAND (11.9%)
ELECTRICAL EQUIPMENT
1,600 Sprecher & Schuh Holdings AG....... 473,277
-------------
FINANCIAL SERVICES
855 Baer Holdings...................... 1,034,622
1,930 Bil GT Gruppe...................... 823,899
8,900 Safra Republic Holdings............ 823,250
8,000 Safra Republic Holdings S.A.*...... 734,118
-------------
3,415,889
-------------
HOUSEHOLD FURNISHINGS & APPLIANCES
1,100 Fust SA, Dipl...................... 299,496
-------------
INDUSTRIALS
3,470 Hilti AG PTG Certs................. 2,122,823
1,290 Schindler Holdings................. 1,370,218
-------------
3,493,041
-------------
LEISURE
32 Reiseburo Kuoni (Bearer)........... 817,479
60 Reiseburo Kuoni.................... 77,849
-------------
895,328
-------------
PHARMACEUTICAL
194 Roche Holdings NPV................. 822,951
54 Roche Holdings NPV (Warrants
5/12/94)*........................ 6,244
-------------
829,195
-------------
TOTAL SWITZERLAND.................. 9,406,226
-------------
</TABLE>
78
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EUROPEAN GROWTH PORTFOLIO DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
UNITED KINGDOM (32.2%)
AEROSPACE AND DEFENSE
90,000 British Aerospace.................. $ 545,787
50,000 Smiths Industries, PLC............. 337,888
-------------
883,675
-------------
BANKING
135,000 Royal Bank of Scotland Group,
PLC.............................. 904,333
195,000 TSB GROUP, PLC..................... 693,410
-------------
1,597,743
-------------
BUILDING & CONSTRUCTION
207,400 CRH, PLC........................... 1,071,065
131,500 John Mowlem & Co., PLC............. 259,997
-------------
1,331,062
-------------
BUSINESS SERVICES
61,000 Saatchi & Saatchi Co., PLC*........ 119,707
9,259 Saatchi & Saatchi Co., PLC
(New)*........................... 18,170
-------------
137,877
-------------
CONGLOMERATES
134,159 BTR, PLC........................... 734,400
222,000 Harrison & Crosfield............... 612,538
-------------
1,346,938
-------------
ELECTRIC UTILITIES
75,000 Powergen, PLC...................... 604,217
110,000 Scottish Power, PLC................ 741,733
-------------
1,345,950
-------------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS
80,000 Allied Lyons, PLC.................. 799,130
170,000 Argyll Group, PLC.................. 687,287
94,261 BAT Industries, PLC................ 766,342
62,000 Dalgety, PLC....................... 446,427
110,000 Grand Metropolitan PLC............. 764,456
107,000 Rothmans International Units....... 753,080
48,500 Tate & Lyle, PLC................... 284,815
114,000 Vendome Luxury GRP Units*.......... 647,595
-------------
5,149,132
-------------
FOREST PRODUCTS, PAPER & PACKAGING
51,500 De La Rue Co. ..................... 649,699
-------------
HEALTH & PERSONAL CARE
105,000 Smithkline Beecham................. 565,485
-------------
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT VALUE
- -------------- -------------
<C> <S> <C>
INSURANCE
38,000 Britannic Assurance, PLC........... $ 244,460
35,718 Commercial Union Assurance
Co., PLC......................... 339,927
39,000 Refuge Group....................... 184,182
135,000 Royal Insurance, PLC............... 671,278
-------------
1,439,847
-------------
LEISURE
104,000 Granada Group, PLC................. 793,345
-------------
OIL & RELATED
135,000 British Petroleum Co., PLC......... 719,084
84,500 Enterprise Oil..................... 557,318
73,000 Lasmo Oil.......................... 122,790
-------------
1,399,192
-------------
PHARMACEUTICAL
175,000 Glaxo Holdings, PLC................ 1,864,293
-------------
REAL ESTATE
107,000 Hammerson Prop Inv & Dev, PLC...... 647,300
67,500 MEPC, PLC.......................... 536,823
-------------
1,184,123
-------------
RETAIL STORES
60,000 Kingfisher, PLC.................... 684,336
240,000 Morrison Supermarkets.............. 389,532
289,000 Next, PLC.......................... 976,500
-------------
2,050,368
-------------
TELECOMMUNICATIONS
260,700 British Telecomm, PLC.............. 1,815,608
-------------
TRANSPORTATION
150,000 British Airways, PLC............... 993,748
-------------
UTILITIES
105,000 Anglican Water, PLC................ 915,621
-------------
TOTAL UNITED KINGDOM............... 25,463,706
-------------
TOTAL COMMON AND PREFERRED STOCKS,
WARRANTS AND BONDS (IDENTIFIED
COST $61,590,802)................ 68,687,334
-------------
</TABLE>
79
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EUROPEAN GROWTH PORTFOLIO DECEMBER 31, 1993
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ---------- ------------
<C> <S> <C>
COMMERCIAL PAPER (A) (14.7%)
UNITED STATES
AUTO FINANCE
U.S. Ford Motor Credit Co. 3.03% due 1/03/94...............
$2,500 $ 2,499,579
------------
FINANCE--DIVERSIFIED
3,500 General Electric Capital Corp. 3.25% due 1/05/94...... 3,498,737
------------
FINANCE--ENERGY
3,800 Chevron Oil Finance Co. 3.10%
due 1/11/94......................................... 3,796,430
1,800 Exxon Supply Company 3.10% due 1/07/94................ 1,799,070
------------
5,595,500
------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $11,593,816)... 11,593,816
------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (0.5%)
CURRENCY AMOUNT EXPIRATION MONTH/
(IN THOUSANDS) EXERCISE PRICE VALUE
------------------ ------------------------------------ ---------------
22,500 February 94/SFr 1.4650 $ 30,375
<C> <S> <C>
57,500 February 94/SFr 1.5030 36,800
39,000 February 94/DEM 1.6973 111,150
10,000 February 94/DEM 1.7170 19,500
5,000 February 94/DKR 6.7950 5,300
30,000 February 94/FFr 5.9195 37,500
45,000 February 94/NGlr 1.9055 113,850
25,000 February 94/BFr 7.3650 65,250
5,000 February 94/BFr 36.250 5,300
---------------
TOTAL PURCHASED PUT OPTIONS ON FOREIGN CURRENCY
(IDENTIFIED COST $628,640).......................
425,025
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED
COST $73,813,258) (B)....................... 102.1% 80,706,175
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS............................ (2.1 ) (1,653,786)
----- ---------------
NET ASSETS.................................... 100.0% $ 79,052,389
-----
----- ---------------
---------------
</TABLE>
- ----------
*
Non-income producing security.
+
American Depository Receipt.
(a)
Commercial Paper was purchased on a discount basis. The rates shown have
been adjusted to reflect a bond equivalent yield.
(b)
The aggregate cost for federal income tax purposes is $73,775,551; the
aggregate gross unrealized appreciation is $7,865,898 and the aggregate
gross unrealized depreciation is $935,274, resulting in net unrealized
appreciation of $6,930,624.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1993:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- --------------- -------------- -------- -------------
<S> <C> <C> <C>
FFr 6,213,817 US$ 1,067,116 1/04/94 $ (16,331)
L 94,108 US$ 139,045 1/04/94 (188)
US$ 210,038 DKR 364,500 1/05/94 519
FFr 779,031 US$ 132,466 1/10/94 (728)
L 302,304 US$ 449,829 1/10/94 (3,779)
L 346,575 US$ 519,239 1/10/94 (7,867)
US$ 126,287 L 84,870 1/10/94 1,061
ITL 252,074,142 US$ 150,227 1/31/94 (3,267)
-------------
Net Unrealized Depreciation.......................... $ (30,580)
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Aerospace & Defense.................................................................. $ 883,675 1.1%
Automotive........................................................................... 3,112,930 3.9
Banking.............................................................................. 4,122,736 5.1
Broadcast Media...................................................................... 205,259 0.3
Building & Construction.............................................................. 1,331,062 1.6
Business Services.................................................................... 876,185 1.1
Conglomerates........................................................................ 1,346,938 1.7
Electric Utilities................................................................... 5,423,347 6.7
Electrical Equipment................................................................. 641,765 0.8
Electronics.......................................................................... 205,454 0.3
Entertainment & Leisure Time......................................................... 2,041,862 2.5
Financial Services................................................................... 13,496,468 16.7
Food, Beverage, Tobacco & Household Products......................................... 5,633,721 7.0
Foreign Government................................................................... 622,988 0.8
Forest Products, Paper & Packaging................................................... 649,699 0.8
Health & Personal Care............................................................... 565,485 0.7
Household Furnishings and Appliances................................................. 1,202,834 1.5
Industrials.......................................................................... 3,493,041 4.3
Insurance............................................................................ 5,265,581 6.5
Manufacturing........................................................................ 392,062 0.5
Merchandising........................................................................ 200,600 0.2
Metal & Mining....................................................................... 750,884 0.9
Multi-Industry....................................................................... 2,167,540 2.7
Oil & Related........................................................................ 2,788,042 3.5
Pharmaceuticals...................................................................... 8,497,312 10.5
Publishing........................................................................... 589,912 0.7
Real Estate.......................................................................... 1,184,123 1.5
Retail............................................................................... 1,660,570 2.1
Retail Stores........................................................................ 3,861,192 4.8
Telecommunications................................................................... 3,713,928 4.6
Textiles............................................................................. 275,277 0.3
Transportation....................................................................... 2,588,082 3.2
Utilities............................................................................ 915,621 1.1
-------------- -----
$ 80,706,175 100.0%
-------------- -----
-------------- -----
</TABLE>
SUMMARY OF INVESTMENTS BY TYPE DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TYPE OF INVESTMENT
- -------------------------------------------------------------------------------------
<S> <C> <C>
Bonds................................................................................ $ 197,963 0.2%
Commercial Paper..................................................................... 11,593,816 14.4
Common Stocks........................................................................ 66,579,937 82.5
Preferred Stocks..................................................................... 1,544,679 1.9
Put Options.......................................................................... 425,025 0.5
Warrants............................................................................. 364,755 0.5
-------------- -----
$ 80,706,175 100.0%
-------------- -----
-------------- -----
</TABLE>
81
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EQUITY PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------- ---------------
<C> <S> <C>
COMMON STOCKS (88.9%)
AUTO RELATED (8.1%)
20,000 Allied Signal, Inc. .................................... $ 1,580,000
7,000 Automotive Inds. Hldg, Inc. (Class A)*.................. 203,000
37,000 China Tire Holdings Ltd. ............................... 989,750
16,000 Chrysler Corp. ......................................... 852,000
15,000 Dana Corp. ............................................. 898,125
12,000 Federal Mogul........................................... 348,000
39,500 Ford Motor Co. of Delaware.............................. 2,547,750
49,000 General Motors Corp. ................................... 2,688,875
41,000 Gentex Corp.*........................................... 1,435,000
35,000 Magna International, Inc. .............................. 1,741,250
24,000 Mascotech, Inc. ........................................ 669,000
10,000 Morton International, Inc. ............................. 935,000
---------------
14,887,750
---------------
BANKS (0.7%)
35,000 Citicorp*............................................... 1,286,250
---------------
CHEMICALS (0.3%)
10,000 Rohm & Haas Co. ........................................ 595,000
---------------
COMMUNICATIONS--EQUIPMENT &
SOFTWARE (7.4%)
40,000 Antec Corp.*............................................ 960,000
15,000 Cabletron Sys, Inc.*.................................... 1,687,500
15,000 Chipcom Corp.*.......................................... 746,250
35,000 Cisco System, Inc.*..................................... 2,257,500
12,000 FTP Software, Inc.*..................................... 312,000
40,000 General Instruments Corp.*.............................. 2,245,000
20,000 Glenayre Technologies, Inc.*............................ 855,000
7,500 Summa Four, Inc.*....................................... 290,625
30,000 Tellabs, Inc.*.......................................... 1,402,500
35,000 Three Com Corp.*........................................ 1,640,625
18,000 Wellfleet Communications, Inc.*......................... 1,156,500
---------------
13,553,500
---------------
COMPUTER SOFTWARE (2.6%)
55,000 Oracle Systems Corp.*................................... 1,581,250
40,000 Parametric Technology Corp.*............................ 1,530,000
17,500 Platinum Software Corp.*................................ 437,500
28,000 Sybase, Inc.*........................................... 1,176,000
---------------
4,724,750
---------------
CONSUMER/BUSINESS SERVICES (2.7%)
35,125 CUC International, Inc.*................................ 1,264,500
30,000 First Data Corp. ....................................... 1,222,500
30,000 Reuters Hldgs PLC (ADS)++ .............................. 2,366,250
---------------
4,853,250
---------------
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------- ---------------
<C> <S> <C>
CONSUMER PRODUCTS (1.9%)
24,000 Buenos Aires Embotelladora SA (B Shares) (ADR)+ ........ $ 1,080,000
28,000 Coca Cola Femsa SA* (ADR)+ ............................. 917,000
30,000 General Nutrition Co., Inc.*............................ 840,000
10,000 Nature's Bounty*........................................ 200,000
14,500 Perrigo Co.*............................................ 493,000
---------------
3,530,000
---------------
ELECTRONIC COMPONENTS (4.2%)
33,000 DSC Communications Corp.*............................... 2,025,375
140,000 EMC Corp Mass.*......................................... 2,310,000
25,000 General Motors (Class H)................................ 971,875
75,000 Silicon Graphics*....................................... 1,856,250
8,000 Zebra Technologies Corp.*............................... 452,000
---------------
7,615,500
---------------
ELECTRONICS--SEMICONDUCTORS (6.0%)
12,000 Altera Corp.*........................................... 391,500
47,000 Intel Corp. ............................................ 2,914,000
70,000 LSI Logic Corp.*........................................ 1,120,000
30,000 Linear Technology Corp. ................................ 1,162,500
25,000 Maxim Integrated Prods, Inc.*........................... 1,187,500
10,000 Microchip Technology, Inc.*............................. 387,500
28,000 Micron Technology, Inc. ................................ 1,298,500
13,000 Motorola, Inc. ......................................... 1,200,875
19,000 Texas Instruments, Inc. ................................ 1,206,500
5,000 Zilog,Inc.*............................................. 150,000
---------------
11,018,875
---------------
ENERGY (1.8%)
15,000 Anardarko Petroleum..................................... 680,625
35,000 Apache Corp. ........................................... 818,125
30,000 Seagull Energy Corp.*................................... 761,250
25,000 Snyder Oil Corp. ....................................... 443,750
20,000 Williams Cos, Inc....................................... 487,500
---------------
3,191,250
---------------
ENTERTAINMENT (2.3%)
30,000 Blockbuster Entertainment Corp. ........................ 918,750
53,000 Electronic Arts*........................................ 1,590,000
20,000 Gaylord Entertainment Co. (Class A)..................... 562,500
20,000 Sylvan Learning Systems, Inc.*.......................... 275,000
20,000 Time Warner, Inc. ...................................... 885,000
---------------
4,231,250
---------------
ENTERTAINMENT/GAMING (2.2%)
16,000 Mikohn Gaming Corp.*.................................... 240,000
60,000 Mirage Resorts*......................................... 1,432,500
45,000 President Riverboat Casinos*............................ 990,000
30,000 Promus Cos, Inc.*....................................... 1,372,500
---------------
4,035,000
---------------
</TABLE>
82
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EQUITY PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------- ---------------
FINANCIAL--MISCELLANEOUS (1.5%)
<C> <S> <C>
25,000 BHC Financial, Inc. .................................... $ 687,500
15,000 First Financial Mgmt Corp. ............................. 851,250
32,100 First USA, Inc. ........................................ 1,147,575
---------------
2,686,325
---------------
HEALTH EQUIPMENT & SERVICES (5.3%)
15,000 Chiron Corp.*........................................... 1,252,500
10,000 Elan Corp* (ADS)++...................................... 423,750
53,200 Genesis Health Ventures, Inc.*.......................... 1,250,200
110,000 Humana Corp. ........................................... 1,938,750
60,000 Mid Atlantic Medical Services*.......................... 1,530,000
100,000 National Medical Enterprises............................ 1,400,000
8,000 Pyxis Corp.*............................................ 598,000
18,000 United Healthcare Corp.*................................ 1,365,750
---------------
9,758,950
---------------
HOTELS/MOTELS (3.6%)
60,000 Hospitality Franchise Systems, Inc.*.................... 3,187,500
45,000 La Quinta Inns, Inc..................................... 1,586,250
60,000 Marriott Intl, Inc. .................................... 1,740,000
---------------
6,513,750
---------------
HOUSING & HOME FURNISHINGS (2.8%)
42,800 Bed Bath & Beyond, Inc.*................................ 1,465,900
24,500 Bombay, Inc.*........................................... 1,102,500
37,500 Heilig-Meyers........................................... 1,462,500
15,000 Whirlpool Corp. ........................................ 997,500
---------------
5,028,400
---------------
INDUSTRIALS (8.2%)
42,000 Caterpillar, Inc. ...................................... 3,738,000
20,000 Deere & Co. ............................................ 1,480,000
9,500 Eaton Corp. ............................................ 479,750
10,000 Foster Wheeler Corp. ................................... 335,000
20,000 General Electric........................................ 2,097,500
35,000 Grupo Tribasa S A (ADR)+................................ 1,211,875
20,000 Johnstown Amer Inds, Inc.*.............................. 475,000
20,000 Loral Corp. ............................................ 755,000
20,000 Titan Wheel Intl, Inc. ................................. 500,000
32,500 Trinity Industries, Inc. ............................... 1,401,562
30,000 Varity Corp.*........................................... 1,342,500
36,000 Wabash National Corp. .................................. 1,224,000
---------------
15,040,187
---------------
INSURANCE (0.0%)
1 Primerica Corp. ........................................ 41
---------------
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------- ---------------
<C> <S> <C>
MEDIA GROUP (8.3%)
2,100 CBS, Inc. .............................................. $ 605,850
5,000 Capital Cities/ABC...................................... 3,097,500
15,900 Century Communications Corp. (Class A)*................. 182,850
18,000 Clear Channel Communications, Inc.*..................... 828,000
44,500 Comcast (Class A)....................................... 1,607,562
41,500 Grupo Televisa SA de CV* (GDS)+++ ...................... 2,905,000
36,500 Infinity Broadcasting Corp.*............................ 1,095,000
13,000 News Corp Ltd (ADR)+ ................................... 685,750
70,000 Tele Communications, Inc (Class A)*..................... 2,108,750
30,000 Turner Broadcasting Sys, Inc. .......................... 810,000
25,000 United Intl Hldgs, Inc (Class A)*....................... 856,250
5,000 Viacom, Inc (Class B)*.................................. 224,375
5,000 Viacom, Inc (Class A)*.................................. 244,375
---------------
15,251,262
---------------
METALS (1.4%)
10,000 American Barrick Res Corp. ............................. 285,000
25,000 Huntco, Inc. (Class A).................................. 1,037,500
24,000 Nucor Corp. ............................................ 1,272,000
---------------
2,594,500
---------------
PAPER & FOREST PRODUCTS (1.2%)
10,100 Georgia Pacific Corp. .................................. 694,375
23,000 Minerals Technologies, Inc. ............................ 667,000
20,000 Weyerhaeuser Co. ....................................... 892,500
---------------
2,253,875
---------------
PUBLISHING (1.6%)
50,000 Enquirer/Star Group, Inc. (Class A)..................... 950,000
10,000 Gannett Co. ............................................ 572,500
22,500 Tribune Co. ............................................ 1,352,812
---------------
2,875,312
---------------
RESTAURANT (0.8%)
17,000 Brinker International*.................................. 782,000
27,000 Lone Star Steakhouse & Saloon*.......................... 735,750
---------------
1,517,750
---------------
RETAIL (2.1%)
9,000 Kohl's Corp.*........................................... 452,250
40,000 Penney (JC)............................................. 2,095,000
50,000 Wal Mart Stores, Inc. .................................. 1,250,000
---------------
3,797,250
---------------
RETAIL--SPECIALTY (1.7%)
24,000 Callaway Golf Co. ...................................... 1,281,000
30,000 Gap, Inc. .............................................. 1,181,250
21,000 Sunglass Hut International*............................. 656,250
---------------
3,118,500
---------------
</TABLE>
83
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--EQUITY PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------- ---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (3.4%)
<C> <S> <C>
65,000 Applied Materials, Inc.*................................ $ 2,518,750
30,000 KLA Instruments Corp.*.................................. 832,500
65,000 LAM Reserch Corp.*...................................... 2,096,250
15,000 Novellus Systems, Inc.*................................. 513,750
5,400 Synopsis, Inc.*......................................... 241,650
---------------
6,202,900
---------------
TELECOMMUNICATIONS (3.8%)
13,000 IDB Communications Group, Inc.*......................... 708,500
15,000 Millicom, Inc.*......................................... 318,750
44,000 Pactel Corp.*........................................... 1,094,500
45,000 Telefonos de Mexico SA (Series L) (ADR)+ ............... 3,037,500
20,000 Vodafone Group PLC (ADR)+ .............................. 1,785,000
---------------
6,944,250
---------------
TRANSPORTATION (2.6%)
10,000 CSX Corp. .............................................. 810,000
25,000 Conrail, Inc. .......................................... 1,671,875
20,000 Federal Express* ....................................... 1,417,500
15,000 Wisconsin Central Transmission* ........................ 870,000
---------------
4,769,375
---------------
WIRELESS COMMUNICATION (0.4%)
22,500 Paging Network, Inc.*................................... 675,000
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $150,211,931) ...................... 162,550,002
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
---------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (3.0%)
$ 5,000 U.S. Treasury Bond 7.125% due 2/15/23 (Identified Cost
$5,286,718)......................................... 5,407,031
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
--------------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (15.2%)
COMMERCIAL PAPER (A)(14.8%)
AUTOMOTIVE--FINANCE (2.7%)
$ 5,000 Ford Motor Credit Co. 3.283% due 1/10/94 ............. $ 4,995,900
---------------
FINANCE--DIVERSIFIED (7.4%)
5,000 American General Finance Corp. 3.224% due 1/ 5/94 .... 4,998,211
8,500 Commercial Credit Co. 3.403% due 1/ 6/94 ............. 8,495,986
---------------
FINANCE--ENERGY (4.7%) 13,494,197
---------------
6,500 Chevron Oil Financial Co. 3.302% due 1/ 3/94 ......... 6,498,808
2,125 Exxon Supply Co. 3.201% due 1/ 3/94 .................. 2,124,622
---------------
8,623,430
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $27,113,527) .. 27,113,527
---------------
REPURCHASE AGREEMENT (0.4%)
660 The Bank of New York 2.75% due 1/3/94 (dated 12/31/93;
proceeds $659,726; collateralized by $661,697 U.S.
Treasury Note 5.1257% due 3/31/98 valued at
$672,769)(Identified Cost $659,577) ................ 659,577
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED
COST $27,773,104) .................................. 27,773,104
---------------
TOTAL INVESTMENTS (IDENTIFIED COST
$183,271,753)(B) ................................... 107.1 % 195,730,137
LIABILITIES IN EXCESS OF OTHER ASSETS ................ (7.1 ) (12,902,273)
------ ---------------
NET ASSETS ........................................... 100.0 % $ 182,827,864
------
------ ---------------
---------------
</TABLE>
- ------------
<TABLE>
<C> <S>
* Non-income producing security.
+ American Depository Receipt.
++ American Depository Shares.
+++ Global Depository Shares.
(a) Commercial Paper was purchased on a discount basis. The interest rates shown have been adjusted to reflect a
bond equivalent yield.
(b) The aggregate cost for federal income tax purposes is $184,838,101; the aggregate gross unrealized
appreciation is $13,812,197 and the aggregate gross unrealized depreciation is $2,920,161, resulting in net
unrealized appreciation of $10,892,036.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--MANAGED ASSETS PORTFOLIO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- -----------
<C> <S> <C>
COMMON STOCKS (49.7%)
AEROSPACE (2.0%)
34,000 Lockheed Corp. .................. $ 2,320,500
27,100 Rockwell International Corp. .... 1,006,087
39,400 United Technologies Corp. ....... 2,442,800
-----------
5,769,387
-----------
ALUMINUM (1.7%)
36,000 Aluminum Co. of America ......... 2,497,500
50,000 Reynolds Metals Co. ............. 2,268,750
-----------
4,766,250
-----------
AUTOMOBILES (1.5%)
31,100 Ford Motor Co. .................. 2,005,950
41,700 General Motors Corp. ............ 2,288,287
-----------
4,294,237
-----------
BANKING (2.6%)
58,000 BankAmerica Corp. ............... 2,689,750
49,600 NationsBank Corp. ............... 2,430,400
77,000 Society Corp. ................... 2,290,750
-----------
7,410,900
-----------
BEVERAGES (1.6%)
48,100 Anheuser-Busch Cos., Inc. ....... 2,362,912
82,100 Seagram Co. Ltd. ................ 2,144,863
-----------
4,507,775
-----------
CHEMICALS (5.1%)
42,000 Dow Chemical Co. (The) .......... 2,383,500
51,000 Dupont (El) DeNemours ........... 2,460,750
59,300 Grace (W.R.) & Co. .............. 2,409,063
31,200 Monsanto Co. .................... 2,289,300
34,000 PPG Industries, Inc. ............ 2,579,750
100,200 Williams Cos. ................... 2,442,375
-----------
14,564,738
-----------
COMPUTER EQUIPMENT (1.8%)
30,000 Hewlett-Packard Co. ............. 2,370,000
48,200 International Business
Machines Corp. ................ 2,723,300
-----------
5,093,300
-----------
CONGLOMERATES (1.6%)
19,800 Minnesota Mining &
Manufacturing Co. ............. 2,153,250
47,000 Tenneco, Inc. ................... 2,473,375
-----------
4,626,625
-----------
CONSUMER PRODUCTS (0.9%)
48,000 Kimberly Clark Corp. ............ 2,490,000
-----------
DRUGS (4.4%)
80,100 Abbott Laboratories.............. 2,362,950
44,100 Bristol-Myers Squibb Co. ........ 2,563,312
38,500 Schering-Plough Corp. ........... 2,637,250
88,000 SmithKline Beecham PLC (ADR)+ ... 2,409,000
38,700 Warner-Lambert Co. .............. 2,612,250
-----------
12,584,762
-----------
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- -----------
<C> <S> <C>
ELECTRIC-MAJOR (1.6%)
38,600 Emerson Electric Co. ............ $ 2,325,650
170,000 Westinghouse Electric Corp. ..... 2,401,250
-----------
4,726,900
-----------
ENERGY RELATED (5.4%)
47,600 Amoco Corp ...................... 2,516,850
26,400 Atlantic Richfield Co. .......... 2,778,600
41,600 British Petroleum Co., PLC
(ADR)+......................... 2,662,400
90,000 Enron Corp. ..................... 2,610,000
31,400 Mobil Corp. ..................... 2,480,600
24,000 Royal Dutch Petroleum Co. ....... 2,505,000
-----------
15,553,450
-----------
FOODS (1.2%)
26,000 CPC International, Inc. ......... 1,238,250
18,800 Unilever N.V., N.Y (ADR)+ ....... 2,171,400
-----------
3,409,650
-----------
INSURANCE (2.5%)
69,000 Capital Holding Corp. ........... 2,561,625
31,000 Chubb Corp. ..................... 2,414,125
36,000 Cigna Corp. ..................... 2,259,000
-----------
7,234,750
-----------
MACHINERY (0.9%)
35,500 Deere & Co. ..................... 2,627,000
-----------
MANUFACTURERS (0.7%)
32,200 Whirlpool Corp. ................. 2,141,300
-----------
OFFICE EQUIPMENT & SUPPLIES (1.0%)
30,900 Xerox Corp. ..................... 2,761,688
-----------
PAPER (2.5%)
102,000 Boise Cascade Corp. ............. 2,397,000
38,600 International Paper Co. ......... 2,615,150
51,000 Weyerhaeuser Co. ................ 2,275,875
-----------
7,288,025
-----------
PHOTOGRAPHY (0.8%)
43,300 Eastman Kodak Co. ............... 2,424,800
-----------
RAILROADS (2.3%)
23,800 Burlington Northern, Inc. ....... 1,377,425
32,000 CSX Corp. ....................... 2,592,000
40,300 Union Pacific Corp. ............. 2,523,788
-----------
6,493,213
-----------
RECREATION (0.7%)
120,000 Brunswick Corp. ................. 2,160,000
-----------
RETAIL (1.6%)
35,000 Dayton-Hudson Corp. ............. 2,336,250
101,500 K-Mart Corp. .................... 2,156,875
-----------
4,493,125
-----------
RETAIL--DRUG STORES (0.5%)
100,000 Rite Aid Corp. .................. 1,587,500
-----------
RETAIL--FOOD CHAINS (0.6%)
58,600 Great Atlantic & Pacific Tea
Co. ........................... 1,582,200
-----------
</TABLE>
85
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--MANAGED ASSETS PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- -----------
TELECOMMUNICATIONS (2.4%)
<C> <S> <C>
61,400 GTE Corp. ....................... $ 2,149,000
75,000 Sprint Corp. .................... 2,606,250
50,200 U.S. West, Inc. ................. 2,302,925
-----------
7,058,175
-----------
UTILITIES--ELECTRIC (0.9%)
69,600 FPL Group, Inc. ................. 2,723,100
-----------
WASTE DISPOSAL (0.9%)
101,000 Browning-Ferris Industries,
Inc. .......................... 2,600,750
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST
$131,189,506).................. 142,973,600
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN MATURITY
THOUSANDS) COUPON RATE DATE
- ----------- ----------- ---------
<C> <S> <C> <C> <C>
CORPORATE AND FOREIGN GOVERNMENT BONDS (2.6%)
AIRLINES (0.2%)
$ 500 Delta
Airlines..... 9.75 % 5/15/21 505,460
-------------
COMPUTER SOFTWARE (0.4%)
1,000 International
Business
Machines
Corp......... 7.50 6/15/13 1,009,720
-------------
FINANCIAL SERVICES (0.3%)
1,000 Aetna Life &
Casualty
Co........... 7.25 8/15/23 991,490
-------------
FOREIGN GOVERNMENT (0.4%)
1,250 Republic of
Italy ....... 6.875 9/27/23 1,186,675
-------------
INDUSTRIALS (0.7%)
1,000 K-Mart
Corp. ....... 7.75 10/ 1/12 1,065,080
1,000 Phillips
Petroleum
Co. ......... 7.20 11/ 1/23 936,250
-------------
2,001,330
-------------
UTILITIES--ELECTRIC (0.6%)
1,500 Southern
California
Edison
Co. ......... 8.875 5/ 1/23 1,679,310
-------------
TOTAL CORPORATE AND FOREIGN GOVERNMENT
BONDS (IDENTIFIED COST $7,339,068)... 7,373,985
-------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (7.4%)
950 Private Export
Funding
Corp. ....... 8.75 6/30/03 1,129,313
<CAPTION>
PRINCIPAL
AMOUNT (IN MATURITY
THOUSANDS) COUPON RATE DATE VALUE
- ----------- ----------- --------- -------------
<C> <S> <C> <C> <C>
$ 5,550 U.S. Treasury
Bond ........ 8.125% 8/15/19 $ 6,605,367
5,000 U.S. Treasury
Bond ........ 8.00 11/15/21 5,919,531
7,000 U.S. Treasury
Bond ........ 7.25 8/15/22 7,631,094
-------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS (IDENTIFIED COST
$19,273,039) ........................ 21,285,305
-------------
SHORT-TERM INVESTMENTS (40.7%)
COMMERCIAL PAPER (A) (21.1%)
AUTOMOTIVE FINANCE (3.8%)
11,000 Ford Motor
Credit Co.... 3.284 1/13/94 10,987,973
-------------
FINANCE--DIVERSIFIED (12.6%)
11,000 American
General
Finance
Corp......... 3.224 1/ 4/94 10,997,048
13,800 Commercial
Credit
Co. ......... 3.405 1/11/94 13,786,967
11,500 General
Electric
Capital
Corp. ....... 3.205 1/ 6/94 11,494,889
-------------
36,278,904
-------------
FINANCE ENERGY (4.7%)
13,500 Chevron Oil
Financial
Co. ......... 3.206 1/10/94 13,489,200
-------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST
$60,756,077)......................... 60,756,077
-------------
U.S. GOVERNMENT AGENCIES (A) (19.5%)
22,000 Federal Home
Loan Banks... 3.148 1/19/94 21,965,460
15,000 Federal Home
Loan Mortgage
Corp. ....... 3.148 1/21/94 14,973,833
19,000 Federal
National
Mortgage
Association... 3.152 1/ 3/94 18,996,675
-------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $55,935,968)......... 55,935,968
-------------
</TABLE>
86
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PORTFOLIO OF INVESTMENTS--MANAGED ASSETS PORTFOLIO DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -----------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 266 The Bank of New York 2.75%
due 1/3/94 (dated 12/31/93;
proceeds $266,222;
collateralized by $267,013 U.S.
Treasury Note 5.125% due
3/31/98 valued at $271,484)
(Identified Cost $266,161)..... $ 266,161
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST
$116,958,206).................. 116,958,206
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
-------------
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST
$274,759,819) (B)............... 100.4% $ 288,591,096
LIABILITIES IN EXCESS OF OTHER
ASSETS.......................... (0.4) (1,088,747)
----------- -------------
NET ASSETS........................ 100.0% $ 287,502,349
----------- -------------
----------- -------------
</TABLE>
- ----------
+
American Depository Receipt.
(a)
Commercial Paper and U.S. Government Agencies were purchased on a discount
basis. The interest rates shown have been adjusted to reflect a bond
equivalent yield.
(b)
The aggregate cost of investments for federal income tax purposes is
$275,587,545; the aggregate gross unrealized appreciation is $15,696,999 and
the aggregate gross unrealized depreciation is $2,693,448, resulting in net
unrealized appreciation of $13,003,551.
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA AND RATIOS FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
REALIZED
NET ASSET AND
YEAR VALUE INVESTMENT UNREALIZED TOTAL FROM TOTAL DIVIDENDS
ENDED BEGINNING INCOME-- GAIN INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
DEC. 31 OF PERIOD NET (LOSS)--NET OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ----------- ----------- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
1984* $ 1.00 $ .077 $ -0- $ .077 $ (.077) $ -0- $ (.077)
1985 1.00 .076 -0- .076 (.076) -0- (.076)
1986 1.00 .062 -0- .062 (.062) -0- (.062)
1987 1.00 .061 -0- .061 (.061) -0- (.061)
1988 1.00 .070 -0- .070 (.070) -0- (.070)
1989 1.00 .086 -0- .086 (.086) -0- (.086)
1990 1.00 .076 -0- .076 (.076) -0- (.076)
1991 1.00 .056 -0- .056 (.056) -0- (.056)
1992 1.00 .034 -0- .034 (.034) -0- (.034)
1993 1.00 .027 -0- .027 (.027) -0- (.027)
QUALITY INCOME PLUS PORTFOLIO
1987** 10.00 .64 (.39) .25 (.64) -0- (.64)
1988 9.61 .85 (.16) .69 (.85) -0- (.85)
1989 9.45 .88 .28 1.16 (.88) -0- (.88)
1990 9.73 .86 (.24) .62 (.86) -0- (.86)
1991 9.49 .85 .85 1.70 (.85) -0- (.85)
1992 10.34 .77 .05 .82 (.77) -0- (.77)
1993 10.39 .69 .64 1.33 (.69) -0- (.69)
HIGH YIELD PORTFOLIO
1984* 10.00 .92 .23 1.15 (.92) -0- (.92)
1985 10.23 1.17 1.50 2.67 (1.17) (.01) (1.18)
1986 11.72 1.09 .90 1.99 (1.09) (.56) (1.65)
1987 12.06 .91 (1.15) (.24) (.91) (.94) (1.85)
1988 9.97 1.14 (.05) 1.09 (1.14) -0- (1.14)
1989 9.92 1.30 (2.40) (1.10) (1.30) -0- (1.30)
1990 7.52 1.13 (2.91) (1.78) (1.13) (.06)++ (1.19)
1991 4.55 .70 1.81 2.51 (.70) (.11)++ (.81)
1992 6.25 .96 .18 1.14 (.96) -0- (.96)
1993 6.43 .81 .68 1.49 (.81) -0- (.81)
UTILITIES PORTFOLIO
1990*** 10.00 .47 (.04) .43 (.41) -0- (.41)
1991 10.02 .54 1.45 1.99 (.54) -0- (.54)
1992 11.47 .51 .88 1.39 (.52) -0- (.52)
1993 12.34 .49 1.43 1.92 (.50) (.02) (.52)
DIVIDEND GROWTH PORTFOLIO
1990*** 10.00 .33 (1.10) (.77) (.30) -0- (.30)
1991 8.93 .36 2.08 2.44 (.37) -0- (.37)
1992 11.00 .37 .51 .88 (.37) -0- (.37)
1993 11.51 .36 1.27 1.63 (.36) -0- (.36)
CAPITAL GROWTH PORTFOLIO
1991**** 10.00 .15 2.67 2.82 (.13) -0- (.13)
1992 12.69 .07 .13 .20 (.08) (.02) (.10)
1993 12.79 .08 (.98) (.90) (.08) -0- (.08)
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSETS ---------------------
YEAR NET ASSET TOTAL AT END OF NET
ENDED VALUE END INVESTMENT PERIOD INVESTMENT PORTFOLIO
DEC. 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME TURNOVER RATE
----------- --------- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
1984* $ 1.00 7.63%(1) $ 13,433 1.33%(2) 9.77%(2) N/A
1985 1.00 7.85 16,386 .74 7.57 N/A
1986 1.00 6.39 42,194 .69 6.03 N/A
1987 1.00 6.26 69,467 .65 6.26 N/A
1988 1.00 7.23 77,304 .62 7.04 N/A
1989 1.00 9.05 76,701 .58 8.67 N/A
1990 1.00 7.89 118,058 .57 7.60 N/A
1991 1.00 5.75 104,277 .57 5.62 N/A
1992 1.00 3.43 96,151 .59 3.38 N/A
1993 1.00 2.75 129,925 .57 2.71 N/A
QUALITY INCOME PLUS PORTFOLIO
1987** 9.61 2.62(1) 24,094 .35(2)(4) 8.33(2) 265 %
1988 9.45 7.32 28,037 .73 8.87 277
1989 9.73 12.78 48,784 .70 9.09 242
1990 9.49 6.84 57,407 .66 9.09 166
1991 10.34 18.75 81,918 .60 8.39 105
1992 10.39 8.26 163,368 .58 7.41 148
1993 11.03 12.99 487,647 .56 6.17 219
HIGH YIELD PORTFOLIO
1984* 10.23 11.97(1) 44,823 .89(2) 11.89(2) 77
1985 11.72 27.42 101,253 .64 10.50 237
1986 12.06 18.13 204,754 .56 9.10 164
1987 9.97 (3.02) 191,631 .53 7.66 287
1988 9.92 10.83 192,290 .56 11.06 140
1989 7.52 (12.44) 96,359 .55 13.94 54
1990 4.55 (25.54) 27,078 .69 17.98 42
1991 6.25 58.14 34,603 1.01 12.29 300
1992 6.43 18.35 40,042 .74 14.05 204
1993 7.11 24.08 90,200 .60 11.80 177
UTILITIES PORTFOLIO
1990*** 10.02 4.52(1) 37,597 .40(2)(5) 6.38(2) 46
1991 11.47 20.56 68,449 .80 5.23 25
1992 12.34 12.64 153,748 .73 4.63 26
1993 13.74 15.69 490,934 .71 3.75 11
DIVIDEND GROWTH PORTFOLIO
1990*** 8.93 (7.81)(1) 57,282 .54(2)(5) 4.50(2) 19
1991 11.00 27.76 98,023 .73 3.61 6
1992 11.51 8.16 192,551 .69 3.42 4
1993 12.78 14.34 483,145 .68 3.01 6
CAPITAL GROWTH PORTFOLIO
1991**** 12.69 28.41(1) 18,400 -0-(2)(6) 1.82(2) 32
1992 12.79 1.64 45,105 .86 .62 22
1993 11.81 (6.99) 50,309 .74 .78 36
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
88
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REALIZED
NET ASSET AND
YEAR VALUE INVESTMENT UNREALIZED TOTAL FROM TOTAL DIVIDENDS
ENDED BEGINNING INCOME-- GAIN INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
DEC. 31 OF PERIOD NET (LOSS)--NET OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ----------- ----------- ----------- ------------ ---------------- ----------------
EUROPEAN GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
1991**** $ 10.00 $ .25 $ (.13) $ .12 $ (.23) $ -0- $ (.23)
1992 9.89 .08 .32 .40 (.10) (.01) (.11)
1993 10.18 .12 3.98 4.10 (.12) (.13) (.25)
EQUITY PORTFOLIO
1984* 10.00 .41 .72 1.13 (.34) -0- (.34)
1985 10.79 .43 2.01 2.44 (.46) (.03) (.49)
1986 12.74 .39 1.74 2.13 (.39) (.07) (.46)
1987 14.41 .30 (.94) (.64) (.33) (.95) (1.28)
1988 12.49 .39 .83 1.22 (.35) -0- (.35)
1989 13.36 .71 1.77 2.48 (.70) -0- (.70)
1990 15.14 .48 (1.03) (.55) (.49) -0- (.49)
1991 14.10 .20 8.05 8.25 (.21) -0- (.21)
1992 22.14 .23 (.47) (.24) (.24) (1.86) (2.10)
1993 19.80 .15 3.63 3.78 (.15) (1.28) (1.43)
MANAGED ASSETS PORTFOLIO
1987** 10.00 .48 (.35) .13 (.48) -0- (.48)
1988 9.65 .70 .51 1.21 (.64) -0- (.64)
1989 10.22 .84 .20 1.04 (.79) (.06) (.85)
1990 10.41 .61 (.46) .15 (.67) (.08) (.75)
1991 9.81 .47 2.24 2.71 (.50) -0- (.50)
1992 12.02 .44 .41 .85 (.45) (.13) (.58)
1993 12.29 .38 .86 1.24 (.38) (.47) (.85)
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSETS ---------------------
YEAR NET ASSET TOTAL AT END OF NET
ENDED VALUE END INVESTMENT PERIOD INVESTMENT PORTFOLIO
DEC. 31 OF PERIOD RETURN+ (000'S) EXPENSES INCOME TURNOVER RATE
----------- --------- ---------- ---------- ----------- -------- -------------
EUROPEAN GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
1991**** $ 9.89 1.34%(1) $ 3,653 -0-%(2)(6) 3.18%(2) 77 %
1992 10.18 3.99 10,686 1.73 .74 97
1993 14.03 40.88 79,052 1.28 .97 77
EQUITY PORTFOLIO
1984* 10.79 11.27(1) 7,652 1.47(2)(3) 5.59(2) 112
1985 12.74 23.66 30,045 .73 3.99 73
1986 14.41 16.85 43,266 .63 2.72 89
1987 12.49 (6.23) 52,502 .59 2.02 63
1988 13.36 9.84 39,857 .65 2.77 162
1989 15.14 18.83 58,316 .60 4.85 81
1990 14.10 (3.62) 41,234 .62 3.38 130
1991 22.14 59.05 63,524 .64 1.09 214
1992 19.80 .05 77,527 .62 1.22 286
1993 22.15 19.72 182,828 .58 .69 265
MANAGED ASSETS PORTFOLIO
1987** 9.65 1.23(1) 27,016 .38(2)(4) 6.73(2) 172
1988 10.22 12.79 61,947 .66 7.29 310
1989 10.41 10.67 88,712 .57 8.38 282
1990 9.81 1.56 68,447 .58 6.10 163
1991 12.02 28.26 87,779 .60 4.34 86
1992 12.29 7.24 136,741 .58 3.74 87
1993 12.68 10.38 287,502 .57 3.11 57
</TABLE>
- ------------
* March 9, 1984 (Commencement of Operations) through December 31, 1984.
** March 1, 1987 (Commencement of Operations) through December 31, 1987.
*** March 1, 1990 (Commencement of Operations) through December 31, 1990.
**** March 1, 1991 (Commencement of Operations) through December 31, 1991.
+ Does not reflect the deduction of sales load.
++ Distribution from capital.
(1) Not annualized.
(2) Annualized.
(3) Net of expense reimbursement. If the Investment Manager had not
reimbursed the Equity Portfolio for expenses in excess of the applicable
expense limitation, the ratio of expenses to average net assets would
have been 2.19%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1987 through August 26, 1987, the
ratio of expenses to average net assets would have been .74% ($.06) for
the Quality Income Plus Portfolio and .74% ($.06) for the Managed Assets
Portfolio.
(5) If the Investment Manager had not assumed all expenses and waived the
management fee for the periods March 1, 1990 through August 31, 1990 for
the Utilities Portfolio and March 1, 1990 through June 26, 1990 for the
Dividend Growth Portfolio, the ratio of expenses to average net assets
would have been .75% ($.06) for the Utilities Portfolio and .74% ($.05)
for the Dividend Growth Portfolio.
(6) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1991 through December 31, 1991,
the ratio of expenses to average net assets would have been 1.60% ($.13)
for the Capital Growth Portfolio and 4.12% ($.32) for the European Growth
Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
-------
Prospectus
----------
Financial highlights for the period March 9, 1984
through December 31, 1984 and for the fiscal
years ended 1985, 1986, 1987, 1988, 1989, 1990,
1991, 1992, and 1993 . . . . . . . . . . . . . . . . . . 5
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
---
Statement of assets and liabilities at
December 31, 1993. . . . . . . . . . . . . . . . . . . . 50
Notes to Financial Statements. . . . . . . . . . . . . . 50
Statement of operations for the year
ended December 31, 1993. . . . . . . . . . . . . . . . . 52
Statement of changes in net assets for the years
ended December 31, 1992 and 1993 . . . . . . . . . . . . 54
Portfolio of Investments at December 31, 1993. . . . . . 61
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
9. - Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Inc.
<PAGE>
11. - Consent of Independent Accountants
16. - Schedules for Computation of Performance
Quotations
All other exhibits previously filed and incorporated
by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at February 10, 1994
-------------- --------------------------
<S> <C>
Shares of Beneficial Interest 2
</TABLE>
Item 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. Information regarding the other
officers of InterCapital is included in Item 29(b) below. The term "Dean Witter
Funds" used below refers to the following Funds: (1) InterCapital Income
Securities Inc., (2) High Income Advantage Trust, (3) High Income Advantage
Trust II, (4) High Income Advantage Trust III, (5) Municipal Income Trust, (6)
Municipal Income Trust II, (7) Municipal Income Trust III, (8) Dean Witter
Government Income Trust, (9) Municipal Premium Income Trust, (10)
3
<PAGE>
Municipal Income Opportunities Trust, (11) Municipal Income Opportunities Trust
II, (12) Municipal Income Opportunities Trust III, (13) Prime Income Trust, (14)
InterCapital Insured Municipal Bond Trust, (15) InterCapital Quality Municipal
Income Trust, (16) InterCapital Quality Municipal Investment Trust, (17)
InterCapital Insured Municipal Income Trust, (18) InterCapital California
Insured Municipal Income Trust, (19) InterCapital Insured Municipal Trust, (20)
InterCapital Quality Municipal Securities (21) InterCapital New York Quality
Municipal Securities, and (22) InterCapital California Municipal Securities,
registered closed-end investment companies, and (1) Dean Witter Equity Income
Trust, (2) Dean Witter Tax-Exempt Securities Trust, (3) Dean Witter Tax-Free
Daily Income Trust, (4) Dean Witter Dividend Growth Securities Inc., (5) Dean
Witter Convertible Securities Trust, (6) Dean Witter Liquid Asset Fund Inc., (7)
Dean Witter Developing Growth Securities Trust, (8) Dean Witter Retirement
Series, (9) Dean Witter Federal Securities Trust, (10) Dean Witter World Wide
Investment Trust, (11) Dean Witter U.S. Government Securities Trust, (12) Dean
Witter Select Municipal Reinvestment Fund, (13) Dean Witter High Yield
Securities Inc., (14) Dean Witter Intermediate Income Securities, (15) Dean
Witter New York Tax-Free Income Fund, (16) Dean Witter California Tax-Free
Income Fund, (17) Dean Witter Health Sciences Trust, (18) Dean Witter California
Tax-Free Daily Income Trust, (19) Dean Witter Managed Assets Trust, (20) Dean
Witter American Value Fund, (21) Dean Witter Strategist Fund, (22) Dean Witter
Utilities Fund, (23) Dean Witter World Wide Income Trust, (24) Dean Witter New
York Municipal Money Market Trust, (25) Dean Witter Capital Growth Securities,
(26) Dean Witter Precious Metals and Minerals Trust, (27) Dean Witter European
Growth Fund Inc., (28) Dean Witter Global Short-Term Income Fund Inc., (29) Dean
Witter Pacific Growth Fund Inc., (30) Dean Witter Multi-State Municipal Series
Trust, (31) Dean Witter Premier Income Trust, (32) Dean Witter Short-Term U.S.
Treasury Trust, (33) Dean Witter Diversified Income Trust, (34) Dean Witter U.S.
Government Money Market Trust, (35) Dean Witter Global Dividend Growth
Securities, (36) Active Assets California Tax-Free Trust, (37) Dean Witter
Natural Resource Development Securities Inc., (38) Active Assets Government
Securities Trust, (39) Active Assets Money Trust, (40) Active Assets Tax-Free
Trust, (41) Dean Witter Limited Term Municipal Trust, (42) Dean Witter Variable
Investment Series, (43) Dean Witter Value-Added Market Series and (44) Dean
Witter Short-Term Bond Fund, registered open-end investment companies.
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co. The
principal address of the Dean Witter Funds is Two World Trade Center, New York,
New York 10048. The term "TCW/DW Funds" refers to the following Funds: (1)
TCW/DW Core Equity Trust, (2) TCW/DW North American Government Income Trust, (3)
TCW/DW Latin American Growth Fund, (4) TCW/DW Income and Growth Fund, (5) TCW/DW
Small Cap Growth Fund, (6) TCW/DW Balanced Fund, registered open-end investment
companies and (7) TCW/DW Term Trust 2002, (8) TCW/DW Term Trust 2003 and (9)
TCW/DW Term Trust 2000, registered closed-end investment companies.
4
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Charles A. Chairman, Chief Executive Vice
Fiumefreddo Executive Officer President and Director
and Director of Dean Witter
Reynolds Inc.
("DWR"); Chairman,
Director or Trustee,
President and
Chief Executive
Officer of the
Dean Witter Funds;
Chairman, Chief
Executive Officer and
Trustee of the TCW/DW
Funds; Chairman and
Director of Dean
Witter Trust Company
("DWTC"); Chairman,
Chief Executive
Officer and Director
of Dean Witter
Distributors
Inc.("Distributors")
and Dean Witter
Services Company
Inc.("DWSC"); Formerly
Executive Vice
President and Director
of Dean Witter,
Discover & Co.
("DWDC"); Director
and/or officer of DWDC
subsidiaries.
Philip J. Director Chairman, Chief
Purcell Executive Officer and
Director of DWDC and
DWR; Director of DWSC
and Distributors.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Richard M. Director President and Chief
DeMartini Operating Officer of
Dean Witter Capital
and Director of DWDC,
DWR, DWSC and
Distributors.
James F. Director President and Chief
Higgins Operating Officer of
Dean Witter Financial;
Director of DWDC, DWR,
DWSC and Distributors.
Thomas C. Executive Vice Executive Vice
Schneider President, Chief President, Chief
Financial Officer Financial Officer
and Director and Director of
DWDC, DWR, DWSC and
Distributors.
Christine A. Director Executive Vice
Edwards President, Secretary,
General Counsel and
Director of DWDC, DWR,
DWSC and Distributors.
Robert M. Scanlan President and Vice President of
Chief Operating the Dean Witter Funds
Officer and the TCW/DW Funds;
President of DWSC;
Executive Vice
President of
Distributors;
Executive Vice
President and
Director of DWTC.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
David A. Hughey Executive Vice Vice President of the
President and Dean Witter Funds and
Chief Administrative the TCW/DW Funds;
Officer Executive Vice
President, Chief
Administrative Officer
and Director of DWTC;
Executive Vice
President and Chief
Administrative Officer
of DWSC and
Distributors.
Edmund C. Executive Vice Vice President of the
Puckhaber President Dean Witter Funds.
John Van Heuvelen Executive Vice President and Chief
President Executive Officer of
DWTC.
Sheldon Curtis Senior Vice Vice President,
President, Secretary and
General Counsel General Counsel of the
and Secretary Dean Witter Funds and
the TCW/DW Funds;
Senior Vice
President and
Secretary of
DWTC; Assistant
Secretary
of DWR and DWDC;
Senior Vice
President, General
Counsel and Secretary
of DWSC;Senior Vice
President,Assistant
General Counsel and
Assistant Secretary
of Distributors.
Peter M. Avelar Senior Vice Vice President of
President various Dean Witter
Funds.
Mark Bavoso Senior Vice Vice President of
President various Dean Witter
Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Thomas H. Connelly Senior Vice Vice President of
President various Dean Witter
Funds.
Edward Gaylor Senior Vice Vice President of
President various Dean Witter
Funds.
Rajesh K. Gupta Senior Vice Vice President of
President various Dean Witter
Funds.
Kenton J. Senior Vice Vice President of
Hinchliffe President various Dean Witter
Funds.
John B. Kemp, III Senior Vice Director of the
President Provident Savings
Bank, Jersey City,
New Jersey.
Anita Kolleeny Senior Vice Vice President of
President various Dean Witter
Funds.
Jonathan R. Page Senior Vice Vice President of
President various Dean Witter
Funds.
Ira Ross Senior Vice Vice President of
President various Dean Witter
Funds.
Rochelle G. Siegel Senior Vice Vice President of
President various Dean Witter
Funds.
Paul D. Vance Senior Vice Vice President of
President various Dean Witter
Funds.
Elizabeth A. Senior Vice
Vetell President
James F. Willison Senior Vice Vice President of
President various Dean Witter
Funds.
Ronald Worobel Senior Vice Vice President of
President various Dean Witter
Funds.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Thomas F. Caloia First Vice Treasurer of the
President and Dean Witter Funds
Assistant Treasurer and the TCW/DW Funds;
Assistant Treasurer
of DWSC;Assistant
Treasurer of
Distributors.
Barry Fink First Vice Assistant Secretary
President of the Dean Witter
Funds and TCW/DW
Funds; First Vice
President and
Assistant Secretary
of DWSC.
Michael First Vice First Vice President
Interrante President and and Controller of
Controller DWSC;Assistant
Treasurer of
Distributors.
Robert Zimmerman First Vice
President
Joseph Arcieri Vice President
Douglas Brown Vice President
Rosalie Clough Vice President
B. Catherine Vice President
Connelly
Marilyn K. Cranney Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretery of DWSC;
Assistant Secretary of
DWR and DWDC.
DWDC.
Salvatore DeSteno Vice President Vice President of
DWSC.
Dwight Doolan Vice President
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Bruce Dunn Vice President
June Ewers Vice President
Geoffrey D. Flynn Vice President Vice President of
DWSC.
Bette Freedman Vice President
Deborah Genovese Vice President
Peter W. Gurman Vice President
Shant Harootunian Vice President
John Hechtlinger Vice President
David Johnson Vice President
Christopher Jones Vice President
Stanley Kapica Vice President
Paula LaCosta Vice President Vice President of
various Dean Witter
Funds.
Lawrence S. Lafer Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Vice President
Assistant Secretary
of DWSC.
Thomas Lawlor Vice President
Lou Anne D. McInnis Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Vice President
of DWSC.
James Mulcahy Vice President
James Nash Vice President
Hugh Rose Vice President
Ruth Rossi Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Assistant
Secretary of DWSC.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
<S> <C> <C>
Howard A. Schloss Vice President
Rose Simpson Vice President
Stuart Smith Vice President
Diane Lisa Sobin Vice President Vice President of
various Dean Witter
Funds.
Susanne Stager Vice President
Kathleen Stromberg Vice President Vice President of
various Dean Witter
Funds.
Vinh Q. Tran Vice President Vice President of
various Dean Witter
Funds.
Alice Weiss Vice President Vice President of
various Dean Witter
Funds.
Marianne Zalys Vice President
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant. Distributors
is also the principal underwriter of the following investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Equity Income Trust
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
11
<PAGE>
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of Distributors
is Two World Trade Center, New York, New York 10048. None of the following
persons has any position or office with the Registrant.
<TABLE>
<CAPTION>
Positions and
Office with
Name Distributors
- ---- -------------
<S> <C>
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Edward C. Oelsner III Vice President of Distributors.
Samuel Wolcott III Vice President of Distributors.
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained by the Investment Manager at its offices, except
records relating to holders of shares issued by the Registrant, which are
maintained by the Registrant's Transfer Agent, at its place of business as
shown in the prospectus.
12
<PAGE>
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 10th day of February, 1993.
DEAN WITTER VARIABLE INVESTMENT SERIES
By /s/ Sheldon Curtis
----------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 17 has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 02/10/94
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 02/10/94
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Edward R. Telling
By /s/ Sheldon Curtis 02/10/94
--------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Paul Kolton
John R. Haire Michael E. Nugent
John E. Jeuck Albert T. Sommers
Manuel H. Johnson Edwin J. Garn
By /s/ David M. Butowsky 02/10/94
---------------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
9. - Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services Company
Inc.
11. - Consent of Independent Accountants
16. - Schedules for Computation of Performance
Quotations
</TABLE>
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey corporation
(herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which InterCapital is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice); (ii)
provide the Fund with full administrative services, including the maintenance of
certain books and records, such as journals, ledger accounts and other records
required under the Investment Company Act of 1940, as amended (the"Act"), the
notification to the Fund and InterCapital of available funds for investment, the
reconciliation of account information and balances among the Fund's custodian,
transfer agent and dividend disbursing agent and InterCapital, and the
calculation of the net asset value of the Fund's shares; (iii) provide the Fund
with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary to provide effective
operation of the Fund; (iv) oversee the performance of administrative and
professional services rendered to the Fund by others, including its custodian,
transfer agent and dividend disbursing agent, as well as accounting, auditing
and other services; (v) provide the Fund with adequate general office space and
facilities; (vi) assist in the preparation and the printing of the periodic
updating of the Fund's registration statement and prospectus (and, in the case
of an open-end Fund, the statement of additional information), tax returns,
proxy statements, and reports to its shareholders and the Securities and
Exchange Commission; and (vii) monitor the compliance of the Fund's investment
policies and restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to time
determine to be necessary or useful to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of DWS shall be deemed to include officers of DWS and persons employed
or otherwise retained by DWS (including officers and employees of InterCapital,
with the consent of InterCapital) to furnish services, statistical and other
factual data, information with respect to technical and scientific developments,
and such other information, advice and assistance as DWS may desire. DWS shall
maintain each Fund's records and books of account (other than those maintained
by the Fund's transfer agent, registrar, custodian and other agencies). All such
books and records so maintained shall be the property of the Fund and, upon
request therefor, DWS shall surrender to InterCapital or to the Fund such of the
books and records so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as DWS may
1
<PAGE>
reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule B
to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be calculated
by applying 1/365th of the annual rate or rates to the Fund's or the Series'
daily net assets determined as of the close of business on that day or the last
previous business day and (ii) in the case of a closed-end Fund, compensation
under this Agreement shall be calculated by applying the annual rate or rates
to the Fund's average weekly net assets determined as of the close of the last
business day of each week. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
on Schedule B. Subject to the provisions of paragraph 5 hereof, payment of DWS'
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund and/or any Series thereof imposed by
state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Dean Witter Variable Investment Series or any Series thereof,
the expense limitation specified in the Fund's Investment Management Agreement,
the fee payable hereunder shall be reduced on a pro rata basis in the same
proportion as the fee payable by the Fund under the Investment Management
Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by DWS,
and such clerical help and bookkeeping services as DWS shall reasonably require
in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an interest
in the Fund. It is also understood that DWS and any affiliated persons thereof
or any persons controlling, controlled by or under common control with DWS have
and may have advisory, management, administration service or other contracts
with other organizations and persons, and may have other interests and
businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.
9. This Agreement shall continue until April 30, 1994, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the
2
<PAGE>
event that the Investment Management Agreement between any Fund and InterCapital
is terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by mutual written agreement executed by each of the parties hereto.
11. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By: ____________________________
Attest:
__________________________
DEAN WITTER SERVICES COMPANY INC.
By: _____________________________
Attest:
__________________________
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
at December 31, 1993
Open-End Funds
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter California Tax-Free Daily Income Trust
7. Dean Witter California Tax-Free Income Fund
8. Dean Witter Capital Growth Securities
9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust
Closed-End Funds
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities
4
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.050% to the net assets.
Series - Money Market
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable 0.050% to the net assets.
Investment Series -
Quality Income
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable 0.050% to the net assets.
Investment Series -
High Yield
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.065% to the net assets.
Series - Utilities
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.0625% to the net assets.
Series - Dividend Growth
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.065% to the net assets.
Series - Capital Growth
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 11, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.075% to the net assets.
Series - Global Dividend Growth
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.06% to the net assets.
Series - European Growth
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 11, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.06% to the net assets.
Series - Pacific Growth
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.050% to the net assets.
Series - Equity
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated daily by applying the following annual rates to
the fund's net assets.
Dean Witter Variable Investment 0.050% to the net assets.
Series - Managed
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
February 8, 1994 relating to the financial statements and financial highlights
of Dean Witter Variable Investment Series, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" in the
Prospectus and "Independent Accountants" and "Experts" in the Statement of
Additional Information.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 8, 1994
<PAGE>
DEAN WITTER VARIABLE MONEY MARKET
Exhibit 16: Schedule for computation of each performance quotation
provided in the Statement of Additional Information.
(16) The Trust's current yield for the seven days ending December 31, 1993
(A-B) x 365/N
(1.000525 -1) x 365/7 = 2.74%
The Trust's effective annualized yield for the seven days ending
December 31, 1993
365/N
A - 1
365/7
1.000525 - 1 = 2.77%
A = Value of a share of the Trust at end of period.
B = Value of a share of the Trust at beginning of period.
N = Number of days in the period.
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - MONEY MARKET PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,027.50 2.75% 1 2.75%
31-Dec-88 $1,322.30 32.23% 5.00 5.75%
09-Mar-84 $1,860.58 86.06% 9.81 6.53%
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(C) (D) (E)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
09-Mar-84 86.06 $18,606 $93,029 $186,058
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - QUALITY INCOME PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,129.90 12.99% 1 12.99%
31-Dec-88 $1,750.14 75.01% 5.00 11.85%
03-Mar-87 $1,927.60 92.76% 6.83 10.08%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
03-Mar-87 $1,920.70 6.83 10.03%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT -
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
03-Mar-87 92.76 $19,276 $96,380 $192,760
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - HIGH YIELD PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,240.80 24.08% 1 24.08%
31-Dec-88 $1,513.97 51.40% 5.00 8.66%
09-Mar-84 $2,742.70 174.27% 9.79 10.85%
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(C) (D) (E)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
09-Mar-84 174.27 $27,427 $137,135 $274,270
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - UTILITIES PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,156.90 15.69% 1.00 15.69%
01-Mar-90 $1,642.20 64.22% 3.84 13.81%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
01-Mar-90 $1,634.80 3.84 13.67%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
01-Mar-90 64.22 $16,422 $82,110 $164,220
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - DIVIDEND GROWTH PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,143.41 14.34% 1.00 14.34%
01-Mar-90 $1,456.70 45.67% 3.84 10.30%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
01-Mar-90 $1,452.80 3.84 10.23%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
01-Mar-90 45.67 $14,567 $72,835 $145,670
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - CAPITAL GROWTH PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $930.10 -6.99% 1.00 -6.99%
01-Mar-91 $1,213.90 21.39% 2.84 7.07%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
01-Mar-91 $1,199.60 2.84 6.63%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
01-Mar-91 21.39 $12,139 $60,695 $121,390
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - EUROPEAN GROWTH PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,408.80 40.88% 1.00 40.88%
01-Mar-91 $1,484.70 48.47% 2.84 14.95%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
01-Mar-91 $1,455.40 2.84 14.14%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
01-Mar-91 48.47 $14,847 $74,235 $148,470
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - EQUITY PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,197.20 19.72% 1 19.72%
31-Dec-88 $2,182.07 118.21% 5.00 16.89%
09-Mar-84 $3,613.30 261.33% 9.81 13.99%
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(C) (D) (E)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
09-Mar-84 261.33 $36,133 $180,665 $361,330
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - MANAGED ASSETS PORTFOLIO
(A) AVERAGE ANNUAL TOTAL RETURNS
(B) TOTAL RETURN
_ _
| ________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | --------------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Dec-93 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
31-Dec-92 $1,103.80 10.38% 1 10.38%
31-Dec-88 $1,706.42 70.64% 5.00 11.29%
04-Mar-87 $1,948.40 94.84% 6.83 10.26%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-93 YEARS - n TOTAL RETURN
- ------------ --------- ----------- ------------------
<S> <C> <C> <C>
04-Mar-87 $1,939.20 6.83 10.19%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
04-Mar-87 94.84 $19,484 $97,420 $194,840
</TABLE>