<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1996
REGISTRATION NOS.: 2-82510
811-3692
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 19 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 20 /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 May 1, 1996 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, 1995 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FEBRUARY 29, 1996.
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 MAY 1, 1996
DEAN WITTER VARIABLE INVESTMENT SERIES
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550 OR (800) 869-NEWS
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 STRATEGIST 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 and certain flexible premium variable life
insurance 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, to (3) Glenbrook Life and Annuity
Company ("Glenbrook") to fund the benefits under certain flexible premium
deferred variable annuity contracts and certain flexible premium variable life
insurance contracts it issues, and to (4) Paragon Life Insurance Company
("Paragon") to fund the benefits under certain flexible premium variable life
insurance 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, Allstate New York and Glenbrook are sometimes referred to
as the "Variable Annuity Contracts," the variable life insurance contracts
issued by Northbrook, Glenbrook and Paragon are sometimes referred to as the
"Variable Life Contracts," and the Variable Annuity Contracts and the Variable
Life Contracts are sometimes referred to as the "Contracts." Northbrook,
Allstate New York, Glenbrook 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 May 1, 1996, 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, Allstate Life
Insurance Company of New York or Glenbrook Life and Annuity Company or by a
current Prospectus for the Variable Life Contracts issued by Northbrook Life
Insurance Company, Glenbrook Life and Annuity Company or 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 Strategist Portfolio/27
General Portfolio Techniques/28
Investment Restrictions/40
Determination of Net Asset Value/42
Purchase of Fund Shares/43
Redemption of Fund Shares/44
Dividends, Distributions and Taxes/45
Performance Information/46
Additional Information/47
Appendix -- Ratings of Investments/49
2
<PAGE>
PROSPECTUS SUMMARY
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<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 Strategist 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 47).
------------------------------------------------------------------------------------------------
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 PORTFOLIO seeks long-term capital
growth by investing primarily in common stocks. THE GLOBAL DIVIDEND GROWTH
PORTFOLIO seeks to provide reasonable current income and long-term growth of
income and capital by investing primarily in common stock of companies, issued
by issuers worldwide, with a record of paying dividends and the potential for
increasing dividends. THE EUROPEAN GROWTH PORTFOLIO seeks to maximize the
capital appreciation of its investments by investing primarily in securities
issued by issuers located in Europe. THE PACIFIC GROWTH PORTFOLIO seeks to
maximize the capital appreciation of its investments by investing primarily in
securities issued by issuers located in Asia, Australia and New Zealand. THE
EQUITY PORTFOLIO seeks, as a primary objective, capital growth through
investments in common stock and, as a secondary objective, income but only when
consistent with its primary objective. THE STRATEGIST PORTFOLIO seeks a high
total investment return through a fully
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
managed investment policy utilizing equity securities, investment grade
fixed-income securities and money market securities, and the writing of covered
options on such securities and the collateralized sale of stock index options.
The Quality Income Plus Portfolio, the Utilities Portfolio, the Capital Growth
Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio,
the Pacific Growth Portfolio and the Strategist 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
Strategist 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
Strategist 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 16).
Contract Owners are also directed to the discussion of options and futures
transactions (page 35), repurchase agreements (page 32), 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-six investment companies and other portfolios with assets
of approximately $83.4 billion at March 31, 1996. 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 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 0.50% of the daily net assets of the Equity Portfolio up to $1
billion and 0.475% of the daily net assets of that Portfolio exceeding $1
billion; at an annual rate of 0.50% of the daily net assets of each of the Money
Market Portfolio, the High Yield Portfolio and the Strategist Portfolio; at an
annual rate of 0.625% of the daily net assets of the Dividend Growth Portfolio
up to $500 million, 0.50% of the next $500 million, and 0.475% of the daily net
assets of that Portfolio exceeding $1 billion; 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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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 $12.9
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).
------------------------------------------------------------------------------------------------
Shareholders Currently, shares of the Fund are sold only to (1) Northbrook Life Insurance
Company ("Northbrook") for allocation to certain separate accounts established
to fund the benefits under certain flexible premium deferred variable annuity
contracts and certain flexible premium variable life insurance contracts issued
by Northbrook, to (2) Allstate Life Insurance Company of New York ("Allstate New
York") for allocation to certain separate accounts established to fund the
benefits under certain flexible premium deferred variable annuity contracts
issued by Allstate New York, to (3) Glenbrook Life and Annuity Company
("Glenbrook") for allocation to certain separate accounts established to fund
the benefits under certain flexible premium deferred variable annuity contracts
and certain flexible premium variable life insurance contracts issued by
Glenbrook, and to (4) Paragon Life Insurance Company ("Paragon") for allocation
to a separate account established to fund the benefits under certain flexible
premium variable life insurance 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
separate accounts are sometimes referred to individually as an "Account" and
collectively as the "Accounts." The variable annuity contracts issued by
Northbrook, Allstate New York and Glenbrook are sometimes referred to as the
"Variable Annuity Contracts," the variable life insurance contracts issued by
Northbrook, Glenbrook and Paragon are sometimes referred to as the "Variable
Life Contracts," and the Variable Annuity Contracts and the Variable Life
Contracts are sometimes referred to as the "Contracts." Northbrook, Allstate New
York, Glenbrook and Paragon are sometimes referred to as the "Companies."
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 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 43).
------------------------------------------------------------------------------------------------
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 43 and 44).
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION, AND THE
ACCOMPANYING PROSPECTUS FOR 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 Strategist 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>
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------- --------- ---------- -------------- ---------- ------------- ---------------- -------------
MONEY MARKET
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)
1995 1.00 0.055 -- 0.055 (0.055) -- (0.055)
QUALITY INCOME PLUS
1987(a) 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)
1995 9.45 0.72 1.50 2.22 (0.71) -- (0.71)
HIGH YIELD
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)
1995 6.16 0.80 0.08 0.88 (0.78) -- (0.78)
UTILITIES
1990(b) 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)
1995 11.92 0.53 2.81 3.34 (0.58) -- (0.58)
</TABLE>
- --------
Commencement of operations:
<TABLE>
<C> <S>
(a) March 1, 1987.
(b) 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>
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 NET ASSETS --------------------------------
VALUE TOTAL AT END OF NET
END INVESTMENT PERIOD INVESTMENT PORTFOLIO
OF PERIOD RETURN (000'S) EXPENSES INCOME TURNOVER RATE
----------- ------------- ----------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 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
1.00 5.66 249,787 0.53 5.52 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
10.96 24.30 520,579 0.54 7.07 162
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
6.26 14.93 154,310 0.54 12.67 58
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
14.68 28.65 479,070 0.68 4.00 13
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
DIVIDEND GROWTH
1990(b) $ 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)
1995 11.99 0.38 3.89 4.27 (0.41) (0.26) (0.67)
CAPITAL GROWTH
1991(c) 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)
1995 11.52 0.10 3.68 3.78 (0.08) -- (0.08)
GLOBAL DIVIDEND GROWTH
1994(d) 10.00 0.23 (0.20) 0.03 (0.21) -- (0.21)
1995 9.82 0.24 1.90 2.14 (0.26) (0.01) (0.27)
EUROPEAN GROWTH
1991(c) 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)
1995 14.56 0.20 3.50 3.70 (0.19)+ (0.54) (0.73)
PACIFIC GROWTH
1994(d) 10.00 0.07 (0.74) (0.67) -- (0.07) (0.07)
1995 9.26 0.12 0.41 0.53 (0.09) -- (0.09)
EQUITY
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)
1995 19.25 0.22 7.92 8.14 (0.25) -- (0.25)
STRATEGIST
1987(a) 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)
1995 12.45 0.62 0.49 1.11 (0.67) (0.44) (1.11)
</TABLE>
- ------------
Commencement of operations:
(a) March 1, 1987.
(b) March 1, 1990.
(c) March 1, 1991.
(d) February 23, 1994.
+ Includes distributions in excess of net investment income of $0.02.
(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 ratios 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 periods February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through June 30, 1994 for
Pacific Growth, the ratios of expenses to average net assets would have
been 0.97% for Global Growth and 1.40% for Pacific Growth.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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
- --------- ----------- -------------- ---------- ---------- --------
$ 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
15.59 36.38 865,417 0.61 2.75 24
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
15.22 32.92 66,995 0.74 0.70 34
9.82 0.27(1) 138,486 0.87(2)(6) 2.62(2) 20(1)
11.69 22.14 205,739 0.88 2.23 55
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
17.53 25.89 188,119 1.17 1.25 69
9.26 (6.73)(1) 75,425 1.00(2)(6) 0.56(2) 22(1)
9.70 5.74 98,330 1.44 1.23 53
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
27.14 42.53 359,779 0.54 0.97 269
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
12.45 9.48 388,579 0.52 5.03 329
</TABLE>
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-six investment companies, thirty of which
are listed on the New York Stock Exchange, with combined total assets of
approximately $80.7 billion at March 31, 1996. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.7 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 $12.9
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 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 0.50% to the
daily net assets of the Equity Portfolio up to $1 billion and 0.475% to the
daily net assets of that Portfolio exceeding $1 billion, by applying the annual
rate of 0.50% to the net assets of each of the Money Market Portfolio, the High
Yield Portfolio and the Strategist Portfolio, by applying the annual rate of
0.625% to the net assets of the Dividend Growth Portfolio up to $500 million,
the annual rate of 0.50% to the next $500 million, and the annual rate of
10
<PAGE>
0.475% to the daily net assets of that Portfolio exceeding $1 billion, 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 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, 1995, 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 Strategist Portfolio, 0.59% 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, 0.75% of the average daily net assets of the Global Dividend Growth
Portfolio, and 1.0% of the average daily net assets of each of the European
Growth Portfolio and the Pacific Growth Portfolio. The total expenses of the
Money Market Portfolio amounted to 0.53% of its average daily net assets, the
total expenses of the Quality Income Plus Portfolio amounted to 0.54% of the
average daily net assets, the total expenses of the High Yield Portfolio
amounted to 0.54% of its average daily net assets, the total expenses of the
Equity Portfolio amounted to 0.54% of its average daily net assets, the total
expenses of the Strategist Portfolio amounted to 0.52% of its average daily net
assets, the total expenses of the Dividend Growth Portfolio amounted to 0.61% 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 0.74% of its average daily net assets, the
total expenses of the Global Dividend Growth Portfolio amounted to 0.88% of its
average daily net assets, the total expenses of the European Growth Portfolio
amounted to 1.17% of its average daily net assets, and the total expenses of the
Pacific Growth Portfolio amounted to 1.44% of its average daily net assets.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
The investment objectives of the Money Market Portfolio are high current
income, preservation of capital and liquidity. The Money Market Portfolio seeks
to achieve those objectives by investing in the following money market
instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal Land
Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of
11
<PAGE>
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
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
12
<PAGE>
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. See "General Portfolio
Techniques" below for a discussion of convertible securities. Securities which
may be purchased include zero coupon securities (see "General Portfolio
Techniques" below).
Generally, as prevailing interest rates rise, the value of the U.S.
Government and other debt securities held by the Quality Income Plus Portfolio,
and concomitantly, the net asset value of the Portfolio's shares, will fall.
Such securities with longer maturities generally tend to produce higher yields
and are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Portfolio is not limited
as to the maturities of the U.S. Government and other debt securities in which
it may invest.
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
13
<PAGE>
(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 (see "General
Portfolio Techniques" below and in the Statement of Additional Information).
Moreover, and notwithstanding any of the above, the Quality Income Plus
Portfolio may invest in money market instruments without limitation when market
conditions dictate a "defensive" investment strategy.
14
<PAGE>
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. See "General Portfolio Techniques" below for a
discussion of convertible securities. A description of corporate bond ratings is
contained in the Appendix.
Non-rated securities will also be considered for investment by the High
Yield Portfolio when the Investment Manager believes that the financial
condition of the issuers of such securities, or the protection afforded by the
terms of the securities themselves, makes them appropriate investments for the
High Yield Portfolio.
15
<PAGE>
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, European Depository
Receipts 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
16
<PAGE>
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, 1995, the monthly dollar weighted
average ratings of the debt obligations held by the High Yield
17
<PAGE>
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..................................... 7.3
AA/Aa....................................... --
A/A......................................... 2.3
BBB/Baa..................................... --
BB/Ba....................................... 5.2
B/B......................................... 65.1
CCC/Caa..................................... 11.9
CC/Ca....................................... 0.1
C/C......................................... --
D........................................... --
Unrated..................................... 8.1
-----
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). See "General Portfolio Techniques" below for a discussion of
convertible securities.
Criteria to be utilized by the Investment Manager in the selection of equity
securities include the following screens: earnings and dividend growth;
18
<PAGE>
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), 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, European Depository
Receipts or other similar securities convertible into securities of foreign
issuers), invest in zero coupon securities, purchase securities on a when-issued
or delayed delivery basis or a "when, as and if issued" basis, and purchase or
sell securities on a forward commitment basis, in each case in accordance with
the description of those investments and techniques (and subject to the risks)
set forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
PUBLIC UTILITIES INDUSTRY. The public utilities industry as a whole has
certain characteristics and risks particular to that industry. Unlike industrial
companies, the rates which utility companies may charge their customers
generally are subject to review and limitation by governmental regulatory
commissions. Although rate changes of a utility usually fluctuate in approximate
correlation with financing costs, due to political and regulatory factors rate
changes ordinarily occur only following a delay after the changes in financing
costs. This factor will tend to favorably affect a utility company's earnings
and dividends in times of decreasing costs, but conversely will tend to
adversely affect earnings and dividends when costs are rising. In addition, the
19
<PAGE>
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, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions.
20
<PAGE>
The Dividend Growth Portfolio may enter into repurchase agreements, invest
in American Depository Receipts, invest in zero coupon securities, 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
Strategist 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), and
corporate debt securities which are rated at the time of purchase Baa or better
by Moody's Investors Service, Inc. or BBB or better by Standard & Poor's
Corporation or which, if unrated, are deemed to be of comparable quality by the
Fund's Trustees (see "General Portfolio Techniques" below for a discussion of
the characteristics and risks of investments in fixed-income securities rated
Baa or BBB), convertible securities, money market instruments, repurchase
agreements, options and futures (see "General Portfolio Techniques" below and in
the Statement of Additional Information). The Capital Growth Portfolio may also
purchase unit offerings (where corporate debt securities are offered as a unit
with convertible securities, preferred or common stocks, warrants, or any
combination thereof) (see the discussion of warrants under "General Portfolio
Techniques" below). U.S. Government securities are described above
21
<PAGE>
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, European Depository
Receipts or other similar securities convertible into securities of foreign
issuers), invest in zero coupon securities, 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) 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),
fixed-income securities issued by foreign governments and international
organizations, investment grade corporate debt securities and/or money market
instruments when, in the opinion of the Investment Manager, the projected total
return on such securities is equal to or greater than the expected total return
on equity securities or when such holdings might be expected to reduce the
volatility of the portfolio (for purposes of this provision, the term "total
return" means the difference between the cost of a security and the aggregate of
its market value and dividends received) and forward foreign currency exchange
contracts, futures contracts and options (see "General Portfolio Techniques"
below and in the Statement of Additional Information); or (b) money market
instruments under any one or more of the following circumstances: (i) pending
investment of proceeds of sale of the Portfolio's shares or of portfolio
securities; (ii) pending settlement of purchases of portfolio securities; or
(iii) to maintain liquidity for the purpose of meeting anticipated redemptions.
The term
22
<PAGE>
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, European Depository
Receipts or other similar securities convertible into securities of foreign
issuers, invest in zero coupon securities, purchase equity and fixed-income
securities which are issued in private placements and invest up to 10% of its
total assets in securities issued by other investment companies (see the
discussion of these securities under "General Portfolio Techniques" below).
Notwithstanding the Global Dividend Growth Portfolio's investment objective
of seeking total return, the Portfolio may, for "defensive" purposes, without
limitation, invest in: obligations of the United States Government, its agencies
or instrumentalities; cash and cash equivalents in major currencies; repurchase
agreements; and money market instruments which would be eligible investments for
the Fund's Money Market Portfolio (as set forth above under "The Money Market
Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities).
The Global Dividend Growth Portfolio may enter into repurchase agreements,
purchase securities on a when-issued or delayed delivery basis or a "when, as
and if issued" basis, and purchase or sell securities on a forward commitment
basis, in each case in accordance with the description of those investments and
techniques (and subject to the risks) set forth under "General Portfolio
Techniques" below and in the Statement of Additional Information.
THE EUROPEAN GROWTH PORTFOLIO
The investment objective of the European Growth Portfolio is to maximize the
capital appreciation of its investments. There is no assurance that the
objective will be achieved. The investment objective of the European Growth
Portfolio may not be changed without the approval of the shareholders of the
European Growth Portfolio. The following policies may be changed by the Board of
Trustees without shareholder approval:
The European Growth Portfolio seeks to achieve its investment objective by
investing at least 65% of its total assets in securities issued by issuers
located in countries located in Europe. Such issuers will include companies (i)
which are organized under the laws of a European country and have a principal
office in a European country, or (ii) which derive 50% or more of their total
revenues from business in Europe, or (iii) the equity securities of which are
traded principally on a stock exchange in Europe.
The principal countries in which such issuers will be located are France,
the United Kingdom, Germany, the Netherlands, Spain, Sweden, Switzerland and
Italy. The European Growth Portfolio may invest up to 35% of its total assets at
any time in the securities (including up to 25% in government securities) of
issuers located in each of the following countries: France, the United Kingdom
and Germany.
The securities invested in will primarily consist of equity securities
issued by companies based in European countries, but may also include fixed-
income securities issued or guaranteed by European governments, when it is
deemed that such investments are consistent with the European Growth Portfolio's
investment objective. For
exam-
23
<PAGE>
ple, 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
(see "General Portfolio Techniques" below). 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, including the United States, 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, European Depository
Receipts or other similar securities convertible into securities of foreign
issuers (see the discussion of these securities under "General Portfolio
Techniques" below).
There may be periods during which market conditions warrant reduction of
some or all of the European Growth Portfolio's securities holdings. During such
periods, the Portfolio may adopt a temporary "defensive" posture in which
greater than 35% of its total assets are invested in cash or money market
instruments which would be eligible investments for the Fund's Money Market
Portfolio (as set forth above under "The Money Market Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities).
The European Growth Portfolio may enter into repurchase agreements, invest
in zero coupon securities, 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
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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, 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 (see "General Portfolio Techniques" below). The
Pacific Growth Portfolio may also purchase equity and fixed-income securities
which are issued in private placements and warrants or other securities
conveying the right to purchase common stock, and may invest up to 10% of its
total assets in securities issued by other investment companies (see the
discussion of these securities under "General Portfolio Techniques" below).
The decisions of the Investment Manager and Sub-Adviser to invest in
securities for the Pacific Growth Portfolio will be based on a general strategy
of selecting those issuers which they believe have shown a high rate of growth
in earnings. Moreover, securities will primarily be selected which possess, on
both an absolute basis and as compared with other securities in their region and
around the world, attractive price/earnings, price/cash flow and price/ revenue
ratios.
The remainder of the assets of the Pacific Growth Portfolio, equalling, at
times, up to 35% of
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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,
including the United States, 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, European Depository
Receipts 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, invest in
zero coupon securities, purchase securities on a when-issued or delayed delivery
basis or a "when, as and if issued" basis, and purchase or sell securities on a
forward commitment basis, in each case in accordance with the description of
those investments and techniques (and subject to the risks) set forth under
"General Portfolio Techniques" below and in the Statement of Additional
Information.
THE EQUITY PORTFOLIO
The portfolio of the Equity Portfolio will be actively managed by the
Investment Manager with a view to achieving the Equity Portfolio's primary
investment objective of growth of capital through investments in common stock of
companies believed by the Investment Manager to have potential for superior
growth. As a secondary objective, the Equity Portfolio will seek income, but
only when consistent with its primary objective. There can be no assurance that
the objectives will be achieved.
The investment objectives of the Equity Portfolio may not be changed without
the approval of the shareholders of the Equity Portfolio. The following policies
may be changed by the Trustees of the Fund without shareholder approval:
Consistent with its primary investment objective, the Equity Portfolio will
invest principally in
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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 convertible securities and 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, invest in zero
coupon securities, 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 STRATEGIST PORTFOLIO
The investment objective of the Strategist 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 Strategist Portfolio. In seeking to achieve
its objective, the Strategist Portfolio actively allocates assets among the
major asset categories of equity securities, fixed-income securities and money
market instruments. Total investment return consists of current income
(including dividends, interest and, in the case of discounted instruments,
discount accretion) and capital appreciation. There can be no assurance that the
investment objective of the Strategist Portfolio will be achieved. The following
policies may be changed by the Trustees of the Fund without shareholder
approval:
The achievement of the Strategist Portfolio's investment objective depends
on the ability of the
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Investment Manager to assess the effect of economic and market trends on
different sectors of the market. The Investment Manager believes that superior
investment returns at a lower risk are achievable by actively allocating
resources to the equity, debt and money market sectors of the market as opposed
to relying solely on just one market. At times, the equity market may hold a
higher potential return than the debt market and would warrant a higher asset
allocation. The reverse would be true when the bond market potential return is
higher. Short duration bonds and money market instruments can be used to soften
market declines when both bonds and equities are fully priced. Conserving
capital during declining markets can contribute to maximizing total return over
a longer period of time. In addition, the securities of companies within various
economic sectors may at times offer higher returns than other sectors and can
thus contribute to superior returns. Finally, the Investment Manager believes
that superior stock selection can also contribute to superior total return.
Within the equity sector, the Investment Manager actively allocates funds to
those economic sectors expected to benefit from major trends and to individual
stocks which are deemed to have superior investment potential. The Strategist
Portfolio may purchase equity securities (including warrants, convertible debt
obligations and convertible preferred stock) sold on the New York, American and
other stock exchanges and in the over-the-counter market. See the discussion of
convertible securities and warrants under "General Portfolio Techniques" below.
Within the fixed-income sector of the market, the Investment Manager seeks
to maximize the return on its investments by adjusting maturities and coupon
rates as well as by exploiting yield differentials among different types of
investment grade bonds. Fixed-income securities in which the Strategist
Portfolio may invest are short-term to intermediate (one to five year
maturities) and intermediate to long-term (greater than five year maturities)
debt securities and preferred stocks, including U.S. Government securities
(securities issued or guaranteed as to principal and interest by the United
States or its agencies and instrumentalities) and corporate securities which are
rated at the time of purchase Baa or better by Moody's Investor 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). Fixed-income securities which may be
purchased include zero coupon securities. See the discussion of the
characteristics and risks of investments in fixed-income securities rated Baa or
BBB and zero coupon securities under "General Portfolio Techniques" below.
Within the money market sector of the market, the Investment Manager seeks
to maximize returns by exploiting spreads among short-term instruments. The
Strategist 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 Strategist Portfolio may enter into repurchase agreements, invest in
foreign securities (including American Depository Receipts, European Depository
Receipts or other similar securities convertible into securities of foreign
issuers), 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
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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 ("ADRs") (described below), on which there is no such limit;
investments in certain Canadian issuers may be speculative due to certain
political risks and may be subject to substantial price fluctuations). The
Capital Growth Portfolio's investments in unlisted foreign securities are
subject to the overall restrictions applicable to investments in illiquid
securities (see "Investment Restrictions"). Each of the High Yield Portfolio and
the Strategist 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
20% of the value of its total assets, at the time of purchase, in securities
issued by foreign issuers, with a maximum of 10% of the value of its total
assets, at the time of purchase, invested in such securities that are not ADRs.
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 Strategist 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
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<PAGE>
and the European Growth Portfolio, in particular. Continued progress in the
evolution of, for example, a united European common market may be slowed by
unanticipated political or social events and may, therefore, adversely affect
the value of certain of the securities held by a Portfolio. Foreign companies
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about such companies. Moreover,
foreign companies are not subject to uniform accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Portfolio trades effected in such markets. Inability to dispose
of portfolio securities due to settlement delays could result in losses to a
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments. To the extent a Portfolio purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions, and future international political and 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
30
<PAGE>
than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected when it is
determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when a Portfolio anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the currency
in which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency.
Lastly, the Portfolios are permitted to enter into forward contracts with
respect to currencies in which certain of their portfolio securities are
denominated and on which options have been written (see "Options and Futures
Transactions" below and in the Statement of Additional Information).
In all of the above circumstances, if the currency in which portfolio
securities (or anticipated portfolio securities) are denominated rises in value
with respect to the currency which is being purchased (or sold), then the
Portfolio will have realized fewer gains than had the Portfolio not entered into
the forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Global
Dividend Growth Portfolio, the European Growth Portfolio 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 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 Strategist 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
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investment company, such as the payment of a management fee (which may result in
the payment of an additional advisory fee). Furthermore, it should be noted that
foreign investment companies are not subject to the U.S. securities laws and may
be subject to fewer or less stringent regulations than U.S. investment
companies.
REPURCHASE AGREEMENTS. Each Portfolio of the Fund may enter into repurchase
agreements, which may be viewed as a type of secured lending by the Portfolio,
and which typically involve the acquisition by the Portfolio of debt securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Portfolio will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
Portfolio will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Portfolio to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
specifying the required value of the collateral underlying the agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, each Portfolio of the Fund may
purchase securities on a when-issued or delayed delivery basis or may purchase
or sell securities on a forward commitment basis. When 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.
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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 Strategist Portfolio may invest a
portion of their assets in fixed-income securities rated at the time of purchase
Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P"). Investments in fixed-income securities
rated either Baa by Moody's or BBB by S&P (the lowest credit ratings designated
"investment grade") may have speculative characteristics and, therefore, changes
in economic conditions or other circumstances are more likely to weaken their
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. If a bond held by a
Portfolio is downgraded by a rating agency to a rating of below Baa or BBB, the
Portfolio will retain such security in its portfolio until the Investment
Manager determines that it is practicable to sell the security without undue
market or tax consequences to the Portfolio. The risks of holding lower-rated
securities are described above under "The High Yield Portfolio."
PRIVATE PLACEMENTS. As a fundamental policy, which may be changed only by
the shareholders of the affected Portfolios, each of the Quality Income Plus
Portfolio, the Dividend Growth Portfolio, the Equity Portfolio and the
Strategist 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 fixed-income purchased by each
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.
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A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent a Portfolio invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal tax
law requires that a holder (such as a Portfolio) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Portfolio receives no interest payments in cash on the
security during the year.
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 Strategist 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.
CONVERTIBLE SECURITIES. Each Portfolio (other than the Money Market
Portfolio) may acquire, through purchase or a distribution by the issuer of a
security held in its portfolio, a fixed-income security which is convertible
into common stock of the issuer. Convertible securities rank senior to common
stocks in a corporation's capital structure and, therefore, entail less risk
than the corporation's common stock. The value of a convertible security is a
function of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
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, 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.
A portion of the convertible securities in which each of these Portfolios
may invest are not rated. With the exception of securities purchased by the
Quality Income Plus Portfolio (which may not invest in securities rated lower
than A by Moody's or S&P at the time of purchase), when such securities are
rated, such ratings will generally be below investment grade. Securities below
investment grade are the equivalent of high yield, high risk bonds, commonly
known as "junk bonds." However, with the exception of the High Yield Portfolio
(which invests primarily in lower-rated securities), no Portfolio will invest in
convertible securities that are in default in payment of principal or interest
and each Portfolio has no current intention of investing in excess of 10% of its
net assets in unrated or lower-rated convertible securities. The risks of
holding lower-rated securities are described above under "The High Yield
Portfolio."
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OPTIONS AND FUTURES TRANSACTIONS
As noted above, each of the Quality Income Plus Portfolio, the Utilities
Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio,
the European Growth Portfolio, the Pacific Growth Portfolio and the Strategist
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 Strategist 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
Strategist 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 writing and/or
purchasing put and call options on currencies and engaging in transactions
involving currencies futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on Exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Portfolio the right to buy from the OCC (in the
U.S.) or other clearing corporation or exchange the underlying security covered
by the option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration of the option.
The writer (seller) of the option would then have the obligation to sell to the
OCC (in the U.S.) or other clearing corporation or exchange the underlying
security at that exercise price prior to the expiration date of the option,
regardless of its then current market price. Ownership of a listed put option
would give the Portfolio the right to sell the underlying security to the OCC
(in the U.S.) or other clearing corporation or exchange at the stated exercise
price. Upon notice of exercise of the put option, the writer of the put would
have the obligation to purchase the underlying security from the OCC (in the
U.S.) or other clearing corporation or exchange at the exercise price.
Exchange-listed options are issued by the OCC (in the U.S.) or other
clearing corporation or exchange which assures that all transactions in such
options are properly executed. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Portfolio. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Portfolio and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities (or,
in the case of the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio, the currency) underlying an option it
has written, in accordance with the terms of that option, the Portfolio would
lose the premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC option transactions only with
member banks of the Federal Reserve System or primary dealers in U.S. Government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or
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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 Strategist
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 Strategist 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 Strategist 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 Strategist Portfolio may purchase such call and put options
and options on stock indexes in amounts equalling up to 10% of its total assets,
with a maximum of 5% of its total assets invested in the purchase of stock index
options. These Portfolios may purchase call options either to close out a
covered call position or to protect against an increase in the price of a
security a Portfolio anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security the Global Dividend Growth Portfolio, the
European Growth Portfolio or the Pacific Growth Portfolio anticipates purchasing
is denominated vis-a-vis the currency in which the exercise price is
denominated. The Portfolio may purchase put options on securities which it holds
(or has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security. Similarly, each of the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio
may purchase put options on currencies in which securities it holds are
denominated only to protect itself against a decline in value of such currency
vis-a-vis the currency in which the exercise price is denominated. The
Portfolios may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions. There are no other
limits on the ability of these Portfolios to purchase call and put options.
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STOCK INDEX OPTIONS. The Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio and the Strategist 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 Strategist
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 Strategist 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 Strategist 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 Strategist
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
Strategist Portfolio, to facilitate asset reallocations into and out of the
equity area. The Global Dividend Growth Portfolio, the European Growth Portfolio
and the Pacific Growth Portfolio will purchase or sell currency futures on
currencies in which their portfolio securities (or anticipated portfolio
securities) are denominated for the purposes of hedging against anticipated
changes in currency exchange rates.
OPTIONS ON FUTURES CONTRACTS. The Quality Income Plus Portfolio, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Strategist 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
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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 Strategist 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 Strategist Portfolio for the purpose of
hedging their portfolio securities are not speculative in nature, there are
risks inherent in the use of such instruments. One such risk is that the
Portfolio's management could be incorrect in its expectations as to the
direction or extent of various interest rate movements or the time span within
which the movements take place. For example, if a Portfolio sold interest rate
futures contracts for the sale of securities in anticipation of an increase in
interest rates, and then interest rates went down instead, causing bond prices
to rise, the Portfolio would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the portfolio securities (and, in the case of the Global
Dividend Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, the securities' denominated currencies). Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Portfolio seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio, by entering into transactions in foreign futures and
options markets, will incur risks similar to those discussed above under
"Foreign Securities."
New options and futures contracts and other financial products and various
combinations thereof continue to be developed. The Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the
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European Growth Portfolio, the Pacific Growth Portfolio and the Strategist
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
certain of the Variable Annuity Contracts and the Variable Life 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: 100%; European Growth
Portfolio: 100%; Pacific Growth Portfolio: 100%; Equity Portfolio: 300%; and
Strategist Portfolio: 400%. 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
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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 for over five
years. Edward F. Gaylor, Senior Vice President of InterCapital, has been the
primary portfolio manager of the Utilities Portfolio since its inception and has
been managing portfolios comprised of equity and other securities at
InterCapital for over five years. Paul D. Vance, Senior Vice President of
InterCapital, has been the primary portfolio manager of the Dividend Growth
Portfolio and the Global Dividend Growth Portfolio since their inceptions and
has been managing portfolios comprised of equity and other securities at
InterCapital for over five years. Peter Hermann, Vice President of InterCapital,
has been the primary portfolio manager of the Capital Growth Portfolio since
May, 1996. Prior to joining InterCapital in March, 1994, Mr. Hermann was a
portfolio manager at The Bank of New York. 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, and Michelle Kaufman,
Assistant Vice President of InterCapital, have been the primary portfolio
co-managers of the Equity Portfolio for over five years and since May, 1996,
respectively, Ms. Kolleeny has been managing portfolios comprised of equity and
other securities at InterCapital for over five years. Prior to joining
InterCapital in September, 1993, Ms. Kaufman was a securities analyst with
Woodward and Associates (March-August, 1993), JRO and Associates (December,
1992) and the First Manhattan Company (January, 1990-November, 1992). Mark
Bavoso, Senior Vice
President of InterCapital, has been the primary portfolio manager of the
Strategist Portfolio since September, 1995, and has been managing portfolios
comprised of equity and other securities at InterCapital for over five years.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
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.
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Each Portfolio of the Fund may not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities), or purchase more than 10%
of the voting securities, or more than 10% of any class of security, of any
issuer (for this purpose all outstanding debt securities of an issuer are
considered as one class and all preferred stock of an issuer are considered as
one class). With regard to the Capital Growth Portfolio, the Global Dividend
Growth Portfolio, the European Growth Portfolio and the Pacific Growth
Portfolio, these limitations apply only as to 75% of the Portfolio's total
assets.
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment 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 Strategist 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 Strategist 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.
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<PAGE>
8. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or, in the
case of the Global Dividend Growth Portfolio, the European Growth Portfolio and
the Pacific Growth Portfolio, in accordance with the provisions of Section 12(d)
of the Act and any Rules promulgated thereunder (E.G., each of these Portfolios
may not invest in more than 3% of the outstanding voting securities of any
investment company).
Each of the Quality Income Plus Portfolio, the Dividend Growth Portfolio,
the Equity Portfolio and the Strategist 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 (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier
42
<PAGE>
time), on days the New York Stock Exchange is open for trading. The net asset
value per share will not be determined on Good Friday and on such other Federal
and non-Federal holidays as are observed by the New York Stock Exchange.
The Money Market Portfolio utilizes the amortized cost method in valuing its
portfolio securities, which method involves valuing a security at its cost
adjusted by a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00. However, there can
be no assurance that the $1.00 net asset value will be maintained.
In the calculation of the net asset value of the Portfolios other than the
Money Market Portfolio: (1) an equity portfolio security listed or traded on the
New York or American Stock Exchange or other domestic or foreign stock exchange
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 pursuant to procedures adopted 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. 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 prior to the close of the New York
Stock Exchange. 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 may utilize 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 certain separate accounts established
and maintained by Northbrook for the purpose of funding variable annuity
contracts and variable life insurance contracts it issues, by (2)
All-
43
<PAGE>
state Life Insurance Company of New York ("Allstate New York") for allocation to
certain separate accounts established and maintained by Allstate New York for
the purpose of funding variable annuity contracts it issues, by (3) Glenbrook
Life and Annuity Company ("Glenbrook") for allocation to certain separate
accounts established and maintained by Glenbrook for the purpose of funding
variable annuity contracts and variable life insurance contracts it issues, and
by (4) Paragon Life Insurance Company ("Paragon") for allocation to 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. The separate accounts are
sometimes referred to individually as an "Account" and collectively as the
"Accounts." Persons desiring to purchase annuity or life insurance contracts
funded by any Portfolio of the Fund should read this Prospectus in conjunction
with the Prospectus of the flexible premium deferred annuity contracts issued by
Northbrook, Allstate New York or Glenbrook (the "Variable Annuity Contracts") or
in conjunction with the Prospectus of the flexible premium variable life
insurance contracts issued by Northbrook, Glenbrook or Paragon (the "Variable
Life Contracts").
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, Glenbrook 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 certain of the Variable Annuity Contracts and the Variable Life
Contracts.) 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
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<PAGE>
securities owned by the Portfolio is not reasonably practicable or it is not
reasonably practicable for the Portfolio to determine the value of its net
assets, or for such other period as the Securities and Exchange Commission may
by order permit for the protection of shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to distribute substantially
all of the net investment income and net realized capital gains, if any, of each
Portfolio. Dividends from net investment income and any distributions of
realized capital gains will be paid in additional shares of the Portfolio paying
the dividend or making the distribution and credited to the shareholder's
account.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared, payable on each day the New York Stock Exchange is
open for business to shareholders of record as of the close of business the
preceding business day. Net income, for dividend purposes, includes accrued
interest and accretion of original issue and market discount, less the
amortization of market premium and the estimated expenses of the Money Market
Portfolio. The amount of dividend may fluctuate from day to day and may be
omitted on some days if realized losses on portfolio securities exceed the Money
Market Portfolio's net investment income. Dividends are automatically reinvested
daily in additional shares of the Money Market Portfolio at the net asset value
per share at the close of business that day. Any net realized capital gains will
be declared and paid at least once per calendar year; net short-term gains may
be paid more frequently, with the distribution of dividends from net investment
income.
QUALITY INCOME PLUS PORTFOLIO and HIGH YIELD PORTFOLIO. Dividends from net
investment income on the Quality Income Plus Portfolio and the High Yield
Portfolio will be declared and paid monthly, and any net realized capital gains
will be declared and paid at least once per calendar year.
UTILITIES PORTFOLIO, DIVIDEND GROWTH PORTFOLIO, GLOBAL DIVIDEND GROWTH
PORTFOLIO, EQUITY PORTFOLIO and STRATEGIST PORTFOLIO. Dividends from net
investment income, if any, on the Utilities Portfolio, the Dividend Growth
Portfolio, the Global Dividend Growth Portfolio, the Equity Portfolio and the
Strategist Portfolio will be declared and paid quarterly, and any net realized
capital gains will be declared and paid at least once per calendar year.
CAPITAL GROWTH PORTFOLIO, EUROPEAN GROWTH PORTFOLIO and PACIFIC GROWTH
PORTFOLIO. Dividends from net investment income and net realized capital gains,
if any, on the Capital Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio 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 Strategist Portfolio being available for distribution. These
Portfolios intend
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to make certain elections which may minimize the impact of these rules but which
could also result in a higher portion of the Portfolio's gains being treated as
short-term capital gains.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of a Portfolio's gross income be derived from the sale or
other disposition of securities held for less than three months. This
requirement may limit the ability of the Quality Income Plus Portfolio, the
Utilities Portfolio, the Capital Growth Portfolio, the Global Dividend Growth
Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio and the
Strategist Portfolio to engage in options and futures transactions.
With respect to investments by a 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, a Portfolio may be required to
dispose of some of its 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
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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 Prospectus for the Contracts).
From time to time the Fund advertises the "yield" of each of the Quality
Income Plus Portfolio, the High Yield Portfolio and the Utilities Portfolio. The
yield of a Portfolio is based on historical earnings and is not intended to
indicate future performance. The yield of a Portfolio is computed by dividing
the Portfolio's net investment income over a 30-day period by an average value
(using the average number of shares entitled to receive dividends and the net
asset value per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount is compounded for six months and
then annualized for a twelve-month period to derive the Portfolio's yield. The
"yield" of a Portfolio does not reflect the deduction of any charges which may
be imposed on the Contracts by the applicable Account and is therefore not
46
<PAGE>
equivalent to total return under a Contract (for a description of such charges,
see the 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 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, Glenbrook Life and Annuity Company
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.
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<PAGE>
Six of the nine 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 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 options 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 1994
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
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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>
50
<PAGE>
<TABLE>
<S> <C>
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than for debt in
higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative grade
debt. However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and
repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent
upon favorable business, financial and economic conditions to meet timely payments of
interest and repayments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and repay
principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is assigned
an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on
which to base a rating or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes followed by a "p"
which indicates that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no comment on
the likelihood or risk of default upon failure of such completion.
</TABLE>
Commercial Paper Ratings
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished
51
<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>
52
<PAGE>
DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
MAY 1, 1996 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 STRATEGIST 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 May 1, 1996, 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 numbers 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 or (800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management........................................................... 3
Trustees and Officers................................................................. 9
Investment Practices and Policies..................................................... 15
Investment Restrictions............................................................... 34
Portfolio Transactions and Brokerage.................................................. 36
Purchase and Redemption of Fund Shares................................................ 40
Dividends, Distributions and Taxes.................................................... 43
Performance Information............................................................... 45
Description of Shares of the Fund..................................................... 48
Custodians and Transfer Agent......................................................... 49
Independent Accountants............................................................... 50
Reports to Shareholders............................................................... 50
Legal Counsel......................................................................... 50
Experts............................................................................... 50
Registration Statement................................................................ 50
Financial Statements -- December 31, 1995............................................. 51
Report of Independent Accountants..................................................... 110
</TABLE>
------------------------
Currently, the shares of the Fund will be sold only to (1) Northbrook Life
Insurance Company ("Northbrook") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts and certain flexible premium variable life insurance
contracts issued by Northbrook, to (2) Allstate Life Insurance Company of New
York ("Allstate New York") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts issued by Allstate New York, to (3) Glenbrook Life
and Annuity Company ("Glenbrook") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts and certain flexible premium variable life insurance
contracts issued by Glenbrook, and to (4) Paragon Life Insurance Company
("Paragon") for allocation to a separate account established to fund the
benefits under certain flexible premium variable life insurance 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 separate accounts are sometimes referred to
individually as an "Account" and collectively as the "Accounts." The variable
annuity contracts issued by Northbrook, Allstate New York and Glenbrook are
sometimes referred to as the "Variable Annuity Contracts." The variable life
insurance contracts issued by Northbrook, Glenbrook and Paragon are sometimes
referred to as the "Variable Life Contracts." The Variable Annuity Contracts and
the Variable Life Contracts are sometimes referred to as the "Contracts."
Northbrook, Allstate New York, Glenbrook 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 or the Variable Life Contracts, 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. On August 24, 1995, the Trustees of the Fund
adopted an amendment to the Declaration of Trust of the Fund changing the name
of the Managed Assets Portfolio of the Fund to the Strategist Portfolio,
effective September 1, 1995.
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, Allstate Life
Insurance Company of New York, a New York corporation, and Glenbrook Life and
Annuity Company, an Illinois 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 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,
3
<PAGE>
Dean Witter Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Select Dimensions Investment Series, Dean Witter Global Asset Allocation Fund,
Dean Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund, Dean
Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury Trust, Dean
Witter Japan Fund, InterCapital Income Securities Inc., High Income Advantage
Trust, High Income Advantage Trust II, High Income Advantage Trust III, Dean
Witter Government Income Trust, InterCapital Insured Municipal Bond Trust,
InterCapital Insured Municipal Trust, InterCapital Insured Municipal Income
Trust, InterCapital California Insured Municipal Income Trust, InterCapital
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 Mid-Cap Equity 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.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the assets of each Portfolio (other than the European
Growth Portfolio and the Pacific Growth Portfolio, discussed below), including
the placing of orders for the purchase and sale of portfolio securities. The
Investment Manager obtains and evaluates such information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously manage the assets of these Portfolios of the
Fund in a manner consistent with their investment objectives and policies.
Pursuant to the Management Agreement with the Investment Manager, the Fund
has retained the Investment Manager to supervise the investment of the assets of
each of the European Growth Portfolio and the Pacific Growth Portfolio. The
Investment Manager, through consultation with Morgan Grenfell Investment
Services Limited (the "Sub-Adviser") and through its own portfolio management
staff, obtains and evaluates such information and advice relating to the
economy, securities markets and specific securities as it considers necessary or
useful to continuously oversee the management of the assets of the European
Growth Portfolio and the Pacific Growth Portfolio in a manner consistent with
their investment objectives.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The
4
<PAGE>
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. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on that date. The
foregoing internal reorganizations 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 the Quality Income Plus Portfolio up to
$500 million and 0.45% to the net assets of that Portfolio exceeding $500
million; (b) 0.50% to the net assets of the Equity Portfolio up to $1 billion
and 0.475% to the net assets of that Portfolio exceeding $1 billion; (c) 0.50%
to the net assets of each of the Money Market Portfolio, the High Yield
Portfolio and the Strategist Portfolio; (d) 0.625% to the net assets of the
Dividend Growth Portfolio up to $500 million, 0.50% to the net assets of that
Portfolio exceeding $500 million but not exceeding $1 billion, and 0.475% to the
net assets of that Portfolio exceeding $1 billion; (e) 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; (f) 0.65% to the net assets of the
Capital Growth Portfolio; (g) 0.75% to the net assets of the Global Dividend
Growth Portfolio; and (h) 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
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<PAGE>
taxes, interest, brokerage fees and certain legal claims and liabilities and
litigation and indemnification expenses, as described in the Management
Agreement, for the fiscal year exceed either 1.5% of the first $30,000,000 of
average daily net assets of the Portfolio and 1% of any excess over $30,000,000
(in the case of the Money Market Portfolio, the Quality Income Plus Portfolio,
the High Yield Portfolio, the Utilities Portfolio, the Dividend Growth
Portfolio, the Equity Portfolio and the Strategist 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, 1993, 1994 and 1995, the amount of compensation accrued to the
Investment Manager under the Management Agreements in effect for the
then-existing Portfolios was $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 Strategist Portfolio), $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 Strategist Portfolio), and $18,648,593
($1,243,727 for the Money Market Portfolio, $2,323,329 for the Quality Income
Plus Portfolio, $673,472 for the High Yield Portfolio, $2,749,873 for the
Utilities Portfolio, $4,179,067 for the Dividend Growth Portfolio, $362,068 for
the Capital Growth Portfolio, $1,254,908 for the Global Dividend Growth
Portfolio, $1,686,856 for the European Growth Portfolio, $828,671 for the
Pacific Growth Portfolio, $1,393,980 for the Equity Portfolio and $1,952,642 for
the Strategist Portfolio), respectively. No Portfolio exceeded the applicable
expense limitation during the fiscal years ended December 31, 1993, 1994 and
1995. 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 $12.9
billion primarily for U.S. corporate and public employee benefit plans,
endowments, investment companies and foundations. MGIS' principal office is
6
<PAGE>
located at 20 Finsbury Circus, London, England. MGIS is a subsidiary of
London-based Morgan Grenfell Asset Management Limited which is itself a
subsidiary of London-based Morgan Grenfell Group plc (which is owned by Deutsche
Bank AG, an international commercial and investment banking group) and is
registered as an investment adviser under the Investment Advisers Act of 1940.
In 1838 Morgan Grenfell was founded to provide merchant banking services,
primarily trade financing between Great Britain and the United States. In 1958,
its investment management arm began operations. In recent years Morgan Grenfell
Group plc has achieved a prominent position in the securities industry by
providing investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive experience
in global investment management, is currently managing in excess of $94.6
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 Strategist 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 Strategist 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
7
<PAGE>
February 7, 1991 and by Northbrook and Allstate New York, pursuant to the
instructions of Contract Owners, at a Special Meeting of Shareholders held on
June 20, 1991.
The present Management Agreement and the present Sub-Advisory Agreement in
respect of the European Growth Portfolio took effect on June 30, 1993 upon the
spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC. The
Management and Sub-Advisory Agreements may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, by the holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager.
Each Agreement will automatically terminate in the event of its assignment (as
defined in the Act). Under their terms, each Agreement 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, 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%. At their meeting held on April 17, 1996, the Fund's Board of Trustees,
including all of the Independent Trustees, amended the terms of the Management
Agreement to lower management fees charged an average daily net assets of each
of the Equity Portfolio and the Dividend Growth Portfolio in excess of $1
billion to 0.475%, and approved continuation of the Management Agreement, as so
amended, and the Sub-Advisory Agreements until April 30, 1997. To the extent
required by law, Northbrook, Allstate New York, Glenbrook 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 80 Dean Witter Funds and the 12 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michael Bozic (55) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Trustee (since November, 1995); Director or Trustee of the Dean Witter Funds;
c/o Levitz Furniture Corporation formerly President and Chief Executive Officer of Hills Department
6111 Broken Sound Parkway, N.W. Stores (May, 1991-July, 1995); formerly Chairman and Chief Executive
Boca Raton, Florida Officer (January, 1987-August, 1990) and President and Chief Operating
Officer (August, 1990-February, 1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark Financial Services, Inc.
the United Negro College Fund, Weirton Steel Corporation and Domain
Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) 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 (63) 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
500 Huntsman Way Chairman, Huntsman Chemical Corporation (since January, 1993); Director
Salt Lake City, Utah of Franklin Quest (time management systems) and John Alden Financial
Corp.; member of the board of various civic and charitable
organizations.
John R. Haire (71) 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).
Dr. Manuel H. Johnson (47) 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 NASDAQ (since June, 1995); 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).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Paul Kolton (72) 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 (59) 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 (1984-1988); Director of
New York, New York various business organizations.
Philip J. Purcell* (52) 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 (65) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the
Trustee TCW/DW Funds; Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991-September, 1995), Chairman and Chief
Counsel to the Independent Investment Officer of Axe-Houghton Management and the Axe-Houghton
Trustees Funds (April, 1983-June, 1991) and President of USF&G Financial
114 West 47th Street Services, Inc. (June, 1990-June, 1991).
New York, New York
Sheldon Curtis (64) 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 (37) 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
Mark Bavoso (35) Senior Vice President of InterCapital (since June, 1993); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Patricia A. Cuddy (41) 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
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Edward F. Gaylor (54) 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
Peter Hermann (36) Vice President of InterCapital (since May, 1995) and portfolio manager
Vice President with InterCapital (since March, 1994); previously portfolio manager
Two World Trade Center with The Bank of New York (August, 1987-February, 1994).
New York, New York
Kenton J. Hinchliffe (51) 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 (40) 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 (44) Vice President of InterCapital (since April, 1992); Vice President of
Vice President various Dean Witter Funds; previously Assistant Vice President of
Two World Trade Center InterCapital.
New York, New York
Jonathan R. Page (47) 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 (47) 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 (60) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Michelle Kaufman (31) Assistant Vice President of InterCapital (since May, 1995) and
Assistant Vice President portfolio manager with InterCapital (since September, 1993); previously
Two World Trade Center security analyst with Woodward and Associates (March-August, 1993), JRO
New York, New York and Associates (December, 1992) and the First Manhattan Company
(January, 1990-November, 1992).
Thomas F. Caloia (50) 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>
11
<PAGE>
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 Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital, DWSC,
Distributors and DWTC and Director of DWTC, Joseph J. McAlinden, Executive Vice
President of InterCapital, 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, LouAnne D. McInnis and
Ruth Rossi, Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, and Carsten Otto, a Staff Attorney with InterCapital, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 80 Dean Witter Funds, comprised of
120 portfolios. As of March 31, 1996, the Dean Witter Funds had total net assets
of approximately $75.2 billion and more than five million shareholders.
Seven Trustees (77% 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. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Five of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are 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
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
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. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
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 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. Most of the Dean Witter Funds have such a plan.
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; and preparing and submitting Committee meeting minutes to the full
Board.
12
<PAGE>
Finally, the Board of each Fund has formed 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.
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 various issues, and arranges to have that information
furnished to Committee members. He also arranges for the services of independent
experts 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 advisory, 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.
ADVANTAGES 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 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. They believe 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 possibility 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, 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 $1,000 ($1,200 prior
to September 30, 1995) 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 $750 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")
13
<PAGE>
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 25.0% of his or her Eligible Compensation plus
0.4166666% 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 50.0% 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, 57 Dean Witter Funds have
adopted the retirement program.
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, 1995 and the estimated retirement benefits for the
Fund's Independent Trustees as of December 31, 1995.
<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>
Michael Bozic....... $ 1,850 $ 454 10 57.5% $1,950 $ 1,121
Edwin J. Garn....... 2,000 695 10 57.5 1,950 1,121
John R. Haire....... 4,600(4) 3,644 10 57.5 5,145 2,958
Dr. Manuel H.
Johnson............ 2,000 281 10 57.5 1,950 1,121
Paul Kolton......... 2,000 1,582 10 57.0 2,435 1,388
Michael E. Nugent... 1,800 497 10 57.5 1,950 1,121
John L. Schroeder... 2,000 893 8 47.9 1,950 934
</TABLE>
- ---------
(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.
(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, $3,150 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
14
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 11 TCW/DW Funds that were in operation at December 31, 1995.
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.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE CHAIRMAN OF COMPENSATION
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 79 DEAN
OF 79 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael Bozic.............. $126,050 -- -- $126,050
Edwin J. Garn.............. 136,450 -- -- 136,450
John R. Haire.............. 98,450 $82,038 $217,350(5) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Paul Kolton................ 136,450 54,788 36,900(6) 228,138
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ---------
(5) For the 79 Dean Witter Funds in operation at December 31, 1995.
(6) For the 11 TCW/DW Funds in operation at December 31, 1995.
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.
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
15
<PAGE>
Portfolio will invest in are of the modified pass-through type. GNMA guarantees
the timely payment of monthly installments of principal and interest on modified
pass-through certificates at the time such payments are due, whether or not such
amounts are collected by the issuer on the underlying mortgages. The National
Housing Act provides that the full faith and credit of the United States is
pledged to the timely payment of principal and interest by GNMA of amounts due
on these GNMA Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments, with maximum maturities of 30 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of prepayments or
refinancing of such mortgages or foreclosure. Such prepayments are passed
through to the registered holder with the regular monthly payments of principal
and interest, which has the effect of reducing future payments. Due to the GNMA
guarantee, foreclosures impose no risk to principal investments.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. The
occurrence of mortgage prepayments is affected by such factors as the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. As prepayment rates vary
widely, it is not possible to accurately predict the average life of a
particular pool. However, statistics indicate that the average life of the type
of mortgages backing the majority of GNMA Certificates is approximately 12
years. For this reason, it is standard practice to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year. Pools
of mortgages with other maturities or different characteristics will have
varying assumptions for average life. The assumed average life of pools of
mortgages having terms of less than 30 years is less than 12 years, but
typically not less than 5 years.
The coupon rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Such fees in the aggregate usually amount to approximately .50 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of 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.
16
<PAGE>
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. FNMA Certificates have an
assumed average life similar to GNMA Certificates.
LEVERAGING. As discussed in the Prospectus, the Quality Income Plus
Portfolio may borrow money, but only from a bank and in an amount up to 25% of
the Portfolio's gross assets taken at the lower of market value or cost, not
including the amount borrowed, to seek additional income by leveraging its
investments through purchasing securities with the borrowed funds. Such
borrowings will be subject to current margin requirements of the Federal Reserve
Board and where necessary the Portfolio may use any or all of its securities as
collateral for such borrowings. Any investment gains (and/or investment income)
made with the additional monies in excess of interest paid will cause the net
asset value of the Portfolio's shares (and/or the Portfolio's net income per
share) to rise to a greater extent than would otherwise be the case. Conversely,
if the investment performance of the additional monies fails to cover their cost
to the Portfolio, net asset value (and/or net income per share) will decrease to
a greater extent than would otherwise be the case. This is the speculative
factor involved in leverage.
The Quality Income Plus Portfolio will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Act. If due to market
fluctuations or other reasons, the value of the Portfolio's assets (including
the proceeds of borrowings) becomes at any time less than three times the amount
of any outstanding bank debt, the Portfolio, within three business days, will
reduce its bank debt to the extent necessary to meet the required 300% asset
coverage. In restoring the 300% asset coverage, the Portfolio may have to sell a
portion of its investments at a time when it may be disadvantageous to do so.
The investment policy provides that the Portfolio may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker of
any part of the purchase price of a security.
In addition to borrowings for leverage, the Portfolio may also borrow from
banks an additional amount as a temporary measure for extraordinary or emergency
purposes, and for these purposes, in no event an amount greater than 5% of gross
assets taken at the lower of market value or cost.
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
17
<PAGE>
rates, when depreciation and realization of capital losses on securities in the
portfolio will be unavoidable. Moreover, medium and lower-rated securities and
non-rated securities of comparable quality tend to be subject to wider
fluctuations in yield and market values than higher-rated securities. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of the portfolio of
the High Yield Portfolio.
GENERAL PORTFOLIO TECHNIQUES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As discussed in the
Prospectus, the Global Dividend Growth Portfolio, the European Growth Portfolio
and the Pacific Growth Portfolio may enter into forward foreign currency
exchange contracts ("forward contracts") as a hedge against fluctuations in
future foreign exchange rates. Each of these Portfolios will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large, commercial banks) and their customers. Such forward
contracts will only be entered into with United States banks and their foreign
branches or foreign banks whose assets total $1 billion or more. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
When management of the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio believes that the currency of a
particular foreign country may suffer a substantial movement against the U.S.
dollar, it may enter into a forward contract to purchase or sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. Under normal circumstances, 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.
18
<PAGE>
If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
If the Portfolio purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied to
the exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Portfolio has written a call option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of the
security on which a call currency option has been written declining in value to
a greater extent than the value of the premium received for the options. The
Portfolio will maintain with its Custodian, at all times, cash, U.S. Government
securities, or other high grade debt obligations in a segregated account equal
in value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although each Portfolio values its assets daily in terms of U.S. dollars,
the Portfolios do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. Each Portfolio will, however, do so from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the spread between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to 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
19
<PAGE>
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.
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.
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
20
<PAGE>
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.
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 Strategist 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 Strategist 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 Strategist 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 writing and/or purchasing put and call options on currencies and
engaging in transactions involving currencies futures contracts and options on
such contracts.
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OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Portfolio,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Portfolio will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Portfolio to cover an option position in any but the nearest expiration
month may cease to represent cover for the option in the event of a decline in
the GNMA coupon rate at which new pools are originated under the FHA/VA loan
ceiling in effect at any given time, as such decline may increase the
prepayments made on other mortgage pools. If this should occur, the Portfolio
will no longer be covered, and the Portfolio will either enter into a closing
purchase transaction or replace such Certificate with a Certificate which
represents cover. When the Portfolio closes out its position or replaces such
Certificate, it may realize an unanticipated loss and incur transaction costs.
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
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value of the portfolio securities falls below the price of the premium received.
The European Growth Portfolio may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the ability
of the Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although a Portfolio
will not purchase or write such options unless and until, in the opinion of the
management of the Portfolio, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. As stated in the Prospectus, the Quality Income Plus
Portfolio, the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio and the Strategist 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 Strategist 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,
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the European Growth Portfolio and the Pacific Growth Portfolio, currencies)
alone. Moreover, the premium received will offset a portion of the potential
loss incurred by the Portfolio if the securities (currencies) underlying the
option are ultimately sold (exchanged) by the Portfolio at a loss. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or, in the case of the Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio, the
currencies in which they are denominated) upon which call options have been
written increases, the Portfolio may receive a lower total return from the
portion of its portfolio upon which calls have been written than it would have
had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Portfolio may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Portfolio to write another call option
on the underlying security (currency) with either a different exercise price or
expiration date or both. The Portfolio may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security (currency). Conversely, a gain resulting
from a closing purchase transaction could be offset in whole or in part or
exceeded by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference 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 Strategist 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
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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 Strategist 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 Strategist Portfolio may purchase such call and put options and options
on stock indexes in amounts equalling 10% of its total assets, with a maximum of
5% of its total assets invested in the purchase of stock index options. These
Portfolios may purchase call options in order to close out a covered call
position (see "Covered Call Writing" above) or purchase call options on
securities they intend to purchase. Each of the Global Dividend Growth
Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio may
purchase a call option on foreign currency to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The purchase of the call option to effect a closing transaction on a call
written over-the-counter may be a listed or an OTC option. In either case, the
call purchased is likely to be on the same securities (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 Strategist 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
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Portfolio, the European Growth Portfolio and the Pacific Growth Portfolio, the
value of the security's denominated currency) increase, but has retained the
risk of loss should the price of the underlying security (or, in the case of the
Global Dividend Growth Portfolio, the European Growth Portfolio and the Pacific
Growth Portfolio, the value of the security's denominated currency) decline. The
covered put writer also retains the risk of loss should the market value of the
underlying security decline below the exercise price of the option less the
premium received on the sale of the option. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A secured put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting
over-the-counter option would continue to bear the risk of decline in the market
price of the underlying security until the option expires or is exercised. In
addition, a covered writer would be unable to utilize the amount held in cash or
U.S. Government securities or other high grade short-term obligations securities
as security for the put option for other investment purposes until the exercise
or expiration of the option.
A Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, a Portfolio
may be able to purchase an offsetting option which does not close out its
position as a writer but constitutes an asset of equal value to the obligation
under the option written. If the Portfolio is not able to either enter into a
closing purchase transaction or purchase an offsetting position, it will be
required to maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to do so, until a
closing transaction can be entered into (or the option is exercised or expires).
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
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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 Strategist Portfolio may invest in
options on stock indexes. As stated in the Prospectus, options on stock indexes
are similar to options on stock except that, rather than the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The
multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and a gain or loss depends on price movements in the
stock market generally (or in a particular segment of the market) rather than
the price movements in individual stocks. Currently, options are traded on,
among other indexes, the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." Options on
broad-based stock indexes provide the Portfolio with a means of protecting the
Portfolio against the risk of market-wide price movements. If the 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 Strategist 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 Strategist
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
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based. However, most investors cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same stocks as the underlying index, and, as a
result, bear a risk that the value of the securities held will vary from the
value of the index. Even if an index call writer could assemble a stock
portfolio that exactly reproduced the composition of the underlying index, the
writer still would not be fully covered from a risk standpoint because of the
"timing risk" inherent in writing index options. When an index option is
exercised, the amount of cash that the holder is entitled to receive is
determined by the difference between the exercise price and the closing index
level on the date when the option is exercised. As with other kinds of options,
the writer will not learn that it has been assigned until the next business day,
at the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
a common stock, because there the writer's obligation is to deliver the
underlying security, not to pay its value as of a fixed time in the past. So
long as the writer already owns the underlying security, it can satisfy its
settlement obligations by simply delivering it, and the risk that its value may
have declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its stock portfolio. This "timing risk" is an inherent limitation
on the ability of index call writers to cover their risk exposure by holding
stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
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 Strategist 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 Strategist Portfolio will
purchase or sell interest rate futures contracts for the purpose of hedging
their fixed-income
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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 Strategist 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 Strategist 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 Strategist 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 Strategist 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
Strategist Portfolio intends to purchase, the Portfolio may purchase stock index
futures contracts. This allows the Portfolio to purchase equities, in accordance
with the asset allocations of the Portfolio's management, in an orderly and
efficacious manner.
The Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio will purchase or sell currency futures on currencies in
which their portfolio securities (or anticipated portfolio securities) are
denominated for the purposes of hedging against anticipated changes in currency
exchange rates. These Portfolios will enter into currency futures contracts for
the same reasons as set forth under the heading "Forward Foreign Currency
Exchange Contracts" above for entering into forward foreign currency exchange
contracts; namely, to "lock-in" the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
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
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Pacific Growth Portfolio or the Strategist 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 Strategist Portfolio may invest in bond index futures
contracts, and the Utilities Portfolio, the Capital Growth Portfolio, the Global
Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth
Portfolio and the Managed Assets Portfolio may invest in stock index futures
contracts. An index futures contract sale creates an obligation by the
Portfolio, as seller, to deliver cash at a specified future time. An index
futures contract purchase would create an obligation by the Portfolio, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Portfolio is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are 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
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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
Strategist Portfolio may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option. Upon the exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
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 Strategist 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 Strategist 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
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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 Strategist Portfolio may
sell a futures contract to protect against the decline in the value of
securities (or, in the case of the Global Dividend Growth Portfolio, the
European Growth Portfolio and the Pacific Growth Portfolio, the currency in
which securities are denominated) held by the Portfolio. However, it is possible
that the futures market may advance and the value of securities (or, in the case
of the Global Dividend Growth Portfolio, the European Growth Portfolio and the
Pacific Growth Portfolio, the currency in which they are denominated) held in
the Portfolio may decline. If this occurred, the Portfolio would lose money on
the futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the Quality Income Plus Portfolio, the Utilities Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio or the Strategist 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 Strategist
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.
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In addition, if a Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other high grade debt obligations equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the
Portfolio by its Custodian. Alternatively, the Portfolio could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Portfolio.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on open
futures positions. In such situations, if the Portfolio has insufficient cash,
it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the Portfolio's ability to effectively hedge its portfolio.
With regard to the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio, futures contracts and options
thereon which are purchased or sold on foreign commodities exchanges may have
greater price volatility than their U.S. counterparts. Furthermore, foreign
commodities exchanges may be less regulated and under less governmental scrutiny
than U.S. exchanges. Brokerage commissions, clearing costs and other transaction
costs may be higher on foreign exchanges. Greater margin requirements may limit
the ability of these Portfolios to enter into certain commodity transactions on
foreign exchanges. Moreover, differences in clearance and delivery requirements
on foreign exchanges may occasion delays in the settlement of the Portfolio's
transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
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 Strategist 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
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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 Strategist Portfolio may invest. In the event a liquid
market does not exist, it may not be possible to close out a futures position,
and in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent a Portfolio from closing out a contract which
may result in reduced gain or increased loss to the Portfolio. The absence of a
liquid market in futures contracts might cause these Portfolios to make or take
delivery of the underlying securities (currencies) at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Quality
Income Plus Portfolio, the Utilities Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio or the Strategist 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: 100%; European Growth Portfolio: 100%; Pacific Growth
Portfolio: 100%; Equity Portfolio: 300%; and Strategist Portfolio: 400%.
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.
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Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at a meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For purposes of the following restrictions and those contained in the
Prospectus: (i) all percentage limitations apply immediately after a purchase or
initial investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in the amount of total or
net assets does not require elimination of any security from the portfolio.
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio of the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of
debt obligations in which the Portfolio may invest consistent with its
investment objectives and policies; (b) by investing in repurchase
agreements; or (c) by lending its portfolio securities, not in excess of 10%
of the value of a Portfolio's total assets, made in accordance with
guidelines adopted by the Fund's Board of Trustees, including maintaining
collateral from the borrower equal at all times to the current market value
of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Trustee of the Fund or any officer or director of the
Investment Manager owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers, Trustees and directors who own more than 1/2
of 1% own in the aggregate more than 5% of the outstanding securities of
such issuer.
3. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or
which invest in real estate or interests therein, including Real Estate
Investment Trusts (REIT's), and securities which are secured by real estate
or interests therein.
4. Engage in the underwriting of securities except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
5. Invest for the purposes of exercising control or management of
another company.
6. Participate on a joint or a joint and several basis in any
securities trading account. The "bunching" of orders of two or more
Portfolios (or of one or more Portfolios and of other accounts under the
investment management of InterCapital) for the sale or purchase of portfolio
securities shall not be considered participating in a joint securities
trading account.
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.
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3. Purchase securities for which there are legal or contractual
restrictions on resale [i.e., restricted securities].
4. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
RESTRICTION APPLICABLE TO THE QUALITY INCOME PLUS PORTFOLIO ONLY
The Quality Income Plus Portfolio may not acquire any common stocks except
when acquired upon conversion of fixed-income securities. The Quality Income
Plus Portfolio will attempt to dispose in an orderly fashion of any common
stocks acquired under these circumstances.
RESTRICTIONS APPLICABLE TO THE HIGH YIELD PORTFOLIO ONLY
The High Yield Portfolio may not:
1. Acquire any common stocks, except (a) when attached to or included
in a unit with fixed-income securities; (b) when acquired upon conversion of
fixed-income securities; or (c) when acquired upon exercise of warrants
attached to fixed-income securities. The High Yield Portfolio may retain
common stocks so acquired but not in excess of 10% of its total assets.
2. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
RESTRICTION APPLICABLE TO THE DIVIDEND GROWTH PORTFOLIO ONLY
The Dividend Growth Portfolio may not invest more than 5% of the value of
its total assets in warrants, including not more than 2% of such assets in
warrants not listed on either the New York or American Stock Exchange. However,
the acquisition of warrants attached to other securities is not subject to this
restriction.
RESTRICTIONS APPLICABLE TO THE EQUITY PORTFOLIO ONLY
The Equity Portfolio may not:
1. Invest more than 5% of the value of its total assets in warrants,
including not more than 2% of such assets in warrants not listed on either
the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
2. Purchase non-convertible corporate bonds unless rated at the time of
purchase Aa or better by Moody's or AA or better by S&P, or purchase
commercial paper unless issued by a U.S. corporation and rated at the time
of purchase Prime-1 by Moody's or A-1 by S&P, although it may continue to
hold a security if its quality rating is reduced by a rating service below
those specified.
3. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
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
36
<PAGE>
commissions or discounts are paid. For the fiscal years ended December 31, 1993,
1994 and 1995, the Portfolios of the Fund paid brokerage commissions as follows:
<TABLE>
<CAPTION>
BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS COMMISSIONS COMMISSIONS
PAID FOR FISCAL PAID FOR FISCAL PAID FOR FISCAL
YEAR YEAR YEAR
NAME OF PORTFOLIO ENDED 12/31/93 ENDED 12/31/94 ENDED 12/31/95
- -------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
High Yield Portfolio.............................. $ 3,097 $ 5,071 $ 98,275
Utilities Portfolio............................... 585,651 117,697 29,800
Dividend Growth Portfolio......................... 381,554 497,931 565,780
Capital Growth Portfolio.......................... 61,231 53,239 53,746
Global Dividend Growth Portfolio.................. -- 566,953 604,355
European Growth Portfolio......................... 162,525 466,863 437,643
Pacific Growth Portfolio.......................... -- 651,772 581,012
Equity Portfolio.................................. 591,926 1,139,195 1,091,067
Strategist Portfolio.............................. 264,355 281,517 435,379
</TABLE>
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, various factors may be
considered, including the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts. In the case of certain initial and secondary public
offerings, the Investment Manager or the Sub-Adviser may utilize a pro-rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering. These procedures 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.
37
<PAGE>
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, 1995, the Fund directed
the payment of commissions in connection with transactions in the following
aggregate amounts 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 12/31/95 YEAR ENDED 12/31/95
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Utilities Portfolio.................. $ 19,750 $ 11,208,015
Dividend Growth Portfolio............ 337,352 211,737,377
Capital Growth Portfolio............. 17,994 9,983,502
Global Dividend Growth Portfolio..... 550,024 169,589,347
Equity Portfolio..................... 852,990 662,995,545
Strategist Portfolio................. 340,388 241,889,226
</TABLE>
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During its fiscal years ended December 31, 1993, 1994 and
1995, 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
38
<PAGE>
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,
1993 and 1994, the Fund paid a total of $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
Strategist Portfolio) and $546,661 ($27,250 for the Utilities Portfolio,
$192,545 for the Dividend Growth Portfolio, $32,574 for the Capital Growth
Portfolio, $55,460 for the Global Dividend Growth Portfolio, $200,291 for the
Equity Portfolio and $38,541 for the Strategist Portfolio), respectively, in
brokerage commissions to DWR. For its fiscal year ended December 31, 1995 the
Fund paid a total of $578,933 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 12/31/95 FISCAL YEAR ENDED 12/31/95 FISCAL YEAR ENDED 12/31/95
- ------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Utilities Portfolio...... $ 6,500 21.81 % 24.65 %
Dividend Growth
Portfolio............... 216,308 38.23 47.14
Capital Growth
Portfolio............... 32,841 61.10 64.86
Global Dividend Growth
Portfolio............... 50,294 8.32 21.43
Equity Portfolio......... 192,565 17.65 20.21
Strategist Portfolio..... 80,425 18.47 23.13
</TABLE>
For its fiscal year ended December 31, 1994, the Global Dividend Growth
Portfolio paid a total of $401 in brokerage commissions to Deutsche Bank
Securities Corp., an affiliated broker of the Sub-Adviser of the European Growth
and Pacific Growth Portfolios, and the Pacific Growth Portfolio paid a total of
$38,353 in brokerage commissions to Morgan Grenfell Asia Securities (Hong Kong)
Ltd., a total of $3,907 in brokerage commissions to Morgan Grenfell Asia
Securities (Indonesia) Pte., and a total of $347 in brokerage commissions to
Morgan Grenfell Emerging Markets, affiliated brokers of the Sub-Adviser of the
European Growth and Pacific Growth Portfolios. For its fiscal year ended
December 31, 1995, the Fund paid a total of $38,904 in brokerage 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
COMMISSIONS PAID PERCENTAGE OF
TO AFFILIATED AGGREGATE DOLLAR
BROKER OF MORGAN AMOUNT OF EXECUTED
GRENFELL PERCENTAGE OF TRADES ON WHICH
INVESTMENT AGGREGATE BROKERAGE BROKERAGE
SERVICES LTD. FOR COMMISSIONS FOR COMMISSIONS WERE
FISCAL YEAR FISCAL YEAR PAID FOR FISCAL
ENDED ENDED YEAR ENDED
NAME OF PORTFOLIO NAME OF BROKER 12/31/95 12/31/95 12/31/95
- ----------------- -------------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Pacific Growth Morgan Grenfell Asia and $ 19,846 3.42% 2.88%
Portfolio Partners Securities Pte Ltd.
Morgan Grenfell Asia Securities 19,058 3.28 2.41
(Hong Kong) Limited
</TABLE>
During the fiscal year ended December 31, 1995, the Money Market Portfolio
purchased commercial paper issued by Goldman Sachs Group L.P. and Morgan Stanley
Group Inc., the Quality Income Plus Portfolio purchased debt securities issued
by Lehman Brothers Holdings Inc., the Equity Portfolio purchased common stock
issued by Merrill Lynch & Co. Inc. and Morgan Stanley Group Inc., and the
Strategist Portfolio purchased common stock issued by Morgan Stanley Group Inc.
and debt securities issued by Lehman Brothers Holdings Inc., which issuers were
among the ten brokers or the ten dealers which executed transactions for or with
the Fund or the applicable Portfolio in the largest dollar amounts during the
year. At December 31, 1995, the Money Market Portfolio held commercial paper
issued by Goldman Sachs Group L.P. and Morgan Stanley Group Inc. with market
values of $9,429,248 and $11,567,423, respectively, the Quality Income Plus
Portfolio held debt securities issued by Morgan
39
<PAGE>
Stanley Group, Inc., Lehman Brothers Holdings Inc. and Bear Stearns & Co., Inc.,
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, with market values of $1,069,530, $5,562,400 and $1,070,360,
respectively, the Equity Portfolio held common stock issued by Merrill Lynch &
Co. Inc. and Morgan Stanley Group Inc. with market values of $3,060,000 and
$3,466,875, respectively, and the Strategist Portfolio held common stock issued
by Morgan Stanley Group Inc. and debt securities issued by Lehman Brothers
Holdings Inc. with market values of $3,225,000 and $2,290,600, respectively.
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 certain
separate accounts established and maintained by Northbrook for the purpose of
funding variable annuity contracts and variable life insurance contracts it
issues, by (2) Allstate Life Insurance Company of New York ("Allstate New York")
for allocation to certain separate accounts established and maintained by
Allstate New York for the purpose of funding variable annuity contracts it
issues, by (3) Glenbrook Life and Annuity Company ("Glenbrook"), for allocation
to certain separate accounts established and maintained by Glenbrook for the
purpose of funding variable annuity contracts and variable life insurance
contracts it issues, and by (4) Paragon Life Insurance Company ("Paragon") for
allocation to 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. (The 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, Glenbrook 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 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 17, 1996, the Fund's Board of Trustees, including all of the Independent
Trustees, approved continuation of the Distribution Agreement until April 30,
1997.
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
40
<PAGE>
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 (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
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
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
41
<PAGE>
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 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
42
<PAGE>
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 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
43
<PAGE>
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 Strategist 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.
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
44
<PAGE>
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 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
45
<PAGE>
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).
The current yield of the Money Market Portfolio for the seven days ending
December 31, 1995 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
"yield" of each of the Quality Income Plus Portfolio, the High Yield Portfolio
and the Utilities Portfolio in advertising and sales literature. Yield is
calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Portfolio is determined in accordance
with regulatory requirements; the total for the entire portfolio constitutes the
Portfolio's gross income for the period. Expenses accrued during the period are
subtracted to arrive at "net investment income." The resulting amount is divided
by the product of the net asset value per share on the last day of the period
multiplied by the average number of Portfolio shares outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised to
the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The "yield" of a Portfolio
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 yield
quoted. For the 30-day period ended December 31, 1995, the yield of the Quality
Income Plus Portfolio, calculated pursuant to this formula, was 6.40%, the yield
of the High Yield Portfolio, calculated pursuant to this formula, was 13.84%,
and the yield of the Utilities Portfolio, calculated pursuant to this formula,
was 3.82%.
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
46
<PAGE>
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, 1995 were 5.66%, 4.27% and 5.81%, respectively, for the Money
Market Portfolio; 14.93%, 21.09% and 7.98%, respectively, for the High Yield
Portfolio; and 42.53%, 20.89% and 13.53%, respectively, for the Equity
Portfolio. The average annual total returns of the Quality Income Plus Portfolio
and the Strategist Portfolio for the one year period ended December 31, 1995,
for the five year period ended December 31, 1995 and for the period from March
1, 1987 (commencement of these Portfolios' operations) through December 31,
1995, were 24.30%, 11.01% and 9.55%, respectively, for the Quality Income Plus
Portfolio and 9.40%, 11.54% and 9.43%, respectively, for the Strategist
Portfolio. The average annual total returns of the Utilities Portfolio and the
Dividend Growth Portfolio for the one year period ended December 31, 1995, for
the five year period ended December 31, 1995 and for the period from March 1,
1990 (commencement of these Portfolios' operations) through December 31, 1995
were 28.65%, 12.96% and 11.85%, respectively, for the Utilities Portfolio and
36.38%, 15.82% and 11.85%, 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, 1995 and for the period
from March 1, 1991 (commencement of these Portfolios' operations) through
December 31, 1995 were 32.92% and 10.11%, respectively, for the Capital Growth
Portfolio and 25.89% and 15.72%, respectively, for the European Growth
Portfolio. The average annual total returns of the Global Dividend Growth
Portfolio and the Pacific Growth Portfolio for the one year period ended
December 31, 1995 and for the period from February 23, 1994 (commencement of
these Portfolios' operations) through December 31, 1995 were 22.14% and 11.57%,
respectively, for the Global Dividend Growth Portfolio and 5.74% and -0.75%,
respectively, for the Pacific Growth Portfolio.
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, 1995 would have been
9.82% and 15.24%, respectively. 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, 1995 would have been -1.05%.
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, 1995 were 5.66% for the Money Market Portfolio; 24.30%
for the Quality Income Plus Portfolio; 14.93% for the High Yield Portfolio;
28.65% for the Utilities Portfolio; 36.38% for the Dividend Growth Portfolio;
32.92% for the Capital Growth Portfolio; 22.14% for the Global Dividend Growth
Portfolio; 25.89% for the European Growth Portfolio; 5.74% for the Pacific
Growth Portfolio;
47
<PAGE>
42.53% for the Equity Portfolio; and 9.40% for the Strategist Portfolio; the
total returns for the five year period ended December 31, 1995 were 23.27% for
the Money Market Portfolio; 68.57% for the Quality Income Plus Portfolio;
160.32% for the High Yield Portfolio; 83.89% for the Utilities Portfolio;
108.44% for the Dividend Growth Portfolio; 158.20% for the Equity Portfolio; and
72.63% for the Strategist Portfolio; the total returns for the ten year period
ended December 31, 1995 were 75.82% for the Money Market Portfolio; 115.49% for
the High Yield Portfolio; and 255.90% for the Equity Portfolio; and the total
returns from commencement of the other Portfolios' operations through December
31, 1995 were 123.71% for the Quality Income Plus Portfolio; 59.29% for the
Capital Growth Portfolio; 22.47% for the Global Dividend Growth Portfolio;
102.54% for the European Growth Portfolio; -1.38% for the Pacific Growth
Portfolio; and 121.54% for the Strategist 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, 1995: Money Market Portfolio: $20,408, $102,040 and $204,080, respectively;
Quality Income Plus Portfolio: $22,371, $111,855 and $223,710, respectively;
High Yield Portfolio: $30,744, $153,720 and $307,440, respectively; Utilities
Portfolio: $19,220, $96,100 and $192,200, respectively; Dividend Growth
Portfolio: $19,216, $96,080 and $192,160, respectively; Capital Growth
Portfolio: $15,929, $79,645 and $159,290, respectively; Global Dividend Growth
Portfolio: $12,247, $61,235 and $122,470, respectively; European Growth
Portfolio: $20,254, $101,270 and $202,540, respectively; Pacific Growth
Portfolio: $9,862, $49,310 and $98,620, respectively; Equity Portfolio: $48,970,
$244,850 and $489,700, respectively; and Strategist Portfolio: $22,154, $110,770
and $221,540, 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.
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
48
<PAGE>
York, Glenbrook Life and Annuity Company 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.
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.
49
<PAGE>
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.
EXPERTS
- --------------------------------------------------------------------------------
The annual financial statements of the Fund for the year ended December 31,
1995, 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.
50
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (71.7%)
AUTOMOTIVE - FINANCE (8.2%)
$ $11,075 Ford Motor Credit Co.................................... 5.53-5.78% 01/22/96-05/09/96 $ 10,953,289
9,500 General Motors Acceptance Corp.......................... 5.50-5.84 01/30/96-05/17/96 9,354,106
---------------
20,307,395
---------------
BANK HOLDING COMPANIES (11.0%)
1,570 Barnett Banks Inc....................................... 5.87 01/09/96 1,567,449
11,580 Chemical Banking Corp................................... 5.53-5.77 03/07/96-04/25/96 11,415,253
9,070 NationsBank Corp........................................ 5.78-5.79 01/18/96-02/07/96 9,027,140
5,500 Norwest Corp............................................ 5.80 02/22/96 5,453,222
---------------
27,463,064
---------------
BANKS - COMMERCIAL (15.2%)
10,000 Abbey National North America Corp....................... 5.43-5.69 01/08/96-06/03/96 9,929,015
10,500 Canadian Imperial Holdings Inc.......................... 5.80 01/05/96-02/23/96 10,443,834
3,000 National Australia Funding (DE) Inc..................... 5.53 06/14/96 2,925,128
7,125 Rabobank USA Financial Corp............................. 5.82 01/17/96-01/19/96 7,103,397
3,000 Toronto-Dominion Holdings USA Inc....................... 5.49 04/03/96 2,957,171
4,635 UBS Finance (DE) Inc.................................... 5.90 01/02/96 4,632,721
---------------
37,991,266
---------------
BROKERAGE (8.4%)
9,495 Goldman Sachs Group L.P................................. 5.71-6.06 01/11/96-03/08/96 9,429,248
11,600 Morgan Stanley Group Inc................................ 5.80-5.82 01/11/96-01/25/96 11,567,423
---------------
20,996,671
---------------
FINANCE - COMMERCIAL (4.1%)
10,485 CIT Group Holdings, Inc................................. 5.52-5.70 02/15/96-05/10/96 10,345,698
---------------
FINANCE - CONSUMER (7.2%)
11,680 American Express Credit Corp............................ 5.44-5.76 01/23/96-07/01/96 11,521,918
4,235 Beneficial Corp......................................... 5.84 01/29/96-01/31/96 4,213,904
2,165 Household Finance Corp.................................. 5.78 01/24/96 2,156,430
---------------
17,892,252
---------------
FINANCE - DIVERSIFIED (3.8%)
9,600 General Electric Capital Corp........................... 5.52-5.79 02/01/96-06/12/96 9,461,317
---------------
FINANCE - EQUIPMENT (2.2%)
5,500 Deere (John) Capital Corp............................... 5.67-5.81 01/10/96-03/14/96 5,460,772
---------------
OFFICE EQUIPMENT (4.1%)
10,450 IBM Credit Corp......................................... 5.65-5.79 01/03/96-04/12/96 10,336,104
---------------
RETAIL (4.5%)
11,295 Sears Roebuck Acceptance Corp........................... 5.73-5.81 02/13/96-03/06/96 11,200,509
---------------
TELEPHONES (1.8%)
4,630 AT&T Corp............................................... 5.74 02/02/96 4,605,512
---------------
UTILITIES - FINANCE (1.2%)
3,030 National Rural Utilities Cooperative Finance Corp....... 5.72 02/05/96 3,012,405
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $179,072,965)..................................... 179,072,965
---------------
</TABLE>
51
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTES (12.8%)
$ 4,000 Bank of New York........................................ 5.59 % 06/05/96 $ 4,000,000
8,000 F.C.C. National Bank.................................... 5.74 03/11/96 8,000,000
4,795 First National Bank of Boston........................... 5.65 04/29/96 4,795,000
2,925 Fleet National Bank..................................... 5.75 02/23/96 2,925,000
3,000 La Salle National Bank.................................. 5.77 02/14/96 3,000,000
5,000 Mellon Bank, N.A........................................ 5.80 04/04/96 5,000,000
4,160 PNC Bank, N.A........................................... 5.75 02/27/96 4,160,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED COST $31,880,000)................................. 31,880,000
---------------
BANKERS' ACCEPTANCES (8.8%)
6,000 First Bank National Assoc............................... 5.76 02/06/96 5,964,217
7,000 First Union National Bank of Florida.................... 5.60-5.66 04/03/96-05/17/96 6,872,048
6,462 Mellon Bank, N.A........................................ 5.52-5.80 03/19/96-05/28/96 6,345,837
3,000 Seattle First National Bank............................. 5.63 05/15/96 2,937,437
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED COST $22,119,539).................................. 22,119,539
---------------
CERTIFICATES OF DEPOSIT (5.7%)
7,000 NatWest Bank............................................ 5.83 02/26/96 7,000,000
7,300 Union Bank.............................................. 5.65-5.83 02/09/96-02/28/96 7,300,000
---------------
TOTAL CERTIFICATES OF DEPOSIT (AMORTIZED COST $14,300,000)............................... 14,300,000
---------------
U.S. GOVERNMENT AGENCY (1.4%)
3,675 Federal Farm Credit Bank (Amortized Cost
$3,498,233)........................................... 5.49 11/27/96 3,498,233
---------------
TOTAL INVESTMENTS (AMORTIZED COST $250,870,737) (A).................... 100.4% 250,870,737
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS......................... (0.4) (1,084,151)
---------- -------------
NET ASSETS............................................................. 100.0% $ 249,786,586
---------- -------------
---------- -------------
<FN>
- ----------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (63.9%)
AUTOMOTIVE (1.0%)
$ 3,000 Ford Motor Co........................................... 9.50 % 09/15/11 $ 3,824,040
1,000 Ford Motor Co........................................... 8.875 01/15/22 1,244,090
---------------
5,068,130
---------------
BANK HOLDING COMPANIES (8.8%)
1,000 Banc One Corp........................................... 8.74 09/15/03 1,157,210
4,000 Banc One Corp........................................... 7.75 07/15/25 4,452,400
1,000 BankAmerica Corp........................................ 9.625 02/13/01 1,157,960
2,000 Boatmen's Bancshares, Inc............................... 9.25 11/01/01 2,309,280
2,000 Boatmen's Bancshares, Inc............................... 6.75 03/15/03 2,065,180
1,000 CoreStates Financial Corp............................... 9.625 02/15/01 1,159,050
5,000 First Bank N.A.......................................... 8.35 11/01/04 5,705,500
5,000 First Union Corp........................................ 6.55 10/15/35 5,125,450
4,000 Fleet Mortgage Group, Inc............................... 6.50 09/15/99 4,086,000
3,500 Household Bank.......................................... 8.45 12/10/02 3,944,885
2,000 Huntington National Bank................................ 7.625 01/15/03 2,157,640
3,000 Marshall & Ilsley Corp.................................. 6.375 07/15/03 3,042,090
3,145 PNC Funding Corp........................................ 9.875 03/01/01 3,664,743
1,000 Republic NY Corp........................................ 7.875 12/12/01 1,095,960
5,000 State Street Boston Corp................................ 5.95 09/15/03 4,940,800
---------------
46,064,148
---------------
BANKS (3.4%)
5,000 Bankers Trust New York Corp............................. 7.50 11/15/15 5,193,200
2,000 Norwest Corporation (Series G).......................... 6.20 12/01/05 1,999,660
3,000 Old Kent Financial Corp................................. 6.625 11/15/05 3,056,790
2,000 Wachovia Corp........................................... 6.375 04/15/03 2,034,960
5,000 Wachovia Corp........................................... 6.80 06/01/05 5,221,100
---------------
17,505,710
---------------
BROKERAGE (2.9%)
1,000 Bear Stearns Companies, Inc............................. 9.125 04/15/98 1,070,360
2,000 Donaldson, Lufkin & Jenrette, Inc....................... 6.875 11/01/05 2,053,240
5,000 Lehman Brothers Holdings Inc............................ 8.50 08/01/15 5,562,400
5,000 Merrill Lynch & Co., Inc................................ 6.64 09/19/02 5,150,300
1,000 Morgan Stanley Group, Inc............................... 9.25 03/01/98 1,069,530
---------------
14,905,830
---------------
FINANCIAL SERVICES (7.9%)
5,000 Aristar, Inc............................................ 6.30 07/15/00 5,078,250
1,000 Associates Corp. North America.......................... 6.75 10/15/99 1,033,830
3,000 Equifax, Inc............................................ 6.50 06/15/03 3,069,600
3,000 Ford Motor Credit Co.................................... 8.20 02/15/02 3,329,670
3,500 Household Finance Corp.................................. 7.75 06/01/99 3,711,575
2,000 Household Finance Corp.................................. 8.95 09/15/99 2,207,240
4,000 ITT Hartford Group Inc.................................. 6.375 11/01/02 4,042,160
2,000 Liberty Mutual - 144A*.................................. 8.20 05/04/07 2,223,120
5,000 MBIA Inc................................................ 7.00 12/15/25 5,145,350
4,000 Nationwide Mutual Insurance - 144A*..................... 6.50 02/15/04 3,986,680
4,000 Norwest Financial Inc................................... 7.875 02/15/02 4,395,320
3,000 Travelers Group, Inc.................................... 7.75 06/15/99 3,173,430
---------------
41,396,225
---------------
</TABLE>
53
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
FOOD SERVICES (0.2%)
$ 1,000 McDonald's Corp......................................... 8.875% 04/01/11 $ 1,238,280
---------------
FOODS (1.3%)
10,000 Archer-Daniels-Midland Co............................... 0.00 05/01/02 6,939,100
---------------
HEALTHCARE - DIVERSIFIED (0.7%)
2,000 Kaiser Foundation Health Plan, Inc...................... 9.00 11/01/01 2,304,100
1,000 Kaiser Foundation Health Plan, Inc...................... 9.55 07/15/05 1,253,740
---------------
3,557,840
---------------
INDUSTRIALS (13.9%)
5,000 Alco Standard Corp...................................... 6.75 12/01/25 4,985,800
4,000 Becton, Dickinson & Co.................................. 8.70 01/15/25 4,725,120
5,000 Boeing Co............................................... 7.95 08/15/24 5,897,650
2,000 Burlington Resources, Inc............................... 7.15 05/01/99 2,087,000
1,000 Burlington Resources, Inc............................... 8.50 10/01/01 1,124,820
1,000 Caterpillar, Inc........................................ 9.375 07/15/01 1,162,930
3,000 Caterpillar, Inc........................................ 9.375 08/15/11 3,819,810
5,000 Columbia/HCA Healthcare Corp............................ 9.00 12/15/14 6,191,300
3,000 Columbia/HCA Healthcare Corp............................ 7.19 11/15/15 3,125,460
1,000 Corning, Inc............................................ 8.875 08/15/21 1,235,450
1,000 Knight Ridder, Inc...................................... 8.50 09/01/01 1,119,980
5,000 Lockheed Martin Corp.................................... 7.875 03/15/23 5,461,850
1,000 Maytag Corp............................................. 9.75 05/15/02 1,184,990
5,000 Motorola, Inc........................................... 7.50 05/15/25 5,671,250
5,000 Phillip Morris Companies, Inc........................... 7.50 01/15/02 5,325,850
5,000 Raytheon Co............................................. 7.375 07/15/25 5,362,600
3,250 Rockwell International Corp............................. 7.625 02/17/98 3,384,940
5,000 Seagram Co. Ltd......................................... 6.875 09/01/23 4,982,800
5,000 Walt Disney Co.......................................... 7.55 07/15/93 5,444,950
---------------
72,294,550
---------------
OIL INTEGRATED - DOMESTIC (0.4%)
635 Mobil Oil Corp.......................................... 9.17 02/29/00 683,726
1,000 Texaco Capital, Inc..................................... 9.75 03/15/20 1,369,930
---------------
2,053,656
---------------
PHARMACEUTICALS (3.2%)
5,000 Eli Lilly & Co.......................................... 7.125 06/01/25 5,371,150
5,000 Johnson & Johnson....................................... 8.72 11/01/24 6,057,200
797 Marion Merrell Corp..................................... 9.11 08/01/05 912,682
1,000 McKesson Corp........................................... 8.625 02/01/98 1,057,130
3,000 Zeneca Wilmington, Inc.................................. 7.00 11/15/23 3,092,520
---------------
16,490,682
---------------
REAL ESTATE INVESTMENT TRUST (1.0%)
5,000 Kimco Realty Corp....................................... 6.50 10/01/03 5,025,050
---------------
RETAIL (4.1%)
5,000 Dayton-Hudson Corp...................................... 9.00 10/01/21 5,912,200
5,000 May Department Stores................................... 7.625 08/15/13 5,407,400
5,000 May Department Stores................................... 7.50 06/01/15 5,338,900
1,000 Penney (J.C.) Co., Inc.................................. 9.75 06/15/21 1,183,630
3,000 Wal-Mart Stores, Inc.................................... 7.49 06/21/07 3,308,070
---------------
21,150,200
---------------
</TABLE>
54
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (4.3%)
$ 5,000 AT&T Corp............................................... 8.35 % 01/15/25 $ 5,714,850
3,000 BellSouth Telecommunications, Inc....................... 7.00 10/01/25 3,182,760
5,000 BellSouth Telecommunications, Inc....................... 7.00 12/01/95 5,276,600
5,000 Southwestern Bell Telephone Co.......................... 7.20 10/15/26 5,201,500
3,000 U.S. West Communications, Inc........................... 6.875 09/15/33 2,945,310
---------------
22,321,020
---------------
TRANSPORTATION (2.3%)
5,000 Burlington Northern Santa Fe Corp....................... 7.97 01/01/15 5,639,000
1,000 Consolidated Rail Corp.................................. 9.75 06/15/20 1,351,850
5,000 Ryder System Inc........................................ 6.95 12/01/25 5,030,050
---------------
12,020,900
---------------
UTILITIES - ELECTRIC (6.2%)
1,000 Chugach Electric Company................................ 9.14 03/15/22 1,180,530
3,750 Consolidated Edison Co. of New York, Inc................ 8.05 12/15/27 3,978,600
5,000 Florida Power & Light Co................................ 7.05 12/01/26 5,074,300
1,260 Georgia Power Co........................................ 8.625 06/01/22 1,355,206
5,000 National Rural Utilities Cooperative Finance Corp....... 6.50 09/15/02 5,164,850
5,000 Northern States Power Co................................ 7.25 03/01/23 5,211,500
5,000 Pennsylvania Power & Light Co........................... 7.70 10/01/09 5,650,250
5,000 Southern California Edison Co........................... 7.125 07/15/25 4,965,100
---------------
32,580,336
---------------
WASTE DISPOSAL (2.3%)
5,000 Browning Ferris Industries, Inc......................... 9.25 05/01/21 6,482,600
5,000 Browning Ferris Industries, Inc......................... 7.40 09/15/35 5,371,550
---------------
11,854,150
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $307,200,000)..................................... 332,465,807
---------------
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (30.2%)
1,000 Federal Home Loan Mortgage Corp......................... 8.60 01/26/00 1,031,250
41 Federal Home Loan Mortgage Corp......................... 11.50 06/01/11-05/01/19 45,883
7,602 Federal Home Loan Mortgage Corp. PC Gold................ 6.50 08/01/23-07/01/25 7,519,131
11,811 Federal Home Loan Mortgage Corp. PC Gold................ 8.00 04/01/24-12/01/24 12,239,310
4,136 Federal Home Loan Mortgage Corp. PC Gold................ 8.50 01/01/22-12/01/24 4,316,931
2,000 Federal National Mortgage Association (Principal
Strip)................................................ 0.00 08/21/01 1,938,438
10,000 Federal National Mortgage Association (Principal
Strip)................................................ 0.00 10/09/19 2,175,000
12,941 Federal National Mortgage Association................... 7.00 08/01/25 13,042,431
9,662 Federal National Mortgage Association................... 7.50 08/01/25 9,897,516
18,555 Federal National Mortgage Association................... 8.00 05/01/16-09/01/25 19,215,911
2,098 Federal National Mortgage Association................... 9.00 06/01/21-02/01/25 2,209,799
4,881 Government National Mortgage Association................ 6.50 11/15/23-05/15/24 4,843,300
28,499 Government National Mortgage Association................ 7.00 07/15/22-11/15/25 28,828,686
10,999 Government National Mortgage Association................ 7.50 10/15/21-09/15/24 11,308,805
4,579 Government National Mortgage Association................ 8.00 01/15/22-06/15/25 4,767,396
665 Government National Mortgage Association................ 8.50 01/15/17-11/15/21 698,226
4,450 Government National Mortgage Association................ 9.00 07/15/24-12/15/24 4,713,254
219 Government National Mortgage Association................ 9.50 07/15/17-04/15/20 234,715
246 Government National Mortgage Association................ 10.00 05/15/16-04/15/19 270,112
</TABLE>
55
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
$ 1,600 Private Export Funding Services......................... 5.48 % 09/15/03 $ 1,597,936
11,000 Tennessee Valley Authority (Principal Strip)............ 0.00 04/15/42 3,576,320
5,000 Tennessee Valley Authority.............................. 7.85 06/15/44 5,348,445
7,000 U.S. Treasury Bond...................................... 6.875 08/15/25 7,895,781
5,000 U.S. Treasury Note...................................... 5.875 02/15/04 5,110,156
4,000 U.S. Treasury Note...................................... 6.75 05/31/99 4,176,875
---------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $150,290,227)......................................................... 157,001,607
---------------
FOREIGN GOVERNMENT & AGENCIES OBLIGATIONS (3.2%)
5,000 Hydro-Quebec (Canada)................................... 9.50 11/15/30 6,491,000
5,000 Italy (Republic of)..................................... 6.875 09/27/23 4,880,250
5,000 Province of New Brunswick (Canada)...................... 7.625 06/29/04 5,519,300
---------------
TOTAL FOREIGN GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $14,294,890).......................................................... 16,890,550
---------------
SHORT-TERM INVESTMENTS (1.4%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS (A) (1.3%)
2,300 Federal Home Loan Banks................................. 5.75 01/02/96 2,299,632
5,000 U.S. Treasury Bill...................................... 5.23 05/30/96 4,898,550
---------------
7,198,182
---------------
REPURCHASE AGREEMENT (0.1%)
229 The Bank of New York (dated 12/29/95; proceeds $228,732;
collateralized by $228,077 U.S. Treasury Note 5.75% due
09/30/97 valued at $233,229) (Identified Cost
$228,656)............................................... 3.00 01/02/96 228,656
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $7,419,330)................................ 7,426,838
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $479,204,447) (B)................... 98.7% 513,784,802
OTHER ASSETS IN EXCESS OF LIABILITIES.................................. 1.3 6,793,753
---------- -------------
NET ASSETS............................................................. 100.0% $ 520,578,555
---------- -------------
---------- -------------
<FN>
- ----------------
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(A) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- --------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (87.8%)
AEROSPACE (1.8%)
$ 3,000 Sabreliner Corp. (Series B)......................................... 12.50 % 04/15/03 $ 2,842,500
---------------
AIRLINES (4.3%)
7,057 GPA Delaware, Inc................................................... 8.75 12/15/98 6,616,456
---------------
AUTOMOTIVE (2.2%)
4,750 Envirotest Systems, Inc............................................. 9.625 04/01/03 3,467,500
---------------
CABLE & TELECOMMUNICATIONS (8.2%)
2,404 Adelphia Communications Corp. (Series B)............................ 9.50+ 02/15/04 1,983,609
5,000 AT&T Capital Corp................................................... 15.00 05/05/97 5,595,750
9,485 In-Flight Phone Corp. (Series B).................................... 14.00++ 05/15/02 3,485,738
1,500 Paxson Communications - 144A*....................................... 11.625 10/01/02 1,537,500
---------------
12,602,597
---------------
COMPUTER EQUIPMENT (7.3%)
5,000 IBM Credit Corp..................................................... 15.00 06/13/96 5,201,800
6,250 Unisys Corp......................................................... 13.50 07/01/97 6,000,000
---------------
11,201,800
---------------
CONSUMER PRODUCTS (1.3%)
2,000 J.B. Williams Holdings, Inc......................................... 12.00 03/01/04 2,015,000
---------------
CONTAINERS (2.3%)
6,400 Ivex Holdings Corp. (Series B)...................................... 13.25++ 03/15/05 3,616,000
---------------
ELECTRICAL & ALARM SYSTEMS (2.3%)
4,500 Mosler, Inc......................................................... 11.00 04/15/03 3,543,750
---------------
ENTERTAINMENT/GAMING & LODGING (8.9%)
2,000 Fitzgeralds Gaming Corp. (Units)++.................................. 13.00 12/31/02 1,870,000
3,000 Motels of America, Inc. (Series B).................................. 12.00 04/15/04 2,973,750
3,000 Six Flags Theme Parks Corp. - 144A*................................. 12.25++ 06/15/05 2,347,500
28,065 Spectravision, Inc. (c)............................................. 11.65 12/01/02 2,691,955
4,000 Trump Taj Mahal (Series A).......................................... 11.35+ 11/15/99 3,850,000
---------------
13,733,205
---------------
FOODS & BEVERAGES (13.8%)
7,500 Envirodyne Industries, Inc.......................................... 10.25 12/01/01 5,700,000
5,000 PepsiCo Inc......................................................... 15.00 06/14/96 5,206,400
1,500 SC International Services, Inc...................................... 13.00 10/01/05 1,582,500
4,000 Seven Up/RC Bottling Co. Southern California, Inc. (d).............. 11.50 08/01/99 2,405,000
13,000 Specialty Foods Acquisition Corp. (Series B)........................ 13.00++ 08/15/05 6,370,000
---------------
21,263,900
---------------
MANUFACTURING (5.6%)
1,500 Alpine Group, Inc. - 144A*.......................................... 12.25 07/15/03 1,470,000
2,000 Berry Plastics Corp................................................. 12.25 04/15/04 2,140,000
1,500 Cabot Safety Corp................................................... 12.50 07/15/05 1,597,500
1,000 International Wire Group............................................ 11.75 06/01/05 962,500
2,500 Uniroyal Technology Corp............................................ 11.75 06/01/03 2,400,000
---------------
8,570,000
---------------
</TABLE>
57
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- --------- --------- ---------------
<C> <S> <C> <C> <C>
MANUFACTURING - DIVERSIFIED (7.9%)
$ 3,000 Foamex L.P.......................................................... 11.875 % 10/01/04 $ 2,940,000
3,000 Interlake Corp...................................................... 12.125 03/01/02 2,865,000
3,000 J.B. Poindexter & Co., Inc.......................................... 12.50 05/15/04 2,550,000
6,500 Jordan Industries, Inc.............................................. 11.75++ 08/01/05 3,900,000
---------------
12,255,000
---------------
OIL & GAS (2.9%)
2,000 Deeptech International, Inc......................................... 12.00 12/15/00 1,820,000
3,000 Empire Gas Corp..................................................... 7.00 07/15/04 2,655,000
---------------
4,475,000
---------------
PUBLISHING (4.7%)
5,000 Affiliated Newspapers Investments, Inc.............................. 13.25++ 07/01/06 3,137,500
2,000 Garden State Newspapers, Inc........................................ 12.00 07/01/04 2,030,000
1,225 United States Banknote Corp......................................... 10.375 06/01/02 906,500
2,000 United States Banknote Corp......................................... 11.625 08/01/02 1,200,000
---------------
7,274,000
---------------
RESTAURANTS (7.5%)
7,750 American Restaurant Group Holdings, Inc............................. 14.00++ 12/15/05 3,603,750
2,000 Carrols Corp........................................................ 11.50 08/15/03 2,025,000
8,350 Flagstar Corp....................................................... 11.25 11/01/04 5,928,500
---------------
11,557,250
---------------
RETAIL (3.3%)
1,663 Cort Furniture Rental Corp.......................................... 12.00 09/01/00 1,779,410
2,000 County Seat Stores Co............................................... 12.00 10/01/02 1,640,000
1,900 Thrifty Payless, Inc. - 144A*....................................... 11.625+ 04/15/06 1,710,000
---------------
5,129,410
---------------
TEXTILES - APPAREL MANUFACTURERS (3.5%)
5,034 JPS Textile Group, Inc.............................................. 10.85 06/01/99 4,278,900
1,500 U.S. Leather, Inc................................................... 10.25 07/31/03 1,110,000
---------------
5,388,900
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $146,969,799)...................................... 135,552,268
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
COMMON STOCKS (A) (1.9%)
AUTOMOTIVE (0.0%)
87 Northern Holdings Industrial Corp. (Restricted) (b)..................................... --
---------------
COMPUTER EQUIPMENT (0.0%)
39,813 Memorex Telex NV (ADR) (Netherlands) (b)................................................ 29,860
---------------
ENTERTAINMENT/GAMING & LODGING (0.3%)
2,000 Motels of America, Inc. - 144A*......................................................... 170,000
4,000 Trump Taj Mahal (Class A)............................................................... 107,000
71,890 Vagabond Inns, Inc. (Class D) (c)....................................................... 125,807
---------------
402,807
---------------
</TABLE>
58
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
FOODS & BEVERAGES (0.2%)
120,000 Specialty Foods Acquisition Corp. (Restricted) - 144A*.................................. $ 330,000
---------------
MANUFACTURING - DIVERSIFIED (1.0%)
84,072 Thermadyne Holdings Corp. (b)........................................................... 1,523,805
---------------
PUBLISHING (0.1%)
5,000 Affiliated Newspapers Investments, Inc. (Class B)....................................... 150,000
---------------
RESTAURANTS (0.1%)
7,750 American Restaurant Group Holdings, Inc. - 144A*........................................ 116,250
---------------
RETAIL (0.2%)
57,000 Thrifty Payless Holdings, Inc. (Class C)................................................ 277,875
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $10,021,905)....................................... 2,830,597
---------------
PREFERRED STOCK (1.3%)
ENTERTAINMENT/GAMING & LODGING
80,000 Fitzgeralds Gaming Corp. (Units)++ $3.75 (Identified Cost $2,000,000)................... 2,000,000
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- ---------
<C> <S> <C> <C>
WARRANTS (A) (0.6%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. (Restricted) - 144A*......................................... 04/15/03 15,000
---------------
CABLE & TELECOMMUNICATIONS (0.1%)
9,485 In-Flight Phone Corp. - 144A*................................................. 08/31/02 94,850
---------------
CONTAINERS (0.1%)
2,000 Crown Packaging Holdings, Ltd. (Canada) - 144A*............................... 11/01/03 110,000
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
1,000 Boomtown, Inc. - 144A*........................................................ 11/01/98 --
3,263 Casino America, Inc........................................................... 11/15/96 --
8,750 Fitzgeralds Gaming Corp. - 144A*.............................................. 03/15/99 87,500
---------------
87,500
---------------
MANUFACTURING (0.0%)
3,000 BPC Holdings Corp............................................................. 04/15/04 37,500
15,000 Uniroyal Technology Corp...................................................... 06/01/03 37,500
---------------
75,000
---------------
OIL & GAS (0.0%)
4,140 Empire Gas Corp............................................................... 07/15/04 41,400
---------------
RETAIL (0.3%)
2,000 County Seat Holdings Co....................................................... 10/15/98 45,000
132,000 New Cort Holdings Corp........................................................ 09/01/98 495,000
---------------
540,000
---------------
RETAIL - FOOD CHAINS (0.0%)
15,854 Grand Union Co. (Series 1) (b)................................................ 06/16/00 --
31,709 Grand Union Co. (Series 2) (b)................................................ 06/16/00 --
---------------
--
---------------
TOTAL WARRANTS (IDENTIFIED COST $976,985)................................................ 963,750
---------------
</TABLE>
59
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE
- ----------- --------- ---------------
VALUE
--
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (6.5%)
U.S. GOVERNMENT AGENCY (E) (3.2%)
$ 5,000 Federal Home Loan Mortgage Corp...................................... 5.53% 01/03/96 $ 4,998,464
---------------
REPURCHASE AGREEMENT (3.3%)
5,041 The Bank of New York (dated 12/29/95; proceeds $5,042,215;
collateralized by $5,344,097 U.S. Treasury Bill 5.31% due 09/19/96
valued at $5,141,346) (Identified Cost $5,040,535)................... 3.00 01/02/96 5,040,535
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $10,038,999).................................. 10,038,999
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $170,007,688) (F)................... 98.1% 151,385,614
OTHER ASSETS IN EXCESS OF LIABILITIES.................................. 1.9 2,923,971
---------- -------------
NET ASSETS............................................................. 100.0% $ 154,309,585
---------- -------------
---------- -------------
<FN>
- ----------------
ADR AMERICAN DEPOSITORY RECEIPT.
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
+ PAYMENT-IN-KIND SECURITY.
++ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A
FUTURE SPECIFIED DATE.
(A) NON-INCOME PRODUCING SECURITIES.
(B) ACQUIRED THROUGH EXCHANGE OFFER.
(C) NON-INCOME PRODUCING SECURITY, ISSUER IN BANKRUPTCY.
(D) NON-INCOME PRODUCING SECURITY, BOND IN DEFAULT.
(E) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(F) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
CORPORATE BONDS (9.5%)
NATURAL GAS (1.3%)
$ 3,000 Coastal Corp. 7.75% due 10/15/35.... $ 3,132,750
3,000 Norsk Hydro AS
7.15% due 11/15/25 (Norway)....... 3,120,510
---------------
6,253,260
---------------
TELECOMMUNICATIONS (3.6%)
3,000 Alltel Corp. 6.75% due 09/15/05..... 3,124,650
1,400 Century Telephone Enterprises, Inc.
7.20% due 12/01/25................ 1,446,942
5,000 Century Telephone Enterprises, Inc.
8.25% due 05/01/24................ 5,530,850
2,000 Southwestern Bell Telephone Co.
7.20% due 10/15/26................ 2,080,600
2,000 Sprint Corp. 9.25% due 04/15/22..... 2,568,580
2,000 TCI Communications, Inc.
8.75% due 08/01/15................ 2,209,940
---------------
16,961,562
---------------
UTILITIES - ELECTRIC (4.6%)
5,000 Commonwealth Edison Company 8.375%
due 02/15/23...................... 5,367,900
2,000 Consumer Power Company 7.375% due
09/15/23.......................... 1,970,220
2,000 Florida Power & Light Co.
7.05% due 12/01/26................ 2,029,720
3,000 Illinois Power Co.
8.75% due 07/01/21................ 3,259,770
3,000 Indianapolis Power Co.
7.05% due 02/01/24................ 3,039,570
2,000 Long Island Lighting Co.
9.625% due 07/01/24............... 2,064,080
2,000 South Carolina Electric & Gas Co.
7.625% due 06/01/23............... 2,125,340
2,000 Union Electric Co.
8.00% due 12/15/22................ 2,201,300
---------------
22,057,900
---------------
TOTAL CORPORATE BONDS (IDENTIFIED
COST $41,998,066)................. 45,272,722
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
U.S. GOVERNMENT AGENCY (0.3%)
1,250 Tennessee Valley Authority 8.00% due
03/31/45 (Identified Cost
$1,250,000)....................... 1,325,000
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
PREFERRED STOCKS (0.5%)
TELECOMMUNICATIONS (0.0%)
7,000 GTE Delaware Corp. (Series A)
$2.3125........................... 193,375
---------------
UTILITIES - ELECTRIC (0.5%)
40,000 Arizona Public Service Co. (Series
A) $2.50.......................... 1,110,000
2,207 Cleveland Electric Illuminating Co.
(Series N) $9.125................. 216,280
40,000 Connecticut Light & Power Capital
(Series A) $2.325................. 1,085,000
---------------
2,411,280
---------------
TOTAL PREFERRED STOCKS (IDENTIFIED
COST $2,400,114).................. 2,604,655
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (85.4%)
NATURAL GAS (11.5%)
90,000 Apache Corp......................... $ 2,655,000
120,000 Burlington Resources, Inc........... 4,710,000
70,000 Columbia Gas System, Inc.*.......... 3,071,250
150,000 El Paso Natural Gas Co.............. 4,256,250
170,000 ENSERCH Corp........................ 2,762,500
105,000 Louisiana Land & Exploration Co.
(The)............................. 4,501,875
130,000 Panhandle Eastern Corp.............. 3,623,750
130,000 Questar Corp........................ 4,355,000
200,000 Seagull Energy Corp.*............... 4,450,000
130,000 Tenneco, Inc........................ 6,451,250
50,000 UGI Corp............................ 1,037,500
145,000 Union Texas Petroleum Holdings,
Inc............................... 2,809,375
110,000 USX Delhi-Group..................... 1,141,250
215,000 Williams Companies, Inc............. 9,433,125
---------------
55,258,125
---------------
TELECOMMUNICATIONS (32.2%)
135,000 Airtouch Communications, Inc.*...... 3,813,750
230,000 Alltel Corp......................... 6,785,000
185,000 AT&T Corp........................... 11,978,750
165,000 BCE, Inc. (Canada).................. 5,692,500
290,000 Cable & Wireless PLC (ADR) (United
Kingdom).......................... 6,126,250
160,000 Century Telephone Enterprises,
Inc............................... 5,080,000
75,000 Cincinnati Bell, Inc................ 2,606,250
200,000 Comcast Corp. (Class A)............. 3,500,000
155,000 Comsat Corp......................... 2,886,875
330,000 Ericsson (L.M.) Telephone Co. AB
(ADR) (Sweden).................... 6,393,750
230,000 Frontier Corp....................... 6,900,000
175,000 GTE Corp............................ 7,700,000
61,250 Liberty Media Group (Class A)*...... 1,638,437
180,000 MCI Communications Corp............. 4,702,500
100,000 MFS Communications Co., Inc.*....... 5,325,000
50,000 Motorola, Inc....................... 2,850,000
120,000 Northern Telecom Ltd. (Canada)...... 5,160,000
140,000 NYNEX Corp.......................... 7,560,000
130,000 Pacific Telesis Group............... 4,371,250
130,000 SBC Communications, Inc............. 7,475,000
180,000 Southern New England
Telecommunications Corp........... 7,155,000
125,000 Sprint Corp......................... 4,984,375
65,000 Tele Danmark AS (ADR) (Denmark)..... 1,795,625
245,000 Tele-Communications, Inc. (Class
A)*............................... 4,869,375
80,000 Telecommunications Corp. New
Zealand, Ltd. (ADR) (New
Zealand).......................... 5,550,000
90,000 Telefonos de Mexico S.A. de C.V.
(Series L) (ADR) (Mexico)......... 2,868,750
130,000 Telephone & Data Systems, Inc....... 5,135,000
110,000 Time Warner, Inc.................... 4,166,250
110,000 U.S. West, Inc...................... 3,932,500
110,000 U.S. West Media Group*.............. 2,090,000
85,000 WorldCom, Inc.*..................... 2,996,250
---------------
154,088,437
---------------
UTILITIES - ELECTRIC (41.7%)
220,000 Baltimore Gas & Electric Co......... 6,270,000
135,000 Carolina Power & Light Co........... 4,657,500
150,000 Central & South West Corp........... 4,181,250
235,865 CINergy Corp........................ 7,223,366
260,000 CMS Energy Corp..................... 7,767,500
</TABLE>
61
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
130,000 Consolidated Edison Co.
of New York, Inc.................. $ 4,160,000
165,000 Detroit Edison Co................... 5,692,500
215,000 DPL, Inc............................ 5,321,250
202,500 DQE, Inc............................ 6,226,875
190,000 Entergy Corp........................ 5,557,500
140,000 FPL Group, Inc...................... 6,492,500
175,000 General Public Utilities Corp....... 5,950,000
125,000 Hawaiian Electric Industries, Inc... 4,843,750
200,000 Houston Industries, Inc............. 4,850,000
255,000 Illinova Corp....................... 7,650,000
150,000 IPALCO Enterprises, Inc............. 5,718,750
145,000 Kansas City Power & Light Co........ 3,788,125
90,000 Long Island Lighting Co............. 1,473,750
140,000 Montana Power Co.................... 3,167,500
110,000 New England Electric System......... 4,358,750
105,000 New York State Electric & Gas
Corp.............................. 2,716,875
210,000 Niagara Mohawk Power Corp........... 2,021,250
180,000 NIPSCO Industries, Inc.............. 6,885,000
100,000 Northeast Utilities................. 2,437,500
150,000 Pacific Gas & Electric Co........... 4,256,250
310,000 PacifiCorp.......................... 6,587,500
235,000 Pinnacle West Capital Corp.......... 6,756,250
105,000 Portland General Corp............... 3,058,125
100,000 Potomac Electric Power Company...... 2,625,000
205,000 Public Service Company of Colorado.. 7,251,875
240,000 Public Service Company of New
Mexico*........................... 4,230,000
145,000 Public Service Enterprise Group,
Inc............................... 4,440,625
95,000 Puget Sound Power & Light Company... 2,208,750
140,000 San Diego Gas & Electric Co......... 3,325,000
180,000 SCANA Corp.......................... 5,152,500
120,000 SCE Corp............................ 2,130,000
280,000 Southern Co......................... 6,895,000
140,000 Texas Utilities Co.................. 5,757,500
110,000 United Illuminating Co.............. 4,111,250
165,000 Western Resources, Inc.............. 5,506,875
205,000 Wisconsin Energy Corp............... 6,278,125
---------------
199,982,116
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$349,190,520)..................... 409,328,678
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.8%)
U.S. GOVERNMENT AGENCIES (A) (3.7%)
$ 17,950 Federal Home Loan Mortgage Corp.
5.53%-5.75% due 01/02/96-01/09/96... $ 17,935,807
---------------
REPURCHASE AGREEMENT (0.1%)
281 The Bank of New York 3.00% due
01/02/96 (dated 12/29/95; proceeds
$280,713; collateralized by $279,911
U.S. Treasury Note 5.75% due
09/30/97 valued at $286,231)
(Identified Cost $280,619).......... 280,619
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $18,216,426)..... 18,216,426
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $413,055,126) (B)......... 99.5% 476,747,481
OTHER ASSETS IN EXCESS OF
LIABILITIES.................... 0.5 2,322,664
---------- -------------
NET ASSETS....................... 100.0% $ 479,070,145
---------- -------------
---------- -------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(A) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (95.5%)
AEROSPACE (4.3%)
405,000 Raytheon Co....................... $ 19,136,250
191,500 United Technologies Corp.......... 18,168,562
---------------
37,304,812
---------------
ALUMINUM (2.2%)
356,000 Aluminum Co. of America........... 18,823,500
---------------
AUTO PARTS (2.2%)
243,000 TRW, Inc.......................... 18,832,500
---------------
AUTOMOTIVE (4.3%)
644,000 Ford Motor Co..................... 18,676,000
356,000 General Motors Corp............... 18,823,500
---------------
37,499,500
---------------
BANKS (4.2%)
276,100 BankAmerica Corp.................. 17,877,475
509,000 KeyCorp........................... 18,451,250
---------------
36,328,725
---------------
BEVERAGES - SOFT DRINKS (2.1%)
329,500 PepsiCo Inc....................... 18,410,812
---------------
CHEMICALS (6.3%)
259,300 Dow Chemical Co................... 18,248,237
294,000 Eastman Chemical Company.......... 18,411,750
304,500 Grace (W.R.) & Co................. 18,003,563
---------------
54,663,550
---------------
COMPUTERS (2.1%)
194,400 International Business Machines
Corp............................ 17,836,200
---------------
CONGLOMERATES (4.4%)
283,000 Minnesota Mining & Manufacturing
Co.............................. 18,748,750
382,500 Tenneco Inc....................... 18,981,563
---------------
37,730,313
---------------
COSMETICS (2.1%)
342,400 Gillette Co....................... 17,847,600
---------------
DRUGS (6.4%)
438,000 Abbott Laboratories............... 18,286,500
190,000 American Home Products Corp....... 18,430,000
219,200 Bristol-Myers Squibb Co........... 18,823,800
---------------
55,540,300
---------------
ELECTRIC - MAJOR (4.3%)
261,200 General Electric Co............... 18,806,400
1,134,000 Westinghouse Electric Corp........ 18,711,000
---------------
37,517,400
---------------
FINANCE (2.1%)
305,000 Household International, Inc...... 18,033,125
---------------
FOODS (4.1%)
520,400 Quaker Oats Company (The)......... 17,953,800
563,000 Sara Lee Corp..................... 17,945,625
---------------
35,899,425
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
INSURANCE (2.1%)
260,500 Aetna Life & Casualty Co.......... $ 18,039,625
---------------
METALS & MINING (2.1%)
292,000 Phelps Dodge Corp................. 18,177,000
---------------
NATURAL GAS (6.1%)
444,600 Burlington Resources, Inc......... 17,450,550
622,000 El Paso Natural Gas Co............ 17,649,250
650,000 Panhandle Eastern Corp............ 18,118,750
---------------
53,218,550
---------------
OFFICE EQUIPMENT (2.1%)
391,000 Pitney Bowes, Inc................. 18,377,000
---------------
OIL - DOMESTIC (2.0%)
158,000 Atlantic Richfield Co............. 17,498,500
---------------
OIL INTEGRATED - INTERNATIONAL (6.4%)
224,000 Exxon Corp........................ 17,948,000
166,500 Mobil Corp........................ 18,648,000
133,300 Royal Dutch Petroleum Co. (ADR)
(Netherlands)................... 18,811,963
---------------
55,407,963
---------------
PAPER & FOREST PRODUCTS (2.2%)
433,700 Weyerhaeuser Co................... 18,757,525
---------------
PHOTOGRAPHY (2.1%)
270,500 Eastman Kodak Co.................. 18,123,500
---------------
RAILROADS (2.1%)
232,500 Burlington Northern Santa Fe
Corp............................ 18,135,000
---------------
RETAIL - DEPARTMENT STORES (2.1%)
436,000 May Department Stores Co.......... 18,421,000
---------------
SOAP & HOUSEHOLD PRODUCTS (2.1%)
218,000 Procter & Gamble Co............... 18,094,000
---------------
TELECOMMUNICATIONS (2.2%)
536,000 U.S. West, Inc.................... 19,162,000
---------------
TELEPHONES (4.3%)
282,800 Bell Atlantic Corp................ 18,912,250
457,000 Sprint Corp....................... 18,222,875
---------------
37,135,125
---------------
TOBACCO (2.1%)
199,500 Philip Morris Companies, Inc...... 18,054,750
---------------
UTILITIES - ELECTRIC (4.4%)
410,500 FPL Group, Inc.................... 19,036,937
572,500 Unicom Corp....................... 18,749,375
---------------
37,786,312
---------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $658,072,712).............. 826,655,612
---------------
</TABLE>
63
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (3.9%)
$ 2,000 U.S. Treasury Bond
8.125% due 08/15/19............. $ 2,514,375
5,000 U.S. Treasury Bond
8.00% due 11/15/21.............. 6,253,906
5,000 U.S. Treasury Bond
7.125% due 02/15/23............. 5,717,969
14,000 U.S. Treasury Bond
6.25% due 08/15/23.............. 14,395,938
5,000 U.S. Treasury Note
6.375% due 01/15/99............. 5,154,687
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $30,172,969)... 34,036,875
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (A) (0.6%)
U.S. GOVERNMENT AGENCY
$ 5,010 Federal Home Loan Mortgage Corp.
5.75% due 01/02/96 (Amortized Cost
$5,009,200)....................... $ 5,009,200
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $693,254,881) (B)......... 100.0% 865,701,687
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS................... -- (284,861)
---------- -------------
NET ASSETS....................... 100.0% $ 865,416,826
---------- -------------
---------- -------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
COMMON STOCKS (98.2%)
ADVERTISING (2.4%)
36,700 Interpublic Group of
Companies, Inc...................... $ 1,591,862
-------------
APPAREL (2.2%)
33,100 Cintas Corp........................... 1,472,950
-------------
AUTOMOTIVE - REPLACEMENT PARTS (2.2%)
35,300 Genuine Parts Co...................... 1,447,300
-------------
BANKING (2.2%)
20,100 Fifth Third Bancorp................... 1,457,250
-------------
BEVERAGES - ALCOHOLIC (2.2%)
21,700 Anheuser-Busch Companies, Inc......... 1,451,188
-------------
BEVERAGES - SOFT DRINKS (2.1%)
18,800 Coca Cola Co.......................... 1,395,900
-------------
BIOTECHNOLOGY (2.2%)
26,800 Medtronic Inc......................... 1,497,450
-------------
BUSINESS SYSTEMS (2.2%)
28,400 General Motors Corp. (Class E)........ 1,476,800
-------------
CHEMICALS - SPECIALTY (2.2%)
29,200 Sigma-Aldrich Corp.................... 1,445,400
-------------
COMPUTER SERVICES (2.2%)
20,000 Automatic Data Processing, Inc........ 1,485,000
-------------
COMPUTER SOFTWARE (4.2%)
24,950 Computer Associates
International, Inc.................. 1,419,031
16,100 Microsoft Corp.*...................... 1,412,775
-------------
2,831,806
-------------
CONSUMER SERVICES (2.1%)
34,500 Block (H.&R.), Inc.................... 1,397,250
-------------
COSMETICS (2.1%)
28,900 International Flavors &
Fragrances Inc...................... 1,387,200
-------------
DRUGS (4.3%)
32,600 Forest Laboratories, Inc.*............ 1,475,150
25,300 Schering-Plough Corp.................. 1,385,175
-------------
2,860,325
-------------
DRUGS & HEALTHCARE (2.2%)
35,500 Abbott Laboratories................... 1,482,125
-------------
ELECTRICAL EQUIPMENT (2.1%)
21,400 Grainger (W.W.), Inc.................. 1,417,750
-------------
ELECTRONICS (2.1%)
25,000 Dionex Corp.*......................... 1,418,750
-------------
ENTERTAINMENT (2.2%)
53,800 Circus Circus Enterprises, Inc.*...... 1,499,675
-------------
FINANCIAL - MISCELLANEOUS (2.3%)
12,500 Federal National Mortgage
Association......................... 1,551,562
-------------
FOOD WHOLESALERS (2.2%)
45,900 Sysco Corp............................ 1,491,750
-------------
FOODS (6.7%)
35,700 ConAgra, Inc.......................... 1,472,625
40,050 Tootsie Roll Industries, Inc.......... 1,586,981
28,100 Wrigley (Wm.) Jr. Co. (Class A)....... 1,475,250
-------------
4,534,856
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
GOLD MINING (2.1%)
54,200 Barrick Gold Corp. (Canada)........... $ 1,429,525
-------------
HEALTHCARE - MISCELLANEOUS (2.3%)
33,200 U.S. Healthcare, Inc.................. 1,539,649
-------------
INSURANCE (2.2%)
15,850 American International Group, Inc..... 1,466,125
-------------
MACHINERY - DIVERSIFIED (2.3%)
29,000 Thermo Electron Corp.*................ 1,508,000
-------------
MANUFACTURED HOUSING (2.1%)
67,250 Clayton Homes, Inc.................... 1,437,469
-------------
MANUFACTURING (4.6%)
61,301 Federal Signal Corp................... 1,586,163
42,800 Loral Corp............................ 1,514,050
-------------
3,100,213
-------------
MANUFACTURING - DIVERSIFIED (2.2%)
36,500 Sherwin-Williams Co................... 1,487,375
-------------
MEDICAL EQUIPMENT (4.2%)
78,900 Biomet, Inc.*......................... 1,400,475
26,500 Stryker Corp.......................... 1,387,938
-------------
2,788,413
-------------
PHARMACEUTICALS (2.1%)
16,800 Johnson & Johnson..................... 1,438,500
-------------
RESTAURANTS (6.4%)
94,900 Brinker International, Inc.*.......... 1,435,363
62,500 International Dairy Queen, Inc. (Class
A)*................................. 1,421,875
31,900 McDonald's Corp....................... 1,439,488
-------------
4,296,726
-------------
RETAIL - DEPARTMENT STORES (2.1%)
62,200 Wal-Mart Stores, Inc.................. 1,391,725
-------------
RETAIL - DRUG STORES (2.2%)
49,600 Walgreen Co........................... 1,481,800
-------------
RETAIL - FOOD CHAINS (2.2%)
43,900 Albertson's Inc....................... 1,443,213
-------------
RETAIL - SPECIALTY (2.3%)
31,900 Home Depot, Inc....................... 1,527,213
-------------
TOBACCO (2.1%)
42,300 UST, Inc.............................. 1,411,762
-------------
UTILITIES (2.2%)
56,401 Citizens Utilities Co. (Series A)*.... 719,112
57,417 Citizens Utilities Co. (Series B)*.... 724,892
-------------
1,444,004
-------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$51,576,527)........................ 65,785,861
-------------
</TABLE>
65
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -------------
SHORT-TERM INVESTMENT (A) (2.0%)
U.S. GOVERNMENT AGENCY
<C> <S> <C>
$ 1,365 Federal Home Loan Mortgage Corp.
5.75% due 01/02/96 (Amortized Cost
$1,364,782).......................... $ 1,364,782
-------------
TOTAL INVESTMENTS (IDENTIFIED COST
$52,941,309)(B)................. 100.2% 67,150,643
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS.................... (0.2) (155,473)
---------- ------------
NET ASSETS........................ 100.0% $ 66,995,170
---------- ------------
---------- ------------
<FN>
- ------------------
* NON-INCOME PRODUCING SECURITY.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (99.5%)
AUSTRALIA (1.5%)
BUILDING & CONSTRUCTION
390,000 Pioneer International Ltd......... $ 1,004,825
---------------
MULTI-INDUSTRY
450,000 Southcorp Holdings Ltd............ 1,045,810
---------------
PAPER & FOREST PRODUCTS
135,000 Amcor Ltd......................... 952,254
---------------
TOTAL AUSTRALIA................... 3,002,889
---------------
CANADA (3.0%)
NATURAL GAS
108,000 TransCanada Pipelines Ltd......... 1,495,048
---------------
OIL RELATED
43,500 Imperial Oil Ltd.................. 1,575,220
64,300 IPL Energy, Inc................... 1,503,163
---------------
3,078,383
---------------
TELECOMMUNICATIONS
46,000 BCE, Inc.......................... 1,594,059
---------------
TOTAL CANADA...................... 6,167,490
---------------
FRANCE (7.6%)
BANKING
10,650 Societe Generale.................. 1,313,476
---------------
FINANCIAL SERVICES
3,850 Societe Eurafrance S.A............ 1,291,051
---------------
FOODS & BEVERAGES
7,700 Eridania Beghin-Say S.A........... 1,318,520
---------------
HOUSEHOLD PRODUCTS
12,700 BIC............................... 1,289,288
---------------
MULTI-INDUSTRY
6,600 Compagnie Generale d'Industrie et
de Participations............... 1,302,375
3,500 Financiere et Industrielle Gaz et
Eaux............................ 1,212,924
4,650 Saint-Louis....................... 1,232,290
26,461 Worms et Compagnie................ 1,248,746
---------------
4,996,335
---------------
OIL INTEGRATED - INTERNATIONAL
17,800 Societe National Elf Aquitaine.... 1,309,192
20,000 Total S.A. (B Shares)............. 1,347,467
---------------
2,656,659
---------------
TELECOMMUNICATIONS
15,200 Alcatel Alsthom................... 1,308,213
---------------
TELEVISION
13,000 Societe Television Francaise...... 1,391,295
---------------
TOTAL FRANCE...................... 15,564,837
---------------
GERMANY (6.3%)
BANKING
21,400 Deutsche Bank Aktiengesellschaft.. 1,011,867
---------------
BUILDING & CONSTRUCTION
2,650 Bilfinger & Berger Bau AG......... 1,001,009
---------------
CHEMICALS
4,650 BASF AG........................... 1,033,513
3,800 Bayer AG.......................... 1,000,557
---------------
2,034,070
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
HEALTH & PERSONAL CARE
28,000 Douglas Holding AG................ $ 985,600
---------------
MACHINERY - DIVERSIFIED
5,700 IWKA AG........................... 1,034,922
---------------
MULTI-INDUSTRY
3,450 Preussag AG....................... 962,400
2,700 RWE AG............................ 976,696
2,500 Viag AG........................... 1,000,000
---------------
2,939,096
---------------
OFFICE EQUIPMENT
6,100 Herlitz AG........................ 1,005,704
---------------
RETAIL - DEPARTMENT STORES
2,400 Karstadt AG....................... 976,696
---------------
TEXTILES - APPAREL
1,200 Hugo Boss AG (Pref.).............. 994,226
---------------
UTILITIES - ELECTRIC
24,300 Veba AG........................... 1,029,475
---------------
TOTAL GERMANY..................... 13,012,665
---------------
HONG KONG (4.0%)
BANKING
105,200 HSBC Holdings PLC................. 1,591,877
---------------
CONGLOMERATES
210,000 Swire Pacific Ltd. (Class A)...... 1,629,591
---------------
REAL ESTATE
277,000 Cheung Kong (Holdings) Ltd........ 1,687,364
---------------
TELECOMMUNICATIONS
940,000 Hong Kong Telecommunications,
Ltd............................. 1,677,703
---------------
UTILITIES - ELECTRIC
505,000 Hong Kong Electric Holdings Ltd... 1,655,684
---------------
TOTAL HONG KONG................... 8,242,219
---------------
ITALY (2.0%)
NATURAL GAS
350,000 Italgas SpA....................... 1,064,880
---------------
TELECOMMUNICATIONS
175,000 Sirti SpA......................... 983,307
900,000 Telecom Italia SpA................ 1,100,976
---------------
2,084,283
---------------
TEXTILES - APPAREL
87,000 Benetton Group SpA................ 1,035,232
---------------
TOTAL ITALY....................... 4,184,395
---------------
JAPAN (23.7%)
AUTOMOTIVE
127,000 Honda Motor Co.................... 2,617,417
128,000 Toyota Motor Corp................. 2,712,337
---------------
5,329,754
---------------
BUILDING MATERIALS
495,000 Sankyo Aluminium Industrial....... 2,648,621
170,000 Sekisui Chemical Co............... 2,500,242
---------------
5,148,863
---------------
COMPUTER SERVICES
285,000 AT&T Global Info Solutions........ 2,498,403
32,000 Nintendo Co., Ltd................. 2,430,576
---------------
4,928,979
---------------
</TABLE>
67
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
ELECTRONICS & ELECTRICAL
260,000 Hitachi, Ltd...................... $ 2,616,352
34,000 Kyocera Corp...................... 2,523,270
162,000 Matsushita Electric
Industrial Co. Ltd.............. 2,633,382
240,000 Matsushita Electric Works......... 2,531,205
155,000 Sharp Corp........................ 2,474,601
45,500 Sony Corp......................... 2,725,157
50,000 TDK Corp.......................... 2,549,589
---------------
18,053,556
---------------
ENTERTAINMENT & LEISURE TIME
300,000 Mizuno Corp....................... 2,597,968
---------------
FOODS & BEVERAGES
143,000 House Food Industry............... 2,573,585
---------------
METALS & MINING
500,000 Furukawa Co., Ltd................. 2,472,182
---------------
PHARMACEUTICALS
130,000 Taisho Pharmaceutical Co., Ltd.... 2,566,038
160,000 Takeda Chemical Industries........ 2,631,834
---------------
5,197,872
---------------
TRANSPORTATION
215,000 Yamato Transport Co. Ltd.......... 2,558,781
---------------
TOTAL JAPAN....................... 48,861,540
---------------
MALAYSIA (2.0%)
BANKING
62,000 AMMB Holdings Berhad.............. 708,293
---------------
BUILDING & CONSTRUCTION
215,000 Cement Industries of Malaysia..... 707,209
108,000 United Engineers Malaysia
Berhad.......................... 689,226
---------------
1,396,435
---------------
CONGLOMERATES
253,000 Sime Darby Berhad................. 672,740
---------------
FOODS & BEVERAGES
90,000 Nestle Malaysia Berhad............ 659,445
---------------
OIL RELATED
239,000 Esso Malaysia Berhad.............. 630,806
---------------
TOTAL MALAYSIA.................... 4,067,719
---------------
NETHERLANDS (3.0%)
BANKING
19,000 ABN-AMRO Holdings................. 864,280
---------------
BUILDING & CONSTRUCTION
14,200 Koninklijke Volker Stevin NV...... 857,125
---------------
CHEMICALS
11,300 DSM NV............................ 928,188
---------------
FINANCIAL SERVICES
13,300 Internationale Nederlande
Groep NV........................ 887,218
---------------
INSURANCE
20,700 Aegon NV.......................... 914,561
12,700 Fortis Amev NV.................... 849,564
---------------
1,764,125
---------------
TEXTILES
21,300 Gamma Holding NV.................. 967,579
---------------
TOTAL NETHERLANDS................. 6,268,515
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
SWITZERLAND (4.0%)
BANKING
5,100 Swiss Bank Corp................... $ 2,082,445
---------------
CHEMICALS
2,350 Ciba-Geigy Ltd.................... 2,057,651
---------------
FOODS & BEVERAGES
1,825 Nestle AG......................... 2,018,812
---------------
MULTI-INDUSTRY
1,725 BBC Brown Boveri AG............... 2,003,901
---------------
TOTAL SWITZERLAND................. 8,162,809
---------------
UNITED KINGDOM (12.1%)
BANKING
500,000 Hambros PLC....................... 1,581,000
310,960 Lloyds TSB Group PLC.............. 1,595,380
150,000 National Westminster Bank PLC..... 1,507,764
---------------
4,684,144
---------------
BREWERS
133,000 Bass PLC.......................... 1,481,188
158,000 Scottish & Newcastle
Breweries PLC................... 1,501,237
---------------
2,982,425
---------------
FOODS & BEVERAGES
1,000,000 Hazlewood Food PLC................ 1,557,750
630,000 Hillsdown Holdings PLC............ 1,660,050
---------------
3,217,800
---------------
MULTI-INDUSTRY
515,000 Hanson PLC........................ 1,536,632
---------------
NATURAL GAS
400,000 British Gas PLC................... 1,574,800
---------------
RETAIL - MERCHANDISING
325,000 Tesco PLC......................... 1,496,138
---------------
STEEL & IRON
640,000 British Steel PLC................. 1,614,480
---------------
TELECOMMUNICATIONS
275,000 British Telecommunications
PLC............................. 1,508,925
---------------
TOBACCO
175,000 B.A.T. Industries PLC............. 1,539,344
---------------
UTILITIES - ELECTRIC
272,000 Scottish Hydro-Electric PLC....... 1,515,652
---------------
UTILITIES - WATER
142,000 Severn Trent PLC.................. 1,513,188
130,000 Welsh Water PLC................... 1,560,618
121,500 Welsh Water PLC (Pref.)........... 205,274
---------------
3,279,080
---------------
TOTAL UNITED KINGDOM.............. 24,949,420
---------------
UNITED STATES (30.3%)
AEROSPACE & DEFENSE
53,500 Northrop Grumman Corp............. 3,424,000
---------------
AUTOMOTIVE
113,000 Ford Motor Co..................... 3,277,000
---------------
BANKING
52,500 BankAmerica Corp.................. 3,399,375
---------------
BANKS
92,500 KeyCorp........................... 3,353,125
---------------
</TABLE>
68
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
CHEMICALS
27,300 Monsanto Co....................... $ 3,344,250
---------------
COMPUTERS - SYSTEMS
28,500 International Business Machines
Corp............................ 2,614,875
---------------
CONGLOMERATES
50,000 Minnesota Mining & Manufacturing
Co.............................. 3,312,500
69,500 Tenneco Inc....................... 3,448,938
---------------
6,761,438
---------------
MACHINERY - DIVERSIFIED
93,500 Deere & Co........................ 3,295,875
---------------
METALS & MINING
53,500 Phelps Dodge Corp................. 3,330,375
---------------
OIL INTEGRATED - INTERNATIONAL
64,000 Chevron Corp...................... 3,360,000
---------------
PAPER
60,000 International Paper Co............ 2,272,500
---------------
PHARMACEUTICALS
40,000 Bristol-Myers Squibb Co........... 3,435,000
---------------
RETAIL
44,500 Dayton-Hudson Corp................ 3,337,500
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
TELECOMMUNICATIONS
82,500 Sprint Corp....................... $ 3,289,688
---------------
TIRE AND RUBBER GOODS
81,500 Goodyear Tire & Rubber Co......... 3,698,064
---------------
TOBACCO
37,000 Philip Morris Companies, Inc...... 3,348,500
---------------
TRANSPORTATION
48,500 Conrail, Inc...................... 3,395,000
---------------
UTILITIES - ELECTRIC
117,000 Pacific Gas & Electric Co......... 3,319,875
---------------
TOTAL UNITED STATES............... 62,256,440
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $184,452,332)(A).......... 99.5% 204,740,938
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 0.5 997,586
---------- -------------
NET ASSETS....................... 100.0% $ 205,738,524
---------- -------------
---------- -------------
<FN>
- ------------------
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $185,487,221; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $24,385,376 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $5,131,659, RESULTING IN NET UNREALIZED
APPRECIATION OF $19,253,717.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 32,181 MYR 81,797 01/02/96 $ (41)
$ 16,993 L 10,929 01/04/96 54
$ 82,302 Y 8,442,565 01/04/96 613
DEM 76,890 $ 53,705 01/04/96 (217)
Y 16,913,943 $ 164,022 01/05/96 (365)
$ 44,470 ITL 70,866,097 01/31/96 (170)
------
Net
unrealized depreciation .................... $ (126)
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Aerospace & Defense.......................... $ 3,424,000 1.7%
Automotive................................... 8,606,754 4.2
Banking...................................... 19,008,882 9.2
Brewers...................................... 2,982,425 1.4
Building & Construction...................... 4,259,394 2.1
Building Materials........................... 5,148,863 2.5
Chemicals.................................... 8,364,159 4.1
Computer Services............................ 4,928,979 2.4
Computers - Peripheral Equipment............. 2,614,875 1.3
Conglomerates................................ 9,063,769 4.4
Electronics & Electrical..................... 18,053,556 8.8
Entertainment................................ 2,597,968 1.3
Financial Services........................... 2,178,269 1.0
Foods & Beverages............................ 9,788,162 4.7
Health & Personal Care....................... 985,600 0.5
Household Products........................... 1,289,288 0.6
Insurance.................................... 1,764,125 0.8
Machinery - Diversified...................... 4,330,797 2.1
Metals & Mining.............................. 5,802,557 2.8
Multi-Industry............................... 12,521,774 6.1
Natural Gas.................................. 4,134,728 2.0
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Office Equipment............................. $ 1,005,704 0.5%
Oil.......................................... 3,709,189 1.8
Oil Integrated-International................. 6,016,659 2.9
Paper & Forest Products...................... 3,224,754 1.6
Pharmaceuticals.............................. 8,632,872 4.2
Real Estate.................................. 1,687,364 0.8
Retail....................................... 3,337,500 1.6
Retail - Department Stores................... 976,696 0.5
Retail - Merchandising....................... 1,496,138 0.7
Steel & Iron................................. 1,614,480 0.8
Telecommunications........................... 11,462,871 5.6
Television................................... 1,391,295 0.7
Textiles..................................... 967,579 0.5
Textiles - Apparel........................... 2,029,458 1.0
Tire & Rubber Goods.......................... 3,698,064 1.8
Tobacco...................................... 4,887,844 2.4
Transportation............................... 5,953,781 2.9
Utilities.................................... 3,279,080 1.6
Utilities - Electric......................... 7,520,686 3.6
------------ -----
$204,740,938 99.5%
------------ -----
------------ -----
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks......................................................................... $ 203,541,438 98.9%
Preferred Stocks...................................................................... 1,199,500 0.6
-------------- -----
$ 204,740,938 99.5%
-------------- -----
-------------- -----
</TABLE>
70
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS AND BONDS
(93.4%)
AUSTRIA (1.2%)
ENGINEERING
17,555 VA Technologie AG............... $ 2,223,691
---------------
DENMARK (2.0%)
AIR TRANSPORT
14,700 Kobenhavns Lufthavne AS......... 1,120,000
---------------
BANKING
39,730 Den Danske Bank................. 2,734,338
---------------
TOTAL DENMARK................... 3,854,338
---------------
FINLAND (1.3%)
ELECTRONICS
62,400 Nokia AB (Series A)............. 2,447,508
---------------
FRANCE (12.4%)
BANKING
14,753 Societe Generale................ 1,819,502
---------------
ELECTRONICS
35,800 SGS-Thomson
Microelectronics NV........... 1,368,362
---------------
FINANCIAL SERVICES
10,200 Cetelem Groupe.................. 1,910,876
18,536 Credit Local de France.......... 1,481,217
---------------
3,392,093
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
13,535 LVMH Moet-Hennessy Louis
Vuitton....................... 2,814,331
54,500 SEITA........................... 1,972,021
---------------
4,786,352
---------------
INSURANCE
34,093 Scor S.A........................ 1,063,343
---------------
PHARMACEUTICALS
38,287 Sanofi S.A...................... 2,449,962
FRF 2K Sanofi S.A.
4.00% due 01/01/00 (Conv.
Pref.)........................ 163,172
---------------
2,613,134
---------------
RETAIL
3,200 Carrefour Supermarche........... 1,938,070
12,777 Castorama Dubois................ 2,088,911
---------------
4,026,981
---------------
TEXTILES
19,500 Christian Dior S.A.............. 2,098,869
3,500 Christian Dior S.A.
(Warrants due 06/30/98)*...... 42,131
11,500 Hermes International............ 2,156,763
---------------
4,297,763
---------------
TOTAL FRANCE.................... 23,367,530
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
GERMANY (6.3%)
AUTOMOTIVE
6,890 Volkswagen AG................... $ 2,298,744
---------------
BUSINESS SERVICES
20,650 Sap AG (Pref.).................. 3,117,252
---------------
CHEMICALS
9,865 Bayer AG........................ 2,597,497
---------------
HEALTH & PERSONAL CARE
5,220 Rhoen-Klinikum AG............... 515,645
12,780 Rhoen-Klinikum AG (Pref.)....... 1,111,304
---------------
1,626,949
---------------
MERCHANDISING
3,100 Gehe AG......................... 1,574,261
1,275 Gehe AG (New)................... 630,183
---------------
2,204,444
---------------
TOTAL GERMANY................... 11,844,886
---------------
ITALY (2.6%)
HOUSEHOLD FURNISHINGS & APPLIANCES
29,700 Industrie Natuzzi SpA (ADR)..... 1,347,637
---------------
TELECOMMUNICATIONS
286,000 Stet Societa' Finanziaria
Telefonica SpA................ 808,907
1,599,750 Telecom Italia SpA.............. 2,816,568
---------------
3,625,475
---------------
TOTAL ITALY..................... 4,973,112
---------------
NETHERLANDS (10.9%)
BUSINESS SERVICES
31,700 Randstad Holdings NV............ 1,436,067
---------------
INSURANCE
51,968 Aegon NV........................ 2,296,035
34,300 Internationale Nederlanden Groep
NV............................ 2,288,090
---------------
4,584,125
---------------
MANUFACTURING
22,550 ASM Lithography Holding NV*..... 778,796
---------------
MERCHANDISING
50,191 Koninklijke Ahold NV............ 2,045,744
---------------
MULTI-INDUSTRY
54,236 Hunter Douglas NV............... 2,510,988
---------------
PUBLISHING
241,000 Elsevier NV..................... 3,209,334
20,600 Ver Ned Uitgev NV............... 2,824,007
15,084 Wegener NV...................... 1,454,897
17,104 Wolters Kluwer.................. 1,615,673
---------------
9,103,911
---------------
TOTAL NETHERLANDS............... 20,459,631
---------------
</TABLE>
71
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
NORWAY (1.1%)
OIL & GAS PRODUCTS
160,000 Saga Petroleum AS (B Shares).... $ 1,991,241
---------------
SPAIN (6.0%)
BANKS
97,150 Banco Bilbao Vizcaya............ 3,490,754
9,565 Banco Popular Espanol S.A....... 1,759,325
---------------
5,250,079
---------------
FINANCIAL SERVICES
25,660 Corporacion Financiera Hispamer
S.A........................... 1,576,058
---------------
OIL RELATED
19,445 Gas Natural SDG S.A............. 3,021,793
---------------
RETAIL
60,000 Centros Comerciales Continente
S.A........................... 1,351,751
---------------
TOTAL SPAIN..................... 11,199,681
---------------
SWEDEN (8.2%)
BANKING
40,000 Stadshypotek AB................. 800,964
---------------
BUSINESS SERVICES
90,000 Scribona AB (Series "B" Free)... 962,060
38,000 Securitas AB (Series "B" Free).. 1,802,168
---------------
2,764,228
---------------
FOREST PRODUCTS, PAPER & PACKAGING
25,661 Mo och Domsjoe AB (B Shares).... 1,093,355
121,000 Stora Kopparbergs (Series "B"
Free)......................... 1,448,284
---------------
2,541,639
---------------
HEALTH & PERSONAL CARE
35,000 Getinge Industrier AB (B
Shares)....................... 1,594,023
---------------
MACHINERY
100,000 Kalmar Industries AB............ 1,656,128
---------------
PHARMACEUTICALS
81,525 Astra AB (Series "A" Free)...... 3,252,654
---------------
TELECOMMUNICATIONS EQUIPMENT
140,750 Ericsson (L.M.) Telephone Co. AB
(Series "B" Free)............. 2,754,818
---------------
TOTAL SWEDEN.................... 15,364,454
---------------
SWITZERLAND (7.1%)
BUSINESS SERVICES
400 Societe Generale de Surveillance
Holdings S.A.................. 794,105
---------------
INDUSTRIALS
1,565 Hilti AG........................ 1,246,844
---------------
MULTI-INDUSTRY
2,835 BBC Brown Boveri AG............. 3,293,368
---------------
PHARMACEUTICALS
1,294 Ciba-Geigy AG................... 1,138,630
464 Roche Holdings AG............... 3,670,568
2,550 Sandoz AG....................... 2,334,460
1,000 Sandoz AG (Series B)............ 920,676
---------------
8,064,334
---------------
TOTAL SWITZERLAND............... 13,398,651
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
UNITED KINGDOM (34.3%)
AEROSPACE & DEFENSE
133,333 British Aerospace Capital PLC... $ 1,644,639
5,333 British Aerospace Capital PLC
(Warrants due 11/15/00)*...... 25,873
---------------
1,670,512
---------------
AUTOMOTIVE
405,000 BBA Group PLC................... 1,817,336
230,000 Rolls-Royce PLC................. 673,785
---------------
2,491,121
---------------
BANKING
200,000 Abbey National PLC.............. 1,971,600
100,000 National Westminster Bank PLC... 1,005,175
180,000 TSB Group PLC................... 923,490
---------------
3,900,265
---------------
BREWERS
145,000 Scottish & Newcastle Breweries
PLC........................... 1,377,717
---------------
BROADCAST MEDIA
185,000 British Sky Broadcasting Group
PLC........................... 1,165,639
130,000 Flextech PLC*................... 941,005
---------------
2,106,644
---------------
BUILDING & CONSTRUCTION
313,000 Blue Circle Industries PLC...... 1,661,639
116,400 Mowlem (John) & Co. PLC......... 106,448
288,300 Williams Holdings PLC........... 1,463,483
---------------
3,231,570
---------------
BUSINESS SERVICES
150,000 Reuters Holdings PLC............ 1,370,587
---------------
CHEMICALS
306,000 Albright & Wilson PLC........... 749,394
---------------
COMPUTER SOFTWARE & SERVICES
96,000 SEMA Group PLC.................. 796,080
---------------
CONGLOMERATES
200,000 BTR PLC......................... 1,019,900
250,000 Tomkins PLC..................... 1,090,812
---------------
2,110,712
---------------
CONSTRUCTION PLANT & EQUIPMENT
207,400 CRH PLC......................... 1,568,774
---------------
ELECTRONICS
715,000 Cray Electronics Holdings PLC... 454,383
---------------
FOOD PROCESSING
275,000 Associated British Foods PLC.... 1,568,600
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
94,261 B.A.T. Industries PLC........... 829,143
166,000 Grand Metropolitan PLC.......... 1,192,585
177,500 Tate & Lyle PLC................. 1,298,590
---------------
3,320,318
---------------
HEALTH & PERSONAL CARE
108,625 Reckitt & Colman PLC............ 1,199,627
---------------
</TABLE>
72
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
INSURANCE
55,000 Britannic Assurance PLC......... $ 654,720
123,057 Commercial Union PLC............ 1,194,022
150,000 Lloyds Abbey Life PLC........... 1,041,600
261,200 Prudential Corp. PLC............ 1,678,145
273,000 Royal Insurance Holdings PLC.... 1,614,317
---------------
6,182,804
---------------
LEISURE
60,000 Carlton Communications PLC...... 897,915
190,000 Granada Group PLC............... 1,899,525
---------------
2,797,440
---------------
METALS & MINING
130,000 Smiths Industries PLC........... 1,281,540
---------------
MISCELLANEOUS
146,000 Vendome Luxury Group PLC
(Units)++..................... 1,328,381
---------------
NATURAL GAS
240,000 British Gas PLC................. 944,880
---------------
OIL RELATED
434,000 British Petroleum Co. PLC....... 3,622,490
591,000 Lasmo PLC....................... 1,593,927
---------------
5,216,417
---------------
PHARMACEUTICALS
254,100 Glaxo Wellcome PLC.............. 3,603,773
335,000 Medeva PLC...................... 1,401,975
150,700 SmithKline Beecham PLC
(Units)++..................... 1,639,767
---------------
6,645,515
---------------
REAL ESTATE
205,100 Hammerson PLC................... 1,120,615
---------------
RETAIL
74,000 Boots Co. PLC................... 671,569
100,000 Great Universal Stores PLC...... 1,060,975
247,000 Morrison (W.M.) Supermarkets
PLC........................... 535,990
274,000 Next PLC........................ 1,936,632
---------------
4,205,166
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
TELECOMMUNICATIONS
654,700 British Telecommunications PLC.. $ 3,592,339
56,000 Securicor Group PLC............. 759,500
---------------
4,351,839
---------------
TRANSPORTATION
140,500 British Airways PLC............. 1,014,832
---------------
UTILITIES
200,000 Scottish Power PLC.............. 1,147,000
45,000 Thames Water PLC................ 391,646
---------------
1,538,646
---------------
TOTAL UNITED KINGDOM............ 64,544,379
---------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS AND BONDS
(IDENTIFIED COST
$142,939,710)................... 175,669,102
---------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT (IN
THOUSANDS)
- ---------------
<C> <S> <C>
PURCHASED PUT OPTION ON
FOREIGN CURRENCY (0.2%)
FRF 17,500 May 16, 1996/FRF 4.86
(Identified Cost $484,750).... 458,500
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (A) (5.2%)
U.S. GOVERNMENT AGENCY
$ 9,800 Federal Home Loan Mortgage......
Corp. 5.75% due 01/02/96 .....
(Amortized Cost $9,798,435)..... 9,798,435
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $153,222,895) (B)......... 98.8% 185,926,037
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 1.2 2,193,372
---------- -------------
NET ASSETS....................... 100.0% $ 188,119,409
---------- -------------
---------- -------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
K IN THOUSANDS.
* NON-INCOME PRODUCING SECURITY.
++ CONSISTS OF MORE THAN ONE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $153,973,857; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $34,896,692 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $2,944,512, RESULTING IN NET UNREALIZED
APPRECIATION OF $31,952,180.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE DELIVERY APPRECIATION/
RECEIVE FOR DATE (DEPRECIATION)
- --------------- ------------ -------- -------------
<C> <S> <C> <C>
$ 579,897 ATS 5,897,554 01/02/96 $ (3,730)
$ 65,521 DEM 93,931 01/02/96 178
$ 370,662 L 238,698 01/02/96 680
-------------
Net unrealized
depreciation ......... $ (2,872)
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Aerospace & Defense.......................... $ 1,670,512 0.9%
Air Transport................................ 1,120,000 0.6
Automotive................................... 4,789,865 2.6
Banking...................................... 9,255,069 4.9
Banks........................................ 5,250,079 2.8
Brewers...................................... 1,377,717 0.7
Broadcast Media.............................. 2,106,644 1.1
Building & Construction...................... 3,231,570 1.7
Business Services............................ 9,482,239 5.1
Chemicals.................................... 3,346,891 1.8
Computer Software & Services................. 796,080 0.4
Conglomerates................................ 2,110,712 1.1
Construction Plant & Equipment............... 1,568,774 0.8
Electronics.................................. 4,270,253 2.3
Engineering.................................. 2,223,691 1.2
Financial Services........................... 4,968,151 2.6
Food Processing.............................. 1,568,600 0.8
Food, Beverage, Tobacco & Household
Products.................................... 8,106,670 4.3
Foreign Currency Put Option.................. 458,500 0.2
Forest Products, Paper & Packaging........... 2,541,639 1.4
Health & Personal Care....................... 4,420,599 2.3
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Household Furnishings & Appliances........... $ 1,347,637 0.7%
Industrials.................................. 1,246,844 0.7
Insurance.................................... 11,830,272 6.3
Leisure...................................... 2,797,440 1.5
Machinery.................................... 1,656,128 0.9
Manufacturing................................ 778,796 0.4
Merchandising................................ 4,250,188 2.3
Metals & Mining.............................. 1,281,540 0.7
Miscellaneous................................ 1,328,381 0.7
Multi-Industry............................... 5,804,356 3.1
Natural Gas.................................. 944,880 0.5
Oil & Gas Products........................... 1,991,241 1.1
Oil Related.................................. 8,238,210 4.4
Pharmaceuticals.............................. 20,575,637 10.9
Publishing................................... 9,103,911 4.8
Real Estate.................................. 1,120,615 0.6
Retail....................................... 9,583,898 5.1
Telecommunications........................... 7,977,314 4.2
Telecommunications Equipment................. 2,754,818 1.5
Textiles..................................... 4,297,763 2.3
Transportation............................... 1,014,832 0.5
U.S. Government Agency....................... 9,798,435 5.2
Utilities.................................... 1,538,646 0.8
------------ -----
$185,926,037 98.8%
------------ -----
------------ -----
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks......................................................................... $ 171,209,370 91.0%
Convertible Preferred Stocks.......................................................... 163,172 0.1
Foreign Currency Put Option........................................................... 458,500 0.2
Preferred Stocks...................................................................... 4,228,556 2.3
Short-Term Investment................................................................. 9,798,435 5.2
Warrants.............................................................................. 68,004 0.0
-------------- -----
$ 185,926,037 98.8%
-------------- -----
-------------- -----
</TABLE>
74
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS
AND BONDS (95.9%)
AUSTRALIA (1.0%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
99,000 Fosters Brewing Group Ltd.
(New).......................... $ 162,452
-------------
METALS & MINING
200,000 M.I.M. Holdings, Ltd............. 276,210
38,750 Odin Mining & Investment
Co., Ltd....................... 8,056
-------------
284,266
-------------
OIL RELATED
50,000 Santos, Ltd...................... 145,901
50,000 Woodside Petroleum Ltd........... 255,420
-------------
401,321
-------------
TRANSPORTATION
14,500 Brambles Industries, Ltd......... 161,494
-------------
TOTAL AUSTRALIA.................. 1,009,533
-------------
CHINA (0.9%)
CHEMICALS
16,500 Jilin Chemical Industrial Co.,
Ltd. (ADR)..................... 354,750
1,000,000 Yizheng Chemical Fibre Co. Ltd... 225,039
-------------
579,789
-------------
TRANSPORTATION
160,000 Jinhui Shipping and
Transportation Ltd............. 138,631
-------------
UTILITIES
24,000 Shandong Huaneng Power Co., Ltd.
(ADR).......................... 162,000
-------------
TOTAL CHINA...................... 880,420
-------------
HONG KONG (20.8%)
BANKING
75,000 Guoco Group Ltd.................. 361,808
100,000 Hang Seng Bank Ltd............... 895,629
44,800 HSBC Holdings PLC................ 677,910
750,000 International Bank of Asia....... 356,473
-------------
2,291,820
-------------
BUSINESS SERVICES
350,000 First Pacific Co. Ltd............ 389,291
-------------
CONGLOMERATES
76,000 Citic Pacific, Ltd............... 259,984
500,000 Hutchison Whampoa, Ltd........... 3,045,783
70,200 Jardine Matheson Holdings Ltd.... 480,870
170 New World Infrastructure Ltd..... 325
90,000 Swire Pacific Ltd. (Class A)..... 698,396
-------------
4,485,358
-------------
FINANCIAL SERVICES
600,000 Manhattan Card Co. Ltd........... 256,079
-------------
INSURANCE
389,000 National Mutual Asia Ltd......... 352,173
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
LEISURE
1,500,000 CDL Hotels International, Ltd.... $ 756,596
870,000 Regal Hotels International....... 204,785
-------------
961,381
-------------
MULTI-INDUSTRY
75,000 Jardine Strategic Holdings Ltd... 229,500
-------------
OIL RELATED
395,000 Hong Kong & China Gas Co......... 636,026
-------------
REAL ESTATE
420,000 Cheung Kong (Holdings) Ltd....... 2,558,457
100,000 Great Eagle Holding Co........... 258,665
60,000 Henderson Land Development Co.
Ltd............................ 361,614
380,000 Hong Kong Land Holdings
Ltd............................ 703,000
102,000 New World Development............ 444,568
285,000 Sun Hung Kai Properties, Ltd..... 2,331,382
80,000 Wharf (Holdings) Ltd............. 266,425
-------------
6,924,111
-------------
RETAIL - SPECIALTY
240,000 Giordano International Ltd....... 204,863
-------------
TELECOMMUNICATIONS
875,600 Hong Kong
Telecommunications, Ltd........ 1,562,763
-------------
TRANSPORTATION
280,000 Cathay Pacific Airways........... 427,315
-------------
UTILITIES
140,500 China Light & Power Co. Ltd...... 646,896
150,000 Consolidated Electric Power Asia
Ltd............................ 272,569
230,000 Hong Kong Electric Holdings
Ltd............................ 754,074
-------------
1,673,539
-------------
TOTAL HONG KONG.................. 20,394,219
-------------
INDONESIA (8.4%)
AUTOMOTIVE
330,000 PT Astra International........... 686,296
-------------
BUILDING & CONSTRUCTION
127,000 PT Indocement.................... 426,762
-------------
BUILDING MATERIALS
327,800 PT Mulia Industrindo............. 925,705
250,000 PT Semen Gresik.................. 700,525
-------------
1,626,230
-------------
CONGLOMERATES
10,000 PT Citra Marga Nusaphala
Persada........................ 9,413
-------------
CONSTRUCTION EQUIPMENT
140,000 PT United Tractors............... 263,573
-------------
FINANCIAL SERVICES
500,000 Peregrine Indonesia* (Restricted)
-- 144A**...................... 515,000
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
30,000 PT Gudang Garam.................. 313,923
120,000 PT Hanjaya Mandala Sampoerna..... 1,250,438
121,775 PT Indofood Sukses Makmur........ 586,482
-------------
2,150,843
-------------
</TABLE>
75
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
FOREST PRODUCTS, PAPER & PACKAGING
20,000 Asia Pacific Resources
International Holdings Ltd.
(Class A) (ADR)*............... $ 95,000
6,020 PT Indah Kiat Pulp Paper Corp.... 4,415
310,000 PT Inti Indorayon Utama.......... 325,744
206,144 PT Pabrikkertas Tjiwi Kimia...... 194,050
-------------
619,209
-------------
METALS
200,000 PT Tambang Timah................. 247,373
21,000 PT Tambang Timah (GDR)........... 256,935
-------------
504,308
-------------
PHARMACEUTICALS
90,000 PT Tempo Scan Pacific............ 244,308
-------------
PHOTOGRAPHY
75,000 PT Modern Photo & Film Co........ 435,092
-------------
TELECOMMUNICATIONS
95,000 PT Indosat....................... 345,228
320,000 PT Telekomunikasi Indonesia...... 420,315
-------------
765,543
-------------
TOTAL INDONESIA.................. 8,246,577
-------------
JAPAN (15.6%)
AGRICULTURE
3,900 Yukiguni Maitake Co., Ltd........ 59,245
-------------
AUTO RELATED
6,000 Mitsuba Electric Mfg Co.......... 62,119
-------------
AUTOMOTIVE
1,000 Autobacs Seven Co................ 83,019
11,000 Honda Motor Co................... 226,705
-------------
309,724
-------------
BANKING
15,000 Asahi Bank, Ltd.................. 188,679
8,000 Bank of Tokyo.................... 140,106
8,000 Dai-Ichi Kangyo Bank............. 157,136
14,000 Mitsui Trust & Banking........... 153,072
11,000 Sanwa Bank, Ltd.................. 223,512
15,000 Shizuoka Bank.................... 188,679
10,000 Sumitomo Bank.................... 211,901
14,000 Sumitomo Trust & Banking......... 197,775
-------------
1,460,860
-------------
BANKS - COMMERCIAL
9,000 Mitsubishi Bank.................. 211,611
-------------
BUILDING & CONSTRUCTION
3,000 Higashi Nihon House.............. 49,347
2,000 Japan Industrial Land
Development.................... 76,826
15,000 Kajima Corp...................... 148,041
4,000 Kaneshita Construction........... 53,798
9,000 Maeda Road Construction.......... 166,328
5,000 Mitsui Home Co., Ltd............. 79,826
6,000 Raito Kogyo Co................... 117,852
7,000 Sumitomo Forestry Co., Ltd....... 107,015
-------------
799,033
-------------
BUILDING MATERIALS
4,000 Oriental Construction Co......... 85,148
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
BUSINESS SERVICES
5,000 Ichiken Co., Ltd................. $ 52,733
2,000 Nippon Kanzai.................... 61,732
1,500 Nissin Co., Ltd.................. 71,118
3,000 Secom............................ 208,418
4,000 Tanseisha........................ 46,444
-------------
440,445
-------------
CHEMICALS
2,000 Maezawa Kasei Industries......... 79,923
37,000 Mitsubishi Chemical Corp......... 179,719
9,000 Shin-Etsu Chemical Co............ 186,357
1,000 SK Kaken Co., Ltd................ 21,190
-------------
467,189
-------------
COMMERCIAL SERVICES
2,000 Nichii Gakkan Co................. 93,662
-------------
COMPUTER SOFTWARE & SERVICES
1,500 Enix Corp........................ 57,329
3 NTT Data Communications Systems
Corp........................... 100,726
-------------
158,055
-------------
COMPUTERS
16,000 Fujitsu, Ltd..................... 178,036
1,000 I-O Data Device, Inc............. 69,182
3,000 Japan Digital Laboratory......... 67,634
1,000 Mars Engineering Corp............ 74,407
2,300 TKC Corp......................... 65,206
-------------
454,465
-------------
COMPUTERS - SYSTEMS
3,000 Daiwabo Information Systems
Co............................. 78,084
-------------
DATA PROCESSING
4,000 Ricoh Elemex..................... 57,668
-------------
ELECTRONIC & ELECTRICAL EQUIPMENT
5,000 Aiwa Co.......................... 117,078
5,000 Alpine Electronics Inc........... 84,180
3,000 Canon, Inc....................... 54,282
Y 9,000K Canon, Inc. 1.00% due 12/20/02
(Conv.)........................ 111,466
15,000 Hitachi, Ltd..................... 150,943
3,000 Kyocera Corp..................... 222,642
1,500 Mabuchi Motor Co................. 93,179
3,000 Mitsui High-Tec.................. 78,374
5,000 Mitsumi Electric Co. Ltd......... 120,464
3,000 Murata Manufacturing Co., Ltd.... 110,305
2,000 Nihon Dempa Kogyo................ 44,702
5,000 Nitto Electric Works............. 71,601
8,000 Omron Corp....................... 184,228
12,000 Sharp Corp....................... 191,582
3,100 Sony Corp........................ 185,670
4,000 Tokin Corp....................... 65,022
-------------
1,885,718
-------------
ELECTRONICS
2,000 Fujitsu Business Systems......... 52,637
3,000 Ryoyo Electro Corp............... 68,505
-------------
121,142
-------------
ENTERTAINMENT
2,200 H.I.S. Co. Ltd................... 104,944
-------------
</TABLE>
76
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
FINANCIAL SERVICES
15,000 Daiwa Securities Co., Ltd........ $ 229,318
3,000 Nichiei Co., Ltd. (Kyoto)........ 223,512
10,000 Nomura Securities Co., Ltd....... 217,707
3,700 Promise Co., Ltd................. 177,929
1,000 Sanyo Shinpan Finance Co., Ltd... 82,245
2,000 Shinki Co. Ltd................... 75,472
-------------
1,006,183
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
4,200 Amway Japan, Ltd................. 177,184
9,000 Nippon Meat Packers, Inc......... 130,624
1,000 Plenus Co., Ltd.................. 48,379
4,000 Stamina Foods.................... 54,572
4 Yoshinoya D & C Co., Ltd......... 69,666
-------------
480,425
-------------
FOREST PRODUCTS, PAPER & PACKAGING
8,000 Daishowa Paper Manufacturing Co.
Ltd............................ 61,926
10,000 New Oji Paper Co., Ltd........... 90,373
25,000 Nippon Paper Industries Co....... 173,440
-------------
325,739
-------------
HEALTH & PERSONAL CARE
3,000 Kawasumi Laboratories, Inc....... 35,414
-------------
HOUSEHOLD FURNISHINGS & APPLIANCES
4,000 Juken Sangyo Co.................. 44,896
-------------
INDUSTRIALS
10,000 Nippon Thompson Co............... 88,050
-------------
INSURANCE
15,000 Tokio Marine & Fire Insurance
Co............................. 195,936
18,000 Yasuda Fire & Marine Insurance... 127,141
-------------
323,077
-------------
LEISURE
2,000 Honma Golf Co. Ltd............... 45,670
-------------
MACHINE TOOLS
2,000 Nitto Kohki Co. Ltd.............. 76,439
10,000 OSG Corporation.................. 68,505
-------------
144,944
-------------
MACHINERY
8,000 Aichi Corp....................... 70,905
4,000 Fanuc, Ltd....................... 173,004
2,000 Fuji Machine Manufacturing Co.... 71,601
1,700 Keyence Corp..................... 195,743
Y 19,000K Minebea Co., Ltd. 0.80% due
03/31/03 (Conv.)............... 201,122
24,000 Mitsubishi Heavy Industries,
Ltd............................ 191,118
4,000 Sansei Yusoki Co., Ltd........... 55,346
8,000 Sintokogio....................... 69,666
-------------
1,028,505
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
MANUFACTURING
3,000 Arcland Sakamoto................. $ 38,316
7,000 Bridgestone Metalpha Corp........ 79,245
9,000 Daiwa House Industry............. 148,041
8,000 Itoki Crebio Corp................ 61,926
1,000 KDD.............................. 87,083
4,000 Nichiha Corp..................... 90,566
7,000 Nippon Electric Glass Co., Ltd... 132,753
3,000 Sony Music Entertainment Inc..... 156,749
9,000 Takara Standard Co............... 102,758
4,000 Tokyo Style...................... 68,505
-------------
965,942
-------------
MEDICAL SUPPLIES
800 Paramount Bed Co................. 55,733
-------------
MERCHANDISING
2,000 Misumi Corp...................... 74,891
-------------
METALS
6,000 Takada Kiko...................... 65,022
3,600 Tokyo Steel Manufacturing........ 66,183
-------------
131,205
-------------
METALS & MINING
12,000 Kawasaki Steel Corp.............. 41,800
23,000 Nippon Light Metal Co............ 131,746
40,000 Nippon Steel Co.................. 137,010
-------------
310,556
-------------
MULTI-INDUSTRY
21,000 Mitsui & Co...................... 184,093
3,000 Trusco Nakayama Corp............. 62,409
5,000 Yamae Hisano..................... 48,380
-------------
294,882
-------------
NATURAL GAS
44,000 Tokyo Gas Co., Ltd............... 154,969
-------------
OIL RELATED
16,000 General Sekiyu................... 145,989
-------------
PHARMACEUTICALS
10,000 Eisai Co. Ltd.................... 175,133
2,000 Ono Pharmaceutical Co............ 76,826
2,000 Santen Pharmaceutical Co......... 45,283
1,000 Towa Pharmaceutical Co., Ltd..... 36,768
-------------
334,010
-------------
REAL ESTATE
7,000 Cesar Co......................... 54,794
5,000 Chubu Sekiwa Real Estate, Ltd.... 77,407
4,000 Fuso Lexel, Inc.................. 34,833
5,000 Kansai Sekiwa Real Estate........ 89,502
15,000 Mitsui Fudosan Co................ 184,325
5,000 Sekiwa Real Estate............... 42,574
5,000 Tohoku Misawa Homes Co., Ltd..... 62,893
-------------
546,328
-------------
RETAIL
2,000 Belluna Co., Ltd................. 37,736
1,200 Fast Retailing Co., Ltd.......... 59,565
3,000 Ministop Co., Ltd................ 86,212
4,000 Shimachu Co., Ltd................ 128,108
1,000 Sundrug Co., Ltd................. 44,509
2,000 Xebio Co. Ltd.................... 70,634
-------------
426,764
-------------
</TABLE>
77
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
RETAIL - GENERAL MERCHANDISE
2,000 Circle K Japan Co. Ltd........... $ 88,050
1,000 Ryohin Keikaku Co. Ltd........... 83,212
-------------
171,262
-------------
RETAIL - SPECIALTY
2,000 Paris Miki Inc................... 71,795
-------------
TELECOMMUNICATIONS
24 DDI Corp......................... 185,776
10,000 Nippon Comsys Co................. 105,467
-------------
291,243
-------------
TEXTILES
3,000 Chuo Warehouse................... 35,994
15,000 Kuraray Co. Ltd.................. 164,006
1,600 Maruco Co., Ltd.................. 108,524
2,000 Yagi Corp........................ 23,996
-------------
332,520
-------------
TRANSPORTATION
28 East Japan Railway Co............ 136,004
17,000 Fukuyama Transporting Co......... 159,555
16,000 Kamigumi Co. Ltd................. 153,420
-------------
448,979
-------------
UTILITIES
4,386 Hokkaido Electric Power.......... 101,852
-------------
WHOLESALE & INTERNATIONAL TRADE
2,000 Satori Electric Co. Ltd.......... 96,759
-------------
WHOLESALE DISTRIBUTOR
4,000 Wakita & Co...................... 56,120
-------------
TOTAL JAPAN...................... 15,383,814
-------------
MALAYSIA (14.1%)
AGRICULTURE
245,000 Highlands & Lowlands Berhad...... 393,776
-------------
AUTOMOTIVE
98,000 Cycle & Carriage Bintang
Berhad......................... 555,919
67,000 Edaran Otomobil Nasional
Berhad......................... 504,117
-------------
1,060,036
-------------
BANKING
83,000 Malayan Banking Berhad........... 699,705
222,000 Public Bank Berhad............... 427,104
-------------
1,126,809
-------------
BANKS - COMMERCIAL
75,000 DCB Holdings Berhad.............. 218,633
37,500 DCB Holdings Berhad (Warrants due
12/27/99)*..................... 37,227
210,000 Kwong Yik Bank................... 450,857
-------------
706,717
-------------
BUILDING & CONSTRUCTION
32,000 Hume Industries (Malaysia)
Berhad......................... 153,792
120,000 Kedah Cement Berhad.............. 206,106
100,000 Metacorp Berhad.................. 259,996
40,000 Nam Fatt Berhad.................. 107,938
135,000 United Engineers Malaysia
Berhad......................... 861,532
-------------
1,589,364
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
BUSINESS SERVICES
10,000 Dunlop Estates Berhad............ $ 18,594
-------------
CONGLOMERATES
125,000 Renong Berhad.................... 185,149
-------------
CONSTRUCTION PLANT & EQUIPMENT
33,000 YTL Corp. Berhad................. 207,997
-------------
ELECTRONIC & ELECTRICAL EQUIPMENT
39,666 Leader Universal Holdings
Berhad......................... 90,629
-------------
ENTERTAINMENT
80,000 Genting Berhad................... 668,111
80,000 Resorts World Berhad............. 428,600
-------------
1,096,711
-------------
FINANCIAL SERVICES
186,000 Affin Holdings Berhad............ 359,031
60,000 Hong Leong Credit Berhad......... 297,814
150,000 Public Finance Berhad............ 324,995
50,000 Rashid Hussain Berhad............ 149,695
-------------
1,131,535
-------------
GAS
45,000 Petronas Gas Berhad.............. 153,339
-------------
INSURANCE
80,000 Pacific & Orient Berhad.......... 252,117
-------------
MANUFACTURING
31,250 O.Y.L. Industries Berhad......... 242,515
-------------
MULTI-INDUSTRY
180,000 Multi-Purpose Holdings Berhad.... 263,778
150,000 Nylex Berhad..................... 454,993
-------------
718,771
-------------
PLANTATION
125,000 Kuala Lumpur Kepong Berhad....... 396,396
-------------
REAL ESTATE
100,000 IOI Properties Berhad............ 250,148
187,500 Land & General Berhad............ 406,244
225,000 Pelangi Berhad................... 218,042
-------------
874,434
-------------
TELECOMMUNICATIONS
265,000 Technology Resources Industries
Berhad*........................ 782,943
185,000 Telekom Malaysia Berhad.......... 1,442,978
-------------
2,225,921
-------------
TRANSPORTATION
90,000 Malaysian Airline System Berhad.. 292,496
-------------
UTILITIES
60,000 Malakoff Berhad.................. 213,906
24,000 Prime Utilities Berhad........... 204,215
161,000 Tenaga Nasional Berhad........... 634,233
-------------
1,052,354
-------------
TOTAL MALAYSIA................... 13,815,660
-------------
</TABLE>
78
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
PAKISTAN (0.1%)
TELECOMMUNICATIONS
1,100 Pakistan Telecommunications Corp.
(GDS)*......................... $ 93,500
-------------
PHILIPPINES (2.3%)
BANKING
780 Philippine National Bank......... 8,630
-------------
BUILDING & CONSTRUCTION
37,638 Bacnotan Consolidated
Industries..................... 215,403
3,763 Bacnotan Consolidated
Industries (Nil Paid).......... 7,179
-------------
222,582
-------------
CONGLOMERATES
540,000 Abolitz Equity Ventures Inc.*.... 103,014
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
46,500 San Miguel Corp. (B Shares)...... 158,785
-------------
FOREST PRODUCTS, PAPER & PACKAGING
525,000 Paper Industries Corp............ 126,192
-------------
REAL ESTATE
3,000,000 Belle Corp.*..................... 412,056
658,000 Filinvest Land, Inc.*............ 210,881
-------------
622,937
-------------
TELECOMMUNICATIONS
344,000 Pilipino Telephone Corp.......... 347,806
-------------
UTILITIES
25,500 Manila Electric Co. (B Shares)... 208,203
1,300 Philippine Long Distance
Telephone Co................... 70,679
6,650 Philippine Long Distance
Telephone Co. (ADR)............ 359,931
-------------
638,813
-------------
TOTAL PHILIPPINES................ 2,228,759
-------------
SINGAPORE (13.3%)
AUTOMOTIVE
25,000 Cycle and Carriage Ltd........... 249,328
-------------
BANKING
93,000 Development Bank of Singapore,
Ltd............................ 1,157,731
115,000 Overseas Chinese Banking Corp.,
Ltd............................ 1,439,737
77,000 Overseas Union Bank, Ltd......... 531,016
153,000 United Overseas Bank, Ltd........ 1,471,778
-------------
4,600,262
-------------
CONGLOMERATES
65,000 Keppel Corp., Ltd................ 579,290
-------------
ELECTRONIC & ELECTRICAL EQUIPMENT
110,000 Venture Manufacturing, Ltd....... 368,793
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
38,000 Fraser & Neave Ltd............... 483,803
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
HOTELS
210,000 Republic Hotels & Resorts Ltd.... $ 262,908
56,000 Republic Hotels & Resorts Ltd.
(Warrants due 07/12/00)*....... 28,915
-------------
291,823
-------------
MACHINERY
50,000 Van Der Horst Ltd................ 252,865
-------------
METALS
420,000 Amtek Engineering, Ltd........... 608,997
-------------
PUBLISHING
30,200 Singapore Press Holdings......... 534,022
-------------
REAL ESTATE
15,000 Bukit Sembawang Estates Ltd...... 328,901
134,000 City Developments, Ltd........... 976,234
240,000 DBS Land Ltd..................... 811,430
270,000 United Overseas Land, Ltd........ 513,722
-------------
2,630,287
-------------
SHIPBUILDING
80,000 Far East Levingston Shipbuilding
Ltd............................ 376,291
66,000 Sembawang Maritime............... 366,459
-------------
742,750
-------------
STEEL & IRON
200,000 Natsteel Ltd..................... 410,242
-------------
TRANSPORTATION
145,000 Singapore Airlines Ltd........... 1,353,798
-------------
TOTAL SINGAPORE.................. 13,106,260
-------------
SOUTH KOREA (6.9%)
AUTOMOTIVE
25,000 Hyundai Motor Co., Ltd. (GDR).... 362,500
30,000 Kai Motors Corp.
(GDS) - 144A* **............... 675,000
-------------
1,037,500
-------------
ELECTRONIC & ELECTRICAL EQUIPMENT
3,562 Samsung Electronics Co........... 213,720
8,000 Samsung Electronics Co.
(GDS).......................... 772,000
11,000 Samsung Electronics Co. (GDS) -
144A**......................... 660,000
-------------
1,645,720
-------------
ELECTRONICS
$ 315K Daewoo Electronics Co.
3.50% due 12/31/07 (Conv.)..... 381,150
-------------
INDUSTRIALS
$ 400K Kia Precisions Works
0.50% due 12/31/09 (Conv.)..... 388,000
-------------
INVESTMENT COMPANIES
5,000 Atlantis Korean Smaller
Companies*..................... 233,250
-------------
MULTI-INDUSTRY
$ 250K Kolon International Corp.
1.00% due 12/31/08 (Conv.)..... 240,000
-------------
</TABLE>
79
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
OIL RELATED
CHF 300K Yukong, Ltd.
1.00% due 12/31/98 (Conv.)..... $ 270,481
-------------
PHARMACEUTICALS
$ 250K Dong-A Pharmaceutical Co.,
Ltd. 3.125% due 12/31/06
(Conv.)........................ 317,500
-------------
STEEL & IRON
35,300 Pohang Iron & Steel, Ltd. (ADR).. 772,188
-------------
UTILITIES
30,000 Korea Electric Power Corp.
(ADR).......................... 802,500
7,000 Korea Electric Power Corp.
(GDR).......................... 185,500
-------------
988,000
-------------
WHOLESALE DISTRIBUTOR
$ 500K Daewoo Corp.
0.25% due 12/31/08 (Conv.)..... 515,000
-------------
TOTAL SOUTH KOREA................ 6,788,789
-------------
TAIWAN (1.9%)
ELECTRONIC & ELECTRICAL EQUIPMENT
$ 210K United Micro Electronics
1.25% due 06/08/04 (Conv.)..... 262,500
-------------
INVESTMENT COMPANIES
26,000 Taiwan American Fund (Pref.)*.... 260,000
-------------
TEXTILES
$ 300K Far Eastern Textile
4.00% due 10/07/06 (Conv.)..... 342,000
-------------
TRANSPORTATION
$ 500K U-Ming Marine Transport
1.50% due 02/07/01 (Conv.)..... 468,750
$ 504K Yang Ming Marine
Transportation - 144A**
2.00% due 10/06/01
(Conv.)........................ 549,360
-------------
1,018,110
-------------
TOTAL TAIWAN..................... 1,882,610
-------------
THAILAND (10.6%)
AUTOMOTIVE
46,000 Swedish Motor Corp., Ltd......... 199,126
-------------
BANKING
265,000 Krung Thai Bank Public Co.,
Ltd............................ 1,094,519
550,000 Siam City Bank Ltd............... 633,439
30,000 Siam Commercial Bank Co., Ltd.... 395,552
209,200 Thai Military Bank, Ltd.......... 847,434
-------------
2,970,944
-------------
BUILDING MATERIALS
15,000 Siam Cement Co., Ltd............. 831,612
26,600 Siam City Cement Co., Ltd........ 416,219
100,000 Thai-German Ceramic Industry Co.,
Ltd............................ 268,070
80,000 Tipco Asphalt Co., Ltd........... 447,975
75,000 TPI Polene Co., Ltd.............. 446,783
3,750 TPI Polene Co., Ltd. (Rights)*... 20,850
-------------
2,431,509
-------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- -------------
<C> <S> <C>
ENTERTAINMENT
20,000 Grammy Entertainment PLC......... $ 187,450
-------------
FINANCIAL SERVICES
60,000 Krung Thai Thanakit PLC
(Local)*....................... 243,050
120,000 Krung Thai Thanakit PLC*......... 486,100
4,074 SCF Finance & Securities Co.,
Ltd.*.......................... 19,254
13,000 Securities One, Ltd.............. 121,843
3,235 Siam City Finance & Securities
Co. Ltd.*...................... 15,289
-------------
885,536
-------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
25,000 Charoen Pokphand Feedmill Co.
Ltd............................ 122,121
-------------
HOUSEHOLD FURNISHINGS & APPLIANCES
48,000 Sanyo Universal Electic Co.,
Ltd............................ 209,690
-------------
INVESTMENT COMPANIES
600,000 Ruang Khao 2 Fund................ 303,813
-------------
METALS & MINING
25,000 Ban Pu Coal Co., Ltd............. 544,083
-------------
<CAPTION>
<C> <S> <C>
OIL RELATED
45,000 PTT Exploration & Production
Public Co., Ltd................ 471,803
-------------
REAL ESTATE
58,000 Land & House Co. Ltd............. 953,614
-------------
TELECOMMUNICATIONS
18,500 Advanced Information Services.... 327,681
55,000 Jasmine International Public Co.,
Ltd............................ 281,771
20,000 United Communication Industry.... 255,759
-------------
865,211
-------------
TRANSPORTATION
167,400 Thai Airways International Ltd... 289,194
-------------
TOTAL THAILAND................... 10,434,094
-------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS, RIGHTS AND
BONDS (IDENTIFIED COST
$90,591,024)................... 94,264,235
-------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT (IN
THOUSANDS)
- ------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (0.3%)
Y130,000 January 10, 1996/Y100.55
(Identified Cost $347,100)...... 331,500
-------------
</TABLE>
80
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------ -------------
<C> <S> <C>
SHORT-TERM INVESTMENT (A) (3.1%)
U.S. GOVERNMENT AGENCY
$ 3,000 Federal Home Loan Mortgage Corp.
5.75% due 01/02/96 (Amortized Cost
$2,999,521)....................... $ 2,999,521
-------------
TOTAL INVESTMENTS (IDENTIFIED COST
$93,937,645) (B)................ 99.3% 97,595,256
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES..................... 0.7 735,039
---------- ------------
NET ASSETS........................ 100.0% $ 98,330,295
---------- ------------
---------- ------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
GDR GLOBAL DEPOSITORY RECEIPT.
GDS GLOBAL DEPOSITORY SHARES.
K IN THOUSANDS.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $95,094,341; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $8,730,807 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $6,229,892, RESULTING IN NET UNREALIZED
APPRECIATION OF $2,500,915.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE APPRECIATION
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 230,960 MYR 586,916 01/02/96 $ 246
Y 9,306,169 $ 90,730 01/04/96 684
-----
Total
unrealized appreciation .................... $ 930
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------ ------------ ----------
<S> <C> <C>
Agriculture................... $ 453,021 0.5%
Auto Related.................. 62,119 0.1
Automotive.................... 3,542,010 3.6
Banking....................... 12,459,325 12.7
Banks - Commercial............ 918,328 0.9
Building & Construction....... 3,037,741 3.0
Building Materials............ 4,142,887 4.2
Business Services............. 848,330 0.9
Chemicals..................... 1,046,978 1.1
Commercial Services........... 93,662 0.1
Computer Software & Services.. 158,055 0.2
Computers..................... 454,465 0.5
Computers - Systems........... 78,084 0.1
Conglomerates................. 5,362,224 5.4
Construction Equipment........ 471,570 0.5
Data Processing............... 57,668 0.1
Electronic & Electrical
Equipment.................... 4,253,360 4.4
Electronics................... 502,292 0.6
Entertainment................. 1,389,105 1.4
Financial Services............ 3,794,333 3.9
Food, Beverage, Tobacco &
Household Products........... 3,558,429 3.6
Foreign Currency Put Option... 331,500 0.3
Forest Products, Paper &
Packaging.................... 1,071,140 1.1
Gas........................... 153,339 0.2
Health & Personal Care........ 35,414 0.0
Hotels........................ 291,823 0.3
Household Furnishings &
Appliances................... 254,586 0.2
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------ ------------ ----------
<S> <C> <C>
Industrials................... $ 476,050 0.5%
Insurance..................... 927,367 0.9
Investment Companies.......... 797,063 0.8
Leisure....................... 1,007,051 1.0
Machine Tools................. 144,944 0.1
Machinery..................... 1,281,370 1.3
Manufacturing................. 1,208,457 1.2
Medical Supplies.............. 55,733 0.1
Merchandising................. 74,891 0.1
Metals........................ 1,244,510 1.2
Metals & Mining............... 1,138,905 1.1
Multi-Industry................ 1,483,153 1.5
Natural Gas................... 154,969 0.2
Oil Related................... 1,925,620 2.0
Pharmaceuticals............... 895,818 0.9
Photography................... 435,092 0.4
Plantation.................... 396,396 0.4
Publishing.................... 534,022 0.5
Real Estate................... 12,551,711 12.8
Retail........................ 426,764 0.4
Retail - General Merchandise.. 171,262 0.2
Retail - Specialty............ 276,658 0.3
Shipbuilding.................. 742,750 0.8
Steel & Iron.................. 1,182,430 1.2
Telecommunications............ 6,151,987 6.2
Textiles...................... 674,520 0.7
Transportation................ 4,130,017 4.1
U.S. Government Agency........ 2,999,521 3.1
Utilities..................... 4,616,558 4.7
Wholesale & International
Trade........................ 96,759 0.1
Wholesale Distributor......... 571,120 0.6
------------ -----
$ 97,595,256 99.3%
------------ -----
------------ -----
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Common Stocks.......................................................................... $ 89,869,914 91.4%
Convertible Bonds...................................................................... 4,047,329 4.1
Foreign Currency Put Option............................................................ 331,500 0.3
Preferred Stocks....................................................................... 260,000 0.3
Short-Term Investment.................................................................. 2,999,521 3.1
Rights................................................................................. 20,850 0.0
Warrants............................................................................... 66,142 0.1
------------ -----
$ 97,595,256 99.3%
------------ -----
------------ -----
</TABLE>
82
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (83.2%)
AEROSPACE (2.0%)
69,000 Boeing Co........................... $ 5,407,875
20,000 United Technologies Corp............ 1,897,500
---------------
7,305,375
---------------
AGRICULTURE RELATED (3.1%)
45,000 Case Corp........................... 2,058,750
70,000 IMC Global, Inc..................... 2,861,250
70,000 Pioneer Hi-Bred International,
Inc............................... 3,893,750
34,000 Potash Corp. of Saskatchewan, Inc.
(Canada).......................... 2,409,750
---------------
11,223,500
---------------
BANKS (2.7%)
39,000 Bank of Boston Corp................. 1,803,750
50,000 BankAmerica Corp.................... 3,237,500
35,000 Chase Manhattan Corp................ 2,121,875
20,000 First Interstate Bancorp............ 2,730,000
---------------
9,893,125
---------------
BEVERAGES - SOFT DRINKS (1.6%)
30,000 Coca Cola Co........................ 2,227,500
60,000 PepsiCo Inc......................... 3,352,500
---------------
5,580,000
---------------
BIOTECHNOLOGY (5.2%)
70,000 Amgen Inc.*......................... 4,147,500
50,000 Biochem Pharma, Inc.*............... 2,000,000
50,000 Biogen Inc.*........................ 3,050,000
70,000 Centocor, Inc.*..................... 2,161,250
15,000 Chiron Corp.*....................... 1,657,500
131,000 Guidant Corp........................ 5,534,750
---------------
18,551,000
---------------
CAPITAL GOODS (1.2%)
22,400 AlliedSignal, Inc................... 1,064,000
40,000 Lockheed Martin Corp................ 3,160,000
---------------
4,224,000
---------------
CHEMICALS (0.9%)
25,000 Monsanto Co......................... 3,062,500
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.2%)
56,000 Cisco Systems, Inc.*................ 4,179,000
---------------
COMMUNICATIONS - SOFTWARE & SERVICES (1.7%)
40,000 America Online, Inc.*............... 1,490,000
4,000 CKS Group, Inc.*.................... 155,000
22,000 Intuit, Inc.*....................... 1,716,000
20,000 Macromedia, Inc.*................... 1,037,500
20,000 Quarterdeck Corp.*.................. 547,500
23,000 Sun Microsystems, Inc.*............. 1,049,375
---------------
5,995,375
---------------
COMMUNICATIONS PRODUCTS & SERVICES (0.6%)
50,000 Picturetel Corp.*................... 2,143,750
---------------
COMPUTER SERVICES (1.1%)
75,000 General Motors Corp. (Class E)...... 3,900,000
---------------
COMPUTER SOFTWARE (0.8%)
25,000 Adobe Systems, Inc.................. 1,550,000
36,000 PeopleSoft, Inc.*................... 1,530,000
---------------
3,080,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (0.1%)
2,000 Citrix Systems, Inc.*............... $ 65,000
10,000 Elcom International, Inc.*.......... 150,000
---------------
215,000
---------------
CONSUMER BUSINESS SERVICES (4.3%)
45,000 Automatic Data Processing, Inc...... 3,341,250
35,000 Computer Sciences Corp.*............ 2,458,750
50,000 DST Systems, Inc.*.................. 1,425,000
42,819 First Data Corp..................... 2,863,521
26,700 HFS, Inc.*.......................... 2,182,725
40,000 Reuters Holdings PLC (ADR) (United
Kingdom).......................... 2,210,000
20,000 Service Corp. International......... 880,000
---------------
15,361,246
---------------
CONSUMER PRODUCTS (6.4%)
36,000 American Standard, Inc.*............ 1,008,000
100,000 Dial Corp........................... 2,962,500
61,000 Estee Lauder Companies
(Class A)*........................ 2,127,375
4,800 Helene Curtis Industries Inc........ 151,800
50,000 Kimberly-Clark Corp................. 4,137,500
40,000 Mondavi (Robert) Corp. (The) (Class
A)*............................... 1,100,000
37,000 Philip Morris Companies, Inc........ 3,348,500
40,500 Procter & Gamble Co................. 3,361,500
40,000 Ralston-Ralston Purina Group........ 2,495,000
75,000 Sara Lee Corp....................... 2,390,625
---------------
23,082,800
---------------
DRUGS (2.7%)
70,000 Lilly (Eli) & Co.................... 3,937,500
30,000 Pharmacia & Upjohn, Inc............. 1,162,500
80,000 SmithKline Beecham PLC (ADR) (United
Kingdom).......................... 4,440,000
---------------
9,540,000
---------------
ELECTRONICS - DEFENSE (1.1%)
115,000 Loral Corp.......................... 4,068,125
---------------
ENERGY (0.5%)
50,000 Sonat, Inc.......................... 1,781,250
---------------
ENTERTAINMENT (1.6%)
70,000 C U C International, Inc.*.......... 2,388,750
56,000 Walt Disney Co...................... 3,304,000
---------------
5,692,750
---------------
FINANCIAL - MISCELLANEOUS (6.3%)
100,000 Ahmanson (H.F.) & Co................ 2,650,000
120,000 Bear Stearns Companies, Inc......... 2,385,000
95,000 Countrywide Credit Industries,
Inc............................... 2,066,250
31,000 Donaldson, Lufkin & Jenrette,
Inc.*............................. 968,750
50,000 Edwards (A.G.), Inc................. 1,193,750
30,000 Federal Home Loan Mortgage Corp..... 2,505,000
20,000 Federal National Mortgage
Association....................... 2,482,500
17,000 Golden West Financial Corp.......... 939,250
40,000 Green Tree Financial Corp........... 1,055,000
60,000 Merrill Lynch & Co., Inc............ 3,060,000
43,000 Morgan Stanley Group, Inc........... 3,466,875
---------------
22,772,375
---------------
</TABLE>
83
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
HEALTH MAINTENANCE ORGANIZATIONS (0.9%)
50,000 Health Management Associates, Inc.
(Class A)*........................ $ 1,306,250
45,000 U.S. Healthcare, Inc................ 2,086,875
---------------
3,393,125
---------------
HEALTHCARE PRODUCTS & SERVICES (6.3%)
30,000 HBO & Co............................ 2,287,500
100,000 Healthcare Compare Corp.*........... 4,350,000
120,000 Healthsource, Inc.*................. 4,320,000
20,000 Healthsouth Corp.*.................. 582,500
6,400 Pacificare Health Systems, Inc.
(Class A)*........................ 550,400
50,000 Pacificare Health Systems, Inc.
(Class B)*........................ 4,350,000
40,000 Shared Medical Systems Corp......... 2,160,000
63,000 United Healthcare Corp.............. 4,126,500
---------------
22,726,900
---------------
HOUSING RELATED (1.8%)
20,000 Centex Corp......................... 695,000
125,000 Clayton Homes, Inc.................. 2,671,875
31,600 Oakley, Inc.*....................... 1,074,400
51,000 Oakwood Homes Corp.................. 1,957,125
---------------
6,398,400
---------------
INSURANCE (7.9%)
36,000 Aetna Life & Casualty Co............ 2,493,000
40,000 Allstate Corp. (The) (Note 3)....... 1,645,000
49,000 American International Group, Inc... 4,532,500
20,000 Chubb Corp.......................... 1,935,000
4,900 CNA Financial Corp.*................ 556,150
95,100 Exel, Ltd........................... 5,801,100
25,000 General Re Corp..................... 3,875,000
105,000 Prudential Reinsurance Holdings,
Inc............................... 2,454,375
34,500 SunAmerica Inc...................... 1,638,750
60,000 Travelers Group, Inc................ 3,772,500
---------------
28,703,375
---------------
MEDIA GROUP (1.5%)
36,000 Clear Channel Communications,
Inc.*............................. 1,588,500
105,000 Infinity Broadcasting Corp.*........ 3,911,250
---------------
5,499,750
---------------
MEDICAL PRODUCTS & SUPPLIES (3.2%)
5,100 Becton, Dickinson & Co.............. 382,500
40,000 Boston Scientific Corp.*............ 1,960,000
40,000 IDEXX Laboratories, Inc.*........... 1,860,000
39,800 Medtronic Inc....................... 2,223,825
15,000 Neuromedical Systems, Inc.*......... 300,000
20,000 Omnicare, Inc....................... 895,000
45,000 St. Jude Medical, Inc.*............. 1,923,750
50,000 Target Therapeutics, Inc.*.......... 2,137,500
---------------
11,682,575
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
MISCELLANEOUS (1.1%)
75,000 Thermo Electron Corp.*.............. $ 3,900,000
---------------
MULTI-LINE INSURANCE (0.9%)
30,000 CIGNA Corp.......................... 3,097,500
---------------
PHARMACEUTICALS (4.7%)
35,000 American Home Products Corp......... 3,395,000
30,000 Bristol-Myers Squibb Co............. 2,576,250
60,000 Johnson & Johnson................... 5,137,500
60,000 Merck & Co., Inc.................... 3,945,000
30,000 Pfizer, Inc......................... 1,890,000
---------------
16,943,750
---------------
RESTAURANTS (0.6%)
10,000 Boston Chicken, Inc.*............... 320,000
20,000 Lone Star Steakhouse & Saloon,
Inc.*............................. 765,000
44,000 Starbucks Corp.*.................... 918,500
---------------
2,003,500
---------------
RETAIL (3.3%)
70,000 Federated Department Stores,
Inc.*............................. 1,925,000
8,000 General Nutrition Companies,
Inc.*............................. 184,000
120,000 Gucci Group NV (ADR) (Italy)*....... 4,665,000
10,000 Home Depot, Inc..................... 478,750
40,000 St. John Knits, Inc................. 2,125,000
80,000 Walgreen Co......................... 2,390,000
---------------
11,767,750
---------------
TELECOMMUNICATION EQUIPMENT (0.1%)
19,352 Ericsson (L.M.) Telephone Co. AB
(ADR) (Sweden).................... 374,945
---------------
TELECOMMUNICATIONS (5.1%)
30,000 ADC Telecommunications, Inc.*....... 1,087,500
39,000 Ascend Communications, Inc.*........ 3,163,875
40,000 AT&T Corp........................... 2,590,000
30,000 Cascade Communications Corp.*....... 2,550,000
75,000 GTE Corp............................ 3,300,000
23,000 Shiva Corp.*........................ 1,673,288
32,000 Stratacom, Inc.*.................... 2,336,000
50,000 WorldCom Inc.*...................... 1,762,500
---------------
18,463,163
---------------
TRANSPORTATION (0.7%)
35,000 Burlington Northern Santa Fe
Corp.............................. 2,730,000
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$263,416,335)..................... 299,335,904
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (14.7%)
$ 47,000 U.S. Treasury Bond 6.875% due
08/15/25 (Identified Cost
$51,829,531)...................... 53,014,530
---------------
</TABLE>
84
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.7%)
REPURCHASE AGREEMENT
$ 5,915 The Bank of New York (dated
12/29/95; proceeds $5,917,332;
collateralized by $6,271,607 U.S.
Treasury Bill 5.23% due 09/19/96
valued at $6,033,667) (Identified
Cost $5,915,360).................... $ 5,915,360
---------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
---------------
<C> <S> <C>
TOTAL INVESTMENTS (IDENTIFIED
COST $321,161,226) (A).......... 99.6% $ 358,265,794
OTHER ASSETS IN EXCESS OF
LIABILITIES..................... 0.4 1,513,576
---------- -------------
NET ASSETS....................... 100.0% $ 359,779,370
---------- -------------
---------- -------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (74.8%)
AEROSPACE & DEFENSE (2.0%)
80,000 Honeywell, Inc...................... $ 3,890,000
70,000 Rockwell International Corp......... 3,701,250
---------------
7,591,250
---------------
ALUMINUM (1.0%)
70,000 Aluminum Co. of America............. 3,701,250
---------------
AUTOMOTIVE (2.1%)
139,700 Ford Motor Co....................... 4,051,300
80,000 General Motors Corp................. 4,230,000
---------------
8,281,300
---------------
BANKS (1.1%)
67,000 BankAmerica Corp.................... 4,338,250
---------------
BANKS - MONEY CENTER (0.9%)
61,000 Chemical Banking Corp............... 3,583,750
---------------
BANKS - REGIONAL (1.2%)
21,300 Wells Fargo & Co.................... 4,600,800
---------------
BEVERAGES - SOFT DRINKS (0.9%)
66,000 PepsiCo Inc......................... 3,687,750
---------------
BIOTECHNOLOGY (1.9%)
96,000 Autoimmune, Inc.*................... 1,056,000
27,000 Biochem Pharma, Inc.*............... 1,080,000
17,000 Biogen Inc.*........................ 1,037,000
38,000 Cephalon Inc.*...................... 1,548,500
11,900 Chiron Corp.*....................... 1,314,950
69,000 Liposome Co., Inc.*................. 1,380,000
---------------
7,416,450
---------------
BROKERAGE (0.8%)
40,000 Morgan Stanley Group, Inc........... 3,225,000
---------------
CHEMICALS (1.9%)
53,000 Du Pont (E.I.) de Nemours & Co.,
Inc............................... 3,703,375
30,000 Monsanto Co......................... 3,675,000
---------------
7,378,375
---------------
CHEMICALS - SPECIALTY (0.9%)
110,000 Georgia Gulf Corp................... 3,382,500
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.5%)
74,000 Bay Networks, Inc................... 3,034,000
40,000 Cisco Systems, Inc.*................ 2,985,000
49,600 Stratacom, Inc.*.................... 3,620,800
---------------
9,639,800
---------------
COMPUTER EQUIPMENT (2.0%)
57,000 Komag Inc........................... 2,600,625
100,000 Read Rite Corp.*.................... 2,312,500
62,000 Seagate Technology, Inc.*........... 2,945,000
---------------
7,858,125
---------------
COMPUTER SERVICES (0.8%)
62,000 General Motors Corp. (Class E)...... 3,224,000
---------------
COMPUTER SOFTWARE (2.4%)
55,000 Broderbund Software, Inc.*.......... 3,341,250
34,000 Microsoft Corp.*.................... 2,983,500
70,000 Oracle Systems Corp.*............... 2,957,500
---------------
9,282,250
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMPUTERS (0.6%)
90,000 Silicon Graphics, Inc.*............. $ 2,475,000
---------------
COMPUTERS - SYSTEMS (1.6%)
38,000 Hewlett-Packard Co.................. 3,182,500
33,200 International Business Machines
Corp.............................. 3,046,100
---------------
6,228,600
---------------
CONSUMER PRODUCTS (0.9%)
74,000 Tambrands, Inc...................... 3,533,500
---------------
DRUGS (1.0%)
38,600 Warner-Lambert Co................... 3,749,025
---------------
ELECTRIC - MAJOR (0.9%)
50,000 General Electric Co................. 3,600,000
---------------
ELECTRICAL EQUIPMENT (0.9%)
45,000 Emerson Electric Co................. 3,678,750
---------------
FINANCIAL - MISCELLANEOUS (2.4%)
56,000 Federal Home Loan Mortgage
Corp.............................. 4,676,000
37,000 Federal National Mortgage
Association....................... 4,592,625
---------------
9,268,625
---------------
FOODS (1.9%)
60,000 Campbell Soup Co.................... 3,600,000
91,000 ConAgra, Inc........................ 3,753,750
---------------
7,353,750
---------------
HEALTHCARE - MISCELLANEOUS (2.9%)
180,000 Coventry Corp.*..................... 3,712,500
135,000 Humana, Inc.*....................... 3,695,625
86,000 U.S. Healthcare, Inc................ 3,988,250
---------------
11,396,375
---------------
HOSPITAL MANAGEMENT (0.9%)
71,500 Columbia/HCA Healthcare Corp........ 3,628,625
---------------
HOUSEHOLD PRODUCTS (0.9%)
49,000 Colgate-Palmolive Co................ 3,442,250
---------------
INSURANCE (1.1%)
46,000 American International Group, Inc... 4,255,000
---------------
METALS - MISCELLANEOUS (1.0%)
60,000 Phelps Dodge Corp................... 3,735,000
---------------
MULTI-LINE INSURANCE (0.9%)
34,000 CIGNA Corp.......................... 3,510,500
---------------
NATURAL GAS (1.2%)
107,000 Williams Companies, Inc............. 4,694,625
---------------
OFFICE EQUIPMENT & SUPPLIES (1.1%)
93,200 Alco Standard Corp.................. 4,252,250
---------------
OIL DRILLING & SERVICES (1.2%)
68,000 Schlumberger Ltd. (ADR) (Netherlands
Antilles)......................... 4,709,000
---------------
OIL INTEGRATED - INTERNATIONAL (4.9%)
94,000 Chevron Corp........................ 4,935,000
59,000 Exxon Corp.......................... 4,727,375
43,000 Mobil Corp.......................... 4,816,000
60,000 Texaco, Inc......................... 4,710,000
---------------
19,188,375
---------------
</TABLE>
86
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
PHARMACEUTICALS (5.8%)
86,000 Abbott Laboratories................ $ 3,590,500
36,000 American Home Products Corp........ 3,492,000
42,000 Johnson & Johnson.................. 3,596,250
76,000 Lilly (Eli) & Co................... 4,275,000
59,000 Merck & Co., Inc................... 3,879,250
59,000 Pfizer, Inc........................ 3,717,000
---------------
22,550,000
---------------
RAILROADS (1.1%)
58,500 Conrail, Inc....................... 4,095,000
---------------
RETAIL (2.2%)
58,500 Dayton-Hudson Corp................. 4,387,500
87,000 Home Depot, Inc.................... 4,165,125
---------------
8,552,625
---------------
RETAIL - SPECIALTY APPAREL (0.9%)
83,000 Gap, Inc........................... 3,486,000
---------------
SAVINGS & LOAN ASSOCIATIONS (2.1%)
242,000 California Federal Bank*........... 3,811,500
220,000 Roosevelt Financial Group, Inc..... 4,207,500
---------------
8,019,000
---------------
SEMICONDUCTORS (0.7%)
68,000 Applied Materials, Inc.*........... 2,669,000
---------------
SHOES (1.9%)
65,000 Nike, Inc. (Class B)............... 4,525,625
100,000 Reebok International Ltd. (United
Kingdom)......................... 2,825,000
---------------
7,350,625
---------------
STEEL & IRON (2.0%)
260,000 Bethlehem Steel Corp.*............. 3,640,000
160,000 Inland Steel Industries, Inc....... 4,020,000
---------------
7,660,000
---------------
TOBACCO (1.7%)
150,000 Dimon, Inc......................... 2,643,750
42,000 Philip Morris Companies, Inc....... 3,801,000
---------------
6,444,750
---------------
UTILITIES - ELECTRIC (6.8%)
130,000 Baltimore Gas & Electric Co........ 3,705,000
120,000 CINergy Corp....................... 3,675,000
135,000 Consolidated Edison Co. of New
York, Inc........................ 4,320,000
105,000 Florida Progress Corp.............. 3,714,375
110,000 General Public Utilities Corp...... 3,740,000
150,000 Houston Industries, Inc............ 3,637,500
140,000 Kansas City Power & Light Co....... 3,657,500
---------------
26,449,375
---------------
UTILITIES - GAS (0.9%)
130,000 Pacific Enterprises................ 3,672,500
---------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $282,450,073)............... 290,838,975
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
CORPORATE BONDS (10.4%)
BANKS (2.8%)
$ 3,000 Bank of Boston Corp.
6.875% due 07/15/03............... $ 3,102,270
1,000 First National Bank Corp.
7.32% due 12/01/10................ 1,004,230
2,000 First Nationwide Bank
10.00% due 10/01/06............... 2,418,160
2,000 Midland Bank PLC
7.65% due 05/01/25 (United
Kingdom).......................... 2,225,900
2,000 Provident Bank
6.375% due 01/15/04............... 1,991,580
---------------
10,742,140
---------------
BROADCAST MEDIA (0.6%)
2,000 Time Warner Entertainment Co. 8.375%
due 07/15/33...................... 2,156,580
---------------
BROKERAGE (0.6%)
2,000 Lehman Brothers Holdings, Inc. 8.80%
due 03/01/15...................... 2,290,600
---------------
FINANCIAL (1.9%)
2,000 Kemper Corp.
6.875% due 09/15/03............... 2,060,700
3,000 RHG Finance Corp.
8.875% due 10/01/05............... 3,159,660
2,000 Sun Life Financial Co. - 144A**
6.625% due 12/15/07 (Canada)...... 2,017,500
---------------
7,237,860
---------------
FOREIGN GOVERNMENT AGENCY (1.4%)
3,000 Italy (Republic of)
6.875% due 09/27/23............... 2,928,150
2,000 Province of Quebec
8.625% due 12/01/26 (Canada)...... 2,379,060
---------------
5,307,210
---------------
HOTELS (0.5%)
2,000 La Quinta Motor Inns, Inc.
7.40% due 09/15/05................ 2,060,000
---------------
INDUSTRIALS (0.5%)
2,000 Brascan Ltd.
7.375% due 10/01/02 (Canada)...... 2,059,200
---------------
INSURANCE (0.6%)
2,000 Liberty Mutual - 144A**
8.20% due 05/04/07................ 2,223,120
---------------
MANUFACTURING - CONSUMER & INDUSTRIAL PRODUCTS (0.5%)
2,000 Tenneco Inc. 7.25% due 12/15/25..... 2,113,840
---------------
TOBACCO (0.5%)
2,000 RJR Nabisco, Inc.
8.75% due 08/15/05................ 2,056,480
---------------
UTILITIES - ELECTRIC (0.5%)
2,000 Niagara Mohawk Power Corp. 9.25% due
10/01/01.......................... 2,019,560
---------------
TOTAL CORPORATE BONDS (IDENTIFIED
COST $39,070,990)................. 40,266,590
---------------
</TABLE>
87
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (9.9%)
$ 4,000 U.S. Treasury Bond
7.625% due 02/15/25............... $ 4,890,625
4,000 U.S. Treasury Note
6.50% due 05/15/97................ 4,068,750
5,000 U.S. Treasury Note
6.375% due 01/15/99............... 5,154,688
10,000 U.S. Treasury Note
6.875% due 08/31/99............... 10,507,812
8,000 U.S. Treasury Note
7.75% due 11/30/99................ 8,670,000
3,000 U.S. Treasury Note
5.75% due 08/15/03................ 3,038,438
2,000 U.S. Treasury Note
7.50% due 02/15/05................ 2,268,750
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $37,773,199)..... 38,599,063
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (A) (4.5%)
U.S. GOVERNMENT AGENCIES
$ 12,000 Federal Home Loan Banks
5.53% due 01/08/96................ $ 11,987,096
5,450 Federal Home Loan Mortgage Corp.
5.75% due 01/02/96................ 5,449,130
---------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $17,436,226)...... 17,436,226
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $376,730,488)(B).......... 99.6% 387,140,854
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 0.4 1,438,315
---------- -------------
NET ASSETS....................... 100.0% $ 388,579,169
---------- -------------
---------- -------------
<FN>
- ------------------
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(A) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value *... $250,870,737 $513,784,802 $151,385,614 $476,747,481
Cash.................................... 6,285 -- -- --
Receivable for:
Investments sold...................... -- -- -- --
Shares of beneficial interest sold.... 1,233 620 126,030 245,704
Dividends............................. -- -- -- 1,479,466
Interest.............................. 694,030 7,101,739 2,946,799 907,704
Foreign withholding taxes reclaimed... -- -- -- --
Prepaid expenses and other assets....... 5,032 10,237 3,837 8,252
------------ ------------ ------------ ------------
TOTAL ASSETS.................... 251,577,317 520,897,398 154,462,280 479,388,607
------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased................. -- -- -- --
Shares of beneficial interest
repurchased......................... 1,646,410 16,965 4,877 18
Investment management fee............. 98,057 217,049 64,192 258,611
Accrued expenses and other payables..... 46,264 84,829 83,626 59,833
------------ ------------ ------------ ------------
TOTAL LIABILITIES............... 1,790,731 318,843 152,695 318,462
------------ ------------ ------------ ------------
NET ASSETS:
Paid-in-capital......................... 249,786,564 510,241,645 246,550,419 414,225,788
Accumulated undistributed net investment
income
(distributions in excess of net
investment income).................... 22 608,166 494,390 5,421
Accumulated undistributed net realized
gain (accumulated net realized
loss)................................. -- (24,851,611) (74,113,150) 1,146,581
Net unrealized appreciation
(depreciation)........................ -- 34,580,355 (18,622,074) 63,692,355
------------ ------------ ------------ ------------
NET ASSETS...................... $249,786,586 $520,578,555 $154,309,585 $479,070,145
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
*IDENTIFIED COST........................ $250,870,737 $479,204,447 $170,007,688 $413,055,126
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING........................... 249,786,564 47,512,749 24,631,652 32,623,759
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET ASSET VALUE PER SHARE (unlimited
authorized shares of $.01 par
value)................................ $1.00 $10.96 $6.26 $14.68
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<FN>
- ------------------
** Includes foreign cash of $213,177 and $292,982, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY STRATEGIST
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
*.................................... $865,701,687 $67,150,643 $204,740,938 $185,926,037 $97,595,256 $358,265,794 $387,140,854
Cash................................... 4,367 1,657 1,150,008 770,522** 720,054** -- 49,045
Receivable for:
Investments sold..................... -- -- 237,772 1,292,043 364,341 3,585,460 --
Shares of beneficial interest sold... 218,339 6,853 266,638 14,082 406,298 682,738 3,681
Dividends............................ 1,707,909 63,899 413,396 434,580 34,875 238,033 176,730
Interest............................. 725,341 -- -- 4,526 53,658 1,221,982 1,480,158
Foreign withholding taxes
reclaimed.......................... -- -- 249,370 267,797 -- -- --
Prepaid expenses and other assets...... 9,047 1,941 3,101 9,333 4,403 4,436 4,467
----------- ---------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS................... 868,366,690 67,224,993 207,061,223 188,718,920 99,178,885 363,998,443 388,854,935
----------- ---------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments purchased................ 2,464,675 146,069 1,158,449 353,904 512,806 3,989,715 --
Shares of beneficial interest
repurchased........................ 3,659 19,073 178 15,285 145,464 11,367 53,075
Investment management fee............ 417,687 36,592 127,465 156,935 80,925 149,095 164,176
Accrued expenses and other payables.... 63,843 28,089 36,607 73,387 109,395 68,896 58,515
----------- ---------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES.............. 2,949,864 229,823 1,322,699 599,511 848,590 4,219,073 275,766
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSETS:
Paid-in-capital........................ 669,362,004 51,954,425 179,339,978 144,279,577 97,893,332 268,049,930 374,579,116
Accumulated undistributed net
investment income
(distributions in excess of net
investment income)................... 17,214 131,980 73,685 (210,717) 1,563,457 21,743 47,313
Accumulated undistributed net realized
gain (accumulated net realized
loss)................................ 23,590,802 699,431 6,036,504 11,343,892 (4,782,846) 54,603,129 3,542,374
Net unrealized appreciation
(depreciation)....................... 172,446,806 14,209,334 20,288,357 32,706,657 3,656,352 37,104,568 10,410,366
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSETS..................... $865,416,826 $66,995,170 $205,738,524 $188,119,409 $98,330,295 $359,779,370 $388,579,169
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
*IDENTIFIED COST....................... $693,254,881 $52,941,309 $184,452,332 $153,222,895 $93,937,645 $321,161,226 $376,730,488
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING.......................... 55,505,453 4,400,596 17,604,594 10,731,379 10,136,924 13,258,498 31,223,334
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER SHARE (unlimited
authorized shares of $.01 par
value)............................... $15.59 $15.22 $11.69 $17.53 $9.70 $27.14 $12.45
----------- ---------- ----------- ----------- ----------- ----------- -----------
----------- ---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
91
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest (Note 3)................... $ 15,059,748 $ 35,327,744 $ 17,789,371 $ 3,728,673
Dividends........................... -- 21,333 -- 16,077,649*
------------- ------------- ------------- -------------
TOTAL INCOME.................... 15,059,748 35,349,077 17,789,371 19,806,322
------------- ------------- ------------- -------------
EXPENSES
Investment management fee........... 1,243,727 2,323,329 673,472 2,749,873
Transfer agent fees and expenses.... 500 500 500 500
Shareholder reports and notices..... 15,494 44,894 7,381 44,995
Professional fees................... 28,956 35,332 17,006 30,283
Trustees' fees and expenses......... 3,620 4,790 1,723 1,471
Custodian fees...................... 18,466 80,099 17,294 31,256
Other............................... 7,485 14,207 4,669 8,809
------------- ------------- ------------- -------------
TOTAL EXPENSES.................. 1,318,248 2,503,151 722,045 2,867,187
------------- ------------- ------------- -------------
NET INVESTMENT INCOME....... 13,741,500 32,845,926 17,067,326 16,939,135
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................... -- 14,651,610 (1,098,358) 3,776,681
Foreign exchange transactions....... -- -- -- --
------------- ------------- ------------- -------------
TOTAL GAIN (LOSS)............... -- 14,651,610 (1,098,358) 3,776,681
------------- ------------- ------------- -------------
Net change in unrealized
appreciation/depreciation on:
Investments (Note 3)................ -- 53,023,332 2,521,011 86,839,183
Translation of forward foreign
currency contracts, other assets
and liabilities denominated in
foreign currencies................ -- -- -- --
------------- ------------- ------------- -------------
TOTAL APPRECIATION
(DEPRECIATION)................ -- 53,023,332 2,521,011 86,839,183
------------- ------------- ------------- -------------
NET GAIN........................ -- 67,674,942 1,422,653 90,615,864
------------- ------------- ------------- -------------
NET INCREASE................ $ 13,741,500 $ 100,520,868 $ 18,489,979 $ 107,554,999
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<FN>
- ------------------
* Net of $158,871, $98,210, $958, $453,445, $675,304, $157,967 and $16,912,
foreign withholding tax, respectively.
** Net of $1,158 foreign withholding tax.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN
GROWTH GROWTH GROWTH GROWTH PACIFIC GROWTH EQUITY
----------- ----------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest (Note 3).................. $ 2,345,394 $ 51,889 $ 58,190 $ 386,924 $ 200,050** $ 1,586,697
Dividends.......................... 21,530,514* 748,774* 5,143,688* 3,695,825* 2,014,994* 2,625,639*
----------- ----------- ----------- -------------- -------------- -----------
TOTAL INCOME................... 23,875,908 800,663 5,201,878 4,082,749 2,215,044 4,212,336
----------- ----------- ----------- -------------- -------------- -----------
EXPENSES
Investment management fee.......... 4,179,067 362,068 1,254,908 1,686,856 828,671 1,393,980
Transfer agent fees and expenses... 500 500 500 500 500 500
Shareholder reports and notices.... 50,772 2,082 13,106 11,535 7,533 19,594
Professional fees.................. 31,346 26,043 33,263 23,519 33,150 30,950
Trustees' fees and expenses........ 6,543 590 817 2,099 730 3,886
Custodian fees..................... 51,181 15,460 170,145 236,456 319,038 51,675
Other.............................. 4,110 6,493 -- 7,292 3,425 3,142
----------- ----------- ----------- -------------- -------------- -----------
TOTAL EXPENSES................. 4,323,519 413,236 1,472,739 1,968,257 1,193,047 1,503,727
----------- ----------- ----------- -------------- -------------- -----------
NET INVESTMENT INCOME...... 19,552,389 387,427 3,729,139 2,114,492 1,021,997 2,708,609
----------- ----------- ----------- -------------- -------------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain (loss) on:
Investments........................ 25,514,561 2,153,798 6,243,149 11,970,959 (4,022,048) 66,181,855
Foreign exchange transactions...... -- -- 57,088 (974,238) 1,261,672 --
----------- ----------- ----------- -------------- -------------- -----------
TOTAL GAIN (LOSS).............. 25,514,561 2,153,798 6,300,237 10,996,721 (2,760,376) 66,181,855
----------- ----------- ----------- -------------- -------------- -----------
Net change in unrealized
appreciation/depreciation on:
Investments (Note 3)............... 170,908,947 13,237,372 23,343,108 24,666,861 6,496,888 28,684,738
Translation of forward foreign
currency contracts, other assets
and liabilities denominated in
foreign currencies............... -- -- (1,429) (28,116) (3,754) --
----------- ----------- ----------- -------------- -------------- -----------
TOTAL APPRECIATION
(DEPRECIATION)............... 170,908,947 13,237,372 23,341,679 24,638,745 6,493,134 28,684,738
----------- ----------- ----------- -------------- -------------- -----------
NET GAIN....................... 196,423,508 15,391,170 29,641,916 35,635,466 3,732,758 94,866,593
----------- ----------- ----------- -------------- -------------- -----------
NET INCREASE............... $215,975,897 $15,778,597 $33,371,055 $ 37,749,958 $ 4,754,755 $97,575,202
----------- ----------- ----------- -------------- -------------- -----------
----------- ----------- ----------- -------------- -------------- -----------
<CAPTION>
STRATEGIST
-----------
<S> <C>
INVESTMENT INCOME:
INCOME
Interest (Note 3).................. $20,834,531
Dividends.......................... 838,822
-----------
TOTAL INCOME................... 21,673,353
-----------
EXPENSES
Investment management fee.......... 1,952,643
Transfer agent fees and expenses... 500
Shareholder reports and notices.... 27,512
Professional fees.................. 36,430
Trustees' fees and expenses........ 3,880
Custodian fees..................... 15,730
Other.............................. 3,256
-----------
TOTAL EXPENSES................. 2,039,951
-----------
NET INVESTMENT INCOME...... 19,633,402
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain (loss) on:
Investments........................ 4,287,366
Foreign exchange transactions...... --
-----------
TOTAL GAIN (LOSS).............. 4,287,366
-----------
Net change in unrealized
appreciation/depreciation on:
Investments (Note 3)............... 10,997,160
Translation of forward foreign
currency contracts, other assets
and liabilities denominated in
foreign currencies............... --
-----------
TOTAL APPRECIATION
(DEPRECIATION)............... 10,997,160
-----------
NET GAIN....................... 15,284,526
-----------
NET INCREASE............... $34,917,928
-----------
-----------
</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
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 13,741,500 $ 7,923,278 $ 32,845,926 $ 32,040,580
Net realized gain (loss)............ -- -- 14,651,610 (38,500,832)
Net change in unrealized
appreciation/depreciation......... -- -- 53,023,332 (28,248,118)
------------- ------------- ------------- -------------
Net increase (decrease)......... 13,741,500 7,923,278 100,520,868 (34,708,370)
------------- ------------- ------------- -------------
Dividends and distributions from:
Net investment income............... (13,741,498) (7,923,343) (32,322,904) (31,956,022)
Net realized gain................... -- -- -- (8,412,812)
In excess of net investment
income............................ -- -- -- --
------------- ------------- ------------- -------------
Total........................... (13,741,498) (7,923,343) (32,322,904) (40,368,834)
------------- ------------- ------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............. 96,881,194 243,270,066 36,146,570 62,213,515
Reinvestment of dividends and
distributions..................... 13,741,498 7,923,343 32,322,904 40,368,834
Cost of shares repurchased.......... (129,460,561) (112,493,978) (30,993,795) (100,246,764)
------------- ------------- ------------- -------------
Net increase (decrease)......... (18,837,869) 138,699,431 37,475,679 2,335,585
------------- ------------- ------------- -------------
Total increase (decrease)....... (18,837,867) 138,699,366 105,673,643 (72,741,619)
NET ASSETS:
Beginning of period................... 268,624,453 129,925,087 414,904,912 487,646,531
------------- ------------- ------------- -------------
END OF PERIOD......................... $ 249,786,586 $ 268,624,453 $ 520,578,555 $ 414,904,912
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Undistributed Net Investment Income..... $ 22 $ 20 $ 608,166 $ 85,136
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.................................. 96,881,194 243,270,066 3,515,633 5,844,176
Issued in reinvestment of dividends
and distributions................... 13,741,498 7,923,343 3,154,028 4,051,038
Repurchased........................... (129,460,561) (112,493,978) (3,077,582) (10,177,416)
------------- ------------- ------------- -------------
Net increase (decrease)............... (18,837,869) 138,699,431 3,592,079 (282,202)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES DIVIDEND GROWTH
---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............. $ 17,067,326 $ 13,505,893 $ 16,939,135 $ 18,140,133 $ 19,552,389 $ 17,272,310
Net realized gain (loss)........... (1,098,358) (5,517,509) 3,776,681 (2,172,266) 25,514,561 12,620,382
Net change in unrealized
appreciation/depreciation........ 2,521,011 (11,772,750) 86,839,183 (59,919,164) 170,908,947 (48,245,643)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)........ 18,489,979 (3,784,366) 107,554,999 (43,951,297) 215,975,897 (18,352,951)
------------- ------------- ------------- ------------- ------------- -------------
Dividends and distributions from:
Net investment income.............. (16,648,733) (13,464,211) (18,544,715) (17,878,751) (20,821,765) (16,780,838)
Net realized gain.................. -- -- -- (2,681,110) (12,652,636) --
In excess of net investment
income........................... -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total.......................... (16,648,733) (13,464,211) (18,544,715) (20,559,861) (33,474,401) (16,780,838)
------------- ------------- ------------- ------------- ------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............ 36,566,043 45,115,268 25,533,783 48,664,778 101,006,743 142,834,351
Reinvestment of dividends and
distributions.................... 16,648,733 13,464,211 18,544,715 20,559,861 33,474,401 16,780,838
Cost of shares repurchased......... (12,680,679) (19,597,061) (36,430,389) (113,235,763) (24,518,137) (34,674,217)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)........ 40,534,097 38,982,418 7,648,109 (44,011,124) 109,963,007 124,940,972
------------- ------------- ------------- ------------- ------------- -------------
Total increase (decrease)...... 42,375,343 21,733,841 96,658,393 (108,522,282) 292,464,503 89,807,183
NET ASSETS:
Beginning of period.................. 111,934,242 90,200,401 382,411,752 490,934,034 572,952,323 483,145,140
------------- ------------- ------------- ------------- ------------- -------------
END OF PERIOD........................ $ 154,309,585 $ 111,934,242 $ 479,070,145 $ 382,411,752 $ 865,416,826 $ 572,952,323
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Undistributed Net Investment Income.... $ 494,390 $ 75,797 $ 5,421 $ 1,610,911 $ 17,214 $ 1,286,590
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold................................. 5,834,627 6,446,698 1,947,513 3,765,654 7,140,373 11,460,639
Issued in reinvestment of dividends
and distributions.................. 2,658,293 2,019,283 1,407,989 1,653,504 2,413,931 1,370,617
Repurchased.......................... (2,029,027) (2,991,013) (2,821,228) (9,048,385) (1,815,800) (2,857,510)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease).............. 6,463,893 5,474,968 534,274 (3,629,227) 7,738,504 9,973,746
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
95
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
CAPITAL GROWTH GLOBAL DIVIDEND GROWTH
------------------------------- ----------------------------
1995 1994 1995 1994 (1)
------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 387,427 $ 425,853 $ 3,729,139 $ 1,847,100
Net realized gain (loss)............ 2,153,798 (927,479) 6,300,237 16,433
Net change in unrealized
appreciation/depreciation......... 13,237,372 (158,687) 23,341,679 (3,053,322)
------------- ---------------- ------------- -------------
Net increase (decrease)......... 15,778,597 (660,313) 33,371,055 (1,189,789)
------------- ---------------- ------------- -------------
Dividends and distributions from:
Net investment income............... (310,895 ) (431,431) (4,044,117) (1,516,017)
Net realized gain................... -- (137,199) (222,586) --
In excess of net investment
income............................ -- -- -- --
------------- ---------------- ------------- -------------
Total........................... (310,895 ) (568,630) (4,266,703) (1,516,017)
------------- ---------------- ------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............. 14,176,359 8,659,150 41,054,512 142,414,894
Reinvestment of dividends and
distributions..................... 310,895 568,630 4,266,703 1,516,017
Cost of shares repurchased.......... (8,675,047 ) (12,592,414) (7,173,082) (2,739,066)
------------- ---------------- ------------- -------------
Net increase (decrease)......... 5,812,207 (3,364,634) 38,148,133 141,191,845
------------- ---------------- ------------- -------------
Total increase (decrease)....... 21,279,909 (4,593,577) 67,252,485 138,486,039
NET ASSETS:
Beginning of period................... 45,715,261 50,308,838 138,486,039 --
------------- ---------------- ------------- -------------
END OF PERIOD......................... $ 66,995,170 $ 45,715,261 $ 205,738,524 $ 138,486,039
------------- ---------------- ------------- -------------
------------- ---------------- ------------- -------------
Undistributed Net Investment Income..... $ 131,980 $ 55,472 $ 73,685 $ 326,336
------------- ---------------- ------------- -------------
------------- ---------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.................................. 1,056,301 2,077,229 3,795,718 14,227,418
Issued in reinvestment of dividends
and distributions................... 24,762 29,150 397,706 152,929
Repurchased........................... (649,418 ) (1,374,613) (688,539) (280,638)
------------- ---------------- ------------- -------------
Net increase (decrease)............... 431,645 731,766 3,504,885 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>
EUROPEAN GROWTH PACIFIC GROWTH EQUITY
---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 (1) 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............. $ 2,114,492 $ 1,957,796 $ 1,021,997 $ 231,524 $ 2,708,609 $ 2,571,328
Net realized gain (loss)........... 10,996,721 5,276,370 (2,760,376) (740,879) 66,181,855 (10,255,042)
Net change in unrealized
appreciation/depreciation........ 24,638,745 1,187,264 6,493,134 (2,836,782) 28,684,738 (4,038,554)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)........ 37,749,958 8,421,430 4,754,755 (3,346,137) 97,575,202 (11,722,268)
------------- ------------- ------------- ------------- ------------- -------------
Dividends and distributions from:
Net investment income.............. (1,774,678) (1,332,400) (719,960) -- (3,058,144) (2,393,925)
Net realized gain.................. (5,391,962) (4,011,038) (15,252) (236,443) -- (16,442,181)
In excess of net investment
income........................... (210,717) -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total.......................... (7,377,357) (5,343,438) (735,212) (236,443) (3,058,144) (18,836,106)
------------- ------------- ------------- ------------- ------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............ 18,351,213 79,498,127 33,260,368 81,416,561 60,875,983 84,340,284
Reinvestment of dividends and
distributions.................... 7,377,357 5,343,438 735,212 236,443 3,058,144 18,836,106
Cost of shares repurchased......... (20,019,201) (14,934,507) (15,110,167) (2,645,085) (23,961,072) (30,156,623)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)........ 5,709,369 69,907,058 18,885,413 79,007,919 39,973,055 73,019,767
------------- ------------- ------------- ------------- ------------- -------------
Total increase (decrease)...... 36,081,970 72,985,050 22,904,956 75,425,339 134,490,113 42,461,393
NET ASSETS:
Beginning of period.................. 152,037,439 79,052,389 75,425,339 -- 225,289,257 182,827,864
------------- ------------- ------------- ------------- ------------- -------------
END OF PERIOD........................ $ 188,119,409 $ 152,037,439 $ 98,330,295 $ 75,425,339 $ 359,779,370 $ 225,289,257
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Undistributed Net Investment Income.... $ (210,717) $ 18,459 $ 1,563,457 $ (152,940) $ 21,743 $ 371,545
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold................................. 1,106,630 5,461,296 3,543,683 8,401,700 2,501,214 3,984,962
Issued in reinvestment of dividends
and distributions.................. 454,397 385,416 79,076 25,025 136,228 965,337
Repurchased.......................... (1,268,442) (1,042,808) (1,630,781) (281,779) (1,080,135) (1,504,112)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease).............. 292,585 4,803,904 1,991,978 8,144,946 1,557,307 3,446,187
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
STRATEGIST
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............. $ 19,633,402 $ 13,689,136
Net realized gain (loss)........... 4,287,366 13,979,461
Net change in unrealized
appreciation/depreciation........ 10,997,160 (14,418,071)
------------- -------------
Net increase (decrease)........ 34,917,928 13,250,526
------------- -------------
Dividends and distributions from:
Net investment income.............. (21,267,198) (12,720,041)
Net realized gain.................. (13,902,986) (6,891,484)
In excess of net investment
income........................... -- --
------------- -------------
Total.......................... (35,170,184) (19,611,525)
------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales............ 24,116,300 110,230,754
Reinvestment of dividends and
distributions.................... 35,170,184 19,611,525
Cost of shares repurchased......... (63,215,404) (18,223,284)
------------- -------------
Net increase (decrease)........ (3,928,920) 111,618,995
------------- -------------
Total increase (decrease)...... (4,181,176) 105,257,996
NET ASSETS:
Beginning of period.................. 392,760,345 287,502,349
------------- -------------
END OF PERIOD........................ $ 388,579,169 $ 392,760,345
------------- -------------
------------- -------------
Undistributed Net Investment Income.... $ 47,313 $ 1,680,979
------------- -------------
------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold................................. 1,957,299 8,741,963
Issued in reinvestment of dividends
and distributions.................. 2,891,755 1,575,130
Repurchased.......................... (5,160,690) (1,450,674)
------------- -------------
Net increase (decrease).............. (311,636) 8,866,419
------------- -------------
------------- -------------
</TABLE>
97
<PAGE>
Dean Witter Variable Investment Series
Notes to Financial Statements DECEMBER 31, 1995
- --------------------------------------------------------------------------------
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 Fund
are owned by (1) Northbrook Life Insurance Company to fund benefits under
certain flexible premium variable annuity contracts; (2) Allstate Life Insurance
Company of New York to fund benefits under certain flexible premium deferred
variable annuity contracts; and (3) Paragon Life Insurance Company to fund
benefits under certain flexible premium variable life insurance contracts issued
to certain employees of Dean Witter Discover & Co., an affiliate of Dean Witter
InterCapital Inc. (the "Investment Manager").
The Fund, organized on February 25, 1983 as a Massachusetts business trust,
consists of eleven Portfolios ("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
Strategist +................... March 1, 1987
</TABLE>
- ------------
+ Formerly known as Dean Witter Variable Investment Series -- Managed Assets.
The investment objectives of each Portfolio are as follows:
<TABLE>
<S> <C>
PORTFOLIO INVESTMENT OBJECTIVE
Money Market Seeks high current income, preservation of capital and liquidity by
investing in short-term money market instruments.
Quality Seeks, as its primary objective, to earn a high level of current
Income income and, as a secondary objective, capital appreciation, but only
Plus 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.
High Yield 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 lower-rated fixed income securities.
Utilities 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.
Dividend Seeks to provide reasonable current income and long-term growth of
Growth income and capital by investing primarily in common stock of
companies with a record of paying dividends and the potential for
increasing dividends.
</TABLE>
98
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Capital Seeks long-term capital growth by investing primarily in common
Growth stocks.
Global Dividend Seeks to provide reasonable current income and long-term growth of
Growth income and capital by investing primarily in common stocks of
companies, issued by issuers worldwide, with a record of paying
dividends and the potential for increasing dividends.
European Growth Seeks to maximize the capital appreciation of its investments by
investing primarily in securities issued by issuers located in
Europe.
Pacific Growth Seeks to maximize the capital appreciation of its investments by
investing primarily in securities issued by issuers located in Asia,
Australia and New Zealand.
Equity 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.
Strategist Seeks a high total investment return through a fully managed
investment policy utilizing equity securities, investment grade
fixed income and money market securities, writing covered options on
such securities and the collateralized sale of stock index options.
</TABLE>
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies:
A. VALUATION OF INVESTMENTS--Money Market: Securities are valued at
amortized cost which approximates market value. All remaining Portfolios:
(1) an equity security listed or traded on the New York, American or other
domestic or foreign stock exchange 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, if available, in
99
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
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 and other distributions are recorded on the ex-
dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Interest income is accrued daily except where collection is not expected.
The Money Market Portfolio amortizes premiums and accretes discounts on
securities owned; gains and losses realized upon the sale of securities are
based on amortized cost. Discounts for all other Portfolios are accreted
over the life of the respective securities.
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.
100
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
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 gain/loss on foreign
exchange transactions. The Portfolios record realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
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 or
equally among the Portfolios.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS--Pursuant to an Investment
Management Agreement, the Fund pays a management fee, accrued daily and payable
monthly, by applying the following annual rates to each Portfolios' net assets
determined at the close of each business day: Money Market, High Yield, Equity
and Strategist - 0.50%; Dividend Growth - 0.625% to the portion of daily net
assets not exceeding $500 million and 0.50% to the portion of daily net assets
exceeding $500 million; Utilities - 0.65% to the portion of daily net assets not
exceeding $500 million and 0.55% to the portion of daily net assets exceeding
$500 million; Capital Growth - 0.65%; Global Dividend Growth - 0.75%; European
Growth and Pacific Growth - 1.0% to the daily net assets. Effective April 21,
1995, Quality Income Plus calculates the management fee at the following rates:
0.50% to the portion of daily net assets not exceeding $500 million and 0.45% to
the portion of daily net assets exceeding $500.
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.
101
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
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.
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, 1995
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------------- --------------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Money Market.......................... $ 191,451,010 $ 204,596,000 $ 1,432,802,780 $ 1,451,277,754
Quality Income Plus................... 469,037,541 497,959,955 308,746,010 245,973,402
High Yield............................ -- -- 108,752,685 69,113,723
Utilities............................. -- -- 52,068,376 61,282,836
Dividend Growth....................... 5,436,094 10,000,000 258,341,786 160,351,235
Capital Growth........................ 109,350 301,842 24,654,737 18,595,411
Global Dividend Growth................ -- -- 128,773,152 91,090,901
European Growth....................... -- -- 110,557,473 117,290,842
Pacific Growth........................ -- -- 59,480,521 42,582,989
Equity................................ 101,348,479 69,563,350 690,869,624 654,771,649
Strategist............................ 179,565,155 137,018,198 485,032,514 172,462,924
</TABLE>
Included in the aforementioned purchases of portfolio securities of the
Equity Portfolio are purchases of equity securities of The Allstate Corporation,
the parent company of Northbrook Life Insurance Company and Allstate Life
Insurance Company of New York, affiliates of the Fund, in the amount of
$1,649,874.
During the year ended December 31, 1995, Quality Income Plus purchased and
subsequently sold debt securities issued by Citizens Utilities Company, an
affiliate of the Fund by virtue of a common Trustee, realizing a gain and
interest income in the amount of $106,280 and $40,444, respectively.
For the year ended December 31, 1995, the following Portfolios incurred
commissions with Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager, for portfolio transactions executed on behalf of the
Portfolio:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND
UTILITIES GROWTH GROWTH GROWTH EQUITY STRATEGIST
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commissions............................ $ 6,500 $ 216,308 $ 32,841 $ 50,294 $ 192,565 $ 80,425
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>
For the year ended December 31, 1995, Pacific Growth Portfolio incurred
brokerage commissions of $38,904 with affiliates of Morgan Grenfell for
portfolio transactions executed.
Included in the payable for investments purchased for unsettled trades with
DWR for Global Dividend Growth and Capital Growth are $369,250 and $89,009,
respectively.
102
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent.
The Fund has 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 year ended December 31,
1995 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 are 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............................ $ 814 $ 1,517 $ 440 $ 1,380 $ 2,319 $ 182
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
Accrued Pension Liability......................... $ 11,385 $ 7,614 $ 3,440 $ 5,073 $ 7,908 $ 344
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND EUROPEAN PACIFIC
GROWTH GROWTH GROWTH EQUITY STRATEGIST
----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Aggregate Pension Cost...................................... $ 546 $ 550 $ 270 $ 910 $ 1,274
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
Accrued Pension Liability................................... $ 527 $ 807 $ 267 $ 5,188 $ 8,159
----------- ----------- --------- --------- -----------
----------- ----------- --------- --------- -----------
</TABLE>
4. FEDERAL INCOME TAX STATUS--At December 31, 1995, the following Portfolios
had an approximate net capital loss carryover which may be used to offset future
capital gains to the extent provided by regulations:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
AVAILABLE THROUGH -------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality Income Plus........... -- -- -- -- -- -- $ 22,894 -- $ 22,894
High Yield.................... $ 7,297 $ 10,694 $ 34,291 $ 7,336 $ 3,057 $ 4,736 3,256 $ 3,311 73,978
Pacific Growth................ -- -- -- -- -- -- -- 1,398 1,398
</TABLE>
During the year ended December 31, 1995, the following Portfolios utilized
approximate net capital loss carryovers: Quality Income Plus - $9,908,000;
Utilities - $2,371,000; Capital Growth - $1,105,000; Equity - $6,496,000.
Net capital and net currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Portfolios' next taxable year. The following Portfolios incurred and will
elect to defer post-October losses during fiscal 1995: Global Dividend Growth -
$5,000; European Growth - $633,000; Pacific Growth - $2,310,000.
103
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1995, the primary reason(s) for significant
temporary/permanent book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
----------------------------- ---------------------
POST-OCTOBER LOSS DEFERRALS FOREIGN CURRENCY
LOSSES FROM WASH SALES GAINS/LOSSES
------------ --------------- ---------------------
<S> <C> <C> <C>
Quality Income Plus.......................................... -
High Yield................................................... -
Utilities.................................................... -
Dividend Growth.............................................. -
Capital Growth............................................... -
Global Dividend Growth....................................... - - -
European Growth.............................................. - - -
Pacific Growth............................................... - - -
Equity....................................................... -
</TABLE>
Additionally, Global Dividend Growth, European Growth and Pacific Growth
Portfolios had temporary differences attributable to income from the
mark-to-market of passive foreign investment companies.
To reflect reclassifications arising from permanent book/tax differences for
the year ended December 31, 1995, the following accounts were charged
(credited):
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED
NET INVESTMENT INCOME/
DISTRIBUTIONS IN EXCESS ACCUMULATED UNDISTRIBUTED
OF NET REALIZED GAIN/ACCUMULATED
NET INVESTMENT INCOME NET REALIZED LOSS
----------------------- -----------------------------
<S> <C> <C>
Global Dividend Growth................................... $ (62,327) $ 62,327
European Growth.......................................... 358,273 (358,273)
Pacific Growth........................................... (1,414,360) 1,414,360
</TABLE>
5. PURPOSES OF AND RISKS 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
foreign currency exposure associated with foreign currency denominated
securities. Such 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, 1995, there were outstanding forward contracts used to
facilitate settlement of foreign currency denominated portfolio transactions.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
At December 31, 1995, the European Growth and Pacific Growth Portfolios'
cash balance consisted principally of interest bearing deposits with Chase
Manhattan Bank N.A., the Fund's custodian.
104
<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
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)
1995 1.00 0.055 -- 0.055 (0.055) -- (0.055)
QUALITY INCOME PLUS
1987(a) 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)
1995 9.45 0.72 1.50 2.22 (0.71) -- (0.71)
HIGH YIELD
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)
1995 6.16 0.80 0.08 0.88 (0.78) -- (0.78)
UTILITIES
1990(b) 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)
1995 11.92 0.53 2.81 3.34 (0.58) -- (0.58)
</TABLE>
- ------------
Commencement of operations:
(a) March 1, 1987.
(b) 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%.
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
NET AVERAGE NET
NET ASSETS
ASSET AT ASSETS
VALUE END -----------
END TOTAL OF NET PORTFOLIO
OF INVESTMENT PERIOD INVESTMENT TURNOVER
PERIOD RETURN (000'S) EXPENSES INCOME RATE
- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1$.00 6.39% 4$2,194 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
1.00 5.66 249,787 0.53 5.52 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
10.96 24.30 520,579 0.54 7.07 162
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
6.26 14.93 154,310 0.54 12.67 58
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
14.68 28.65 479,070 0.68 4.00 13
</TABLE>
107
<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(b) $ 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)
1995 11.99 0.38 3.89 4.27 (0.41) (0.26) (0.67)
CAPITAL GROWTH
1991(c) 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)
1995 11.52 0.10 3.68 3.78 (0.08) -- (0.08)
GLOBAL DIVIDEND GROWTH
1994(d) 10.00 0.23 (0.20) 0.03 (0.21) -- (0.21)
1995 9.82 0.24 1.90 2.14 (0.26) (0.01) (0.27)
EUROPEAN GROWTH
1991(c) 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)
1995 14.56 0.20 3.50 3.70 (0.19)+ (0.54) (0.73)
PACIFIC GROWTH
1994(d) 10.00 0.07 (0.74) (0.67) -- (0.07) (0.07)
1995 9.26 0.12 0.41 0.53 (0.09) -- (0.09)
EQUITY
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)
1995 19.25 0.22 7.92 8.14 (0.25) -- (0.25)
STRATEGIST
1987(a) 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)
1995 12.45 0.62 0.49 1.11 (0.67) (0.44) (1.11)
</TABLE>
- ------------
Commencement of operations:
(a) March 1, 1987.
(b) March 1, 1990.
(c) March 1, 1991.
(d) February 23, 1994.
+ Includes distributions in excess of net investment income of $0.02.
(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 ratios 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 periods February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through June 30, 1994 for
Pacific Growth, the ratios of expenses to average net assets would have
been 0.97% for Global Growth and 1.40% for Pacific Growth.
SEE NOTES TO FINANCIAL STATEMENTS
108
<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
15.59 36.38 865,417 0.61 2.75 24
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
15.22 32.92 66,995 0.74 0.70 34
9.82 0.27(1) 138,486 0.87(2)(6) 2.62(2) 20(1)
11.69 22.14 205,739 0.88 2.23 55
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
17.53 25.89 188,119 1.17 1.25 69
9.26 (6.73)(1) 75,425 1.00(2)(6) 0.56(2) 22(1)
9.70 5.74 98,330 1.44 1.23 53
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
27.14 42.53 359,779 0.54 0.97 269
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
12.45 9.48 388,579 0.52 5.03 329
</TABLE>
109
<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 Strategist Portfolio
(constituting Dean Witter Variable Investment Series, hereafter referred to as
the "Fund") at December 31, 1995, the results of each of their operations for
the year 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 at December 31, 1995 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 15, 1996
1995 FEDERAL INCOME TAX NOTICE (UNAUDITED)
During the year ended December 31, 1995, the Fund paid to
shareholders long-term capital gains per share as follows:
<TABLE>
<CAPTION>
DIVIDEND EUROPEAN
GROWTH GROWTH STRATEGIST
- ----------- ----------- -----------
<S> <C> <C>
$ 0.26 $ 0.08 $ 0.28
----- ----- -----
----- ----- -----
</TABLE>
110
<PAGE>
(THIS PAGE LEFT BLANK INTENTIONALLY.)
89
<PAGE>
(THIS PAGE LEFT BLANK INTENTIONALLY.)
105
<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, 1986, 1987, 1988, 1989, 1990,
1991, 1992, 1993, 1994 and 1995 . . . . . . . . . . . . . . 6
(2) Financial statements included in the Statement of
Additional Information (Part B):
Page in
SAI
Portfolio of Investments at December 31, 1995 . . . . . . . 51
Statements of assets and liabilities at
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 90
Statements of operations for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 92
Statements of changes in net assets for the
years ended December 31, 1994 and 1995. . . . . . . . . . . 94
Notes to Financial Statements . . . . . . . . . . . . . . . 98
Financial highlights for the years ended
December 31, 1986, 1987, 1988, 1989, 1990,
1991, 1992, 1993, 1994 and 1995 . . . . . . . . . . . . . . 106
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1. Amendment to the Declaration of Trust
dated August 25, 1995
2. Amended and Restated By-Laws of Registrant
<PAGE>
5. Form of Investment Management Agreement
between the Registrant and the Registrant
and Dean Witter InterCapital Inc.
6. Form of Participation Agreement by and between
the Registrant, Northbrook Life Insurance Company,
Allstate Life Insurance Company of New York and
Glenbrook Life and Annuity Company and Dean Witter
Distributors Inc.
8. Form of Amendment to Custody Agreement between the Registrant
and the Bank of New York
9. Services Agreement between the Registrant and
Dean Witter Services Company Inc.
11. Consent of Independent Accountants
16. Schedules for Computation of Performance Quotations
27. Financial Data Schedule
--------------------------------
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, 1996
-------------- -------------------------
Shares of Beneficial Interest 3
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
<PAGE>
(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 Equity 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
(53) Dean Witter Hawaii Municipal Trust
(54) Dean Witter Capital Appreciation Fund
(55) Dean Witter Intermediate Term U. S. Treasury Trust
(56) Dean Witter Japan Fund
5
<PAGE>
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
(6) TCW/DW Balanced Fund
(7) TCW/DW Mid-Cap Equity Trust
(8) 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.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -----------------------------------------------------
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.
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.
Joseph J. McAlinden Vice President of the Dean Witter Funds.
Executive Vice
President and
Chief Investment
Officer
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.
Richard Felegy
Senior Vice President
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -----------------------------------------------------
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWTC;Vice President of the Dean Witter
Funds and the TCW/DW 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.
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.
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -----------------------------------------------------
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
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer Vice President of Dean Witter Mid-Cap Growth
Vice President Fund.
Douglas Brown
Vice President
Philip Casparius
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.
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -----------------------------------------------------
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
John Hechtlinger
Vice President
Peter Hermann Vice President of various Dean Witter Funds.
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
Stanley Kapica
Vice President
Michael Knox Vice President of Dean Witter Convertible
Vice President Securities Trust.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paul LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian Vice President of various Dean Witter Funds.
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -----------------------------------------------------
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
Julie Morrone
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 of Prime Income Trust.
Vice President
Jayne M. Stevlingson Vice President of various Dean Witter Funds.
Vice President
Kathleen Stromberg Vice President of various Dean Witter Funds.
Vice President
Vinh Q. Tran Vice President of various Dean Witter Funds.
Vice President
Alice Weiss Vice President of various Dean Witter Funds.
Vice President
Marianne Zalys
Vice President
11
<PAGE>
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
(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
12
<PAGE>
(48) Dean Witter Global Asset Allocation Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Hawaii Municipal Trust
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U. S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan 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 Mid-Cap Equity Fund
(8) 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.
13
<PAGE>
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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 18th day of April, 1996.
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 4/18/96
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 4/18/96
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 4/18/96
--------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Paul Kolton
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Manuel H. Johnson
By /s/ David M. Butowsky 4/18/96
---------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
1. Amendment to the Declaration of Trust
dated August 25, 1995
2. Amended and Restated By-Laws of Registrant
5. Form of Investment Management Agreement
between the Registrant and the Registrant
and Dean Witter InterCapital Inc.
6. Form of Participation Agreement by and between
the Registrant, Northbrook Life Insurance Company,
Allstate Life Insurance Company of New York and
Glenbrook Life and Annuity Company and Dean Witter
Distributors Inc.
8. Form of Amendment to Custody Agreement between
the Registrant and the Bank of New York.
9. Services Agreement between the Registrant
and Dean Witter Services Company Inc.
11. Consent of Independent Accountants
16. Schedules for Computation of Performance
Quotations
27. Financial Data Schedules
<PAGE>
RECEIVED
AUG 28 1995
SECRETARY OF THE COMMONWEALTH
CORPORATIONS DIVISION
C E R T I F I C A T E
The undersigned hereby certifies that he is the Secretary of Dean Witter
Variable Investment Series (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, that annexed
hereto is an Amendment to the Declaration of Trust of the Trust adopted by the
Trustees of the Trust on August 24, 1995, as provided in Section 9.3 of the said
Declaration, said Amendment to take effect on September 1, 1995, and I do hereby
further certify that such amendment has not been amended and is on the date
hereof in full force and effect.
Date this 24th day of August, 1995.
/s/ Sheldon Curtis
-------------------------
Sheldon Curtis
Secretary
<PAGE>
A M E N D M E N T
Date: August 25, 1995
To Be Effective: September 1, 1995
TO
DEAN WITTER VARIABLE INVESTMENT SERIES
DECLARATION OF TRUST
DATED FEBRUARY 24, 1983
<PAGE>
Amendment dated August 24, 1995 to
the Declaration of Trust (the
"Declaration") of Dean Witter Variable
Investment Series (the "Trust") dated
February 24, 1983
WHEREAS, The Trust was established by the Declaration on the date hereinabove
set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Managed Assets Portfolio of the Trust was established by an
Instrument Establishing and Designating Additional Series of the Trust (the
"Instrument") executed by a majority of the Trustees of the Trust on December
15, 1986, in accordance with Section 6.9(h) of the Declaration; and
WHEREAS, pursuant to Section 6.9(h) of the Declaration, the Instrument has the
status of an amendment to the Declaration; and
WHEREAS, The Trustees of the Trust have deemed it advisable to change the name
of the Managed Assets Portfolio of the Trust to the "Strategist Portfolio," such
change to be effective on September 1, 1995.
1. The Instrument and, accordingly, the Declaration are hereby amended so
that the Managed Assets Portfolio is designated the "Strategist Portfolio."
2. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
and the Instrument, as amended, in all respects.
3. This amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, a majority of the Trustees of the Trust,
have executed this instrument this 24th day of August, 1995.
/s/ Jack F. Bennett /s/ Manuel H. Johnson
- ----------------------------------- -----------------------------------
Jack F. Bennett, as Trustee Manual H. Johnson, as Trustee
and not individually and not individually
/s/ Michael Bozic /s/ Paul Kolton
- ----------------------------------- -----------------------------------
Michael Bozic, as Trustee Paul Kolton, as Trustee
and not individually and not individually
/s/ Charles Fiumefreddo
- ----------------------------------- -----------------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
/s/ Edwin J. Garn /s/ Philip J. Purcell
- ----------------------------------- -----------------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
/s/ John R. Haire /s/ John L. Schroeder
- ----------------------------------- -----------------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
<PAGE>
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 24th day of August, 1995, JACK F. BENNETT, MICHAEL BOZIC, CHARLES
A. FIUMEFREDDO, EDWIN J. GARN, JOHN R. HAIRE, MANUEL H. JOHNSON, PAUL KOLTON,
PHILIP J. PURCELL, and JOHN L. SCHROEDER, known to me to be the individuals
described in and who executed the foregoing instrument, personally appeared
before me and they severally acknowledged the foregoing instrument to be their
free act and deed.
/s/ Marilyn K. Cranney
-----------------------------------
Notary Public
MARILYN K. CRANNEY
NOTARY PUBLIC, State of New York
No. 24-4796638
Qualified in Kings County
Commission Expires May 31, 1997
<PAGE>
BY-LAWS
OF
DEAN WITTER VARIABLE INVESTMENT SERIES
(AMENDED AND RESTATED AS OF JANUARY 25, 1995)
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", "TRUST PROPERTY", and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Variable Investment Series dated February 24, 1983, as amended from time to
time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote not less than twenty-five percent
(25%) of all the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed
to be acted on thereat. The Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the
meeting, and upon payment to the Trust of such costs, the Secretary shall
give notice stating the purpose or purposes of the meeting to all entitled to
vote at such meeting. No meeting need be called upon the request of the
holders of Shares entitled to cast less than a majority of all votes entitled
to be cast at such meeting, to consider any matter which is substantially the
same as a matter voted upon at any meeting of Shareholders held during the
preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the
1
<PAGE>
Shareholders present or represented by proxy and entitled to vote thereat
shall have power to adjourn the meeting from time to time. Any adjourned
meeting may be held as adjourned without further notice. At any adjourned
meeting at which a quorum shall be present, any business may be transacted as
if the meeting had been held as originally called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under the Corporations and Associations Law of
the State of Maryland.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
2
<PAGE>
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
3
<PAGE>
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists
of Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or not
there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
as described in Section 17(h) and (i) of the Investment Company Act of
1940 ("disabling conduct"). A person shall be deemed not liable by reason
of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19) of
the Investment Company Act of 1940, nor parties to the action, suit
or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance if
it is not ultimately determined that such person is entitled to be
indemnified by the Trust; and
4
<PAGE>
(3) either, (i) such person provides a security for his
undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the Investment Company Act of 1940, nor parties to
the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
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SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM, REMOVAL AND VACANCIES. Each officer of the Trust shall
hold office until his successor is elected and has qualified. Any officer or
agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to
the extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the Board
of Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
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SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
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ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order.
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank or trust
company organized under the laws of the United States or one of the states
thereof and having capital, surplus and undivided profits of at least five
million dollars ($5,000,000).
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SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
Shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. Such
date, in any case shall be not more than ninety (90) days, and in case of a
meeting of Shareholders not less than ten (10) days prior to the date on
which particular action requiring such determination of Shareholders is to be
taken. In lieu of fixing a record date the Trustees may provide that the
transfer books shall be closed for a stated period but not to exceed, in any
case, twenty (20) days. If the transfer books are closed for the purpose of
determining Shareholders entitled to notice of a vote at a meeting of
Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
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ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Variable Investment
Series, dated February 24, 1983, a copy of which, together with all
amendments thereto, 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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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of June, 1993, supplemented as of February
11, 1994 and amended as of May 1, 1994, April 20, 1995 and May 1, 1996, by and
between Dean Witter Variable Investment Series, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter
called the "Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund is authorized to issue shares of beneficial interest in
separate portfolios (the "Portfolios") with each Portfolio representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, The Fund presently offers shares in several Portfolios, such
Portfolios together with all other Portfolios subsequently established by the
Fund with respect to which the Fund desires to retain the Investment Manager to
render management and investment advisory services in the manner and on the
terms and conditions hereinafter set forth being collectively referred to as the
"Portfolios"; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Portfolios and, subject to the supervision of the Trustees, to
supervise the investment activities of the Portfolios as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; with respect to the
Portfolios other than the European Growth Portfolio and the Pacific Growth
Portfolio, shall continuously manage the assets of the Portfolios in a manner
consistent with the investment objectives and policies of the Portfolios and
shall determine the securities and commodities to be purchased, sold or
otherwise disposed of by the Portfolios and the timing of such purchases, sales
and dispositions; with respect to the European Growth Portfolio and the Pacific
Growth Portfolio, shall supervise the management of the assets of the Portfolio
in a manner consistent with the investment objectives and policies of the
Portfolio and subject to such other limitations and directions as the Trustees
of the Fund may from time to time prescribe; and shall take such further action,
including the placing of purchase and sale orders on behalf of the Portfolios
other than the European Growth Portfolio and the Pacific Growth Portfolio, as
the Investment Manager shall deem necessary or appropriate. The Investment
Manager shall also furnish to or place at the disposal of the Fund such of the
information, evaluations, analyses and opinions formulated or obtained by the
Investment Manager in the discharge of its duties as the Fund may, from time to
time, reasonably request.
In the event the Fund establishes another Portfolio other than the current
Portfolios with respect to which it desires to retain the Investment Manager to
render investment advisory services hereunder, it shall notify the Investment
Manager in writing. If the Investment Manager is willing to render such
services, it shall notify the Fund in writing, whereupon such other Portfolio
shall become a Portfolio hereunder.
2. The Investment Manager shall, at its own expense, enter into
Sub-Advisory Agreements in respect of the European Growth Portfolio and the
Pacific Growth Portfolio with a Sub-Adviser or Sub-Advisers to make
determinations as to the securities and commodities to be purchased, sold or
otherwise disposed of by
<PAGE>
the European Growth Portfolio or the Pacific Growth Portfolio and the timing of
such purchases, sales and dispositions and to take such further action,
including the placing of purchase and sale orders on behalf of the Portfolio, as
the Sub-Adviser, in consultation with the Investment Manager, shall deem
necessary or appropriate; provided that the Investment Manager shall be
responsible for monitoring compliance by such Sub-Adviser with the investment
policies and restrictions of the Portfolio and with such other limitations or
directions as the Trustees of the Fund may from time to time prescribe.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund, and provide such office space, facilities and
equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its business. The Investment Manager shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities or commodities and other property, and any
stock transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio transactions to
which the Fund is a party; all taxes, including securities or commodities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense 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 any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
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7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the various Portfolios of the Fund
shall pay to the Investment Manager monthly compensation determined by applying
the following annual rates to the daily net assets of the respective Portfolios
determined as of the close of each business day: (a) each of the Money Market
Portfolio, the High Yield Portfolio and the Strategist Portfolio -- 0.50% of
daily net assets; (b) the Equity Portfolio -- 0.50% of daily net assets up to $1
billion and 0.475% of daily net assets over $1 billion; (c) the Quality Income
Plus Portfolio -- 0.50% of daily net assets up to $500 million and 0.45% of
daily net assets over $500 million; (d) the Utilities Portfolio -- 0.65% of
daily net assets up to $500 and 0.55% of daily net assets over $500 million; (e)
the Dividend Growth Portfolio -- 0.625% of daily net assets up to $500 million;
0.50% of the next $500 million; and 0.475% of daily net assets over $1 billion;
(f) the Capital Growth Portfolio -- 0.65% of daily net assets; (g) the Global
Dividend Growth Portfolio -- 0.75% of daily net assets; and (h) each of the
European Growth Portfolio and the Pacific Growth Portfolio -- 1.00% of daily net
assets. Except as hereinafter set forth, compensation under this Agreement shall
be calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly. Such calculations shall be made by applying 1/365ths of the annual
rates to the net assets of the respective Portfolios each day determined as of
the close of business on that day or the last previous business day. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above.
Subject to the provisions of paragraph 8 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event that the operating expenses of any of the Money Market
Portfolio, the High Yield Portfolio, the Equity Portfolio, the Quality Income
Plus Portfolio, the Strategist Portfolio, the Utilities Portfolio or the
Dividend Growth Portfolio, including amounts payable to the Investment Manager
pursuant to paragraph 7 hereof, for any year ending on a date on which this
Agreement is in effect exceed 1.5% of the average daily net assets of such
Portfolio up to $30 million and 1.0% of the average daily net assets of such
Portfolio in excess of $30 million (the "expense limitation" of these
Portfolios), or in the event that the operating expenses of any of the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio, including amounts payable to the
Investment Manager pursuant to paragraph 7 hereof, for any year ending on a date
on which this Agreement is in effect exceed 2.5% of the average daily net assets
of such Portfolio up to $30 million, 2.0% of the next $70 million and 1.5% of
the average daily net assets of such Portfolio in excess of $100 million (the
"expense limitation" of these Portfolios), the Investment Manager shall reduce
its management fee in respect of such Portfolio to the extent of such excess and
will reimburse such Portfolio for annual operating expenses in excess of the
applicable expense limitation, up to the amount of the management fee for that
Portfolio which otherwise would be payable for that year; provided, however,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions and extraordinary expenses (including but not limited to
legal claims and liabilities and litigation costs and any indemnification
related thereto) paid or payable by such Portfolio. Such reduction, if any,
shall be computed and accrued daily, shall be settled on a monthly basis, and
shall be based upon the expense limitation applicable to such Portfolio as at
the end of the last business day of the month.
9. The Investment Manager will use its best efforts in the supervision and
management of the
investment activities of the Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
the Investment Manager shall not be liable to the Fund or any of its investors
for any error of judgment or mistake of law or for any act or omission by the
Investment Manager or for any losses sustained by the Fund or its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of
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others for whom they may be acting. Nothing in this Agreement shall limit or
restrict the right of any Trustee, officer or employee of the Investment Manager
to engage in any other business or to devote his or her time and attention in
part to the management or other aspects of any other business whether of a
similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 1997 and from year
to year thereafter with respect to each Portfolio provided such continuance with
respect to a Portfolio is approved at least annually by the vote of holders of a
majority (as defined in the Act) of the outstanding voting securities of such
Portfolio or by the Trustees of the Fund; provided that in either event such
continuance is also approved annually by the vote of a majority of the Trustees
of the Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon thirty days' written notice to the Investment
Manager, either by majority vote of the Trustees of the Fund or, with respect to
a Portfolio, by the vote of a majority of the outstanding voting securities of
such Portfolio; (b) this Agreement shall immediately terminate in the event of
its assignment (to the extent required by the Act and the rules thereunder)
unless such automatic terminations shall be prevented by an exemptive order of
the Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Portfolio shall be effective to continue
this Agreement with respect to such Portfolio notwithstanding (a) that this
Agreement has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio or (b) that this Agreement has not been
approved by the vote of a majority of the outstanding voting securities of the
Fund, unless such approval shall be required by any other applicable law or
otherwise.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the 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 Act, the latter shall control.
14. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right of
Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will only use
the name "Dean Witter" as a component of its name and for no other purpose, (ii)
it will not purport to grant to any third party the right to use the name "Dean
Witter" for any purpose, (iii) the Investment Manager or its parent, Dean Witter
Reynolds Inc., or any corporate affiliate of the Investment Manager's parent,
may use or grant to others the right to use the name "Dean Witter," or any
combination or abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company, (iv) at the request of the Investment Manager or
its parent, the Fund will take such action as may be required to provide its
consent to the use of the name "Dean Witter," or any combination or abbreviation
thereof, by the Investment Manager or its parent or any corporate affiliate of
the Investment Manager's parent, or by any person to whom the Investment Manager
or its parent or any corporate affiliate of the Investment Manager's parent
shall have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund may
enter, or upon termination of affiliation of the Investment Manager with its
parent, the Fund shall, upon request by the Investment Manager or its parent,
cease to use the name "Dean Witter" as a component of its name, and shall not
use the name, or any combination or abbreviation thereof, as a part of its name
or for any other commercial
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purpose, and shall cause its officers, Trustees and shareholders to take any and
all actions which the Investment Manager or its parent may request to effect the
foregoing and to reconvey to the Investment Manager or its parent any and all
rights to such name.
14. 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 executed and delivered this
Agreement, as amended, on May 1, 1996, in New York, New York.
DEAN WITTER VARIABLE INVESTMENT SERIES
By
......................................
Attest:
.....................................
DEAN WITTER INTERCAPITAL INC.
By
......................................
Attest:
.....................................
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this the 17th day of April, 1996, by
and between each of NORTHBROOK LIFE INSURANCE COMPANY, ALLSTATE LIFE
INSURANCE COMPANY OF NEW YORK and GLENBROOK LIFE AND ANNUITY COMPANY
(hereinafter collectively the "Companies" and individually the "Company"),
each on its own behalf and on behalf of each of the segregated asset accounts
of the Company set forth in Schedule A hereto, as such Schedule A may be
amended from time to time, (hereinafter the "Accounts") 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, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended, (hereinafter the "1940 Act") and has filed its
registration statement with the Securities and Exchange Commission,
(hereinafter "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 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
Strategist Portfolio, and other Portfolios may be subsequently established by
the Trust (hereinafter the "Portfolios");
WHEREAS, the Portfolios of the Trust offered by the Trust to the Companies
and the Accounts are set forth on Schedule A attached hereto;
WHEREAS, the Companies will issue certain variable annuity and/or variable
life insurance contracts (hereinafter the "Contracts") which, if required by
applicable law, will be registered under the Securities Act of 1933, as
amended, (hereinafter the "1933 Act");
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
applicable Company, to set aside and invest assets attributable to the
Contracts that are allocated to the Accounts (the Contracts and the Accounts
covered by this Agreement, and each corresponding Portfolio covered by this
Agreement in which the Accounts invest, are specified in Schedule A attached
hereto as such Schedule A may be amended from time to time);
WHEREAS, the Companies have registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, each Company intends by purchasing shares of the Portfolios on
behalf of the Accounts to fund the Contracts and the Distributor is
authorized to sell such shares to the Companies for the benefit of the
Accounts at net asset value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, each 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 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 Act and the 1940 Act or as the Prospectus may be amended or supplemented
and filed with the S.E.C. pursuant to the 1933 Act. The Portfolios to be
offered to each Account are set forth on Schedule A attached hereto.
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 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.
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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. 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. Each of Northbrook Life Insurance Company and
Glenbrook Life and Annuity 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 Accounts under Section 245.21
of the Illinois Insurance Code. Allstate Life Insurance Company of New York
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 Accounts under Section 424.40 of the New York Insurance Laws.
The Company represents that it has registered the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act, unless exempt
therefrom, to serve as segregated investment accounts for certain Contracts.
The Company further represents and warrants that the Contracts will be
registered under the 1933 Act, unless exempt therefrom, 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;
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(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, 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 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 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
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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 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.
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(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 to the affected 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
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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 shall remain in force until
April 30, 1997 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.
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.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of April 17, 1996.
COMPANIES:
ATTEST: NORTHBROOK LIFE INSURANCE COMPANY
By:
- ------------------------------------- -------------------------------
ATTEST: ALLSTATE LIFE INSURANCE COMPANY
OF NEW YORK
By:
- ------------------------------------- -------------------------------
ATTEST: GLENBROOK LIFE AND ANNUITY COMPANY
By:
- ------------------------------------- -------------------------------
TRUST:
ATTEST: DEAN WITTER VARIABLE INVESTMENT
SERIES
By:
- ------------------------------------- -------------------------------
DISTRIBUTOR:
ATTEST: DEAN WITTER DISTRIBUTORS INC.
By:
- ------------------------------------- -------------------------------
8
<PAGE>
As of April 17, 1996
SCHEDULE A
ACCOUNTS AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND
NAME OF DATE ESTABLISHED BY BOARD OF FUND PORTFOLIOS APPLICABLE
INSURANCE COMPANY DIRECTORS TO CONTRACTS
- --------------------- ----------------------------- ------------------------------
<S> <C> <C>
Northbrook Life Insurance Company Northbrook Variable Annuity All
Account
(February 14, 1983)
-----------------------------
Northbrook Variable Annuity
Account II
(May 18, 1990)
-----------------------------
Northbrook Variable Annuity
Account III
(April 8, 1996)
-----------------------------
Northbrook Life Variable Life
Separate Account A
(January 15, 1996)
- ---------------------------------------------------------------------------------------------------------
Allstate Life Insurance Company Allstate Life of New York All
of New York Variable Annuity Account
(June 26, 1987)
-----------------------------
Allstate Life of New York
Variable Annuity Account II
(June 28, 1990)
- ---------------------------------------------------------------------------------------------------------
Glenbrook Life and Annuity Company Glenbrook Life Multi-Manager All
Variable Account
(January 15,1996)
-----------------------------------------------------------------
Glenbrook Life Variable Life Dividend Growth Portfolio
Separate Account A European Growth Portfolio
(January 15, 1996) Quality Income Plus Portfolio
Utilities Portfolio
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between Dean Witter
Variable Investment Series (the "Fund") and The Bank of New York (the
"Custodian") to the Custody Agreement between the Fund and the Custodian dated
September 20, 1991 (the "Custody Agreement"). The Custody Agreement is hereby
amended as follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking institution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities and
moneys to the same extent that the Custodian would be liable to the Fund if the
Custodian were holding such securities and moneys in New York. In the event of
any loss to the Fund by reason of the failure of the Custodian or a Subcustodian
to utilize reasonable care, the Custodian shall be liable to the Fund only to
the extent of the Fund's direct damages, to be determined based on the market
value of the Securities and moneys which are the subject of the loss at the date
of discovery of such loss and without reference to any special conditions or
circumstances.
8. (b) The Custodian shall not be liable for any loss which results from
(i) the general risk of investing, or (ii) investing or holding Securities and
moneys in a particular country including, but not limited to, losses resulting
from nationalization, expropriation or other governmental actions; regulation of
the banking or securities industry; currency restrictions, devaluations or
fluctuations; or market conditions which prevent the orderly execution of
securities transactions or affect the value of Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due to
forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed; as of the day and year first above
written.
DEAN WITTER
VARIABLE INVESTMENT SERIES
[SEAL] By:
-----------------
Attest:
- --------------------
THE BANK OF NEW YORK
[SEAL] By:
-----------------
Attest:
- --------------------
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Chartered Bank
Columbia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bans
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Ltd.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Pakistan Standard Chartered Bank
Peru Citibank, N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank, N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
*Not yet 17(f)5 compliant
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice);
(ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts
and other records required under the Investment Company Act of 1940, as
amended (the "Act"), the notification to the Fund and InterCapital of
available funds for investment, the reconciliation of account information and
balances among the Fund's custodian, transfer agent and dividend disbursing
agent and InterCapital, and the calculation of the net asset value of the
Fund's shares; (iii) provide the Fund with the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Fund; (iv) oversee the
performance of administrative and professional services rendered to the Fund
by others, including its custodian, transfer agent and dividend disbursing
agent, as well as accounting, auditing and other services; (v) provide the
Fund with adequate general office space and facilities; (vi) assist in the
preparation and the printing of the periodic updating of the Fund's
registration statement and prospectus (and, in the case of an open-end Fund,
the statement of additional information), tax returns, proxy statements, and
reports to its shareholders and the Securities and Exchange Commission; and
(vii) monitor the compliance of the Fund's investment policies and
restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to
perform administrative services hereunder, it shall notify DWS in writing. If
DWS is willing to render such services, it shall notify InterCapital in
writing, whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and
books of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records
so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as DWS may
reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
1
<PAGE>
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule
B to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be
calculated by applying 1/365th of the annual rate or rates to the Fund's or
the Series' daily net assets determined as of the close of business on that
day or the last previous business day and (ii) in the case of a closed-end
Fund, compensation under this Agreement shall be calculated by applying the
annual rate or rates to the Fund's average weekly net assets determined as of
the close of the last business day of each week. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before
the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth on Schedule B. Subject to the provisions
of paragraph 5 hereof, payment of DWS' compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, or, in the case of
InterCapital Income Securities Inc. or Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced
on a pro rata basis in the same proportion as the fee payable by the Fund
under the Investment Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, DWS shall not be liable to the Fund or any of its
investors for any error of judgment or mistake of law or for any act or
omission by DWS or for any losses sustained by the Fund or its investors. It
is understood that, subject to the terms and conditions of the Investment
Management Agreement between each Fund and InterCapital, InterCapital shall
retain ultimate responsibility for all services to be performed hereunder by
DWS. DWS shall indemnify InterCapital and hold it harmless from any liability
that InterCapital may incur arising out of any act or failure to act by DWS
in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person
controlling, controlled by or under common control with DWS, and that DWS and
any person controlling, controlled by or under common control with DWS may
have an interest in the Fund. It is also understood that DWS and any
affiliated persons thereof or any persons controlling, controlled by or under
common control with DWS have and may have advisory, management,
administration service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may
purchase, sell or trade any securities or commodities for their own accounts
or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1995, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party
on 30 days' written notice delivered to the other party. In the event that
the Investment Management Agreement between any Fund and InterCapital is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
2
<PAGE>
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By:
-------------------------------
Attest:
- -------------------------------
DEAN WITTER SERVICES COMPANY INC.
By:
-------------------------------
Attest:
- -------------------------------
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Growth Securities
11. Dean Witter Convertible Securities Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter Diversified Income Trust
14. Dean Witter Dividend Growth Securities Inc.
15. Dean Witter European Growth Fund Inc.
16. Dean Witter Federal Securities Trust
17. Dean Witter Global Asset Allocation Fund
18. Dean Witter Global Dividend Growth Securities
19. Dean Witter Global Short-Term Income Fund Inc.
20. Dean Witter Global Utilities Fund
21. Dean Witter Health Sciences Trust
22. Dean Witter High Income Securities
23. Dean Witter High Yield Securities Inc.
24. Dean Witter Intermediate Income Securities
25. Dean Witter International Small Cap Fund
26. Dean Witter Limited Term Municipal Trust
27. Dean Witter Liquid Asset Fund Inc.
28. Dean Witter Managed Assets Trust
29. Dean Witter Mid-Cap Growth Fund
30. Dean Witter Multi-State Municipal Series Trust
31. Dean Witter National Municipal Trust
32. Dean Witter Natural Resource Development Securities Inc.
33. Dean Witter New York Municipal Money Market Trust
34. Dean Witter New York Tax-Free Income Fund
35. Dean Witter Pacific Growth Fund Inc.
36. Dean Witter Precious Metals and Minerals Trust
37. Dean Witter Premier Income Trust
38. Dean Witter Retirement Series
39. Dean Witter Select Dimensions Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Short-Term Bond Fund
42. Dean Witter Short-Term U.S. Treasury Trust
43. Dean Witter Strategist Fund
44. Dean Witter Tax-Exempt Securities Trust
45. Dean Witter Tax-Free Daily Income Trust
46. Dean Witter U.S. Government Money Market Trust
47. Dean Witter U.S. Government Securities Trust
48. Dean Witter Utilities Fund
49. Dean Witter Value-Added Market Series
50. Dean Witter Variable Investment Series
51. Dean Witter World Wide Income Trust
52. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
53. High Income Advantage Trust
54. High Income Advantage Trust II
55. High Income Advantage Trust III
56. InterCapital Income Securities Inc.
57. Dean Witter Government Income Trust
58. InterCapital Insured Municipal Bond Trust
59. InterCapital Insured Municipal Trust
60. InterCapital Insured Municipal Income Trust
61. InterCapital California Insured Municipal Income Trust
62. InterCapital Insured Municipal Securities
63. InterCapital Insured California Municipal Securities
64. InterCapital Quality Municipal Investment Trust
65. InterCapital Quality Municipal Income Trust
66. InterCapital Quality Municipal Securities
67. InterCapital California Quality Municipal Securities
68. InterCapital New York Quality Municipal Securities
4
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
Monthly compensation calculated daily by applying the following annual rates
to a fund's net assets:
FIXED INCOME FUNDS
Dean Witter Balanced Income Fund 0.60% to the net assets.
Dean Witter California Tax-Free 0.055% of the portion of daily net
Income Fund assets not exceeding $500 million;
0.0525% of the portion exceeding $500
million but not exceeding $750 million;
0.050% of the portion exceeding $750
million but not exceeding $1 billion;
and 0.0475% of the portion of the daily
net assets exceeding $1 billion.
Dean Witter Convertible Securities 0.060% of the portion of the daily net
Securities Trust assets not exceeding $750 million; .055%
of the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.050% of the portion of the
daily net assets of the exceeding $1
billion but not exceeding $1.5 billion;
0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.045% of the
portion of the daily net assets
exceeding $2 billion but not exceeding
$3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3
billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities Trust 0.055% of the portion of the daily net
assets not exceeding $1 billion; 0.0525%
of the portion of the daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of
the daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0475% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.045% of the
portion of daily net assets exceeding
$2.5 billion but not exceeding $5
billion; 0.0425% of the portion of the
daily net assets exceeding $5 billion
but not exceeding $7.5 billion; 0.040%
of the portion of the daily net assets
exceeding $7.5 billion but not exceeding
$10 billion; 0.0375% of the portion of
the daily net assets exceeding $10
billion but not exceeding $12.5 billion;
and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net
Income Fund assets not exceeding $500 million; and
0.050% of the portion of the daily net
assets exceeding $500 million.
Dean Witter High Income 0.050% to the net assets.
Securities
Dean Witter High Yield 0.050% of the portion of the daily net
Securities Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of
B-1
<PAGE>
the daily net assets exceeding $1
billion but not exceeding $2 billion;
0.0325% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $3 billion; and 0.030% of the
portion of daily net assets exceeding $3
billion.
Dean Witter Intermediate 0.060% of the portion of the daily net
Income Securities assets not exceeding $500 million;
0.050% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.040% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the portion of
the daily net assets exceeding $1
billion.
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State Municipal 0.035% to the net assets.
Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding
Income Fund $500 million and 0.0525% of the net
assets exceeding $500 million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American Government
Securities Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net
Securities Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.035% of the portion of
the daily net assets exceeding $1
billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net
assets exceeding $1.25 billion.
Dean Witter U.S. Government 0.050% of the portion of such daily net
Securities Trust assets not exceeding $1 billion; 0.0475%
of the portion of such daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.045% of the portion of
such daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0425% of the portion of such daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of that
portion of such daily net assets
exceeding $2.5 billion but not exceeding
$5 billion; 0.0375% of that portion
B-2
<PAGE>
of such daily net assets exceeding $5
billion but not exceeding $7.5 billion;
0.035% of that portion of such daily net
assets exceeding $7.5 billion but not
exceeding $10 billion; 0.0325% of that
portion of such daily net assets
exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of that
portion of such daily net assets
exceeding $12.5 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment 0.050% to the net assets.
Series-Quality Income
Dean Witter World Wide Income 0.075% of the daily net assets up to
Trust $250 million; 0.060% of the portion of
the daily net assets exceeding $250
million but not exceeding $500 million;
0.050% of the portion of the daily net
assets of the exceeding $500 million but
not exceeding $750 milliion; 0.040% of
the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the daily net
assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net
Fund assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Balanced Growth Fund 0.60% to the net assets.
Dean Witter Capital Growth 0.065% to the portion of daily net
Securities assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.050% of the portion exceeding $1
billion but not exceeding $1.5 billion;
and 0.0475% of the net assets exceeding
$1.5 billion.
Dean Witter Developing Growth 0.050% of the portion of daily net
Securities Trust assets not exceeding $500 million; and
0.0475% of the portion of daily net
assets exceeding $500 million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net
Securities Inc. assets not exceeding $250 million;
0.050% of the portion exceeding $250
million but not exceeding $1 billion;
0.0475% of the portion of daily net
assets exceeding $1 billion but not
exceeding $2 billion; 0.045% of the
portion of daily net assets exceeding $2
billion but not exceeding $3 billion;
0.0425% of the portion of daily net
assets exceeding $3 billion but not
exceeding $4 billion; 0.040% of the
portion of daily net assets exceeding $4
billion but not exceeding $5 billion;
0.0375% of the portion of the daily net
assets exceeding $5 billion but not
exceeding $6 billion; 0.035% of the
portion of the daily net assets
exceeding $6 billion but not exceeding
$8 billion; and 0.0325% of the portion
of the daily net assets exceeding $8
billion.
B-3
<PAGE>
Dean Witter European Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $500 million; and
0.057% of the portion of daily net
assets exceeding $500 million.
Dean Witter Global Asset Allocation 1.0% to the net assets.
Fund
Dean Witter Global Dividend 0.075% to the net assets.
Growth Securities
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Managed Assets Trust 0.060% to the daily net assets not
exceeding $500 million and 0.055% to the
daily net assets exceeding $500 million.
Dean Witter Mid-Cap Growth Fund 0.75% to the net assets.
Dean Witter Natural Resource 0.0625% of the portion of the daily net
Development Securities Inc. assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Pacific Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $1 billion; and
0.057% of the portion of daily net
assets exceeding $1 billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
B-4
<PAGE>
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion of the daily net
assets exceeding $500 million but not
exceeding $1 billion; and 0.050% of the
portion of the daily net assets
exceeding $1 billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.0525% of the portion exceeding $1
billion but not exceeding $1.5 billion;
0.050% of the portion exceeding $1.5
billion but not exceeding $2.5 billion;
0.0475% of the portion exceeding $2.5
billion but not exceeding $3.5 billion;
0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding
$5 billion; and 0.0425% of the portion
of daily net assets exceeding $5
billion.
Dean Witter Value-Added Market 0.050% of the portion of daily net
Series assets not exceeding $500 million; and
0.45% of the portion of daily net assets
exceeding $500 million.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net
Series-Dividend Growth assets not exceeding $500 million; and
0.050% of the portion of daily net
assets exceeding $500 million.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Equity
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net
Series-Utilities assets exceeding $500 million and 0.055%
of the portion of daily net assets
exceeding $500 million.
Dean Witter World Wide 0.055% of the portion of daily net
Investment Trust assets not exceeding $500 million; and
0.05225% of the portion of daily net
assets exceeding $500 million.
B-5
<PAGE>
MONEY MARKET FUNDS
Active Assets Account (4) 0.050% of the portion of the daily net
assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net
Daily Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net
Fund Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.35 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.35 billion but not
exceeding $1.75 billion; 0.030% of the
portion of the daily net assets
exceeding $1.75 billion but not
exceeding $2.15 billion; 0.0275% of the
portion of the daily net assets
exceeding $2.15 billion but not
exceeding $2.5 billion; 0.025% of the
portion of the daily net assets
exceeding $2.5 billion but not exceeding
$15 billion; 0.0249% of the portion of
the daily net assets exceeding $15
billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily
net assets exceeding $17.5 billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 bil-
B-6
<PAGE>
lion but not exceeding $2.5 billion;
0.0275% of the portion of the daily net
assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the
portion of the daily net assets
exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions Series- 0.50% to the net assets.
Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net
Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
CLOSED-END FUNDS
Dean Witter Government Income 0.060% to the average weekly net
Trust assets.
High Income Advantage Trust 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding
B-7
<PAGE>
$750 million and not exceeding $1
billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust II 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding $750 million and not exceeding
$1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust III 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of the average weekly net
assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the
portion of average weekly net assets
exceeding $1 billion.
InterCapital Income Securities Inc. 0.050% to the average weekly net assets.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
B-8
<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. 19 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 15, 1996, relating to the financial statements and financial
highlights of Dean Witter Variable Investment Series (comprised 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
Strategist Portfolio) which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in
such Prospectus and to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
April 18, 1996
<PAGE>
DEAN WITTER VARIABLE MONEY MARKET
Exhibit 16: Schedule for computation of each performance
quotation provided in the Statement of Additional Information.
(16) The Trust's current yield for the seven days ending
December 29, 1995
(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 29, 1995
365/N
A - 1
365/7
1.000997 - 1 = 5.34%
A = Value of a share of the Trust at end of period.
B = Value of a share of the Trust at beginning of period.
N = Number of days in the period.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY PORTFOLIO
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
DECEMBER 31, 1995
6
YIELD = 2 {[((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 {[((2,938,143.05 - 216,003.51)/47,222,050.870 X 10.96) +1] -1}
= 6.40%
<PAGE>
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
DW VARIABLE HIGH YIELD
30 day Yield as of 12/31/95
6
YIELD = 2{[((a-b)/c * d) + 1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2{[(( 1,694,402.81-(-2555.08))/24,176,314.558*6.26)+1] -1}
= 13.837984%
<PAGE>
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
DEAN WITTER UTILITIES PORTFOLIO
30 day as of 12/31/95
6
YIELD = 2{[((a-b)/c d) + 1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2{[((1,784,159.66 - 286,233.13)/32,321,976.571 X 14.68)+1]
-1}
= 3.82%
<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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,056.60 5.66% 1 5.66%
31-Dec-90 $1,232.70 23.27% 5.00 4.27%
31-Dec-85 $1,758.20 75.82% 10.00 5.81%
(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
<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-84 104.08 $20,408 $102,040 $204,080
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ------------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,243.00 24.30% 1 24.30%
31-Dec-90 $1,685.70 68.57% 5.00 11.01%
03-Mar-87 $2,237.10 123.71% 8.83 9.55%
(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
<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>
03-Mar-87 123.71 $22,371 $111,855 $223,710
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
------------ ---------- ----------- -------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,149.30 14.93% 1 14.93%
31-Dec-90 $2,603.20 160.32% 5.00 21.09%
31-Dec-85 $2,154.90 115.49% 10.00 7.98%
(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
<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-84 207.44 $30,744 $153,720 $307,440
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,286.50 28.65% 1.00 28.65%
31-Dec-90 $1,838.90 83.89% 5.00 12.96%
01-Mar-90 $1,922.00 92.20% 5.83 11.85%
(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
<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>
01-Mar-90 92.20 $19,220 $96,100 $192,200
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- -----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,363.80 36.38% 1.00 36.38%
31-Dec-90 $2,084.40 108.44% 5.00 15.82%
01-Mar-90 $1,921.60 92.16% 5.83 11.85%
(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
<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>
01-Mar-90 92.16 $19,216 $96,080 $192,160
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,329.20 32.92% 1.00 32.92%
01-Mar-91 $1,592.90 59.29% 5.00 10.11%
(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
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-95 YEARS - n TOTAL RETURN
-------------- ---------- ---------- -------------------------
<S> <C> <C> <C>
01-Mar-91 $1,572.90 4.84 9.82%
(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
<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 59.29 $15,929 $79,645 $159,290
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,221.40 22.14% 1.00 22.14%
23-Feb-94 $1,224.70 22.47% 1.85 11.57%
(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
<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>
23-Feb-94 22.47 $12,247 $61,235 $122,470
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,258.90 25.89% 1.00 25.89%
01-Mar-91 $2,025.40 102.54% 4.84 15.72%
(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
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-95 YEARS - n TOTAL RETURN
-------------- ---------- --------------- ------------------------
<S> <C> <C> <C>
01-Mar-91 $1,985.40 4.84 15.24%
(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
<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-91 102.54 $20,254 $101,270 $202,540
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,057.40 5.74% 1.00 5.74%
23-Feb-94 $986.20 -1.38% 1.85 -0.75%
(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
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL- tb
INVESTED - P 31-Dec-95 YEARS - n TOTAL RETURN
-------------- ---------- --------- -------------------------
<S> <C> <C> <C>
23-Feb-94 $980.70 1.85 -1.05%
(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
<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 -1.38 $9,862 $49,310 $98,620
</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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- --------------- ------------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,425.30 42.53% 1 42.53%
31-Dec-90 $2,582.00 158.20% 5 20.89%
31-Dec-85 $3,559.00 255.90% 10 13.54%
(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
<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-84 389.70 $48,970 $244,850 $489,700
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
VARIABLE ANNUITY - STRATEGIST 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-95 RETURN - TR YEARS - n COMPOUND RETURN - t
-------------- ---------- -------------- ---------------- ------------------------------
<S> <C> <C> <C> <C>
31-Dec-94 $1,094.00 9.40% 1 9.40%
31-Dec-90 $1,726.30 72.63% 5.00 11.54%
04-Mar-87 $2,215.40 121.54% 8.83 9.43%
(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
<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>
04-Mar-87 121.54 $22,154 $110,770 $221,540
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 250,870,737
<INVESTMENTS-AT-VALUE> 250,870,737
<RECEIVABLES> 695,263
<ASSETS-OTHER> 11,317
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 251,577,317
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,790,731
<TOTAL-LIABILITIES> 1,790,731
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 249,786,564
<SHARES-COMMON-STOCK> 249,786,564
<SHARES-COMMON-PRIOR> 268,624,433
<ACCUMULATED-NII-CURRENT> 22
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 249,786,586
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,059,748
<OTHER-INCOME> 0
<EXPENSES-NET> 1,318,248
<NET-INVESTMENT-INCOME> 13,741,500
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,741,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,741,498)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 96,881,194
<NUMBER-OF-SHARES-REDEEMED> (129,460,561)
<SHARES-REINVESTED> 13,741,498
<NET-CHANGE-IN-ASSETS> (18,837,867)
<ACCUMULATED-NII-PRIOR> 20
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,243,727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,318,248
<AVERAGE-NET-ASSETS> 249,428,716
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.055
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> DEAN WITTER VARIABLE QUALITY INCOME PLUS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 479,204,447
<INVESTMENTS-AT-VALUE> 513,784,802
<RECEIVABLES> 7,102,359
<ASSETS-OTHER> 10,237
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 520,897,398
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,843
<TOTAL-LIABILITIES> 318,843
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 510,241,645
<SHARES-COMMON-STOCK> 47,512,749
<SHARES-COMMON-PRIOR> 43,920,670
<ACCUMULATED-NII-CURRENT> 608,166
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,851,611)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,580,355
<NET-ASSETS> 520,578,555
<DIVIDEND-INCOME> 21,333
<INTEREST-INCOME> 35,327,744
<OTHER-INCOME> 0
<EXPENSES-NET> 2,503,151
<NET-INVESTMENT-INCOME> 32,845,926
<REALIZED-GAINS-CURRENT> 14,651,610
<APPREC-INCREASE-CURRENT> 53,023,332
<NET-CHANGE-FROM-OPS> 100,520,868
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,322,904)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,515,633
<NUMBER-OF-SHARES-REDEEMED> 3,077,582
<SHARES-REINVESTED> 3,154,028
<NET-CHANGE-IN-ASSETS> 105,673,643
<ACCUMULATED-NII-PRIOR> 85,136
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,323,329
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,503,151
<AVERAGE-NET-ASSETS> 464,778,207
<PER-SHARE-NAV-BEGIN> 9.45
<PER-SHARE-NII> .72
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> .54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> HIGH YIELD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 170,007,688
<INVESTMENTS-AT-VALUE> 151,385,614
<RECEIVABLES> 3,072,829
<ASSETS-OTHER> 3,837
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,462,280
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 152,695
<TOTAL-LIABILITIES> 152,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,550,419
<SHARES-COMMON-STOCK> 24,631,652
<SHARES-COMMON-PRIOR> 18,167,759
<ACCUMULATED-NII-CURRENT> 494,390
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (74,113,150)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (18,622,074)
<NET-ASSETS> 154,309,585
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,789,371
<OTHER-INCOME> 0
<EXPENSES-NET> 722,045
<NET-INVESTMENT-INCOME> 17,067,326
<REALIZED-GAINS-CURRENT> (1,098,358)
<APPREC-INCREASE-CURRENT> 2,521,011
<NET-CHANGE-FROM-OPS> 18,489,979
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,648,733
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,834,627
<NUMBER-OF-SHARES-REDEEMED> 2,029,027
<SHARES-REINVESTED> 2,658,293
<NET-CHANGE-IN-ASSETS> 42,375,343
<ACCUMULATED-NII-PRIOR> 75,797
<ACCUMULATED-GAINS-PRIOR> (73,014,792)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 673,472
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 722,045
<AVERAGE-NET-ASSETS> 134,697,488
<PER-SHARE-NAV-BEGIN> 6.16
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> (0.78)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.26
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> UTILITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 413,055,126
<INVESTMENTS-AT-VALUE> 476,747,481
<RECEIVABLES> 2,632,874
<ASSETS-OTHER> 8,252
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 479,388,607
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,462
<TOTAL-LIABILITIES> 318,462
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 414,225,788
<SHARES-COMMON-STOCK> 32,623,759
<SHARES-COMMON-PRIOR> 32,089,485
<ACCUMULATED-NII-CURRENT> 5,421
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,146,581
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,692,355
<NET-ASSETS> 479,070,145
<DIVIDEND-INCOME> 16,077,649
<INTEREST-INCOME> 3,728,673
<OTHER-INCOME> 0
<EXPENSES-NET> 2,867,187
<NET-INVESTMENT-INCOME> 16,939,135
<REALIZED-GAINS-CURRENT> 3,776,681
<APPREC-INCREASE-CURRENT> 86,839,183
<NET-CHANGE-FROM-OPS> 107,554,999
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,544,715
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,947,513
<NUMBER-OF-SHARES-REDEEMED> 2,821,228
<SHARES-REINVESTED> 1,407,989
<NET-CHANGE-IN-ASSETS> 96,658,393
<ACCUMULATED-NII-PRIOR> 1,610,911
<ACCUMULATED-GAINS-PRIOR> 2,630,010
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,749,873
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,867,187
<AVERAGE-NET-ASSETS> 423,057,314
<PER-SHARE-NAV-BEGIN> 11.92
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 2.81
<PER-SHARE-DIVIDEND> .58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.68
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 693,254,881
<INVESTMENTS-AT-VALUE> 865,701,687
<RECEIVABLES> 2,651,589
<ASSETS-OTHER> 13,414
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 868,366,690
<PAYABLE-FOR-SECURITIES> 2,464,675
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 485,189
<TOTAL-LIABILITIES> 2,949,864
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 669,362,004
<SHARES-COMMON-STOCK> 55,505,453
<SHARES-COMMON-PRIOR> 47,766,949
<ACCUMULATED-NII-CURRENT> 17,214
<OVERDISTRIBUTION-NII> 0
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<PAGE>
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<SERIES>
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<NAME> CAPITAL GROWTH
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<PER-SHARE-NII> .10
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<PER-SHARE-DIVIDEND> (.08)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> GLOBAL DIVIDEND
<S> <C>
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<PERIOD-END> DEC-31-1995
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<PER-SHARE-DIVIDEND> (.26)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EUROPEAN GROWTH
<S> <C>
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<PERIOD-END> DEC-31-1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> PACIFIC GROWTH
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> EQUITY
<S> <C>
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<PERIOD-END> DEC-31-1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> STRATEGIST
<S> <C>
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