<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1995
FILE NO.: 2-82510
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 18 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 19 /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)
___ immediately upon filing pursuant to paragraph (b)
_X_ on April 21, 1995 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, 1994 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FEBRUARY 6, 1995.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ---------------------------------------------- ---------------------------------------------------------------------
<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; Financial Statements
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 APRIL 21, 1995
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 variable annuity contracts it issues, 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, and (3) to
Paragon Life Insurance Company ("Paragon") to fund the benefits under certain
flexible premium variable life insurance contracts (the "Variable Life
Contracts") it issues in connection with an employer-sponsored insurance program
offered only to certain employees of Dean Witter, Discover & Co., the parent
company of the Fund's Investment Manager. The variable annuity contracts issued
by Northbrook and Allstate New York are sometimes referred to as the "Variable
Annuity Contracts", and the Variable Annuity Contracts and the Variable Life
Contracts are sometimes referred to as the "Contracts." Northbrook, Allstate New
York and Paragon are sometimes referred to as the "Companies." 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 either the Variable
Annuity Contracts or the Variable Life 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 April 21, 1995,
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 or by a current Prospectus for the Variable Life
Contracts issued by Paragon Life Insurance Company. 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/3
Financial Highlights/6
The Fund and its Management/10
Investment Objectives and Policies/11
The Money Market Portfolio/11
The Quality Income Plus Portfolio/13
The High Yield Portfolio/15
The Utilities Portfolio/18
The Dividend Growth Portfolio/20
The Capital Growth Portfolio/21
The Global Dividend Growth Portfolio/22
The European Growth Portfolio/23
The Pacific Growth Portfolio/25
The Equity Portfolio/26
The Managed Assets Portfolio/27
General Portfolio Techniques/28
Investment Restrictions/39
Determination of Net Asset Value/41
Purchase of Fund Shares/42
Redemption of Fund Shares/43
Dividends, Distributions and Taxes/43
Performance Information/45
Additional Information/46
Appendix--Ratings of Investments/48
2
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<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 11, 13, 15, 18,
20, 21, 22, 23, 25, 26 and 27). 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 either the Variable Annuity Contracts or the Variable Life
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 43 and 46).
------------------------------------------------------------------------------------------------
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, 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 PORTFOLIOseeks 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
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
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 15).
Contract Owners are also directed to the discussion of options and futures
transactions (page 34), repurchase agreements (page 31), foreign securities
(page 28), forward foreign currency exchange contracts (page 30), public
utilities securities (page 19), warrants (page 34), zero coupon securities (page
33), when-issued and delayed delivery securities and forward commitments (page
32) and "when, as and if issued" securities (page 32), 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 11, 13, 15,
18, 20, 21, 22, 23, 25, 26 and 27).
------------------------------------------------------------------------------------------------
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 ninety-three investment companies and other portfolios with assets
of approximately $69.6 billion at March 31, 1995. 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 High Yield
Portfolio, the Equity Portfolio and the Managed Assets Portfolio; at an annual
rate of 0.50% of the daily net assets of the Quality Income Plus Portfolio up to
$500 million and 0.45% of the daily net assets of that Portfolio exceeding $500
million; at an annual rate of 0.625% of the daily net assets of the Dividend
Growth Portfolio up to $500 million and 0.50% of the daily net assets of that
Portfolio exceeding $500 million; at an annual rate of 0.65% of the daily net
assets of the Utilities Portfolio up to $500 million and 0.55% of the daily net
assets of that Portfolio exceeding $500 million; at an annual rate of 0.65% of
the daily net assets of 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 $9 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 pages 10 and 11).
------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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, 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, and to
(3) Paragon Life Insurance Company ("Paragon") for allocation to Separate
Account B of Paragon to fund the benefits under certain flexible premium
variable life insurance contracts (the "Variable Life Contracts") it issues in
connection with an employer-sponsored insurance program offered only to certain
employees of Dean Witter, Discover & Co., the parent company of the Fund's
Investment Manager. The variable annuity contracts issued by Northbrook and
Allstate New York are sometimes referred to as the "Variable Annuity Contracts,"
and the Variable Annuity Contracts and the Variable Life Contracts are sometimes
referred to as the "Contracts." Northbrook, Allstate New York and Paragon are
somtimes referred to as the "Companies." (The Northbrook Variable Annuity
Account, the Northbrook Variable Annuity Account II, the Allstate Life of New
York Variable Annuity Account, the Allstate Life of New York Variable Annuity
Account II and the Separate Account B of Paragon 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 or the Variable Life Contracts, which should be
reviewed carefully by a person considering the purchase of a Contract. The
accompanying Prospectus for the Variable Annuity Contracts or the Variable Life
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, Allstate New York
and Paragon (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 42).
------------------------------------------------------------------------------------------------
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 42 and 43).
</TABLE>
- --------------------------------------------------------------------------------
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 EITHER THE VARIABLE ANNUITY CONTRACTS OR THE
VARIABLE LIFE CONTRACTS.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data 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
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Equity Portfolio and the Managed Assets Portfolio have
been audited by Price Waterhouse LLP, independent accountants. The financial
highlights should be read in conjunction with the financial statements, notes
thereto, and the unqualified report of
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ---------- --------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1985 $ 1.00 $ 0.076 $-- $ 0.076 $(0.076) $-- $ (0.076)
1986 1.00 0.062 -- 0.062 (0.062) -- (0.062)
1987 1.00 0.061 -- 0.061 (0.061) -- (0.061)
1988 1.00 0.070 -- 0.070 (0.070) -- (0.070)
1989 1.00 0.086 -- 0.086 (0.086) -- (0.086)
1990 1.00 0.076 -- 0.076 (0.076) -- (0.076)
1991 1.00 0.056 -- 0.056 (0.056) -- (0.056)
1992 1.00 0.034 -- 0.034 (0.034) -- (0.034)
1993 1.00 0.027 -- 0.027 (0.027) -- (0.027)
1994 1.00 0.037 -- 0.037 (0.037) -- (0.037)
QUALITY INCOME PLUS
1987* 10.00 0.64 (0.39) 0.25 (0.64) -- (0.64)
1988 9.61 0.85 (0.16) 0.69 (0.85) -- (0.85)
1989 9.45 0.88 0.28 1.16 (0.88) -- (0.88)
1990 9.73 0.86 (0.24) 0.62 (0.86) -- (0.86)
1991 9.49 0.85 0.85 1.70 (0.85) -- (0.85)
1992 10.34 0.77 0.05 0.82 (0.77) -- (0.77)
1993 10.39 0.69 0.64 1.33 (0.69) -- (0.69)
1994 11.03 0.69 (1.40) (0.71) (0.69) (0.18) (0.87)
HIGH YIELD
1985 10.23 1.17 1.50 2.67 (1.17) (0.01) (1.18)
1986 11.72 1.09 0.90 1.99 (1.09) (0.56) (1.65)
1987 12.06 0.91 (1.15) (0.24) (0.91) (0.94) (1.85)
1988 9.97 1.14 (0.05) 1.09 (1.14) -- (1.14)
1989 9.92 1.30 (2.40) (1.10) (1.30) -- (1.30)
1990 7.52 1.13 (2.91) (1.78) (1.13) (0.06)+ (1.19)
1991 4.55 0.70 1.81 2.51 (0.70) (0.11)+ (0.81)
1992 6.25 0.96 0.18 1.14 (0.96) -- (0.96)
1993 6.43 0.81 0.68 1.49 (0.81) -- (0.81)
1994 7.11 0.79 (0.95) (0.16) (0.79) -- (0.79)
UTILITIES
1990** 10.00 0.47 (0.04) 0.43 (0.41) -- (0.41)
1991 10.02 0.54 1.45 1.99 (0.54) -- (0.54)
1992 11.47 0.51 0.88 1.39 (0.52) -- (0.52)
1993 12.34 0.49 1.43 1.92 (0.50) (0.02) (0.52)
1994 13.74 0.53 (1.75) (1.22) (0.52) (0.08) (0.60)
<FN>
- ------------
Commencement of operations:
* March 1, 1987.
** March 1, 1990.
+ Distribution from capital.
(1) Not annualized.
(2) Annualized.
(3) 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 0.74%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1990 through August 31, 1990, the
ratio of expenses to average net assets would have been 0.75%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
- --------------------------------------------------------------------------------
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 either
the Variable Annuity Contracts or the Variable Life 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>
RATIOS TO
AVERAGE NET ASSETS
NET ASSET -------------------------
VALUE TOTAL NET ASSETS NET PORTFOLIO
END INVESTMENT AT END OF INVESTMENT TURNOVER
OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE
- --------- ----------- -------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00 7.85% $ 16,386 0.74% 7.57% N/A
1.00 6.39 42,194 0.69 6.03 N/A
1.00 6.26 69,467 0.65 6.26 N/A
1.00 7.23 77,304 0.62 7.04 N/A
1.00 9.05 76,701 0.58 8.67 N/A
1.00 7.89 118,058 0.57 7.60 N/A
1.00 5.75 104,277 0.57 5.62 N/A
1.00 3.43 96,151 0.59 3.38 N/A
1.00 2.75 129,925 0.57 2.71 N/A
1.00 3.81 268,624 0.55 3.93 N/A
9.61 2.62(1) 24,094 0.35(2)(3) 8.33(2) 265%(1)
9.45 7.32 28,037 0.73 8.87 277
9.73 12.78 48,784 0.70 9.09 242
9.49 6.84 57,407 0.66 9.09 166
10.34 18.75 81,918 0.60 8.39 105
10.39 8.26 163,368 0.58 7.41 148
11.03 12.99 487,647 0.56 6.17 219
9.45 (6.63) 414,905 0.54 6.88 254
11.72 27.42 101,253 0.64 10.50 237
12.06 18.13 204,754 0.56 9.10 164
9.97 (3.02) 191,631 0.53 7.66 287
9.92 10.83 192,290 0.56 11.06 140
7.52 (12.44) 96,359 0.55 13.94 54
4.55 (25.54) 27,078 0.69 17.98 42
6.25 58.14 34,603 1.01 12.29 300
6.43 18.35 40,042 0.74 14.05 204
7.11 24.08 90,200 0.60 11.80 177
6.16 (2.47) 111,934 0.59 11.71 105
10.02 4.52(1) 37,597 0.40(2)(4) 6.38(2) 46(1)
11.47 20.56 68,449 0.80 5.23 25
12.34 12.64 153,748 0.73 4.63 26
13.74 15.69 490,934 0.71 3.75 11
11.92 (9.02) 382,412 0.68 4.21 15
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990** $ 10.00 $ 0.33 $ (1.10) $ (0.77) $ (0.30) $-- $ (0.30)
1991 8.93 0.36 2.08 2.44 (0.37) -- (0.37)
1992 11.00 0.37 0.51 0.88 (0.37) -- (0.37)
1993 11.51 0.36 1.27 1.63 (0.36) -- (0.36)
1994 12.78 0.38 (0.80) (0.42) (0.37) -- (0.37)
CAPITAL GROWTH
1991*** 10.00 0.15 2.67 2.82 (0.13) -- (0.13)
1992 12.69 0.07 0.13 0.20 (0.08) (0.02) (0.10)
1993 12.79 0.08 (0.98) (0.90) (0.08) -- (0.08)
1994 11.81 0.10 (0.26) (0.16) (0.10) (0.03) (0.13)
GLOBAL DIVIDEND GROWTH
1994**** 10.00 0.23 (0.20) 0.03 (0.21) -- (0.21)
EUROPEAN GROWTH
1991*** 10.00 0.25 (0.13) 0.12 (0.23) -- (0.23)
1992 9.89 0.08 0.32 0.40 (0.10) (0.01) (0.11)
1993 10.18 0.12 3.98 4.10 (0.12) (0.13) (0.25)
1994 14.03 0.17 0.96 1.13 (0.16) (0.44) (0.60)
PACIFIC GROWTH
1994**** 10.00 0.07 (0.74) (0.67) -- (0.07) (0.07)
EQUITY
1985 10.79 0.43 2.01 2.44 (0.46) (0.03) (0.49)
1986 12.74 0.39 1.74 2.13 (0.39) (0.07) (0.46)
1987 14.41 0.30 (0.94) (0.64) (0.33) (0.95) (1.28)
1988 12.49 0.39 0.83 1.22 (0.35) -- (0.35)
1989 13.36 0.71 1.77 2.48 (0.70) -- (0.70)
1990 15.14 0.48 (1.03) (0.55) (0.49) -- (0.49)
1991 14.10 0.20 8.05 8.25 (0.21) -- (0.21)
1992 22.14 0.23 (0.47) (0.24) (0.24) (1.86) (2.10)
1993 19.80 0.15 3.63 3.78 (0.15) (1.28) (1.43)
1994 22.15 0.23 (1.31) (1.08) (0.22) (1.60) (1.82)
MANAGED ASSETS
1987* 10.00 0.48 (0.35) 0.13 (0.48) -- (0.48)
1988 9.65 0.70 0.51 1.21 (0.64) -- (0.64)
1989 10.22 0.84 0.20 1.04 (0.79) (0.06) (0.85)
1990 10.41 0.61 (0.46) 0.15 (0.67) (0.08) (0.75)
1991 9.81 0.47 2.24 2.71 (0.50) -- (0.50)
1992 12.02 0.44 0.41 0.85 (0.45) (0.13) (0.58)
1993 12.29 0.38 0.86 1.24 (0.38) (0.47) (0.85)
1994 12.68 0.48 0.01 0.49 (0.46) (0.26) (0.72)
<FN>
- ------------
Commencement of operations:
** March 1, 1990.
*** March 1, 1991.
**** February 23, 1994.
(1) Not annualized.
(2) Annualized.
(3) 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 0.74%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1990 through June 26, 1990, the
ratio of expenses to average net assets would have been 0.74%.
(5) 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% for
Capital Growth and 4.12% for European Growth.
(6) If the Investment Manager had not assumed all expenses and waived the
management fee for the period February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through August 2, 1994 for
Pacific Growth, the ratio of expenses to average net assets would have
been 0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSET -----------------------
VALUE TOTAL NET ASSETS NET PORTFOLIO
END INVESTMENT AT END OF INVESTMENT TURNOVER
OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE
- --------- ----------- -------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
$ 8.93 (7.81)%(1) $ 57,282 0.54%(2)(4) 4.50%(2) 19%(1)
11.00 27.76 98,023 0.73 3.61 6
11.51 8.16 192,551 0.69 3.42 4
12.78 14.34 483,145 0.68 3.01 6
11.99 (3.27) 572,952 0.64 3.13 20
12.69 28.41(1) 18,400 --(2)(5) 1.82(2) 32(1)
12.79 1.64 45,105 0.86 0.62 22
11.81 (6.99) 50,309 0.74 0.78 36
11.52 (1.28) 45,715 0.77 0.90 37
9.82 0.27(1) 138,486 0.87(2)(6) 2.62(2) 20(1)
9.89 1.34(1) 3,653 --(2)(5) 3.18(2) 77(1)
10.18 3.99 10,686 1.73 0.74 97
14.03 40.88 79,052 1.28 0.97 77
14.56 8.36 152,037 1.16 1.51 58
9.26 (6.73)(1) 75,425 1.00(2)(6) 0.56(2) 22(1)
12.74 23.66 30,045 0.73 3.99 73
14.41 16.85 43,266 0.63 2.72 89
12.49 (6.23) 52,502 0.59 2.02 63
13.36 9.84 39,857 0.65 2.77 162
15.14 18.83 58,316 0.60 4.85 81
14.10 (3.62) 41,234 0.62 3.38 130
22.14 59.05 63,524 0.64 1.09 214
19.80 0.05 77,527 0.62 1.22 286
22.15 19.72 182,828 0.58 0.69 265
19.25 (4.91) 225,289 0.57 1.19 299
9.65 1.23(1) 27,016 0.38(2)(3) 6.73(2) 172(1)
10.22 12.79 61,947 0.66 7.29 310
10.41 10.67 88,712 0.57 8.38 282
9.81 1.56 68,447 0.58 6.10 163
12.02 28.26 87,779 0.60 4.34 86
12.29 7.24 136,741 0.58 3.74 87
12.68 10.38 287,502 0.57 3.11 57
12.45 3.94 392,760 0.54 3.93 125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<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 ninety-three investment companies, thirty of which
are listed on the New York Stock Exchange, with combined total assets of
approximately $67.5 billion at March 31, 1995. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.1 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 $9
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 High Yield Portfolio, the Equity Portfolio and the Managed Assets
Portfolio, by applying the annual rate of 0.50% to the net assets of the Quality
Income Plus Portfolio up to $500 million and the annual rate of 0.45% to the
daily net assets of that Portfolio exceeding $500 million, by applying the
annual rate of 0.625% to the net assets of the Dividend Growth Portfolio up to
$500 million and the annual rate of 0.50% to the daily net assets of that
Portfolio exceeding $500 million, by applying the annual rate of 0.65% to the
net assets of the Utilities Portfolio up to $500 million and the annual rate of
0.55% to the daily net assets of that Portfolio
10
<PAGE>
exceeding $500 million, by applying the annual rate of 0.65% to the net assets
of 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 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, 1994, 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 Portfolio, the Equity Portfolio and the Managed Assets Portfolio, 0.61% 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 0.55% of
its average daily net assets, the total expenses of the Quality Income Plus
Portfolio amounted to 0.54% of its average daily net assets, the total expenses
of the High Yield Portfolio amounted to 0.59% of its average daily net assets,
the total expenses of the Equity Portfolio amounted to 0.57% of its average
daily net assets, the total expenses of the Managed Assets Portfolio amounted to
0.54% of its average daily net assets, the total expenses of the Dividend Growth
Portfolio amounted to 0.64% of its average daily net assets, the total expenses
of the Utilities Portfolio amounted to 0.68% of its average daily net assets,
the total expenses of the Capital Growth Portfolio amounted to 0.77% of its
average daily net assets, and the total expenses of the European Growth
Portfolio amounted to 1.16% of its average daily net assets.
The Global Dividend Growth Portfolio and the Pacific Growth Portfolio
commenced operations on February 23, 1994. The Investment Manager assumed all
expenses of these Portfolios and waived the compensation provided for in its
Management Agreement with the Fund in respect of the Global Dividend Growth
Portfolio until May 12, 1994 and in respect of the Pacific Growth Portfolio
until August 2, 1994. For the period from February 23, 1994 through December 31,
1994, the total compensation accrued by the Fund to the Investment Manager in
respect of the Global Dividend Growth Portfolio and the Pacific Growth Portfolio
amounted to 0.68% of each Portfolio's average daily net assets, and the total
expenses of these Portfolios amounted to 0.87% and 1.0%, respectively, of the
Portfolios' average daily net assets, in each case net of expenses assumed and
compensation waived by the Investment Manager.
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
11
<PAGE>
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
principal 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
12
<PAGE>
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
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
13
<PAGE>
(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. 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
notwith-
14
<PAGE>
standing 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 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
them-
15
<PAGE>
selves, 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 barometer 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
16
<PAGE>
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").
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, 1994, the monthly dollar weighted
average ratings
17
<PAGE>
of the debt obligations held by the High Yield Portfolio, expressed as a
percentage of the Portfolio's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- -------------------------------------------- -------------------
<S> <C>
AAA/Aaa..................................... 12.1
AA/Aa....................................... --
A/A......................................... --
BBB/Baa..................................... --
BB/Ba....................................... 7.3
B/B......................................... 59.1
CCC/Caa..................................... 13.3
CC/Ca....................................... 0.9
C/C......................................... --
D........................................... --
Unrated..................................... 7.3
-----
100.0
</TABLE>
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
18
<PAGE>
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.
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
con-
19
<PAGE>
versely 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 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,
20
<PAGE>
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 Transactions" 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
com-
21
<PAGE>
mon 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 (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
mar-
22
<PAGE>
ket 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 securities 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.
23
<PAGE>
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 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
"Gen-
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eral 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:
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,
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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 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.
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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 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
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<PAGE>
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
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 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
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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 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.
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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 economic 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
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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 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
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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 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
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"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 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.
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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.
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
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<PAGE>
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
guaranteed 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
denomi-
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nated 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 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
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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 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
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<PAGE>
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
Prospectus 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
certain affiliated broker-dealers of Morgan Grenfell Investment Services
Limited, the Sub-Adviser of the European Growth Portfolio and the Pacific Growth
Portfolio. 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 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%;
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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.
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; 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, the Capital Growth Portfolio and the Global Dividend
Growth Portfolio since their inceptions and has been managing portfolios
comprised of equity and other securities at InterCapital for over five years;
Jeremy G. Lodwick, a Director of the Sub-Adviser, has been the primary portfolio
manager of the European Growth Portfolio since April, 1994 and has been managing
portfolios consisting of equity portfolios based in Europe for the Sub-Adviser
since January, 1992, prior to which time he was employed by the Sub-Adviser in
another capacity; Graham D. Bamping, a Director of the Sub-Adviser, has been the
primary portfolio manager of the Pacific Growth Portfolio since its inception
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
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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-
ment 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 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
pro-
40
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visions 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 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
- --------------------------------------------------------------------------------
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
41
<PAGE>
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
or quoted by NASDAQ is valued at its latest sale price on that exchange or
quotation service 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 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, 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, and by (3) Paragon Life Insurance Company
("Paragon") for allocation to Separate Account B of Paragon, a separate account
established and maintained by Paragon for the purpose of funding variable life
insurance contracts it issues, in connection with an employer-sponsored
insurance program offered only to certain employees of DWDC, the parent company
of the Fund's Investment Manager. Persons desiring to purchase annuity or life
insurance contracts funded by any Portfolio of the Fund should read this
Prospectus in conjunction with the
42
<PAGE>
Prospectus of the flexible premium deferred annuity contracts issued by
Northbrook or Allstate New York or in conjunction with the Prospectus of the
flexible premium variable life insurance contracts issued by Paragon.
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 Northbrook, Allstate New York and Paragon (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, 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 Northbrook and Allstate
New York.) The principal executive office of the Distributor is located at Two
World Trade Center, New York, New York 10048.
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 either the Variable Annuity Contracts or the
Variable Life 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
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<PAGE>
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 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.
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<PAGE>
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 either the Variable Annuity Contracts or the Variable Life
Contracts.
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, five and ten years,
as well as over the life of the Portfolio, if shorter than any of these periods.
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
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<PAGE>
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. 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,
Allstate Life Insurance Company of New York and Paragon Life Insurance Company,
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 either the Variable Annuity Contracts or the Variable Life
Contracts. Seven of the ten 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 other three Trustees of the Fund
were elected by the other Trustees of the Fund.
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
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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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Dean Witter Trust Company, an
affiliate of InterCapital, whose address is Harborside Financial Center, Plaza
Two, Jersey City, NJ 07311, is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payments of dividends and distributions on Fund
shares.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
investment company managed or advised by InterCapital ("Dean Witter Fund") is
engaged at the same time in a purchase or sale of the same security. The Code of
Ethics bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and option transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account within
thirty days before or after any transaction in any Dean Witter Fund managed by
them. Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the
recent report by the Investment Company Institute Advisory Group on Personal
Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers 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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<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
50
<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>
51
<PAGE>
DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
APRIL 21, 1995 SERIES
- ----------------------------------------------------------------------------
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 April 21, 1995, which provides the basic
information you should know before allocating your investment under your
Variable Annuity Contract or your Variable Life 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 or the Variable Life
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................................................................. 9
Investment Practices and Policies..................................................... 16
Investment Restrictions............................................................... 36
Portfolio Transactions and Brokerage.................................................. 38
Purchase and Redemption of Fund Shares................................................ 41
Dividends, Distributions and Taxes.................................................... 45
Performance Information............................................................... 47
Description of Shares of the Fund..................................................... 50
Custodians and Transfer Agent......................................................... 51
Independent Accountants............................................................... 51
Reports to Shareholders............................................................... 51
Legal Counsel......................................................................... 51
Experts............................................................................... 52
Registration Statement................................................................ 52
Financial Statements -- December 31, 1994............................................. 53
Report of Independent Accountants..................................................... 108
</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, 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, and to (3) Paragon Life Insurance Company ("Paragon") for allocation
to Separate Account B of Paragon to fund the benefits under certain flexible
premium variable life insurance contracts (the "Variable Life Contracts") it
issues in connection with an employer-sponsored insurance program offered only
to certain employees of Dean Witter, Discover & Co., the parent company of the
Fund's Investment Manager. (The Northbrook Variable Annuity Account, the
Northbrook Variable Annuity Account II, the Allstate Life of New York Variable
Annuity Account, the Allstate Life of New York Variable Annuity Account II and
Separate Account B of Paragon 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." The Variable Annuity
Contracts and the Variable Life Contracts are sometimes referred to as the
"Contracts." Northbrook, Allstate New York and Paragon 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 either the
Variable Annuity Contracts issued by Northbrook or Allstate New York, or the
Variable Life Contracts issued by Paragon, 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, 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, with Paragon
Life Insurance Company, 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. Paragon Life
Insurance Company, a Missouri corporation, is a wholly-owned subsidiary of
General American Life Insurance Company, a Missouri corporation.
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 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, Dean Witter Global Utilities Fund, Dean Witter
International SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter High
Income Securities, Dean Witter National Municipal Trust, Dean Witter Balanced
Growth Fund, Dean Witter Balanced Income Fund, Dean Witter Select Dimensions
Investment Series, Dean Witter Global Asset Allocation Fund,
3
<PAGE>
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 Insured Municipal
Securities, InterCapital Insured California Municipal Securities, InterCapital
Quality Municipal Investment Trust, InterCapital Quality Municipal Income Trust,
InterCapital Quality Municipal Securities, InterCapital California 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 North American Intermediate Income Trust,
TCW/DW Global Convertible Trust, TCW/DW Total Return Trust, TCW/DW Emerging
Markets Opportunities Trust, 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
4
<PAGE>
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.
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
High Yield Portfolio, the Equity Portfolio and the Managed Assets Portfolio, (b)
0.50% to the net assets of the Quality Income Plus Portfolio up to $500 million
and 0.45% to the net assets of that Portfolio exceeding $500 million, (c) 0.625%
to the net assets of the Dividend Growth Portfolio up to $500 million and 0.50%
to the net assets of that Portfolio exceeding $500 million, (d) 0.65% to the net
assets of the Utilities Portfolio up to $500 million and 0.55% to the net assets
of that Portfolio exceeding $500 million, (e) 0.65% to the net assets of the
Capital Growth Portfolio, (f) 0.75% to the net assets of the Global Dividend
Growth Portfolio, and (g) 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
5
<PAGE>
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, 1992, 1993 and 1994, the amount of compensation accrued to the
Investment Manager under the Management Agreements in effect for the
then-existing Portfolios was $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), $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), and $15,287,129 ($1,006,787 for
the Money Market Portfolio, $2,326,911 for the Quality Income Plus Portfolio,
$567,629 for the High Yield Portfolio, $2,809,836 for the Utilities Portfolio,
$3,388,371 for the Dividend Growth Portfolio, $308,143 for the Capital Growth
Portfolio, $479,977 for the Global Dividend Growth Portfolio, $1,299,782 for the
European Growth Portfolio, $282,241 for the Pacific Growth Portfolio, $1,077,511
for the Equity Portfolio and $1,739,941 for the Managed Assets Portfolio),
respectively. No Portfolio exceeded the applicable expense limitation during the
fiscal years ended December 31, 1992, 1993 and 1994. The Investment Manager
assumed all expenses of the Global Dividend Growth Portfolio and the Pacific
Growth Portfolio and waived the compensation provided for in the Management
Agreement in respect of these Portfolios for the period from their commencement
of operations on February 23, 1994 through May 12, 1994, in the case of the
Global Dividend Growth Portfolio, and August 2, 1994, in the case of the Pacific
Growth Portfolio.
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 $9
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
6
<PAGE>
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 $45 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 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.
7
<PAGE>
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 had an initial term
ending April 30, 1994, and will continue in effect 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 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 then 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).
At their meeting held on April 8, 1994, the Fund's Board of Trustees,
including all of the Independent Trustees, amended the terms of the Management
Agreement to lower management fees charged on average daily net assets of the
Dividend Growth Portfolio and the Utilities Portfolio in excess of $500 million
to 0.50% and 0.55%, respectively.
At their meeting held on April 20, 1995, the Fund's Board of Trustees,
including all of the Independent Trustees, approved continuation of the
Management and Sub-Advisory Agreements until April 30, 1996 and amended the
terms of the Management Agreement to lower management fees charged on average
daily net assets of the Quality Income Plus Portfolio in excess of $500 million
to 0.45%. To the extent required by law, Northbrook, Allstate New York and
Paragon, 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.
8
<PAGE>
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 76 Dean Witter Funds and the 13 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Jack F. Bennett (71) Retired; Director or Trustee of the Dean Witter Funds; formerly Senior
Trustee Vice President and Director of Exxon Corporation (1975-January, 1989)
c/o Gordon Altman Butowsky and Under Secretary of the U.S. Treasury for Monetary Affairs
Weitzen Shalov & Wein (1974-1975); Director of Philips Electronics N.V., Tandem Computers
Counsel to the Independent Inc. and Massachusetts Mutual Insurance Company; director or trustee of
Trustees various other not-for-profit and business organizations.
114 West 47th Street
New York, New York
Michael Bozic (54) President and Chief Executive Officer of Hills Department Stores (since
Trustee May, 1991); formerly Chairman and Chief Executive Officer (January,
c/o Hills Stores Inc. 1987-August, 1990) and President and Chief Operating Officer (August,
15 Dan Road 1990-February, 1991) of the Sears Merchandise Group of Sears, Roebuck
Canton, Massachusetts and Co.; Director or Trustee of the Dean Witter Funds; Director of
Eaglemark Financial Services, Inc. the United Negro College Fund and
Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* (61) 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).
Edwin J. Garn (62) Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
c/o Huntsman Chemical (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974);
Corporation formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
2000 Eagle Gate Tower Chairman, Huntsman Chemical Corporation (since January, 1993); Member
Salt Lake City, Utah of the board of various civic and charitable organizations.
John R. Haire (70) Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
Two World Trade Center 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).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (46) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Koch Professor of International Economics and Director of the Center
c/o Johnson Smick International, for Global Market Studies at George Mason University (since September,
Inc. 1990); Co-Chairman and a founder of the Group of Seven Council (G7C),
1133 Connecticut Avenue, N.W. an international economic commission (since September, 1990); Director
Washington, DC 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 (71) Director or Trustee of the Dean Witter Funds; Chairman of the Audit
Trustee Committee and Chairman of the Committee of the Independent Trustees and
c/o Gordon Altman Butowsky Trustee of the TCW/DW Funds; formerly Chairman of the Financial
Weitzen Shalov & Wein Accounting Standards Advisory Council; and Chairman and Chief Executive
Counsel to the Independent Officer of the American Stock Exchange; Director of UCC Investors
Trustees Holding Inc. (Uniroyal Chemical Company, Inc.); director or trustee of
114 West 47th Street various not- for-profit organizations.
New York, New York
Michael E. Nugent (58) General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership (since April, 1988); Director or Trustee of the Dean Witter
c/o Triumph Capital, L.P. Funds; Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (September, 1984-March, 1988);
New York, New York Director of various business organizations.
Philip J. Purcell* (51) Chairman of the Board of Directors and Chief Executive Officer of DWDC,
Trustee DWR and Novus Credit Services Inc.; Director of InterCapital, DWSC and
Two World Trade Center Distributors; Director or Trustee of the Dean Witter Funds; Director
New York, New York and/or officer of various DWDC subsidiaries.
John L. Schroeder (64) Executive Vice President and Chief Investment Officer of the Home
Trustee Insurance Company (since August, 1991); Director or Trustee of the Dean
c/o The Home Insurance Company Witter Funds; Trustee of the TCW/DW Funds; Director of Citizens
59 Maiden Lane Utilities Company, formerly Chairman and Chief Investment Officer of
New York, New York Axe-Houghton Management and the Axe-Houghton Funds (April, 1983-June,
1991) and President of USF&G Financial Services, Inc. (June, 1990-June,
1991).
Sheldon Curtis (63) 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 DWR; Vice
New York, New York President, Secretary and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar (36) 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) and Senior Portfolio Manager,
New York, New York First Vice President of PaineWebber Asset Management (March,
1989-December, 1990).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Thomas H. Connelly (60) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Patricia A. Cuddy (40) Vice President of InterCapital (since June, 1994); Vice President of
Vice President various Dean Witter Funds; formerly Senior Vice President of Dreyfus
Two World Trade Center Corporation.
New York, New York
Edward F. Gaylor (53) 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 (50) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Anita H. Kolleeny (39) 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
Paula LaCosta (43) 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
Jonathan R. Page (46) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Rochelle G. Siegel (46) 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 (59) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (49) 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 and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive
11
<PAGE>
Vice President and Chief Administrative Officer of InterCapital, DWSC,
Distributors and DWTC and Director of DWTC, Edmund C. Puckhaber, Executive Vice
President of InterCapital and Director of DWTC, and Kevin Hurley, Senior Vice
President of InterCapital, are Vice Presidents of the Fund, and Marilyn K.
Cranney and Barry Fink, First Vice Presidents of InterCapital and DWSC, and
Lawrence Lafer, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and Assistant
General Counsels of InterCapital and DWSC, are Assistant Secretaries of the
Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "The Fund and its Management," the Fund
is one of the Dean Witter Funds, a group of investment companies managed by
InterCapital. As of the date of this Statement of Additional Information, there
are a total of 76 Dean Witter Funds, comprised of 116 portfolios. As of March
31, 1995, the Dean Witter Funds had total net assets of approximately $62.3
billion and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds are
organized as business trusts, others as corporations, but the functions and
duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as Trustees.
Eight Trustees, that is, 80% of the total number, have no affiliation or
business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
DWDC. These are the "disinterested" or "independent" Trustees. Four of the eight
Independent Trustees are also Independent Trustees of the TCW/DW Funds. As of
the date of this Statement of Additional Information, there are a total of 13
TCW/DW Funds. Two of the Funds' Trustees, that is, the management Trustees, are
affiliated with InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to the
investment company's sponsor." In addition to their general "watchdog" duties,
the Independent Trustees are charged with a wide variety of responsibilities
under the Act. In order to perform their duties effectively, the Independent
Trustees are required to review and understand large amounts of material, often
of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
of the demands made on their time by the Funds. Indeed, to serve on the Funds'
Boards, certain Trustees who would be qualified and in demand to serve on bank
boards would be prohibited by law from serving at the same time as a director of
a national bank and as a Trustee of a Fund.
The Independent Trustees are required to select and nominate individuals to
fill any Independent Trustee vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Since most of the Dean Witter Funds have such a
plan, and since all of the Funds' Boards have the same members, the Independent
Trustees effectively control the selection of other Independent Trustees of all
the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and specific
duties for the Independent Trustees, the governance arrangements from one
investment company group to another vary significantly. In some groups the
Independent Trustees perform their role by attendance at periodic meetings of
the board of directors with study of materials furnished to them between
meetings. At the other extreme, an investment company complex may employ a
full-time staff to assist the Independent Trustees in the performance of their
duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective
12
<PAGE>
and serve the interests of the Funds' shareholders. All of the Independent
Trustees serve as members of the Audit Committee and the Committee of the
Independent Trustees. Three of them also serve as members of the Derivatives
Committee.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements, continually
reviewing Fund performance, checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex, and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; advising the independent accountants and Management personnel that
they have direct access to the Committee at all times; and preparing and
submitting Committee meeting minutes to the full Board.
Finally, the Board of each Fund has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
During the calendar year ended December 31, 1994, the three Committees held
a combined total of eleven meetings. The Committee meetings are sometimes held
away from the offices of InterCapital and sometimes in the Board room of
InterCapital. These meetings are held without management directors or officers
being present, unless and until they may be invited to the meeting for purposes
of furnishing information or making a report. These separate meetings provide
the Independent Trustees an opportunity to explore in depth with their own
independent legal counsel, independent auditors and other independent
consultants, as needed, the issues they believe should be addressed and resolved
in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He screens
and/or prepares written materials and identifies critical issues for the
Independent Trustees to consider, develops agendas for Committee meetings,
determines the type and amount of information that the Committees will need to
form a judgment on the issues, and arranges to have the information furnished.
He also arranges for the services of independent experts to be provided to the
Committees and consults with them in advance of meetings to help refine reports
and to focus on critical issues. Members of the Committees believe that the
person who serves as Chairman of all three Committees and guides their efforts
is pivotal to the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment management and other operating
contracts of the Funds and, on behalf of the Committees, conducts negotiations
with the Investment Manager and other service providers. In effect, the Chairman
of the Committees serves as a combination of chief executive and support staff
of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization and
devotes his time primarily to the services he performs as Committee Chairman and
Independent Trustee of the Dean Witter Funds and as an Independent Trustee of
the TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
13
<PAGE>
VALUE OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN WITTER
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds is in the best
interests of all the Funds' shareholders. This arrangement avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. It is believed that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the likelihood of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, it is believed that having the same Independent Trustees serve
on all Fund Boards enhances the ability of each Fund to obtain, at modest cost
to each separate Fund, the services of Independent Trustees, and a Chairman of
their Committees, of the caliber, experience and business acumen of the
individuals who serve as Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,200 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $1,000 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 serving for at least five years (or such lesser period as may
be determined by the Board) as an Independent Director or Trustee of any Dean
Witter Fund that has adopted the retirement program (each such Fund referred to
as an "Adopting Fund" and each such Trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service. Currently, upon retirement, each Eligible Trustee is
entitled to receive from the Fund, commencing as of his or her retirement date
and continuing for the remainder of his or her life, an annual retirement
benefit (the "Regular Benefit") equal to 28.75% of his or her Eligible
Compensation plus 0.4791666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 57.50% after ten years of service. The
foregoing percentages may be changed by the Board.(1) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for service
to the Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded by
the Fund. As of the date of this Statement of Additional Information, 58 Dean
Witter Funds have adopted the retirement program.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
14
<PAGE>
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal
year ended December 31, 1994 and the estimated retirement benefits for the
Fund's Independent Trustees as of December 31, 1994.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
---------------------------- ------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE FUND FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- ---------------------- ------------- ------------- ----------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett....... $ 1,900 $ 646 8 46.0% $ 2,219 $ 1,021
Michael Bozic......... 1,227 0 10 57.5 1,950 1,121
Edwin J. Garn......... 1,900 452 10 57.5 1,950 1,121
John R. Haire......... 4,950(4) 1,597 10 57.5 5,145 2,958
Dr. Manuel H.
Johnson.............. 1,850 190 10 57.5 1,950 1,121
Paul Kolton........... 1,950 729 9 51.3 2,380 1,220
Michael E. Nugent..... 1,750 319 10 57.5 1,950 1,121
John L. Schroeder..... 1,277 0 8 47.9 1,950 934
- ---------------
<FN>
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(4) Of Mr. Haire's compensation from the Fund, $3,400 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
</TABLE>
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for services
to the 73 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13 TCW/DW Funds that were in operation at December 31, 1994.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds and
five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
<TABLE>
<CAPTION>
FOR SERVICE AS
FOR SERVICE CHAIRMAN OF TOTAL CASH
AS DIRECTOR OR FOR SERVICE AS COMMITTEES OF COMPENSATION
TRUSTEE AND TRUSTEE AND INDEPENDENT FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER DIRECTORS/ 73 DEAN WITTER
OF 73 DEAN WITTER OF 13 TCW/DW TRUSTEES AND FUNDS AND 13
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS AUDIT COMMITTEES TCW/DW FUNDS
- --------------------------------------------- ---------------------- ---------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Jack F. Bennett.............................. $ 125,761 -- -- $ 125,761
Michael Bozic................................ 82,637 -- -- 82,637
Edwin J. Garn................................ 125,711 -- -- 125,711
John R. Haire................................ 101,061 $ 66,950 $ 225,563(5) 393,574
Dr. Manuel H. Johnson........................ 122,461 60,750 -- 183,211
Paul Kolton.................................. 128,961 51,850 34,200(6) 215,011
Michael E. Nugent............................ 115,761 52,650 -- 168,411
John L. Schroeder............................ 85,938 -- -- 85,938
- ------------
<FN>
(5) For the 73 Dean Witter Funds.
(6) For the 13 TCW/DW Funds.
</TABLE>
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.
15
<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%.
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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 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.
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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 Quality Income Plus
Portfolio did not borrow any money during the fiscal year ended December 31,
1994.
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
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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,
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.
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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 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, 1994 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
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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).
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, 1994 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
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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 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
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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 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
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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.
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
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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 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).
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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 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
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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 (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
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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).
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
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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
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
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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.
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.
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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
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
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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 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
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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.
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
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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 (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.
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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
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.
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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).
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
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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.
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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.
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.
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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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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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, 1992, 1993 and 1994, the Fund paid a total of $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), $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) and $3,780,238 ($5,071 for the High Yield
Portfolio, $117,697 for the Utilities Portfolio, $497,931 for the Dividend
Growth Portfolio, $53,239 for the Capital Growth Portfolio, $566,953 for the
Global Dividend Growth Portfolio, $466,863 for the European Growth Portfolio,
$651,772 for the Pacific Growth Portfolio, $1,139,195 for the Equity Portfolio
and $281,517 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
38
<PAGE>
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.
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, 1994, the Fund directed
the payment of $1,842,381 in brokerage commissions in connection with
transactions in the aggregate amount of $443,927,803 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 12/31/94 YEAR ENDED 12/31/94
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Utilities Portfolio.................. $ 67,450 $ 38,953,557
Dividend Growth Portfolio............ $ 268,286 $ 155,510,332
Capital Growth Portfolio............. $ 18,128 $ 8,838,630
Global Dividend Growth Portfolio..... $ 507,331 $ 127,232,892
Equity Portfolio..................... $ 783,109 $ 473,682,433
Managed Assets Portfolio............. $ 198,077 $ 139,709,959
</TABLE>
39
<PAGE>
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, 1992, 1993 and
1994, 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 certain affiliated broker-dealers of Morgan Grenfell
Investment Services Limited, the Sub-Adviser of the European Growth Portfolio
and the Pacific Growth Portfolio. 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 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, 1992 and 1993, the Fund paid a total of $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) and $451,989 ($92,190 for the
Utilities Portfolio, $152,045 for the Dividend Growth Portfolio, $28,363 for the
Capital Growth Portfolio, $117,990 for the Equity Portfolio and $61,041 for the
Managed Assets Portfolio), respectively, in brokerage commissions to DWR. For
its fiscal year ended December 31, 1994 the Fund paid a total of $546,661 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 12/31/94 FISCAL YEAR ENDED 12/31/94 FISCAL YEAR ENDED 12/31/94
- ------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Utilities Portfolio...... $ 27,250 23.15 % 15.43 %
Dividend Growth
Portfolio............... 192,545 38.67 47.72
Capital Growth
Portfolio............... 32,574 61.18 65.91
Global Dividend Growth
Portfolio............... 55,460 9.78 25.66
Equity Portfolio......... 200,291 17.58 23.36
Managed Assets
Portfolio............... 38,541 13.69 18.07
</TABLE>
For its fiscal year ended December 31, 1992, the Fund paid a total of $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) in brokerage
commissions to Lawrence (C.J.), Morgan Grenfell Inc., an affiliated broker of
the Sub-Adviser of the European Growth Portfolio and the Pacific Growth
Portfolio. For its fiscal years ended December 31, 1993 and 1994, the Fund did
not pay any brokerage commissions to Lawrence (C.J.), Morgan Grenfell Inc. For
its fiscal year ended December 31, 1994, the Fund paid a total of $43,008 ($401
for the Global Dividend Growth Portfolio and $42,607 for the Pacific Growth
Portfolio) in brokerage
40
<PAGE>
commissions to affiliated brokers of the Sub-Adviser of the European Growth
Portfolio and the Pacific Growth Portfolio for transactions as follows:
<TABLE>
<CAPTION>
BROKERAGE PERCENTAGE OF
COMMISSIONS PAID TO AGGREGATE DOLLAR
AFFILIATED BROKER AMOUNT OF EXECUTED
OF MORGAN GRENFELL PERCENTAGE OF TRADES ON WHICH
INVESTMENT SERVICES AGGREGATE BROKERAGE BROKERAGE
LTD. FOR FISCAL COMMISSIONS FOR COMMISSIONS WERE
YEAR FISCAL YEAR PAID FOR FISCAL
ENDED ENDED YEAR ENDED
NAME OF PORTFOLIO NAME OF BROKER 12/31/94 12/31/94 12/31/94
- ----------------- ------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Global Dividend Deutsche Bank Securities Corp. $ 401 0.07% 0.05%
Growth Portfolio
Pacific Growth Morgan Grenfell Asia Securities 38,353 5.88 6.91
Portfolio (Hong Kong) Ltd.
Morgan Grenfell Asia Securities 3,907 0.60 0.46
(Indonesia) Pte.
Morgan Grenfell Emerging 347 0.05 0.04
Markets
</TABLE>
The amount of brokerage commissions paid to affiliated brokers of the
Sub-Adviser of the European Growth Portfolio and the Pacific Growth Portfolio as
shown in the Fund's latest Annual Report exceeds the amount shown above because
of the inadvertent inclusion in the Annual Report of certain brokers who were in
fact not affiliated with the Sub-Adviser.
During the fiscal year ended December 31, 1994, the Money Market Portfolio
purchased commercial paper issued by Goldman Sachs & Co. and Merrill Lynch &
Co., which issuers were among the ten brokers or the ten dealers which executed
transactions for or with the Fund or the Portfolio in the largest dollar amounts
during the year. At December 31, 1994, the Money Market Portfolio held
commercial paper issued by Goldman Sachs & Co. with a market value of
$12,958,981. At December 31, 1994, the Quality Income Plus Portfolio held bonds
issued by Morgan Stanley & Co., which issuer was among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year, with a market value of $5,035,200.
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, 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, and by (3)
Paragon Life Insurance Company ("Paragon") for allocation to Separate Account B
of Paragon, a separate account established and maintained by Paragon for the
purpose of funding variable life insurance contracts it issues, in connection
with an employer-sponsored insurance program offered only to certain employees
of DWDC, the parent company of the Fund's Investment Manager. (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, Allstate New York and Paragon (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
41
<PAGE>
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 or the Variable Life 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 had an initial term ending April 30, 1994, and will remain in effect
from year to year thereafter if approved by the Board. At their meeting held on
April 20, 1995, the Fund's Board of Trustees, including all of the Independent
Trustees, approved continuation of the Distribution Agreement until April 30,
1996.
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 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
42
<PAGE>
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 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
43
<PAGE>
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 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
44
<PAGE>
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 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.
45
<PAGE>
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 regulated investment
company diversification requirements applicable to the Portfolio. Until such
time as these uncertainties are resolved, the Fund will utilize the more
conservative, or limiting, definition or approach with respect to determining
permissible investments of the Global Dividend Growth Portfolio, the European
Growth Portfolio and the Pacific Growth Portfolio.
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
46
<PAGE>
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 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).
47
<PAGE>
The current yield of the Money Market Portfolio for the seven days ending
December 31, 1994 was 5.20%. The effective annual yield on 5.20% is 5.34%,
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, five and ten year periods
ended December 31, 1994 were 3.81%, 4.71% and 6.02%, respectively, for the Money
Market Portfolio; -2.47%, 11.02% and 9.10%, respectively, for the High Yield
Portfolio; and -4.91%, 11.79% and 11.93%, 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,
1994, for the five year period ended December 31, 1994 and for the period from
March 1, 1987 (commencement of these Portfolios' operations) through December
31, 1994, were -6.63%, 7.70% and 7.79%, respectively, for the Quality Income
Plus Portfolio and 3.94%, 9.89% and 9.43%, 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, 1994 and
for the period from March 1, 1990 (commencement of these Portfolios' operations)
through December 31, 1994 were -9.02% and 8.66%, respectively, for the Utilities
Portfolio and -3.27% and 7.35%, 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, 1994 and for
the period from March 1, 1991 (commencement of these Portfolios' operations)
through December 31, 1994 were -1.28% and 4.83%, respectively, for the Capital
Growth Portfolio and 8.36% and 13.20%, respectively, for the European Growth
Portfolio. The average annual returns of the Global Dividend Growth Portfolio
and the Pacific Growth Portfolio for the period from February 23, 1994
(commencement of these Portfolios' operations) through December 31, 1994 were
0.31% and -7.83%, respectively.
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, 1994 would have
been 7.74% and 9.37%, 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, 1994 would have been 8.56%. Until 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, 1994 would have been 7.29%. 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, 1994 would have been 4.51% and 12.61%,
respectively. Until
48
<PAGE>
May 12, 1994, the Investment Manager assumed certain expenses of the Global
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 Global Dividend
Growth Portfolio for the period from February 23, 1994 through December 31, 1994
would have been 0.11%. Until August 2, 1994, the Investment Manager assumed
certain expenses of the Pacific 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
Pacific Growth Portfolio for the period from February 23, 1994 through December
31, 1994 would have been -8.43.
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, 1994 were 3.81% for the Money Market Portfolio; -6.63%
for the Quality Income Plus Portfolio; -2.47% for the High Yield Portfolio;
- -9.02% for the Utilities Portfolio; -3.27% for the Dividend Growth Portfolio;
- -1.28% for the Capital Growth Portfolio; 8.36% for the European Growth
Portfolio; -4.91% for the Equity Portfolio; and 3.94% for the Managed Assets
Portfolio; the total returns for the five year period ended December 31, 1994
were 25.87% for the Money Market Portfolio; 44.90% for the Quality Income Plus
Portfolio; 68.64% for the High Yield Portfolio; 74.60% for the Equity Portfolio;
and 60.25% for the Managed Assets Portfolio; the total returns for the ten year
period ended December 31, 1994 were 79.46% for the Money Market Portfolio;
138.89% for the High Yield Portfolio; and 208.77% for the Equity Portfolio; and
the total returns from commencement of the other Portfolios' operations through
December 31, 1994 were 79.98% for the Quality Income Plus Portfolio; 49.40% for
the Utilities Portfolio; 40.90% for the Dividend Growth Portfolio; 19.84% for
the Capital Growth Portfolio; 0.27% for the Global Dividend Growth Portfolio;
60.89% for the European Growth Portfolio; -6.73% for the Pacific Growth
Portfolio; and 102.51% 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 (or declined) to the following amounts at December
31, 1994: Money Market Portfolio: $19,315, $96,573 and $193,147, respectively;
Quality Income Plus Portfolio: $17,998, $89,990 and $179,980, respectively; High
Yield Portfolio: $26,749, $133,745 and $276,490, respectively; Utilities
Portfolio: $14,940, $74,700 and $149,400, respectively; Dividend Growth
Portfolio: $14,090, $70,450 and $140,900, respectively; Capital Growth
Portfolio: $11,984, $59,920 and $119,840, respectively; Global Dividend Growth
Portfolio: $10,027, $50,135 and $100,270, respectively; European Growth
Portfolio: $16,089, $80,445 and $160,890, respectively; Pacific Growth
Portfolio: $9,327, $46,635 and $93,270, respectively; Equity Portfolio: $34,357,
$171,785 and $343,570, respectively; and Managed Assets Portfolio: $20,251,
$101,255 and $202,510, 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.
49
<PAGE>
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, Allstate Life
Insurance Company of New York and Paragon Life Insurance Company, 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 or the Variable Life Contracts. Shareholders of all Portfolios
vote for a single set of Trustees. All of the Trustees of the Fund, except for
Messrs. Bozic, Purcell and Schroeder, have been elected by Northbrook Life
Insurance Company and Allstate Life Insurance Company of New York, pursuant to
the instructions of Contract Owners, most recently at a Special Meeting of
Shareholders held on January 13, 1993. Messrs. Bozic, Purcell and Schroeder were
elected by the other Trustees of the Fund on April 8, 1994. 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.
50
<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, 90 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 LLP, 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.
51
<PAGE>
EXPERTS
- --------------------------------------------------------------------------------
The annual financial statements of the Fund for the year ended December 31,
1994, 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 LLP, 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.
52
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATES VALUE
- ----------- --------------- ---------------------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTES (5.2%)
BANKS - COMMERCIAL (5.2%)
$ 7,000 First National Bank of Chicago.................... 5.06% 01/09/95 $ 7,000,000
7,000 NBD Bank.......................................... 5.06 01/06/95 7,000,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED COST $14,000,000)................................... 14,000,000
---------------
BANKERS' ACCEPTANCES (A) (8.8%)
BANKS - COMMERCIAL (8.8%)
11,000 Bank of America NT & SA........................... 6.22 03/16/95 10,859,292
7,000 First Bank National Association................... 5.53 02/17/95 6,949,320
3,000 First Union National Bank of N.C.................. 6.22 03/06/95 2,966,742
3,000 U.S. Bank of Washington, N.A...................... 6.39 04/18/95 2,943,660
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED COST $23,719,014).................................... 23,719,014
---------------
COMMERCIAL PAPER (A) (81.5%)
AUTOMOTIVE FINANCE (15.1%)
12,575 Chrysler Financial Corp........................... 5.58 to 5.78 01/30/95 to 02/09/95 12,505,075
10,860 Daimler-Benz North America........................ 5.58 to 6.14 02/08/95 to 02/27/95 10,785,063
5,610 Ford Motor Credit Company......................... 5.16 to 6.03 01/05/95 to 01/13/95 5,602,617
11,865 General Motors Acceptance Corp.................... 6.19 to 6.27 02/07/95 to 02/27/95 11,776,722
---------------
40,669,477
---------------
BANK HOLDING COMPANIES (14.7%)
6,285 Chase Manhattan Corp.............................. 5.38 01/23/95 6,263,799
10,210 Chemical Banking Corp............................. 5.50 to 5.89 02/21/95 to 02/22/95 10,127,990
2,000 First Union Corp.................................. 6.22 03/06/95 1,977,828
5,000 Morgan (J.P.) & Co................................ 6.12 03/01/95 4,949,750
3,540 Norwest Corp...................................... 5.63 02/13/95 3,516,030
9,660 PNC Funding Corp.................................. 6.00 to 6.26 02/14/95 to 02/23/95 9,578,991
3,000 Republic New York Corp............................ 5.24 02/15/95 2,980,373
---------------
39,394,761
---------------
BANKS - COMMERCIAL (10.9%)
3,000 Abbey National North America Corp................. 6.31 02/28/95 2,969,468
2,525 ABN AMRO N.A. Fin. Inc............................ 6.12 04/24/95 2,477,265
7,000 Barclays U.S. Funding Co.......................... 5.14 01/17/95 6,983,307
3,960 National Australia Funding, Inc. (Del.)........... 5.57 02/01/95 3,940,745
6,000 National Westminster BanCorp Inc.................. 5.47 01/24/95 5,978,480
7,070 Toronto Dominion Holdings (USA), Inc.............. 6.30 03/06/95 6,990,728
---------------
29,339,993
---------------
BROKERAGE (4.8%)
13,055 Goldman Sachs Group L.P........................... 5.53 to 6.23 01/10/95 to 03/20/95 12,958,981
---------------
CANADIAN GOVERNMENT (1.4%)
3,700 Province of British Columbia...................... 5.07 01/25/95 3,687,280
---------------
FINANCE - CORPORATE (4.6%)
12,400 Ciesco, L.P....................................... 5.08 to 6.17 02/01/95 to 02/24/95 12,312,480
---------------
</TABLE>
53
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATES VALUE
- ----------- --------------- ---------------------- ---------------
<C> <S> <C> <C> <C>
FINANCE - DIVERSIFIED (20.6%)
$ 2,500 Associates Corp. of N.A........................... 5.66% 01/04/95 $ 2,498,442
10,105 CIT Group Holdings Inc............................ 5.36 to 5.60 01/11/95 to 01/12/95 10,087,350
2,275 Commercial Credit Co.............................. 5.60 02/03/95 2,263,140
12,295 General Electric Capital Corp..................... 5.02 to 6.74 01/19/95 to 06/14/95 12,216,218
9,385 Heller Financial Inc.............................. 5.41 to 6.22 01/18/95 to 02/14/95 9,335,271
6,525 Household Finance Corp............................ 5.48 to 5.52 01/13/95 to 01/27/95 6,501,473
12,495 ITT Financial Corp................................ 5.56 to 6.14 01/05/95 to 02/09/95 12,444,294
---------------
55,346,188
---------------
FINANCE - EQUIPMENT (3.1%)
8,310 Deere (John) Capital Corp......................... 5.11 to 5.91 01/20/95 to 02/23/95 8,254,281
---------------
OFFICE EQUIPMENT (1.7%)
4,500 Pitney Bowes Credit Corp.......................... 6.14 02/22/95 4,459,786
---------------
OFFICE EQUIPMENT & SUPPLIES (3.7%)
9,930 International Business Machines Corp.............. 5.56 to 6.03 02/02/95 to 02/03/95 9,877,084
---------------
RETAIL (0.9%)
2,500 Penney (J.C.) Funding Corp........................ 5.87 02/06/95 2,485,097
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $218,785,408)....................................... 218,785,408
---------------
U.S. GOVERNMENT AGENCIES (A) (4.6%)
4,000 Federal Farm Credit Bank.......................... 5.83 07/05/95 3,884,680
8,580 Federal Home Loan Banks........................... 5.75 01/03/95 8,575,889
---------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $12,460,569)................................ 12,460,569
---------------
TOTAL INVESTMENTS (AMORTIZED COST $268,964,991) (B)............................................. 100.1 % 268,964,991
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.................................................. (0.1) (340,538)
------ ---------------
NET ASSETS...................................................................................... 100.0 % $ 268,624,453
------ ---------------
------ ---------------
<FN>
- ----------------
(A) SECURITIES 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ------------- ---------- ---------------------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (52.1%)
AUTOMOTIVE (1.0%)
$ 3,000 Ford Motor Co......................................... 9.50% 09/15/11 $ 3,230,100
1,000 Ford Motor Co......................................... 8.875 01/15/22 1,013,570
---------------
4,243,670
---------------
BANK HOLDING COMPANIES (13.6%)
1,000 Banc One Corp......................................... 8.74 09/15/03 1,006,100
2,000 Banc One, Milwaukee, NA............................... 6.625 04/15/03 1,771,900
1,000 BankAmerica Corp...................................... 9.625 02/13/01 1,046,070
1,000 BankAmerica Corp...................................... 7.75 07/15/02 950,020
1,000 BankAmerica Corp...................................... 7.875 12/01/02 955,230
2,000 Boatmen's Bancshares, Inc............................. 9.25 11/01/01 2,067,560
2,000 Boatmen's Bancshares, Inc............................. 6.75 03/15/03 1,782,580
3,000 Chemical Banking Corp................................. 7.875 07/15/06 2,817,600
7,000 Citicorp.............................................. 7.750 06/15/06 6,537,090
1,000 Comerica, Inc......................................... 7.250 10/15/02 925,650
1,000 CoreStates Financial Corp............................. 9.625 02/15/01 1,048,500
6,000 First Bank N.A........................................ 8.35 11/01/04 5,911,380
5,000 First Union Corp...................................... 8.00 08/15/09 4,627,000
4,000 Fleet Mortgage Group, Inc............................. 6.50 09/15/99 3,687,560
2,000 Golden West Financial Corp............................ 7.00 01/15/00 1,871,840
3,500 Household Bank........................................ 8.45 12/10/02 3,500,140
2,000 Huntington National Bank.............................. 7.625 01/15/03 1,880,200
3,000 Marshall & Ilsley Corp................................ 6.375 07/15/03 2,603,370
3,145 PNC Funding Corp...................................... 9.875 03/01/01 3,325,995
1,000 Republic NY Corp...................................... 7.875 12/12/01 969,210
1,000 Society National Bank................................. 7.85 11/01/02 959,000
5,000 State Street Boston Corp.............................. 5.95 09/15/03 4,234,100
2,000 Wachovia Corp......................................... 6.375 04/15/03 1,753,480
---------------
56,231,575
---------------
BROADCAST MEDIA (0.2%)
1,000 Paramount Communications, Inc......................... 8.25 08/01/22 843,790
---------------
BROKERAGE (1.2%)
1,000 Morgan Stanley Group, Inc............................. 9.25 03/01/98 1,021,700
5,000 Morgan Stanley Group, Inc............................. 7.25 10/15/23 4,013,500
---------------
5,035,200
---------------
FINANCE & BROKERAGE (4.3%)
2,000 American Express Co................................... 8.625 05/15/22 1,934,980
1,000 Associates Corp. North America........................ 6.75 10/15/99 936,610
1,000 Bear Stearns Companies, Inc........................... 9.125 04/15/98 1,011,700
3,000 Equifax, Inc.......................................... 6.50 06/15/03 2,664,240
3,500 Household Financial Corp.............................. 7.75 06/01/99 3,419,710
2,000 Household Financial Corp.............................. 8.95 09/15/99 2,042,600
3,000 Source One Mortgage Services Corp..................... 9.00 06/01/12 2,996,100
3,000 Travelers, Inc........................................ 7.75 06/15/99 2,919,990
---------------
17,925,930
---------------
</TABLE>
55
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ------------- ---------- ---------------------- ---------------
<C> <S> <C> <C> <C>
FOOD SERVICES (0.7%)
$ 2,000 Grand Metropolitan Investment Corp.................... 8.00% 09/15/22 $ 1,871,060
1,000 McDonald's Corp....................................... 8.875 04/01/11 1,042,080
---------------
2,913,140
---------------
FOODS (0.3%)
2,000 Archer-Daniels-Midland Co............................. 0.00 05/01/02 1,097,520
---------------
HEALTH CARE DIVERSIFIED (0.8%)
2,000 Kaiser Foundation Health Plan, Inc.................... 9.00 11/01/01 2,073,380
1,000 Kaiser Foundation Health Plan, Inc.................... 9.55 07/15/05 1,081,280
---------------
3,154,660
---------------
INDUSTRIALS (10.7%)
1,000 B.P. North America, Inc............................... 7.875 05/15/02 976,330
1,000 Boeing Co............................................. 7.95 08/15/24 961,180
2,000 Burlington Resources, Inc............................. 7.15 05/01/99 1,915,620
1,000 Burlington Resources, Inc............................. 8.50 10/01/01 1,004,810
5,000 Carnival Corp......................................... 7.70 07/15/04 4,720,050
1,000 Caterpillar, Inc...................................... 9.375 07/15/01 1,048,060
3,000 Caterpillar, Inc...................................... 9.375 08/15/11 3,227,190
3,000 Caterpillar, Inc...................................... 8.00 02/15/23 2,785,260
1,000 Corning, Inc.......................................... 8.875 08/15/21 1,021,760
1,000 Dow Capital BV........................................ 8.70 05/15/22 973,120
2,000 Kimberly-Clark Corp................................... 7.875 02/01/23 1,844,540
1,000 Knight Ridder, Inc.................................... 8.50 09/01/01 1,007,350
5,000 Lockheed Corp......................................... 7.875 03/15/23 4,457,250
1,000 Maytag Corp........................................... 9.75 05/15/02 1,062,680
1,000 Motorola, Inc......................................... 7.60 01/01/07 943,720
1,000 PepsiCo, Inc.......................................... 6.25 09/01/99 924,380
5,000 Phillip Morris Companies, Inc......................... 7.50 01/15/02 4,682,300
2,000 Phillip Morris Companies, Inc......................... 7.25 01/15/03 1,826,440
2,500 Supervalu, Inc........................................ 7.25 07/15/99 2,408,800
3,500 Westvaco Corp......................................... 7.75 02/15/23 3,164,700
4,000 Weyerhaeuser Co....................................... 7.25 07/01/13 3,530,240
---------------
44,485,780
---------------
OIL INTEGRATED - DOMESTIC (0.4%)
735 Mobil Oil Corp........................................ 9.17 02/29/00 749,612
1,000 Texaco Capital, Inc................................... 9.75 03/15/20 1,110,410
---------------
1,860,022
---------------
PHARMACEUTICALS (2.3%)
5,000 Johnson & Johnson..................................... 8.72 11/01/24 5,083,050
856 Marion Merrell Corp................................... 9.11 08/01/05 881,704
1,000 McKesson Corp......................................... 8.625 02/01/98 1,004,820
3,000 Zeneca Wilmington, Inc................................ 7.00 11/15/23 2,487,030
---------------
9,456,604
---------------
REAL ESTATE INVESTMENT TRUST (1.0%)
5,000 Kimco Realty Corp..................................... 6.50 10/01/03 4,329,150
---------------
</TABLE>
56
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ------------- ---------- ---------------------- ---------------
<C> <S> <C> <C> <C>
RETAIL (3.0%)
$ 1,000 Dayton-Hudson Corp.................................... 9.00% 10/01/21 $ 1,013,690
1,000 Dayton-Hudson Corp.................................... 8.50 12/01/22 953,640
1,000 Penny (J.C.) Company, Inc............................. 5.375 11/15/98 908,820
1,000 Penny (J.C.) Company, Inc............................. 9.75 06/15/21 1,062,710
1,000 Penny (J.C.) Company, Inc............................. 8.25 08/15/22 960,810
3,000 Wal-Mart Stores, Inc.................................. 7.49 06/21/07 2,802,690
5,000 Wal-Mart Stores, Inc.................................. 8.50 09/15/24 4,917,900
---------------
12,620,260
---------------
TELEPHONES (3.0%)
2,000 AT&T Corp............................................. 7.50 06/01/06 1,877,420
5,000 Bellsouth Telecommunications.......................... 6.75 10/15/33 3,949,700
1,000 GTE Corp.............................................. 10.25 11/01/20 1,079,770
1,000 GTE Corp.............................................. 8.75 11/01/21 985,260
5,000 New York Telephone.................................... 7.625 02/01/23 4,380,850
---------------
12,273,000
---------------
TRANSPORTATION (1.2%)
1,000 AMR Corp.............................................. 10.20 03/15/20 976,490
1,000 Consolidated Rail Corp................................ 9.75 06/15/20 1,116,430
1,000 Delta Air Lines, Inc.................................. 10.375 02/01/11 977,940
2,000 Union Pacific Corp.................................... 7.875 02/01/23 1,796,420
---------------
4,867,280
---------------
UTILITIES - ELECTRIC (7.1%)
1,000 Chugach Electric Company.............................. 9.14 03/15/22 1,017,690
5,000 Duke Power Co......................................... 7.00 07/01/33 4,109,350
2,000 Florida Power & Light Co.............................. 7.875 01/01/13 1,844,000
2,000 Georgia Power Co...................................... 8.625 06/01/22 1,923,240
1,000 Houston Lighting & Power Co........................... 8.75 03/01/22 982,230
2,000 Houston Lighting & Power Co........................... 7.75 03/15/23 1,770,260
5,000 Northern States Power Co.............................. 7.25 03/01/23 4,240,350
5,000 Pennsylvania Power & Light Co......................... 7.70 10/01/09 4,896,000
3,000 Public Service Electric & Gas Co...................... 7.875 11/01/01 2,906,910
7,000 Southern Caliornia Edison Co.......................... 7.25 03/01/26 5,854,730
---------------
29,544,760
---------------
WASTE DISPOSAL (1.3%)
5,000 Browning Ferris Industries............................ 9.25 05/01/21 5,194,850
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $228,554,277)...................................... 216,077,191
---------------
U.S. GOVERNMENT AGENCIES & OBLIGATION (39.9%)
20,511 Federal Home Loan Mortgage Corp....................... 8.00 01/01/22 to 12/01/24 19,671,243
10,000 Federal Home Loan Mortgage Corp....................... 8.50 01/01/22 to 12/01/24 9,837,502
42 Federal Home Loan Mortgage Corp....................... 11.50 06/01/11 to 05/01/19 45,509
5,000 Federal National Mortgage Association (Principal
Strip).............................................. 0.00 10/09/19 671,090
15,059 Federal National Mortgage Association................. 7.00 01/01/24 to 06/01/24 13,666,116
25,409 Federal National Mortgage Association................. 7.50 06/01/23 to 11/01/24 23,725,745
16,032 Federal National Mortgage Association................. 8.00 05/01/16 to 10/01/24 15,355,340
</TABLE>
57
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATES VALUE
- ------------- ---------- ---------------------- ---------------
<C> <S> <C> <C> <C>
$ 2,000 Federal National Mortgage Association (Principal
Strip).............................................. 0.00% 08/21/01 $ 1,709,062
17,261 Government National Mortgage Association.............. 7.00 01/15/23 to 11/15/24 15,491,378
25,353 Government National Mortgage Association.............. 7.50 06/15/22 to 06/15/24 23,522,675
4,868 Government National Mortgage Association.............. 8.00 01/15/22 to 08/15/24 4,653,367
839 Government National Mortgage Association.............. 8.50 01/15/17 to 11/15/21 824,259
5,000 Government National Mortgage Association.............. 9.00 * 5,043,750
376 Government National Mortgage Association.............. 9.50 07/15/17 to 04/15/20 387,445
298 Government National Mortgage Association.............. 10.00 05/15/16 to 04/15/19 312,855
1,800 Private Export Funding Services....................... 5.48 09/15/03 1,641,348
1,000 Student Loan Marketing Association.................... 12.05 03/19/96 713,750
21,000 Tennessee Valley Authority............................ 7.85 06/15/44 18,749,083
10,000 U.S. Treasury Bond.................................... 7.50 11/15/24 9,559,375
---------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATION
(IDENTIFIED COST $169,136,949).......................................................... 165,580,892
---------------
FOREIGN GOVERNMENT AGENCIES & OBLIGATIONS (5.2%)
1,000 Hydro-Quebec.......................................... 8.25 01/15/27 914,560
5,000 Hydro-Quebec.......................................... 9.50 11/15/30 5,218,950
5,000 Italy-Republic........................................ 6.875 09/27/23 3,911,500
3,000 Province of Manitoba.................................. 6.875 09/15/02 2,743,050
5,000 Province of New Brunswick............................. 7.625 06/29/04 4,752,550
5,000 Quebec Province CDA................................... 7.50 07/15/23 4,232,900
---------------
TOTAL FOREIGN GOVERNMENT AGENCIES & OBLIGATIONS
(IDENTIFIED COST $24,136,480)........................................................... 21,773,510
---------------
SHORT-TERM INVESTMENTS (2.5%)
U.S.GOVERNMENT OBLIGATION (A) (1.4%)
6,000 U.S. Treasury Bill.................................... 5.31 08/24/95 5,745,356
---------------
COMMERCIAL PAPER (A) (0.9%)
FINANCE - ENERGY
3,800 Exxon Credit Corp..................................... 5.78 01/03/95 3,798,780
---------------
REPURCHASE AGREEMENT (0.2%)
724 The Bank of New York (dated 12/30/94; proceeds
$723,834; collateralized by $758,314 U.S. Treasury
Bill 6.43% due 06/08/95 valued at $738,055)......... 3.125 01/03/95 723,583
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $10,314,583)................................ 10,267,719
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $432,142,289) (B)............................................. 99.7 % 413,699,312
OTHER ASSETS IN EXCESS OF LIABILITIES............................................................ 0.3 1,205,600
------ ---------------
NET ASSETS....................................................................................... 100.0 % $ 414,904,912
------ ---------------
------ ---------------
<FN>
- ----------------
* SECURITIES WERE PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN
APPROXIMATE PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE, THE ACTUAL
PRINCIPAL AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT.
(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
$434,182,320; THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,397,840
AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $21,880,848, RESULTING
IN NET UNREALIZED DEPRECIATION OF $20,483,008.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ------------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (81.8%)
AEROSPACE (1.2%)
$ 1,500 Sabreliner Corp. (Series B)...................................... 12.50 % 04/15/03 $ 1,335,000
---------------
AIRLINES (3.4%)
5,000 GPA Delaware, Inc................................................ 8.75 12/15/98 3,825,000
---------------
AUTOMOTIVE (1.4%)
2,000 Envirotest Systems Corp. ........................................ 9.625 04/01/03 1,590,000
---------------
CABLE & TELECOMMUNICATIONS (1.4%)
3,000 Marcus Cable Co. ................................................ 13.50 ++ 08/01/04 1,582,500
---------------
CHEMICALS (1.6%)
1,791 Georgia Gulf Corp. .............................................. 15.00 04/15/00 1,831,297
---------------
COMPUTER EQUIPMENT (2.9%)
3,000 Unisys Corp. .................................................... 13.50 07/01/97 3,225,000
---------------
CONSUMER PRODUCTS (4.2%)
2,000 Icon Health & Fitness, Inc. (Units)++ - 144A**................... 13.00 07/15/02 1,970,000
1,850 J.B. Williams Holdings, Inc. .................................... 12.50 * 03/01/04 1,776,000
1,000 Thermoscan, Inc. (Units)++ - 144A**.............................. 11.75 * 08/15/01 1,000,000
---------------
4,746,000
---------------
CONTAINERS (1.1%)
3,000 Ivex Holdings Corp. (Series B)................................... 13.25 ++ 03/15/05 1,275,000
---------------
ELECTRICAL & ALARM SYSTEMS (1.9%)
3,000 Mosler, Inc. .................................................... 11.00 04/15/03 2,100,000
---------------
ENTERTAINMENT/GAMING & LODGING (9.9%)
1,000 Fitzgeralds Gaming Corp. - 144A**................................ 13.50 * 03/15/96 540,000
3,000 Motels of America, Inc. ......................................... 12.00 04/15/04 3,037,500
7,517 Spectravision, Inc. ............................................. 11.65 + 12/01/02 1,343,664
2,000 Trump Castle Funding, Inc. ...................................... 11.75 11/15/03 1,050,000
5,761 Trump Plaza Holding Assoc. ...................................... 12.50 + 06/15/03 5,069,561
---------------
11,040,725
---------------
FOODS & BEVERAGES (5.4%)
3,000 Envirodyne Industries, Inc. ..................................... 10.25 12/01/01 2,160,000
9,000 Specialty Foods Acquisition Corp. (Series B) ................... 13.00 ++ 08/15/05 3,870,000
---------------
6,030,000
---------------
FOREST & PAPER PRODUCTS (1.8%)
2,000 Fort Howard Corp. ............................................... 14.125 11/01/04 2,005,000
---------------
MANUFACTURING (5.1%)
3,000 Berry Plastics Corp. ............................................ 12.25 04/15/04 2,932,500
2,000 MS Essex Holdings, Inc. ......................................... 16.00 ++ 05/15/04 1,950,000
1,000 Uniroyal Technology Corp. ....................................... 11.75 06/01/03 820,000
---------------
5,702,500
---------------
MANUFACTURING - DIVERSIFIED (5.9%)
2,000 Interlake Corp. ................................................. 12.125% 03/01/02 1,870,000
2,000 J.B. Poindexter, Inc. ........................................... 12.50 05/15/04 1,900,000
</TABLE>
59
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ------------- --------- ---------------
<C> <S> <C> <C> <C>
$ 2,000 Jordan Industries, Inc. ......................................... 10.375% 08/01/03 $ 1,770,000
2,000 Jordan Industries, Inc. ......................................... 11.75 ++ 08/01/05 1,030,000
---------------
6,570,000
---------------
OIL & GAS (6.0%)
2,000 Deeptech International, Inc. .................................... 12.00 12/15/00 1,825,000
3,000 Empire Gas Corp. (Units)++....................................... 12.875++ 07/15/04 2,220,000
3,000 Presidio Oil Co. (Series B)...................................... 13.675*** 07/15/02 2,640,000
---------------
6,685,000
---------------
PUBLISHING (7.0%)
2,000 Affiliated Newspapers Inv., Inc. ................................ 13.25 ++ 07/01/06 1,000,000
3,800 BFP Holdings, Inc. (Series B).................................... 13.50 ++ 04/15/04 2,204,000
2,000 Garden State Newspapers, Inc. ................................... 12.00 07/01/04 1,965,000
1,000 United States Bancorp............................................ 10.375 06/01/02 855,000
2,000 United States Banknote Corp. .................................... 11.625 08/01/02 1,770,000
---------------
7,794,000
---------------
RESTAURANTS (8.0%)
6,000 American Restaurant Group Holdings, Inc. ........................ 14.00 ++ 12/15/05 2,880,000
3,000 Carrols Corp. ................................................... 11.50 08/15/03 2,782,500
4,000 Flagstar Corp. .................................................. 11.25 11/01/04 3,300,000
---------------
8,962,500
---------------
RETAIL (6.9%)
3,000 Cort Furniture Rental Corp. ..................................... 12.00 09/01/00 2,835,000
2,000 County Seat Stores Co. .......................................... 12.00 10/01/01 2,040,000
3,000 Thrifty Payless Holdings, Inc. .................................. 12.25 04/15/04 2,850,000
---------------
7,725,000
---------------
RETAIL - FOOD CHAINS (4.7%)
2,000 Food 4 Less Holdings, Inc. ...................................... 15.25 ++ 12/15/04 1,500,000
19,558 Grand Union Capital Corp. (Series A)............................. 15.00 ++ 07/15/04 880,110
26,950 Grand Union Capital Corp. (Series A)............................. 0.00 01/15/07 404,250
3,000 Purity Supreme, Inc. (Series B).................................. 11.75 08/01/99 2,490,000
---------------
5,274,360
---------------
TEXTILES (2.0%)
3,034 JPS Textiles Group, Inc. ........................................ 10.85 06/01/99 2,245,160
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $104,272,945)....................................... 91,544,042
---------------
U.S. GOVERNMENT OBLIGATION (11.9%)
13,000 U.S. Treasury Note (Identified Cost $13,484,062)................. 12.625 05/15/95 13,300,625
---------------
</TABLE>
60
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
COMMON STOCKS (A) (2.5%)
BUILDING & CONSTRUCTION (0.2%)
13,538 USG Corp. (b)........................................................................... $ 263,991
---------------
COMPUTER EQUIPMENT (0.0%)
39,813 Memorex Telex Corp. (ADR) (b)........................................................... 28,618
---------------
ENTERTAINMENT/GAMING & LODGING (0.2%)
2,000 Motels of America, Inc. - 144A**........................................................ 190,000
4,000 Trump Taj Mahal, Inc. (Class A)......................................................... 40,000
---------------
230,000
---------------
FOODS & BEVERAGES (0.3%)
105,000 Specialty Foods Acquisition Corp. - 144A**.............................................. 315,000
---------------
HOTELS/MOTELS (0.1%)
71,890 Vagabond Inns, Inc. (Class D)........................................................... 107,835
---------------
INDUSTRIALS (0.0%)
87 Northern Holdings Industrial Corp....................................................... --
---------------
MANUFACTURING - DIVERSIFIED (0.9%)
84,072 Thermadyne Holdings Corp. (b)........................................................... 956,319
---------------
PUBLISHING (0.5%)
2,000 Affiliated Newspapers Inv., Inc. (Class B).............................................. 50,000
30,400 BFP Holdings, Inc. - 144A** (Class D)................................................... 456,000
---------------
506,000
---------------
RESTAURANTS (0.1%)
6,000 American Restaurant Group Holdings, Inc. - 144A**....................................... 132,000
---------------
RETAIL (0.2%)
57,000 Thrifty Payless Holdings, Inc. (Class C)................................................ 256,500
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $11,302,395)....................................... 2,796,263
---------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE
---------
<C> <S> <C> <C>
WARRANTS (A) (0.5%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. (b).......................................................... 04/15/03 15,000
---------------
BUILDING & CONSTRUCTION (0.0%)
6,320 USG Corp. (b)................................................................. 05/05/98 52,140
---------------
CONTAINERS (0.1%)
2,000 Crown Packaging Holdings, Ltd. - 144A** (Canada).............................. 10/15/03 110,000
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
1,000 Boomtown, Inc. - 144A **...................................................... 11/01/98 25,000
3,263 Casino America, Inc. ......................................................... 11/15/96 3,263
1,000 Fitzgeralds Gaming Corp. - 144A**............................................. 03/15/99 30,000
100 Trump Plaza Holding Assoc. ................................................... 06/18/96 50,000
---------------
108,263
---------------
</TABLE>
61
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES DATE VALUE
- ----------- --------- ---------------
<C> <S> <C> <C>
MANUFACTURING (0.0%)
3,000 BPC Holdings Corp. ........................................................... 04/15/04 $ 37,500
10,000 Uniroyal Technology Corp. .................................................... 06/01/03 15,000
---------------
52,500
---------------
RETAIL (0.3%)
2,000 County Seat Holdings Co. ..................................................... 10/15/98 50,000
99,000 New Cort Holdings Corp. ...................................................... 09/01/98 247,500
---------------
297,500
---------------
RETAIL - FOOD CHAINS (0.0%)
10,395 Purity Supreme, Inc. ......................................................... 08/06/97 520
---------------
TOTAL WARRANTS (IDENTIFIED COST $360,536)................................................ 635,923
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE
- ----------- ---------- ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
$ 1,540 The Bank of New York (dated 12/30/94; proceeds $1,540,644;
collateralized by $1,614,051 U.S. Treasury Bill 6.43% due 06/08/95
valued at $1,570,911) (Identified Cost $1,540,109)................. 3.125% 01/03/95 1,540,109
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $130,960,047) (C)............................................. 98.1 % 109,816,962
OTHER ASSETS IN EXCESS OF LIABILITIES............................................................ 1.9 2,117,280
------ ---------------
NET ASSETS....................................................................................... 100.0 % $ 111,934,242
------ ---------------
------ ---------------
<FN>
- ----------------
ADR AMERICAN DEPOSITORY RECEIPT.
* ADJUSTABLE RATE. RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31, 1994.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** BASE INTEREST RATE IS 13.675%, ADDITIONAL INTEREST IF ANY, IS LINKED TO
THE GAS INDEX. RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31, 1994.
++ CONSISTS OF MORE THAN ONE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
+ PAYMENT-IN-KIND SECURITIES.
++ CURRENTLY ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A
FUTURE SPECIFIED DATE.
(A) NON-INCOME PRODUCING SECURITY.
(B) ACQUIRED THROUGH EXCHANGE OFFER.
(C) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $131,095,406; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,720,221 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $22,998,665, RESULTING IN NET UNREALIZED
DEPRECIATION OF $21,278,444.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (9.5%)
TELECOMMUNICATIONS (2.4%)
$ 5,000 Century Telephone Enterprises, Inc.................................... 8.25 % 05/01/24 $ 4,675,450
3,000 Southern New England Telephone Company................................ 7.25 12/15/33 2,528,430
2,000 Sprint Corp........................................................... 9.25 04/15/22 2,087,100
---------------
9,290,980
---------------
UTILITIES - ELECTRIC (7.1%)
2,000 Arizona Public Service Company........................................ 8.00 02/01/25 1,783,420
2,000 Arkansas Power & Light Company........................................ 7.00 10/01/23 1,591,800
5,000 Commonwealth Edison Corp.............................................. 8.375 02/15/23 4,502,950
2,000 Consumer Power Company................................................ 7.375 09/15/23 1,635,820
2,000 Dayton Power & Light Company.......................................... 7.875 02/15/24 1,835,200
2,000 Florida Power & Light Co.............................................. 7.05 12/01/26 1,648,620
1,000 Georgia Power Co...................................................... 8.625 06/01/22 961,620
5,000 GGIB Funding Corp..................................................... 7.43 01/15/11 4,347,300
3,000 Indianapolis Power Co................................................. 7.05 02/01/24 2,496,840
2,000 Long Island Lighting Company.......................................... 9.625 07/01/24 1,809,400
3,000 Niagara Mohawk Power Corporation...................................... 6.875 03/01/01 2,660,460
2,000 South Carolina Electric & Gas Co...................................... 7.625 06/01/23 1,777,840
---------------
27,051,270
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $40,089,851).......................................... 36,342,250
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C>
PREFERRED STOCKS (0.1%)
TELECOMMUNICATIONS (0.0%)
7,000 GTE Delaware Corp. 9.25% (Series A).......................................................... 180,250
---------------
UTILITIES - ELECTRIC (0.1%)
3,039 Cleveland Electric Illuminating Co. 9.125% (Series N)........................................ 299,342
---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $484,978)............................................ 479,592
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
COMMON STOCKS (89.0%)
TELECOMMUNICATIONS (32.5%)
135,000 Airtouch Communications*..................................................................... 3,931,875
230,000 ALLTEL Corp.................................................................................. 6,928,750
190,000 AT&T Corp.................................................................................... 9,547,500
165,000 BCE, Inc..................................................................................... 5,300,625
300,000 Cable & Wireless PLC (ADR)................................................................... 5,250,000
160,000 Century Telephone Enterprises, Inc........................................................... 4,720,000
80,000 Cincinnati Bell, Inc......................................................................... 1,340,000
200,000 Comcast Corp. (Class A)...................................................................... 3,075,000
</TABLE>
63
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- ---------------
<C> <S> <C>
155,000 Comsat Corp.................................................................................. $ 2,886,875
90,000 Ericsson (L.M.) Telephone Co. (ADR).......................................................... 4,961,250
175,000 GTE Corp..................................................................................... 5,315,625
180,000 MCI Communications Corp...................................................................... 3,307,500
115,000 MFS Communications Co., Inc.*................................................................ 3,766,250
100,000 Motorola, Inc................................................................................ 5,787,500
160,000 Northern Telecom, Ltd........................................................................ 5,340,000
140,000 NYNEX Corp................................................................................... 5,145,000
130,000 Pacific Telesis Group, Inc................................................................... 3,705,000
240,000 Rochester Telephone Corp..................................................................... 5,070,000
130,000 SBC Communications, Inc...................................................................... 5,248,750
185,000 Southern New England Telecommunications Corp................................................. 5,943,125
125,000 Sprint Corp.................................................................................. 3,453,125
65,000 Tele Danmark AS (ADR)........................................................................ 1,657,500
85,000 Telecommunications Corp. New Zealand, Ltd. (ADR)............................................. 4,366,875
100,000 Telefonos de Mexico, S.A. Series L (ADR)..................................................... 4,100,000
135,000 Telephone Data Systems, Inc.................................................................. 6,226,875
115,000 Time Warner, Inc............................................................................. 4,039,375
110,000 U.S. West, Inc............................................................................... 3,918,750
---------------
124,333,125
---------------
UTILITIES - ELECTRIC (44.0%)
230,000 Baltimore Gas & Electric Co.................................................................. 5,088,750
135,000 Carolina Power & Light Company............................................................... 3,594,375
150,000 Central & South West Corp.................................................................... 3,393,750
260,865 CINergy Corp................................................................................. 6,097,719
265,000 CMS Energy Corp.............................................................................. 6,061,875
130,000 Consolidated Edison of New York, Inc......................................................... 3,347,500
165,000 Detroit Edison Company....................................................................... 4,310,625
215,000 DPL, Inc..................................................................................... 4,407,500
135,000 DQE, Inc..................................................................................... 3,999,375
190,000 Entergy Corp................................................................................. 4,156,250
150,000 FPL Group, Inc............................................................................... 5,268,750
175,000 General Public Utilities Corp................................................................ 4,593,750
125,000 Hawaiian Electric Industries, Inc............................................................ 4,046,875
100,000 Houston Industries, Inc...................................................................... 3,562,500
265,000 Illinova Corp................................................................................ 5,763,750
150,000 IPALCO Enterprises, Inc...................................................................... 4,500,000
145,000 Kansas City Power & Light Company............................................................ 3,389,375
145,000 Long Island Lighting Company................................................................. 2,229,375
145,000 Montana Power Company........................................................................ 3,335,000
110,000 New England Electric System.................................................................. 3,533,750
105,000 New York State Electric & Gas Corp........................................................... 1,995,000
220,000 Niagara Mohawk Power Corp.................................................................... 3,135,000
180,000 NIPSCO Industries, Inc....................................................................... 5,355,000
100,000 Northeast Utilities.......................................................................... 2,162,500
</TABLE>
64
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- ---------------
<C> <S> <C>
150,000 Pacific Gas & Electric Company............................................................... $ 3,656,250
310,000 PacifiCorp................................................................................... 5,618,750
240,000 Pinnacle West Capital Corp................................................................... 4,740,000
110,000 Portland General Corp........................................................................ 2,117,500
130,000 Potomac Electric Power Company............................................................... 2,388,750
210,000 Public Service Company of Colorado........................................................... 6,168,750
240,000 Public Service Company of New Mexico*........................................................ 3,120,000
145,000 Public Service Enterprise Group, Inc......................................................... 3,842,500
100,000 Puget Sound Power & Light Company............................................................ 2,012,500
140,000 San Diego Gas & Electric Company............................................................. 2,695,000
90,000 SCANA Corp................................................................................... 3,791,250
120,000 SCE Corp..................................................................................... 1,755,000
280,000 Southern Company............................................................................. 5,600,000
245,000 Tele-Communications, Inc. (Class A)*......................................................... 5,328,750
145,000 Texas Utilities Co........................................................................... 4,640,000
115,000 United Illuminating Company.................................................................. 3,392,500
165,000 Western Resources Corp....................................................................... 4,723,125
210,000 Wisconsin Energy Corp........................................................................ 5,433,750
---------------
168,352,719
---------------
UTILITIES - NATURAL GAS (12.5%)
90,000 Apache Corp.................................................................................. 2,250,000
120,000 Burlington Resources, Inc.................................................................... 4,200,000
110,000 Columbia Gas Systems, Inc.*.................................................................. 2,585,000
150,000 El Paso Natural Gas Company.................................................................. 4,575,000
180,000 ENSERCH Corp................................................................................. 2,362,500
105,000 Louisiana Land & Exploration Co.............................................................. 3,819,375
130,000 Panhandle Eastern Corp....................................................................... 2,567,500
130,000 Questar Corp................................................................................. 3,575,000
210,000 Seagull Energy Corp.*........................................................................ 4,016,250
130,000 Tenneco, Inc................................................................................. 5,525,000
85,000 UGI Corp..................................................................................... 1,731,875
145,000 Union Texas Petroleum Holdings, Inc.......................................................... 3,008,750
110,000 USX Delhi-Group.............................................................................. 1,100,000
250,000 Williams Companies, Inc...................................................................... 6,281,250
---------------
47,597,500
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $359,677,185)........................................... 340,283,344
---------------
</TABLE>
65
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ------ -------- -----
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (0.8%)
U.S. GOVERNMENT AGENCY (A) (0.7%)
$ 2,600 Federal Home Loan Banks.............................................. 5.75 % 01/03/95 $ 2,599,169
---------------
REPURCHASE AGREEMENT (0.1%)
228 The Bank of New York (dated 12/30/94; proceeds $223,346;
collateralized by $233,980 U.S. Treasury Bill 6.43% due 06/08/95
valued at $227,733)................................................ 3.125 01/03/95 223,268
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $2,822,437).............................. 2,822,437
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $403,074,451) (B)........................... 99.4 % 379,927,623
OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.6 2,484,129
------ ---------------
NET ASSETS..................................................................... 100.0 % $ 382,411,752
------ ---------------
------ ---------------
<FN>
- ----------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(A) U.S. GOVERNMENT AGENCY 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 $403,114,273; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $18,203,312 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $41,389,962, RESULTING IN NET UNREALIZED
DEPRECIATION OF $23,186,650.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (94.0%)
AEROSPACE (4.2%)
184,000 Raytheon Co......................... $ 11,753,000
193,500 United Technologies Corp............ 12,166,312
---------------
23,919,312
---------------
ALUMINUM (2.2%)
144,000 Aluminum Co. of America............. 12,474,000
---------------
AUTO PARTS (2.0%)
177,000 TRW, Inc............................ 11,682,000
---------------
AUTOMOBILES (4.4%)
447,000 Ford Motor Co....................... 12,516,000
299,000 General Motors Corp................. 12,632,750
---------------
25,148,750
---------------
BANKING (4.0%)
287,100 BankAmerica Corp.................... 11,340,450
206,000 Bankers Trust N.Y. Corp............. 11,407,250
---------------
22,747,700
---------------
BEVERAGES (2.1%)
323,500 PepsiCo, Inc........................ 11,726,875
---------------
CHEMICALS (6.2%)
174,800 Dow Chemical Co. (The).............. 11,755,300
237,750 Eastman Chemical Co................. 12,006,375
311,500 Grace (W.R.) & Co................... 12,031,688
---------------
35,793,363
---------------
COMPUTERS (2.1%)
160,000 International Business Machines
Corp.............................. 11,760,000
---------------
CONGLOMERATES (4.2%)
223,300 Minnesota Mining & Manufacturing
Co................................ 11,918,638
288,500 Tenneco, Inc........................ 12,261,250
---------------
24,179,888
---------------
COSMETICS (2.1%)
157,700 Gillette Co......................... 11,788,075
---------------
DRUGS (6.0%)
364,000 Abbott Laboratories................. 11,875,500
175,300 American Home Products Corp......... 11,000,075
197,200 Bristol-Myers Squibb Co............. 11,412,950
---------------
34,288,525
---------------
ELECTRIC - MAJOR (4.1%)
238,200 General Electric Co................. 12,148,200
920,000 Westinghouse Electric Corp.......... 11,270,000
---------------
23,418,200
---------------
FINANCE (2.0%)
315,000 Household International, Inc........ 11,694,375
---------------
FOODS (4.1%)
372,400 Quaker Oats Co...................... 11,451,300
478,000 Sara Lee Corp....................... 12,069,500
---------------
23,520,800
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
HOUSEHOLD PRODUCTS (2.0%)
184,400 Procter & Gamble Co................. $ 11,432,800
---------------
INSURANCE (2.1%)
261,000 Aetna Life & Casualty Co............ 12,299,625
---------------
METALS & MINING (2.1%)
197,000 Phelps Dodge Corp................... 12,189,375
---------------
NATURAL GAS (3.9%)
367,000 El Paso Natural Gas Co.............. 11,193,500
568,000 Panhandle Eastern Corp.............. 11,218,000
---------------
22,411,500
---------------
OFFICE EQUIPMENT (2.0%)
358,000 Pitney-Bowes, Inc................... 11,366,500
---------------
OIL & GAS PRODUCTS (2.0%)
335,000 Burlington Resources, Inc........... 11,725,000
---------------
OIL (8.0%)
109,000 Atlantic Richfield Co............... 11,090,750
196,000 Exxon Corp.......................... 11,907,000
133,500 Mobil Corp.......................... 11,247,375
107,900 Royal Dutch Petroleum Co. (ADR)..... 11,599,250
---------------
45,844,375
---------------
PAPER & FOREST PRODUCTS (2.0%)
301,700 Weyerhaeuser Co..................... 11,313,750
---------------
PHOTOGRAPHY (2.1%)
256,500 Eastman Kodak Co.................... 12,247,875
---------------
RAILROADS (2.0%)
233,500 Burlington Northern, Inc............ 11,237,187
---------------
RETAIL - DEPARTMENT STORES (3.7%)
752,800 K-Mart Corp......................... 9,786,400
341,000 May Department Stores Co............ 11,508,750
---------------
21,295,150
---------------
TELECOMMUNICATIONS (2.1%)
331,000 U.S. West, Inc...................... 11,791,875
---------------
TELEPHONES (4.1%)
232,800 Bell Atlantic Corp.................. 11,581,800
388,500 GTE Corp............................ 11,800,687
---------------
23,382,487
---------------
TOBACCO (2.0%)
202,000 Philip Morris Cos., Inc............. 11,615,000
---------------
UTILITIES - ELECTRIC (4.2%)
330,500 FPL Group, Inc...................... 11,608,812
510,500 Unicom Corp......................... 12,252,000
---------------
23,860,812
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$534,567,628)..................... 538,155,174
---------------
</TABLE>
67
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (5.7%)
$ 2,000 U.S. Treasury Bond 8.125% due
08/15/19.......................... $ 2,025,313
5,000 U.S. Treasury Bond 8.00% due
11/15/21.......................... 5,016,406
5,000 U.S. Treasury Bond 7.125% due
02/15/23.......................... 4,547,656
8,000 U.S. Treasury Bond 6.25% due
08/15/23.......................... 6,496,250
10,000 U.S. Treasury Note 4.25% due
07/31/95.......................... 9,854,688
5,000 U.S. Treasury Note 6.375% due
01/15/99.......................... 4,746,875
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $34,736,875)..... 32,687,188
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.0%)
REPURCHASE AGREEMENT
$ 205 The Bank of New York 3.125% due
01/03/95 (dated 12/30/94; proceeds
$205,142; collateralized by
$214,908 U.S. Treasury Bill 6.43%
due 06/08/95 valued at $209,172)
(Identified Cost $205,071)........ $ 205,071
---------------
TOTAL INVESTMENTS (IDENTIFIED COST
$569,509,574) (A)..................... 99.7% 571,047,433
OTHER ASSETS IN EXCESS OF LIABILITIES... 0.3 1,904,890
------ ---------------
NET ASSETS.............................. 100.0% $ 572,952,323
------ ---------------
------ ---------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $571,309,901; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $31,631,173 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $31,893,641, RESULTING IN NET UNREALIZED
DEPRECIATION OF $262,468.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
COMMON STOCKS (97.4%)
ADVERTISING (2.3%)
32,200 Interpublic Group Cos., Inc........... $ 1,034,425
-------------
APPAREL (2.3%)
30,100 Cintas Corp........................... 1,053,500
-------------
AUTO PARTS (2.3%)
29,100 Genuine Parts Co...................... 1,047,600
-------------
BANKING (6.6%)
40,700 Banc One Corp......................... 1,032,762
41,100 Central Fidelity Banks, Inc........... 996,675
21,300 Fifth Third Bancorp................... 1,006,425
-------------
3,035,862
-------------
BEVERAGES (4.7%)
20,100 Anheuser-Busch Cos., Inc.............. 1,022,588
21,600 Coca Cola Co.......................... 1,112,400
-------------
2,134,988
-------------
BUILDING MATERIALS (2.4%)
32,500 Sherwin-Williams Co................... 1,076,562
-------------
CHEMICALS - SPECIALTY (2.3%)
32,200 Sigma-Aldrich, Inc.................... 1,046,500
-------------
COMMERCIAL SERVICES (4.6%)
17,300 Automatic Data Processing, Inc........ 1,012,050
28,400 General Motors Corp. (Class E)........ 1,093,400
-------------
2,105,450
-------------
COMPUTER SOFTWARE (2.3%)
17,000 Microsoft Corp.*...................... 1,039,125
-------------
CONSUMER SERVICES (2.3%)
28,400 Block (H&R), Inc...................... 1,054,350
-------------
COSMETICS (2.2%)
22,100 International Flavors & Fragrances,
Inc................................. 1,022,125
-------------
DRUGS (7.0%)
33,400 Abbott Laboratories................... 1,089,675
22,100 Forest Laboratories, Inc. (Class A)*.. 1,030,412
14,700 Schering-Plough Corp.................. 1,087,800
-------------
3,207,887
-------------
ELECTRIC EQUIPMENT (2.3%)
18,500 Grainger (W.W.), Inc.................. 1,068,375
-------------
ELECTRONICS (2.3%)
28,600 Dionex Corp.*......................... 1,058,200
-------------
ENTERTAINMENT (2.5%)
48,500 Circus Circus Enterprises, Inc.*...... 1,127,625
-------------
FINANCIAL - MISCELLANEOUS (2.3%)
14,200 Federal National Mortgage
Association......................... 1,034,825
-------------
FOOD WHOLESALERS (2.3%)
40,700 Sysco Corp............................ 1,048,025
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
FOODS (7.0%)
32,500 ConAgra, Inc.......................... $ 1,015,625
17,900 Tootsie Roll Industries, Inc.......... 1,100,850
22,100 Wrigley, (W.M.) Jr., (Class A)........ 1,091,188
-------------
3,207,663
-------------
GOLD MINING (2.4%)
48,700 American Barrick Resources Corp....... 1,083,575
-------------
HOUSEWARES (2.4%)
38,900 Rubbermaid, Inc....................... 1,118,375
-------------
INSURANCE (0.6%)
18,100 Crawford & Co., (Class B)............. 289,600
-------------
MACHINERY - DIVERSIFIED (2.3%)
23,400 Thermo Electron Corp.*................ 1,050,075
-------------
MANUFACTURED HOUSING (2.5%)
71,125 Clayton Homes, Inc.................... 1,120,219
-------------
MANUFACTURING (4.6%)
52,601 Federal Signal Corp................... 1,071,745
27,600 Loral Corp............................ 1,045,350
-------------
2,117,095
-------------
MEDICAL EQUIPMENT (4.4%)
68,900 Biomet, Inc.*......................... 947,375
28,500 Stryker Corp.......................... 1,043,813
-------------
1,991,188
-------------
RESTAURANTS (7.0%)
62,500 Brinker International, Inc.*.......... 1,132,813
61,700 International Dairy Queen, Inc. (Class
A)*................................. 1,018,050
36,000 McDonald's Corp....................... 1,053,000
-------------
3,203,863
-------------
RETAIL - DEPARTMENT STORES (2.2%)
46,300 Wal-Mart Stores, Inc.................. 983,875
-------------
RETAIL - DRUG STORES (2.3%)
24,300 Walgreen Co........................... 1,063,125
-------------
RETAIL - FOOD CHAINS (2.2%)
35,000 Albertson's, Inc...................... 1,015,000
-------------
TOBACCO (2.4%)
38,800 UST, Inc.............................. 1,076,700
-------------
UTILITIES (2.2%)
36,979 Citizens Utilities Co. of Delaware
(Series A).......................... 462,232
43,552 Citizens Utilities Co. of Delaware
(Series B).......................... 549,848
-------------
1,012,080
-------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$43,555,895)........................ 44,527,857
-------------
</TABLE>
69
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -------------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.4%)
REPURCHASE AGREEMENT
$ 1,099 The Bank of New York 3.125% due
01/03/95 (dated 12/30/94; proceeds
$1,098,895, collateralized by
$1,151,246 U.S.Treasury Bill 6.43%
due 06/08/95 valued at $1,120,484)
(Identified Cost $1,098,514)....... $ 1,098,514
-------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
-------------
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST
$44,654,409).......................... 99.8% $ 45,626,371
OTHER ASSETS IN EXCESS OF
LIABILITIES........................... 0.2 88,890
------ ---------------
NET ASSETS............................. 100.0% $ 45,715,261
------ ---------------
------ ---------------
<FN>
- ------------------
* NON-INCOME PRODUCING SECURITY.
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $45,061,719; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,116,044 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $2,551,392, RESULTING IN NET UNREALIZED
APPRECIATION OF $564,652.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (99.3%)
AUSTRALIA (1.5%)
BUILDING & CONSTRUCTION
426,000 Pioneer International, Ltd. ........ $ 1,057,162
---------------
MULTI-INDUSTRY
465,000 Southcorp Holdings, Ltd. ........... 1,045,762
---------------
TOTAL AUSTRALIA..................... 2,102,924
---------------
CANADA (3.0%)
OIL RELATED
36,000 Imperial Oil, Ltd. ................. 1,185,306
62,700 IPL Energy, Inc..................... 1,272,122
---------------
2,457,428
---------------
TELECOMMUNICATIONS
53,200 BCE, Inc............................ 1,709,013
---------------
TOTAL CANADA........................ 4,166,441
FRANCE (7.5%)
FINANCIAL SERVICES
3,825 Societe Eurafrance S.A. ............ 1,174,003
---------------
FOODS & BEVERAGES
8,650 Eridania Beghin-Say S.A. ........... 1,137,135
4,500 Saint-Louis......................... 1,158,708
---------------
2,295,843
---------------
HOUSEHOLD PRODUCTS
9,340 BIC................................. 1,173,622
---------------
INTERNATIONAL OIL - INTEGRATED
19,350 Compagnie Francaise de Petroleum
Total (B Shares).................. 1,124,038
---------------
MULTI-INDUSTRY
5,095 Compagnie Generale D'Industrie et de
Participations.................... 1,116,320
3,400 Financiere et Industrielle Gaz et
Eaux.............................. 1,082,397
25,200 Worms et Compagnie.................. 1,215,169
---------------
3,413,886
---------------
OIL RELATED
8,750 Esso Francaise S.A. ................ 1,171,582
---------------
TOTAL FRANCE........................ 10,352,974
GERMANY (6.6%)
BANKING
2,100 Deutsche Bank AG.................... 975,799
---------------
CHEMICALS
4,300 Bayer AG............................ 1,007,357
---------------
HEALTH & PERSONAL CARE
3,500 Douglas Holding AG.................. 984,834
---------------
MACHINERY - DIVERSIFIED
4,575 IWKA AG............................. 1,003,872
---------------
MULTI-INDUSTRY
800 Preussag AG......................... 232,333
3,250 Viag AG............................. 1,013,069
---------------
1,245,402
---------------
OFFICE EQUIPMENT
5,200 Herlitz AG.......................... 986,641
---------------
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- ---------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES
2,700 Karstadt AG......................... $ 984,511
---------------
TEXTILES - APPAREL
1,650 Hugo Boss AG (Pref.)................ 1,000,968
---------------
UTILITIES - ELECTRIC
2,665 Veba AG............................. 928,751
---------------
TOTAL GERMANY....................... 9,118,135
HONG KONG (4.0%)
BANKING
103,600 HSBC Holdings....................... 1,118,299
---------------
CONGLOMERATES
180,000 Swire Pacific, Ltd. (A Shares)...... 1,121,582
---------------
REAL ESTATE
260,000 Cheung Kong Holdings, Ltd. ......... 1,058,755
---------------
TELECOMMUNICATIONS
594,800 Hong Kong Telecommunications,
Ltd. ............................. 1,134,161
---------------
UTILITIES - ELECTRIC
407,000 Hong Kong Electric Holdings......... 1,112,798
---------------
TOTAL HONG KONG..................... 5,545,595
ITALY (2.5%)
BANKING
305,000 Banco Ambroveneto................... 807,077
---------------
NATURAL GAS
298,000 Italgas............................. 818,812
---------------
TELECOMMUNICATIONS
470,000 Telecom Italia SpA.................. 935,662
---------------
TEXTILES
76,000 Benetton Group SpA.................. 886,277
---------------
TOTAL ITALY......................... 3,447,828
JAPAN (24.5%)
AUTOMOTIVE
166,000 Toyota Motor Corp. ................. 3,494,737
---------------
BUILDING & CONSTRUCTION
356,000 Fujita Corp. ....................... 1,887,960
---------------
BUILDING MATERIALS
278,000 Sankyo Industry Co., Ltd. .......... 1,697,263
---------------
CHEMICALS
363,000 Sekisui Chemical Co. ............... 3,602,707
---------------
COMPUTER SERVICES
131,000 AT&T Global Info Solutions.......... 1,615,338
---------------
ELECTRONICS
228,000 Hitachi, Ltd. ...................... 2,260,571
28,000 Kyocera Corp. ...................... 2,074,386
62,500 Sony Corp. ......................... 3,540,100
66,000 TDK Corp. .......................... 3,195,789
---------------
11,070,846
---------------
FOODS & BEVERAGES
187,000 House Foods Industrial Corp. ....... 3,711,880
---------------
MULTI - INDUSTRY
551,000 Furukawa Co., Ltd. ................. 3,513,143
---------------
</TABLE>
71
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- ---------------
<C> <S> <C>
PHARMACEUTICALS
275,000 Takeda Chemical Industries.......... $ 3,335,840
---------------
TOTAL JAPAN......................... 33,929,714
MALAYSIA (2.0%)
BUILDING & CONSTRUCTION
237,000 Cement Industries of Malaysia....... 737,725
121,000 United Engineers Malaysia Berhad.... 596,946
---------------
1,334,671
---------------
CONGLOMERATES
272,400 Sime Darby Berhad................... 623,939
---------------
FOODS & BEVERAGES
68,000 Nestle Malaysia Berhad.............. 452,623
---------------
OIL RELATED
132,000 Esso Malaysia Berhad................ 366,954
---------------
TOTAL MALAYSIA...................... 2,778,187
NETHERLANDS (3.1%)
BANKING
7,000 ABN-AMRO Holdings................... 243,215
---------------
BUILDING & CONSTRUCTION
25,100 Koninklijke Volker Stevin NV........ 1,359,493
---------------
FINANCIAL SERVICES
23,700 International Nederlande Group NV... 1,119,793
---------------
INSURANCE
3,500 Aegon NV............................ 223,855
30,202 Fortis Amev NV...................... 1,282,563
---------------
1,506,418
---------------
TOTAL NETHERLANDS................... 4,228,919
SWITZERLAND (4.0%)
BANKING
6,750 Schweizerische Bankverein AG
(Bearer).......................... 1,866,977
---------------
CHEMICALS
3,075 Ciba-Geigy AG (Bearer).............. 1,839,643
---------------
MULTI-INDUSTRY
2,175 Brown Boveri & Compagnie AG
(Bearer).......................... 1,872,880
---------------
TOTAL SWITZERLAND................... 5,579,500
UNITED KINGDOM (12.4%)
BANKING
290,000 Hambros PLC......................... 1,043,188
214,600 National Westminster Bank PLC....... 1,721,803
---------------
2,764,991
---------------
BREWERS
214,100 Bass PLC (Ord.)..................... 1,721,141
145,000 Scottish & Newcastle Breweries PLC.. 1,161,114
---------------
2,882,255
---------------
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------- ---------------
<C> <S> <C>
FOODS & BEVERAGES
908,000 Hazlewood Food PLC.................. $ 1,604,727
---------------
HEALTH & PERSONAL CARE
58,000 Wellcome PLC........................ 633,170
---------------
MULTI-INDUSTRY
460,500 Hanson Trust PLC.................... 1,656,511
---------------
NATURAL GAS
371,000 British Gas PLC..................... 1,827,769
---------------
RETAIL - MERCHANDISING
450,000 Tesco PLC........................... 1,745,423
---------------
TELECOMMUNICATIONS
307,000 British Telecom PLC................. 1,810,158
---------------
UTILITIES - ELECTRIC
44,000 South Wales Electricity PLC......... 619,343
---------------
UTILITIES - WATER
161,000 Welsh Water......................... 1,654,352
---------------
TOTAL UNITED KINGDOM................ 17,198,699
UNITED STATES (28.2%)
BANKING
112,300 BankAmerica Corp. .................. 4,435,850
---------------
CHEMICALS
63,500 Monsanto Co. ....................... 4,476,750
---------------
CONGLOMERATES
120,200 Tenneco, Inc........................ 5,108,500
---------------
HEALTH & PERSONAL CARE
77,400 Bristol Myers Squibb Co............. 4,479,525
---------------
INTERNATIONAL OIL - INTEGRATED
101,300 Chevron Corp. ...................... 4,520,513
---------------
METALS & BASIC MATERIALS
57,000 Phelps Dodge Corp. ................. 3,526,875
---------------
RETAIL
270,000 K-Mart Corp. ....................... 3,510,000
---------------
TOBACCO
78,600 Philip Morris Cos., Inc............. 4,519,500
---------------
UTILITIES - ELECTRIC
182,400 Pacific Gas & Electric Co. ......... 4,446,001
---------------
TOTAL UNITED STATES................. 39,023,514
---------------
TOTAL INVESTMENTS (IDENTIFIED COST
$140,526,932) (A)...................... 99.3% 137,472,430
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................ 0.7 1,013,609
------ ---------------
NET ASSETS............................... 100.0% $ 138,486,039
------ ---------------
------ ---------------
<FN>
- ------------------
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $140,631,317; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,377,721 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $6,536,608, RESULTING IN NET UNREALIZED
DEPRECIATION OF $3,158,887.
</TABLE>
72
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1994:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- ---------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
US$ 213,847 L 136,906 01/03/95 $ (274)
MYR 72,655 US$ 28,381 01/03/95 67
US$ 112,896 Y 11,272,674 01/04/95 (113)
US$ 350,609 Y 34,973,205 01/05/95 --
US$ 29,925 MYR 76,489 01/05/95 (23)
US$ 46,436 AUD 59,917 01/06/95 (30)
L 23,288 US$ 36,311 01/06/95 112
L 153,960 US$ 238,223 01/10/95 2,571
US$ 205,589 L 131,585 01/13/95 (211)
FRF 174,221 US$ 32,538 01/31/95 88
US$ 6,296 FRF 33,623 01/31/95 --
ITL 42,944,783 US$ 26,019 01/31/95 408
-------
Net Unrealized Appreciation.......................$2,595
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Automotive................................... $ 3,494,737 2.7%
Banking...................................... 12,212,208 8.8
Brewers...................................... 2,882,255 2.1
Building & Construction...................... 5,639,286 4.1
Building Materials........................... 1,697,263 1.2
Chemicals.................................... 10,926,457 7.9
Computer Services............................ 1,615,338 1.2
Conglomerates................................ 6,854,021 4.9
Electronics.................................. 11,070,846 8.0
Financial Services........................... 2,293,796 1.4
Foods & Beverages............................ 8,065,073 5.8
Health & Personal Care....................... 6,097,529 4.4
Household Products........................... 1,173,622 0.8
Insurance.................................... 1,506,418 1.1
International Oil - Intergrated.............. 5,644,551 4.1
Machinery - Diversified...................... 1,003,872 0.7
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Metals & Basic Materials..................... $ 3,526,875 2.5%
Multi-Industry............................... 12,747,584 9.2
Natural Gas.................................. 2,646,581 1.9
Office Equipment............................. 986,641 0.7
Oil Related.................................. 3,995,964 2.9
Pharmaceuticals.............................. 3,335,840 2.4
Real Estate.................................. 1,058,755 0.8
Retail....................................... 3,510,000 2.5
Retail - Department Stores................... 984,511 0.7
Retail - Merchandising....................... 1,745,423 1.3
Telecommunications........................... 5,588,994 4.3
Textiles..................................... 886,277 0.6
Textiles - Apparel........................... 1,000,968 0.7
Tobacco...................................... 4,519,500 3.3
Utilities - Electric......................... 7,106,893 5.1
Utilities - Water............................ 1,654,352 1.2
------------ -----
$137,472,430 99.3%
------------ -----
------------ -----
</TABLE>
SUMMARY OF INVESTMENTS BY TYPE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks......................................................................... $ 136,471,462 98.5%
Preferred Stock....................................................................... 1,000,968 0.8
-------------- -----
$ 137,472,430 99.3%
-------------- -----
-------------- -----
</TABLE>
74
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS AND RIGHTS
(96.0%)
AUSTRIA (2.8%)
BUILDING & CONSTRUCTION
10,000 Va Technologie AG.............. $ 1,005,495
---------------
ELECTRIC UTILITIES
7,500 Evn-Energieversorgung Ni....... 973,214
15,500 Oester Elex (A Shares)......... 894,231
---------------
1,867,445
---------------
OIL & GAS
17,000 OMV AG*........................ 1,438,462
---------------
TOTAL AUSTRIA.................. 4,311,402
---------------
BELGIUM (1.8%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
5,270 Colruyt S.A.................... 1,217,170
67,500 Quilmes........................ 1,552,500
---------------
TOTAL BELGIUM.................. 2,769,670
---------------
FINLAND (2.8%)
ELECTRONICS
29,000 Nokia AB (Pref.)............... 4,273,619
---------------
FRANCE (10.9%)
AUTOMOBILES
13,500 Psa Peugeot Citroen*........... 1,853,090
---------------
BANKING
13,000 Societe Generale Paris......... 1,377,903
---------------
BUILDING MATERIALS
7,700 CIE Saint Gobain............... 889,682
---------------
FINANCIAL SERVICES
20,405 Credit Local de France......... 1,452,041
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
8,800 LVMH-Moet Hennessey Louis
Vuitton...................... 1,389,213
---------------
INSURANCE
31,808 Scor S.A....................... 708,830
12,700 Ste Cen Group Assur Nat........ 649,270
---------------
1,358,100
---------------
MULTI - INDUSTRY
16,000 CIE Generale Des Eaux.......... 1,558,052
2,835 Eurafrance..................... 870,143
---------------
2,428,195
---------------
OIL RELATED
25,420 Societe National
Elf-Aquitaine................ 1,789,397
---------------
RETAIL
3,600 Carrefour Supermarche.......... 1,490,562
8,000 Castorama Dubois Invest........ 996,255
---------------
2,486,817
---------------
TEXTILES
19,500 Christian Dior................. 1,511,798
3,500 Christian Dior (Warrants due
6/30/98)*.................... 29,494
---------------
1,541,292
---------------
TOTAL FRANCE................... 16,565,730
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
GERMANY (8.1%)
AUTOMOTIVE
1,272 Bayerische Motoren Werke....... $ 632,101
---------------
BANKING
3,300 Dt. Pfandbrief U.
Hypothekenbank............... 1,605,808
---------------
BUSINESS SERVICES
4,700 Sap AG (Pref.)................. 2,663,182
---------------
CHEMICALS
6,250 Basf AG........................ 1,288,722
---------------
ELECTRIC UTILITIES
5,500 Veba AG........................ 1,916,747
---------------
MACHINERY - DIVERSIFIED
1,350 Krones AG (Pref.).............. 757,986
---------------
PHARMACEUTICALS
5,100 Gehe AG........................ 1,843,175
---------------
RETAIL
1,580 Hornbach Baumarkt Holdings
(Pref.)...................... 1,580,510
---------------
TOTAL GERMANY.................. 12,288,231
---------------
ITALY (3.8%)
ELECTRICAL EQUIPMENT
280,000 Ansaldo Trans.................. 964,923
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
29,700 Industrie Natuzzi SpA (ADR).... 994,950
---------------
MANUFACTURING
34,800 Luxottica Group (ADR).......... 1,187,550
---------------
TELECOMMUNICATIONS
1,032,750 Telecom Italia................. 2,681,972
---------------
TOTAL ITALY.................... 5,829,395
---------------
LUXEMBOURG (0.7%)
STEEL
7,000 Arbed (Acier Reun) NVP*........ 1,044,186
---------------
NETHERLANDS (7.3%)
BUSINESS SERVICES
43,000 Randstad Holdings.............. 2,326,534
---------------
INSURANCE
204 Aegon NV....................... 13,048
---------------
MACHINERY - DIVERSIFIED
37,162 Boskalis Westminster........... 758,015
---------------
MANUFACTURING
7,500 Polynorm NV*................... 735,955
---------------
MULTI - INDUSTRY
37,500 Hunter Douglas NV.............. 1,689,715
---------------
PUBLISHING
210,000 Elsevier NV.................... 2,190,147
16,000 VNU-Ver Ned Utigev............. 1,661,308
---------------
3,851,455
---------------
TRANSPORTATION
67,500 IHC Caland..................... 1,707,433
---------------
TOTAL NETHERLANDS.............. 11,082,155
---------------
NORWAY (2.2%)
BANKING
48,000 Sparebanken More............... 926,353
---------------
</TABLE>
75
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
BUSINESS SERVICES
113,300 Sysdeco Group AS*.............. $ 837,770
---------------
OIL RELATED
36,300 Smedvig Tankships*............. 279,148
---------------
TRANSPORTATION
55,395 Helikopter Service............. 638,984
20,000 Storli AS...................... 343,094
20,000 Storli AS (B Shares)*.......... 331,263
---------------
1,313,341
---------------
TOTAL NORWAY................... 3,356,612
---------------
SPAIN (3.5%)
BANKS - COMMERCIAL
30,000 Banco Bilbao Vizcaya........... 734,369
---------------
BUILDING & CONSTRUCTION
4,500 Fomento de Constructiones y
Contratas S.A................ 426,639
---------------
ENGINEERING & CONSTRUCTION
125,000 Uralita S.A.*.................. 1,203,107
---------------
TELECOMMUNICATIONS
120,000 Telefonica de Espana........... 1,409,625
---------------
UTILITIES
18,200 Gas Natural SDG................ 1,524,138
---------------
TOTAL SPAIN.................... 5,297,878
---------------
SWEDEN (9.5%)
AUTOMOBILES
60,000 Volvo AB (Series B Free)....... 1,130,461
---------------
AUTOMOTIVE
40,000 Autoliv AB..................... 1,480,365
---------------
BUSINESS SERVICES
190,000 Scribona AB (Series B Free).... 1,252,927
---------------
FOREST PRODUCTS, PAPER & PACKING
36,000 Mo Och Domsjoe AB (Series B
"Free")...................... 1,647,242
---------------
HEALTH & PERSONAL CARE
58,525 Astra AB (A Shares)............ 1,512,233
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
29,500 Electrolux (Series B Free)..... 1,492,746
---------------
INTERNATIONAL TRADE
49,290 Kinnevik Industriforvatnings (B
Shares)...................... 1,628,495
---------------
METALS & MINING
44,000 Ssab Svenskt Stal AB (Series A
Free)........................ 1,924,474
---------------
PAPER & FOREST PRODUCTS
23,000 Stora Kopparbergs (Series B
Free)........................ 1,383,603
---------------
RETAIL
18,200 Hennes & Mauritz AB (Series
B)........................... 930,746
---------------
TOTAL SWEDEN................... 14,383,292
---------------
SWITZERLAND (8.3%)
BUSINESS SERVICES
1,020 Soc Gen Surveillance........... 1,426,192
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
CEMENT
2,000 Holderbank Financiere Glarus AG
(Bearer)..................... $ 1,512,836
---------------
ELECTRICAL EQUIPMENT
1,600 Swisslog Holdings AG........... 372,861
---------------
INDUSTRIALS
2,370 Hilti AG PTG Certs............. 1,765,549
---------------
LEISURE
60 Reiseburo Kuoni................ 77,476
32 Reiseburo Kuoni (Bearer)....... 855,746
---------------
933,222
---------------
MACHINERY
1,010 Schinder Holdings.............. 1,180,700
---------------
MANUFACTURING
4,150 Kardex (B Shares).............. 1,093,941
---------------
PHARMACEUTICALS
330 Roche Holdings AG.............. 1,594,781
---------------
RETAIL
5,500 Fust SA Dipl. Ing AG (Bearer).. 1,638,906
---------------
TRANSPORTATION
1,100 Danzas Holding AG.............. 1,025,367
---------------
TOTAL SWITZERLAND.............. 12,544,355
---------------
UNITED KINGDOM (34.3%)
AEROSPACE & DEFENSE
133,333 British Aerospace.............. 890,435
180,000 Smiths Industries PLC.......... 1,227,427
---------------
2,117,862
---------------
AUTO PARTS - ORIGINAL EQUIPMENT
350,000 BBA Group PLC.................. 1,094,800
---------------
BANKING
200,000 Abbey National PLC............. 1,345,040
270,000 TSB Group PLC.................. 988,135
---------------
2,333,175
---------------
BUILDING & CONSTRUCTION
250,000 Blue Circle Industries PLC..... 1,094,800
210,400 John Mowlem & Co. PLC.......... 329,066
263,300 Williams Holdings PLC.......... 1,284,820
---------------
2,708,686
---------------
BUSINESS SERVICES
150,000 Reuters Holdings PLC........... 1,095,582
---------------
CONGLOMERATES
361,659 BTR PLC........................ 1,657,310
222,000 Harrison & Crosfield........... 479,147
---------------
2,136,457
---------------
CONTRUCTION PLANT & EQUIPMENT
207,400 CRH PLC........................ 1,145,039
---------------
ELECTRIC UTILITIES
105,000 Powergen PLC................... 875,293
200,000 Scottish Power PLC............. 1,091,672
---------------
1,966,965
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
36,307 Allied Lyons PLC............... 306,634
250,000 Argyll Group PLC............... 1,043,970
</TABLE>
76
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
94,261 BAT Industries PLC............. $ 635,398
122,000 Dalgety PLC.................... 801,394
140,000 Grand Metropolitan PLC......... 891,167
247,400 Rothmans International
(Units)++.................... 1,741,201
173,500 Tate & Lyle PLC................ 1,145,114
---------------
6,564,878
---------------
FOREST PRODUCTS, PAPER & PACKING
70,500 De La Rue Co................... 1,033,155
---------------
HEALTH & PERSONAL CARE
171,000 Glaxo Holdings................. 1,773,154
382,700 Smithkline Beecham (Units)++... 2,519,865
---------------
4,293,019
---------------
HOUSEHOLD GOODS
125,000 Reckitt & Colman PLC........... 1,143,675
15,625 Reckitt & Colman PLC (Rights
expire 01/25/95)*............ 82,354
---------------
1,226,029
---------------
INSURANCE
160,000 Britannic Assurance PLC........ 983,443
167,057 Commercial Union Assurance Co.
PLC.......................... 1,322,062
300,000 Lloyds Abbey Life.............. 1,529,592
279,200 Prudential Corp. PLC........... 1,375,507
119,000 Refuge Group................... 455,984
235,000 Royal Insurance PLC............ 1,025,437
---------------
6,692,025
---------------
LEISURE
225,000 Granada Group PLC.............. 1,784,133
---------------
OIL RELATED
540,000 British Petroleum Co. PLC...... 3,589,380
376,000 Lasmo PLC...................... 852,693
---------------
4,442,073
---------------
PUBLISHING
50,000 Daily Mail & General Trust
(Series A)................... 774,180
115,000 Pearson PLC.................... 989,230
---------------
1,763,410
---------------
REAL ESTATE
205,100 Hammerson Prop. Inv. & Dev.
PLC.......................... 1,106,679
94,500 MEPC PLC....................... 561,632
---------------
1,668,311
---------------
RETAIL STORES
100,000 Great Universal Stores......... 841,432
185,000 Kingfisher PLC................. 1,273,096
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
247,000 Morrison Supermarkets.......... $ 544,694
274,000 Next PLC....................... 1,097,052
---------------
3,756,274
---------------
TELECOMMUNICATIONS
365,700 British Telecomm PLC........... 2,156,270
---------------
TRANSPORTATION
213,500 British Airways PLC............ 1,185,395
---------------
UTILITIES
130,000 Anglican Water PLC............. 1,040,998
---------------
TOTAL UNITED KINGDOM........... 52,204,536
---------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS AND RIGHTS
(IDENTIFIED COST
$137,764,279)................ 145,951,061
---------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT EXPIRATION DATE/
(IN THOUSANDS) EXERCISE PRICE
- -------------- -------------------------------
<C> <S> <C>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (0.1%)
DEM 15,685 March 1995/DEM 1.5685.......... 52,000
FFr 53,880 March 1995/FFr 5.3888.......... 141,000
NLG 8,731 March 1995/NLG 1.7461.......... 78,000
---------------
TOTAL PURCHASED PUT OPTIONS ON
FOREIGN CURRENCY (IDENTIFIED
COST $421,500)............... 271,000
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)
- --------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.0%)
COMMERCIAL PAPER (A)
FINANCE - DIVERSIFIED
$ 3,000 American Express Credit Corp.
5.80% due 01/03/95 (Amortized
Cost $2,999,033)............. 2,999,033
---------------
TOTAL INVESTMENTS (IDENTIFIED COST
$141,184,812) (B)................... 98.1% 149,221,094
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES......................... 1.9 2,816,345
------ ---------------
NET ASSETS............................ 100.0% $ 152,037,439
------ ---------------
------ ---------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
++ CONSIST OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY ATTACHED STOCKS/WARRANTS.
(A) COMMERCIAL PAPER WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE
SHOWN HAS BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $141,178,683; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $13,953,136 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $5,910,725, RESULTING IN NET UNREALIZED
APPRECIATION OF $8,042,411.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1994:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE DEPRECIATION
- -------------------- -------------------- -------- -------------
<S> <C> <C> <C>
SKr 1,525,000 US$ 204,478 01/03/95 $ 755
L 54,832 US$ 85,629 01/04/95 129
US$ 27,193 L 17,588 01/06/95 (315)
US$ 196,060 L 126,246 01/10/95 (1,389)
ITL 279,334,595 US$ 169,726 01/31/95 2,172
ITL 280,840,560 US$ 170,434 01/31/95 2,391
-------------
Net Unrealized Appreciation .......................... $ 3,743
-------------
-------------
</TABLE>
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Aerospace & Defense.......................... $ 2,117,862 1.4%
Automobiles.................................. 2,983,551 2.0
Automotive................................... 2,112,466 1.4
Auto Parts - Original Equipment.............. 1,094,800 0.1
Banking...................................... 6,243,239 4.1
Banks - Commercial........................... 734,369 0.5
Building & Construction...................... 4,140,820 2.7
Building Materials........................... 889,682 0.6
Business Services............................ 9,602,187 6.3
Cement....................................... 1,512,836 1.0
Chemicals.................................... 1,288,722 0.9
Conglomerates................................ 2,136,457 1.4
Construction Plant & Equipment............... 1,145,039 0.8
Electric Utilities........................... 5,751,157 3.8
Electrical Equipment......................... 1,337,784 0.9
Electronics.................................. 4,273,619 2.8
Engineering & Construction................... 1,203,107 0.8
Finance - Diversified........................ 2,999,033 2.0
Financial Services........................... 1,452,041 1.0
Food, Beverage, Tobacco & Household
Products.................................... 10,723,761 7.1
Foreign Government Obligations (Put
Options).................................... 271,000 0.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Forest Products, Paper, & Packing............ $ 2,680,397 1.8%
Health & Personal Care....................... 5,805,252 3.8
Household Furnishings & Appliances........... 2,487,696 1.6
Household Goods.............................. 1,226,029 0.8
Industrials.................................. 1,765,549 1.2
Insurance.................................... 8,063,173 5.3
International Trade.......................... 1,628,495 1.1
Leisure...................................... 2,717,355 1.8
Machinery.................................... 1,180,700 0.8
Machine - Diversified........................ 1,516,001 1.0
Manufacturing................................ 3,017,446 2.0
Metals & Mining.............................. 1,924,474 1.3
Multi-Industry............................... 4,117,910 2.7
Oil & Gas.................................... 1,438,462 1.0
Oil & Related................................ 6,510,618 4.3
Paper & Forest Products...................... 1,383,603 0.9
Pharmaceuticals.............................. 3,437,956 2.3
Publishing................................... 5,614,865 3.7
Real Estate.................................. 1,668,311 1.1
Retail....................................... 6,636,979 4.4
Retail Stores................................ 3,756,274 2.5
Steel........................................ 1,044,186 0.7
Telecommunications........................... 6,247,867 4.1
Textiles..................................... 1,541,292 1.0
Transportation............................... 5,231,536 3.5
Utilities.................................... 2,565,136 1.7
------------ -----
$149,221,094 98.1%
------------ -----
------------ -----
</TABLE>
SUMMARY OF INVESTMENTS BY TYPE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Commercial Paper...................................................................... $ 2,999,033 2.0%
Common Stocks......................................................................... 136,563,916 89.8
Preferred Stocks...................................................................... 9,275,297 6.1
Put Options........................................................................... 271,000 0.1
Rights................................................................................ 82,354 0.1
Warrants.............................................................................. 29,494 0.0
-------------- -----
$ 149,221,094 98.1%
-------------- -----
-------------- -----
</TABLE>
78
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
COMMON STOCKS, WARRANTS, RIGHTS AND BONDS (97.9%)
AUSTRALIA (1.2%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
165,000 Fosters Brewing Group............. $ 143,312
-------------
METALS & MINING
200,000 M.I.M. Holdings, Ltd.............. 333,465
-------------
OIL RELATED
50,000 Santos, Ltd....................... 134,937
50,000 Woodside Petroleum, Ltd........... 183,794
-------------
318,731
-------------
TRANSPORTATION
14,500 Brambles Industries, Ltd.......... 138,535
-------------
TOTAL AUSTRALIA................... 934,043
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
CHINA (0.7%)
CHEMICALS
450,000 Yizheng Chemical Fibre Co......... 167,248
-------------
ELECTRIC UTILITIES
12,000 Shandong Huaneng (ADR)............ 115,500
-------------
TRANSPORTATION
160,000 Jinhui Shipping................... 212,800
-------------
TOTAL CHINA....................... 495,548
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
HONG KONG (19.6%)
BANKING
150,000 Dao Heng Bank..................... 426,605
150,000 Guoco Group....................... 641,846
150,000 Hang Seng Bank, Ltd............... 1,076,207
50,000 Hong Kong & Shanghai Banking Corp.
Holdings........................ 539,719
750,000 International Bank of Asia........ 264,204
-------------
2,948,581
-------------
COMPUTER SERVICES
260,000 Hanny Magnetics Holdings, Ltd..... 21,511
-------------
CONGLOMERATES
875,000 China Merchants Hai Hong Holding
Co., Ltd........................ 180,984
180,000 Citic Pacific, Ltd................ 433,973
325,000 Hutchison Whampoa, Ltd............ 1,315,041
91,200 Jardine Matheson Holdings, Ltd.... 651,386
60,000 Swire Pacific, Ltd. (A Shares).... 373,861
-------------
2,955,245
-------------
FINANCE
140,000 Dah Sing Financial Holdings....... 296,813
-------------
LEISURE
850,000 CDL Hotels International, Ltd..... 335,143
95,000 Hong Kong & Shanghai Hotels,
Ltd............................. 109,915
870,000 Regal Hotels International........ 186,698
-------------
631,756
-------------
MANUFACTURING
600,000 Singamas Container Holdings....... 174,520
-------------
MISCELLANEOUS
540,000 Harbin Power Equipment............ 181,501
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
REAL ESTATE
375,000 Cheung Kong Holdings, Ltd......... $ 1,527,051
500,000 Great Eagle Holdings Co........... 200,375
80,000 Henderson Land Development........ 381,617
140,000 Hong Kong Land Holdings, Ltd...... 273,286
230,000 Sun Hung Kai Properties, Ltd...... 1,373,667
80,000 Wharf Holdings.................... 269,924
-------------
4,025,920
-------------
RETAIL STORES
300,000 Dickson Concepts International.... 195,850
-------------
TELECOMMUNICATIONS
500,000 Champion Technology Holdings...... 104,066
700,000 Hong Kong Telecommunications,
Ltd............................. 1,334,755
1,000,000 S. Megga International Holdings,
Ltd............................. 112,468
-------------
1,551,289
-------------
TRANSPORTATION
300,000 Cathay Pacific Airlines........... 436,300
-------------
UTILITIES
95,500 China Light & Power............... 407,407
350,000 Consolidated Electric Power....... 769,181
70,000 Hong Kong Electric Holdings....... 191,390
-------------
1,367,978
-------------
TOTAL HONG KONG................... 14,787,264
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
INDONESIA (6.8%)
AUTOMOTIVE
160,000 PT Gadjah Tunggal................. 216,659
-------------
BANKING
200,000 PT Bank Indonesia Dagang
Nasional........................ 334,547
180,000 PT Bank International Indonesia... 565,316
-------------
899,863
-------------
BUILDING & CONSTRUCTION
US$ 200M PT Eka Gunatama Mandiri 4.0% due
10/04/97 (Conv.)................ 178,000
-------------
CONTRUCTION PLANT & EQUIPMENT
250,000 Citra Marga Nusaphala Persada..... 295,858
-------------
FINANCIAL SERVICES
1 Peregrine Indonesia (Units)++*-
144A**.......................... 165,000
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
US$ 150 M Global Mark International 3.5% due
04/06/97 (Conv.)................ 149,250
150,000 PT Hanjaya Mandala Sampoerna...... 730,541
68,500 PT Mayora Indah................... 333,614
11,500 PT Mayora Indah (Local)........... 56,008
63,400 PT Sinar Mas Argo Research &
Technology Corp................. 80,801
-------------
1,350,214
-------------
FOREST PRODUCTS, PAPER & PACKAGING
100,000 Pab K Tjiwi Kimia................. 186,618
50,000 Pab K Tjiwi Kimia (Local)......... 93,309
12,000 PT Barito Pacific Timber.......... 18,980
</TABLE>
79
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
336,000 PT Indah Kiat Paper Co............ $ 397,633
130,000 PT International Indorayon
Utama........................... 337,278
-------------
1,033,818
-------------
MANUFACTURING
100,000 PT United Tractors................ 213,928
-------------
REAL ESTATE
26,000 Modernland Realty, Ltd............ 71,006
60,000 PT Dharmala International......... 54,620
-------------
125,626
-------------
TELECOMMUNICATIONS
20,000 PT Indosat........................ 71,689
75,000 PT Indosat (Local)................ 268,833
-------------
340,522
-------------
WIRE & CABLE
200,000 PT Kabelmetal Indonesia........... 273,100
-------------
TOTAL INDONESIA................... 5,092,588
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
JAPAN (18.7%)
AGRICULTURE
2,000 Yukiguni Maitake Co., Ltd......... 66,566
-------------
APPAREL
3,500 Goldwin, Inc...................... 34,737
-------------
AUTOMOTIVE
Y 14,000M Toyota Motor Corp. 1.20% due
01/28/98 (Conv.)................ 154,246
-------------
BANKING
US$ 120M Bank of Tokyo 3.375% due 03/31/04
(Conv.)......................... 132,600
8,000 Dai-Ichi Kangyo Bank.............. 150,777
12,000 Mitsui Trust & Banking............ 125,113
14,000 Sanwa Bank, Ltd................... 277,895
11,000 Shizuoka Bank, Ltd................ 135,639
7,000 Sumitomo Bank, Ltd................ 133,333
10,000 Sumitomo Trust & Banking.......... 140,351
-------------
1,095,708
-------------
BUILDING & CONSTRUCTION
2,000 Hosoda Corp....................... 29,474
4,000 Ichiken Co., Ltd.................. 57,343
3,000 Kaneshita Construction............ 40,902
1,000 Maezawa Kasei Industries.......... 55,639
2,000 Sankyo Frontier Co., Ltd.......... 62,155
6,000 Sumitomo Forestry................. 94,436
-------------
339,949
-------------
BUSINESS SERVICES
2,000 Catena Corp....................... 39,699
1,000 Nippon Kanzai Co.................. 52,231
2,000 Secom Co.......................... 124,311
4,000 Tanseisha Co...................... 58,947
-------------
275,188
-------------
CHEMICALS
27,000 Mitsubishi Chemical Corp.......... 148,331
12,000 Shin-Etsu Chemical Co............. 238,195
3,000 Shinto Paint Co................... 47,519
2,000 Sk Kaken Co., Ltd................. 94,236
-------------
528,281
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
COMPUTER SERVICES
2,000 Enix Corp......................... $ 64,161
4,000 Meitec Corp....................... 74,586
3,000 Nippon Computer System Co......... 38,196
-------------
176,943
-------------
COMPUTERS
14,000 Fujitsu, Ltd...................... 141,754
1,000 I-O Data Device, Inc.............. 48,120
2,000 Japan Digital Laboratory Co.,
Ltd............................. 57,745
-------------
247,619
-------------
COMPUTERS - SYSTEMS
2,000 Daiwabo Information Systems Co.... 54,135
-------------
CONGLOMERATES
11,000 Mitsubishi Corp................... 144,461
-------------
ELECTRIC UTILITIES
4,300 Hokkaido Electric Power........... 98,286
-------------
ELECTRONICS
5,000 Aiwa Co........................... 122,807
3,000 Canon, Inc........................ 50,827
Y 9,000M Canon, Inc. 1.0% due 12/20/02
(Conv.)......................... 102,857
15,000 Hitachi, Ltd...................... 148,722
2,000 Katsuragawa Electric Co........... 42,707
2,000 Keyence Corp...................... 226,566
2,000 Kyocera Corp...................... 148,170
2,400 Mabuchi Motor Co.................. 180,451
2,000 Murata Manufacturing Co., Ltd..... 77,193
2,000 Nihon Dempa Kogyo................. 68,772
8,000 Omron Corp........................ 146,767
9,000 Sharp Corp........................ 162,407
3,100 Sony Corp......................... 175,589
1,000 Tokyo Electron, Ltd............... 31,078
Y 10,000M Tokyo Electron, Ltd. 0.9% due
09/30/03 (Conv.)................ 100,251
-------------
1,785,164
-------------
ENGINEERING & CONSTRUCTION
7,000 Maeda Road Construction........... 115,789
2,000 Meiden Engineering Co............. 36,091
5,000 Raito Kogyo Co.................... 103,759
3,000 Sanshin Corp...................... 38,195
5,000 Takada Kiko Steel................. 47,368
2,000 Tone Geo Technology Co., Ltd...... 71,179
2,000 Yokogawa Construction Co.......... 45,113
-------------
457,494
-------------
ENVIRONMENTAL CONTROL
4,000 Suido Kiko Kaisha................. 53,734
-------------
FINANCIAL SERVICES
20,000 Daiwa Securities.................. 288,722
2,000 Nichiei Co., Ltd. (Kyoto)......... 128,321
1,000 Nissin Co., Ltd................... 77,494
13,000 Nomura Securities Co., Ltd........ 269,774
2,300 Promise Co., Ltd.................. 117,363
1,000 Sanyo Shinpan Finance Corp........ 96,341
-------------
978,015
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
5,000 Amway Japan, Ltd.................. 171,931
7,000 Nippon Meat Packers............... 91,930
</TABLE>
80
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
1,000 Plenus Co., Ltd................... $ 72,080
3,300 Sanyo Coca Cola Bottling.......... 49,293
4,000 Stamina Foods, Inc................ 57,343
4,000 Steak Miya Co..................... 52,130
4 Yoshinoya D & C Co., Ltd.......... 50,125
-------------
544,832
-------------
HEALTH & PERSONAL CARE
3,000 Kawasumi Laboratories, Inc........ 72,782
4,000 Uni-Charm Corp.................... 96,642
-------------
169,424
-------------
HOUSEHOLD FURNISHINGS & APPLIANCES
1,000 Beltecno Corp..................... 24,060
2,200 Noritz Corp....................... 41,023
Y 5,000M Rinnai Corp. 1.8% due 09/30/98
(Conv.)......................... 48,622
-------------
113,705
-------------
INSURANCE
12,000 Tokio Marine & Fire Insurance..... 146,767
18,000 Yasuda Fire & Marine Insurance.... 131,729
-------------
278,496
-------------
MACHINERY
7,200 Comson Corp....................... 93,113
200 DMW Corp.......................... 26,266
4,000 Fanuc, Ltd........................ 188,070
2,000 Fuji Machine Manufacturing Co..... 65,764
2,000 Hitachi Medical Corp.............. 36,090
2,000 Sankyo Engineering................ 59,549
3,000 Sansei Yusoki Co., Ltd............ 49,624
3,100 THK Co............................ 78,316
1,000 Y.A.C. Co., Ltd................... 59,148
-------------
655,940
-------------
MANUFACTURED HOUSING
11,000 Daiwa House Industry.............. 155,489
3,000 Higashi Nihon House............... 71,880
3,000 Nissei Building Kogyo............. 34,586
-------------
261,955
-------------
MANUFACTURING
3,000 Arc Land Sakamoto................. 73,684
4,000 Bridgestone Metalpha Corp......... 74,185
7,000 Dai Nippon Printing Co............ 119,298
6,000 Itoki Crebio Corp................. 60,752
20,000 Minebea Co........................ 168,421
20,000 Mitsubishi Heavy Industries,
Ltd............................. 152,381
3,000 Nichiha Corp...................... 55,940
6,000 Nippon Electric Glass Co.......... 119,099
8,000 Nippon Thompson Co................ 57,103
9,000 Takara Standard Co................ 100,150
-------------
981,013
-------------
METALS & MINING
39,000 Kawasaki Steel Corp............... 163,038
23,000 Nippon Light Metal Co............. 153,104
40,000 Nippon Steel Corp................. 150,376
-------------
466,518
-------------
MISCELLANEOUS
1,000 Maruko Co., Ltd................... 70,677
2,000 Misumi Corp....................... 77,594
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
4,000 Tasaki Shinju Co., Ltd............ $ 51,328
3,000 Yagi Corp......................... 52,331
-------------
251,930
-------------
MULTI - INDUSTRY
3,300 Trusco Nakayama Corp.............. 79,068
-------------
NATURAL GAS
24,000 Tokyo Gas Co., Ltd................ 103,940
-------------
OIL RELATED
8,000 General Sekiyu.................... 78,356
-------------
PHARMACEUTICALS
8,000 Eisai Co., Ltd.................... 130,727
SFr 50M Kuraya Corp. 0.5% due 03/31/98
(Conv.)......................... 32,090
2,000 Ono Pharmaceutical Co............. 96,241
4,000 Santen Pharmaceutical Co.......... 111,078
2,000 Seikagaku Corp.................... 90,025
1,000 Towa Pharmaceutical Co., Ltd...... 80,100
-------------
540,261
-------------
REAL ESTATE
4,000 Chubu Sekiwa Real Estate.......... 51,730
4,000 Fuso Lexel, Inc................... 46,115
3,000 Kansai Sekiwa Real Estate......... 54,135
13,000 Mitsui Fudosan Co................. 138,145
5,000 Sekiwa Real Estate................ 55,639
5,000 Tohoku Misawa Homes Co............ 54,637
-------------
400,401
-------------
RETAIL
2,000 Aoyama Trading Co................. 45,514
1,500 Autobacs Seven Co................. 178,947
2,000 Belluna Co., Ltd.................. 85,014
1,000 Fast Retailing Co., Ltd........... 109,273
2,000 Home Wide Corp.................... 36,291
Y 11,000M Izumi Co., Ltd. 1.7% due 08/30/02
(Conv.)......................... 142,476
6,000 Juntendo Co....................... 52,932
2,000 Kahma Co., Ltd.................... 59,749
3,000 Kuroganeya Co..................... 59,850
3,000 Ministop Co., Ltd................. 88,120
3,000 Mr. Max Corp...................... 77,293
1,440 Nissen Co......................... 44,463
3,000 Olympic Sports Co., Ltd........... 54,135
4,000 Shimachu Co., Ltd................. 143,960
2,000 Sumiya Co......................... 34,887
1,000 Tsutsumi Jewelry.................. 91,228
3,000 Xebio Co.......................... 118,496
-------------
1,422,628
-------------
RETAIL - DRUG STORES
1,000 Sundrug Co........................ 70,175
-------------
TELECOMMUNICATIONS
3,000 C Cube Corp....................... 28,571
20 DDI Corp.......................... 172,431
1,000 Kokusai Den....................... 98,346
5,000 Nippon Comsys Co.................. 69,674
6,000 Takamisawa Electric Co............ 60,031
2,000 Uniden Corp....................... 50,326
-------------
479,379
-------------
TEXTILES
11,000 Kuraray Co........................ 130,126
-------------
</TABLE>
81
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
TRANSPORTATION
30 East Japan Railway................ $ 149,774
18,000 Fukuyama Transporting Co.......... 194,888
15,000 Kamigumi Co....................... 159,398
-------------
504,060
-------------
WAREHOUSE
4,000 Chuo Warehouse Co................. 63,759
-------------
TOTAL JAPAN....................... 14,086,492
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
MALAYSIA (13.5%)
AUTOMOTIVE
70,000 Cycle and Carriage Bintang
Berhad.......................... 253,524
65,000 Edaran Otomobil Nasional.......... 493,735
-------------
747,259
-------------
BANKING
150,000 DCB Holdings Berhad............... 364,135
125,000 Hong Leong Bank Berhad............ 335,258
120,000 Malayan Banking Berhad............ 723,571
80,000 Public Bank Berhad................ 159,749
260,000 Public Bank Berhad (CLOB)......... 539,286
-------------
2,121,999
-------------
BUILDING & CONSTRUCTION
110,000 Hume Industries Malayan Berhad.... 490,995
120,000 Kedah Cement Holdings Berhad...... 155,991
75,000 Metacorp Berhad................... 202,623
80,000 Nam Fatt Berhad................... 236,492
115,000 United Engineers Berhad........... 567,345
-------------
1,653,446
-------------
CONGLOMERATES
250,000 Renong Berhad..................... 309,319
-------------
ELECTRIC EQUIPMENT
166,666 Leader Universal Holdings......... 535,106
-------------
ELECTRIC UTILITIES
23,000 Tenaga Nasional Berhad............ 90,955
-------------
ENTERTAINMENT
95,000 Genting Berhad.................... 814,605
-------------
FINANCIAL SERVICES
42,000 Hong Leong Credit Berhad.......... 203,915
150,000 Public Finance Berhad............. 249,021
150,000 Rashid Hussain Berhad............. 393,500
-------------
846,436
-------------
FOREST PRODUCTS, PAPER & PACKAGING
6,000 Aokam Perdana Berhad.............. 37,118
US$ 200M Aokam Perdana Berhad 3.5% due
06/13/04 (Conv.)................ 192,000
-------------
229,118
-------------
MANUFACTURING
20,000 O.Y.L. Industries Berhad.......... 105,717
11,250 O.Y.L. Industries Berhad (Rights
expire 01/09/95)*............... 21,760
-------------
127,477
-------------
MISCELLANEOUS
196,000 Taiping Consolidated Berhad....... 328,457
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
MULTI - INDUSTRY
200,000 Boustead Holdings Berhad.......... $ 349,256
-------------
PLANTATION
150,000 Kuala Lumpur Kepong Berhad........ 399,374
-------------
REAL ESTATE
155,000 Land & General Berhad............. 643,305
225,000 Pelangi Berhad.................... 271,339
-------------
914,644
-------------
TELECOMMUNICATIONS
77,000 Telekom Malaysia.................. 521,574
-------------
TEXTILES
200,000 MWE Holdings...................... 222,397
-------------
TOTAL MALAYSIA.................... 10,211,422
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PAKISTAN (0.2%)
TELECOMMUNICATIONS
1,100 Pakistan Telecom (GDS)............ 147,400
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PHILIPPINES (3.3%)
BANKS - COMMERCIAL
16,780 Philippine National Bank.......... 239,219
-------------
BUILDING & CONSTRUCTION
25,000 Bacnotan Consolidated, Inc........ 289,256
-------------
ELECTRIC UTILITIES
30,000 Manila Electric Co. (B Shares).... 415,289
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
55,000 San Miguel Corp. (B Shares)....... 290,909
-------------
FOREST PRODUCTS, PAPER & PACKAGING
525,000 Paper Industries Corp. of the
Philippines (Class A)........... 347,107
-------------
OIL RELATED
1,000,000 Belle Corp........................ 342,975
-------------
REAL ESTATE
950,000 Filinvest Land, Inc............... 384,711
-------------
TELECOMMUNICATIONS
3,700 Philippine Long Distance Telephone
(ADR)........................... 203,963
-------------
TOTAL PHILIPPINES................. 2,513,429
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
SINGAPORE (14.2%)
AUTOMOTIVE
51,000 Cycle and Carriage................ 458,860
-------------
BANKING
35,000 Development Bank of Singapore,
Ltd............................. 360,577
90,000 Overseas Union Bank............... 525,412
65,000 United Overseas Bank Corp., Ltd... 687,500
-------------
1,573,489
-------------
ELECTRONICS
18,000 Creative Technology............... 256,500
73,000 Venture Manufacturing, Ltd........ 160,440
-------------
416,940
-------------
</TABLE>
82
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
ENGINEERING & CONSTRUCTION
137,000 Van Der Horst..................... $ 421,538
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
40,000 Fraser & Neave, Ltd............... 414,835
-------------
HOTELS
301,000 Marco Polo Developments, Ltd...... 430,000
65,000 Overseas Union Enterprise......... 368,304
-------------
798,304
-------------
LEISURE
280,000 Republic Hotels & Resorts......... 461,538
-------------
MACHINERY - DIVERSIFIED
77,000 Keppel Corp., Ltd................. 655,769
-------------
METALS & MINING
140,000 Amtek Engineering, Ltd............ 245,193
-------------
PUBLISHING
25,000 Singapore Press Holdings.......... 455,014
-------------
REAL ESTATE
20,000 Bukit Sembawang Estates........... 391,484
134,000 City Developments, Ltd............ 750,069
165,000 DBS Land.......................... 491,827
100,000 Malayan Credit, Ltd............... 222,527
320,000 United Overseas Land, Ltd......... 617,582
-------------
2,473,489
-------------
SHIPBUILDING
146,000 Far East Levingston............... 676,854
40,000 Jurong Shipyard, Ltd.............. 307,692
100,000 Sembawang Maritime................ 484,203
-------------
1,468,749
-------------
TRANSPORTATION
350,000 Pacific Carriers, Ltd............. 338,942
55,000 Singapore International
Airline, Ltd.................... 506,181
-------------
845,123
-------------
TOTAL SINGAPORE................... 10,688,841
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
SOUTH KOREA (5.5%)
AUTOMOTIVE
10,000 Hyundai Motor Co., Ltd. (GDR)..... 185,000
20,000 Kai Motors Corp. (GDS)............ 350,000
-------------
535,000
-------------
ELECTRONICS
US$ 315M Daewoo Electronics Co. 3.5% due
12/31/07 (Conv.)................ 398,475
330 Samsung (GDR)..................... 16,335
2,000 Samsung Electronics (GDR)......... 99,000
8,000 Samsung Electronics (GDS)......... 396,000
8,000 Samsung Electronics (GDS) (New
Shares)......................... 396,000
-------------
1,305,810
-------------
MISCELLANEOUS
US$ 400 M Kia Precisions Works 0.5% due
12/31/09 (Conv.)................ 404,000
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
MULTI - INDUSTRY
US$ 340M Daewoo Corp. 0.25% due 12/31/08
(Conv.)......................... $ 358,700
SFr 100 M Daewoo Corp. 3.25% due 12/31/97
(Conv.)......................... 85,575
US$ 250 M Kolon International Corp. 1.0% due
12/31/08 (Conv.)................ 212,500
-------------
656,775
-------------
OIL RELATED
US$ 315 M Sangyong Oil 3.75% due 12/31/08
(Conv.) ............. 334,688
20,000 Yukong, Ltd. (GDS)................ 300,000
SFr 300 M Yukong, Ltd. 1.0% due 12/31/98
(Conv.)......................... 369,040
-------------
1,003,728
-------------
STEEL & IRON
7,300 Pohang Iron & Steel, Ltd. (ADR)... 219,000
-------------
TOTAL SOUTH KOREA................. 4,124,313
TAIWAN (4.6%)
BUILDING & CONSTRUCTION
SFr 300 M Pacific Construction Corp. 2.125%
due 10/01/98 (Conv.)............ 252,139
-------------
ELECTRONICS
US$ 100 M Acer, Inc. 4.0% due
06/10/01 (Conv.)................ 239,000
20,000 Microelectronics Technology
(GDS)........................... 195,000
US$ 400 M United Micro Electronic 1.25% due
06/08/04 (Conv.)................ 614,000
-------------
1,048,000
-------------
RETAIL
US$ 200 M Far Eastern Department Store 3.0%
due 07/06/01 (Conv.) - 144A**... 176,000
-------------
TEXTILES
US$ 300 M Far Eastern Textile 4.0% due
10/07/06 (Conv.)................ 330,000
42,989 Tuntex Distinct (GDS)............. 537,363
-------------
867,363
-------------
TRANSPORTATION
US$ 500 M U-Ming Marine Holdings 1.5% due
02/07/01 (Conv.)................ 550,000
US$ 500 M Yang Ming Marine 2.0% due 10/06/01
(Conv.)......................... 562,500
-------------
1,112,500
-------------
TOTAL TAIWAN...................... 3,456,002
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
THAILAND (9.6%)
AUTOMOTIVE
16,000 Swedish Motor Corp................ 78,422
-------------
BANKING
30,000 Bangkok Bank...................... 320,383
250,000 Krung Thai Bank, Ltd.............. 836,820
350,000 Siam City Bank.................... 446,304
33,000 Siam Commercial Bank, Ltd......... 302,451
60,000 Thai Farmers Bank................. 487,747
116,000 Thai Military Bank, Ltd........... 489,978
-------------
2,883,683
-------------
</TABLE>
83
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
BUILDING & CONSTRUCTION
5,000 Siam Cement Co.................... $ 299,661
15,600 Siam City Cement Co., Ltd......... 266,061
50,000 Tipco Asphalt Co., Ltd............ 402,471
-------------
968,193
-------------
ELECTRIC UTILITIES
350,000 Electric Generating Co............ 306,834
-------------
FINANCIAL SERVICES
10,000 Finance One Co., Ltd.............. 155,409
32,000 Phatra Thanakit Co., Ltd.......... 247,380
33,000 Securities One, Ltd............... 276,151
1,833 Securities One, Ltd. (Warrants due
98)*............................ 730
-------------
679,670
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
12,500 CP Feedmill Co.................... 85,674
-------------
FOREST PRODUCTS, PAPER & PACKAGING
24,000 Siam Pulp & Paper Co.............. 86,073
-------------
METALS & MINING
20,000 Ban Pu Coal Co, Ltd............... 438,334
80,000 Sahaviriya Steel Industries....... 204,025
-------------
642,359
-------------
REAL ESTATE
20,000 Land & House Co................... 357,042
-------------
TELECOMMUNICATIONS
16,000 Advanced Information Services..... 226,977
20,000 Jasmine International............. 358,637
20,000 United Communication, Inc......... 283,722
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
20,000 United Communication, Inc. (Rights
expire 01/13/95)*............... $ 275,752
-------------
1,145,088
-------------
TOTAL THAILAND.................... 7,233,038
TOTAL COMMON STOCKS, WARRANTS,
RIGHTS AND BONDS (IDENTIFIED
COST $76,616,857)............... 73,770,380
-------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT EXPIRATION DATE/
(IN THOUSANDS) EXERCISE PRICE
- --------------- ----------------------------------
<C> <S> <C>
PURCHASED PUT OPTIONS ON
FOREIGN CURRENCY (0.2%)
Y 602,040 March 29, 1995 / Y100.34.......... 70,200
Y 389,800 May 4, 1995 / Y97.45.............. 108,000
-------------
TOTAL PURCHASED PUT OPTIONS ON
FOREIGN CURRENCY (IDENTIFIED
COST $171,000).................. 178,200
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.3%)
U.S. GOVERNMENT AGENCY (A)
$ 1,000 Federal Home Loan Banks 5.75% due
01/03/95 (Amortized Cost
$999,681)....................... 999,681
-------------
TOTAL INVESTMENTS (IDENTIFIED COST
$77,787,538) (B)....................... 99.4% 74,948,261
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................ 0.6 477,078
------ ---------------
NET ASSETS............................... 100.0% $ 75,425,339
------ ---------------
------ ---------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
GDR GLOBAL DEPOSITORY RECEIPT.
GDS GLOBAL DEPOSITORY SHARE.
++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(A) U.S. GOVERNMENT AGENCY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST
RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $77,990,763; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,873,082 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $6,915,585, RESULTING IN NET UNREALIZED
DEPRECIATION OF $3,042,503.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1994:
<TABLE>
<CAPTION>
IN
CONTRACTS TO EXCHANGE DELIVERY UNREALIZED
RECEIVE FOR DATE APPRECIATION
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
MYR 31,000 US$ 12,112 01/06/95 $ 26
MYR 90,000 US$ 35,173 01/09/95 66
---
Unrealized Appreciation ........................... $92
---
---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------- ------------ ----------
<S> <C> <C>
Agriculture................ $ 66,566 0.1%
Apparel.................... 34,737 0.0
Automotive................. 2,190,446 2.9
Banking.................... 11,523,311 15.3
Banks - Commercial......... 239,219 0.3
Building & Construction.... 3,680,984 4.9
Business Services.......... 275,188 0.4
Chemicals.................. 695,529 0.9
Computer Services.......... 198,455 0.3
Computers.................. 247,620 0.3
Computers - Systems........ 54,135 0.1
Conglomerates.............. 3,409,025 4.5
Construction Plant &
Equipment................. 295,858 0.4
Currency Options........... 178,200 0.2
Electric Equipment......... 535,106 0.7
Electric Utilities......... 1,026,864 1.4
Electronics................ 4,555,913 6.0
Engineering &
Construction.............. 879,034 1.2
Entertainment.............. 814,605 1.1
Environmental Control...... 53,734 0.1
Finance.................... 296,813 0.4
Financial Services......... 2,669,122 3.5
Food, Beverage, Tobacco &
Household Products........ 2,829,776 3.8
Forest Products, Paper &
Packaging................. 1,696,117 2.3
Health & Personal Care..... 169,424 0.2
Hotels..................... 798,304 1.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------- ------------ ----------
<S> <C> <C>
Household Furnishings &
Appliances................ $ 113,704 0.2%
Insurance.................. 278,496 0.4
Leisure.................... 1,093,295 1.4
Machinery.................. 655,940 0.9
Machinery - Diversified.... 655,769 0.9
Manufactured Housing....... 261,955 0.3
Manufacturing.............. 1,496,938 2.0
Metals & Mining............ 1,687,535 2.2
Miscellaneous.............. 1,165,888 1.6
Multi - Industry........... 1,085,098 1.4
Natural Gas................ 103,940 0.1
Oil Related................ 1,743,790 2.3
Pharmaceuticals............ 540,261 0.7
Plantation................. 399,374 0.5
Publishing................. 455,014 0.6
Real Estate................ 8,681,834 11.5
Retail..................... 1,598,630 2.1
Retail - Drug Stores....... 70,175 0.1
Retail Stores.............. 195,850 0.3
Shipbuilding............... 1,468,750 1.9
Steel & Iron............... 219,000 0.3
Telecommunications......... 4,389,215 5.8
Textiles................... 1,219,886 1.6
Transportation............. 3,249,320 4.3
U.S. Government Agency..... 999,681 1.3
Utilities.................. 1,367,979 1.8
Warehouse.................. 63,759 0.1
Wire & Cable............... 273,100 0.4
------------ ---
$ 74,948,261 99.4%
------------ ---
------------ ---
</TABLE>
SUMMARY OF INVESTMENTS BY TYPE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Bonds.................................................................................. $ 6,119,009 8.1%
Common Stocks.......................................................................... 67,353,129 89.4
Put Options............................................................................ 178,200 0.2
Rights................................................................................. 297,512 0.4
U.S. Government Agency................................................................. 999,681 1.3
Warrants............................................................................... 730 0.0
------------ ---
$ 74,948,261 99.4%
------------ ---
------------ ---
</TABLE>
85
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (75.8%)
BASIC RESOURCES (0.8%)
15,000 International Paper Co.............. $ 1,130,624
7,000 Union Carbide Corp.................. 205,625
11,100 USX-U.S. Steel Group, Inc........... 394,050
---------------
1,730,299
---------------
BEVERAGES (1.1%)
48,000 Coca Cola Co........................ 2,472,000
---------------
BIOTECHNOLOGY (0.2%)
10,000 Biogen, Inc.*....................... 412,500
---------------
CABLE/CELLULAR (3.4%)
20,000 Airtouch Communications Corp.*...... 582,500
30,000 California Microwave, Inc.*......... 1,080,000
30,000 DSC Communications Corp.*........... 1,080,000
20,000 General Instrument Corp.*........... 600,000
22,000 Glenayre Technologies, Inc.*........ 1,270,500
54,000 Motorola, Inc....................... 3,125,250
---------------
7,738,250
---------------
COMMERCIAL SERVICES (4.6%)
18,000 Alternative Resources Corp.*........ 558,000
18,500 Automatic Data Processing, Inc...... 1,082,250
49,500 Computer Sciences Corp.*............ 2,524,500
48,000 First Data Corp..................... 2,274,000
15,000 First Financial Management Corp..... 924,375
70,000 General Motors Corp. (Class E)...... 2,695,000
5,000 Omnicom Group, Inc.................. 258,750
---------------
10,316,875
---------------
COMPUTER EQUIPMENT (1.4%)
100,000 EMC Corp. Mass.*.................... 2,162,500
30,000 Silicon Graphics*................... 926,250
---------------
3,088,750
---------------
COMPUTER SOFTWARE (5.9%)
40,000 Autodesk, Inc....................... 1,570,000
62,000 Cadence Design Systems, Inc.*....... 1,278,750
80,000 Informix Corp.*..................... 2,560,000
30,000 Microsoft Corp.*.................... 1,833,750
40,000 Oracle Systems Corp.*............... 1,765,000
20,000 Parametric Technology Corp.*........ 685,000
60,000 Peoplesoft, Inc.*................... 2,235,000
80,000 Symantec Corp.*..................... 1,400,000
---------------
13,327,500
---------------
COSMETICS (1.2%)
59,000 International Flavors & Fragrances,
Inc............................... 2,728,750
---------------
DRUGS (6.1%)
64,500 Abbott Laboratories, Inc............ 2,104,313
100,000 Astra AB (ADR)*..................... 2,575,000
22,000 Lilly (Eli) & Co.................... 1,443,750
27,000 Pfizer, Inc......................... 2,085,750
40,000 Scherer (R.P.)*..................... 1,815,000
24,000 Schering-Plough Corp................ 1,776,000
27,000 Warner-Lambert Co................... 2,079,000
---------------
13,878,813
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
ELECTRIC EQUIPMENT (1.3%)
22,000 AMP, Inc............................ $ 1,600,500
37,500 Molex, Inc.......................... 1,293,750
---------------
2,894,250
---------------
ELECTRONICS - SEMICONDUCTORS/ COMPONENTS (1.5%)
30,000 Intel Corp.......................... 1,908,750
15,000 LSI Logic Corp.*.................... 605,625
20,000 Micron Technology, Inc.............. 882,500
---------------
3,396,875
---------------
ELECTRONICS - SPECIALTY (2.9%)
50,000 Altera Corp.*....................... 2,087,500
27,000 Analog Devices*..................... 948,375
50,000 Maxim Integrated Products, Inc.*.... 1,750,000
30,000 Xilinx, Inc.*....................... 1,770,000
---------------
6,555,875
---------------
ENTERTAINMENT (2.6%)
62,000 Broderbund Software, Inc.*.......... 2,898,500
50,000 Macromedia, Inc.*................... 1,275,000
50,000 Sierra On-Line, Inc.*............... 1,687,500
---------------
5,861,000
---------------
ENTERTAINMENT/GAMING (0.2%)
7,000 National Gaming Corp.*.............. 84,000
13,000 Primadonna Resorts, Inc.*........... 308,750
---------------
392,750
---------------
FINANCIAL (3.4%)
20,000 American International Group, Inc... 1,960,000
45,000 Crescent Real Estate Equities....... 1,220,625
15,000 General Re Corp..................... 1,856,250
55,000 Green Tree Financial Corp........... 1,670,625
40,000 MBNA Corp........................... 935,000
---------------
7,642,500
---------------
FOODS (3.5%)
105,000 Archer-Daniels-Midland Co........... 2,165,625
52,000 ConAgra, Inc........................ 1,625,000
40,000 CPC International, Inc.............. 2,130,000
30,000 IBP, Inc............................ 907,500
58,000 Pet, Inc............................ 1,145,500
---------------
7,973,625
---------------
HEALTHCARE PRODUCTS & SERVICES (3.9%)
53,200 Genesis Health Ventures, Inc.*...... 1,682,450
35,000 Healthsource, Inc.*................. 1,430,625
30,000 Healthsouth Rehabilitation Corp.*... 1,110,000
40,000 Horizon Healthcare Corp.*........... 1,120,000
90,000 Humana, Inc.*....................... 2,036,250
40,000 Shared Medical Systems Corp......... 1,310,000
---------------
8,689,325
---------------
HOTELS / MOTELS (2.5%)
70,000 Hospitality Franchise System,
Inc.*............................. 1,855,000
109,500 La Quinta Inns, Inc................. 2,340,563
50,000 Marriott International, Inc......... 1,406,250
---------------
5,601,813
---------------
</TABLE>
86
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
HOUSEHOLD PRODUCTS (4.9%)
31,000 Clorox Co........................... $ 1,825,125
40,000 Duracell International, Inc......... 1,735,000
30,000 Gillette Co......................... 2,242,500
40,000 Procter & Gamble Co................. 2,480,000
20,000 Scott Paper Co...................... 1,382,500
50,000 Sunbeam-Oster, Inc.................. 1,287,500
---------------
10,952,625
---------------
INDUSTRIALS (0.7%)
37,000 Fluor Corp.......................... 1,595,625
---------------
MEDIA GROUP (3.1%)
18,000 Capital Cities/ABC.................. 1,534,500
8,055 CBS, Inc............................ 446,046
28,000 Clear Channel Communications,
Inc.*............................. 1,421,000
60,000 Infinity Broadcasting Corp. (Class
A)*............................... 1,890,000
75,000 Telecommunications, Inc. (Class
A)*............................... 1,631,250
2,000 Viacom, Inc. (Class A)*............. 83,250
---------------
7,006,046
---------------
MEDICAL PRODUCTS & SUPPLIES (3.6%)
70,000 Allergan, Inc....................... 1,977,500
45,000 Johnson & Johnson................... 2,463,750
45,000 Medtronic, Inc...................... 2,503,125
26,000 Omnicare, Inc....................... 1,140,750
---------------
8,085,125
---------------
OIL (5.3%)
35,000 Amoco Corp.......................... 2,069,375
65,000 Apache Corp......................... 1,625,000
175 British Petroleum PLC (ADR)......... 13,977
23,000 Mobil Corp.......................... 1,937,750
50,000 Norsk Hydro AS (ADR)................ 1,956,250
109,500 Occidental Petroleum Corp........... 2,107,875
17,000 Royal Dutch Petroleum Co. (ADR)..... 1,827,500
25,000 Snyder Oil Corp..................... 371,875
---------------
11,909,602
---------------
POLLUTION CONTROL (1.4%)
59,300 Browning-Ferris Industries, Inc..... 1,682,638
59,600 WMX Technologies, Inc............... 1,564,500
---------------
3,247,138
---------------
RESTAURANTS (0.1%)
5,000 Lone Star Steakhouse & Saloon*...... 96,250
5,000 Starbucks Corp.*.................... 136,250
---------------
232,500
---------------
RETAIL (3.2%)
22,000 Albertson's, Inc.................... 638,000
8,300 Callaway Golf Co.................... 274,938
20,500 Corporate Express, Inc.............. 394,625
73,000 Home Depot, Inc..................... 3,358,000
85,000 Officemax, Inc.*.................... 2,252,500
11,000 Safeway, Inc.*...................... 350,625
---------------
7,268,688
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
TELECOMMUNICATIONS (4.1%)
10,000 Ascend Communications, Inc.*........ $ 407,500
30,000 Bay Networks, Inc.*................. 877,500
65,000 Cisco Systems, Inc.*................ 2,275,000
20,000 Summa Four, Inc.*................... 525,000
50,000 Tele Danmark, Inc. (ADR)*........... 1,275,000
20,000 Tellabs, Inc.*...................... 1,110,000
52,000 ThreeCom Corp.*..................... 2,678,000
---------------
9,148,000
---------------
TRANSPORTATION (0.5%)
30,000 Wisconsin Central Transportation
Corp.*............................ 1,222,500
---------------
UTILITIES - ELECTRIC (2.4%)
80,000 FPL Group, Inc...................... 2,810,000
130,000 Southern Co......................... 2,600,000
---------------
5,410,000
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$163,030,095)..................... 170,779,599
PREFERRED STOCKS (1.3%)
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.3%)
38,500 Nokia Corp. (ADR) (Identified Cost
$2,379,616)*...................... 2,887,500
---------------
WARRANTS (0.0%)
MISCELLANEOUS (0.0%)
766 Chase Manhattan Corp. (Warrants due
06/30/96) (Identified Cost
$3,830)*.......................... 3,772
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (6.8%)
$ 16,000 U.S. Treasury Bond 7.50% due
11/15/24 (Identified Cost
$15,132,500)...................... 15,295,000
---------------
SHORT-TERM INVESTMENTS (20.3%)
U.S. GOVERNMENT AGENCIES (A) (19.9%)
5,000 Federal Home Loan Bank 5.75% due
01/03/95.......................... 4,998,403
15,000 Federal National Mortgage
Association 5.94% due 01/05/95.... 14,990,133
10,000 Federal National Mortgage
Association 5.89% due 01/13/95.... 9,980,433
15,000 Federal Home Loan Mortgage Corp.
5.88% due 01/25/95................ 14,941,500
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $44,910,469)...... 44,910,469
---------------
</TABLE>
87
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.4%)
$ 857 The Bank of New York 3.125% due
01/03/95 (dated 12/30/94; proceeds
$857,725; collateralized by
$898,584 U.S. Treasury Bill 6.43%
due 06/08/95 valued at $874,576)
(Identified Cost $857,427)........ $ 857,427
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $45,767,896)..... 45,767,896
---------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
---------------
<S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST
$226,313,937) (B)...................... 104.2% $ 234,733,767
LIABILITIES IN EXCESS OF OTHER ASSETS... (4.2) (9,444,510)
------ ---------------
NET ASSETS.............................. 100.0% $ 225,289,257
------ ---------------
------ ---------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(A) 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
$228,264,892; THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,169,615
AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,700,740, RESULTING
IN NET UNREALIZED APPRECIATION OF $6,468,875.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MANAGED ASSETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (A) (100.0%)
BANKERS' ACCEPTANCES (4.5%)
$ 18,000 Republic National Bank, N.Y. (Amortized Cost $17,845,470)............ 6.12% 02/21/95 $ 17,845,470
---------------
COMMERCIAL PAPER (29.2%)
AUTOMOTIVE FINANCE (4.8%)
19,000 Ford Motor Credit Co................................................. 6.17 01/27/95 18,916,020
---------------
BANKS - COMMERCIAL (4.1%)
16,000 National Australia Funding (Del.).................................... 6.01 01/05/95 15,989,370
---------------
FINANCE - DIVERSIFIED (17.5%)
19,500 American Express Credit Corp......................................... 5.88 01/24/95 19,427,119
15,000 Beneficial Corp...................................................... 6.12 01/19/95 14,954,400
16,400 CIT Group Holdings, Inc.............................................. 5.98 01/17/95 16,356,776
18,000 Commercial Credit Co................................................. 5.80 01/13/95 17,965,500
---------------
68,703,795
---------------
RETAIL (2.8%)
11,000 Penney (J.C.) Funding Corp........................................... 6.00 01/06/95 10,990,879
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $114,600,064)........................................ 114,600,064
---------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (66.3%)
3,400 Federal Home Loan Banks.............................................. 5.75 01/03/95 3,398,914
18,000 Federal Home Loan Mortgage Corp...................................... 5.77 01/20/95 17,945,470
18,000 Federal Home Loan Mortgage Corp...................................... 5.78 01/27/95 17,925,250
17,000 Federal National Mortgage Assoc. .................................... 5.73 01/03/95 16,994,617
17,000 Federal National Mortgage Assoc. .................................... 5.81 01/05/95 16,989,045
30,000 Federal National Mortgage Assoc. .................................... 5.83 01/06/95 29,975,833
16,000 Federal National Mortgage Assoc. .................................... 5.93 01/09/95 15,979,022
25,000 Federal National Mortgage Assoc. .................................... 5.60 01/11/95 24,961,458
20,000 Student Loan Marketing Assoc. ....................................... 5.97 01/20/95 19,937,300
30,000 U.S. Treasury Bill................................................... 5.40 06/29/95 29,086,853
20,000 U.S. Treasury Bill................................................... 5.66 06/29/95 19,391,374
30,000 U.S. Treasury Bill................................................... 5.55 08/24/95 28,726,743
20,000 U.S. Treasury Bill................................................... 5.78 08/24/95 19,151,284
---------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(IDENTIFIED COST $261,049,957)............................................................ 260,463,163
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $393,495,491) (B)............................... 100.0% 392,908,697
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS..................................... (0.0) (148,352)
------ ---------------
NET ASSETS......................................................................... 100.0% $ 392,760,345
------ ---------------
------ ---------------
<FN>
- ----------------
(A) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
(B) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value *... $268,964,991 $413,699,312 $109,816,962 $379,927,623
Cash.................................... 2,054 -- -- --
Receivable for:
Investments sold...................... -- -- -- --
Shares of beneficial interest sold.... 164,301 33,046 4,394 76,082
Dividends............................. -- -- -- 1,747,415
Interest.............................. 226,295 6,525,916 2,398,658 940,634
Foreign withholding taxes reclaimed... -- -- -- --
Prepaid expenses and other assets....... 6,500 3,150 1,540 5,743
------------ ------------ ------------ ------------
TOTAL ASSETS.................... 269,364,141 420,261,424 112,221,554 382,697,497
------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased................. -- 5,072,500 131,500 --
Shares of beneficial interest
repurchased......................... 543,181 44,712 4,256 23,138
Investment management fee............. 108,218 176,714 47,174 212,166
Accrued expenses and other payables..... 88,289 62,586 104,382 50,441
------------ ------------ ------------ ------------
TOTAL LIABILITIES............... 739,688 5,356,512 287,312 285,745
------------ ------------ ------------ ------------
NET ASSETS:
Paid-in-capital......................... 268,624,433 472,765,966 206,016,322 406,577,679
Accumulated undistributed net investment
income (loss)......................... 20 85,136 75,797 1,610,911
Accumulated undistributed net realized
gain (loss)........................... -- (39,503,213) (73,014,792) (2,630,010)
Net unrealized appreciation
(depreciation)........................ -- (18,442,977) (21,143,085) (23,146,828)
------------ ------------ ------------ ------------
NET ASSETS...................... $268,624,453 $414,904,912 $111,934,242 $382,411,752
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
*IDENTIFIED COST........................ $268,964,991 $432,142,289 $130,960,047 $403,074,451
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING........................... 268,624,433 43,920,670 18,167,759 32,089,485
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET ASSET VALUE PER SHARE (unlimited
authorized shares of $.01 par
value)................................ $1.00 $9.45 $6.16 $11.92
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<FN>
- ------------------
** Includes foreign cash of $2,863,111 and $317,609, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND MANAGED
GROWTH GROWTH GROWTH EUROPEAN GROWTH PACIFIC GROWTH EQUITY ASSETS
------------ ----------- ----------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value
*...................... $571,047,433 $45,626,371 $137,472,430 $ 149,221,094 $ 74,948,261 $ 234,733,767 $ 392,908,697
Cash..................... -- -- 291,838 3,163,325** 821,732** -- 26,911
Receivable for:
Investments sold....... 314,114 77,247 1,247,128 294,627 -- 3,450,504 --
Shares of beneficial
interest sold........ 49,224 28,078 184,635 43,324 53,039 1,250 229,656
Dividends.............. 1,856,997 81,547 431,909 339,527 18,961 128,618 --
Interest............... 761,871 191 -- 9,688 75,274 155,950 --
Foreign withholding
taxes reclaimed...... -- -- 64,542 212,834 448 -- --
Prepaid expenses and
other assets........... 2,411 647 897 5,973 -- 3,297 2,603
------------ ----------- ----------- --------------- -------------- ------------- -------------
TOTAL ASSETS..... 574,032,050 45,814,081 139,693,379 153,290,392 75,917,715 238,473,386 393,167,867
------------ ----------- ----------- --------------- -------------- ------------- -------------
LIABILITIES:
Payable for:
Investments
purchased............ 664,765 38,050 1,001,584 987,674 310,541 12,922,587 --
Shares of beneficial
interest
repurchased.......... 29,281 6,838 285 330 -- 95,732 122,131
Investment management
fee.................. 294,848 24,909 86,027 127,870 62,388 93,849 165,848
Accrued expenses and
other payables......... 90,833 29,023 119,444 137,079 119,447 71,961 119,543
------------ ----------- ----------- --------------- -------------- ------------- -------------
TOTAL
LIABILITIES.... 1,079,727 98,820 1,207,340 1,252,953 492,376 13,184,129 407,522
------------ ----------- ----------- --------------- -------------- ------------- -------------
NET ASSETS:
Paid-in-capital.......... 559,398,997 46,142,218 141,191,845 138,570,208 79,007,919 228,078,937 378,508,036
Accumulated undistributed
net investment income
(loss)................. 1,286,590 55,472 326,336 18,459 (152,940) 371,545 1,680,979
Accumulated undistributed
net realized gain
(loss)................. 10,728,877 (1,454,391) 21,180 5,380,860 (592,858) (11,581,055) 13,158,124
Net unrealized
appreciation
(depreciation)......... 1,537,859 971,962 (3,053,322) 8,067,912 (2,836,782) 8,419,830 (586,794)
------------ ----------- ----------- --------------- -------------- ------------- -------------
NET ASSETS....... $572,952,323 $45,715,261 $138,486,039 $ 152,037,439 $ 75,425,339 $ 225,289,257 $ 392,760,345
------------ ----------- ----------- --------------- -------------- ------------- -------------
------------ ----------- ----------- --------------- -------------- ------------- -------------
*IDENTIFIED COST......... $569,509,574 $44,654,409 $140,526,932 $ 141,184,812 $ 77,787,538 $ 226,313,937 $ 393,495,491
------------ ----------- ----------- --------------- -------------- ------------- -------------
------------ ----------- ----------- --------------- -------------- ------------- -------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING... 47,766,949 3,968,951 14,099,709 10,438,795 8,144,946 11,701,191 31,534,970
------------ ----------- ----------- --------------- -------------- ------------- -------------
------------ ----------- ----------- --------------- -------------- ------------- -------------
NET ASSET VALUE PER
SHARE (unlimited
authorized shares of
$.01 par value)........ $11.99 $11.52 $9.82 $14.56 $9.26 $19.25 $12.45
------------ ----------- ----------- --------------- -------------- ------------- -------------
------------ ----------- ----------- --------------- -------------- ------------- -------------
</TABLE>
91
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest............................ $ 9,034,116 $ 34,555,809 $ 14,176,602 $ 4,502,819
Dividends........................... -- -- -- 16,571,620*
------------- ------------- ------------- -------------
TOTAL INCOME.................... 9,034,116 34,555,809 14,176,602 21,074,439
------------- ------------- ------------- -------------
EXPENSES
Investment management fee........... 1,006,787 2,326,911 567,629 2,809,836
Transfer agent fees and expenses.... 500 500 500 500
Shareholder reports and notices..... 13,089 38,548 37,644 33,678
Professional fees................... 24,582 37,121 23,599 31,047
Trustees' fees and expenses......... 1,571 6,067 2,410 8,130
Registration fees................... 45,288 77 8,912 28
Custodian fees...................... 18,609 88,192 22,266 43,151
Other............................... 412 17,813 7,749 7,936
------------- ------------- ------------- -------------
Total Expenses before Amounts
Waived/Assumed................ 1,110,838 2,515,229 670,709 2,934,306
Less: Amounts Waived/Assumed........ -- -- -- --
------------- ------------- ------------- -------------
Total Expenses after Amounts
Waived/Assumed................ 1,110,838 2,515,229 670,709 2,934,306
------------- ------------- ------------- -------------
NET INVESTMENT INCOME....... 7,923,278 32,040,580 13,505,893 18,140,133
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments....................... -- (38,500,832) (5,517,509) (2,172,266)
Foreign exchange transactions..... -- -- -- --
------------- ------------- ------------- -------------
TOTAL GAIN (LOSS)............... -- (38,500,832) (5,517,509) (2,172,266)
------------- ------------- ------------- -------------
Net change in unrealized
appreciation (depreciation) on:
Investments....................... -- (28,248,118) (11,772,750) (59,919,164)
Translation of other assets and
liabilities denominated in
foreign currencies.............. -- -- -- --
------------- ------------- ------------- -------------
TOTAL APPRECIATION
(DEPRECIATION)................ -- (28,248,118) (11,772,750) (59,919,164)
------------- ------------- ------------- -------------
NET GAIN (LOSS)................. -- (66,748,950) (17,290,259) (62,091,430)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS................ $ 7,923,278 $ (34,708,370) $ (3,784,366) $ (43,951,297)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<FN>
- ------------------
(1) For the period February 23, 1994 (commencement of operations) through
December 31, 1994.
* Net of $154,869, $74,719, $337, $148,512, $398,686, $60,811, $23,458 and
$16,349 in foreign withholding tax, respectively.
** Net of $1,321 in foreign withholding tax.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND PACIFIC
DIVIDEND CAPITAL GROWTH EUROPEAN GROWTH MANAGED
GROWTH GROWTH (1) GROWTH (1) EQUITY ASSETS
------------- ---------- --------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME
Interest............. $ 2,310,364 $ 37,004 $ 159,579 $ 407,601 $ 173,320** $ 1,696,253 $ 13,315,203
Dividends............ 18,497,528* 752,084* 2,301,031* 3,058,364* 473,573* 2,094,706* 2,261,784*
------------- ---------- --------- ------------- --------- ------------- -------------
TOTAL INCOME..... 20,807,892 789,088 2,460,610 3,465,965 646,893 3,790,959 15,576,987
------------- ---------- --------- ------------- --------- ------------- -------------
EXPENSES
Investment management
fee.................... 3,388,371 308,143 528,066 1,299,782 413,341 1,077,511 1,739,941
Transfer agent fees
and expenses........... 500 500 -- 500 -- 500 500
Shareholder reports
and notices............ 45,779 5,580 1,236 4,327 759 21,496 32,673
Professional fees.... 21,563 23,412 25,630 31,544 19,706 23,415 16,442
Trustees' fees and
expenses............... 5,934 2,029 487 5,121 302 3,883 5,979
Registration fees.... 37,304 13 48,100 22,349 27,179 18,729 31,711
Custodian fees....... 30,940 22,947 75,589 144,093 117,652 71,788 56,554
Other................ 5,191 611 657 453 713 2,309 4,051
------------- ---------- --------- ------------- --------- ------------- -------------
Total Expenses
before Amounts
Waived/Assumed.. 3,535,582 363,235 679,765 1,508,169 579,652 1,219,631 1,887,851
Less: Amounts
Waived/Assumed..... -- -- (66,255) -- (164,283) -- --
------------- ---------- --------- ------------- --------- ------------- -------------
Total Expenses
after Amounts
Waived/Assumed... 3,535,582 363,235 613,510 1,508,169 415,369 1,219,631 1,887,851
------------- ---------- --------- ------------- --------- ------------- -------------
NET
INVESTMENT
INCOME..... 17,272,310 425,853 1,847,100 1,957,796 231,524 2,571,328 13,689,136
------------- ---------- --------- ------------- --------- ------------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on:
Investments........ 12,620,382 (927,479) 21,180 6,929,184 (695,421) (10,255,042) 13,979,461
Foreign exchange
transactions..... -- -- (4,747) (1,652,814) (45,458) -- --
------------- ---------- --------- ------------- --------- ------------- -------------
TOTAL GAIN
(LOSS)......... 12,620,382 (927,479) 16,433 5,276,370 (740,879) (10,255,042) 13,979,461
------------- ---------- --------- ------------- --------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation) on:
Investments........ (48,245,643) (158,687) (3,054,502) 1,143,365 (2,839,277) (4,038,554) (14,418,071)
Translation of
other assets and
liabilities
denominated in
foreign
currencies....... -- -- 1,180 43,899 2,495 -- --
------------- ---------- --------- ------------- --------- ------------- -------------
TOTAL
APPRECIATION
(DEPRECIATION)... (48,245,643) (158,687) (3,053,322) 1,187,264 (2,836,782) (4,038,554) (14,418,071)
------------- ---------- --------- ------------- --------- ------------- -------------
NET GAIN
(LOSS)......... (35,625,261) (1,086,166) (3,036,889) 6,463,634 (3,577,661) (14,293,596) (438,610)
------------- ---------- --------- ------------- --------- ------------- -------------
NET INCREASE
(DECREASE)
IN NET
ASSETS
RESULTING
FROM
OPERATIONS... $ (18,352,951) $ (660,313) $(1,189,789) $ 8,421,430 $(3,346,137) $ (11,722,268) $ 13,250,526
------------- ---------- --------- ------------- --------- ------------- -------------
------------- ---------- --------- ------------- --------- ------------- -------------
</TABLE>
93
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MONEY MARKET QUALITY INCOME PLUS
--------------------------- ---------------------------
1994 1993 1994 1993
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 7,923,278 $ 2,906,088 $ 32,040,580 $ 20,679,099
Net realized gain (loss)............ -- -- (38,500,832) 8,180,477
Net change in unrealized
appreciation (depreciation)....... -- -- (28,248,118) 4,200,907
------------- ------------ ------------- ------------
Net increase (decrease)......... 7,923,278 2,906,088 (34,708,370) 33,060,483
------------- ------------ ------------- ------------
Dividends and distributions to
shareholders from:
Net investment income............... (7,923,343) (2,906,087) (31,956,022) (20,733,963)
Net realized gain................... -- -- (8,412,812) --
------------- ------------ ------------- ------------
Total........................... (7,923,343) (2,906,087) (40,368,834) (20,733,963)
------------- ------------ ------------- ------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............. 243,270,066 110,933,469 62,213,515 305,118,024
Reinvestment of dividends and
distributions..................... 7,923,343 2,906,086 40,368,834 20,733,884
Cost of shares repurchased.......... (112,493,978) (80,065,561) (100,246,764) (13,899,740)
------------- ------------ ------------- ------------
Net increase (decrease)......... 138,699,431 33,773,994 2,335,585 311,952,168
------------- ------------ ------------- ------------
Total increase (decrease)....... 138,699,366 33,773,995 (72,741,619) 324,278,688
NET ASSETS:
Beginning of period................... 129,925,087 96,151,092 487,646,531 163,367,843
------------- ------------ ------------- ------------
END OF PERIOD......................... $ 268,624,453 $129,925,087 $ 414,904,912 $487,646,531
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Undistributed Net Investment Income
(Note 4).............................. $ 20 $ 85 $ 85,136 $ 578
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
SHARES ISSUED AND REPURCHASED:
Sold.................................. 243,270,066 110,933,469 5,844,176 27,855,790
Issued in reinvestment of dividends
and distributions................... 7,923,343 2,906,086 4,051,038 1,881,374
Repurchased........................... (112,493,978) (80,065,561) (10,177,416) (1,260,583)
------------- ------------ ------------- ------------
Net increase (decrease)............... 138,699,431 33,773,994 (282,202) 28,476,581
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES DIVIDEND GROWTH
--------------------------- --------------------------- --------------------------
1994 1993 1994 1993 1994 1993
------------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Net investment
income............. $ 13,505,893 $ 7,352,743 $ 18,140,133 $ 12,658,578 $ 17,272,310 $ 9,870,586
Net realized gain
(loss)............. (5,517,509) (4,735,637) (2,172,266) 2,261,234 12,620,382 1,384,492
Net change in
unrealized
appreciation
(depreciation)..... (11,772,750) 9,877,901 (59,919,164) 19,355,022 (48,245,643) 30,925,020
------------- ------------ ------------- ------------ ------------ ------------
Net increase
(decrease)..... (3,784,366) 12,495,007 (43,951,297) 34,274,834 (18,352,951) 42,180,098
------------- ------------ ------------- ------------ ------------ ------------
Dividends and
distributions to
shareholders from:
Net investment
income............. (13,464,211) (7,316,733) (17,878,751) (11,879,161) (16,780,838) (9,428,340)
Net realized gain.... -- -- (2,681,110) (454,570) -- --
------------- ------------ ------------- ------------ ------------ ------------
Total............ (13,464,211) (7,316,733) (20,559,861) (12,333,731) (16,780,838) (9,428,340)
------------- ------------ ------------- ------------ ------------ ------------
Transactions in shares
of beneficial
interest:
Net proceeds from
sales.............. 45,115,268 43,270,397 48,664,778 315,722,662 142,834,351 260,254,121
Reinvestment of
dividends and
distributions...... 13,464,211 7,316,732 20,559,861 12,333,731 16,780,838 9,428,340
Cost of shares
repurchased........ (19,597,061) (5,607,128) (113,235,763) (12,811,170) (34,674,217) (11,840,572)
------------- ------------ ------------- ------------ ------------ ------------
Net increase
(decrease)..... 38,982,418 44,980,001 (44,011,124) 315,245,223 124,940,972 257,841,889
------------- ------------ ------------- ------------ ------------ ------------
Total increase
(decrease)..... 21,733,841 50,158,275 (108,522,282) 337,186,326 89,807,183 290,593,647
NET ASSETS:
Beginning of period.... 90,200,401 40,042,126 490,934,034 153,747,708 483,145,140 192,551,493
------------- ------------ ------------- ------------ ------------ ------------
END OF PERIOD.......... $ 111,934,242 $ 90,200,401 $ 382,411,752 $490,934,034 $572,952,323 $483,145,140
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
Undistributed Net
Investment Income (Note
4)..................... $ 75,797 $ 34,115 $ 1,610,911 $ 1,349,529 $ 1,286,590 $ 795,118
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
SHARES ISSUED AND
REPURCHASED:
Sold................... 6,446,698 6,223,673 3,765,654 23,293,456 11,460,639 21,274,912
Issued in reinvestment
of dividends and
distributions........ 2,019,283 1,053,326 1,653,504 902,622 1,370,617 767,569
Repurchased............ (2,991,013) (809,003) (9,048,385) (934,385) (2,857,510) (979,408)
------------- ------------ ------------- ------------ ------------ ------------
Net increase
(decrease)........... 5,474,968 6,467,996 (3,629,227) 23,261,693 9,973,746 21,063,073
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
</TABLE>
95
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND
CAPITAL GROWTH GROWTH (1)
---------------------- -----------
1994 1993 1994
----------- --------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 425,853 3$63,745 $ 1,847,100
Net realized gain (loss)............ (927,479 ) (240,483) 16,433
Net change in unrealized
appreciation (depreciation)....... (158,687 ) (3,491,305) (3,053,322)
----------- --------- -----------
Net increase (decrease)......... (660,313 ) (3,368,043) (1,189,789)
----------- --------- -----------
Dividends and distributions to
shareholders from:
Net investment income............... (431,431 ) (338,174) (1,516,017)
Net realized gain................... (137,199 ) -- --
----------- --------- -----------
Total........................... (568,630 ) (338,174) (1,516,017)
----------- --------- -----------
Transactions in shares of beneficial
interest:
Net proceeds from sales............. 8,659,150 24,319,197 142,414,894
Reinvestment of dividends and
distributions..................... 568,630 338,174 1,516,017
Cost of shares repurchased.......... (12,592,414) (15,747,254) (2,739,066)
----------- --------- -----------
Net increase (decrease)......... (3,364,634 ) 8,910,117 141,191,845
----------- --------- -----------
Total increase (decrease)....... (4,593,577 ) 5,203,900 138,486,039
NET ASSETS:
Beginning of period................... 50,308,838 45,104,938 --
----------- --------- -----------
END OF PERIOD......................... $45,715,261 50,$308,838 $138,486,039
----------- --------- -----------
----------- --------- -----------
Undistributed Net Investment Income
(Note 4).............................. $ 55,472 $61,052 $ 326,336
----------- --------- -----------
----------- --------- -----------
SHARES ISSUED AND REPURCHASED:
Sold.................................. 745,503 2,077,229 14,227,418
Issued in reinvestment of dividends
and distributions................... 49,535 29,150 152,929
Repurchased........................... (1,085,521 ) (1,374,613) (280,638)
----------- --------- -----------
Net increase (decrease)............... (290,483 ) 731,766 14,099,709
----------- --------- -----------
----------- --------- -----------
<FN>
- ------------------
(1) For the period February 23, 1994 (commencement of operations) through
December 31, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
EUROPEAN GROWTH GROWTH (1) EQUITY MANAGED ASSETS
--------------------------- ----------- --------------------------- ---------------------------
1994 1993 1994 1994 1993 1994 1993
------------- ------------ ----------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Net investment
income............. $ 1,957,796 $ 282,228 $ 231,524 $ 2,571,328 $ 803,918 $ 13,689,136 $ 6,588,590
Net realized gain
(loss)............. 5,276,370 3,620,336 (740,879) (10,255,042) 15,242,235 13,979,461 8,034,397
Net change in
unrealized
appreciation
(depreciation)..... 1,187,264 6,853,206 (2,836,782) (4,038,554) 3,236,728 (14,418,071) 5,370,815
------------- ------------ ----------- ------------- ------------ ------------- ------------
Net increase
(decrease)..... 8,421,430 10,755,770 (3,346,137) (11,722,268) 19,282,881 13,250,526 19,993,802
------------- ------------ ----------- ------------- ------------ ------------- ------------
Dividends and
distributions to
shareholders from:
Net investment
income............. (1,332,400) (258,172) -- (2,393,925) (760,806) (12,720,041) (6,339,592)
Net realized gain.... (4,011,038) (199,841) (236,443) (16,442,181) (6,092,158) (6,891,484) (7,347,526)
------------- ------------ ----------- ------------- ------------ ------------- ------------
Total............ (5,343,438) (458,013) (236,443) (18,836,106) (6,852,964) (19,611,525) (13,687,118)
------------- ------------ ----------- ------------- ------------ ------------- ------------
Transactions in shares
of beneficial
interest:
Net proceeds from
sales.............. 79,498,127 59,000,547 81,416,561 84,340,284 96,261,692 110,230,754 137,119,451
Reinvestment of
dividends and
distributions...... 5,343,438 458,013 236,443 18,836,106 6,852,964 19,611,525 13,687,118
Cost of shares
repurchased........ (14,934,507) (1,390,412) (2,645,085) (30,156,623) (10,243,552) (18,223,284) (6,351,926)
------------- ------------ ----------- ------------- ------------ ------------- ------------
Net increase
(decrease)..... 69,907,058 58,068,148 79,007,919 73,019,767 92,871,104 111,618,995 144,454,643
------------- ------------ ----------- ------------- ------------ ------------- ------------
Total increase
(decrease)..... 72,985,050 68,365,905 75,425,339 42,461,393 105,301,021 105,257,996 150,761,327
NET ASSETS:
Beginning of period.... 79,052,389 10,686,484 -- 182,827,864 77,526,843 287,502,349 136,741,022
------------- ------------ ----------- ------------- ------------ ------------- ------------
END OF PERIOD.......... $ 152,037,439 $ 79,052,389 $75,425,339 $ 225,289,257 $182,827,864 $ 392,760,345 $287,502,349
------------- ------------ ----------- ------------- ------------ ------------- ------------
------------- ------------ ----------- ------------- ------------ ------------- ------------
Undistributed Net
Investment Income (Note
4)..................... $ 18,459 $ 867,172 $ (152,940) $ 371,545 $ 194,225 $ 1,680,979 $ 711,864
------------- ------------ ----------- ------------- ------------ ------------- ------------
------------- ------------ ----------- ------------- ------------ ------------- ------------
SHARES ISSUED AND
REPURCHASED:
Sold................... 5,461,296 4,664,827 8,401,700 3,984,962 4,485,338 8,741,963 10,942,015
Issued in reinvestment
of dividends and
distributions........ 385,416 38,773 25,025 965,337 336,539 1,575,130 1,102,080
Repurchased............ (1,042,808) (118,865) (281,779) (1,504,112) (483,237) (1,450,674) (506,227)
------------- ------------ ----------- ------------- ------------ ------------- ------------
Net increase
(decrease)........... 4,803,904 4,584,735 8,144,946 3,446,187 4,338,640 8,866,419 11,537,868
------------- ------------ ----------- ------------- ------------ ------------- ------------
------------- ------------ ----------- ------------- ------------ ------------- ------------
</TABLE>
97
<PAGE>
Dean Witter Variable Investment Series
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. 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 the
variable annuity contracts issued by Northbrook and flexible premium deferred
variable annuity contracts issued by Allstate New York.
The Fund, organized on February 25, 1983 as a Massachusetts business trust,
is comprised of eleven Portfolios and commenced operations as follows:
<TABLE>
<CAPTION>
COMMENCEMENT OF
PORTFOLIO OPERATIONS
- ------------------------------- ---------------------
<S> <C>
Money Market................... March 9, 1984
Quality Income Plus............ March 1, 1987
High Yield..................... March 9, 1984
Utilities...................... March 1, 1990
Dividend Growth................ March 1, 1990
Capital Growth................. March 1, 1991
<CAPTION>
COMMENCEMENT OF
PORTFOLIO OPERATIONS
- ------------------------------- ---------------------
<S> <C>
Global Dividend Growth......... February 23, 1994
European Growth................ March 1, 1991
Pacific Growth................. February 23, 1994
Equity......................... March 9, 1984
Managed Assets................. March 1, 1987
</TABLE>
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--Money Market: Securities are valued at
amortized cost which approximates market value. All remaining Portfolios:
(1) equity securities listed or traded on the New York or American Stock
Exchange or other domestic or foreign stock exchanges are 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 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 price; (4) 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 Trustees; (5) certain of the Fund's
portfolio securities may be valued by an outside pricing service approved by
the Trustees. The pricing service utilizes a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, in determining what it believes is
the fair valuation of the securities valued by such pricing service; and (6)
short-term debt securities having a maturity date of more than sixty days at
the time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income is recorded on the ex-dividend date, except for
98
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
certain dividends on foreign securities which are recorded as soon as the
Fund is informed after the ex-dividend date. Interest income is accrued
daily except where collection is not expected. The Money Market Portfolio
amortizes premiums and discounts on securities owned; gains and losses
realized upon the sale of securities are based on amortized cost. Discounts
on securities purchased for all other Portfolios are amortized over the life
of the respective securities. All other Portfolios do not amortize premiums
on securities purchased.
C. ACCOUNTING FOR OPTIONS--(1) Written options on debt obligations, equities
and foreign currency: When the Fund writes a call or put option, an amount
equal to the premium received is included in the Fund's Statement of Assets
and Liabilities as a liability which is subsequently marked-to-market to
reflect the current market value of the option written. If a written option
either expires or the Fund enters into a closing purchase transaction, the
Fund realizes a gain or loss 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 written call option is exercised, the Fund
realizes a gain or loss from the sale 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 reduces the cost of the security
which the Fund purchases upon exercise of the option; and (2) Purchased
options on debt obligations, equities and foreign currency: When the Fund
purchases a call or put option, the premium paid is recorded as an
investment and is subsequently marked-to-market to reflect the current
market value. If a purchased option expires, the Fund will realize a loss to
the extent of the premium paid. If the Fund enters into a closing sale
transaction, a gain or loss is realized for the difference between the
proceeds from the sale and the cost of the option. If a put option is
exercised, the cost of the security sold upon exercise will be increased by
the premium originally paid. If a call option is exercised, the cost of the
security purchased upon exercise will be increased by the premium originally
paid.
D. FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolios
investing in foreign currency denominated transactions are translated into
U.S. dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward contracts are
translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange
gains/losses included in realized and unrealized gain/loss are included in
or are a reduction of ordinary income for federal income tax purposes. The
Portfolios do not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in the
market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS--Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are
included in the Statement of Operations as unrealized foreign currency gain
or loss and in the Statement of Assets and Liabilities as receivables and
payables, respectively, on open forward foreign currency contracts. The
Portfolios record realized gains or losses on delivery of the currencies or
at the time the forward contracts are extinguished (compensated) by entering
into closing transactions prior to delivery.
99
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
H. EXPENSES--Direct expenses are charged to the respective Portfolio and
general Fund expenses are allocated on the basis of relative net assets.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS--Pursuant to an Investment
Management Agreement with Dean Witter InterCapital Inc. (the "Investment
Manager"), the Fund pays its Investment Manager a management fee, accrued daily
and payable monthly, by applying the following annual rates to each Portfolio's
net assets determined at the close of each business day: Money Market, Quality
Income Plus, High Yield, Equity and Managed Assets - 0.50%; Dividend Growth -
0.625%; Utilities and Capital Growth - 0.65%; Global Dividend Growth - 0.75%;
European Growth and Pacific Growth - 1.0%. Effective May 1, 1994, the Agreement
was amended to reduce the annual rates of the Dividend Growth and Utilities
Portfolios to 0.50% and 0.55%, respectively, to be applied to the daily net
assets of each of the respective Portfolios exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the European Growth and the Pacific Growth Portfolios with investment advice and
portfolio management relating to the Portfolios' investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for 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.
100
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Investment Manager assumed all expenses (except for brokerage fees) and
waived the compensation provided for in the Agreement until Global Dividend
Growth and Pacific Growth each had $50 million of net assets, which occurred on
May 12, 1994 and August 2, 1994, respectively.
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, 1994
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------------- --------------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Money Market.......................... -- -- $ 1,994,232,257 $ 1,864,172,886
Quality Income Plus................... $ 988,864,772 $ 910,196,503 202,272,125 303,287,630
High Yield............................ -- -- 126,250,252 98,470,971
Utilities............................. -- -- 64,148,468 91,278,714
Dividend Growth....................... -- -- 237,167,177 108,337,920
Capital Growth........................ -- -- 17,430,795 21,097,015
Global Dividend Growth................ -- -- 157,037,405 16,531,653
European Growth....................... -- -- 139,717,094 70,472,802
Pacific Growth........................ -- -- 87,273,443 10,398,399
Equity................................ 25,631,764 15,829,536 557,753,826 532,382,183
Managed Assets........................ 53,304,861 72,126,824 59,315,880 212,229,720
</TABLE>
For the year ended December 31, 1994, the following respective Portfolios
incurred brokerage commissions with Dean Witter Reynolds Inc., an affiliate of
the Investment Manager, for portfolio transactions executed on behalf of the
Portfolio:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND MANAGED
UTILITIES GROWTH GROWTH GROWTH EQUITY ASSETS
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commissions............................ $ 27,250 $ 192,545 $ 32,574 $ 55,460 $ 200,291 $ 38,541
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>
For the period ended December 31, 1994, the Global Dividend Growth, European
Growth and Pacific Growth Portfolios incurred brokerage commissions of $69,555,
$16,661 and $92,667, respectively, with affiliates of Morgan Grenfell for
portfolio transactions executed on behalf of the Portfolio.
Included in the payable for investments purchased and receivable for
investments sold for unsettled trades with Dean Witter Reynolds Inc. at December
31, 1994 are as follows:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND
GROWTH GROWTH GROWTH EQUITY
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Payable for investments purchased.............................. $ 664,765 $ 38,050 $ 538,375 $ 875,235
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Receivable for investments sold................................ $ 314,115 $ 77,247 $ 179,794 $ 703,977
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent.
101
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 independent Trustees 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 period ended December 31, 1994, included in Trustees' fees and expenses in
the Statement of Operations and the accrued pension liability included in
accrued expenses in the Statement of Assets and Liabilities were as follows:
<TABLE>
<CAPTION>
QUALITY
MONEY INCOME HIGH DIVIDEND CAPITAL
MARKET PLUS YIELD UTILITIES GROWTH GROWTH
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Pension Cost............................. $ 220 $ 508 $ 124 $ 470 $ 601 $ 204
--------- --------- --------- --------- ----------- -----
--------- --------- --------- --------- ----------- -----
Aggregate Pension Liability........................ $ 10,704 $ 6,346 $ 3,072 $ 3,919 $ 5,969 $ 192
--------- --------- --------- --------- ----------- -----
--------- --------- --------- --------- ----------- -----
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND EUROPEAN PACIFIC MANAGED
GROWTH GROWTH GROWTH EQUITY ASSETS
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Aggregate Pension Cost....................................... $ 90 $ 379 $ 53 $ 235 $ 380
--- ----- --- --------- -----------
--- ----- --- --------- -----------
Aggregate Pension Liability.................................. $ 70 $ 347 $ 41 $ 4,427 $ 7,093
--- ----- --- --------- -----------
--- ----- --- --------- -----------
</TABLE>
4. FEDERAL INCOME TAX STATUS--At December 31, 1994, the following Portfolios
had approximate net capital loss carryovers which may be used to offset future
capital gains to the extent provided by regulations:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
AVAILABLE THROUGH --------------------------------------------------------------------------------------
DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL
- --------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quality Income Plus.................... -- -- -- -- -- -- $ 32,802 $ 32,802
High Yield............................. $ 7,297 $ 10,694 $ 34,291 $ 7,336 $ 3,057 $ 4,736 3,256 70,667
Utilities.............................. -- -- -- -- -- -- 2,371 2,371
Capital Growth......................... -- -- -- -- -- -- 1,047 1,047
Equity................................. -- -- -- -- -- -- 6,496 6,496
</TABLE>
Capital and currency losses incurred after October 31 ("Post-October
losses") within the taxable year are deemed to arise on the first business day
of the Portfolios' next taxable year. The following Portfolios incurred and will
elect to defer net capital/currency losses for fiscal 1994: Quality Income Plus
- - $4,693,000; High Yield - $2,213,000; Utilities - $204,000; Global Dividend
Growth - $101,000; Pacific Growth - $557,000; Equity - $3,375,000; Managed
Assets - $745,000.
102
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1994, the primary reason(s) for significant
temporary/permanent book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
------------------------------- -------------------------------
POST-OCTOBER LOSS DEFERRALS NET OPERATING FOREIGN CURRENCY
PORTFOLIO CAPITAL LOSSES FROM WASH SALES LOSS GAINS/LOSSES
- -------------------------------------------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Quality Income Plus............................... - -
High Yield........................................ - -
Utilities......................................... - -
Dividend Growth................................... -
Capital Growth.................................... -
Global Dividend Growth............................ - - -
European Growth................................... - -
Pacific Growth.................................... - - - -
Equity............................................ - -
Managed Assets.................................... -
</TABLE>
To reflect reclassifications arising from permanent book/tax differences for
the year ended December 31, 1994, the following accounts were
charged/(credited):
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED
INCOME/LOSS GAIN/LOSS
-------------- --------------
<S> <C> <C>
Global Dividend Growth...................................................... $ 4,747 $ (4,747)
European Growth............................................................. 1,474,109 (1,474,109)
Pacific Growth.............................................................. 384,464 (384,464)
</TABLE>
5. PURPOSE OF AND RISK RELATING TO CERTAIN FINANCIAL INSTRUMENTS--The Global
Dividend Growth, European Growth and Pacific Growth Portfolios may enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
their foreign currency exposure associated with foreign currency denominated
securities. These Portfolios may also purchase put options on foreign currencies
in which the Portfolios' securities are denominated to protect against a decline
in value of such securities due to currency devaluations.
At December 31, 1994, there were no outstanding forward contracts other than
those used to facilitate settlement of outstanding foreign currency denominated
portfolio transactions. Additionally, at December 31, 1994, the European Growth
and Pacific Growth Portfolios have outstanding over-the-counter purchased put
options on foreign currencies.
Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts and
over-the-counter purchased put options from the potential inability of the
counterparties to meet the terms of their contracts.
103
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED RATIOS AND PER SHARE DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1985 $ 1.00 $ 0.076 $-- $ 0.076 $(0.076) $-- $ (0.076)
1986 1.00 0.062 -- 0.062 (0.062) -- (0.062)
1987 1.00 0.061 -- 0.061 (0.061) -- (0.061)
1988 1.00 0.070 -- 0.070 (0.070) -- (0.070)
1989 1.00 0.086 -- 0.086 (0.086) -- (0.086)
1990 1.00 0.076 -- 0.076 (0.076) -- (0.076)
1991 1.00 0.056 -- 0.056 (0.056) -- (0.056)
1992 1.00 0.034 -- 0.034 (0.034) -- (0.034)
1993 1.00 0.027 -- 0.027 (0.027) -- (0.027)
1994 1.00 0.037 -- 0.037 (0.037) -- (0.037)
QUALITY INCOME PLUS
1987* 10.00 0.64 (0.39) 0.25 (0.64) -- (0.64)
1988 9.61 0.85 (0.16) 0.69 (0.85) -- (0.85)
1989 9.45 0.88 0.28 1.16 (0.88) -- (0.88)
1990 9.73 0.86 (0.24) 0.62 (0.86) -- (0.86)
1991 9.49 0.85 0.85 1.70 (0.85) -- (0.85)
1992 10.34 0.77 0.05 0.82 (0.77) -- (0.77)
1993 10.39 0.69 0.64 1.33 (0.69) -- (0.69)
1994 11.03 0.69 (1.40) (0.71) (0.69) (0.18) (0.87)
HIGH YIELD
1985 10.23 1.17 1.50 2.67 (1.17) (0.01) (1.18)
1986 11.72 1.09 0.90 1.99 (1.09) (0.56) (1.65)
1987 12.06 0.91 (1.15) (0.24) (0.91) (0.94) (1.85)
1988 9.97 1.14 (0.05) 1.09 (1.14) -- (1.14)
1989 9.92 1.30 (2.40) (1.10) (1.30) -- (1.30)
1990 7.52 1.13 (2.91) (1.78) (1.13) (0.06)+ (1.19)
1991 4.55 0.70 1.81 2.51 (0.70) (0.11)+ (0.81)
1992 6.25 0.96 0.18 1.14 (0.96) -- (0.96)
1993 6.43 0.81 0.68 1.49 (0.81) -- (0.81)
1994 7.11 0.79 (0.95) (0.16) (0.79) -- (0.79)
UTILITIES
1990** 10.00 0.47 (0.04) 0.43 (0.41) -- (0.41)
1991 10.02 0.54 1.45 1.99 (0.54) -- (0.54)
1992 11.47 0.51 0.88 1.39 (0.52) -- (0.52)
1993 12.34 0.49 1.43 1.92 (0.50) (0.02) (0.52)
1994 13.74 0.53 (1.75) (1.22) (0.52) (0.08) (0.60)
<FN>
- ------------
Commencement of operations:
* March 1, 1987.
** March 1, 1990.
+ Distribution from capital.
(1) Not annualized.
(2) Annualized.
(3) 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 0.74%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1990 through August 31, 1990, the
ratio of expenses to average net assets would have been 0.75%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSET -------------------------
YEAR VALUE TOTAL NET ASSETS NET PORTFOLIO
ENDED END INVESTMENT AT END OF INVESTMENT TURNOVER
DEC. 31 OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE
- ----------- ---------- ----------- -------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1985 $ 1.00 7.85% $ 16,386 0.74% 7.57% N/A
1986 1.00 6.39 42,194 0.69 6.03 N/A
1987 1.00 6.26 69,467 0.65 6.26 N/A
1988 1.00 7.23 77,304 0.62 7.04 N/A
1989 1.00 9.05 76,701 0.58 8.67 N/A
1990 1.00 7.89 118,058 0.57 7.60 N/A
1991 1.00 5.75 104,277 0.57 5.62 N/A
1992 1.00 3.43 96,151 0.59 3.38 N/A
1993 1.00 2.75 129,925 0.57 2.71 N/A
1994 1.00 3.81 268,624 0.55 3.93 N/A
QUALITY INCOME PLUS
1987* 9.61 2.62(1) 24,094 0.35(2)(3) 8.33(2) 265%(1)
1988 9.45 7.32 28,037 0.73 8.87 277
1989 9.73 12.78 48,784 0.70 9.09 242
1990 9.49 6.84 57,407 0.66 9.09 166
1991 10.34 18.75 81,918 0.60 8.39 105
1992 10.39 8.26 163,368 0.58 7.41 148
1993 11.03 12.99 487,647 0.56 6.17 219
1994 9.45 (6.63) 414,905 0.54 6.88 254
HIGH YIELD
1985 11.72 27.42 101,253 0.64 10.50 237
1986 12.06 18.13 204,754 0.56 9.10 164
1987 9.97 (3.02) 191,631 0.53 7.66 287
1988 9.92 10.83 192,290 0.56 11.06 140
1989 7.52 (12.44) 96,359 0.55 13.94 54
1990 4.55 (25.54) 27,078 0.69 17.98 42
1991 6.25 58.14 34,603 1.01 12.29 300
1992 6.43 18.35 40,042 0.74 14.05 204
1993 7.11 24.08 90,200 0.60 11.80 177
1994 6.16 (2.47) 111,934 0.59 11.71 105
UTILITIES
1990** 10.02 4.52(1) 37,597 0.40(2)(4) 6.38(2) 46(1)
1991 11.47 20.56 68,449 0.80 5.23 25
1992 12.34 12.64 153,748 0.73 4.63 26
1993 13.74 15.69 490,934 0.71 3.75 11
1994 11.92 (9.02) 382,412 0.68 4.21 15
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
105
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990** $ 10.00 $ 0.33 $ (1.10) $ (0.77) $ (0.30) $-- $ (0.30)
1991 8.93 0.36 2.08 2.44 (0.37) -- (0.37)
1992 11.00 0.37 0.51 0.88 (0.37) -- (0.37)
1993 11.51 0.36 1.27 1.63 (0.36) -- (0.36)
1994 12.78 0.38 (0.80) (0.42) (0.37) -- (0.37)
CAPITAL GROWTH
1991*** 10.00 0.15 2.67 2.82 (0.13) -- (0.13)
1992 12.69 0.07 0.13 0.20 (0.08) (0.02) (0.10)
1993 12.79 0.08 (0.98) (0.90) (0.08) -- (0.08)
1994 11.81 0.10 (0.26) (0.16) (0.10) (0.03) (0.13)
GLOBAL DIVIDEND GROWTH
1994**** 10.00 0.23 (0.20) 0.03 (0.21) -- (0.21)
EUROPEAN GROWTH
1991*** 10.00 0.25 (0.13) 0.12 (0.23) -- (0.23)
1992 9.89 0.08 0.32 0.40 (0.10) (0.01) (0.11)
1993 10.18 0.12 3.98 4.10 (0.12) (0.13) (0.25)
1994 14.03 0.17 0.96 1.13 (0.16) (0.44) (0.60)
PACIFIC GROWTH
1994**** 10.00 0.07 (0.74) (0.67) -- (0.07) (0.07)
EQUITY
1985 10.79 0.43 2.01 2.44 (0.46) (0.03) (0.49)
1986 12.74 0.39 1.74 2.13 (0.39) (0.07) (0.46)
1987 14.41 0.30 (0.94) (0.64) (0.33) (0.95) (1.28)
1988 12.49 0.39 0.83 1.22 (0.35) -- (0.35)
1989 13.36 0.71 1.77 2.48 (0.70) -- (0.70)
1990 15.14 0.48 (1.03) (0.55) (0.49) -- (0.49)
1991 14.10 0.20 8.05 8.25 (0.21) -- (0.21)
1992 22.14 0.23 (0.47) (0.24) (0.24) (1.86) (2.10)
1993 19.80 0.15 3.63 3.78 (0.15) (1.28) (1.43)
1994 22.15 0.23 (1.31) (1.08) (0.22) (1.60) (1.82)
MANAGED ASSETS
1987* 10.00 0.48 (0.35) 0.13 (0.48) -- (0.48)
1988 9.65 0.70 0.51 1.21 (0.64) -- (0.64)
1989 10.22 0.84 0.20 1.04 (0.79) (0.06) (0.85)
1990 10.41 0.61 (0.46) 0.15 (0.67) (0.08) (0.75)
1991 9.81 0.47 2.24 2.71 (0.50) -- (0.50)
1992 12.02 0.44 0.41 0.85 (0.45) (0.13) (0.58)
1993 12.29 0.38 0.86 1.24 (0.38) (0.47) (0.85)
1994 12.68 0.48 0.01 0.49 (0.46) (0.26) (0.72)
<FN>
- ------------
Commencement of operations:
** March 1, 1990.
*** March 1, 1991.
**** February 23, 1994.
(1) Not annualized.
(2) Annualized.
(3) 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 0.74%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1990 through June 26, 1990, the
ratio of expenses to average net assets would have been 0.74%.
(5) 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% for
Capital Growth and 4.12% for European Growth.
(6) If the Investment Manager had not assumed all expenses and waived the
management fee for the period February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through August 2, 1994 for
Pacific Growth, the ratio of expenses to average net assets would have
been 0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSET -----------------------
YEAR VALUE TOTAL NET ASSETS NET PORTFOLIO
ENDED END INVESTMENT AT END OF INVESTMENT TURNOVER
DEC. 31 OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE
- --------- ----------- -------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990** $ 8.93 (7.81)%(1) $ 57,282 0.54%(2)(4) 4.50%(2) 19%(1)
1991 11.00 27.76 98,023 0.73 3.61 6
1992 11.51 8.16 192,551 0.69 3.42 4
1993 12.78 14.34 483,145 0.68 3.01 6
1994 11.99 (3.27) 572,952 0.64 3.13 20
CAPITAL GROWTH
1991*** 12.69 28.41(1) 18,400 --(2)(5) 1.82(2) 32(1)
1992 12.79 1.64 45,105 0.86 0.62 22
1993 11.81 (6.99) 50,309 0.74 0.78 36
1994 11.52 (1.28) 45,715 0.77 0.90 37
GLOBAL DIVIDEND GROWTH
1994**** 9.82 0.27(1) 138,486 0.87(2)(6) 2.62(2) 20(1)
EUROPEAN GROWTH
1991*** 9.89 1.34(1) 3,653 --(2)(5) 3.18(2) 77(1)
1992 10.18 3.99 10,686 1.73 0.74 97
1993 14.03 40.88 79,052 1.28 0.97 77
1994 14.56 8.36 152,037 1.16 1.51 58
PACIFIC GROWTH
1994**** 9.26 (6.73)(1) 75,425 1.00(2)(6) 0.56(2) 22(1)
EQUITY
1985 12.74 23.66 30,045 0.73 3.99 73
1986 14.41 16.85 43,266 0.63 2.72 89
1987 12.49 (6.23) 52,502 0.59 2.02 63
1988 13.36 9.84 39,857 0.65 2.77 162
1989 15.14 18.83 58,316 0.60 4.85 81
1990 14.10 (3.62) 41,234 0.62 3.38 130
1991 22.14 59.05 63,524 0.64 1.09 214
1992 19.80 0.05 77,527 0.62 1.22 286
1993 22.15 19.72 182,828 0.58 0.69 265
1994 19.25 (4.91) 225,289 0.57 1.19 299
MANAGED ASSETS
1987* 9.65 1.23(1) 27,016 0.38(2)(3) 6.73(2) 172(1)
1988 10.22 12.79 61,947 0.66 7.29 310
1989 10.41 10.67 88,712 0.57 8.38 282
1990 9.81 1.56 68,447 0.58 6.10 163
1991 12.02 28.26 87,779 0.60 4.34 86
1992 12.29 7.24 136,741 0.58 3.74 87
1993 12.68 10.38 287,502 0.57 3.11 57
1994 12.45 3.94 392,760 0.54 3.93 125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
107
<PAGE>
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 statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 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
(constituting Dean Witter Variable Investment Series, hereafter referred to as
the "Fund") at December 31, 1994, the results of each of their operations for
the year or indicated period then ended, the changes in each of their net assets
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, 1994 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 13, 1995
1994 FEDERAL INCOME TAX NOTICE (UNAUDITED)
During the year ended December 31, 1994, the Fund paid to
shareholders long-term capital gains per share as follows:
<TABLE>
<CAPTION>
CAPITAL EUROPEAN MANAGED QUALITY
GROWTH EQUITY GROWTH ASSETS INCOME UTILITIES
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.0334 $ 0.4402 $ 0.0740 $ 0.1763 $ 0.0455 $ 0.0142
</TABLE>
108
<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 years ended
December 31, 1985, 1986, 1987, 1988, 1989,
1990, 1991, 1992, 1993 and 1994...................... 5
(2) Financial statements included in the Statement of
Additional Information (Part B):
Page in
SAI
-------
Portfolio of Investments at December 31, 1994........ 53
Statement of assets and liabilities at
December 31, 1994.................................... 90
Statement of operations for the year ended
December 31, 1994.................................... 92
Statement of changes in net assets for the
years ended December 31, 1993 and 1994............... 94
Notes to Financial Statements........................ 98
Financial highlights for the years ended
December 31, 1985, 1986, 1987, 1988, 1989,
1990, 1991, 1992, 1993 and 1994...................... 104
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
6. (a) Form of Distribution Agreement between
Registrant and Dean Witter Distributors Inc.
(b) Form of Participation Agreement among
Registrant, Paragon Life Insurance Company
and Dean Witter Distributors Inc.
<PAGE>
(c) Agreement to Purchase Shares among Registrant,
Northbrook Life Insurance and Dean Witter Distributors
Inc. in connection with the Northbrook Variable Annuity
Account.
(d) Agreement to Purchase Shares among Registrant,
Northbrook Life Insurance Company and Dean Witter
Distributors Inc. in connection with the Northbrook
Variable Annuity Account II.
(e) Agreement to Purchase Shares among Registrant,
Allstate Life Insurance Company of New York and Dean
Witter Distributors Inc. in connection with the
Allstate Life Insurance Company of New York Variable
Annuity Account.
(f) Agreement to Purchase Shares among Registrant,
Allstate Life Insurance Company of New York and
Dean Witter Distributors Inc. in connection with Allstate
Life Insurance Company of New York Variable Annuity
Account II.
11. Consent of Independent Accountants
16. Schedules for Computation of Performance
Quotations
27. Financial Data Schedule
Other Powers of Attorney
--------------------------------
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.
(1) (2)
Number of Record Holders
Title of Class at April 14, 1995
-------------- ------------------------
Shares of Beneficial Interest 2
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
2
<PAGE>
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.
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,
3
<PAGE>
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. 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 "Dean Witter Funds" used below refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(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) 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
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES:
(1) Dean Witter Short-Term Bond Fund
(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
4
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(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
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Global Asset Allocation Fund
(51) Dean Witter Balanced Growth Fund
(52) Dean Witter Balanced Income Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(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
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(6) TCW/DW Balanced Fund
(7) TCW/DW North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
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NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
Edmund C. Puckhaber Director of DWTC; Vice President of the Dean
Executive Vice Witter Funds.
President
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Thomas H. Connelly
Senior Vice President Vice President of various Dean Witter Funds.
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
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NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer of the Dean Witter Funds and the TCW/DW
Treasurer Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds; Assistant Secretary of DWR.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
Joan Allman
Vice President
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NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Stephen Brophy
Vice President
Terence P. Brennan, II
Vice President
Douglas Brown
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
Russell Harper
Vice President
John Hechtlinger
Vice President
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NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
Stanley Kapica
Vice President
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paul LaCosta
Vice President Vice President of various Dean Witter Funds.
Lawrence S. Lafer Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Thomas Lawlor
Vice President
Lou Anne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
James Nash
Vice President
Richard Norris
Vice President
Hugh Rose
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
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NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
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.
Jayne M. Wolff
Vice President Vice President of various Dean Witter Funds.
Marianne Zalys
Vice President
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 Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(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
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(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 Federal Securities 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 Premium Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Global Asset Allocation Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Balanced Growth Fund
(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
(7) TCW/DW North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return Trust
(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.
Positions and
Office with
Name Distributors
---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
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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.
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.
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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 17th day of April, 1995.
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. 19 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 4/17/95
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 4/17/95
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 4/17/95
--------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Manuel H. Johnson
Michael Bozic Paul Kolton
Edwin J.Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 4/17/95
---------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBITS
6. (a) Form of Distribution Agreement between Registrant and
Dean Witter Distributors Inc.
(b) Form of Participation Agreement among Registrant, Paragon Life
Insurance Company and Dean Witter Distributors Inc.
(c) Agreement to Purchase Shares among Registrant, Northbrook Life
Insurance and Dean Witter Distributors Inc. in connection with the
Northbrook Variable Annuity Account.
(d) Agreement to Purchase Shares among Registrant, Northbrook Life
Insurance Company and Dean Witter Distributors Inc. in connection
with the Northbrook Variable Annuity Account II.
(e) Agreement to Purchase Shares among Registrant, Allstate
Life Insurance Company of New York and Dean Witter Distributors Inc.
in connection with the Allstate Life Insurance Company of New York
Variable Annuity Account.
(f) Agreement to Purchase Shares among Registrant, Allstate Life
Insurance Company of New York and Dean Witter Distributors Inc.
in connection with Allstate Life Insurance Company of New York
Variable Annuity Account II.
11. Consent of Independent Accountants
16. Schedules for Computation of Performance Quotations
27. Financial Data Schedule
Other Powers of Attorney
--------------------------------
All other exhibits previously filed and incorporated
by reference.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 30th day of June, 1993, and amended as of March
15, 1995, between Dean Witter Variable Investment Series, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(the "Trust"), and Dean Witter Distributors Inc., a Delaware corporation (the
"Distributor");
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end investment company and
it is in the interest of the Trust to offer its shares for sale continuously,
and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of each Portfolio of
the Trust's transferable shares of beneficial interest, of $.01 par value
(the "Shares"), in order to promote the growth of the Trust and facilitate
the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. (a) APPOINTMENT OF THE DISTRIBUTOR. The Trust hereby appoints
the Distributor as the principal underwriter of the Trust to sell Shares to
Northbrook Life Insurance Company ("Northbrook") for allocation to Northbrook
Variable Annuity Account and Northbrook Variable Annuity Account II, to
Allstate Life Insurance Company of New York ("Allstate New York") for
allocation to Allstate Life Insurance Company of New York Variable Annuity
Separate Account and Allstate Life Insurance Company of New York Variable
Annuity Separate Account II, and such other separate accounts and affiliated
entities of Northbrook or Allstate New York as may be determined, in
accordance with the Trust's Prospectus (defined below), and to Paragon Life
Insurance Company ("Paragon") for allocation to Separate Account B of Paragon
Life Insurance Company, on the terms set forth in this Agreement and the
Trust's Prospectus, and the Distributor hereby accepts such appointment and
agrees to act hereunder. The Trust, during the term of this Agreement, shall
sell Shares to the Distributor upon the terms and conditions set forth
herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Trust and to sell Shares as principal to Northbrook,
Allstate New York and Paragon, upon the terms described herein and in the
Trust's prospectus (the "Prospectus") included in the Trust's registration
statement (the "Registration Statement") most recently filed from time to
time with the Securities and Exchange Commission (the "SEC") and effective
under the Securities Act of 1933, as amended (the "1933 Act"), and 1940 Act
or as said Prospectus may be otherwise amended or supplemented and filed with
the SEC pursuant to Rule 424 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of the Trust, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by the Trust: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Trust or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Trust; or (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to the reinstatement privilege afforded
redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM THE TRUST. (a) The Distributor shall
have the right to buy from the Trust the Shares needed, but not more than the
Shares needed (except for clerical errors in transmission), to fill
unconditional orders for Shares placed with the Distributor by Northbrook,
Allstate New York and Paragon. The price which the Distributor shall pay for
the Shares so purchased from the Trust shall be the net asset value,
determined as set forth in the Prospectus.
(b) The Shares are to be resold by the Distributor at the same net asset
value to Northbrook, Allstate New York and Paragon for which the Distributor
paid to the Trust for such Shares and at cost, as set forth in the
Prospectus.
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(c) The Trust shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(b) hereof. The Trust shall also have the right to suspend the sale
of the Shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by federal or New
York authorities, or if there shall have been some other extraordinary event
which, in the judgment of the Trust, makes it impracticable to sell the
Shares.
(d) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Shares received
by the Distributor. The Distributor will confirm orders upon their receipt,
and the Trust (or its agent) upon receipt of payment therefor and
instructions will deliver such Shares or a statement confirming the issuance
of Shares. Payment shall be made to the Trust in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to
be delivered promptly to the Trust (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Trust agrees to
redeem the Shares so tendered in accordance with the applicable provisions
set forth in the Prospectus. The price to be paid to redeem the Shares shall
be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Trust hereunder shall be made in the manner set forth
below.
The proceeds of any redemption of Shares shall be paid to Northbrook,
Allstate New York or Paragon in accordance with applicable provisions of the
Prospectus in New York Clearing House funds.
(b) Redemption of Shares or payment by the Trust may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the
Trust of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
SECTION 5. DUTIES OF THE TRUST. (a) The Trust shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Trust and examined
by independent accountants. The Trust shall, at the expense of the
Distributor, make available to the Distributor such number of copies of the
Prospectus as the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of shares as investors may
reasonably be expected to purchase.
(c) The Trust shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Trust.
SECTION 6. DUTIES OF THE DISTRIBUTOR. (a) The Distributor shall sell
shares of the Trust to Northbrook, Allstate New York and Paragon as orders
from Northbrook, Allstate New York and Paragon are received, but shall not be
obligated to sell any specific number of Shares. The services of the
Distributor hereunder are not exclusive and it is understood that the
Distributor acts as principal underwriter for other registered investment
companies and intends to do so in the future.
(b) The Distributor shall not give any information or make any
representations, other than those contained in the Registration Statement or
related Prospectus and any sales literature specifically approved by the
Trust.
(c) The Distributor agrees that it will comply with the terms and
limitations of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
SECTION 7. PAYMENT OF EXPENSES. (a) The Distributor shall bear all
expenses incurred by it in connection with its duties and activities under
this Agreement (except such expenses as are specifically undertaken herein by
the Trust).
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(b) The Trust shall bear all costs and expenses of the Trust, including
fees and disbursements of its counsel and independent accountants, in
connection with the preparation and filing of any required Registration
Statements and Prospectuses and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses, annual or interim reports or proxy materials to contract owners
of the variable annuity contracts issued by Northbrook and Allstate New York
and contract owners of the flexible premium variable life insurance contracts
issued by Paragon.
(c) If deemed necessary or advisable to qualify the Shares for sale under
state securities laws, the Trust shall bear the cost and expenses of
qualification and, if necessary or advisable in connection therewith, of
qualifying the Trust as a broker or dealer, in such states of the United
States or other jurisdictions as shall be selected by the Trust and the
Distributor pursuant to Section 5(c) hereof and the cost and expenses payable
to each such state for continuing qualification therein until the Trust
decides to discontinue such qualification pursuant to Section 5(c) hereof.
SECTION 8. INDEMNIFICATION. (a) The Trust shall indemnify and hold
harmless the Distributor and each person, if any, who controls the
Distributor against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith) arising by reason of any person acquiring any Shares,
which may be based upon the 1933 Act, or on any other statute or at common
law, on the ground that the Registration Statement or related Prospectus, as
from time to time amended and supplemented, or the annual or interim reports
to shareholders of the Trust, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be
deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Trust or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by
reason of willful misfeasance, bad faith or negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
under this Agreement; or (ii) is the Trust to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Trust
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Trust will be entitled to
participate at its own expense in the defense, or if it so elects, to assume
the defense, of any suit brought to enforce any such liability, but if the
Trust elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Trust elects to assume the defense of any such suit and retain such counsel,
the Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Trust does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Trust shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with
the issuance or sale of the Shares.
(b)(i) The Distributor shall indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage, or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Trust in writing by or on
behalf of the Distributor for use in connection with the Registration
Statement or
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related Prospectus, as from time to time amended, or the annual or interim
reports to shareholders; and as the result of willful misfeasance, bad faith
or negligence of the Distributor in the performance of its duties or by
reason of the reckless disregard of its obligations and duties under this
Agreement.
(ii) The Distributor shall indemnify and hold harmless the Trust, the
Trust's transfer agent, individually and in its capacity as the Trust's
transfer agent, and the Trust's investment manager from and against any
claims, damages and liabilities which arise as a result of actions taken
pursuant to instructions from, or on behalf of, the Distributor to: (1)
redeem all or a part of shareholder accounts in the Trust and pay the
proceeds to, or as directed by, the Distributor for the account of each
shareholder whose Shares are so redeemed and (2) register Shares in the names
of investors, confirm the issuance thereof and receive payment therefor.
(iii) In case any action shall be brought against the Trust or any person
so indemnified by this subsection 8(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to the Trust, and the Trust and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 8.
SECTION 9. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 1995 and from year to year thereafter,
provided such continuance is approved at least annually by (i) the Trustees
of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy, and (ii) a majority of
those Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or in any agreement related thereto, cast in person at a meeting
called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Board of Trustees of the Trust, by a majority of the Trustees
of the Trust who are not interested persons of the Trust and who have no
direct or indirect financial interest in this Agreement or any agreement
related thereto, or by vote of a majority of the outstanding voting
securities of the Trust, or by the Distributor, on sixty days' written notice
to the other party. This Agreement shall automatically terminate in the event
of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 10. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Trustees of the Trust, or by the vote of a majority of outstanding voting
securities of the Trust, and (ii) a majority of those Trustees of the Trust
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any agreement related thereto, cast in person at a meeting called for the
purpose of voting on such approval.
SECTION 11. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of New York, or any
of the provisions herein, conflicts with the applicable provisions of the
1940 Act, the latter shall control.
SECTION 12. PERSONAL LIABILITY. The Declaration of Trust establishing Dean
Witter Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on the 15th day of March, 1995, in New York, New York.
DEAN WITTER VARIABLE INVESTMENT SERIES
By
------------------------------------
DEAN WITTER DISTRIBUTORS INC.
By
------------------------------------
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this the 15th day of March, 1995, by
and among PARAGON LIFE INSURANCE COMPANY (the "Company"), on its own behalf
and on behalf of the Separate Account B of Paragon Life Insurance Company
(the "Account"), a separate account of the Company, and DEAN WITTER VARIABLE
INVESTMENT SERIES, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Trust") and DEAN
WITTER DISTRIBUTORS INC. (the "Distributor").
WHEREAS, the Trust and the Distributor have previously entered into
Agreements to Purchase Shares with Northbrook Life Insurance Company and
Allstate Life Insurance Company of New York with regard to the purchase by
those companies of shares of the Trust on their own behalf and on behalf of
certain separate variable accounts of those companies, which Agreements shall
continue in effect with those companies following the entry by the Trust and
the Distributor into this Agreement with the Company; and
WHEREAS, by resolution of its Board of Directors on January 4, 1993, the
Company established the Account to set aside and invest assets attributable
to certain flexible premium variable life insurance contracts (the
"Contracts") issued by the Company; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the Securities and Exchange Commission
("SEC") which declared such registration statement effective on October 5,
1983; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable
life insurance contracts offered or to be offered by insurance companies
which have entered into agreements to purchase shares or participation
agreements with the Trust and the Distributor (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the Trust has obtained an order from the SEC, dated November 23,
1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as 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, and other Portfolios may be subsequently
established by the Trust (the "Portfolios"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized
to sell such shares to the Company for the benefit of the Account at net
asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended on March
15, 1995 (the "Distribution Agreement"), the Company agrees
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to purchase and redeem the shares of each Portfolio of the Trust offered by
the then current prospectus of the Trust (the "Prospectus") included in the
Trust's registration statement ("the Registration Statement") most recently
filed from time to time with the SEC and effective under the Securities Act
of 1933, as amended (the "1933 Act") and the 1940 Act or as the Prospectus
may be amended or supplemented and filed with the SEC pursuant to the 1933
Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account, executing such orders on a daily
basis at the next determined net asset value per share after receipt by the
Trust or its designee of the order for shares of the applicable Portfolio of
the Trust determined as set forth in the Prospectus. The Company and the
Trust agree that shares of the Trust will be sold only to insurance companies
which have entered into agreements to purchase shares or participation
agreements substantially identical to this Agreement and their affiliated
insurance companies, and their separate accounts. No shares of any Portfolio
will be sold to the general public. The Distributor shall provide the Company
(at the Company's expense) with as many copies of the Trust's current
Prospectus as the Company may reasonably request.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust
held by the Company, executing such requests on a daily basis at the net
asset value of the applicable Portfolio computed after receipt of the
redemption request provided, however, that the Trust reserves the right to
suspend the right of redemption or to postpone the date of payment upon
redemption of the shares of any Portfolio under the circumstances and for the
period of time specified in the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by
reference, the Trust agrees to make its shares available indefinitely for
purchase by the Company at the applicable net asset value per share on those
days on which the Trust calculates its net asset value pursuant to rules of
the SEC, and the Trust shall use reasonable efforts to calculate such net
asset value on each day on which the New York Stock Exchange is open for
trading.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in the Prospectus
with respect to such shares until any payment check has cleared. If the Trust
or the Distributor does not receive payment within the five days period, the
Trust may, without notice, cancel the order and require the Company to
reimburse the Trust promptly for any loss the Trust suffered by reason of the
Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission,
dealers fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares and, at its own expense, shall provide the Company with as many
copies of its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with its investment policies as disclosed in the Prospectus and
the provisions of Section 817(h) of the Internal Revenue Code (the "Code")
and Treasury Regulation 1.817-5, as amended from time to time, and any
Treasury interpretations thereof, relating to the diversification
requirements for variable annuity and variable life insurance contracts and
any amendments or other modifications to such Section or Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. SHAREHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to shareholders and other communication to
shareholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
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11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from Contract owners.
If, however, the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the Trust's shares in its own
right, it may elect to do so. The Company shall vote shares of a Portfolio
for which no instructions have been received in the same proportion as the
voting instructions which are received with respect to all Contracts
participating in that Portfolio. Neither the Company nor persons under its
control shall recommend action in connection with solicitation of proxies for
Trust shares allocated to the Account. The Company shall also vote shares it
owns that are not attributable to Contract owners in the same proportion. The
Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment
objective of the Trust or one or more of its Portfolios or to approve or
disapprove an investment advisory contract for a Portfolio of the Trust.
Participating Insurance Companies shall be responsible for assuring that each
of their separate accounts participating in the Trust calculates voting
privileges in a manner consistent with other Participating Insurance
Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Trust is not one of the trusts described in Section 16(c) of that Act) as
well as with Section 16(a) and, if and when applicable, 16(b). Further, the
Trust will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the SEC may promulgate with respect thereto.
12. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act and
duly authorized for issuance in accordance with all applicable federal and
state laws.
13. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under Missouri law and
that it has legally and validly established the Account under Section
376.309, RSMo, and has registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for certain Contracts. The Company further represents and
warrants that the Contracts will be registered under the 1933 Act and the
Contracts will be issued and sold in compliance with all applicable Federal
and State laws.
14. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the SEC under the 1934 Act. The Distributor further
represents that it will sell and distribute the shares in accordance with the
1933, 1934 and 1940 Acts and will not make any representations concerning the
Account except those contained in the then current registration statement or
related prospectus and any sales literature approved by the Trust. For
purposes of this paragraph, Section 6 of the Distribution Agreement is
incorporated in this Agreement.
15. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as
follows:
(a)(i) at the option of the Company or the Trust or the Distributor
upon 180 days' written notice to the other party;
(ii) at the option of the Company if, for any reason, except for
those specified in Sections 3(c) and 4(b) of the Distribution Agreement,
Trust shares are not available to meet the requirements of the Contracts
as determined by the Company; or
(iii) at the option of the Trust upon the NASD, the SEC, the
director of the Missouri Department of Insurance or any other regulatory
body instituting legal proceedings against the Company regarding its
duties under this Agreement.
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(b) This Agreement shall automatically terminate in the event of its
assignment.
(c) Notwithstanding any termination of this Agreement, the Trust and
the Distributor shall, at the Company's option, continue to make available
additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"), so long as the Trust is in existence. Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust, or
invest in the Trust upon the making of additional purchase payments under
the Existing Contracts. A termination under paragraph 19 of this Agreement
shall end rights of the owners of Existing Contracts.
(d) The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract owner
initiated transactions, or (ii) as required by state or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon
request, the Company will promptly furnish to the Trust and the
Distributor the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust and the Distributor) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms
of the Contracts, the Company shall not prevent Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Trust or the Distributor 90 days'
notice of its intention to do so.
16. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their
Directors or Trustees who is not an "interested person" of the Trust, as
defined in the 1940 Act (collectively the "Indemnified Parties" for purposes
of this paragraph 16), against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses or actions to which such Indemnified Parties may become
subject, under the Federal securities laws or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements arise as a result of any failure by the Company to
provide the services and furnish the materials under terms of this Agreement
or which arise from erroneous instructions by the Company to the Distributor
concerning the particular Portfolio or Portfolios whose shares are to be
allocated to the Account. This indemnity agreement is in addition to any
liability which the Company may otherwise have. However, in no case is the
indemnity of the Company in favor of the Distributor deemed to protect the
Distributor against any liability to the Trust or its shareholders to which
the Distributor would otherwise be subject by reason of its bad faith, wilful
misfeasance or negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending of any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim thereof is to be made against the Trust, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Indemnified
Parties otherwise than under this Agreement. In case any such action is
brought against the Indemnified Parties, and the Company is notified of the
commencement thereof, the Company will be entitled to participate therein and
to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the
Company's election to assume the defense thereof, the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
17. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person"
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of the Company, as defined in the 1940 Act (collectively the "Company's
Indemnified Parties" for purposes of this paragraph 17), against any losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Trust) or expenses or actions to which such
Indemnified Parties may become subject, under the Federal securities laws or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or Prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as
to the Company's Indemnified Parties if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or Distributor by or on behalf of the Company for use in the
registration statement or Prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(iii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Trust or the Distributor, including a failure,
whether unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as variable annuity or flexible premium life insurance contracts
under the Code and the regulations thereunder. Without limiting the scope of
the foregoing, the Trust will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, as amended from time to time, and any
Treasury interpretations thereof, relating to the diversification
requirements for variable annuity or variable life insurance contracts and
any amendments or other modifications to such section or Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts or variable
life contracts.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this paragraph, the Company's Indemnified
Parties will, if a claim in respect thereof is to be made against the
Company, notify the Trust or the Distributor of commencement thereof; but the
omission so to notify the Trust or the Distributor will not relieve the Trust
or the Distributor from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such
action is brought against the Company's Indemnified Parties, and the Trust or
the Distributor is notified of the commencement thereof, the Trust or the
Distributor will be entitled to participate therein and to assume the defense
thereof, with counsel satisfactory to the party named in the action, and
after notice from the Trust or the Distributor to such party of the Trust's
or the Distributor's election to assume the defense thereof, the Trust or the
Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
18. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according
to the terms of the Distribution Agreement, the terms of which are
incorporated by reference.
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19. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Trust. An irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable Federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any Portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, sections (a) and (b) of this paragraph, by providing the
Trustees with all information reasonably necessary for the Trustees to
consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Trustees whenever contract owner
voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that
a material irreconcilable conflict exists, the Company shall, at its expense
and to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (i)
withdrawing the assets allocable to the Account from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting
the question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of life
insurance contract owners invested in the Account from those of any other
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
contract owners the option of making such a change; and (ii) establishing a
new registered management investment company or managed separate account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six month period
the Distributor and Trust shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six
months after the Trustees inform the Company in writing that they have
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Until the
end of the foregoing six month period, the Distributor and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict,
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but in no event will the Trust be required to establish a new funding medium
for the Contracts. The Company shall not be required by section (c) to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the
Trustees determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall
be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 19(a),
19(b), 19(c), 19(d), 19(e) and 19(f) of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such paragraphs are contained in such Rule(s) as so amended or adopted.
20. DURATION OF THIS AGREEMENT. This Agreement shall become effective as
of the date first above written and shall remain in force until April 30,
1996 and thereafter, but only so long as such continuance is specifically
approved at least annually by the Trustees of the Trust, or by the vote of a
majority of the outstanding voting securities of the Trust, cast in person or
by proxy. This Agreement also may be terminated in accordance with paragraph
15 hereof.
The terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person", when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
21. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by: (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities
of the Trust, and (ii) a majority of the Independent Trustees, cast in person
at a meeting called for the purpose of voting on such approval.
22. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of New York and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of New
York, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
23. NOTICES. Any notice under this Agreement shall be in writing and if to
the Trust, delivered or mailed postage prepaid to it at Two World Trade
Center, New York, NY 10048; if to the Distributor, delivered or mailed
postage prepaid to it at Two World Trade Center, New York, NY 10048; and if
to the Company, delivered or mailed postage prepaid to it at 100 South
Brentwood, Clayton, MO 63105. The parties shall have the right to designate
any other address hereafter by written notice to the other parties.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
COMPANY:
ATTEST: PARAGON LIFE INSURANCE COMPANY
By:
- ------------------------------ -------------------------------------
TRUST:
ATTEST: DEAN WITTER VARIABLE INVESTMENT SERIES
By:
- ------------------------------ -------------------------------------
DISTRIBUTOR:
ATTEST: DEAN WITTER DISTRIBUTORS INC.
By:
- ------------------------------ -------------------------------------
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AGREEMENT TO PURCHASE SHARES
THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and
amended as of the 15th day of March, 1995, by and between NORTHBROOK LIFE
INSURANCE COMPANY (hereinafter the "Company"), on its own behalf and on
behalf of the Northbrook Variable Annuity Account (hereinafter the
"Account"), a separate account of the Company, and DEAN WITTER VARIABLE
INVESTMENT SERIES, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Trust") and DEAN
WITTER DISTRIBUTORS INC. (hereinafter the "Distributor").
WHEREAS, by resolution of its Board of Directors on February 14, 1983, the
Company established the Account to set aside and invest assets attributable
to certain variable annuity contracts (hereinafter the "Contracts") issued by
the Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act");
WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.")
declared the Account's registration statement of the Contract filed under the
Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on
September 5, 1983;
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the S.E.C. which declared such registration
statement effective on October 5, 1983;
WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C.
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD");
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable
life insurance contracts offered or to be offered by insurance companies
which have entered into agreements to purchase shares or participation
agreements with the Trust and the Distributor (hereinafter "Participating
Insurance Companies");
WHEREAS, the Trust has obtained an order from the S.E.C., dated November
23, 1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as 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, and other Portfolios may be subsequently
established by the Trust (hereinafter the "Portfolios");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized
to sell such shares to the Company for the benefit of the Account at net
asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended as of
March 15, 1995, (the "Distribution Agreement"), the Company agrees to
purchase and redeem the Trust shares of each Portfolio offered by the then
current prospectus
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of the Trust (hereinafter the "Prospectus") included in the Trust's
registration statement (hereinafter "the Registration Statement") most
recently filed from time to time with the S.E.C. and effective under the 1933
and 1940 Acts or as the Prospectus may be amended or supplemented and filed
with the S.E.C. pursuant to the 1933 Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account as orders from the Company are
received at the next determined net asset value per share after receipt by
the Trust or its designee of the order for shares of the Trust, of the
applicable Portfolio determined as set forth in the Prospectus.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust
held by the Company, executing such requests on a daily basis at the net
asset value of applicable Portfolio computed after receipt of the redemption
request provided, however, that the Trust reserves the right to suspend the
right of redemption or to postpone the date of payment upon redemption of the
shares of any Portfolio under the circumstances and for the period of time
specified in the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by
reference, the Trust agrees to make its shares available indefinitely for
purchase by the Company.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in its then
current prospectus with respect to such shares until any payment check has
cleared. If the Trust or the Distributor does not receive payment within the
five days period, the Trust may, without notice, cancel the order and require
the Company to reimburse the Trust promptly for any loss the Trust suffered
by reason of the Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission,
dealers fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares and, at its own expense, shall provide the Company with as many
copies of its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with the representations made to the Internal Revenue Service in
connection with the Company's request for a private letter ruling regarding
the ownership of the Trust's shares attached as Exhibit "A" and in accordance
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such Section or
Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to stockholders and other communication to
stockholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from contract owners.
If, however, the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the Trust's shares in its own
right, it may elect to do so. The Company shall vote shares of a Portfolio
for which no instructions have been received in the same proportion as the
vote of shareholders of such Portfolio from which instructions have been
received.
2
<PAGE>
Neither the Company nor persons under its control shall recommend action in
connection with solicitation of proxies for Trust shares allocated to the
Account. The Company shall also vote shares it owns that are not attributable
to contract owners in the same proportion. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Trust calculates voting privileges in a manner
consistent with other Participating Insurance Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Trust is not one of the trusts described in Section 16(c) of that Act) as
well as with Section 16(a) and, if and when applicable, 16(b). Further, the
Trust will act in accordance with the S.E.C.'s interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the S.E.C. may promulgate with respect thereto.
12. COMPANY APPROVAL. The Trust and the Distributor agree that the
approval of the Company will be required prior to the Trust and the
Distributor entering into any new agreements to sell shares of the Trust to
other Participating Companies.
13. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act and
duly authorized for issuance in accordance with all applicable federal and
state laws.
14. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under Illinois law and
that it has legally and validly established the Account under Section 245.21
of the Illinois Insurance Code and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for certain Contracts. The Company further
represents and warrants that the Contracts will be registered under the 1933
Act and the Contracts will be issued and sold in compliance with all
applicable Federal and State laws.
15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the S.E.C. under the 1934 Act. The Distributor further
represents that it will sell and distribute the shares in accordance with the
1933, 1934 and 1940 Acts and will not make any representations concerning the
Account except those contained in the then current registration statement or
related prospectus and any sales literature approved by the Trust. For
purposes of this paragraph, Section 6 of the Distribution Agreement is
incorporated in this Agreement.
16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as
follows:
(1)(a) at the option of the Company or the Trust or the Distributor
upon 90 days' written notice to the other party;
(b) at the option of the Company if, for any reason, except for those
specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust
shares are not available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Trust upon the NASD, the S.E.C., the Illinois
Insurance Commissioner or any other regulatory body instituting legal
proceedings against the Company regarding its duties under this Agreement.
(2) This Agreement shall automatically terminate in the event of its
assignment.
17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their
Directors or Trustees who is not an "interested person" of the Trust, as
defined in the 1940 Act (collectively the "Indemnified Parties" for purposes
of this paragraph 17) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses or actions to which such Indemnified Parties may become
subject, under the Federal securities laws or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements arise as a result of any failure by the
3
<PAGE>
Company to provide the services and furnish the materials under terms of this
Agreement or which arise from erroneous instructions by the Company to the
Distributor concerning the particular Portfolio or Portfolios whose shares
are to be allocated to the Account. This indemnity agreement is in addition
to any liability which the Company may otherwise have. Provided, however,
that in no case is the indemnity of the Company in favor of the Distributor
deemed to protect the Distributor against any liability to the Trust or its
shareholders to which the Distributor would otherwise be subject by reason of
its bad faith, wilful misfeasance or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending of any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim thereof is to be made against the Trust, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Indemnified
Parties otherwise than under this Agreement. In case any such action is
brought against the Indemnified Parties, and the Company is notified of the
commencement thereof, the Company will be entitled to participate therein and
to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the
Company's election to assume the defense thereof, the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person" of the Company, as defined in
the 1940 Act (collectively the "Company's Indemnified Parties" for purposes
of this paragraph 18) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust)
or expenses or actions to which such Indemnified Parties may become subject,
under the Federal securities laws or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of the Trust's or Distributor's failure, whether
unintentional or in good faith or otherwise, to comply with the
representations made to the Internal Revenue Service attached as Exhibit
"A" in connection with the request for a private letter ruling regarding
the ownership of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as
to the Company's Indemnified Parties if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or Distributor by or on behalf of the Company for use in the
registration statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Trust or the Distributor, including a failure,
whether unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
4
<PAGE>
(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as an annuity under the Internal Revenue Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust will at
all times comply with Section 817(h) of the Code and Treas. Reg. Sec.
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such section or
Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts in accordance
with the statutes and regulations referred to in the preceding paragraph.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this paragraph, the Company's Indemnified
Parties will, if a claim in respect thereof is to be made against the
Company, notify the Trust or the Distributor of commencement thereof; but the
omission so to notify the Trust or the Distributor will not relieve the Trust
or the Distributor from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such
action is brought against the Company's Indemnified Parties, and the Trust or
the Distributor is notified of the commencement thereof, the Trust or the
Distributor will be entitled to participate therein and to assume the defense
thereof, with counsel satisfactory to the party named in the action, and
after notice from the Trust or the Distributor to such party of the Trust's
or the Distributor's election to assume the defense thereof, the Trust or the
Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according
to the terms of the Distribution Agreement the terms of which are
incorporated by reference.
20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Trust. An irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable Federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any Portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Trustees
whenever contract owner voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that
a material irreconcilable conflict exists, the Company shall, at its expense
and to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (i)
withdrawing the assets allocable
5
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to the Account from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of variable annuity contract owners
invested in the Account from those of any other appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor
of such segregation, or offering to the contract owners the option of making
such a change; and (ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six month period
the Distributor and Trust shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six
months after the Trustees inform the Company in writing that they have
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Until the
end of the foregoing six month period, the Distributor and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by section (c) to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Trustees determine
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Trustees inform the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 20(a),
20(b), 20(c), 20(d), 20(e) and 20(f) of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such paragraphs are contained in such Rule(s) as so amended or adopted.
21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain
in force until April 30, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy. This Agreement also may
be terminated in accordance with paragraph 16 hereof.
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The terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person", when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities
of the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who
have no direct or indirect financial interest in this Agreement or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting on such approval.
23. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Illinois and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
S.E.C. may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of
Illinois, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed as of March 15, 1995.
COMPANY:
ATTEST: NORTHBROOK LIFE INSURANCE COMPANY
By:
- ----------------------------- -----------------------------------
TRUST:
ATTEST: DEAN WITTER VARIABLE INVESTMENT SERIES
By:
- ----------------------------- -----------------------------------
DISTRIBUTOR:
ATTEST: DEAN WITTER DISTRIBUTORS INC.
By:
- ----------------------------- -----------------------------------
7
<PAGE>
EXHIBIT A
Index Number: 0061.19-00
"This document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code."
Mr. Paul J. Overberg Mr. J.C. Strickland
Senior Vice President and
Chief Actuary (202) 566-4495
Northbrook Life Insurance Co.
Allstate Plaza CC:C:C:3:3-36G6488
Northbrook, Illinois 60062 Dec. 01, 1983
Company = Northbrook Life Insurance Company
EIN: 36-3001527
Corp. P = Allstate Insurance Company
Corp. GP = Sears, Roebuck and Co.
Corp. S-1 = Dean Witter Reynolds Inc.
Account S = Northbrook Variable Annuity Account
Fund F = Dean Witter Variable
Annuity Investment Series
Portfolio 1 = Money Market Portfolio of Fund F
Portfolio 2 = High Yield Portfolio of Fund F
Portfolio 3 = Equity Portfolio of Fund F
State X = Illinois
State Y = Massachusetts
the Contract = flexible premium, deferred, variable annuity contract, number
NLU2, to be issued by the Company
Dear Mr. Overberg:
This is in reply to a letter dated July 25, 1983, requesting rulings
concerning the federal income tax consequences of the sale and administration of
certain annuity contracts. Additional information was submitted in letters dated
September 1 and September 9, 1983. The information submitted for our
consideration is substantially summarized below.
The Company is a stock life insurance company organized and operated under
the laws of State X. It is a life insurance company as defined by section 801(a)
of the Internal Revenue Code. It is a wholly-owned subsidiary of Corp. P. which,
in turn, is a wholly-owned subsidiary of Corp. GP.
The Company has developed a flexible premium, deferred, "variable" annuity
contract ("the Contract") with reserves based on a separate account (Account S)
established and regulated in accordance with the insurance laws of State X.
Account S is a unit investment trust and is registered with
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<PAGE>
the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (the 1940 Act). The Contracts provide for the allocation of all amounts
received under the Contracts to the general account of the Company, one or more
of the sub-accounts of Account S or any combination of the foregoing, in
accordance with the Contract owner's allocation specified in the contract
application or in a subsequent written notice to the Company. Account S has been
divided into three subaccounts, each of which invests solely in the shares of a
specific Portfolio of Fund F.
Fund F is a diversified, open-end management investment company organized
under the laws of State Y as a business trust and is registered with the SEC
under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have
different investment strategies. The investment performance of a Portfolio has
no effect on the investment performance of any other Portfolio. The manager and
investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned
subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts.
Corp. S-1 is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and is paid a management fee by Fund F.
The Contract will be issued by Company to a contract owner who may or may
not be the annuitant. The Contract will be available for purchase by individuals
covered under certain tax qualified annuity or retirement plans (e.g. plans
adopted pursuant to section 403(b) and individual retirement annuities under
section 408 of the Code), for individuals covered under retirement plans which
do not qualify for special tax treatment, and for individuals not covered under
any retirement plan.
The Contract provides for a minimum first purchase payment of at least
$5,000 unless the Contract is issued under a tax qualified annuity or retirement
plan, in which case the minimum first purchase payment must be at least $50.
Future purchase payments must be at least $50 or more. The amount of subsequent
payments are determined by the contract owner. However, the Company has the
right to limit annual payments after the first contract year to three times the
total payments made in the first contract year.
The amount of each payment, net of any taxes, will be allocated to the
general account of the Company, one or more sub-accounts of Account S, or any
combination of the above, in accordance with the contract owner's allocation (as
specified in the Contract application or subsequent written notice to the
Company).
Payments allocated to the Company's general account are applied to purchase
accumulation units in the general account (fixed accumulation units). Interest
is credited to the fixed accumulation units at a rate which may differ depending
on the date of the underlying payments. Interest will be guaranteed for at least
one year and will not be less than a minimum annual effective rate of 4 percent.
Payments allocated to a sub-account of Account S are applied to purchase
accumulation units in the sub-account (variable accumulation units). The
variable accumulation units in each sub-account of Account S represent a
proportionate interest in the net value of the assets (i.e., shares of one
series of Fund F) of the sub-account. The value of the variable accumulation
units will vary depending on the value of the Fund F stock held by the
sub-account. The value of the Fund F stock will vary depending on the investment
experience of Fund F.
Payments allocated to the Company's general account become a part of the
assets held by the general account. The general account maintains a diversified
portfolio of investments. Payments allocated to each sub-account of Account S
under the Contracts are used to purchase, at their net asset value, shares of a
Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own
investment strategy. All dividends and capital gain distributions from a
Portfolio of Fund F are reinvested in shares of the distributing Portfolio at
their net asset value and such shares are credited to the appropriate
sub-account of Account S.
The Company may substitute shares of other registered open-end management
investment companies upon notice to the contract owners and, to the extent
required by the 1940 Act, upon approval by the SEC. The Company may establish
additional sub-accounts of Account S to invest in shares of other Portfolios of
Fund F that could be established in the future.
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The Company imposes certain charges with respect to the Contracts. An
annual contract maintenance charge is deducted from the value of the
accumulation units. The Company also deducts a daily mortality and expense risk
charge.
Annuity benefits begin on the "income starting date" selected by the
contract owner, which must be the first day of a calendar month and at least one
month after the issue date of the Contract. The income starting date cannot be
later than the first day of the calendar month following the annuitant's 75th
birthday. The owner may elect one of several annuity options.
A contract owner may surrender the Contract (in whole or in part) for the
value of the accumulation units held under the Contract at any time before the
earlier of the income starting date or the death of the annuitant. Such
withdrawals may be subject to surrender charges depending upon how long the
original payments were held by the Company.
In connection with the issuance and administration of the Contracts, the
following representations have been made:
(a) No variable annuity contract owner will have a legally binding
right to require the Company, Account S or Fund F to acquire any particular
investment item with purchase payments or other amounts paid to, or earned
by, the Company, Account S, or Fund F. Furthermore, there will be no
prearranged plan between any contract owner and the Company for the
Company, Account S, or Fund F to invest any purchase payments or other
amounts they receive in any particular investment item. However, contract
owners may be informed of the general investment strategy to be followed.
Contract owners will be permitted to choose among broad investment
strategies which initially will include stocks, bonds, and money market
instruments such as instruments of financial institutions, instruments of
government bodies, and U.S. Government securities.
(b) No contract owner will have any legal, equitable, direct,
indirect, or other interest in any specific investment item held by the
Company, Account S, or Fund F. A contract owner will have only a
contractual claim against the Company for cash as a result of purchasing an
annuity.
(c) The Company, in its general account, will maintain a diversified
portfolio of investments. Within 365 calendar days of the later of the
formation of Account S or the date of receipt of the first purchase payment
income (directly, indirectly, constructively or otherwise) by the Company
or Account S from the sale of the Contract, each Portfolio of Fund F will
diversify its respective portfolio of investments. Thereafter, each
Portfolio of Fund F will maintain a diversified portfolio of investments.
For purposes of this representation, a portfolio is diversified if:
(1) No more than 10 percent of the fair market value of the total
assets of the portfolio is invested in securities of any one issuer,
in any one real property project, or in any one commodity;
(2) investments in financial institutions are restricted, so that
no single type of portfolio investment (for example, certificates of
deposit, mortgages originating in and serviced by the financial
institution, and demand deposits) in financial institutions accounts
for more than 55 percent of the fair market value of the total assets
of the portfolio;
(3) Notwithstanding the 10 percent limitation in (1) above, the
direct and indirect investment in U.S. Treasury securities may total
but not exceed 55 percent of the fair market value of the total assets
of the portfolio;
(4) the total, direct and indirect, investment in U.S. Treasury
securities and certificates of deposit in financial institutions (that
is, savings and loan associations, banks, and savings banks) does not
exceed 65 percent of the total fair market value of the total assets
of the portfolio;
(5) the portfolio meets the requirements of (1) and through (4)
above on the last day of each calendar month.
Active business checking accounts are excluded in determining
whether there is diversification. For the first 10 working days after
receipt (including the day of receipt), newly acquired annuity
purchase payments are excluded in determining whether there is
diversification.
A-3
<PAGE>
For purposes of this representation, the term "security" is
defined as any certificate of deposit, mortgage, money market account,
time deposit, demand deposit, repurchase agreement, mortgage
participation certificate, and any item defined as a security in
section 2(a)(36) of the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36).
For purposes of this representation the term "issuer" is defined
as the U.S. Treasury, an agency or instrumentality of the U.S.
Government, a State, an agency, instrumentality or political
subdivision of a State (whether incorporated or not), a foreign
government or instrumentality thereof, and any person as defined in
section 2(a)(28) of the 1940 Act.
For purposes of this representation the term "real property
project" is defined as a single, identifiable tract, group of tracts,
building, group of buildings, or combination of tracts and buildings.
For purposes of this representation the term "commodity" is
defined as any grouping of tangible personal property whose individual
elements are usually considered to be fungible. A commodity can be a
raw material, a refined material, or a manufactured product. The term
commodity includes, for example, but is not limited to, agricultural
products (including livestock), timber and timber products, gold,
silver, copper, diamonds, any foreign currency, oil, natural gas, and
all contracts involving the current or future purchase or sale of a
commodity. If an investment item is defined in this paragraph and is
also defined as a security, it will be considered to be defined only
in this paragraph.
Each Portfolio of Fund F intends to operate on a continuing
basis. There is no plan or intention for any Portfolio of Fund F to
liquidate, to transfer its assets to any individual or entity, to
merge with any entity or to otherwise cease operations.
There is no plan or intention for the Company to form any
separate account, subsidiary, or other entity; to cause any exchange,
cancellation, or modification of any annuity or insurance policy; or
to otherwise use any device to extend beyond 365 days the time in
which diversification will be obtained.
(d) If FSLIC, FDIC or other governmental insurance is available in
conneciton with any investment item, it inures only to the benefit of the
Company, Account S, or Fund F and not directly to the benefit of any
individual annuity policyholder.
(e) For purposes of determining the treatment of the interest to be
credited to the fixed accumulation units under the Contract, the Contract
will be either (1) a "qualified contract" within the meaning of section
805(f) of the Code to which "qualified guaranteed interest" under section
805(e)(5) is credited or (2) a contract described in section 805(d) to
which the alternative limitation allowed by section 809(f)(2)(A) is
applicable.
Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an
"investment" annuity contract, by means of which the purchaser selected and
controlled one or more investments in a portfolio which comprised a separate
account of the life insurance company issuing the contract, was considered the
owner of those investments for federal income tax purposes.
Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity
contract, who was able to direct the funding of his annuity by specifying the
savings and loan association and the certificates of deposit in which his
purchase payments would be invested, was considered the owner of those
certificates for federal income tax purposes.
Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the
previously cited revenue rulings to mutual fund investments by holding that the
policyholders of certain variable annuity contracts, whose purchase payments
were invested solely in publicly available mutual fund shares, would be
considered the owners of those shares for federal income tax purposes. Situation
5 of that ruling holds that under certain circumstances the policyholders will
not be considered to be the owners of the mutual fund shares.
Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had
funded its deferred annuity contracts through a separate account whose assets
were invested in three mutual funds, the shares
A-4
<PAGE>
of which were not sold to the general public. The policyholders could direct
that their annuity purchase payments be invested in shares of any or all of the
three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not
the policyholder, is the owner of the mutual fund shares for federal income tax
purposes.
Based solely on the information submitted and the representations set
forth above, and provided the conditions listed below are met, it is held as
follows:
(1) For federal income tax purposes, the assets held by the Company in
its general account and/or by the Portfolios of Fund F, pursuant to the
provisions of the Contracts described above, are owned by the Company
and/or by Fund F (or the Portfolios if appropriate) and not by the contract
owners, or by any annuitant or beneficiary under the Contracts.
(2) For federal income tax purposes, any income, gain, or loss
recognized with respect to the assets held by the Company in its general
account and by Fund F (or the Portfolios if appropriate), pursuant to the
provisions of the Contracts, is includible in the computation of income of
the Company or Fund F (or the Portfolios if appropriate) respectively, and
is not the income, gain or loss of the contract owners, or of any annuitant
or beneficiary under the Contracts.
(3) For federal income tax purposes, the stock of Fund F held by the
Company (through Account S), pursuant to the provisions of the Contracts
described above, is owned by the Company and not by the contract owners, or
by any annuitant or beneficiary under the Contracts.
(4) For federal income tax purposes, any income, gain, or loss
recognized with respect to the stock of Fund F held by the Company (through
Account S), pursuant to the provisions of the Contracts, is includible in
the computation of income of the Company and is not the income, gain, or
loss of the contract owners, or of any annuitant or beneficiary under the
Contracts.
With respect to the general account of the Company the rulings above are
subject to the condition that the general account not only meets the
representations indicated but also meets the following condition:
(A) The general account must meet the diversification tests of
representation (c) above.
The diversification tests of representation (c) above apply only to
investment assets. Assets held by the general account and Fund F that are not
investment assets are excluded in making the percentage calculations.
No opinion is expressed about the tax treatment of any conditions existing
at the time of, or effects resulting from, the sale and/or administration of the
Contracts that are not specifically covered by the rulings in this letter.
This ruling letter is directed only to the taxpayer who requested it.
Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used
or cited as precedent.
A copy of this letter should be attached to the federal income tax
return(s) of the taxpayer involved for the taxable year(s) in which the
Contracts are sold and/or administered.
Pursuant to the power of attorney on file in this office a copy of this
letter is being sent to your authorized representative.
Sincerely yours,
Anthony Manzanares, Jr.
Chief, Corporation Tax Branch
A-5
<PAGE>
AGREEMENT TO PURCHASE SHARES
THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and
amended as of the 15th day of March, 1995, by and between NORTHBROOK LIFE
INSURANCE COMPANY (hereinafter the "Company"), on its own behalf and on
behalf of the Northbrook Variable Annuity Account II (hereinafter the
"Account"), a separate account of the Company, and DEAN WITTER VARIABLE
INVESTMENT SERIES, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Trust") and DEAN
WITTER DISTRIBUTORS INC. (hereinafter the "Distributor").
WHEREAS, by resolution of its Board of Directors on May 18, 1990, the
Company established the Account to set aside and invest assets attributable
to certain variable annuity contracts (hereinafter the "Contracts") issued by
the Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act");
WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.")
declared the Account's registration statement of the Contract filed under the
Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on
September 25, 1990;
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the S.E.C. which declared such registration
statement effective on October 5, 1983;
WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C.
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD");
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable
life insurance contracts offered or to be offered by insurance companies
which have entered into agreements to purchase shares or participation
agreements with the Trust and the Distributor (hereinafter "Participating
Insurance Companies");
WHEREAS, the Trust has obtained an order from the S.E.C., dated November
23, 1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as 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, and other Portfolios may be subsequently
established by the Trust (hereinafter the "Portfolios");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized
to sell such shares to the Company for the benefit of the Account at net
asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended as of
March 15, 1995, (the "Distribution Agreement"), the Company agrees to
purchase and redeem the Trust shares of each Portfolio offered by the then
current prospectus
1
<PAGE>
of the Trust (hereinafter the "Prospectus") included in the Trust's
registration statement (hereinafter "the Registration Statement") most
recently filed from time to time with the S.E.C. and effective under the 1933
and 1940 Acts or as the Prospectus may be amended or supplemented and filed
with the S.E.C. pursuant to the 1933 Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account as orders from the Company are
received at the next determined net asset value per share after receipt by
the Trust or its designee of the order for shares of the Trust, of the
applicable Portfolio determined as set forth in the Prospectus.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust
held by the Company, executing such requests on a daily basis at the net
asset value of applicable Portfolio computed after receipt of the redemption
request provided, however, that the Trust reserves the right to suspend the
right of redemption or to postpone the date of payment upon redemption of the
shares of any Portfolio under the circumstances and for the period of time
specified in the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by
reference, the Trust agrees to make its shares available indefinitely for
purchase by the Company.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in its then
current prospectus with respect to such shares until any payment check has
cleared. If the Trust or the Distributor does not receive payment within the
five days period, the Trust may, without notice, cancel the order and require
the Company to reimburse the Trust promptly for any loss the Trust suffered
by reason of the Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission,
dealers fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares and, at its own expense, shall provide the Company with as many
copies of its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with the representations made to the Internal Revenue Service in
connection with the Company's request for a private letter ruling regarding
the ownership of the Trust's shares attached as Exhibit "A" and in accordance
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such Section or
Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to stockholders and other communication to
stockholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from contract owners.
If, however, the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the Trust's shares in its own
right, it may elect to do so. The Company shall vote shares of a Portfolio
for which no instructions have been received in the same proportion as the
vote of shareholders of such Portfolio from which instructions have been
received.
2
<PAGE>
Neither the Company nor persons under its control shall recommend action in
connection with solicitation of proxies for Trust shares allocated to the
Account. The Company shall also vote shares it owns that are not attributable
to contract owners in the same proportion. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Trust calculates voting privileges in a manner
consistent with other Participating Insurance Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Trust is not one of the trusts described in Section 16(c) of that Act) as
well as with Section 16(a) and, if and when applicable, 16(b). Further, the
Trust will act in accordance with the S.E.C.'s interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the S.E.C. may promulgate with respect thereto.
12. COMPANY APPROVAL. The Trust and the Distributor agree that the
approval of the Company will be required prior to the Trust and the
Distributor entering into any new agreements to sell shares of the Trust to
other Participating Companies.
13. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act and
duly authorized for issuance in accordance with all applicable federal and
state laws.
14. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under Illinois law and
that it has legally and validly established the Account under Section 245.21
of the Illinois Insurance Code and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for certain Contracts. The Company further
represents and warrants that the Contracts will be registered under the 1933
Act and the Contracts will be issued and sold in compliance with all
applicable Federal and State laws.
15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the S.E.C. under the 1934 Act. The Distributor further
represents that it will sell and distribute the shares in accordance with the
1933, 1934 and 1940 Acts and will not make any representations concerning the
Account except those contained in the then current registration statement or
related prospectus and any sales literature approved by the Trust. For
purposes of this paragraph, Section 6 of the Distribution Agreement is
incorporated in this Agreement.
16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as
follows:
(1)(a) at the option of the Company or the Trust or the Distributor
upon 90 days' written notice to the other party;
(b) at the option of the Company if, for any reason, except for those
specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust
shares are not available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Trust upon the NASD, the S.E.C., the Illinois
Insurance Commissioner or any other regulatory body instituting legal
proceedings against the Company regarding its duties under this Agreement.
(2) This Agreement shall automatically terminate in the event of its
assignment.
17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their
Directors or Trustees who is not an "interested person" of the Trust, as
defined in the 1940 Act (collectively the "Indemnified Parties" for purposes
of this paragraph 17) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses or actions to which such Indemnified Parties may become
subject, under the Federal securities laws or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements arise as a result of any failure by the
3
<PAGE>
Company to provide the services and furnish the materials under terms of this
Agreement or which arise from erroneous instructions by the Company to the
Distributor concerning the particular Portfolio or Portfolios whose shares
are to be allocated to the Account. This indemnity agreement is in addition
to any liability which the Company may otherwise have. Provided, however,
that in no case is the indemnity of the Company in favor of the Distributor
deemed to protect the Distributor against any liability to the Trust or its
shareholders to which the Distributor would otherwise be subject by reason of
its bad faith, wilful misfeasance or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending of any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim thereof is to be made against the Trust, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Indemnified
Parties otherwise than under this Agreement. In case any such action is
brought against the Indemnified Parties, and the Company is notified of the
commencement thereof, the Company will be entitled to participate therein and
to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the
Company's election to assume the defense thereof, the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person" of the Company, as defined in
the 1940 Act (collectively the "Company's Indemnified Parties" for purposes
of this paragraph 18) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust)
or expenses or actions to which such Indemnified Parties may become subject,
under the Federal securities laws or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of the Trust's or Distributor's failure, whether
unintentional or in good faith or otherwise, to comply with the
representations made to the Internal Revenue Service attached as Exhibit
"A" in connection with the request for a private letter ruling regarding
the ownership of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as
to the Company's Indemnified Parties if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or Distributor by or on behalf of the Company for use in the
registration statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Trust or the Distributor, including a failure,
whether unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
4
<PAGE>
(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as an annuity under the Internal Revenue Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust will at
all times comply with Section 817(h) of the Code and Treas. Reg. Sec.
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such section or
Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts in accordance
with the statutes and regulations referred to in the preceding paragraph.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this paragraph, the Company's Indemnified
Parties will, if a claim in respect thereof is to be made against the
Company, notify the Trust or the Distributor of commencement thereof; but the
omission so to notify the Trust or the Distributor will not relieve the Trust
or the Distributor from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such
action is brought against the Company's Indemnified Parties, and the Trust or
the Distributor is notified of the commencement thereof, the Trust or the
Distributor will be entitled to participate therein and to assume the defense
thereof, with counsel satisfactory to the party named in the action, and
after notice from the Trust or the Distributor to such party of the Trust's
or the Distributor's election to assume the defense thereof, the Trust or the
Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according
to the terms of the Distribution Agreement the terms of which are
incorporated by reference.
20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Trust. An irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable Federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any Portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Trustees
whenever contract owner voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that
a material irreconcilable conflict exists, the Company shall, at its expense
and to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (i)
withdrawing the assets allocable
5
<PAGE>
to the Account from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of variable annuity contract owners
invested in the Account from those of any other appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor
of such segregation, or offering to the contract owners the option of making
such a change; and (ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six month period
the Distributor and Trust shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six
months after the Trustees inform the Company in writing that they have
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Until the
end of the foregoing six month period, the Distributor and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by section (c) to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Trustees determine
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Trustees inform the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 20(a),
20(b), 20(c), 20(d), 20(e) and 20(f) of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such paragraphs are contained in such Rule(s) as so amended or adopted.
21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain
in force until April 30, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy. This Agreement also may
be terminated in accordance with paragraph 16 hereof.
6
<PAGE>
The terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person", when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities
of the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who
have no direct or indirect financial interest in this Agreement or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting on such approval.
23. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Illinois and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
S.E.C. may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of
Illinois, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed as of March 15, 1995.
COMPANY:
ATTEST NORTHBROOK LIFE INSURANCE COMPANY
By:
- ------------------------------ -------------------------------------
TRUST:
ATTEST DEAN WITTER VARIABLE INVESTMENT SERIES
By:
- ------------------------------ -------------------------------------
ATTEST DISTRIBUTOR:
DEAN WITTER DISTRIBUTORS INC.
By:
- ------------------------------ -------------------------------------
7
<PAGE>
EXHIBIT A
Index Number: 0061.19-00
"This document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code."
Mr. Paul J. Overberg Mr. J.C. Strickland
Senior Vice President and
Chief Actuary (202) 566-4495
Northbrook Life Insurance Co.
Allstate Plaza CC:C:C:3:3-36G6488
Northbrook, Illinois 60062 Dec. 01, 1983
Company = Northbrook Life Insurance Company
EIN: 36-3001527
Corp. P = Allstate Insurance Company
Corp. GP = Sears, Roebuck and Co.
Corp. S-1 = Dean Witter Reynolds Inc.
Account S = Northbrook Variable Annuity Account
Fund F = Dean Witter Variable
Annuity Investment Series
Portfolio 1 = Money Market Portfolio of Fund F
Portfolio 2 = High Yield Portfolio of Fund F
Portfolio 3 = Equity Portfolio of Fund F
State X = Illinois
State Y = Massachusetts
the Contract = flexible premium, deferred, variable annuity contract, number
NLU2, to be issued by the Company
Dear Mr. Overberg:
This is in reply to a letter dated July 25, 1983, requesting rulings
concerning the federal income tax consequences of the sale and administration of
certain annuity contracts. Additional information was submitted in letters dated
September 1 and September 9, 1983. The information submitted for our
consideration is substantially summarized below.
The Company is a stock life insurance company organized and operated under
the laws of State X. It is a life insurance company as defined by section 801(a)
of the Internal Revenue Code. It is a wholly-owned subsidiary of Corp. P. which,
in turn, is a wholly-owned subsidiary of Corp. GP.
The Company has developed a flexible premium, deferred, "variable" annuity
contract ("the Contract") with reserves based on a separate account (Account S)
established and regulated in accordance with the insurance laws of State X.
Account S is a unit investment trust and is registered with
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<PAGE>
the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (the 1940 Act). The Contracts provide for the allocation of all amounts
received under the Contracts to the general account of the Company, one or more
of the sub-accounts of Account S or any combination of the foregoing, in
accordance with the Contract owner's allocation specified in the contract
application or in a subsequent written notice to the Company. Account S has been
divided into three subaccounts, each of which invests solely in the shares of a
specific Portfolio of Fund F.
Fund F is a diversified, open-end management investment company organized
under the laws of State Y as a business trust and is registered with the SEC
under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have
different investment strategies. The investment performance of a Portfolio has
no effect on the investment performance of any other Portfolio. The manager and
investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned
subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts.
Corp. S-1 is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and is paid a management fee by Fund F.
The Contract will be issued by Company to a contract owner who may or may
not be the annuitant. The Contract will be available for purchase by individuals
covered under certain tax qualified annuity or retirement plans (e.g. plans
adopted pursuant to section 403(b) and individual retirement annuities under
section 408 of the Code), for individuals covered under retirement plans which
do not qualify for special tax treatment, and for individuals not covered under
any retirement plan.
The Contract provides for a minimum first purchase payment of at least
$5,000 unless the Contract is issued under a tax qualified annuity or retirement
plan, in which case the minimum first purchase payment must be at least $50.
Future purchase payments must be at least $50 or more. The amount of subsequent
payments are determined by the contract owner. However, the Company has the
right to limit annual payments after the first contract year to three times the
total payments made in the first contract year.
The amount of each payment, net of any taxes, will be allocated to the
general account of the Company, one or more sub-accounts of Account S, or any
combination of the above, in accordance with the contract owner's allocation (as
specified in the Contract application or subsequent written notice to the
Company).
Payments allocated to the Company's general account are applied to purchase
accumulation units in the general account (fixed accumulation units). Interest
is credited to the fixed accumulation units at a rate which may differ depending
on the date of the underlying payments. Interest will be guaranteed for at least
one year and will not be less than a minimum annual effective rate of 4 percent.
Payments allocated to a sub-account of Account S are applied to purchase
accumulation units in the sub-account (variable accumulation units). The
variable accumulation units in each sub-account of Account S represent a
proportionate interest in the net value of the assets (i.e., shares of one
series of Fund F) of the sub-account. The value of the variable accumulation
units will vary depending on the value of the Fund F stock held by the
sub-account. The value of the Fund F stock will vary depending on the investment
experience of Fund F.
Payments allocated to the Company's general account become a part of the
assets held by the general account. The general account maintains a diversified
portfolio of investments. Payments allocated to each sub-account of Account S
under the Contracts are used to purchase, at their net asset value, shares of a
Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own
investment strategy. All dividends and capital gain distributions from a
Portfolio of Fund F are reinvested in shares of the distributing Portfolio at
their net asset value and such shares are credited to the appropriate
sub-account of Account S.
The Company may substitute shares of other registered open-end management
investment companies upon notice to the contract owners and, to the extent
required by the 1940 Act, upon approval by the SEC. The Company may establish
additional sub-accounts of Account S to invest in shares of other Portfolios of
Fund F that could be established in the future.
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The Company imposes certain charges with respect to the Contracts. An
annual contract maintenance charge is deducted from the value of the
accumulation units. The Company also deducts a daily mortality and expense risk
charge.
Annuity benefits begin on the "income starting date" selected by the
contract owner, which must be the first day of a calendar month and at least one
month after the issue date of the Contract. The income starting date cannot be
later than the first day of the calendar month following the annuitant's 75th
birthday. The owner may elect one of several annuity options.
A contract owner may surrender the Contract (in whole or in part) for the
value of the accumulation units held under the Contract at any time before the
earlier of the income starting date or the death of the annuitant. Such
withdrawals may be subject to surrender charges depending upon how long the
original payments were held by the Company.
In connection with the issuance and administration of the Contracts, the
following representations have been made:
(a) No variable annuity contract owner will have a legally binding
right to require the Company, Account S or Fund F to acquire any particular
investment item with purchase payments or other amounts paid to, or earned
by, the Company, Account S, or Fund F. Furthermore, there will be no
prearranged plan between any contract owner and the Company for the
Company, Account S, or Fund F to invest any purchase payments or other
amounts they receive in any particular investment item. However, contract
owners may be informed of the general investment strategy to be followed.
Contract owners will be permitted to choose among broad investment
strategies which initially will include stocks, bonds, and money market
instruments such as instruments of financial institutions, instruments of
government bodies, and U.S. Government securities.
(b) No contract owner will have any legal, equitable, direct,
indirect, or other interest in any specific investment item held by the
Company, Account S, or Fund F. A contract owner will have only a
contractual claim against the Company for cash as a result of purchasing an
annuity.
(c) The Company, in its general account, will maintain a diversified
portfolio of investments. Within 365 calendar days of the later of the
formation of Account S or the date of receipt of the first purchase payment
income (directly, indirectly, constructively or otherwise) by the Company
or Account S from the sale of the Contract, each Portfolio of Fund F will
diversify its respective portfolio of investments. Thereafter, each
Portfolio of Fund F will maintain a diversified portfolio of investments.
For purposes of this representation, a portfolio is diversified if:
(1) No more than 10 percent of the fair market value of the total
assets of the portfolio is invested in securities of any one issuer,
in any one real property project, or in any one commodity;
(2) investments in financial institutions are restricted, so that
no single type of portfolio investment (for example, certificates of
deposit, mortgages originating in and serviced by the financial
institution, and demand deposits) in financial institutions accounts
for more than 55 percent of the fair market value of the total assets
of the portfolio;
(3) Notwithstanding the 10 percent limitation in (1) above, the
direct and indirect investment in U.S. Treasury securities may total
but not exceed 55 percent of the fair market value of the total assets
of the portfolio;
(4) the total, direct and indirect, investment in U.S. Treasury
securities and certificates of deposit in financial institutions (that
is, savings and loan associations, banks, and savings banks) does not
exceed 65 percent of the total fair market value of the total assets
of the portfolio;
(5) the portfolio meets the requirements of (1) and through (4)
above on the last day of each calendar month.
Active business checking accounts are excluded in determining
whether there is diversification. For the first 10 working days after
receipt (including the day of receipt), newly acquired annuity
purchase payments are excluded in determining whether there is
diversification.
A-3
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For purposes of this representation, the term "security" is
defined as any certificate of deposit, mortgage, money market account,
time deposit, demand deposit, repurchase agreement, mortgage
participation certificate, and any item defined as a security in
section 2(a)(36) of the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36).
For purposes of this representation the term "issuer" is defined
as the U.S. Treasury, an agency or instrumentality of the U.S.
Government, a State, an agency, instrumentality or political
subdivision of a State (whether incorporated or not), a foreign
government or instrumentality thereof, and any person as defined in
section 2(a)(28) of the 1940 Act.
For purposes of this representation the term "real property
project" is defined as a single, identifiable tract, group of tracts,
building, group of buildings, or combination of tracts and buildings.
For purposes of this representation the term "commodity" is
defined as any grouping of tangible personal property whose individual
elements are usually considered to be fungible. A commodity can be a
raw material, a refined material, or a manufactured product. The term
commodity includes, for example, but is not limited to, agricultural
products (including livestock), timber and timber products, gold,
silver, copper, diamonds, any foreign currency, oil, natural gas, and
all contracts involving the current or future purchase or sale of a
commodity. If an investment item is defined in this paragraph and is
also defined as a security, it will be considered to be defined only
in this paragraph.
Each Portfolio of Fund F intends to operate on a continuing
basis. There is no plan or intention for any Portfolio of Fund F to
liquidate, to transfer its assets to any individual or entity, to
merge with any entity or to otherwise cease operations.
There is no plan or intention for the Company to form any
separate account, subsidiary, or other entity; to cause any exchange,
cancellation, or modification of any annuity or insurance policy; or
to otherwise use any device to extend beyond 365 days the time in
which diversification will be obtained.
(d) If FSLIC, FDIC or other governmental insurance is available in
conneciton with any investment item, it inures only to the benefit of the
Company, Account S, or Fund F and not directly to the benefit of any
individual annuity policyholder.
(e) For purposes of determining the treatment of the interest to be
credited to the fixed accumulation units under the Contract, the Contract
will be either (1) a "qualified contract" within the meaning of section
805(f) of the Code to which "qualified guaranteed interest" under section
805(e)(5) is credited or (2) a contract described in section 805(d) to
which the alternative limitation allowed by section 809(f)(2)(A) is
applicable.
Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an
"investment" annuity contract, by means of which the purchaser selected and
controlled one or more investments in a portfolio which comprised a separate
account of the life insurance company issuing the contract, was considered the
owner of those investments for federal income tax purposes.
Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity
contract, who was able to direct the funding of his annuity by specifying the
savings and loan association and the certificates of deposit in which his
purchase payments would be invested, was considered the owner of those
certificates for federal income tax purposes.
Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the
previously cited revenue rulings to mutual fund investments by holding that the
policyholders of certain variable annuity contracts, whose purchase payments
were invested solely in publicly available mutual fund shares, would be
considered the owners of those shares for federal income tax purposes. Situation
5 of that ruling holds that under certain circumstances the policyholders will
not be considered to be the owners of the mutual fund shares.
Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had
funded its deferred annuity contracts through a separate account whose assets
were invested in three mutual funds, the shares
A-4
<PAGE>
of which were not sold to the general public. The policyholders could direct
that their annuity purchase payments be invested in shares of any or all of the
three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not
the policyholder, is the owner of the mutual fund shares for federal income tax
purposes.
Based solely on the information submitted and the representations set
forth above, and provided the conditions listed below are met, it is held as
follows:
(1) For federal income tax purposes, the assets held by the Company in
its general account and/or by the Portfolios of Fund F, pursuant to the
provisions of the Contracts described above, are owned by the Company
and/or by Fund F (or the Portfolios if appropriate) and not by the contract
owners, or by any annuitant or beneficiary under the Contracts.
(2) For federal income tax purposes, any income, gain, or loss
recognized with respect to the assets held by the Company in its general
account and by Fund F (or the Portfolios if appropriate), pursuant to the
provisions of the Contracts, is includible in the computation of income of
the Company or Fund F (or the Portfolios if appropriate) respectively, and
is not the income, gain or loss of the contract owners, or of any annuitant
or beneficiary under the Contracts.
(3) For federal income tax purposes, the stock of Fund F held by the
Company (through Account S), pursuant to the provisions of the Contracts
described above, is owned by the Company and not by the contract owners, or
by any annuitant or beneficiary under the Contracts.
(4) For federal income tax purposes, any income, gain, or loss
recognized with respect to the stock of Fund F held by the Company (through
Account S), pursuant to the provisions of the Contracts, is includible in
the computation of income of the Company and is not the income, gain, or
loss of the contract owners, or of any annuitant or beneficiary under the
Contracts.
With respect to the general account of the Company the rulings above are
subject to the condition that the general account not only meets the
representations indicated but also meets the following condition:
(A) The general account must meet the diversification tests of
representation (c) above.
The diversification tests of representation (c) above apply only to
investment assets. Assets held by the general account and Fund F that are not
investment assets are excluded in making the percentage calculations.
No opinion is expressed about the tax treatment of any conditions existing
at the time of, or effects resulting from, the sale and/or administration of the
Contracts that are not specifically covered by the rulings in this letter.
This ruling letter is directed only to the taxpayer who requested it.
Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used
or cited as precedent.
A copy of this letter should be attached to the federal income tax
return(s) of the taxpayer involved for the taxable year(s) in which the
Contracts are sold and/or administered.
Pursuant to the power of attorney on file in this office a copy of this
letter is being sent to your authorized representative.
Sincerely yours,
Anthony Manzanares, Jr.
Chief, Corporation Tax Branch
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<PAGE>
AGREEMENT TO PURCHASE SHARES
THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and
amended as of the 15th day of March, 1995, by and between ALLSTATE LIFE
INSURANCE COMPANY OF NEW YORK (hereinafter the "Company"), on its own behalf
and on behalf of the Allstate Life Insurance Company of New York Variable
Annuity Account (hereinafter the "Account"), a separate account of the
Company, and DEAN WITTER VARIABLE INVESTMENT SERIES, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Trust") and DEAN WITTER DISTRIBUTORS INC. (hereinafter the
"Distributor").
WHEREAS, by resolution of its Board of Directors on June 26, 1987, the
Company established the Account to set aside and invest assets attributable
to certain variable annuity contracts (hereinafter the "Contracts") issued by
the Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act");
WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.")
declared the Account's registration statement of the Contract filed under the
Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on
February 15, 1989;
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the S.E.C. which declared such registration
statement effective on October 5, 1983;
WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C.
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD");
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable
life insurance contracts offered or to be offered by insurance companies
which have entered into agreements to purchase shares or participation
agreements with the Trust and the Distributor (hereinafter "Participating
Insurance Companies");
WHEREAS, the Trust has obtained an order from the S.E.C., dated November
23, 1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as 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, and other Portfolios may be subsequently
established by the Trust (hereinafter the "Portfolios");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized
to sell such shares to the Company for the benefit of the Account at net
asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended as of
March 15, 1995, (the "Distribution Agreement"), the Company agrees to
purchase and redeem the Trust shares of each Portfolio offered by the then
current prospectus
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of the Trust (hereinafter the "Prospectus") included in the Trust's
registration statement (hereinafter "the Registration Statement") most
recently filed from time to time with the S.E.C. and effective under the 1933
and 1940 Acts or as the Prospectus may be amended or supplemented and filed
with the S.E.C. pursuant to the 1933 Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account as orders from the Company are
received at the next determined net asset value per share after receipt by
the Trust or its designee of the order for shares of the Trust, of the
applicable Portfolio determined as set forth in the Prospectus.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust
held by the Company, executing such requests on a daily basis at the net
asset value of applicable Portfolio computed after receipt of the redemption
request provided, however, that the Trust reserves the right to suspend the
right of redemption or to postpone the date of payment upon redemption of the
shares of any Portfolio under the circumstances and for the period of time
specified in the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by
reference, the Trust agrees to make its shares available indefinitely for
purchase by the Company.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in its then
current prospectus with respect to such shares until any payment check has
cleared. If the Trust or the Distributor does not receive payment within the
five days period, the Trust may, without notice, cancel the order and require
the Company to reimburse the Trust promptly for any loss the Trust suffered
by reason of the Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission,
dealers fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares and, at its own expense, shall provide the Company with as many
copies of its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with the representations made to the Internal Revenue Service in
connection with the Company's request for a private letter ruling regarding
the ownership of the Trust's shares attached as Exhibit "A" and in accordance
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such Section or
Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to stockholders and other communication to
stockholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from contract owners.
If, however, the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the Trust's shares in its own
right, it may elect to do so. The Company shall vote shares of a Portfolio
for which no instructions have been received in the same proportion as the
vote of shareholders of such Portfolio from which instructions have been
received.
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Neither the Company nor persons under its control shall recommend action in
connection with solicitation of proxies for Trust shares allocated to the
Account. The Company shall also vote shares it owns that are not attributable
to contract owners in the same proportion. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Trust calculates voting privileges in a manner
consistent with other Participating Insurance Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Trust is not one of the trusts described in Section 16(c) of that Act) as
well as with Section 16(a) and, if and when applicable, 16(b). Further, the
Trust will act in accordance with the S.E.C.'s interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the S.E.C. may promulgate with respect thereto.
12. COMPANY APPROVAL. The Trust and the Distributor agree that the
approval of the Company will be required prior to the Trust and the
Distributor entering into any new agreements to sell shares of the Trust to
other Participating Companies.
13. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act and
duly authorized for issuance in accordance with all applicable federal and
state laws.
14. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under New York law and
that it has legally and validly established the Account under Section 424.40
of the New York Insurance Laws and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for certain Contracts. The Company further
represents and warrants that the Contracts will be registered under the 1933
Act and the Contracts will be issued and sold in compliance with all
applicable Federal and State laws.
15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the S.E.C. under the 1934 Act. The Distributor further
represents that it will sell and distribute the shares in accordance with the
1933, 1934 and 1940 Acts and will not make any representations concerning the
Account except those contained in the then current registration statement or
related prospectus and any sales literature approved by the Trust. For
purposes of this paragraph, Section 6 of the Distribution Agreement is
incorporated in this Agreement.
16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as
follows:
(1)(a) at the option of the Company or the Trust or the Distributor
upon 90 days' written notice to the other party;
(b) at the option of the Company if, for any reason, except for those
specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust
shares are not available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Trust upon the NASD, the S.E.C., the New York
Insurance Commissioner or any other regulatory body instituting legal
proceedings against the Company regarding its duties under this Agreement.
(2) This Agreement shall automatically terminate in the event of its
assignment.
17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their
Directors or Trustees who is not an "interested person" of the Trust, as
defined in the 1940 Act (collectively the "Indemnified Parties" for purposes
of this paragraph 17) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses or actions to which such Indemnified Parties may become
subject, under the Federal securities laws or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements arise as a result of any failure by the
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Company to provide the services and furnish the materials under terms of this
Agreement or which arise from erroneous instructions by the Company to the
Distributor concerning the particular Portfolio or Portfolios whose shares
are to be allocated to the Account. This indemnity agreement is in addition
to any liability which the Company may otherwise have. Provided, however,
that in no case is the indemnity of the Company in favor of the Distributor
deemed to protect the Distributor against any liability to the Trust or its
shareholders to which the Distributor would otherwise be subject by reason of
its bad faith, wilful misfeasance or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending of any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim thereof is to be made against the Trust, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Indemnified
Parties otherwise than under this Agreement. In case any such action is
brought against the Indemnified Parties, and the Company is notified of the
commencement thereof, the Company will be entitled to participate therein and
to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the
Company's election to assume the defense thereof, the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person" of the Company, as defined in
the 1940 Act (collectively the "Company's Indemnified Parties" for purposes
of this paragraph 18) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust)
or expenses or actions to which such Indemnified Parties may become subject,
under the Federal securities laws or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of the Trust's or Distributor's failure, whether
unintentional or in good faith or otherwise, to comply with the
representations made to the Internal Revenue Service attached as Exhibit
"A" in connection with the request for a private letter ruling regarding
the ownership of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as
to the Company's Indemnified Parties if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or Distributor by or on behalf of the Company for use in the
registration statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Trust or the Distributor, including a failure,
whether unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
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(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as an annuity under the Internal Revenue Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust will at
all times comply with Section 817(h) of the Code and Treas. Reg. Sec.
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such section or
Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts in accordance
with the statutes and regulations referred to in the preceding paragraph.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this paragraph, the Company's Indemnified
Parties will, if a claim in respect thereof is to be made against the
Company, notify the Trust or the Distributor of commencement thereof; but the
omission so to notify the Trust or the Distributor will not relieve the Trust
or the Distributor from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such
action is brought against the Company's Indemnified Parties, and the Trust or
the Distributor is notified of the commencement thereof, the Trust or the
Distributor will be entitled to participate therein and to assume the defense
thereof, with counsel satisfactory to the party named in the action, and
after notice from the Trust or the Distributor to such party of the Trust's
or the Distributor's election to assume the defense thereof, the Trust or the
Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according
to the terms of the Distribution Agreement the terms of which are
incorporated by reference.
20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Trust. An irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable Federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any Portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Trustees
whenever contract owner voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that
a material irreconcilable conflict exists, the Company shall, at its expense
and to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (i)
withdrawing the assets allocable
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to the Account from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of variable annuity contract owners
invested in the Account from those of any other appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor
of such segregation, or offering to the contract owners the option of making
such a change; and (ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six month period
the Distributor and Trust shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six
months after the Trustees inform the Company in writing that they have
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Until the
end of the foregoing six month period, the Distributor and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by section (c) to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Trustees determine
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Trustees inform the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 20(a),
20(b), 20(c), 20(d), 20(e) and 20(f) of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such paragraphs are contained in such Rule(s) as so amended or adopted.
21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain
in force until April 30, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy. This Agreement also may
be terminated in accordance with paragraph 16 hereof.
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The terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person", when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities
of the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who
have no direct or indirect financial interest in this Agreement or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting on such approval.
23. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Illinois and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
S.E.C. may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of New
York, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed as of March 15, 1995.
COMPANY:
ATTEST: ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
By:
- -------------------------- -----------------------------------------
TRUST:
ATTEST: DEAN WITTER VARIABLE INVESTMENT SERIES
By:
- -------------------------- -----------------------------------------
DISTRIBUTOR:
ATTEST: DEAN WITTER DISTRIBUTORS INC.
By:
- -------------------------- -----------------------------------------
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EXHIBIT A
Index Number: 0061.19-00
"This document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code."
Mr. Paul J. Overberg Mr. J.C. Strickland
Senior Vice President and
Chief Actuary (202) 566-4495
Northbrook Life Insurance Co.
Allstate Plaza CC:C:C:3:3-36G6488
Northbrook, Illinois 60062 Dec. 01, 1983
Company = Northbrook Life Insurance Company
EIN: 36-3001527
Corp. P = Allstate Insurance Company
Corp. GP = Sears, Roebuck and Co.
Corp. S-1 = Dean Witter Reynolds Inc.
Account S = Northbrook Variable Annuity Account
Fund F = Dean Witter Variable
Annuity Investment Series
Portfolio 1 = Money Market Portfolio of Fund F
Portfolio 2 = High Yield Portfolio of Fund F
Portfolio 3 = Equity Portfolio of Fund F
State X = Illinois
State Y = Massachusetts
the Contract = flexible premium, deferred, variable annuity contract, number
NLU2, to be issued by the Company
Dear Mr. Overberg:
This is in reply to a letter dated July 25, 1983, requesting rulings
concerning the federal income tax consequences of the sale and administration of
certain annuity contracts. Additional information was submitted in letters dated
September 1 and September 9, 1983. The information submitted for our
consideration is substantially summarized below.
The Company is a stock life insurance company organized and operated under
the laws of State X. It is a life insurance company as defined by section 801(a)
of the Internal Revenue Code. It is a wholly-owned subsidiary of Corp. P. which,
in turn, is a wholly-owned subsidiary of Corp. GP.
The Company has developed a flexible premium, deferred, "variable" annuity
contract ("the Contract") with reserves based on a separate account (Account S)
established and regulated in accordance with the insurance laws of State X.
Account S is a unit investment trust and is registered with
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the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (the 1940 Act). The Contracts provide for the allocation of all amounts
received under the Contracts to the general account of the Company, one or more
of the sub-accounts of Account S or any combination of the foregoing, in
accordance with the Contract owner's allocation specified in the contract
application or in a subsequent written notice to the Company. Account S has been
divided into three subaccounts, each of which invests solely in the shares of a
specific Portfolio of Fund F.
Fund F is a diversified, open-end management investment company organized
under the laws of State Y as a business trust and is registered with the SEC
under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have
different investment strategies. The investment performance of a Portfolio has
no effect on the investment performance of any other Portfolio. The manager and
investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned
subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts.
Corp. S-1 is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and is paid a management fee by Fund F.
The Contract will be issued by Company to a contract owner who may or may
not be the annuitant. The Contract will be available for purchase by individuals
covered under certain tax qualified annuity or retirement plans (e.g. plans
adopted pursuant to section 403(b) and individual retirement annuities under
section 408 of the Code), for individuals covered under retirement plans which
do not qualify for special tax treatment, and for individuals not covered under
any retirement plan.
The Contract provides for a minimum first purchase payment of at least
$5,000 unless the Contract is issued under a tax qualified annuity or retirement
plan, in which case the minimum first purchase payment must be at least $50.
Future purchase payments must be at least $50 or more. The amount of subsequent
payments are determined by the contract owner. However, the Company has the
right to limit annual payments after the first contract year to three times the
total payments made in the first contract year.
The amount of each payment, net of any taxes, will be allocated to the
general account of the Company, one or more sub-accounts of Account S, or any
combination of the above, in accordance with the contract owner's allocation (as
specified in the Contract application or subsequent written notice to the
Company).
Payments allocated to the Company's general account are applied to purchase
accumulation units in the general account (fixed accumulation units). Interest
is credited to the fixed accumulation units at a rate which may differ depending
on the date of the underlying payments. Interest will be guaranteed for at least
one year and will not be less than a minimum annual effective rate of 4 percent.
Payments allocated to a sub-account of Account S are applied to purchase
accumulation units in the sub-account (variable accumulation units). The
variable accumulation units in each sub-account of Account S represent a
proportionate interest in the net value of the assets (i.e., shares of one
series of Fund F) of the sub-account. The value of the variable accumulation
units will vary depending on the value of the Fund F stock held by the
sub-account. The value of the Fund F stock will vary depending on the investment
experience of Fund F.
Payments allocated to the Company's general account become a part of the
assets held by the general account. The general account maintains a diversified
portfolio of investments. Payments allocated to each sub-account of Account S
under the Contracts are used to purchase, at their net asset value, shares of a
Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own
investment strategy. All dividends and capital gain distributions from a
Portfolio of Fund F are reinvested in shares of the distributing Portfolio at
their net asset value and such shares are credited to the appropriate
sub-account of Account S.
The Company may substitute shares of other registered open-end management
investment companies upon notice to the contract owners and, to the extent
required by the 1940 Act, upon approval by the SEC. The Company may establish
additional sub-accounts of Account S to invest in shares of other Portfolios of
Fund F that could be established in the future.
A-2
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The Company imposes certain charges with respect to the Contracts. An
annual contract maintenance charge is deducted from the value of the
accumulation units. The Company also deducts a daily mortality and expense risk
charge.
Annuity benefits begin on the "income starting date" selected by the
contract owner, which must be the first day of a calendar month and at least one
month after the issue date of the Contract. The income starting date cannot be
later than the first day of the calendar month following the annuitant's 75th
birthday. The owner may elect one of several annuity options.
A contract owner may surrender the Contract (in whole or in part) for the
value of the accumulation units held under the Contract at any time before the
earlier of the income starting date or the death of the annuitant. Such
withdrawals may be subject to surrender charges depending upon how long the
original payments were held by the Company.
In connection with the issuance and administration of the Contracts, the
following representations have been made:
(a) No variable annuity contract owner will have a legally binding
right to require the Company, Account S or Fund F to acquire any particular
investment item with purchase payments or other amounts paid to, or earned
by, the Company, Account S, or Fund F. Furthermore, there will be no
prearranged plan between any contract owner and the Company for the
Company, Account S, or Fund F to invest any purchase payments or other
amounts they receive in any particular investment item. However, contract
owners may be informed of the general investment strategy to be followed.
Contract owners will be permitted to choose among broad investment
strategies which initially will include stocks, bonds, and money market
instruments such as instruments of financial institutions, instruments of
government bodies, and U.S. Government securities.
(b) No contract owner will have any legal, equitable, direct,
indirect, or other interest in any specific investment item held by the
Company, Account S, or Fund F. A contract owner will have only a
contractual claim against the Company for cash as a result of purchasing an
annuity.
(c) The Company, in its general account, will maintain a diversified
portfolio of investments. Within 365 calendar days of the later of the
formation of Account S or the date of receipt of the first purchase payment
income (directly, indirectly, constructively or otherwise) by the Company
or Account S from the sale of the Contract, each Portfolio of Fund F will
diversify its respective portfolio of investments. Thereafter, each
Portfolio of Fund F will maintain a diversified portfolio of investments.
For purposes of this representation, a portfolio is diversified if:
(1) No more than 10 percent of the fair market value of the total
assets of the portfolio is invested in securities of any one issuer,
in any one real property project, or in any one commodity;
(2) investments in financial institutions are restricted, so that
no single type of portfolio investment (for example, certificates of
deposit, mortgages originating in and serviced by the financial
institution, and demand deposits) in financial institutions accounts
for more than 55 percent of the fair market value of the total assets
of the portfolio;
(3) Notwithstanding the 10 percent limitation in (1) above, the
direct and indirect investment in U.S. Treasury securities may total
but not exceed 55 percent of the fair market value of the total assets
of the portfolio;
(4) the total, direct and indirect, investment in U.S. Treasury
securities and certificates of deposit in financial institutions (that
is, savings and loan associations, banks, and savings banks) does not
exceed 65 percent of the total fair market value of the total assets
of the portfolio;
(5) the portfolio meets the requirements of (1) and through (4)
above on the last day of each calendar month.
Active business checking accounts are excluded in determining
whether there is diversification. For the first 10 working days after
receipt (including the day of receipt), newly acquired annuity
purchase payments are excluded in determining whether there is
diversification.
A-3
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For purposes of this representation, the term "security" is
defined as any certificate of deposit, mortgage, money market account,
time deposit, demand deposit, repurchase agreement, mortgage
participation certificate, and any item defined as a security in
section 2(a)(36) of the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36).
For purposes of this representation the term "issuer" is defined
as the U.S. Treasury, an agency or instrumentality of the U.S.
Government, a State, an agency, instrumentality or political
subdivision of a State (whether incorporated or not), a foreign
government or instrumentality thereof, and any person as defined in
section 2(a)(28) of the 1940 Act.
For purposes of this representation the term "real property
project" is defined as a single, identifiable tract, group of tracts,
building, group of buildings, or combination of tracts and buildings.
For purposes of this representation the term "commodity" is
defined as any grouping of tangible personal property whose individual
elements are usually considered to be fungible. A commodity can be a
raw material, a refined material, or a manufactured product. The term
commodity includes, for example, but is not limited to, agricultural
products (including livestock), timber and timber products, gold,
silver, copper, diamonds, any foreign currency, oil, natural gas, and
all contracts involving the current or future purchase or sale of a
commodity. If an investment item is defined in this paragraph and is
also defined as a security, it will be considered to be defined only
in this paragraph.
Each Portfolio of Fund F intends to operate on a continuing
basis. There is no plan or intention for any Portfolio of Fund F to
liquidate, to transfer its assets to any individual or entity, to
merge with any entity or to otherwise cease operations.
There is no plan or intention for the Company to form any
separate account, subsidiary, or other entity; to cause any exchange,
cancellation, or modification of any annuity or insurance policy; or
to otherwise use any device to extend beyond 365 days the time in
which diversification will be obtained.
(d) If FSLIC, FDIC or other governmental insurance is available in
conneciton with any investment item, it inures only to the benefit of the
Company, Account S, or Fund F and not directly to the benefit of any
individual annuity policyholder.
(e) For purposes of determining the treatment of the interest to be
credited to the fixed accumulation units under the Contract, the Contract
will be either (1) a "qualified contract" within the meaning of section
805(f) of the Code to which "qualified guaranteed interest" under section
805(e)(5) is credited or (2) a contract described in section 805(d) to
which the alternative limitation allowed by section 809(f)(2)(A) is
applicable.
Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an
"investment" annuity contract, by means of which the purchaser selected and
controlled one or more investments in a portfolio which comprised a separate
account of the life insurance company issuing the contract, was considered the
owner of those investments for federal income tax purposes.
Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity
contract, who was able to direct the funding of his annuity by specifying the
savings and loan association and the certificates of deposit in which his
purchase payments would be invested, was considered the owner of those
certificates for federal income tax purposes.
Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the
previously cited revenue rulings to mutual fund investments by holding that the
policyholders of certain variable annuity contracts, whose purchase payments
were invested solely in publicly available mutual fund shares, would be
considered the owners of those shares for federal income tax purposes. Situation
5 of that ruling holds that under certain circumstances the policyholders will
not be considered to be the owners of the mutual fund shares.
Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had
funded its deferred annuity contracts through a separate account whose assets
were invested in three mutual funds, the shares
A-4
<PAGE>
of which were not sold to the general public. The policyholders could direct
that their annuity purchase payments be invested in shares of any or all of the
three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not
the policyholder, is the owner of the mutual fund shares for federal income tax
purposes.
Based solely on the information submitted and the representations set
forth above, and provided the conditions listed below are met, it is held as
follows:
(1) For federal income tax purposes, the assets held by the Company in
its general account and/or by the Portfolios of Fund F, pursuant to the
provisions of the Contracts described above, are owned by the Company
and/or by Fund F (or the Portfolios if appropriate) and not by the contract
owners, or by any annuitant or beneficiary under the Contracts.
(2) For federal income tax purposes, any income, gain, or loss
recognized with respect to the assets held by the Company in its general
account and by Fund F (or the Portfolios if appropriate), pursuant to the
provisions of the Contracts, is includible in the computation of income of
the Company or Fund F (or the Portfolios if appropriate) respectively, and
is not the income, gain or loss of the contract owners, or of any annuitant
or beneficiary under the Contracts.
(3) For federal income tax purposes, the stock of Fund F held by the
Company (through Account S), pursuant to the provisions of the Contracts
described above, is owned by the Company and not by the contract owners, or
by any annuitant or beneficiary under the Contracts.
(4) For federal income tax purposes, any income, gain, or loss
recognized with respect to the stock of Fund F held by the Company (through
Account S), pursuant to the provisions of the Contracts, is includible in
the computation of income of the Company and is not the income, gain, or
loss of the contract owners, or of any annuitant or beneficiary under the
Contracts.
With respect to the general account of the Company the rulings above are
subject to the condition that the general account not only meets the
representations indicated but also meets the following condition:
(A) The general account must meet the diversification tests of
representation (c) above.
The diversification tests of representation (c) above apply only to
investment assets. Assets held by the general account and Fund F that are not
investment assets are excluded in making the percentage calculations.
No opinion is expressed about the tax treatment of any conditions existing
at the time of, or effects resulting from, the sale and/or administration of the
Contracts that are not specifically covered by the rulings in this letter.
This ruling letter is directed only to the taxpayer who requested it.
Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used
or cited as precedent.
A copy of this letter should be attached to the federal income tax
return(s) of the taxpayer involved for the taxable year(s) in which the
Contracts are sold and/or administered.
Pursuant to the power of attorney on file in this office a copy of this
letter is being sent to your authorized representative.
Sincerely yours,
Anthony Manzanares, Jr.
Chief, Corporation Tax Branch
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<PAGE>
AGREEMENT TO PURCHASE SHARES
THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and
amended as of the 15th day of March, 1995, by and between ALLSTATE LIFE
INSURANCE COMPANY OF NEW YORK (hereinafter the "Company"), on its own behalf
and on behalf of the Allstate Life Insurance Company of New York Variable
Annuity Account II (hereinafter the "Account"), a separate account of the
Company, and DEAN WITTER VARIABLE INVESTMENT SERIES, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Trust") and DEAN WITTER DISTRIBUTORS INC. (hereinafter the
"Distributor").
WHEREAS, by resolution of its Board of Directors on June 28, 1990, the
Company established the Account to set aside and invest assets attributable
to certain variable annuity contracts (hereinafter the "Contracts") issued by
the Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act");
WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.")
declared the Account's registration statement of the Contract filed under the
Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on
September 25, 1990;
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the S.E.C. which declared such registration
statement effective on October 5, 1983;
WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C.
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD");
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable
life insurance contracts offered or to be offered by insurance companies
which have entered into agreements to purchase shares or participation
agreements with the Trust and the Distributor (hereinafter "Participating
Insurance Companies");
WHEREAS, the Trust has obtained an order from the S.E.C., dated November
23, 1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as 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, and other Portfolios may be subsequently
established by the Trust (hereinafter the "Portfolios");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized
to sell such shares to the Company for the benefit of the Account at net
asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended as of
March 15, 1995, (the "Distribution Agreement"), the Company agrees to
purchase and redeem the Trust shares of each Portfolio offered by the then
current prospectus
1
<PAGE>
of the Trust (hereinafter the "Prospectus") included in the Trust's
registration statement (hereinafter "the Registration Statement") most
recently filed from time to time with the S.E.C. and effective under the 1933
and 1940 Acts or as the Prospectus may be amended or supplemented and filed
with the S.E.C. pursuant to the 1933 Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account as orders from the Company are
received at the next determined net asset value per share after receipt by
the Trust or its designee of the order for shares of the Trust, of the
applicable Portfolio determined as set forth in the Prospectus.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust
held by the Company, executing such requests on a daily basis at the net
asset value of applicable Portfolio computed after receipt of the redemption
request provided, however, that the Trust reserves the right to suspend the
right of redemption or to postpone the date of payment upon redemption of the
shares of any Portfolio under the circumstances and for the period of time
specified in the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by
reference, the Trust agrees to make its shares available indefinitely for
purchase by the Company.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in its then
current prospectus with respect to such shares until any payment check has
cleared. If the Trust or the Distributor does not receive payment within the
five days period, the Trust may, without notice, cancel the order and require
the Company to reimburse the Trust promptly for any loss the Trust suffered
by reason of the Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission,
dealers fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares and, at its own expense, shall provide the Company with as many
copies of its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with the representations made to the Internal Revenue Service in
connection with the Company's request for a private letter ruling regarding
the ownership of the Trust's shares attached as Exhibit "A" and in accordance
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such Section or
Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to stockholders and other communication to
stockholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from contract owners.
If, however, the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the Trust's shares in its own
right, it may elect to do so. The Company shall vote shares of a Portfolio
for which no instructions have been received in the same proportion as the
vote of shareholders of such Portfolio from which instructions have been
received.
2
<PAGE>
Neither the Company nor persons under its control shall recommend action in
connection with solicitation of proxies for Trust shares allocated to the
Account. The Company shall also vote shares it owns that are not attributable
to contract owners in the same proportion. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Trust calculates voting privileges in a manner
consistent with other Participating Insurance Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Trust is not one of the trusts described in Section 16(c) of that Act) as
well as with Section 16(a) and, if and when applicable, 16(b). Further, the
Trust will act in accordance with the S.E.C.'s interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the S.E.C. may promulgate with respect thereto.
12. COMPANY APPROVAL. The Trust and the Distributor agree that the
approval of the Company will be required prior to the Trust and the
Distributor entering into any new agreements to sell shares of the Trust to
other Participating Companies.
13. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act and
duly authorized for issuance in accordance with all applicable federal and
state laws.
14. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under New York law and
that it has legally and validly established the Account under Section 424.40
of the New York Insurance Laws and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for certain Contracts. The Company further
represents and warrants that the Contracts will be registered under the 1933
Act and the Contracts will be issued and sold in compliance with all
applicable Federal and State laws.
15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the S.E.C. under the 1934 Act. The Distributor further
represents that it will sell and distribute the shares in accordance with the
1933, 1934 and 1940 Acts and will not make any representations concerning the
Account except those contained in the then current registration statement or
related prospectus and any sales literature approved by the Trust. For
purposes of this paragraph, Section 6 of the Distribution Agreement is
incorporated in this Agreement.
16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as
follows:
(1)(a) at the option of the Company or the Trust or the Distributor
upon 90 days' written notice to the other party;
(b) at the option of the Company if, for any reason, except for those
specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust
shares are not available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Trust upon the NASD, the S.E.C., the New York
Insurance Commissioner or any other regulatory body instituting legal
proceedings against the Company regarding its duties under this Agreement.
(2) This Agreement shall automatically terminate in the event of its
assignment.
17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their
Directors or Trustees who is not an "interested person" of the Trust, as
defined in the 1940 Act (collectively the "Indemnified Parties" for purposes
of this paragraph 17) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses or actions to which such Indemnified Parties may become
subject, under the Federal securities laws or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements arise as a result of any failure by the
3
<PAGE>
Company to provide the services and furnish the materials under terms of this
Agreement or which arise from erroneous instructions by the Company to the
Distributor concerning the particular Portfolio or Portfolios whose shares
are to be allocated to the Account. This indemnity agreement is in addition
to any liability which the Company may otherwise have. Provided, however,
that in no case is the indemnity of the Company in favor of the Distributor
deemed to protect the Distributor against any liability to the Trust or its
shareholders to which the Distributor would otherwise be subject by reason of
its bad faith, wilful misfeasance or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending of any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Indemnified Parties will, if a
claim thereof is to be made against the Trust, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Indemnified
Parties otherwise than under this Agreement. In case any such action is
brought against the Indemnified Parties, and the Company is notified of the
commencement thereof, the Company will be entitled to participate therein and
to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the
Company's election to assume the defense thereof, the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person" of the Company, as defined in
the 1940 Act (collectively the "Company's Indemnified Parties" for purposes
of this paragraph 18) against any losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust)
or expenses or actions to which such Indemnified Parties may become subject,
under the Federal securities laws or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of the Trust's or Distributor's failure, whether
unintentional or in good faith or otherwise, to comply with the
representations made to the Internal Revenue Service attached as Exhibit
"A" in connection with the request for a private letter ruling regarding
the ownership of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as
to the Company's Indemnified Parties if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or Distributor by or on behalf of the Company for use in the
registration statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Trust or the Distributor, including a failure,
whether unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
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<PAGE>
(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as an annuity under the Internal Revenue Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust will at
all times comply with Section 817(h) of the Code and Treas. Reg. Sec.
1.817-5, as amended from time to time, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity
contracts and any amendments or other modifications to such section or
Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts in accordance
with the statutes and regulations referred to in the preceding paragraph.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this paragraph, the Company's Indemnified
Parties will, if a claim in respect thereof is to be made against the
Company, notify the Trust or the Distributor of commencement thereof; but the
omission so to notify the Trust or the Distributor will not relieve the Trust
or the Distributor from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such
action is brought against the Company's Indemnified Parties, and the Trust or
the Distributor is notified of the commencement thereof, the Trust or the
Distributor will be entitled to participate therein and to assume the defense
thereof, with counsel satisfactory to the party named in the action, and
after notice from the Trust or the Distributor to such party of the Trust's
or the Distributor's election to assume the defense thereof, the Trust or the
Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according
to the terms of the Distribution Agreement the terms of which are
incorporated by reference.
20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Trust. An irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable Federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any Portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Trustees
whenever contract owner voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that
a material irreconcilable conflict exists, the Company shall, at its expense
and to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (i)
withdrawing the assets allocable
5
<PAGE>
to the Account from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of variable annuity contract owners
invested in the Account from those of any other appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor
of such segregation, or offering to the contract owners the option of making
such a change; and (ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six month period
the Distributor and Trust shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six
months after the Trustees inform the Company in writing that they have
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Until the
end of the foregoing six month period, the Distributor and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by section (c) to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Trustees determine
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Trustees inform the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 20(a),
20(b), 20(c), 20(d), 20(e) and 20(f) of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such paragraphs are contained in such Rule(s) as so amended or adopted.
21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain
in force until April 30, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Trust, cast in person or by proxy. This Agreement also may
be terminated in accordance with paragraph 16 hereof.
6
<PAGE>
The terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person", when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities
of the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who
have no direct or indirect financial interest in this Agreement or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting on such approval.
23. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Illinois and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
S.E.C. may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of New
York, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter Variable Investment Series refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of Dean
Witter Variable Investment Series shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Variable Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed as of March 15, 1995.
COMPANY:
ATTEST ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
By:
- ------------------------------ -------------------------------------
TRUST:
ATTEST DEAN WITTER VARIABLE INVESTMENT SERIES
By:
- ------------------------------ -------------------------------------
DISTRIBUTOR:
ATTEST DEAN WITTER DISTRIBUTORS INC.
By:
- ------------------------------ -------------------------------------
7
<PAGE>
EXHIBIT A
Index Number: 0061.19-00
"This document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code."
Mr. Paul J. Overberg Mr. J.C. Strickland
Senior Vice President and
Chief Actuary (202) 566-4495
Northbrook Life Insurance Co.
Allstate Plaza CC:C:C:3:3-3G6488
Northbrook, Illinois 60062 Dec. 01, 1983
Company = Northbrook Life Insurance Company
EIN: 36-3001527
Corp. P = Allstate Insurance Company
Corp. GP = Sears, Roebuck and Co.
Corp. S-1 = Dean Witter Reynolds Inc.
Account S = Northbrook Variable Annuity Account
Fund F = Dean Witter Variable
Annuity Investment Series
Portfolio 1 = Money Market Portfolio of Fund F
Portfolio 2 = High Yield Portfolio of Fund F
Portfolio 3 = Equity Portfolio of Fund F
State X = Illinois
State Y = Massachusetts
the Contract = flexible premium, deferred, variable annuity contract, number
NLU2, to be issued by the Company
Dear Mr. Overberg:
This is in reply to a letter dated July 25, 1983, requesting rulings
concerning the federal income tax consequences of the sale and administration of
certain annuity contracts. Additional information was submitted in letters dated
September 1 and September 9, 1983. The information submitted for our
consideration is substantially summarized below.
The Company is a stock life insurance company organized and operated under
the laws of State X. It is a life insurance company as defined by section 801(a)
of the Internal Revenue Code. It is a wholly-owned subsidiary of Corp. P. which,
in turn, is a wholly-owned subsidiary of Corp. GP.
The Company has developed a flexible premium, deferred, "variable" annuity
contract ("the Contract") with reserves based on a separate account (Account S)
established and regulated in accordance with the insurance laws of State X.
Account S is a unit investment trust and is registered with
A-1
<PAGE>
the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (the 1940 Act). The Contracts provide for the allocation of all amounts
received under the Contracts to the general account of the Company, one or more
of the sub-accounts of Account S or any combination of the foregoing, in
accordance with the Contract owner's allocation specified in the contract
application or in a subsequent written notice to the Company. Account S has been
divided into three subaccounts, each of which invests solely in the shares of a
specific Portfolio of Fund F.
Fund F is a diversified, open-end management investment company organized
under the laws of State Y as a business trust and is registered with the SEC
under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have
different investment strategies. The investment performance of a Portfolio has
no effect on the investment performance of any other Portfolio. The manager and
investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned
subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts.
Corp. S-1 is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and is paid a management fee by Fund F.
The Contract will be issued by Company to a contract owner who may or may
not be the annuitant. The Contract will be available for purchase by individuals
covered under certain tax qualified annuity or retirement plans (e.g. plans
adopted pursuant to section 403(b) and individual retirement annuities under
section 408 of the Code), for individuals covered under retirement plans which
do not qualify for special tax treatment, and for individuals not covered under
any retirement plan.
The Contract provides for a minimum first purchase payment of at least
$5,000 unless the Contract is issued under a tax qualified annuity or retirement
plan, in which case the minimum first purchase payment must be at least $50.
Future purchase payments must be at least $50 or more. The amount of subsequent
payments are determined by the contract owner. However, the Company has the
right to limit annual payments after the first contract year to three times the
total payments made in the first contract year.
The amount of each payment, net of any taxes, will be allocated to the
general account of the Company, one or more sub-accounts of Account S, or any
combination of the above, in accordance with the contract owner's allocation (as
specified in the Contract application or subsequent written notice to the
Company).
Payments allocated to the Company's general account are applied to purchase
accumulation units in the general account (fixed accumulation units). Interest
is credited to the fixed accumulation units at a rate which may differ depending
on the date of the underlying payments. Interest will be guaranteed for at least
one year and will not be less than a minimum annual effective rate of 4 percent.
Payments allocated to a sub-account of Account S are applied to purchase
accumulation units in the sub-account (variable accumulation units). The
variable accumulation units in each sub-account of Account S represent a
proportionate interest in the net value of the assets (i.e., shares of one
series of Fund F) of the sub-account. The value of the variable accumulation
units will vary depending on the value of the Fund F stock held by the
sub-account. The value of the Fund F stock will vary depending on the investment
experience of Fund F.
Payments allocated to the Company's general account become a part of the
assets held by the general account. The general account maintains a diversified
portfolio of investments. Payments allocated to each sub-account of Account S
under the Contracts are used to purchase, at their net asset value, shares of a
Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own
investment strategy. All dividends and capital gain distributions from a
Portfolio of Fund F are reinvested in shares of the distributing Portfolio at
their net asset value and such shares are credited to the appropriate
sub-account of Account S.
The Company may substitute shares of other registered open-end management
investment companies upon notice to the contract owners and, to the extent
required by the 1940 Act, upon approval by the SEC. The Company may establish
additional sub-accounts of Account S to invest in shares of other Portfolios of
Fund F that could be established in the future.
A-2
<PAGE>
The Company imposes certain charges with respect to the Contracts. An
annual contract maintenance charge is deducted from the value of the
accumulation units. The Company also deducts a daily mortality and expense risk
charge.
Annuity benefits begin on the "income starting date" selected by the
contract owner, which must be the first day of a calendar month and at least one
month after the issue date of the Contract. The income starting date cannot be
later than the first day of the calendar month following the annuitant's 75th
birthday. The owner may elect one of several annuity options.
A contract owner may surrender the Contract (in whole or in part) for the
value of the accumulation units held under the Contract at any time before the
earlier of the income starting date or the death of the annuitant. Such
withdrawals may be subject to surrender charges depending upon how long the
original payments were held by the Company.
In connection with the issuance and administration of the Contracts, the
following representations have been made:
(a) No variable annuity contract owner will have a legally binding
right to require the Company, Account S or Fund F to acquire any particular
investment item with purchase payments or other amounts paid to, or earned
by, the Company, Account S, or Fund F. Furthermore, there will be no
prearranged plan between any contract owner and the Company for the
Company, Account S, or Fund F to invest any purchase payments or other
amounts they receive in any particular investment item. However, contract
owners may be informed of the general investment strategy to be followed.
Contract owners will be permitted to choose among broad investment
strategies which initially will include stocks, bonds, and money market
instruments such as instruments of financial institutions, instruments of
government bodies, and U.S. Government securities.
(b) No contract owner will have any legal, equitable, direct,
indirect, or other interest in any specific investment item held by the
Company, Account S, or Fund F. A contract owner will have only a
contractual claim against the Company for cash as a result of purchasing an
annuity.
(c) The Company, in its general account, will maintain a diversified
portfolio of investments. Within 365 calendar days of the later of the
formation of Account S or the date of receipt of the first purchase payment
income (directly, indirectly, constructively or otherwise) by the Company
or Account S from the sale of the Contract, each Portfolio of Fund F will
diversify its respective portfolio of investments. Thereafter, each
Portfolio of Fund F will maintain a diversified portfolio of investments.
For purposes of this representation, a portfolio is diversified if:
(1) No more than 10 percent of the fair market value of the total
assets of the portfolio is invested in securities of any one issuer,
in any one real property project, or in any one commodity;
(2) investments in financial institutions are restricted, so that
no single type of portfolio investment (for example, certificates of
deposit, mortgages originating in and serviced by the financial
institution, and demand deposits) in financial institutions accounts
for more than 55 percent of the fair market value of the total assets
of the portfolio;
(3) Notwithstanding the 10 percent limitation in (1) above, the
direct and indirect investment in U.S. Treasury securities may total
but not exceed 55 percent of the fair market value of the total assets
of the portfolio;
(4) the total, direct and indirect, investment in U.S. Treasury
securities and certificates of deposit in financial institutions (that
is, savings and loan associations, banks, and savings banks) does not
exceed 65 percent of the total fair market value of the total assets
of the portfolio;
(5) the portfolio meets the requirements of (1) and through (4)
above on the last day of each calendar month.
Active business checking accounts are excluded in determining
whether there is diversification. For the first 10 working days after
receipt (including the day of receipt), newly acquired annuity
purchase payments are excluded in determining whether there is
diversification.
A-3
<PAGE>
For purposes of this representation, the term "security" is
defined as any certificate of deposit, mortgage, money market account,
time deposit, demand deposit, repurchase agreement, mortgage
participation certificate, and any item defined as a security in
section 2(a)(36) of the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36).
For purposes of this representation the term "issuer" is defined
as the U.S. Treasury, an agency or instrumentality of the U.S.
Government, a State, an agency, instrumentality or political
subdivision of a State (whether incorporated or not), a foreign
government or instrumentality thereof, and any person as defined in
section 2(a)(28) of the 1940 Act.
For purposes of this representation the term "real property
project" is defined as a single, identifiable tract, group of tracts,
building, group of buildings, or combination of tracts and buildings.
For purposes of this representation the term "commodity" is
defined as any grouping of tangible personal property whose individual
elements are usually considered to be fungible. A commodity can be a
raw material, a refined material, or a manufactured product. The term
commodity includes, for example, but is not limited to, agricultural
products (including livestock), timber and timber products, gold,
silver, copper, diamonds, any foreign currency, oil, natural gas, and
all contracts involving the current or future purchase or sale of a
commodity. If an investment item is defined in this paragraph and is
also defined as a security, it will be considered to be defined only
in this paragraph.
Each Portfolio of Fund F intends to operate on a continuing
basis. There is no plan or intention for any Portfolio of Fund F to
liquidate, to transfer its assets to any individual or entity, to
merge with any entity or to otherwise cease operations.
There is no plan or intention for the Company to form any
separate account, subsidiary, or other entity; to cause any exchange,
cancellation, or modification of any annuity or insurance policy; or
to otherwise use any device to extend beyond 365 days the time in
which diversification will be obtained.
(d) If FSLIC, FDIC or other governmental insurance is available in
conneciton with any investment item, it inures only to the benefit of the
Company, Account S, or Fund F and not directly to the benefit of any
individual annuity policyholder.
(e) For purposes of determining the treatment of the interest to be
credited to the fixed accumulation units under the Contract, the Contract
will be either (1) a "qualified contract" within the meaning of section
805(f) of the Code to which "qualified guaranteed interest" under section
805(e)(5) is credited or (2) a contract described in section 805(d) to
which the alternative limitation allowed by section 809(f)(2)(A) is
applicable.
Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an
"investment" annuity contract, by means of which the purchaser selected and
controlled one or more investments in a portfolio which comprised a separate
account of the life insurance company issuing the contract, was considered the
owner of those investments for federal income tax purposes.
Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity
contract, who was able to direct the funding of his annuity by specifying the
savings and loan association and the certificates of deposit in which his
purchase payments would be invested, was considered the owner of those
certificates for federal income tax purposes.
Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the
previously cited revenue rulings to mutual fund investments by holding that the
policyholders of certain variable annuity contracts, whose purchase payments
were invested solely in publicly available mutual fund shares, would be
considered the owners of those shares for federal income tax purposes. Situation
5 of that ruling holds that under certain circumstances the policyholders will
not be considered to be the owners of the mutual fund shares.
Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had
funded its deferred annuity contracts through a separate account whose assets
were invested in three mutual funds, the shares
A-4
<PAGE>
of which were not sold to the general public. The policyholders could direct
that their annuity purchase payments be invested in shares of any or all of the
three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not
the policyholder, is the owner of the mutual fund shares for federal income tax
purposes.
Based solely on the information submitted and the representations set
forth above, and provided the conditions listed below are met, it is held as
follows:
(1) For federal income tax purposes, the assets held by the Company in
its general account and/or by the Portfolios of Fund F, pursuant to the
provisions of the Contracts described above, are owned by the Company
and/or by Fund F (or the Portfolios if appropriate) and not by the contract
owners, or by any annuitant or beneficiary under the Contracts.
(2) For federal income tax purposes, any income, gain, or loss
recognized with respect to the assets held by the Company in its general
account and by Fund F (or the Portfolios if appropriate), pursuant to the
provisions of the Contracts, is includible in the computation of income of
the Company or Fund F (or the Portfolios if appropriate) respectively, and
is not the income, gain or loss of the contract owners, or of any annuitant
or beneficiary under the Contracts.
(3) For federal income tax purposes, the stock of Fund F held by the
Company (through Account S), pursuant to the provisions of the Contracts
described above, is owned by the Company and not by the contract owners, or
by any annuitant or beneficiary under the Contracts.
(4) For federal income tax purposes, any income, gain, or loss
recognized with respect to the stock of Fund F held by the Company (through
Account S), pursuant to the provisions of the Contracts, is includible in
the computation of income of the Company and is not the income, gain, or
loss of the contract owners, or of any annuitant or beneficiary under the
Contracts.
With respect to the general account of the Company the rulings above are
subject to the condition that the general account not only meets the
representations indicated but also meets the following condition:
(A) The general account must meet the diversification tests of
representation (c) above.
The diversification tests of representation (c) above apply only to
investment assets. Assets held by the general account and Fund F that are not
investment assets are excluded in making the percentage calculations.
No opinion is expressed about the tax treatment of any conditions existing
at the time of, or effects resulting from, the sale and/or administration of the
Contracts that are not specifically covered by the rulings in this letter.
This ruling letter is directed only to the taxpayer who requested it.
Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used
or cited as precedent.
A copy of this letter should be attached to the federal income tax
return(s) of the taxpayer involved for the taxable year(s) in which the
Contracts are sold and/or administered.
Pursuant to the power of attorney on file in this office a copy of this
letter is being sent to your authorized representative.
Sincerely yours,
Anthony Manzanares, Jr.
Chief, Corporation Tax Branch
A-5
<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. 18 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1995, 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.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 10, 1995
<PAGE>
DEAN WITTER VARIABLE MONEY MONEY
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, 1994
(A-B) x 365/N
(1.000997 -1) x 365/7 = 5.20%
The Trust's effective annualized yield for the seven days ending
December 31, 1994
365/N
A - 1
365/7
1.000997 - 1 = 5.34%
A = Value of a share of the Trust
B = Value of a share of the Trust
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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $1,038.10 3.81% 1 3.81%
31-Dec-89 $1,258.73 25.87% 5.00 4.71%
31-Dec-84 $1,794.57 79.46% 10.00 6.02%
</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 93.15 $19,315 $96,573 $193,147
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $933.70 -6.63% 1 -6.63%
31-Dec-89 $1,448.99 44.90% 5.00 7.70%
03-Mar-87 $1,799.80 79.98% 7.83 7.79%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
03-Mar-87 $1,793.30 7.83 7.74%
</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>
03-Mar-87 79.98 $17,998 $89,990 $179,980
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $975.30 -2.47% 1 -2.47%
31-Dec-89 $1,686.35 68.64% 5.00 11.02%
31-Dec-84 $2,388.94 138.89% 10.00 9.10%
</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-84 167.49 $26,749 $133,745 $267,490
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $909.80 -9.02% 1.00 -9.02%
01-Mar-90 $1,494.00 49.40% 4.84 8.66%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
01-Mar-90 $1,487.30 4.84 8.56%
</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 49.4 $14,940 $74,700 $149,400
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $967.30 -3.27% 1.00 -3.27%
01-Mar-90 $1,409.00 40.90% 4.84 7.35%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
01-Mar-90 $1,405.20 4.84 7.29%
</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 40.9 $14,090 $70,450 $140,900
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $987.20 -1.28% 1.00 -1.28%
01-Mar-91 $1,198.40 19.84% 3.84 4.83%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
01-Mar-91 $1,184.30 3.84 4.51%
</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 19.84 $11,984 $59,920 $119,840
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - GLOBAL 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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
23-Feb-94 $1,002.70 0.27% 0.85 0.31%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
23-Feb-94 $1,000.90 0.85 0.11%
</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>
23-Feb-94 0.27 $10,027 $50,135 $100,270
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $1,083.60 8.36% 1.00 8.36%
01-Mar-91 $1,608.90 60.89% 3.84 13.20%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
01-Mar-91 $1,577.00 3.84 12.61%
</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 60.89 $16,089 $80,445 $160,890
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - PACIFIC 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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
23-Feb-94 $932.70 -6.73% 0.85 -7.83%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
23-Feb-94 $927.50 0.85 -8.43%
</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>
23-Feb-94 -6.73 $9,327 $46,635 $93,270
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $950.90 -4.91% 1 -4.91%
31-Dec-89 $1,745.96 74.60% 5 11.79%
31-Dec-84 $3,087.71 208.77% 10 11.93%
</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-84 243.57 $34,357 $171,785 $343,570
</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-94 RETURN - TR YEARS - n COMPOUND RETURN - t
- ---------------- ----------- ----------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
31-Dec-93 $1,039.40 3.94% 1 3.94%
31-Dec-89 $1,602.51 60.25% 5.00 9.89%
04-Mar-87 $2,025.10 102.51% 7.83 9.43%
</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-94 YEARS - n TOTAL RETURN
- ---------------- ----------- ----------- ------------------------
<S> <C> <C> <C>
04-Mar-87 $2,015.60 7.83 9.37%
</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-87 102.51 $20,251 $101,255 $202,510
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 268,964,991
<INVESTMENTS-AT-VALUE> 268,964,991
<RECEIVABLES> 390,596
<ASSETS-OTHER> 8,554
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 269,364,141
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 739,688
<TOTAL-LIABILITIES> 739,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 268,624,433
<SHARES-COMMON-STOCK> 268,624,433
<SHARES-COMMON-PRIOR> 129,925,002
<ACCUMULATED-NII-CURRENT> 20
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 268,624,453
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,034,116
<OTHER-INCOME> 0
<EXPENSES-NET> 1,110,838
<NET-INVESTMENT-INCOME> 7,923,278
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,923,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,923,343
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243,270,066
<NUMBER-OF-SHARES-REDEEMED> (112,493,978)
<SHARES-REINVESTED> 7,923,343
<NET-CHANGE-IN-ASSETS> 138,699,366
<ACCUMULATED-NII-PRIOR> 85
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,006,787
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,110,838
<AVERAGE-NET-ASSETS> 201,910,737
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.037
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.037)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> QUALITY INCOME PLUS PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 432,142,289
<INVESTMENTS-AT-VALUE> 413,699,312
<RECEIVABLES> 6,558,962
<ASSETS-OTHER> 3,150
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 420,261,424
<PAYABLE-FOR-SECURITIES> 5,072,500
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> HIGH YIELD PORTFOLIO
<S> <C>
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<GROSS-EXPENSE> 670,709
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<PER-SHARE-NAV-BEGIN> 7.11
<PER-SHARE-NII> .79
<PER-SHARE-GAIN-APPREC> (.95)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> UTILITIES PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
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<ACCUMULATED-NET-GAINS> (2,630,010)
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<PER-SHARE-GAIN-APPREC> (1.75)
<PER-SHARE-DIVIDEND> (.52)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> DIVIDEND GROWTH PORTFOLIO
<S> <C>
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<PER-SHARE-GAIN-APPREC> (.80)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> CAPITAL GROWTH PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
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<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> (.26)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> GLOBAL DIVIDEND GROWTH PORTFOLIO
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EUROPEAN GROWTH PORTFOLIO
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> PACIFIC GROWTH PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> EQUITY PORTFOLIO
<S> <C>
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<SHARES-REINVESTED> 965,337
<NET-CHANGE-IN-ASSETS> 42,461,393
<ACCUMULATED-NII-PRIOR> 194,225
<ACCUMULATED-GAINS-PRIOR> 15,116,085
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,077,511
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,219,631
<AVERAGE-NET-ASSETS> 215,502,186
<PER-SHARE-NAV-BEGIN> 22.15
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> (1.31)
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (1.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.25
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MANAGED ASSETS PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 393,495,491
<INVESTMENTS-AT-VALUE> 392,908,697
<RECEIVABLES> 229,656
<ASSETS-OTHER> 29,514
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 393,167,867
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407,522
<TOTAL-LIABILITIES> 407,522
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 378,508,036
<SHARES-COMMON-STOCK> 31,534,970
<SHARES-COMMON-PRIOR> 22,668,551
<ACCUMULATED-NII-CURRENT> 1,680,979
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,158,124
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (586,794)
<NET-ASSETS> 392,760,345
<DIVIDEND-INCOME> 2,261,784
<INTEREST-INCOME> 13,315,203
<OTHER-INCOME> 0
<EXPENSES-NET> 1,887,851
<NET-INVESTMENT-INCOME> 13,689,136
<REALIZED-GAINS-CURRENT> 13,979,461
<APPREC-INCREASE-CURRENT> (14,418,071)
<NET-CHANGE-FROM-OPS> 13,250,526
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,720,041)
<DISTRIBUTIONS-OF-GAINS> (6,891,484)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,741,963
<NUMBER-OF-SHARES-REDEEMED> (1,450,674)
<SHARES-REINVESTED> 1,575,130
<NET-CHANGE-IN-ASSETS> 105,257,996
<ACCUMULATED-NII-PRIOR> 711,864
<ACCUMULATED-GAINS-PRIOR> 6,070,167
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,739,941
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,887,851
<AVERAGE-NET-ASSETS> 347,988,268
<PER-SHARE-NAV-BEGIN> 12.68
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> (.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> .54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of JACK F. BENNETT, EDWIN J.
GARN, JOHN R. HAIRE, JOHN E. JEUCK, MANUEL H. JOHNSON, PAUL KOLTON and MICHAEL
E. NUGENT, whose signatures appear below, constitutes and appoints David M.
Butowsky, Ronald Feiman and Stuart Strauss, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution among himself and
each of the persons appointed herein, for him and in his name, place and stead,
in any and all capacities, to sign any amendments to any registration statement
of ANY OF THE DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
Dated: May 10, 1994
/S/Jack F. Bennett /S/Manuel H. Johnson
- -------------------- ----------------------
Jack F. Bennett Manuel H. Johnson
/S/Edwin J. Garn /S/Paul Kolton
- -------------------- -----------------------
Edwin J. Garn Paul Kolton
/S/John R. Haire /S/Michael E. Nugent
- -------------------- ------------------------
John R. Haire Michael E. Nugent
/S/John E. Jeuck
- --------------------
John E. Jeuck
<PAGE>
DEAN WITTER FUNDS
MONEY MARKET
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Active Assets Tax-Free Trust
4. Active Assets California Tax-Free Trust
5. Active Assets Government Securities Trust
6. Dean Witter Tax-Free Daily Income Trust
7. Dean Witter U.S. Government Money Market Trust
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Dividend Growth Securities Inc.
12. Dean Witter Capital Growth Securities
13. Dean Witter Natural Resource Development Securities Inc.
14. Dean Witter Precious Metals & Minerals Trust
15. Dean Witter Developing Growth Securities Trust
16. Dean Witter World Wide Investment Trust
17. Dean Witter Value-Added Market Series
18. Dean Witter European Growth Fund Inc.
19. Dean Witter Pacific Growth Fund Inc.
20. Dean Witter Equity Income Trust
21. Dean Witter Utilities Fund
22. Dean Witter Health Sciences Trust
23. Dean Witter Global Dividend Growth Securities
ASSET ALLOCATION FUNDS
24. Dean Witter Managed Assets Trust
25. Dean Witter Strategist Fund
FIXED-INCOME FUNDS
26. Dean Witter High Yield Securities Inc.
27. Dean Witter Convertible Securities Trust
28. Dean Witter Intermediate Income Securities
29. Dean Witter World Wide Income Trust
30. Dean Witter Global Short-Term Income Fund Inc.
31. Dean Witter Diversified Income Trust
32. Dean Witter Premier Income Trust
33. Dean Witter U.S. Government Securities Trust
34. Dean Witter Federal Securities Trust
<PAGE>
35. Dean Witter Short-Term U.S. Treasury Trust
36. Dean Witter Tax-Exempt Securities Trust
37. Dean Witter California Tax-Free Income Fund
38. Dean Witter New York Tax-Free Income Fund
39. Dean Witter Multi-State Municipal Series Trust
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Limited Term Municipal Trust
SPECIAL PURPOSE FUNDS
42. Dean Witter Variable Investment Series
Money Market Portfolio
Quality Income Plus Portfolio
High Yield Portfolio
Utilities Portfolio
Dividend Growth Portfolio
Capital Growth Portfolio
European Growth Portfolio
Equity Portfolio
Managed Assets Portfolio
43. Dean Witter Retirement Series
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
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 Quality Municipal Investment Trust
52. InterCapital Quality Municipal Income Trust
53. Municipal Income Trust
54. Municipal Income Trust II
55. Municipal Income Trust III
56. Municipal Income Opportunities Trust
57. Municipal Income Opportunities Trust II
58. Municipal Income Opportunities Trust III
59. Municipal Premium Income Trust
60. Prime Income Trust
61. InterCapital Insured Municipal Income Trust
62. InterCapital California Insured Municipal Income Trust
63. InterCapital Quality Municipal Securities
64. InterCapital California Quality Municipal Securities
65. InterCapital New York Quality Municipal Securities
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that MICHAEL BOZIC, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald Feiman and Stuart
Strauss, or any of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of ANY OF THE DEAN WITTER
FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: April 15, 1994
/S/ Michael Bozic
- ------------------
Michael Bozic
<PAGE>
DEAN WITTER FUNDS
MONEY MARKET
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Active Assets Tax-Free Trust
4. Active Assets California Tax-Free Trust
5. Active Assets Government Securities Trust
6. Dean Witter Tax-Free Daily Income Trust
7. Dean Witter U.S. Government Money Market Trust
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Dividend Growth Securities Inc.
12. Dean Witter Capital Growth Securities
13. Dean Witter Natural Resource Development Securities Inc.
14. Dean Witter Precious Metals & Minerals Trust
15. Dean Witter Developing Growth Securities Trust
16. Dean Witter World Wide Investment Trust
17. Dean Witter Value-Added Market Series
18. Dean Witter European Growth Fund Inc.
19. Dean Witter Pacific Growth Fund Inc.
20. Dean Witter Equity Income Trust
21. Dean Witter Utilities Fund
22. Dean Witter Health Sciences Trust
23. Dean Witter Global Dividend Growth Securities
24. Dean Witter Global Utilities Fund
ASSET ALLOCATION FUNDS
25. Dean Witter Managed Assets Trust
26. Dean Witter Strategist Fund
FIXED-INCOME FUNDS
27. Dean Witter High Yield Securities Inc.
28. Dean Witter Convertible Securities Trust
29. Dean Witter Intermediate Income Securities
30. Dean Witter World Wide Income Trust
31. Dean Witter Global Short-Term Income Fund Inc.
32. Dean Witter Diversified Income Trust
33. Dean Witter Premier Income Trust
34. Dean Witter U.S. Government Securities Trust
35. Dean Witter Federal Securities Trust
<PAGE>
36. Dean Witter Short-Term U.S. Treasury Trust
37. Dean Witter Tax-Exempt Securities Trust
38. Dean Witter California Tax-Free Income Fund
39. Dean Witter New York Tax-Free Income Fund
40. Dean Witter Multi-State Municipal Series Trust
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
41. Dean Witter Select Municipal Reinvestment Fund
42. Dean Witter Limited Term Municipal Trust
43. Dean Witter Short-Term Bond Fund
SPECIAL PURPOSE FUNDS
44. Dean Witter Variable Investment Series
Money Market Portfolio
Quality Income Plus Portfolio
High Yield Portfolio
Utilities Portfolio
Dividend Growth Portfolio
Capital Growth Portfolio
European Growth Portfolio
Equity Portfolio
Managed Assets Portfolio
45. Dean Witter Retirement Series
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
CLOSED-END FUNDS
46. High Income Advantage Trust
47. High Income Advantage Trust II
48. High Income Advantage Trust III
49. InterCapital Income Securities Inc.
50. Dean Witter Government Income Trust
51. InterCapital Insured Municipal Bond Trust
52. InterCapital Insured Municipal Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. Municipal Income Trust
56. Municipal Income Trust II
57. Municipal Income Trust III
58. Municipal Income Opportunities Trust
59. Municipal Income Opportunities Trust II
60. Municipal Income Opportunities Trust III
61. Municipal Premium Income Trust
62. Prime Income Trust
63. InterCapital Insured Municipal Income Trust
64. InterCapital California Insured Municipal Income Trust
65. InterCapital Quality Municipal Securities
66. InterCapital California Quality Municipal Securities
67. InterCapital New York Quality Municipal Securities
68. InterCapital California Insured Municipal Securities
69. InterCapital Insured Municipal Securities
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of CHARLES A. FIUMEFREDDO and
EDWARD R. TELLING, whose signatures appear below, constitutes and appoints
Sheldon Curtis, Marilyn K. Cranney and Barry Fink, or any of them, his true and
lawful attorneys-in-fact and agent, with full power of substitution among
himself and each of the persons appointed herein, for him and in his name, place
and stead, in any and all capacities, to sign any amendments to any registration
statement of ANY OF THE DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED
HERETO, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Dated: May 10, 1994
/S/Charles A. Fiumefreddo /S/Edward R. Telling
- --------------------------- --------------------
Charles A. Fiumefreddo Edward R. Telling
<PAGE>
DEAN WITTER FUNDS
MONEY MARKET
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Active Assets Tax-Free Trust
4. Active Assets California Tax-Free Trust
5. Active Assets Government Securities Trust
6. Dean Witter Tax-Free Daily Income Trust
7. Dean Witter U.S. Government Money Market Trust
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Dividend Growth Securities Inc.
12. Dean Witter Capital Growth Securities
13. Dean Witter Natural Resource Development Securities Inc.
14. Dean Witter Precious Metals & Minerals Trust
15. Dean Witter Developing Growth Securities Trust
16. Dean Witter World Wide Investment Trust
17. Dean Witter Value-Added Market Series
18. Dean Witter European Growth Fund Inc.
19. Dean Witter Pacific Growth Fund Inc.
20. Dean Witter Equity Income Trust
21. Dean Witter Utilities Fund
22. Dean Witter Health Sciences Trust
23. Dean Witter Global Dividend Growth Securities
ASSET ALLOCATION FUNDS
24. Dean Witter Managed Assets Trust
25. Dean Witter Strategist Fund
FIXED-INCOME FUNDS
26. Dean Witter High Yield Securities Inc.
27. Dean Witter Convertible Securities Trust
28. Dean Witter Intermediate Income Securities
29. Dean Witter World Wide Income Trust
30. Dean Witter Global Short-Term Income Fund Inc.
31. Dean Witter Diversified Income Trust
32. Dean Witter Premier Income Trust
33. Dean Witter U.S. Government Securities Trust
34. Dean Witter Federal Securities Trust
<PAGE>
35. Dean Witter Short-Term U.S. Treasury Trust
36. Dean Witter Tax-Exempt Securities Trust
37. Dean Witter California Tax-Free Income Fund
38. Dean Witter New York Tax-Free Income Fund
39. Dean Witter Multi-State Municipal Series Trust
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Limited Term Municipal Trust
SPECIAL PURPOSE FUNDS
42. Dean Witter Variable Investment Series
Money Market Portfolio
Quality Income Plus Portfolio
High Yield Portfolio
Utilities Portfolio
Dividend Growth Portfolio
Capital Growth Portfolio
European Growth Portfolio
Equity Portfolio
Managed Assets Portfolio
43. Dean Witter Retirement Series
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
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 Quality Municipal Investment Trust
52. InterCapital Quality Municipal Income Trust
53. Municipal Income Trust
54. Municipal Income Trust II
55. Municipal Income Trust III
56. Municipal Income Opportunities Trust
57. Municipal Income Opportunities Trust II
58. Municipal Income Opportunities Trust III
59. Municipal Premium Income Trust
60. Prime Income Trust
61. InterCapital Insured Municipal Income Trust
62. InterCapital California Insured Municipal Income Trust
63. InterCapital Quality Municipal Securities
64. InterCapital California Quality Municipal Securities
65. InterCapital New York Quality Municipal Securities
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that PHILIP J. PURCELL, whose signature
appears below, constitutes and appoints Sheldon Curtis, Marilyn K. Cranney and
Barry Fink, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of ANY OF THE DEAN WITTER
FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: April 8, 1994
/S/ Philip J. Purcell
- -----------------------
Philip J. Purcell
<PAGE>
DEAN WITTER FUNDS
MONEY MARKET
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Active Assets Tax-Free Trust
4. Active Assets California Tax-Free Trust
5. Active Assets Government Securities Trust
6. Dean Witter Tax-Free Daily Income Trust
7. Dean Witter U.S. Government Money Market Trust
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Dividend Growth Securities Inc.
12. Dean Witter Capital Growth Securities
13. Dean Witter Natural Resource Development Securities Inc.
14. Dean Witter Precious Metals & Minerals Trust
15. Dean Witter Developing Growth Securities Trust
16. Dean Witter World Wide Investment Trust
17. Dean Witter Value-Added Market Series
18. Dean Witter European Growth Fund Inc.
19. Dean Witter Pacific Growth Fund Inc.
20. Dean Witter Equity Income Trust
21. Dean Witter Utilities Fund
22. Dean Witter Health Sciences Trust
23. Dean Witter Global Dividend Growth Securities
24. Dean Witter Global Utilities Fund
ASSET ALLOCATION FUNDS
25. Dean Witter Managed Assets Trust
26. Dean Witter Strategist Fund
FIXED-INCOME FUNDS
27. Dean Witter High Yield Securities Inc.
28. Dean Witter Convertible Securities Trust
29. Dean Witter Intermediate Income Securities
30. Dean Witter World Wide Income Trust
31. Dean Witter Global Short-Term Income Fund Inc.
32. Dean Witter Diversified Income Trust
33. Dean Witter Premier Income Trust
34. Dean Witter U.S. Government Securities Trust
35. Dean Witter Federal Securities Trust
<PAGE>
36. Dean Witter Short-Term U.S. Treasury Trust
37. Dean Witter Tax-Exempt Securities Trust
38. Dean Witter California Tax-Free Income Fund
39. Dean Witter New York Tax-Free Income Fund
40. Dean Witter Multi-State Municipal Series Trust
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
41. Dean Witter Select Municipal Reinvestment Fund
42. Dean Witter Limited Term Municipal Trust
43. Dean Witter Short-Term Bond Fund
SPECIAL PURPOSE FUNDS
44. Dean Witter Variable Investment Series
Money Market Portfolio
Quality Income Plus Portfolio
High Yield Portfolio
Utilities Portfolio
Dividend Growth Portfolio
Capital Growth Portfolio
European Growth Portfolio
Equity Portfolio
Managed Assets Portfolio
45. Dean Witter Retirement Series
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
CLOSED-END FUNDS
46. High Income Advantage Trust
47. High Income Advantage Trust II
48. High Income Advantage Trust III
49. InterCapital Income Securities Inc.
50. Dean Witter Government Income Trust
51. InterCapital Insured Municipal Bond Trust
52. InterCapital Insured Municipal Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. Municipal Income Trust
56. Municipal Income Trust II
57. Municipal Income Trust III
58. Municipal Income Opportunities Trust
59. Municipal Income Opportunities Trust II
60. Municipal Income Opportunities Trust III
61. Municipal Premium Income Trust
62. Prime Income Trust
63. InterCapital Insured Municipal Income Trust
64. InterCapital California Insured Municipal Income Trust
65. InterCapital Quality Municipal Securities
66. InterCapital California Quality Municipal Securities
67. InterCapital New York Quality Municipal Securities
68. InterCapital California Insured Municipal Securities
69. InterCapital Insured Municipal Securities
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that JOHN L. SCHROEDER, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: April 13, 1994
/S/ John L. Schroeder
- ----------------------
John L. Schroeder
<PAGE>
DEAN WITTER FUNDS
MONEY MARKET
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Active Assets Tax-Free Trust
4. Active Assets California Tax-Free Trust
5. Active Assets Government Securities Trust
6. Dean Witter Tax-Free Daily Income Trust
7. Dean Witter U.S. Government Money Market Trust
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Dividend Growth Securities Inc.
12. Dean Witter Capital Growth Securities
13. Dean Witter Natural Resource Development Securities Inc.
14. Dean Witter Precious Metals & Minerals Trust
15. Dean Witter Developing Growth Securities Trust
16. Dean Witter World Wide Investment Trust
17. Dean Witter Value-Added Market Series
18. Dean Witter European Growth Fund Inc.
19. Dean Witter Pacific Growth Fund Inc.
20. Dean Witter Equity Income Trust
21. Dean Witter Utilities Fund
22. Dean Witter Health Sciences Trust
23. Dean Witter Global Dividend Growth Securities
24. Dean Witter Global Utilities Fund
ASSET ALLOCATION FUNDS
25. Dean Witter Managed Assets Trust
26. Dean Witter Strategist Fund
FIXED-INCOME FUNDS
27. Dean Witter High Yield Securities Inc.
28. Dean Witter Convertible Securities Trust
29. Dean Witter Intermediate Income Securities
30. Dean Witter World Wide Income Trust
31. Dean Witter Global Short-Term Income Fund Inc.
32. Dean Witter Diversified Income Trust
33. Dean Witter Premier Income Trust
34. Dean Witter U.S. Government Securities Trust
35. Dean Witter Federal Securities Trust
<PAGE>
36. Dean Witter Short-Term U.S. Treasury Trust
37. Dean Witter Tax-Exempt Securities Trust
38. Dean Witter California Tax-Free Income Fund
39. Dean Witter New York Tax-Free Income Fund
40. Dean Witter Multi-State Municipal Series Trust
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
41. Dean Witter Select Municipal Reinvestment Fund
42. Dean Witter Limited Term Municipal Trust
43. Dean Witter Short-Term Bond Fund
SPECIAL PURPOSE FUNDS
44. Dean Witter Variable Investment Series
Money Market Portfolio
Quality Income Plus Portfolio
High Yield Portfolio
Utilities Portfolio
Dividend Growth Portfolio
Capital Growth Portfolio
European Growth Portfolio
Equity Portfolio
Managed Assets Portfolio
45. Dean Witter Retirement Series
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
<PAGE>
CLOSED-END FUNDS
46. High Income Advantage Trust
47. High Income Advantage Trust II
48. High Income Advantage Trust III
49. InterCapital Income Securities Inc.
50. Dean Witter Government Income Trust
51. InterCapital Insured Municipal Bond Trust
52. InterCapital Insured Municipal Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. Municipal Income Trust
56. Municipal Income Trust II
57. Municipal Income Trust III
58. Municipal Income Opportunities Trust
59. Municipal Income Opportunities Trust II
60. Municipal Income Opportunities Trust III
61. Municipal Premium Income Trust
62. Prime Income Trust
63. InterCapital Insured Municipal Income Trust
64. InterCapital California Insured Municipal Income Trust
65. InterCapital Quality Municipal Securities
66. InterCapital California Quality Municipal Securities
67. InterCapital New York Quality Municipal Securities
68. InterCapital California Insured Municipal Securities
69. InterCapital Insured Municipal Securities
