<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NOS.: 2-82510
811-3692
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 20 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 21 /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)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ on December 31, 1996 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
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<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
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<S> <C>
PART A PROSPECTUS
1. ......................................... Cover Page
2. ......................................... Prospectus Summary
3. ......................................... Financial Highlights
4. ......................................... Investment Objectives and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary
5. ......................................... The Fund and Its Management; Investment Objectives and Policies
6. ......................................... Dividends, Distributions and Taxes; Additional Information
7. ......................................... Purchase of Fund Shares; Prospectus Summary
8. ......................................... Redemption of Fund Shares
9. ......................................... Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ......................................... Cover Page
11. ......................................... Table of Contents
12. ......................................... The Fund and its Management
13. ......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. ......................................... The Fund and its Management; Trustees and Officers
15. ......................................... The Fund and its Management; Trustees and Officers
16. ......................................... The Fund and its Management; Custodian and Transfer Agent;
Independent Accountants
17. ......................................... Portfolio Transactions and Brokerage
18. ......................................... Description of Shares of the Fund
19. ......................................... Purchase and Redemption of Fund Shares; Financial Statements
20. ......................................... Dividends, Distributions and Taxes; 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 DECEMBER 31, 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 thirteen 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 INCOME BUILDER PORTFOLIO
- THE DIVIDEND GROWTH PORTFOLIO
- THE CAPITAL GROWTH PORTFOLIO
- THE GLOBAL DIVIDEND GROWTH PORTFOLIO
- THE EUROPEAN GROWTH PORTFOLIO
- THE PACIFIC GROWTH PORTFOLIO
- THE CAPITAL APPRECIATION 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 December 31, 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 CONNECTION 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/8
The Fund and its Management/12
Investment Objectives and Policies/13
The Money Market Portfolio/13
The Quality Income Plus Portfolio/15
The High Yield Portfolio/17
The Utilities Portfolio/19
The Income Builder Portfolio/21
The Dividend Growth Portfolio/23
The Capital Growth Portfolio/24
The Global Dividend Growth Portfolio/25
The European Growth Portfolio/27
The Pacific Growth Portfolio/28
The Capital Appreciation Portfolio/30
The Equity Portfolio/32
The Strategist Portfolio/33
General Portfolio Techniques/34
Investment Restrictions/49
Determination of Net Asset Value/51
Purchase of Fund Shares/52
Redemption of Fund Shares/53
Dividends, Distributions and Taxes/53
Performance Information/55
Additional Information/56
Appendix -- Ratings of Corporate Debt
Instruments Investments/58
2
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
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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 thirteen separate Portfolios: the MONEY MARKET PORTFOLIO, the
QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES
PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the
CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION
PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO (see pages 13
through 34). 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 52 and 55).
------------------------------------------------------------------------------------------------
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 (see pages
AND RISKS 13-15). 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 U.S. Government securities and higher-rated fixed-income securities
and by writing covered options on such securities (see pages 15-17). 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 (see pages
17-19). 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 (see pages
19-21). The INCOME BUILDER PORTFOLIO seeks, as its primary objective, reasonable
income and, as its secondary objective, growth of capital, by investing
primarily in income-producing equity securities (see pages 21-23). 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 (see pages
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3
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<S> <C>
23-24). The CAPITAL GROWTH PORTFOLIO seeks long-term capital growth by investing
primarily in common stocks (see pages 24-25). 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 (see pages 25-27). The EUROPEAN GROWTH PORTFOLIO seeks to
maximize the capital appreciation of its investments by investing primarily in
securities issued by issuers located in Europe (see pages 27-28). 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 (see pages 28-30). The CAPITAL APPRECIATION PORTFOLIO
seeks long-term capital appreciation by investing primarily in the common stocks
of U.S. companies that offer the potential for either superior earnings growth
and/ or appear to be undervalued (see pages 30-32). 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 (see pages 32-33). The STRATEGIST PORTFOLIO seeks a high total
investment return through a fully managed investment policy utilizing equity
securities, investment grade fixed-income securities and money market
securities, and the writing of covered options on such securities and the
collateralized sale of stock index options (see pages 33-34).
---------
Although the MONEY MARKET PORTFOLIO will attempt to maintain a constant net
asset value per share of $1.00, there can be no assurance that the $1.00 net
asset value can be maintained. The net asset value of shares of each Portfolio
other than the MONEY MARKET PORTFOLIO will fluctuate with changes in the market
value of its portfolio holdings. The market value of the Portfolios' securities
will increase or decrease due to a variety of economic, market and political
factors which cannot be predicted. A decline in prevailing interest rates
generally increases the value of fixed-income securities, while an increase in
rates generally reduces the value of those securities. Dividends payable by each
Portfolio will vary in relation to the amounts of dividends and/or interest paid
by its securities holdings.
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, the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION
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. Each Portfolio may invest, to a different
extent, in foreign securities. Foreign securities markets pose different and
generally greater risks than those customarily associated with domestic
securities
</TABLE>
4
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<TABLE>
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and markets including fluctuations in foreign currency exchange rates, foreign
tax rates and foreign securities exchange controls. Investment in the QUALITY
INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the
INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
THE PACIFIC GROWTH PORTFOLIO, THE CAPITAL APPRECIATION PORTFOLIO, the EQUITY
PORTFOLIO and the STRATEGIST PORTFOLIO involve more risk than investment in the
MONEY MARKET PORTFOLIO. The high yield, high risk fixed-income securities in
which the HIGH YIELD PORTFOLIO will invest, and the INCOME BUILDER PORTFOLIO may
invest, are subject to greater risk of loss of income and principal than higher
rated, lower yielding fixed-income securities. The prices of high yield, high
risk 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.
Investors in these Portfolios 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 18). Investors in the CAPITAL
APPRECIATION PORTFOLIO should be aware that the Portfolio is intended for
long-term investors who can accept the risks involved in seeking long-term
appreciation through the investment primarily in securities of companies that
offer the potential for either superior earnings growth and/or appear to be
undervalued (see the discussion of such securities beginning on page 30). In
selecting investments for the CAPITAL APPRECIATION PORTFOLIO, the Investment
Manager has no general criteria as to a company's asset size, earnings or
industry type.
Contract Owners are also directed to the discussion of options and futures
transactions (page 43), repurchase agreements (page 40), foreign securities
(page 34), forward foreign currency exchange contracts (page 36), public
utilities securities (page 21), warrants (page 42), zero coupon securities (page
42), when-issued and delayed delivery securities and forward commitments (page
41) and "when, as and if issued" securities (page 41), concerning risks
associated with such securities and management techniques. The Fund is a single
diversified investment company, consisting of thirteen 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 13-49).
------------------------------------------------------------------------------------------------
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 100 investment companies and other portfolios with assets of
approximately $ billion at November 30, 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
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5
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$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; at an annual rate of % of the daily
net assets of the INCOME BUILDER PORTFOLIO and the CAPITAL APPRECIATION
PORTFOLIO; and at an annual rate of 1.0% of the daily net assets of each of the
EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO. Morgan Grenfell
Investment Services Limited has been retained by the Investment Manager as
Sub-Adviser to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO to
provide investment advice and manage the portfolios, subject to the overall
supervision of the Investment Manager. Morgan Grenfell Investment Services
Limited currently manages assets in excess of $ 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 12-13).
------------------------------------------------------------------------------------------------
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
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6
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<S> <C>
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 56).
------------------------------------------------------------------------------------------------
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 52 and 53).
</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.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period for each of the periods through December 31,
1995 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 information for the period ended June 30, 1996
is unaudited. The financial highlights should be read in conjunction with the
financial statements, notes thereto, and the unqualified report of
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
---------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
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)
1996(c) 1.00 0.024 -- 0.024 (0.024) -- (0.024)
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)
1996(c) 10.96 0.35 (0.77) (0.42) (0.36) -- (0.36)
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)
1996(c) 6.26 0.38 0.02 0.40 (0.40) -- (0.40)
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)
1996(c) 14.68 0.27 0.32 0.59 (0.27) -- (0.27)
</TABLE>
- ------------
Commencement of operations:
(a) March 1, 1987.
(b) March 1, 1990.
(c) For the six months ended June 30, 1996 (unaudited).
+ 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%.
8
<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 ----------------------- AVERAGE
VALUE TOTAL NET ASSETS NET PORTFOLIO COMMISSION
END INVESTMENT AT END OF INVESTMENT TURNOVER RATE
OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE PAID
- --------- ----------- -------------- ---------- ---------- -------- --------
<S> <C> <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 --
1.00 2.48(1) 286,154 0.53(2) 4.92(2) N/A 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 --
10.18 (3.75)(1) 470,100 0.55(2) 6.75(2) 105(1) N/A
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 --
6.26 6.54(1) 201,016 0.51(2) 12.50(2) 31(1) N/A
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 --
15.00 4.07(1) 464,640 0.67(2) 3.67(2) 4(1) 0.$0539
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
YEAR VALUE NET NET REALIZED TOTAL FROM TOTAL
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
---------- --------- ---------- -------------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990(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)
1996(e) 15.59 0.20 1.39 1.59 (0.20) -- (0.20)
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)
1996(e) 15.22 0.04 1.28 1.32 -- -- --
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)
1996(e) 11.69 0.14 0.82 0.96 (0.14) -- (0.14)
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)
1996(e) 17.53 0.12 2.25 2.37 -- -- --
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)
1996(e) 9.70 0.15 0.53 0.68 -- -- --
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)
1996(e) 27.14 0.09 2.18 2.27 (0.09) -- (0.09)
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)
1996(e) 12.45 0.19 0.51 0.70 (0.19) -- (0.19)
</TABLE>
- ------------
Commencement of operations:
(a) March 1, 1987.
(b) March 1, 1990.
(c) March 1, 1991.
(d) February 23, 1994.
(e) For the six months ended June 30, 1996 (unaudited).
+ Includes distributions in excess of net investment income of $0.02.
10
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ASSET ----------------------- AVERAGE
VALUE TOTAL NET ASSETS NET PORTFOLIO COMMISSION
END INVESTMENT AT END OF INVESTMENT TURNOVER RATE
OF PERIOD RETURN PERIOD (000'S) EXPENSES INCOME RATE PAID
- --------- ----------- -------------- ---------- ---------- -------- --------
<S> <C> <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 --
16.98 10.23(1) 1,049,784 0.58(2) 2.50(2) 15(1) 0.$0546
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 --
16.54 8.67(1) 80,815 0.71(2) 0.53(2) 36(1) 0.0555
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 --
12.51 8.25(1) 272,578 0.85(2) 2.46(2) 21(1) 0.0348
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 --
19.90 13.52(1) 234,190 1.05(2) 1.68(2) 29(1) 0.0449
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 --
10.38 7.01(1) 152,521 1.26(2) 1.27(2) 20(1) 0.0118
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 --
29.32 8.41(1) 457,375 0.54(2) 0.62(2) 160(1) 0.0585
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 --
12.96 5.73(1) 398,208 0.53(2) 2.96(2) 74(1) 0.0574
</TABLE>
- ------------
(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.
11
<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 100 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $ billion at November 30, 1996. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $ 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 $
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
12
<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, by applying the
annual rate of % to the net assets of each of the INCOME BUILDER PORTFOLIO and
the CAPITAL APPRECIATION 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.
The INCOME BUILDER PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO did not
commence operations prior to the date of this Prospectus. The Investment Manager
has undertaken to assume all expenses of each of these Portfolios and to waive
the compensation provided for each of these Portfolios in its Management
Agreement with the Fund until such time as the pertinent Portfolio has $50
million of net assets or until six months from the date of the Portfolio's
commencement of operations, whichever occurs first.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
The investment objectives of the MONEY MARKET PORTFOLIO are high current
income, preservation of capital and liquidity. The MONEY MARKET PORTFOLIO seeks
to achieve those objectives by investing in the following money market
instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, Federal
Intermedi-
13
<PAGE>
ate Credit Banks and Federal Land Bank), including Treasury bills, notes and
bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (see the discussion of foreign securities under "General Portfolio
Techniques" below);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
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, may lend
its portfolio securities 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
14
<PAGE>
more than one year from the date of purchase (see "Determination of Net Asset
Value"). The amounts invested in obligations of various maturities of one year
or less will depend on management's evaluation of the risks involved.
Longer-term issues, while generally paying higher interest rates, are subject to
greater fluctuations in value resulting from general changes in interest rates
than shorter-term issues. Thus, when rates on new debt securities increase, the
value of outstanding securities may decline, and vice versa. Such changes may
also occur, but to a lesser degree, with short-term issues. These changes, if
realized, may cause fluctuations in the amount of daily dividends and, in
extreme cases, could cause the net asset value per share to decline (see
"Determination of Net Asset Value"). Longer-term issues also increase the risk
that the issuer may be unable to pay an installment of interest or principal at
maturity. Also, in the event of unusually large redemption demands, such
securities may have to be sold at a loss prior to maturity, or the MONEY MARKET
PORTFOLIO might have to borrow money and incur interest expenses. Either
occurrence would adversely impact the amount of daily 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 PORTFOLIO.
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
15
<PAGE>
shorter maturities. The Portfolio is not limited as to the maturities of the
U.S. Government and other debt securities in which it may invest.
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. 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
16
<PAGE>
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.
The QUALITY INCOME PLUS PORTFOLIO may enter into repurchase agreements, lend
its portfolio 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 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, and for a
discussion
17
<PAGE>
of convertible securities, see "General Portfolio Techniques" below. A
description of corporate bond ratings is contained in the Appendix.
Non-rated securities will also be considered for investment by the HIGH
YIELD PORTFOLIO when the Investment Manager believes that the financial
condition of the issuers of such securities, or the protection afforded by the
terms of the securities themselves, makes them appropriate investments for the
HIGH YIELD PORTFOLIO.
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fact that there are fluctuations in net asset
value of any portfolio of fixed-income securities resulting from the inverse
relationship between price and yield of fixed-income securities; that is, when
the general level of interest rates rises, the prices of outstanding
fixed-income securities generally decline, and when interest rates fall, prices
generally rise.
The ratings of fixed-income securities by Moody's and S&P are a generally
accepted 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
18
<PAGE>
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), lend its portfolio 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 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.
Investors should carefully consider the risks of investing in high yield
securities (see "General Portfolio Techniques" below and in the Statement of
Additional Information for a discussion of the risks of investments in high
yield securities).
During the fiscal year ended December 31, 1995, the monthly dollar weighted
average ratings of the debt obligations held by the HIGH YIELD PORTFOLIO,
expressed as a percentage of the Portfolio's total investments, were as follows:
<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 PORTFOLIO 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
19
<PAGE>
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; 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
20
<PAGE>
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, invest in real estate investment
trusts, lend its portfolio 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
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 INCOME BUILDER PORTFOLIO
The primary investment objective of the INCOME BUILDER PORTFOLIO is to seek
reasonable income. Growth of capital is a secondary objective. There can be no
assurance that the objectives will be achieved. The objectives of the INCOME
BUILDER PORTFOLIO may not be changed without the approval of the shareholders of
the INCOME BUILDER PORTFOLIO. The following policies may be changed by the
Trustees of the Fund without shareholder approval:
The INCOME BUILDER PORTFOLIO seeks to achieve its objectives by investing,
under normal market conditions, at least 65% of its total assets in income-
producing equity securities, including common stock, preferred stock and
convertible securities. Up to 35% of the Portfolio's assets may be invested in
fixed-income securities or common stocks that do not pay a regular dividend but
are expected to
con-
21
<PAGE>
tribute to the Portfolio's ability to meet its investment objectives.
The INCOME BUILDER PORTFOLIO will invest, under normal market conditions,
primarily in common stocks of large-cap companies which have a record of paying
dividends and, in the opinion of the Investment Manager, have the potential for
maintaining dividends, in preferred stock and in securities convertible into
common stocks of small and mid-cap companies. See "General Portfolio Techniques"
below for a discussion of convertible securities, including a discussion of
"enhanced," "synthetic" and "exchangeable" convertible securities in which the
INCOME BUILDER PORTFOLIO may invest. The Investment Manager intends to use a
value-oriented investment style in the selection of securities for the portfolio
of the INCOME BUILDER PORTFOLIO.
The INCOME BUILDER PORTFOLIO also may invest up to 20% of its total assets
in fixed-income securities rated below investment grade. Securities below
investment grade are the equivalent of high yield, high risk bonds (commonly
known as "junk bonds"). Investment grade is generally considered to be debt
securities rated BBB or higher by Standard & Poor's Corporation ("S&P") or Baa
or higher by Moody's Investors Service, Inc. ("Moody's"). See "General Portfolio
Techniques" below for a discussion of investments in securities rated BBB by S&P
or Baa by Moody's. Fixed-income securities rated BBB by S&P or Baa by Moody's,
which generally are regarded to have an adequate capacity to pay interest and
repay principal, have speculative characteristics. However, the INCOME BUILDER
PORTFOLIO will not invest in fixed-income securities that are rated lower than B
by S&P or Moody's or, if not rated, are determined to be of comparable quality
by the Investment Manager. The INCOME BUILDER PORTFOLIO will not invest in
fixed-income securities that are in default in payment of principal or interest.
The 20% limitation on securities rated below investment grade in which the
INCOME BUILDER PORTFOLIO may invest does not include securities convertible into
common stock. A description of fixed-income security ratings is contained in the
Appendix. See "General Portfolio Techniques" below for a discussion of the risks
of investments in lower rated, high yield securities.
A portion of the INCOME BUILDER PORTFOLIO's assets may be invested in
investment grade fixed income (fixed-rate and adjustable rate) securities such
as corporate notes and bonds and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. U.S. Government securities are
described above and in the Statement of Additional Information under "The
Quality Income Plus Portfolio."
The non-governmental debt securities in which the INCOME BUILDER PORTFOLIO
will invest will include: (a) corporate debt securities, including bonds, notes
and commercial paper, rated in the four highest categories by a nationally
recognized statistical rating organization ("NRSRO") including Moody's Investors
Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch
Investors Service, Inc.; and (b) bank obligations, including CDs, banker's
acceptances and time deposits, issued by banks with a long-term CD rating in one
of the four highest categories by a NRSRO. Investments in securities rated
within the four highest rating categories by a NRSRO are considered "investment
grade." However, such securities rated within the fourth highest rating category
by a NRSRO 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. Where a fixed-income security is not
rated by a NRSRO (as may be the case with a foreign security) the Investment
Manager will make a determination of its creditworthiness and may deem it to be
investment grade. A description of fixed-income security ratings is contained in
the Appendix.
The Investment Manager intends to follow a "bottom-up" approach in the
selection of convertible securities for the INCOME BUILDER PORTFOLIO. Beginning
with a universe of about 500 companies,
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the Investment Manager will narrow the focus to small and mid-cap companies and
review the issues to determine if the convertible is trading with the underlying
equity security. The yield of the underlying equity security will be evaluated
and company fundamentals will be studied to evaluate cash flow, risk/reward
balance, valuation and the prospects for growth. The Investment Manager intends
to select convertible securities that, in its judgment, are issued by companies
with sound management practices and that represent good value.
Money market instruments in which the INCOME BUILDER PORTFOLIO may invest
include securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (Treasury bills, notes and bonds, including zero coupon
securities); bank obligations; Eurodollar certificates of deposit; obligations
of savings institutions; fully insured certificates of deposit; and commercial
paper rated within the four highest grades by Moody's or S&P or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by
Standard & Poor's or Aa by Moody's. Such securities may be used to invest
uncommitted cash balances. There may be periods during which, in the opinion of
the Investment Manager, market conditions warrant reduction of some or all of
the Portfolio's securities holdings. During such periods, the INCOME BUILDER
PORTFOLIO may adopt a temporary "defensive" posture in which up to 100% of its
total assets is invested in money market instruments or cash.
The INCOME BUILDER 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 warrants, zero coupon securities and real estate investment
trusts, lend its portfolio securities, purchase securities which are issued in
private placements or are otherwise not readily marketable, 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 these investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
The INCOME BUILDER PORTFOLIO is authorized to engage in transactions
involving options and futures contracts that would be eligible for use by the
STRATEGIST PORTFOLIO, as described under "Options and Futures Transactions"
under "General Portfolio Techniques" below and in the Statement of Additional
Information. The INCOME BUILDER 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 has been revised to reflect this.
SPECIAL INVESTMENT CONSIDERATIONS. Because of the special nature of the
INCOME BUILDER PORTFOLIO's investments 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.
Investors should carefully consider the risks of investing in high yield
securities (see "General Portfolio Techniques" below and in the Statement of
Additional Information for a discussion of the risks of investments in high
yield securities).
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.
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<PAGE>
The investment objective of the DIVIDEND GROWTH PORTFOLIO may not be changed
without the approval of the shareholders of the DIVIDEND GROWTH PORTFOLIO. The
following policies may be changed by the Trustees of the Fund without
shareholder approval:
(1) Up to 30% of the value of the DIVIDEND GROWTH PORTFOLIO's total assets
may be invested in: (a) convertible debt securities, convertible preferred
securities, warrants (see "General Portfolio Techniques" below), U.S. Government
securities (securities issued or guaranteed as to principal and interest by the
United States or its agencies and instrumentalities), corporate debt securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. or BBB or better by Standard & Poor's Corporation or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (see
"General Portfolio Techniques" below for a discussion of the characteristics and
risks of investments in fixed-income securities rated Baa or BBB) and/or money
market instruments which would be eligible investments for the Fund's MONEY
MARKET PORTFOLIO (as set forth above under "The Money Market Portfolio") when,
in the opinion of the Investment Manager, the projected total return on such
securities is equal to or greater than the expected total return on equity
securities or when such holdings might be expected to reduce the volatility of
the portfolio (for purposes of this provision, the term "total return" means the
difference between the cost of a security and the aggregate of its market value
and dividends received); or (b) in money market instruments under any one or
more of the following circumstances: (i) pending investment of proceeds of sale
of the DIVIDEND GROWTH PORTFOLIO's shares or of portfolio securities; (ii)
pending settlement of purchases of portfolio securities; or (iii) to maintain
liquidity for the purpose of meeting anticipated redemptions.
(2) Notwithstanding any of the foregoing limitations, the DIVIDEND GROWTH
PORTFOLIO may invest more than 30% of the value of its total assets in money
market instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions.
The DIVIDEND GROWTH PORTFOLIO may enter into repurchase agreements, invest
in American Depository Receipts, invest in zero coupon securities, invest in
real estate investment trusts, lend its portfolio 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
24
<PAGE>
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 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, invest in real estate investment
trusts, lend its portfolio 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
divi-
25
<PAGE>
dends 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 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
26
<PAGE>
the characteristics and risks of investments in foreign securities).
The GLOBAL DIVIDEND GROWTH PORTFOLIO may enter into repurchase agreements,
invest in real estate investment trusts, lend its portfolio 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 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 example, there may be times when the Investment
Manager or the Sub-Adviser determines that the prices of government securities
are more likely to appreciate than those of equity securities. Such an occasion
might arise when inflation concerns have led to general increases in interest
rates. Such fixed-income securities which will be purchased by the Portfolio are
likely to be obligations of the treasuries of one of the major European nations.
In addition, the EUROPEAN GROWTH PORTFOLIO may invest in fixed-income securities
which are, either alone or in combination with a warrant, option or other right,
convertible into the common stock of a European issuer, when the Investment
Manager or the Sub-Adviser determines that such securities are more likely to
appreciate in value than the common stock of such issuers or when the Investment
Manager or the Sub-Adviser wishes to hedge the risk inherent in the direct
purchase of the equity of a given issuer. The EUROPEAN GROWTH PORTFOLIO will
select convertible securities of issuers whose common stock has, in the opinion
of the Investment Manager or the Sub-Adviser, a superior investment potential
(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,
27
<PAGE>
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, lend its portfolio 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 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
28
<PAGE>
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 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%
29
<PAGE>
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, lend its portfolio 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 CAPITAL APPRECIATION PORTFOLIO
The investment objective of the CAPITAL APPRECIATION PORTFOLIO is long-term
capital appreciation. There is no assurance that the objective will be achieved.
The investment objective of the CAPITAL APPRECIATION PORTFOLIO may not be
changed without the approval of the shareholders of the CAPITAL APPRECIATION
PORTFOLIO. The following policies may be changed by the Board of Trustees
without shareholder approval:
The CAPITAL APPRECIATION PORTFOLIO seeks to achieve its investment objective
by investing, under normal circumstances, at least 65% of its total assets in
the common stocks of U.S. companies that, in the opinion of the Investment
Manager, offer the potential for either superior earnings growth and/or appear
to be undervalued.
The Investment Manager will base the selection of stocks for the portfolio
of the CAPITAL APPRECIATION PORTFOLIO on research and analysis, taking into
account, among other factors, a company's price/ earnings ratio (that is whether
the current stock price appears undervalued in relation to earnings, projected
cash flow, or asset value per share; or the price-to-earnings ratio is
attractive relative to the company's underlying earnings growth rate), growth in
sales, market-to-book ratio, the quality of a company's balance sheet,
sales-per-share and profitability in order to determine whether the current
market valuation is less than the Investment Manager's view of a company's
intrinsic value. Also, when reviewing investments for selection, the Investment
Manager will consider the following characteristics of a company: capable
management; attractive business niches; pricing flexibility; sound financial and
accounting practices and a demonstrated ability or prospects to consistently
grow revenues, earnings and cash flow. Stocks may also be selected on the basis
of whether the Investment Manager believes that the potential exists for some
catalyst (such as increased investor attention, asset sales, a new
product/innovation, or a change in management) to cause the stock's price to
rise. Such factors are part of the Investment Manager's overall investment
selection process.
The Investment Manager has no general criteria as to asset size, earnings or
industry type which would make an investment unsuitable for purchase by the
CAPITAL APPRECIATION PORTFOLIO. In addition, since the Investment Manager is
seeking investments in companies whose securities may appear
30
<PAGE>
to be undervalued, there is no limitation on the stock price of any particular
investment. However, as a result of the selection process, which focuses on
fundamentals in relation to prices, such review of investments will include
companies with low-priced stocks. In this category are large companies with
low-priced stocks (so called "fallen angels") which, in the opinion of the
Investment Manager, may appear to be undervalued because they are overlooked by
many investors, may not be closely followed through investment research and/or
their prices may reflect pessimism about the companies' (and/or their
industries') outlook. Such companies, by virtue of their stock price, may be
takeover candidates. Low-priced stocks are also associated with smaller
companies whose securities' value may reflect a discount because of smaller size
and lack of research coverage, emerging growth companies and private companies
undergoing their initial public offering. The CAPITAL APPRECIATION PORTFOLIO
will invest in companies of all sizes. For a discussion of the risks of
investing in the securities of such companies, see below.
Consequently, the CAPITAL APPRECIATION PORTFOLIO looks for quality
businesses with an investment outlook based upon a mix of growth potential,
financial strength and fundamental value. The focus on price and fundamentals
sets the Portfolio apart from pure "growth" or pure "value" funds. The CAPITAL
APPRECIATION PORTFOLIO's holdings will be widely diversified by industry and
company and under most circumstances, at the time of initial purchase, the
average position will be less than 1.5% of the Portfolio's net assets.
In addition to U.S. common stock, up to 35% of the CAPITAL APPRECIATION
PORTFOLIO's total assets may be invested in debt or preferred equity securities
convertible into or exchangeable for equity securities, rights and warrants,
when considered by the Investment Manager to be consistent with the Portfolio's
investment objective. (For a discussion of each of these types of securities,
see "General Portfolio Techniques" below.)
The CAPITAL APPRECIATION PORTFOLIO may also invest in other debt securities
without regard to quality or rating, if in the opinion of the Investment Manager
such securities meet the investment criteria of the CAPITAL APPRECIATION
PORTFOLIO. However, the CAPITAL APPRECIATION PORTFOLIO will not purchase a
non-investment grade debt security (or junk bond) if, immediately after such
purchase, the Portfolio would have more than 5% of its total assets invested in
such securities. See "General Portfolio Techniques" below for a discussion of
investment in securities rated Baa by Moody's Investors Service, Inc. or Baa by
Standard & Poor's Corporation (the lowest credit ratings designated "investment
grade") and a discussion of investments in securities rated lower than
investment grade.
Given the investment risks described below, an investment in shares of the
CAPITAL APPRECIATION PORTFOLIO should not be considered a complete investment
program and is not appropriate for all investors. Investors should carefully
consider their ability to assume these risks before making an investment in the
CAPITAL APPRECIATION PORTFOLIO.
The net asset value of the shares of the CAPITAL APPRECIATION PORTFOLIO will
fluctuate with changes in the market value of its portfolio securities. The
market value of the portfolio securities of the CAPITAL APPRECIATION PORTFOLIO
will increase or decrease due to a variety of economic, market or political
factors which cannot be predicted. The CAPITAL APPRECIATION PORTFOLIO is
intended for long-term investors who can accept the risks involved in seeking
long-term capital appreciation through the investment primarily in the
securities of companies that offer the potential for either superior earnings
growth and/or appear to be undervalued. In selecting investments for the CAPITAL
APPRECIATION PORTFOLIO, the Investment Manager has no general criteria as to a
company's asset size, earnings or industry type. It should be recognized that
investing in such companies involves greater risk than is customarily associated
with investing in more established companies.
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The CAPITAL APPRECIATION PORTFOLIO may invest in securities of companies
that are not well known to the investing public or followed by many securities
analysts, with the result that there may be less publicly available information
concerning such securities. Also, these securities may be more volatile in price
and have lower trading volumes. In addition, while companies in which the
CAPITAL APPRECIATION PORTFOLIO may invest often have sales and earnings growth
rates which may exceed those of large companies and may be reflected in more
rapid share price appreciation, such companies may have limited operating
histories, product lines, markets or financial resources and they may be
dependent upon one-person management. These companies may be subject to intense
competition from larger companies. The securities of such companies may have
limited marketability and may be subject to more abrupt or erratic movements in
price than securities of larger companies or in the market averages in general.
In the case of securities of large companies with lower-priced stock (the
so-called "fallen angels"), the risk associated with such investment is that the
price may continue to fall.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant a reduction of some or all of the CAPITAL APPRECIATION
PORTFOLIO's securities holdings. During such periods, the Portfolio may adopt a
temporary "defensive" posture in which greater than 35% of its total assets is
invested in cash or money market instruments, including obligations issued or
guaranteed as to principal or interest by the United States Government, 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 CAPITAL APPRECIATION PORTFOLIO may enter into repurchase agreements,
invest in foreign securities, zero coupon securities and real estate investment
trusts, invest up to 10% of its total assets in securities issued by other
investment companies, engage in futures contracts and options transactions, lend
its portfolio securities, purchase securities which are issued in private
placements or are otherwise not readily marketable, 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 these investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
THE EQUITY PORTFOLIO
The portfolio of the EQUITY PORTFOLIO will be actively managed by the
Investment Manager with a view to achieving the EQUITY PORTFOLIO's primary
investment objective of growth of capital through investments in common stock of
companies believed by the Investment Manager to have potential for superior
growth. As a secondary objective, the EQUITY PORTFOLIO will seek income, but
only when consistent with its primary objective. There can be no assurance that
the objectives will be achieved.
The investment objectives of the EQUITY PORTFOLIO may not be changed without
the approval of the shareholders of the EQUITY PORTFOLIO. The following policies
may be changed by the Trustees of the Fund without shareholder approval:
Consistent with its primary investment objective, the EQUITY PORTFOLIO will
invest principally in common stocks, under most conditions, but may also invest
in corporate debt securities which are rated at the time of purchase Aa or
better by Moody's Investors Service, Inc. or AA or better by Standard & Poor's
Corporation (the Portfolio may continue to hold a security even if its quality
rating is reduced by a rating service below those specified; see "General
Portfolio Techniques" below 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
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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, invest in real estate investment trusts, lend its portfolio
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 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
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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 real estate investment trusts, lend its portfolio
securities, invest in futures contracts and options, purchase securities on a
when-issued or delayed delivery basis or a "when, as and if issued" basis, and
purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of those investments and techniques (and subject
to the risks) set forth under " General Portfolio Techniques" below and in the
Statement of Additional Information.
GENERAL PORTFOLIO TECHNIQUES
FOREIGN SECURITIES. The EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO will invest primarily in foreign securities. The GLOBAL DIVIDEND
GROWTH PORTFOLIO will invest a substantial portion of its assets in foreign
securities. Each of the INCOME BUILDER PORTFOLIO and the CAPITAL GROWTH
PORTFOLIO may invest up to 25% of the value of its total assets, at the time of
purchase, in foreign securities (other than securities of Canadian issuers
registered under the Securities Exchange Act of 1934 or American Depository
Receipts ("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
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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 CAPITAL
APPRECIATION PORTFOLIO may invest up to 10% of the value of its total assets in
foreign securities. The QUALITY INCOME PLUS PORTFOLIO and the HIGH YIELD
PORTFOLIO may invest in money market obligations of domestic branches of foreign
banks, or foreign branches of domestic banks, including Eurodollar Certificates
of Deposit, as set forth above under the description of these Portfolios. The
MONEY MARKET PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO,
the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the CAPITAL APPRECIATION 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, in the case of those three Portfolios and the CAPITAL APPRECIATION
PORTFOLIO, futures contracts (described below under "Options and Futures
Transactions"). A Portfolio will incur certain costs in connection with these
currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Portfolio assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe, especially as they
relate to changes in the structure of the European Economic Community and the
anticipated development of a unified common market, may have profound effects
upon the value of a large segment of the GLOBAL DIVIDEND GROWTH PORTFOLIO and
the EUROPEAN GROWTH PORTFOLIO, in particular. Continued progress in the
evolution of, for example, a united European common market may be slowed by
unanticipated political or social events and may, therefore, adversely affect
the value of certain of the securities held by a Portfolio. Foreign companies
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<PAGE>
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 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
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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 INCOME BUILDER PORTFOLIO, the
CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION
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, the PACIFIC GROWTH PORTFOLIO and the
CAPITAL APPRECIATION PORTFOLIO may invest up to 10% of its total assets in
securities issued by other investment companies. Such investments are necessary
in order to participate in certain foreign markets where foreigners are
prohibited from investing directly in the securities of individual issuers. The
Portfolio will incur any indirect expenses incurred through investment in an
investment company, such as the payment of a management fee (which may result in
the payment of an additional advisory fee). Furthermore, it should be noted that
foreign investment companies are not subject to the U.S. securities laws and may
be
sub-
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ject to fewer or less stringent regulations than U.S. investment companies.
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, the CAPITAL APPRECIATION 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 other than the CAPITAL
APPRECIATION 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. In the case of the
CAPITAL APPRECIATION PORTFOLIO, in the event the Portfolio's investments in
non-convertible fixed-income securities rated below Baa or BBB, including
downgraded securities, constitute more than 5% of the Portfolio's total assets,
the CAPITAL APPRECIATION PORTFOLIO will seek immediately to sell sufficient
securities to reduce the total to below 5%. The risks of holding lower-rated
securities are described below.
SPECIAL CONSIDERATIONS FOR INVESTMENTS IN HIGH YIELD SECURITIES. Because of
the special nature of the HIGH YIELD PORTFOLIO's, the INCOME BUILDER PORTFOLIO's
and the CAPITAL APPRECIATION PORTFOLIO's investments in lower rated, 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 Portfolios, 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 a
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
Portfolio. Moreover, the market prices of certain of the 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).
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 Portfolios to sell certain securities.
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New laws and proposed new laws may have a potentially negative impact on the
market for high yield bonds. For example, present 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,
the INCOME BUILDER PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO.
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 other than the HIGH YIELD PORTFOLIO, the INCOME BUILDER
PORTFOLIO and the CAPITAL APPRECIATION 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.
The INCOME BUILDER PORTFOLIO may invest up to 25% of its total assets in
"enhanced" convertible securities. Enhanced convertible securities offer holders
the opportunity to obtain higher current income than would be available from a
traditional equity security issued by the same company, in return for reduced
participation or a cap on appreciation in the underlying common stock of the
issuer which the holder can realize. In addition, in many cases, enhanced
convertible securities are convertible into the underlying common stock of the
issuer automatically at maturity, unlike traditional convertible securities
which are convertible only at the option of the security holder. Enhanced
convertible securities may be more volatile than traditional convertible
securities due to the mandatory conversion feature.
The INCOME BUILDER PORTFOLIO also may invest up to 10% in "synthetic"
convertible securities. Unlike traditional convertible securities whose
conversion values are based on the common stock of the issuer of the convertible
security, "synthetic" convertible securities are preferred stocks or debt
obligations of an issuer which are combined with an equity
com-
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ponent whose conversion value is based on the value of the common stock of a
different issuer or a particular benchmark (which may include a foreign issuer
or basket of foreign stocks, or a company whose stock is not yet publicly
traded). In many cases, "synthetic" convertible securities are not convertible
prior to maturity, at which time the value of the security is paid in cash by
the issuer.
"Synthetic" convertible securities may be less liquid than traditional
convertible securities and their price changes may be more volatile. Reduced
liquidity may have an adverse impact on the ability of the INCOME BUILDER
PORTFOLIO to sell particular synthetic securities promptly at favorable prices
and may also make it more difficult for the Portfolio to obtain market
quotations based on actual trades, for purposes of valuing the portfolio
securities of the INCOME BUILDER PORTFOLIO.
The INCOME BUILDER PORTFOLIO may invest without limitation in "exchangeable"
convertible bonds and convertible preferred stock which are issued by one
company, but convertible into the common stock of a different publicly traded
company. These securities generally have liquidity trading and risk
characteristics similar to traditional convertible securities noted above.
REAL ESTATE INVESTMENT TRUSTS. Each of the UTILITIES PORTFOLIO, the INCOME
BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO,
the GLOBAL DIVIDEND GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO, the
EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may invest in real estate
investment trusts, which pool investors' funds for investments primarily in
commercial real estate properties. Investment in real estate investment trusts
may be the most practical available means for the Portfolios to invest in the
real estate industry (the Portfolios are prohibited from investing in real
estate directly). As a shareholder in a real estate investment trust, the
Portfolio would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time the
Portfolio would continue to pay its own investment management fees and other
expenses, as a result of which the Portfolio and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real estate
investment trusts. Real estate investment trusts are not diversified and are
subject to the risk of financing projects. They are also subject to heavy cash
flow dependency, defaults by borrowers or tenants, self-liquidation, and the
possibility of failing to qualify for tax-free status under the Internal Revenue
Code and failing to maintain exemption from the Investment Company Act of 1940,
as amended.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, 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 (subject to certain notice provisions
described in the Statement of Additional Information), and are at all times
secured by cash or money market instruments, 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. 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, loans of portfolio securities will only be made to firms
deemed by the Investment Manager or, in the case of the EUROPEAN GROWTH
PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, the Sub-Adviser to be creditworthy
and when the income which can be earned from such loans justifies the attendant
risks.
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
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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.
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
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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 INCOME BUILDER PORTFOLIO, the CAPITAL
GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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 eight 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 twelve 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, the INCOME BUILDER PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO, and which
under current policy is limited to 15% of the net assets of each of the five
Portfolios named above.
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.
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 INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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 or, in the case of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO, on either a recognized domestic or foreign 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
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in them will be lost. The prices of warrants do not necessarily move parallel to
the prices of the underlying securities.
OPTIONS AND FUTURES TRANSACTIONS
As noted above, each of the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL
APPRECIATION 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, the CAPITAL APPRECIATION
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, the
CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO
and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO or the CAPITAL APPRECIATION PORTFOLIO,
the currency) underlying an option it has written, in accordance
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with the terms of that option, the Portfolio would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Portfolios
will engage in OTC option transactions only with member banks of the Federal
Reserve System or primary dealers in U.S. Government securities or with
affiliates of such banks or dealers which have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least $50
million.
COVERED CALL WRITING. The QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL
APPRECIATION 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, the PACIFIC GROWTH
PORTFOLIO and the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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 PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO
and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO or the
CAPITAL APPRECIATION 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
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GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO
and the CAPITAL APPRECIATION PORTFOLIO may purchase put options on currencies in
which securities it holds are denominated only to protect itself against a
decline in value of such currency vis-a-vis the currency in which the exercise
price is denominated. The Portfolios may also purchase put options to close out
written put positions in a manner similar to call option closing purchase
transactions. There are no other limits on the ability of these Portfolios to
purchase call and put options.
STOCK INDEX OPTIONS. The UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO,
the GLOBAL DIVIDEND GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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, the CAPITAL
APPRECIATION 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, the CAPITAL APPRECIATION
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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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, the CAPITAL APPRECIATION 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 STRATEGIST
PORTFOLIO, to facilitate asset reallocations into and out of the fixed-income
area. The UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the CAPITAL APPRECIATION 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
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asset reallocations into and out of the equity area. The GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the
CAPITAL APPRECIATION 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, the
CAPITAL APPRECIATION 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. 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, the CAPITAL APPRECIATION
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, the CAPITAL APPRECIATION 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, the PACIFIC GROWTH
PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO, the securities' denominated
currencies). Another such
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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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO, by entering
into transactions in foreign futures and options markets, will incur risks
similar to those discussed above under "Foreign Securities."
New options and futures contracts and other financial products and various
combinations thereof continue to be developed. The QUALITY INCOME PLUS
PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO, the CAPITAL APPRECIATION 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
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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%; INCOME BUILDER
PORTFOLIO: 90%; CAPITAL GROWTH PORTFOLIO: 200%; GLOBAL DIVIDEND GROWTH
PORTFOLIO: 100%; EUROPEAN GROWTH PORTFOLIO: 100%; PACIFIC GROWTH PORTFOLIO:
100%; CAPITAL APPRECIATION PORTFOLIO: 300%; 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 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 a portfolio manager with
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 a portfolio manager with 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 a portfolio manager with InterCapital for over five years. Paul D.
Vance, Senior Vice President of InterCapital, and Michael G. Knox, Vice
President of InterCapital, are the primary portfolio co-managers of the INCOME
BUILDER PORTFOLIO. Mr. Vance has been a portfolio manager with InterCapital for
over five years. Mr. Knox has been a portfolio manager with InterCapital since
August, 1993, prior to which time he was with Eagle Asset Management, Inc. Mr.
Vance has also been the primary portfolio manager of the DIVIDEND GROWTH
PORTFOLIO and the GLOBAL DIVIDEND GROWTH PORTFOLIO since their inceptions. 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 a
portfolio manager with 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 a portfolio manager
with the Sub-Adviser for over five years. Ronald J. Worobel, Senior Vice
President of InterCapital, is the primary portfolio manager of the CAPITAL
APPRECIATION PORTFOLIO and has been a portfolio manager with InterCapital since
June, 1992, prior to which time he was the Managing Director at MacKay Shields
Financial Corp. Anita H. Kolleeny, Senior Vice President of InterCapital, and
Michelle
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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 a portfolio manager with 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 a portfolio manager with 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.
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 INCOME BUILDER PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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
INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO, the CAPITAL APRECIATION PORTFOLIO and the
STRATEGIST PORTFOLIO may purchase futures contracts and related options thereon
and the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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
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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
INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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.
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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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
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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 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
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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) 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." 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
conve-
52
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nience, 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 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, INCOME BUILDER 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 INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the
GLOBAL DIVIDEND GROWTH PORTFOLIO, the EQUITY PORTFOLIO and
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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, PACIFIC GROWTH
PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO. Dividends from net investment
income and net realized capital gains, if any, on the CAPITAL GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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, the CAPITAL APPRECIATION PORTFOLIO or the STRATEGIST PORTFOLIO being
available for distribution. These Portfolios intend to make certain elections
which may minimize the impact of these rules but which could also result in a
higher portion of the Portfolio's gains being treated as short-term capital
gains.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of a Portfolio's gross income be derived from the sale or
other disposition of securities held for less than three months. This
requirement may limit the ability of the QUALITY INCOME PLUS PORTFOLIO, the
UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
CAPITAL APPRECIATION 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.
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<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the "yield" and "effective yield" of
the MONEY MARKET PORTFOLIO. Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the MONEY
MARKET PORTFOLIO refers to the income generated by an investment in the
Portfolio over a given period (which period will be stated in the
advertisement). This income is then annualized. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in the MONEY MARKET PORTFOLIO is assumed to be reinvested each
week within a 365-day period. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
MONEY MARKET PORTFOLIO's "yield" and "effective yield" do not reflect the
deduction of any charges which may be imposed on the Contracts by the applicable
Account and are therefore not equivalent to total return under a Contract (for a
description of such charges, see the 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
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.
55
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The shares of beneficial interest of the Fund, with $0.01 par value, are
divided into thirteen 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. 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.
56
<PAGE>
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 CORPORATE DEBT INSTRUMENTS INVESTMENTS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities 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 Fixed-income securities 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 fixed-income securities. They are rated lower than the best fixed-income
securities 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 Fixed-income securities 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 Fixed-income securities 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
fixed-income securities lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities 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 in the future. Uncertainty of position characterizes bonds in this
class.
B Fixed-income securities which are rated B generally lack characteristics of the
desirable investment. 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 Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities which are rated C are the lowest rated class of fixed-income
securities, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
</TABLE>
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<PAGE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security 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. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. 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")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security 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 Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have 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 fixed-income securities in higher-rated
categories.
</TABLE>
59
<PAGE>
<TABLE>
<S> <C>
BBB Fixed-income securities rated "BBB" are 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 fixed-income
securities in this category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than
other speculative grade fixed-income securities. However, it faces major ongoing
uncertainties or exposures to adverse business, financial or economic conditions which
could lead to inadequate capacity or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but presently
have 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 Fixed-income securities rated "CCC" have a current identifiable vulnerability to
default, and are 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, they are not likely to have the
capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to senior
debt which is assigned an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities 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.
Fixed-income securities 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 fixed-income securities 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 rating 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.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard & 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 by the
issuer or obtained by Standard & Poor's 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
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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>
BOND RATINGS
FITCH INVESTORS SERVICE, INC. ("FITCH")
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific debt
issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal .
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which it
considers reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA rated bonds are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal, while very strong, is somewhat
less than for AAA rated securities or more subject to possible change over the term of
the issue.
A rated bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be strong, but
may be more vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
BBB rated bonds are considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however, are more likely to
weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's
ability to pay interest and repay principal is not strong and is considered likely to
be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly
protected as to the obligor's ability to pay interest over the life of the issue and
repay principal when due.
CCC rated bonds may have certain identifiable characteristics which, if not remedied, could
lead to the possibility of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or principal
seems probable.
C rated bonds are in imminent default in payment of interest and/or principal.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner. Fitch's
short-term ratings are as follows:
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as the two
higher categories.
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate, however, near-term
adverse change is likely to cause these securities to be rated below investment
grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics suggesting a
minimal degree of assurance for timely payment and are vulnerable to near term
adverse changes in financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued by
a commercial bank.
</TABLE>
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<PAGE>
LONG-TERM RATINGS
DUFF & PHELPS, INC.
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING
SCALE DEFINITION
- --------- -----------------------------------------------------------------------------------------------------------
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free U.S.
Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from time to time
AA because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater in periods
A of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment. Considerable
BBB variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
BB protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move
BB- up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial protection
B factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
B- Potential exists for frequent changes in the quality rating within this category or into a higher or lower
quality rating grade.
CCC Well below investment grade securities. May be in default or considerable uncertainty exists as to timely
payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments.
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<S> <C>
A. Category 1: High Grade
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
Duff- High certainty of timely payment. Liquidity factors are strong and supported
by good fundamental protection factors. Risk factors are very small.
B. Category 2: Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals
are sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.
C. Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D. Category 4: Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation.
E. Category 5: Default
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>
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<PAGE>
DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
DECEMBER 31, 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 thirteen 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 INCOME BUILDER PORTFOLIO
-THE DIVIDEND GROWTH PORTFOLIO
-THE CAPITAL GROWTH PORTFOLIO
-THE GLOBAL DIVIDEND GROWTH PORTFOLIO
-THE EUROPEAN GROWTH PORTFOLIO
-THE PACIFIC GROWTH PORTFOLIO
-THE CAPITAL APPRECIATION PORTFOLIO
-THE EQUITY PORTFOLIO
-THE STRATEGIST PORTFOLIO
There can be no assurance that the investment objectives of the Portfolios
will be achieved. See "Investment Practices and Policies."
A Prospectus for the Fund dated December 31, 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
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
The Fund and its Management........................................................... 3
Trustees and Officers................................................................. 9
Investment Practices and Policies..................................................... 15
Investment Restrictions............................................................... 36
Portfolio Transactions and Brokerage.................................................. 38
Purchase and Redemption of Fund Shares................................................ 41
Dividends, Distributions and Taxes.................................................... 45
Performance Information............................................................... 47
Description of Shares of the Fund..................................................... 50
Custodians and Transfer Agent......................................................... 51
Independent Accountants............................................................... 51
Reports to Shareholders............................................................... 51
Legal Counsel......................................................................... 52
Experts............................................................................... 52
Registration Statement................................................................ 52
Financial Statements -- December 31, 1995............................................. 53
Report of Independent Accountants..................................................... 112
Financial Statements -- June 30, 1996 (Unaudited)..................................... 113
</TABLE>
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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.
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THE FUND AND ITS MANAGEMENT
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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,
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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, Dean Witter Income Builder Fund, Dean Witter Special Value
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 Global Telecom Trust, TCW/DW Strategic Income 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
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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; (h) % to the net assets of each of the INCOME BUILDER
PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO; and (i) 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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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 INCOME
BUILDER PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the
CAPITAL APPRECIATION 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 $
billion primarily for U.S. corporate and public
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employee benefit plans, endowments, investment companies and foundations. MGIS'
principal office is located at 20 Finsbury Circus, London, England. MGIS is a
subsidiary of London-based Morgan Grenfell Asset Management Limited which is
itself a subsidiary of London-based Morgan Grenfell Group plc (which is owned by
Deutsche Bank AG, an international commercial and investment banking group) and
is registered as an investment adviser under the Investment Advisers Act of
1940. In 1838 Morgan Grenfell was founded to provide merchant banking services,
primarily trade financing between Great Britain and the United States. In 1958,
its investment management arm began operations. In recent years Morgan Grenfell
Group plc has achieved a prominent position in the securities industry by
providing investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive experience
in global investment management, is currently managing in excess of $ 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 February 7, 1991 and by
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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.
The Management Agreement was approved with respect to the INCOME BUILDER
PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO by the Board of Trustees and by
Northbrook as the sole shareholder of each Portfolio on , 1996.
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.
8
<PAGE>
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Management Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 82 Dean Witter Funds and the 14 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 variously Chairman, Chief
Boca Raton, Florida Executive Officer, President and Chief Operating Officer (1987-1991) of
the Sears Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc. the United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (63) 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; Chairman of the Audit Committee and Chairman of the
New York, New York Committee of the Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education (1978-October, 1989)
and Chairman and Chief Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of Washington National
Corporation (insurance).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (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; Co-Chairman and a
Inc. founder of the Group of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter Funds; Trustee of
Washington, DC 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 (1986-1990) and
Assistant Secretary of the U.S. Treasury (1982-1988).
Michael E. Nugent (60) 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* (53) 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 (66) 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) and Chairman and Chief
Counsel to the Independent Investment Officer of Axe-Houghton Management and the Axe-Houghton
Trustees Funds (April, 1983-June, 1991).
114 West 47th Street
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 (38) 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 (42) 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 (55) 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 (52) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Michael G. Knox (30) Senior Portfolio Manager of InterCapital (since August, 1993); formerly
Vice President a portfolio manager and analyst with Eagle Asset Management, Inc.
Two World Trade Center
New York, New York
Anita H. Kolleeny (41) 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 (45) 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 (50) 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 (48) 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 (61) Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Ronald J. Worobel (53) Senior Vice President of InterCapital (since June, 1993); Vice
Vice President President of various Dean Witter Funds; formerly Vice President of
Two World Trade Center InterCapital (June, 1992-June, 1993) and prior thereto Managing
New York, New York Director at MacKay Shields Financial Corp.
Michelle Kaufman (32) 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).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Thomas F. Caloia (50) First Vice President and Assistant Treasurer of InterCapital and DWSC;
Treasurer Treasurer of the Dean Witter Funds and the TCW/DW Funds.
Two World Trade Center
New York, New York
- ---------
<FN>
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Investment Company Act of 1940, as amended.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC and Director of DWTC, Joseph J. McAlinden, Executive
Vice President and Chief Investment Officer of InterCapital and Director of
DWTC; Kevin Hurley, Senior Vice President of InterCapital, and Jayne
Stevlingson, 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 eight (8) 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 82 Dean Witter Funds, comprised of
122 portfolios. As of November 30, 1996, the Dean Witter Funds had total net
assets of approximately $ billion and more than five million shareholders.
Six Trustees (75% 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. Four of the six
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.
12
<PAGE>
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.
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 COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee 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 both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee 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 and,
since July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee 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.
13
<PAGE>
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 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 $1,200). 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 following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended December 31, 1995.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,850
Edwin J. Garn................................................. 2,000
John R. Haire................................................. 4,600(1)
Dr. Manuel H. Johnson......................................... 2,000
Michael E. Nugent............................................. 1,800
John L. Schroeder............................................. 2,000
</TABLE>
- ---------
(1) Of Mr. Haire's compensation from the Fund, $3,150 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
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, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, 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.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL
FOR SERVICE AS COMPENSATION
FOR SERVICE CHAIRMAN OF PAID
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(2) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ---------
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds in addition
to continuing to serve in such positions for the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have 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
14
<PAGE>
referred to as an "Adopting Fund" and each such Trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting 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.(3) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting 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 Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended December 31,
1995 and by the 57 Dean Witter Funds (including the Fund) as of December 31,
1995, and the estimated retirement benefits for the Fund's Independent Trustees
from the Fund as of December 31, 1995 and from the 57 Dean Witter Funds as of
December 31, 1995.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 454 $ 26,359 $ 1,121 $ 51,550
Edwin J. Garn.................... 10 50.0 695 41,901 1,121 51,550
John R. Haire.................... 10 50.0 3,644 261,763 2,958 130,404
Dr. Manuel H. Johnson............ 10 50.0 281 16,748 1,121 51,550
Michael E. Nugent................ 10 50.0 497 30,370 1,121 51,550
John L. Schroeder................ 8 41.7 893 51,812 934 42,958
</TABLE>
- ---------
(3) 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.
(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3) above.
As of the date of this Statement of Additional Information, Northbrook Life
Insurance Company, Allstate Life Insurance Company of New York and Paragon Life
Insurance Company 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
- --------------------------------------------------------------------------------
The Fund is an open-end diversified management investment company which is
intended to provide a broad range of investment alternatives with its thirteen
separate Portfolios, each of which has distinct investment objectives and
policies, as set forth below and in the Prospectus:
-THE MONEY MARKET PORTFOLIO seeks high current income, preservation of
capital and liquidity by investing in short-term money market instruments.
15
<PAGE>
-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 INCOME BUILDER PORTFOLIO seeks, as its primary investment objective,
reasonable income and, as its secondary objective, growth of capital, by
investing primarily in income producing common stocks and preferred stocks
and in securities convertible into common stock.
-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 CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation by
investing primarily in the common stocks of U.S. companies that offer the
potential for either superior earnings growth and/or appear to be
undervalued.
-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 the Portfolios' investment objectives will be
achieved.
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
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Portfolios are subject to the diversification requirements of the Act, as
described under the heading "Investment Restrictions" below and in the
Prospectus.
The investment objectives and policies of each Portfolio are set forth in
the Prospectus under the caption "Investment Objectives and Policies." There can
be no assurance that the Portfolios' investment objectives will be achieved.
QUALITY INCOME PLUS PORTFOLIO
As discussed in the Prospectus, certain of the U.S. Government securities
purchased by the QUALITY INCOME PLUS PORTFOLIO are "mortgaged-backed
securities", which evidence an interest in a specific pool of mortgages. Such
securities are issued by the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC").
GNMA CERTIFICATES. GNMA Certificates evidence an interest in a specific
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers Home Administration or guaranteed by the Veterans Administration ("VA").
Scheduled payments of principal and interest are made to the registered holders
of GNMA Certificates. The GNMA Certificates that the QUALITY INCOME PLUS
PORTFOLIO will invest in are of the modified pass-through type. GNMA guarantees
the timely payment of monthly installments of principal and interest on modified
pass-through certificates at the time such payments are due, whether or not such
amounts are collected by the issuer on the underlying mortgages. The National
Housing Act provides that the full faith and credit of the United States is
pledged to the timely payment of principal and interest by GNMA of amounts due
on these GNMA Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments, with maximum maturities of 30 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of prepayments or
refinancing of such mortgages or foreclosure. Such prepayments are passed
through to the registered holder with the regular monthly payments of principal
and interest, which has the effect of reducing future payments. Due to the GNMA
guarantee, foreclosures impose no risk to principal investments.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. The
occurrence of mortgage prepayments is affected by such factors as the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. As prepayment rates vary
widely, it is not possible to accurately predict the average life of a
particular pool. However, statistics indicate that the average life of the type
of mortgages backing the majority of GNMA Certificates is approximately 12
years. For this reason, it is standard practice to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year. Pools
of mortgages with other maturities or different characteristics will have
varying assumptions for average life. The assumed average life of pools of
mortgages having terms of less than 30 years is less than 12 years, but
typically not less than 5 years.
The coupon rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Such fees in the aggregate usually amount to approximately .50 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of 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
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mortgage pool underlying the Certificates. Interest on GNMA Certificates is paid
monthly, rather than semiannually, as is the case with traditional bonds.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in
1970 through enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgages
participation certificates ("PCs") and guaranteed mortgages certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. The FHLMC guarantees timely monthly payment of interest on PC's and the
full return of principal when due. PC's have an assumed average life similar to
GNMA Certificates.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
FNMA SECURITIES. The Federal National Mortgage Association was established
in 1938 to create a secondary market in mortgages insured by the FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. FNMA Certificates have an
assumed average life similar to GNMA Certificates.
LEVERAGING. As discussed in the Prospectus, the QUALITY INCOME PLUS
PORTFOLIO may borrow money, but only from a bank and in an amount up to 25% of
the Portfolio's gross assets taken at the lower of market value or cost, not
including the amount borrowed, to seek additional income by leveraging its
investments through purchasing securities with the borrowed funds. Such
borrowings will be subject to current margin requirements of the Federal Reserve
Board and where necessary the Portfolio may use any or all of its securities as
collateral for such borrowings. Any investment gains (and/or investment income)
made with the additional monies in excess of interest paid will cause the net
asset value of the Portfolio's shares (and/or the Portfolio's net income per
share) to rise to a greater extent than would otherwise be the case. Conversely,
if the investment performance of the additional monies fails to cover their cost
to the Portfolio, net asset value (and/or net income per share) will decrease to
a greater extent than would otherwise be the case. This is the speculative
factor involved in leverage.
The QUALITY INCOME PLUS PORTFOLIO will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Act. If due to market
fluctuations or other reasons, the value of the Portfolio's assets (including
the proceeds of borrowings) becomes at any time less than three times the amount
of any outstanding bank debt, the Portfolio, within three business days, will
reduce its bank debt to the extent necessary to meet the required 300% asset
coverage. In restoring the 300% asset coverage, the Portfolio may have to sell a
portion of its investments at a time when it may be disadvantageous to do so.
The investment policy provides that the Portfolio may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker of
any part of the purchase price of a security.
In addition to borrowings for leverage, the Portfolio may also borrow from
banks an additional amount as a temporary measure for extraordinary or emergency
purposes, and for these purposes, in no event an amount greater than 5% of gross
assets taken at the lower of market value or cost.
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
("for-
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ward 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 liquid
portfolio securities in a segregated account of the Fund in an amount equal to
the value of the Portfolio's total assets committed to the consummation of
forward contracts entered into under the circumstances set forth above. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Portfolio's commitments with
respect to such contracts.
Where, for example, the Portfolio is hedging a portfolio position consisting
of foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Portfolio of a foreign currency, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency. It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
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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.
HIGH YIELD SECURITIES
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"), and the INCOME BUILDER PORTFOLIO may invest up to 20% of its total
assets in fixed-income securities rated below investment grade. Investment grade
is generally considered to be debt securities rated Baa or higher by Moody's or
BBB or higher by 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 Portfolios. 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 Portfolios. However, in seeking to achieve
the Portfolio's primary objective, there will be times, such as during periods
of rising interest rates, when depreciation and realization of capital losses on
securities in the portfolio will be unavoidable. Moreover, medium and
lower-rated securities and non-rated securities of comparable quality tend to be
subject to wider fluctuations in yield and market values than higher-rated
securities. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset value
of the portfolio of the HIGH YIELD PORTFOLIO and the INCOME BUILDER PORTFOLIO.
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REPURCHASE AGREEMENTS
As discussed in the Prospectus, when cash may be available to a Portfolio
for only a few days, it may be invested by the Portfolio in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Portfolio. These agreements, which may be viewed as a type
of secured lending by the Portfolio, typically involve the acquisition by the
Portfolio of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides that
the Portfolio will sell back to the institution, and that the institution will
repurchase, the underlying security ("collateral"), which is held by the
Portfolio's custodian bank, at a specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. The
Portfolio will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Portfolio to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Portfolios follow procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions,
whose financial conditions will be continually monitored. In addition, the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Portfolio will seek to liquidate such collateral.
However, the exercising of the right by a Portfolio to liquidate such collateral
could involve certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less than the
repurchase price, the Portfolio could suffer a loss. It is the current policy of
each Portfolio not to invest in repurchase agreements that do not mature within
seven days if any such investment, together with any other illiquid assets held
by the Portfolio, amounts to more than 10% of its total assets (in the case of
the MONEY MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO),
or 15% of its net assets (in the case of the other Portfolios). 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 (subject to notice
provisions described below), and are at all times secured by cash or money
market instruments, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least
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100% of 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. The creditworthiness of firms to which
a Portfolio lends its portfolio securities will be monitored on an ongoing
basis.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
As discussed in the Prospectus, from time to time, in the ordinary course of
business, each Portfolio of the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of commitment, but delivery and payment can take place a month or more
after the date of the commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Portfolio makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, the Fund will record the transaction and thereafter
reflect the value, each day, of such security purchased or, if a sale, the
proceeds to be received, in determining the net asset value of the Portfolio. At
the time of delivery of the securities, the value may be more or less than the
purchase or sale price. The Portfolio will also establish a segregated account
with its custodian bank in which it will continually maintain cash, U.S.
Government securities or other liquid 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, U.S. Government securities or
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other liquid 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,
the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION
PORTFOLIO 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, the CAPITAL APPRECIATION
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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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.
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
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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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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,
the PACIFIC GROWTH PORTFOLIO or the CAPITAL APPRECIATION 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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO may also write
call options on foreign currency to protect against potential declines in its
portfolio securities which are denominated in foreign currencies. If the U.S.
dollar value of the portfolio securities falls as a result of a decline in the
exchange rate between the foreign currency in which a security is denominated
and the U.S. dollar, then a loss to the Portfolio occasioned by such value
decline would be ameliorated by receipt of the premium on the option sold. At
the same time, however, the Portfolio gives up the benefit of any rise in value
of the relevant portfolio securities above the exercise price of the option and,
in fact, only receives a benefit from the writing of the option to the extent
that the value of the portfolio securities falls below the price of the premium
received. The European Growth Portfolio may also write options to close out long
call option positions.
The markets in foreign currency options are relatively new and the ability
of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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.
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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, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION 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 liquid portfolio 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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION
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, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO and the
CAPITAL APPRECIATION 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
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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, the CAPITAL APPRECIATION
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 liquid portfolio securities 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 liquid portfolio
securities which the Portfolio holds in a segregated account maintained at its
Custodian. In writing puts, the Portfolio assumes the risk of loss should the
market value of the underlying security decline below the exercise price of the
option (any loss being decreased by the receipt of the premium on the option
written). In the case of listed options, during the option period, the Portfolio
may be required, at any time, to make payment of the exercise price against
delivery of the underlying security. The operation of and limitations on covered
put options in other respects are substantially identical to those of call
options.
The QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL
GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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.
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Each of the CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO
and the CAPITAL APPRECIATION PORTFOLIO, on currencies) which it holds (or has
the right to acquire) in its portfolio only to protect itself against a decline
in the value of the security (currency). If the value of the underlying security
(currency) were to fall below the exercise price of the put purchased in an
amount greater than the premium paid for the option, the Portfolio would incur
no additional loss. These Portfolios may also purchase put options to close out
written put positions in a manner similar to call options closing purchase
transactions. In addition, a Portfolio may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option when it was purchased. Any such gain or
loss could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by a Portfolio expired
without being sold or exercised, the Portfolio would realize a loss.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH
PORTFOLIO and the CAPITAL APPRECIATION 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
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amount held in cash or U.S. Government securities or other liquid portfolio
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 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, the CAPITAL APPRECIATION 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
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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, the CAPITAL APPRECIATION 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 liquid portfolio securities
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, the CAPITAL APPRECIATION
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 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.
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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, the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO and the
CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION PORTFOLIO and
the STRATEGIST PORTFOLIO will purchase or sell interest rate futures contracts
for the purpose of hedging their fixed-income portfolio (or anticipated
portfolio) securities against changes in prevailing interest rates or, in the
case of the UTILITIES PORTFOLIO and the STRATEGIST 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,
the CAPITAL APPRECIATION 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
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GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the CAPITAL APPRECIATION 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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC
GROWTH PORTFOLIO or the CAPITAL APPRECIATION PORTFOLIO, currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that a Portfolio will be able to enter
into a closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the QUALITY INCOME PLUS PORTFOLIO,
the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the CAPITAL APPRECIATION 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 liquid portfolio
securities 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
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GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION
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, the CAPITAL APPRECIATION PORTFOLIO and the STRATEGIST 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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL
APPRECIATION PORTFOLIO may invest in foreign currency futures. Generally,
foreign currency futures provide for the delivery of a specified amount of a
given currency, on the exercise date, for a set exercise price denominated in
U.S. dollars or other currency. Foreign currency futures contracts would be
entered into for the same reason and under the same circumstances as forward
foreign currency exchange contracts. The Portfolio's management will assess such
factors as cost spreads, liquidity and transaction costs in determining whether
to utilize futures contracts or forward contracts in its foreign currency
transactions and hedging strategy. Currently, currency futures exist for, among
other foreign currencies, the Japanese yen, German mark, Canadian dollar,
British pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Portfolio must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulation
regarding the maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the
Portfolios 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.
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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, the
CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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 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, the CAPITAL APPRECIATION
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, the
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PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION PORTFOLIO or
the STRATEGIST PORTFOLIO purchases a futures contract to hedge against the
increase in value of securities it intends to buy (or, in the case of the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO, 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, the CAPITAL
APPRECIATION 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.
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 liquid portfolio securities 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
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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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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 and the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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 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
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GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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, the CAPITAL APPRECIATION 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%;
INCOME BUILDER PORTFOLIO: 90%; DIVIDEND GROWTH PORTFOLIO: 90%; CAPITAL GROWTH
PORTFOLIO: 200%; GLOBAL DIVIDEND GROWTH PORTFOLIO: 100%; EUROPEAN GROWTH
PORTFOLIO: 100%; PACIFIC GROWTH PORTFOLIO: 100%; CAPITAL APPRECIATION PORTFOLIO:
300%; EQUITY PORTFOLIO: 300%; and STRATEGIST PORTFOLIO: 400%.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies of the Portfolios, except as otherwise indicated. Under the
Act, a fundamental policy may not be changed with respect to a Portfolio without
the vote of a majority of the outstanding voting securities of that Portfolio,
as defined in the Act. Such a majority is defined as the lesser of (a) 67% or
more of the shares of the Portfolio present at a meeting of shareholders of the
Fund, if the holders of more than 50% of the outstanding shares of the Portfolio
are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Portfolio. For purposes of the following restrictions and those
contained in the Prospectus: (i) all percentage limitations apply immediately
after a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in the
amount of total or net assets does not require elimination of any security from
the portfolio.
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio of the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of
debt obligations in which the Portfolio may invest consistent with its
investment objectives and policies; (b) by investing in repurchase
agreements; or (c) by lending its portfolio securities, not in excess of 10%
of the value of a Portfolio's total assets, made in accordance with
guidelines adopted by the Fund's Board of
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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.
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
37
<PAGE>
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
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Manager and, for the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO,
the Sub-Adviser are responsible for decisions to buy and sell securities for
each Portfolio of the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. For 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"
38
<PAGE>
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.
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
commis-
39
<PAGE>
sions 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 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>
40
<PAGE>
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 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
connec-
41
<PAGE>
tion 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 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
42
<PAGE>
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the MONEY MARKET PORTFOLIO would receive if it
sold the investment. During such periods, the yield to investors in the MONEY
MARKET PORTFOLIO may differ somewhat from that obtained in a similar company
which uses mark-to-market values for all of its portfolio securities. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in the MONEY MARKET
PORTFOLIO would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company and existing investors would
receive less (more) investment income. The purpose of this method of calculation
is to facilitate the maintenance of a constant net asset value per share of
$1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "Rule") and is
conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Portfolio's shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Portfolio's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust, reducing the number of outstanding shares of the MONEY
MARKET PORTFOLIO) to eliminate or reduce to the extent reasonably practicable
material dilution or other unfair results to investors or existing shareholders
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the MONEY MARKET PORTFOLIO'S capital the necessary
shares that represent the amount of excess upon such determination. Each
Contract Owner will be deemed to have agreed to such contribution in these
circumstances by allocating investment under his or her Contract to the MONEY
MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the MONEY MARKET
PORTFOLIO'S interest in the instrument is subject to market action) until the
date noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument that is
subject to 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
43
<PAGE>
priority and security and has a rating as specified in clause (b) above; or (d)
if no rating is assigned by any NRSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Board to be of comparable quality to
any such rated security. The MONEY MARKET PORTFOLIO will limit its investments
to securities that meet the requirements for Eligible Securities including the
required ratings by S&P or Moody's, as set forth in the prospectus.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and (ii)
no more than the greater of 1% of total assets, or $1 million, in the securities
on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
The Rule further requires that the MONEY MARKET PORTFOLIO limit its
investments to U.S. dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are Eligible Securities. The Rule also
requires the Portfolio to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and precludes the purchase of any instrument with
a remaining maturity of more than 397 days. (An Investment Restriction of the
Fund further precludes the Portfolio from investing in securities maturing more
than one year from the date of purchase.) Should the disposition of a portfolio
security result in a dollar-weighted average portfolio maturity of more than 90
days, the Portfolio will invest its available cash in such a manner as to reduce
such maturity to 90 days or less as soon as is reasonably practicable.
If the Board determines that it is no longer in the best interests of the
MONEY MARKET PORTFOLIO and its shareholders to maintain a stable price of $1 per
share or if the Board believes that maintaining such price no longer reflects a
market-based net asset value per share, the Board has the right to change from
an amortized cost basis of valuation to valuation based on market quotations.
The Fund will notify shareholders of the Portfolio of any such change.
As stated in the Prospectus, in the calculation of the net asset value of
the Portfolios other than the MONEY MARKET PORTFOLIO, short-term debt securities
with remaining maturities of sixty days or less at the time of purchase are
valued at amortized cost, unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt securities
will be valued on a mark-to-market basis until such time as they reach a
remaining maturity of sixty days, whereupon they will be valued at amortized
cost using 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
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determined by the Trustees. All other securities and other assets are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
a Portfolio's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of a Portfolio's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income on the MONEY MARKET PORTFOLIO will be declared payable on each day the
New York Stock Exchange is open for business to shareholders of record as of the
close of business the preceding business day. Net income, for dividend purposes,
includes accrued interest and accretion of original issue and market discount,
less the amortization of market premium and the estimated expenses of the MONEY
MARKET PORTFOLIO. Net income will be calculated immediately prior to the
determination of net asset value per share of the MONEY MARKET PORTFOLIO (see
"Determination of Net Asset Value" above and in the Prospectus). The amount of
dividend may fluctuate from day to day and may be omitted on some days if
realized losses on portfolio securities exceed the MONEY MARKET PORTFOLIO's net
investment income. The Trustees may revise the above dividend policy, or
postpone the payment of dividends, if the MONEY MARKET PORTFOLIO should have or
anticipate any large unexpected expense, loss or fluctuation in net assets which
in the opinion of the Trustees might have a significant adverse effect on
shareholders. On occasion, in order to maintain a constant $1.00 per share net
asset value, the Trustees may direct that the number of outstanding shares of
the MONEY MARKET PORTFOLIO be reduced in each shareholder's account. Such
reduction may result in taxable income to a shareholder in excess of the net
increase (i.e., dividends, less such reductions), if any, in the shareholder's
account for a period. Furthermore, such reduction may be realized as a capital
loss when the shares are liquidated. Any net realized capital gains will be
declared and paid at least once per calendar year, except that net short-term
gains may be paid more frequently, with the distribution of dividends from net
investment income.
OTHER PORTFOLIOS. The dividend policies of the QUALITY INCOME PLUS
PORTFOLIO, the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER
PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the
GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO, the CAPITAL APPRECIATION 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 Portfolios on investments
in foreign issuers or which are denominated in foreign currency 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.
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OPTIONS AND FUTURES. Exchange-traded futures contracts, listed options on
futures contracts and certain listed options are classified as "Section 1256"
contracts under the Code. Unless the Portfolio makes an election as discussed
below, the character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts would
generally be treated as long-term capital gain or loss to the extent of 60
percent thereof and short-term capital gain or loss to the extent of 40 percent
thereof and such Section 1256 contracts would also be required to be marked-to-
market at the end of the Fund's fiscal year, for purposes of federal income tax
calculations.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation rules.
When call options written by a Portfolio, or put options purchased by a
Portfolio, are exercised, the gain or loss realized on the sales of the
underlying securities may be either short-term or long-term, depending upon the
holding period of the securities. In determining the amount of gain or loss, the
sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.
If a Portfolio holds a security which is offset by a Section 1256 contract,
the Portfolio would be deemed to hold a "mixed straddle" position, as such is
defined in the Code. A Portfolio may elect to identify its mixed straddle
positions pursuant to Section 1256(d) of the Code and thereby avoid application
of both the mark-to-market and 60 percent-40 percent taxation rules. The
Portfolio may also make certain other elections with respect to mixed straddles
which could avoid or limit the application of certain rules which could, in
certain circumstances, cause deferral or disallowance of losses, change
long-term capital gains into short-term capital gains, or change short-term
capital losses into long-term capital losses.
Whether the portfolio security constituting part of the identified mixed
straddle is deemed to have been held for less than three months for purposes of
determining qualification of the Portfolio as a regulated investment company
will be determined generally by the actual holding period of the security. In
certain circumstances, entering into a mixed straddle could result in the
recognition of unrealized gain or loss which would be taken into account in
determining the amount of income available for the Portfolio's distributions,
and can result in an amount which is greater or less than the Portfolio's net
realized gains being available for distribution. If an amount which is less than
the Portfolio's net realized gains is available for distribution, the Portfolio
may elect to distribute more than such available amount, up to the full amount
of such net realized gains. Such a distribution may, in part, constitute a
return of capital to the shareholders. If the Portfolio does not elect to
identify a mixed straddle, no recognition of gain or loss on the securities in
its portfolio will result when the mixed straddle is entered into. However, any
losses realized on the straddle will be governed by a number of tax rules which
might, under certain circumstances, defer or disallow the losses in whole or in
part, change long-term gains into short-term gains, or change short-term losses
into long-term losses. A deferral or disallowance of recognition of a realized
loss may result in an amount being available for the Portfolio's distributions
which is greater than the Portfolio's net realized gains.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS (GLOBAL DIVIDEND
GROWTH PORTFOLIO, EUROPEAN GROWTH PORTFOLIO, PACIFIC GROWTH PORTFOLIO AND
CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION
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, the PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION
PORTFOLIO.
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<PAGE>
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, the
PACIFIC GROWTH PORTFOLIO and the CAPITAL APPRECIATION 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, the PACIFIC GROWTH PORTFOLIO or the CAPITAL APPRECIATION PORTFOLIO
invests in an entity which is classified as a "passive foreign investment
company" ("PFIC") for U.S. tax purposes, the application of certain technical
tax provisions applying to such companies could result in the imposition of
federal income tax with respect to such investments at the Portfolio level which
could not be eliminated by distributions to shareholders. The U.S. Treasury
issued proposed regulation section 1.1291-8 which establishes a mark-to-market
regime which allows investment companies investing in PFIC's to avoid most, if
not all, of the difficulties posed by the PFIC rules. In any event, it is not
anticipated that any taxes on a Portfolio with respect to investments in PFIC's
would be significant.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The annualized current yield of the MONEY MARKET PORTFOLIO, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated seven-day period,
the net change, exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends declared therefrom,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge which
reflects deductions from shareholder accounts (such as management fees), and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7).
The MONEY MARKET PORTFOLIO's annualized effective yield, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining (for the same stated seven-day
period as for the current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with dividends and any
dividends declared therefrom, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the MONEY MARKET PORTFOLIO in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the MONEY
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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 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
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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; 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:
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$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 thirteen separate Portfolios, and the
shares of each Portfolio have equal rights and privileges with all other shares
of that Portfolio. Each share of a Portfolio represents an equal proportional
interest in that Portfolio with each other share. Upon liquidation of the Fund
or any Portfolio, shareholders of a Portfolio are entitled to share pro rata in
the net assets of that Portfolio available for distribution to shareholders.
Shares have no preemptive or conversion rights. The right of redemption is
described above and in the Prospectus. Shares of each Portfolio are fully paid
and non-assessable by the Fund. The Trustees are authorized to classify unissued
shares of the Fund by assigning them to a Portfolio for issuance.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares and additional classes of shares within any series,
as described in the Prospectus. Such additional offerings would not affect the
interests of the current shareholders in the existing Portfolios. All
consideration received by the Fund for shares of any additional Portfolios, and
all assets in which such consideration is invested, would belong to that
Portfolio (subject only to the rights of creditors of the Fund) and would be
subject to the liabilities related thereto. Pursuant to the Act, shareholders of
any additional Portfolio would normally have to approve the adoption of any
management contract relating to such Portfolio and of any changes in the
investment policies related thereto.
Shares of each Portfolio entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders have the right to vote
on the election of Trustees of the Fund and on any and all matters on which by
law or the provisions of the Fund's By-Laws they may be entitled to vote. To the
extent required by law, Northbrook Life Insurance Company, Allstate Life
Insurance Company of New York, 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
50
<PAGE>
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.
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
51
<PAGE>
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.
52
<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>
53
<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
54
<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>
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>
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>
56
<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>
57
<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
58
<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>
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> <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>
60
<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>
61
<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
62
<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>
63
<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
64
<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>
65
<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
66
<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>
67
<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
68
<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>
69
<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>
70
<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
71
<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>
72
<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>
73
<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>
74
<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
75
<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>
76
<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>
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>
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>
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>
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>
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>
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>
80
<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>
81
<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>
82
<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
83
<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>
84
<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>
85
<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>
86
<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
87
<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>
88
<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>
89
<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
90
<PAGE>
(This page left blank intentionally.)
91
<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
92
<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>
93
<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
94
<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>
95
<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
96
<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>
97
<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
98
<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>
99
<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>
100
<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
101
<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.
102
<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.
103
<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.
104
<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.
105
<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.
106
<PAGE>
(This page left blank intentionally.)
107
<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
108
<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>
109
<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
110
<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>
111
<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>
112
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATE VALUE
- ----------- ------------ ------------------- ---------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (76.1%)
AUTOMOTIVE - FINANCE (8.3%)
$ 10,275 Ford Motor Credit Co.................................... 5.34-5.46 % 07/18/96-10/08/96 $ 10,176,702
13,715 General Motors Acceptance Corp.......................... 5.05-5.55 07/11/96-12/16/96 13,552,110
---------------
23,728,812
---------------
BANK HOLDING COMPANIES (13.6%)
4,100 Bank of New York Co., Inc............................... 5.47 09/03/96 4,059,410
6,485 Chase Manhattan Corp.................................... 5.39-5.46 08/19/96-11/01/96 6,409,042
4,000 Fleet Financial Group, Inc.............................. 5.41 07/25/96 3,984,573
4,120 Morgan (J.P.) & Co. Inc................................. 5.39 09/03/96 4,079,967
9,390 NationsBank Corp........................................ 5.45-5.75 11/20/96-02/28/97 9,109,865
5,050 PNC Funding Corp........................................ 5.53 09/27/96 4,981,194
6,160 U.S. Bancorp............................................ 5.34 07/09/96 6,151,000
---------------
38,775,051
---------------
BANKS - COMMERCIAL (13.4%)
3,000 Abbey National North America Corp....................... 5.48 11/04/96 2,943,147
5,000 ABN - AMRO North America Finance Inc.................... 5.00 10/07/96 4,932,778
6,270 Canadian Imperial Holdings Inc.......................... 5.37-5.52 08/26/96-09/09/96 6,210,609
4,820 Commerzbank U.S. Finance Inc............................ 5.35 07/01/96 4,818,586
3,000 Dresdner U.S. Finance Inc............................... 5.06 08/26/96 2,976,172
3,000 National Austrialia Funding (DE) Inc.................... 5.11 08/05/96 2,984,583
5,130 Toronto - Dominion Holdings USA Inc..................... 5.35 08/15/96 5,094,637
8,535 WestPac Capital Corp.................................... 5.45-5.47 09/10/96-11/20/96 8,384,549
---------------
38,345,061
---------------
BROKERAGE (6.1%)
8,120 Goldman Sachs Group L.P................................. 5.36-5.40 07/08/96-09/04/96 8,076,786
9,370 Morgan Stanley Group, Inc............................... 5.35-5.37 07/02/96-08/23/96 9,319,928
---------------
17,396,714
---------------
CHEMICALS (1.9%)
3,200 Du Pont (E.I.) de Nemours & Co.......................... 5.36 07/23/96 3,188,693
2,365 Monsanto Co............................................. 5.35 07/16/96 2,359,103
---------------
5,547,796
---------------
FINANCE - COMMERCIAL (2.3%)
6,685 CIT Group Holdings, Inc................................. 5.43 08/19/96-08/27/96 6,629,877
---------------
FINANCE - CONSUMER (13.0%)
11,870 American Express Credit Corp............................ 4.97-5.55 07/01/96-10/30/96 11,789,911
3,090 Avco Financial Services Inc............................. 5.39 08/07/96 3,072,191
2,230 Beneficial Corp......................................... 5.36 08/06/96 2,217,619
10,640 Household Finance Corp.................................. 5.32-5.50 07/19/96-10/17/96 10,564,973
9,440 Norwest Financial Inc................................... 5.29-5.41 07/10/96-08/13/96 9,405,987
---------------
37,050,681
---------------
FINANCE - CORPORATE (1.6%)
4,520 Ciesco, L.P............................................. 5.46 09/17/96 4,465,861
---------------
FINANCE - DIVERSIFIED (4.8%)
2,000 Associates Corp. of North America....................... 5.19 07/29/96 1,991,533
12,015 General Electric Capital Corp........................... 5.13-5.81 08/02/96-02/10/97 11,815,192
---------------
13,806,725
---------------
</TABLE>
113
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--MONEY MARKET
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN ON DATE OF MATURITY
THOUSANDS) PURCHASE DATE VALUE
- ----------- ------------ ------------------- ---------------
<C> <S> <C> <C> <C>
FINANCE - EQUIPMENT (1.0%)
$ 3,000 Deere (John) Capital Corp............................... 5.41 % 08/12/96 $ 2,980,530
---------------
OFFICE EQUIPMENT (3.7%)
10,655 IBM Credit Corp......................................... 5.35-5.42 07/16/96-08/21/96 10,618,229
---------------
RETAIL (4.8%)
13,850 Sears Roebuck Acceptance Corp........................... 5.37-5.44 07/22/96-09/26/96 13,741,607
---------------
TELEPHONES (0.7%)
2,000 Ameritech Corp.......................................... 5.33 07/30/96 1,990,993
---------------
UTILITIES - FINANCE (0.9%)
2,680 National Rural Utilities Cooperative Finance Corp....... 5.34 07/17/96 2,672,938
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $217,750,875)....................................... 217,750,875
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTES (8.3%)
4,975 Bank of New York........................................ 5.34 07/15/96 4,975,000
9,500 F.C.C. National Bank.................................... 5.34-5.47 07/12/96-09/13/96 9,500,000
4,000 First National Bank of Chicago.......................... 5.45 11/29/96 4,000,000
3,135 First Union National Bank............................... 5.00 08/15/96 3,135,000
2,220 La Salle National Bank.................................. 5.43 09/12/96 2,220,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED COST $23,830,000)................................... 23,830,000
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
BANKERS' ACCEPTANCES (7.1%)
7,000 First Bank, N.A......................................... 5.43 10/11/96 6,893,025
13,500 First National Bank of Boston........................... 5.26-5.61 07/15/96-12/03/96 13,348,341
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED COST $20,241,366).................................... 20,241,366
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (5.9%)
5,835 Chase Manhattan Bank (USA).............................. 5.38 09/18/96 5,835,000
6,000 Old Kent Bank (Michigan)................................ 5.40 09/30/96 6,000,000
5,000 Union Bank of California, N.A........................... 5.47 09/11/96 5,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT (AMORTIZED COST $16,835,000)................................. 16,835,000
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (2.7%)
3,675 Federal Farm Credit Bank................................ 5.49 11/27/96 3,594,844
4,100 Federal National Mortgage Assoc......................... 5.23-5.25 08/29/96-11/21/96 4,031,635
---------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $7,626,479)................................. 7,626,479
---------------
TOTAL INVESTMENTS (AMORTIZED COST $286,283,720) (A).................... 100.1% 286,283,720
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS......................... (0.1) (129,322)
---------- -------------
NET ASSETS............................................................. 100.0% $ 286,154,398
---------- -------------
---------- -------------
<FN>
- ----------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
114
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (61.6%)
AUTOMOTIVE (0.2%)
$ 1,000 Ford Motor Co.............................................. 8.875% 01/15/22 $ 1,124,040
---------------
BANK HOLDING COMPANIES (5.9%)
1,000 Banc One Corp.............................................. 8.74 09/15/03 1,089,660
1,000 BankAmerica Corp........................................... 9.625 02/13/01 1,106,050
2,000 Boatmen's Bancshares, Inc.................................. 9.25 11/01/01 2,194,980
1,000 CoreStates Financial Corp.................................. 9.625 02/15/01 1,104,900
5,000 First Bank, N.A............................................ 8.35 11/01/04 5,313,450
4,000 Fleet Mortgage Group, Inc.................................. 6.50 09/15/99 3,977,600
2,000 Huntington National Bank................................... 7.625 01/15/03 2,048,380
3,000 Marshall & Ilsley Corp..................................... 6.375 07/15/03 2,881,980
3,145 PNC Funding Corp........................................... 9.875 03/01/01 3,500,070
5,000 State Street Boston Corp................................... 5.95 09/15/03 4,673,350
---------------
27,890,420
---------------
BANKS (4.1%)
4,000 Bankers Trust New York Corp................................ 7.375 05/01/08 3,927,440
4,000 Bankers Trust New York Corp................................ 7.50 11/15/15 3,829,880
3,000 Old Kent Financial Corp.................................... 6.625 11/15/05 2,825,580
2,000 Society National Bank...................................... 6.75 06/15/03 1,959,940
2,000 Wachovia Corp.............................................. 6.375 04/15/03 1,925,900
5,000 Wachovia Corp.............................................. 6.80 06/01/05 4,860,650
---------------
19,329,390
---------------
BEVERAGES - SOFT DRINKS (0.5%)
2,000 Coca-Cola Enterprises, Inc................................. 8.50 02/01/22 2,205,860
---------------
BROKERAGE (2.8%)
1,000 Bear Stearns Companies, Inc................................ 9.125 04/15/98 1,043,760
4,000 Bear Stearns Companies, Inc................................ 6.625 01/15/04 3,808,160
2,000 Donaldson, Lufkin & Jenrette, Inc.......................... 6.875 11/01/05 1,897,900
5,000 Lehman Brothers Holdings Inc............................... 8.50 08/01/15 5,132,150
1,000 Morgan Stanley Group, Inc.................................. 9.25 03/01/98 1,045,270
---------------
12,927,240
---------------
ENTERTAINMENT/MEDIA (1.0%)
5,000 Walt Disney Co............................................. 7.55 07/15/93 4,833,400
---------------
FINANCIAL SERVICES (10.5%)
5,000 Aristar, Inc............................................... 6.30 07/15/00 4,897,150
1,000 Associates Corp. of North America.......................... 6.75 10/15/99 1,002,430
3,000 Equifax, Inc............................................... 6.50 06/15/03 2,896,170
3,000 Ford Capital BV............................................ 9.50 06/01/10 3,470,280
3,000 Ford Motor Credit Co....................................... 8.20 02/15/02 3,160,410
3,000 General Motors Acceptance Corp............................. 9.00 10/15/02 3,279,750
3,500 Household Finance Corp..................................... 7.75 06/01/99 3,596,250
2,000 Household Finance Corp..................................... 8.95 09/15/99 2,126,020
3,500 Household Finance Corp..................................... 8.45 12/10/02 3,727,780
4,000 ITT Hartford Group Inc..................................... 6.375 11/01/02 3,853,360
5,000 Lumbermens Mutual Casualty - 144A*......................... 9.15 07/01/26 5,183,400
5,000 Metropolitan Life Insurance Co. - 144A*.................... 7.70 11/01/15 4,842,350
4,000 Norwest Financial Inc...................................... 7.875 02/15/02 4,173,200
3,000 Travelers Group, Inc....................................... 7.75 06/15/99 3,085,680
---------------
49,294,230
---------------
</TABLE>
115
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (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 $ 1,140,400
---------------
FOODS (1.4%)
10,000 Archer-Daniels-Midland Co.................................. 0.00 05/01/02 6,744,700
---------------
HEALTHCARE - DIVERSIFIED (0.7%)
2,000 Kaiser Foundation Health Plan, Inc......................... 9.00 11/01/01 2,185,120
1,000 Kaiser Foundation Health Plan, Inc......................... 9.55 07/15/05 1,156,800
---------------
3,341,920
---------------
INDUSTRIALS (14.0%)
4,000 Becton, Dickinson & Co..................................... 8.70 01/15/25 4,241,160
5,000 Boeing Co.................................................. 7.95 08/15/24 5,384,000
2,000 Burlington Resources, Inc.................................. 7.15 05/01/99 2,021,120
1,000 Caterpillar, Inc........................................... 9.375 07/15/01 1,101,780
3,000 Caterpillar, Inc........................................... 9.375 08/15/11 3,487,560
5,000 Columbia/HCA Healthcare Corp............................... 9.00 12/15/14 5,676,200
5,000 General Motors Corp........................................ 7.70 04/15/16 4,963,050
4,000 IBP Inc.................................................... 7.125 02/01/26 3,625,040
3,000 Lockheed Martin Corp....................................... 7.70 06/15/08 3,054,120
2,000 Lockheed Martin Corp....................................... 7.65 05/01/16 1,985,180
5,000 Lockheed Martin Corp....................................... 7.875 03/15/23 4,849,300
5,000 Lockheed Martin Corp....................................... 7.20 05/01/36 4,972,500
1,000 Maytag Corp................................................ 9.75 05/15/02 1,118,920
5,000 Philip Morris Companies, Inc............................... 7.50 01/15/02 5,114,900
5,000 Philip Morris Companies, Inc............................... 7.125 10/01/04 4,985,500
5,000 Raytheon Co................................................ 7.375 07/15/25 4,755,800
5,000 Seagram Co. Ltd............................................ 6.875 09/01/23 4,494,950
---------------
65,831,080
---------------
OIL INTEGRATED - DOMESTIC (0.4%)
578 Mobil Corp................................................. 9.17 02/29/00 607,822
1,000 Texaco Capital, Inc........................................ 9.75 03/15/20 1,234,130
---------------
1,841,952
---------------
PHARMACEUTICALS (2.2%)
5,000 Johnson & Johnson.......................................... 8.72 11/01/24 5,428,900
797 Marion Merrell Corp........................................ 9.11 08/01/05 865,823
1,000 McKesson Corp.............................................. 8.625 02/01/98 1,032,580
3,000 Zeneca Wilmington, Inc..................................... 7.00 11/15/23 2,776,740
---------------
10,104,043
---------------
REAL ESTATE INVESTMENT TRUST (1.0%)
5,000 Kimco Realty Corp.......................................... 6.50 10/01/03 4,722,300
---------------
RETAIL (3.0%)
5,000 May Department Stores...................................... 7.625 08/15/13 5,000,800
5,000 May Department Stores...................................... 7.50 06/01/15 4,899,750
1,000 Penney (J.C.) Co., Inc..................................... 9.75 06/15/21 1,116,370
3,000 Wal-Mart Stores, Inc....................................... 7.49 06/21/07 3,072,210
---------------
14,089,130
---------------
</TABLE>
116
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (4.4%)
$ 5,000 AT&T Corp.................................................. 8.35% 01/15/25 $ 5,222,950
2,000 BellSouth Telecommunications, Inc.......................... 7.00 12/01/95 1,842,020
5,000 GTE North Inc.............................................. 7.625 05/15/26 4,903,050
4,000 Northern Telecom, Ltd. (Canada)............................ 7.875 06/15/26 4,094,520
5,000 Southwestern Bell Telephone Co............................. 6.625 09/01/24 4,409,250
---------------
20,471,790
---------------
TRANSPORTATION (1.4%)
4,998 Burlington Northern Sante Fe Corp.......................... 7.97 01/01/15 5,193,295
1,000 Consolidated Rail Corp..................................... 9.75 06/15/20 1,209,670
---------------
6,402,965
---------------
UTILITIES - ELECTRIC (6.7%)
1,000 Chugach Electric Co........................................ 9.14 03/15/22 1,083,250
3,750 Consolidated Edison Co. of New York, Inc................... 8.05 12/15/27 3,685,761
4,000 Duke Power Co.............................................. 8.625 03/01/22 4,107,600
5,000 Florida Power & Light Co................................... 7.05 12/01/26 4,591,550
1,260 Georgia Power Co........................................... 8.625 06/01/22 1,276,884
5,000 National Rural Utilities Cooperative Finance Corp.......... 6.50 09/15/02 4,889,000
2,500 Pacific Gas & Electric Co.................................. 7.25 08/01/26 2,289,650
5,000 Pennsylvania Power & Light Co.............................. 7.70 10/01/09 5,137,900
5,000 Public Service Electric & Gas Co........................... 6.75 01/01/16 4,486,600
---------------
31,548,195
---------------
WASTE DISPOSAL (1.2%)
5,000 Browning Ferris Industries, Inc............................ 9.25 05/01/21 5,850,050
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $286,026,180)........................................ 289,693,105
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATION (31.3%)
41 Federal Home Loan Mortgage Corp............................ 11.50 06/01/11-05/01/19 45,614
554 Federal Home Loan Mortgage Corp. PC Gold................... 6.50 01/01/24-09/01/24 518,616
12,538 Federal Home Loan Mortgage Corp. PC Gold................... 8.00 04/01/24-05/01/26 12,647,930
3,550 Federal Home Loan Mortgage Corp. PC Gold................... 8.50 01/01/22-12/01/24 3,645,028
2,000 Federal National Mortgage Assoc. (Principal Strip)......... 0.00 08/21/01 1,986,900
30,000 Federal National Mortgage Assoc. (Principal Strip)......... 0.00 10/09/19 5,446,875
9,000 Federal National Mortgage Assoc............................ 7.50 07/01/26 8,881,875
16,785 Federal National Mortgage Assoc............................ 8.00 05/01/16-09/01/25 16,910,744
1,884 Federal National Mortgage Assoc............................ 9.00 06/01/21-02/01/25 1,964,369
5,299 Government National Mortgage Assoc......................... 6.50 04/15/24-05/15/26 4,930,639
38,580 Government National Mortgage Assoc......................... 7.00 10/15/22-07/15/26 37,000,270
23,369 Government National Mortgage Assoc......................... 7.50 10/15/21-07/15/26 23,032,691
10,287 Government National Mortgage Assoc......................... 8.00 10/15/24-06/15/26 10,376,549
5,614 Government National Mortgage Assoc......................... 8.50 01/15/17-07/15/26 5,771,758
3,852 Government National Mortgage Assoc......................... 9.00 07/15/24-12/15/24 4,031,461
212 Government National Mortgage Assoc......................... 9.50 07/15/17-04/15/20 227,013
220 Government National Mortgage Assoc......................... 10.00 05/15/16-04/15/19 239,430
5,000 Tennessee Valley Authority................................. 7.85 06/15/44 4,935,943
5,000 U.S. Treasury Bond......................................... 6.00 02/15/26 4,435,156
---------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATION
(IDENTIFIED COST $147,874,510)............................................................ 147,028,861
---------------
</TABLE>
117
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT & AGENCIES OBLIGATIONS (3.4%)
$ 5,000 Hydro-Quebec (Canada)...................................... 9.50% 11/15/30 $ 5,872,000
3,000 Italy (Republic of)........................................ 6.875 09/27/23 2,822,580
5,000 Province of New Brunswick (Canada)......................... 7.625 06/29/04 5,158,450
2,000 Quebec Province (Canada)................................... 7.50 07/15/23 1,908,540
---------------
TOTAL FOREIGN GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $14,653,330)............................................................. 15,761,570
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.5%)
COMMERCIAL PAPER (A) (0.8%)
AUTOMOTIVE - FINANCE
4,000 Ford Motor Credit Co....................................... 5.29 07/15/96 3,991,772
---------------
U.S. GOVERNMENT AGENCY (A) (0.6%)
3,000 Federal Farm Credit Bank................................... 5.24 07/15/96 2,993,886
---------------
REPURCHASE AGREEMENT (0.1%)
298 The Bank of New York (dated 06/28/96; proceeds $298,195;
collateralized by $302,726 U.S. Treasury Note 5.25% due
07/31/98 valued at $304,029) (Identified Cost
$298,068)................................................ 5.125 07/01/96 298,068
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $7,283,726)................................... 7,283,726
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $455,837,746) (B)................... 97.8% 459,767,262
OTHER ASSETS IN EXCESS OF LIABILITIES.................................. 2.2 10,332,426
---------- -------------
NET ASSETS............................................................. 100.0% $ 470,099,688
---------- -------------
---------- -------------
<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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $10,688,979 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $6,759,463, RESULTING IN NET
UNREALIZED APPRECIATION OF $3,929,516.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
118
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- --------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (91.8%)
AEROSPACE (2.3%)
$ 5,400 Sabreliner Corp. (Series B)......................................... 12.50 % 04/15/03 $ 4,563,000
---------------
AUTOMOTIVE (2.2%)
800 APS, Inc. - 144A*................................................... 11.875 01/15/06 834,000
4,750 Envirotest Systems, Inc............................................. 9.625 04/01/03 3,657,500
---------------
4,491,500
---------------
BROADCAST MEDIA (3.3%)
2,000 Adams Outdoor Advertising - 144A*................................... 10.75 03/15/06 2,050,000
2,000 Park Broadcasting Inc. - 144A*...................................... 11.75 05/15/04 1,995,000
2,505 Spanish Broadcasting System, Inc.................................... 7.50 06/15/02 2,498,738
---------------
6,543,738
---------------
BUSINESS SERVICES (3.7%)
2,000 Anacomp, Inc........................................................ 13.00+ 06/04/02 1,947,500
5,000 Xerox Corp.......................................................... 15.00 06/10/97 5,417,500
---------------
7,365,000
---------------
CABLE & TELECOMMUNICATIONS (13.7%)
3,566 Adelphia Communications Corp. (Series B)............................ 9.50+ 02/15/04 3,093,577
2,000 American Communications Services, Inc. - 144A*...................... 12.75++ 04/01/06 1,055,000
5,000 AT&T Capital Corp................................................... 15.00 05/05/97 5,358,800
2,000 Charter Communication South East L.P. - 144A*....................... 11.25 03/15/06 1,970,000
3,019 Falcon Holdings Group L.P........................................... 11.00+ 09/15/03 2,882,906
2,000 Hyperion Communications (Units)++ - 144A*........................... 13.00++ 04/15/03 1,115,000
15,485 In-Flight Phone Corp. (Series B).................................... 14.00++ 05/15/02 5,497,175
2,000 Intermedia Communications of Florida, Inc........................... 12.50++ 05/15/06 1,120,000
1,500 Paxson Communications Corp.......................................... 11.625 10/01/02 1,552,500
2,000 Peoples Telephone Co., Inc.......................................... 12.25 07/15/02 1,940,000
2,000 Rifkin Acquisition Partners L.P..................................... 11.125 01/15/06 1,970,000
---------------
27,554,958
---------------
COMPUTER EQUIPMENT (2.3%)
2,000 Unisys Corp......................................................... 15.00 07/01/97 2,115,000
2,000 Unisys Corp. (Conv.)................................................ 8.25 03/15/06 2,481,500
---------------
4,596,500
---------------
CONSUMER PRODUCTS (1.5%)
3,000 J.B. Williams Holdings, Inc......................................... 12.00 03/01/04 3,030,000
---------------
CONTAINERS (2.9%)
6,400 Ivex Holdings Corp. (Series B)...................................... 13.25++ 03/15/05 3,936,000
2,000 Mail-Well Corp...................................................... 10.50 02/15/04 1,920,000
---------------
5,856,000
---------------
ELECTRICAL & ALARM SYSTEMS (2.1%)
5,000 Mosler, Inc......................................................... 11.00 04/15/03 4,250,000
---------------
</TABLE>
119
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- --------- --------- ---------------
<C> <S> <C> <C> <C>
ENTERTAINMENT/GAMING & LODGING (9.5%)
$ 2,000 AMF Group Inc. - 144A*.............................................. 10.875 % 03/15/06 $ 1,975,000
2,000 Fitzgeralds Gaming Corp. (Units)++.................................. 13.00 12/31/02 1,680,000
3,000 Lady Luck Gaming Finance Corp....................................... 11.875 03/01/01 2,955,000
3,000 Motels of America, Inc. (Series B).................................. 12.00 04/15/04 2,880,000
2,000 Players International, Inc.......................................... 10.875 04/15/05 2,032,500
3,400 Plitt Theaters, Inc. (Canada)....................................... 10.875 06/15/04 3,459,500
17,356 Spectravision, Inc. (a)............................................. 11.65 12/01/02 2,016,977
2,200 Station Casinos, Inc. (Series B).................................... 9.625 06/01/03 2,112,000
---------------
19,110,977
---------------
FOODS & BEVERAGES (10.7%)
8,915 Envirodyne Industries, Inc.......................................... 10.25 12/01/01 7,756,049
1,500 SC International Services, Inc...................................... 13.00 10/01/05 1,631,250
5,745 Seven Up/RC Bottling Co. Southern California, Inc. (b).............. 11.50 08/01/99 3,935,225
18,750 Specialty Foods Acquisition Corp. (Series B)........................ 13.00++ 08/15/05 8,250,000
---------------
21,572,524
---------------
HEALTHCARE (1.5%)
3,210 Unilab Corp......................................................... 11.00 04/01/06 3,017,400
---------------
MANUFACTURING (7.3%)
4,000 Alpine Group, Inc. (Series B)....................................... 12.25 07/15/03 4,030,000
2,000 Berry Plastics Corp................................................. 12.25 04/15/04 2,150,000
3,000 Cabot Safety Corp................................................... 12.50 07/15/05 3,307,500
1,000 Exide Electronics Group, Inc. (Series B) - 144A*.................... 11.50 03/15/06 1,020,000
2,000 International Wire Group............................................ 11.75 06/01/05 1,985,000
2,500 Uniroyal Technology Corp............................................ 11.75 06/01/03 2,250,000
---------------
14,742,500
---------------
MANUFACTURING - DIVERSIFIED (6.4%)
2,090 Foamex L.P.......................................................... 11.875 10/01/04 2,142,250
3,000 Interlake Corp...................................................... 12.125 03/01/02 3,007,500
3,000 J.B. Poindexter & Co., Inc.......................................... 12.50 05/15/04 2,557,500
2,000 Jordan Industries, Inc.............................................. 10.375 08/01/03 1,910,000
4,500 Jordan Industries, Inc.............................................. 11.75++ 08/01/05 3,217,500
---------------
12,834,750
---------------
OIL & GAS (0.9%)
2,000 Empire Gas Corp..................................................... 7.00 07/15/04 1,770,000
---------------
PUBLISHING (4.5%)
5,000 Affiliated Newspapers Investments, Inc.............................. 13.25++ 07/01/06 3,450,000
2,000 American Media Operations, Inc...................................... 11.625 11/15/04 2,020,000
2,875 United States Banknote Corp......................................... 10.375 06/01/02 2,645,000
1,100 United States Banknote Corp. (Series B)............................. 11.625 08/01/02 913,000
---------------
9,028,000
---------------
</TABLE>
120
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- --------- --------- ---------------
<C> <S> <C> <C> <C>
RESTAURANTS (8.7%)
$ 7,750 American Restaurant Group Holdings, Inc............................. 14.00++% 12/15/05 $ 3,022,500
3,000 Boston Chicken Inc. (Conv.)......................................... 4.50 02/01/04 3,540,000
3,000 Carrols Corp........................................................ 11.50 08/15/03 3,045,000
11,850 Flagstar Corp....................................................... 11.25 11/01/04 7,821,000
---------------
17,428,500
---------------
RETAIL (2.0%)
2,163 Cort Furniture Rental Corp.......................................... 12.00 09/01/00 2,252,224
2,000 County Seat Stores Co............................................... 12.00 10/01/02 1,740,000
---------------
3,992,224
---------------
RETAIL - FOOD CHAINS (4.2%)
2,000 Jitney-Jungle Stores................................................ 12.00 03/01/06 2,040,000
2,000 Pathmark Stores, Inc................................................ 9.625 05/01/03 1,875,000
2,750 Ralphs Grocery Co................................................... 10.45 06/15/04 2,626,250
2,000 Ralphs Grocery Co................................................... 11.00 06/15/05 1,840,000
---------------
8,381,250
---------------
TEXTILES - APPAREL MANUFACTURERS (2.1%)
5,034 JPS Textile Group, Inc.............................................. 10.85 06/01/99 2,932,305
1,500 U.S. Leather, Inc................................................... 10.25 07/31/03 1,260,000
---------------
4,192,305
---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $192,972,205)...................................... 184,321,126
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
COMMON STOCKS (C) (1.6%)
AUTOMOTIVE (0.0%)
87 Northern Holdings Industrial Corp. (Restricted) (d)..................................... --
---------------
COMPUTER EQUIPMENT (0.0%)
39,813 Memorex Telex NV (ADR) (Netherlands) (d)................................................ 49,766
---------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
2,000 Motels of America, Inc. - 144A*......................................................... 150,072
71,890 Vagabond Inns, Inc. (Class D) (a)....................................................... --
---------------
150,072
---------------
FOODS & BEVERAGES (0.1%)
120,000 Specialty Foods Acquisition Corp. (Restricted) - 144A*.................................. 150,000
---------------
MANUFACTURING - DIVERSIFIED (0.9%)
84,072 Thermadyne Holdings Corp. (d)........................................................... 1,807,548
---------------
PUBLISHING (0.1%)
5,000 Affiliated Newspapers Investments, Inc. (Class B)....................................... 150,000
---------------
RESTAURANTS (0.0%)
7,750 American Restaurant Group Holdings, Inc. - 144A*........................................ 77,500
---------------
</TABLE>
121
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
RETAIL (0.4%)
21,516 CORT Business Services Corp............................................................. $ 419,562
17,100 Thrifty Payless Holdings, Inc. (Class B)................................................ 294,975
---------------
714,537
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $9,922,166)........................................ 3,099,423
---------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PREFERRED STOCK (1.0%)
ENTERTAINMENT/GAMING & LODGING
80,000 Fitzgeralds Gaming Corp. (Units)++ (Identified Cost $2,000,000)......................... 2,080,000
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- ---------
<C> <S> <C> <C>
WARRANTS (C) (0.1%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. (Restricted) - 144A*......................................... 04/15/03 15,000
---------------
CABLE & TELECOMMUNICATIONS (0.0%)
9,485 In-Flight Phone Corp. - 144A*................................................. 08/31/02 94,850
---------------
CONTAINERS (0.0%)
2,000 Crown Packaging Holdings, Ltd. (Canada) - 144A*............................... 11/01/03 --
---------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
1,000 Boomtown, Inc. - 144A*........................................................ 11/01/98 --
3,263 Casino America, Inc........................................................... 11/15/96 --
2,000 Fitzgeralds Gaming Corp....................................................... 12/19/98 9,043
---------------
9,043
---------------
MANUFACTURING (0.1%)
3,000 BPC Holdings Corp............................................................. 04/15/04 135,555
1,000 Exide Electronics Group, Inc. - 144A*......................................... 03/15/06 30,000
15,000 Uniroyal Technology Corp...................................................... 06/01/03 26,250
---------------
191,805
---------------
OIL & GAS (0.0%)
4,140 Empire Gas Corp............................................................... 07/15/04 41,400
---------------
RETAIL (0.0%)
2,000 County Seat Holdings Co....................................................... 10/15/98 20,000
---------------
RETAIL - FOOD CHAINS (0.0%)
15,854 Grand Union Co. (Series 1) (d)................................................ 06/16/00 --
31,709 Grand Union Co. (Series 2) (d)................................................ 06/16/00 --
---------------
--
---------------
TOTAL WARRANTS (IDENTIFIED COST $812,539)................................................ 372,098
---------------
</TABLE>
122
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (6.2%)
U.S. GOVERNMENT AGENCY (E) (5.7%)
$ 11,500 Federal Farm Credit Bank............................................. 5.45 % 07/01/96 $ 11,500,000
---------------
REPURCHASE AGREEMENT (0.5%)
1,043 The Bank of New York (dated 06/28/96; proceeds $1,043,681;
collateralized by $1,004,698 U.S. Treasury Bond 7.50% due 11/15/16
valued at $1,064,100) (Identified Cost $1,043,235)................. 5.125 07/01/96 1,043,235
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $12,543,235).................................. 12,543,235
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $218,250,145) (F)................... 100.7% 202,415,882
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS......................... (0.7) (1,399,975)
---------- -------------
NET ASSETS............................................................. 100.0% $ 201,015,907
---------- -------------
---------- -------------
<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 SECURITY, ISSUER IN BANKRUPTCY.
(B) NON-INCOME PRODUCING SECURITY, BOND IN DEFAULT.
(C) NON-INCOME PRODUCING SECURITIES.
(D) ACQUIRED THROUGH EXCHANGE OFFER.
(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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $4,899,669 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $20,733,932, RESULTING IN NET
UNREALIZED DEPRECIATION OF $15,834,263.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
123
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (87.3%)
NATURAL GAS (12.2%)
75,000 Apache Corp......................... $ 2,465,625
120,000 Burlington Resources, Inc........... 5,160,000
55,000 Columbia Gas System, Inc............ 2,866,875
150,000 El Paso Natural Gas Co.............. 5,775,000
150,000 ENSERCH Corp........................ 3,262,500
85,000 Louisiana Land & Exploration
Co. (The)......................... 4,898,125
130,000 PanEnergy Corp...................... 4,273,750
130,000 Questar Corp........................ 4,420,000
190,000 Seagull Energy Corp.*............... 4,750,000
120,000 Tenneco, Inc........................ 6,135,000
135,000 Union Texas Petroleum Holdings,
Inc............................... 2,632,500
85,000 USX Delhi-Group..................... 1,041,250
185,000 Williams Companies, Inc............. 9,157,500
---------------
56,838,125
---------------
TELECOMMUNICATIONS (34.2%)
66,666 360 Communications Co.*............. 1,599,984
135,000 Airtouch Communications, Inc.*...... 3,813,750
230,000 Alltel Corp......................... 7,072,500
180,000 AT&T Corp........................... 11,160,000
160,000 BCE, Inc. (Canada).................. 6,320,000
285,000 Cable & Wireless PLC (ADR)
(United Kingdom).................. 5,628,750
160,000 Century Telephone Enterprises,
Inc............................... 5,100,000
45,000 Cincinnati Bell, Inc................ 2,345,625
180,000 Comcast Corp. (Class A)............. 3,307,500
150,000 Comsat Corp......................... 3,900,000
300,000 Ericsson (L.M.) Telephone Co.
AB (ADR) (Sweden)................. 6,412,500
225,000 Frontier Corp....................... 6,890,625
160,000 GTE Corp............................ 7,160,000
61,250 Liberty Media Group (Class A)*...... 1,623,125
180,000 MCI Communications Corp............. 4,590,000
175,000 MFS Communications Company,
Inc.*............................. 6,562,500
40,000 Motorola, Inc....................... 2,515,000
100,000 Northern Telecom, Ltd. (Canada)..... 5,437,500
140,000 NYNEX Corp.......................... 6,650,000
120,000 Pacific Telesis Group............... 4,050,000
130,000 SBC Communications, Inc............. 6,402,500
170,000 Southern New England
Telecommunications Corp........... 7,140,000
125,000 Sprint Corp......................... 5,250,000
65,000 Tele Danmark AS (ADR)
(Denmark)......................... 1,649,375
245,000 Tele-Communications, Inc.
(Class A)*........................ 4,410,000
80,000 Telecom Corporation
of New Zealand Ltd. (ADR)
(New Zealand)..................... 5,340,000
65,000 Telefonica de Argentina S.A. (ADR)
(Argentina)....................... 1,925,625
90,000 Telefonos de Mexico S.A. de C.V.
(Series L) (ADR) (Mexico)......... 3,015,000
130,000 Telephone & Data Systems, Inc....... 5,850,000
40,300 Teleport Communications Group Inc.
(Class A)*........................ 760,662
100,000 Time Warner, Inc.................... 3,925,000
110,000 U.S. West Communications
Group............................. 3,506,250
150,000 U.S. West Media Group*.............. 2,737,500
90,000 WorldCom, Inc.*..................... 4,972,500
---------------
159,023,771
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
UTILITIES - ELECTRIC (40.9%)
220,000 Baltimore Gas & Electric Co......... $ 6,242,500
135,000 Carolina Power & Light Co........... 5,130,000
150,000 Central & South West Corp........... 4,350,000
235,865 CINergy Corp........................ 7,547,680
250,000 CMS Energy Corp..................... 7,718,750
130,000 Consolidated Edison Co. of New York,
Inc............................... 3,802,500
215,000 DPL, Inc............................ 5,240,625
202,500 DQE, Inc............................ 5,568,750
165,000 DTE Energy Co....................... 5,094,375
130,000 Edison International................ 2,291,250
140,000 Enova Corp.......................... 3,237,500
220,000 Entergy Corp........................ 6,242,500
140,000 FPL Group, Inc...................... 6,440,000
175,000 General Public Utilities Corp....... 6,168,750
125,000 Hawaiian Electric Industries, Inc... 4,437,500
200,000 Houston Industries, Inc............. 4,925,000
255,000 Illinova Corp....................... 7,331,250
225,000 IPALCO Enterprises, Inc............. 5,906,250
145,000 Kansas City Power & Light Co........ 3,987,500
65,000 Long Island Lighting Co............. 1,088,750
110,000 Montana Power Co.................... 2,447,500
110,000 New England Electric System......... 4,001,250
105,000 New York State Electric & Gas
Corp.............................. 2,559,375
175,000 NIPSCO Industries, Inc.............. 7,043,750
305,000 PacifiCorp.......................... 6,786,250
235,000 Pinnacle West Capital Corp.......... 7,138,125
100,000 Portland General Corp............... 3,087,500
90,000 Potomac Electric Power Co........... 2,385,000
205,000 Public Service Company of
Colorado.......................... 7,533,750
240,000 Public Service Company of
New Mexico........................ 4,920,000
145,000 Public Service Enterprise Group,
Inc............................... 3,969,375
55,000 Puget Sound Power & Light Co........ 1,333,750
180,000 SCANA Corp.......................... 5,062,500
275,000 Southern Co......................... 6,771,875
140,000 Texas Utilities Co.................. 5,985,000
110,000 United Illuminating Co.............. 4,111,250
200,000 Western Resources, Inc.............. 5,975,000
205,000 Wisconsin Energy Corp............... 5,919,375
---------------
189,782,055
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$330,679,925)..................... 405,643,951
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<C> <S> <C>
CORPORATE BONDS (8.8%)
NATURAL GAS (2.3%)
$ 3,000 Coastal Corp. 7.75% due 10/15/35.... 2,909,310
3,000 Norsk Hydro AS 7.15% due 11/15/25
(Norway).......................... 2,811,270
2,000 Panhandle Eastern Corp.
8.625% due 04/15/25............... 2,047,680
3,000 Tenneco, Inc. 7.25% due 12/15/25.... 2,809,830
---------------
10,578,090
---------------
</TABLE>
124
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--UTILITIES
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
TELECOMMUNICATIONS (3.7%)
$ 3,000 Alltel Corp. 6.75% due 09/15/05..... $ 2,906,310
2,000 BellSouth Telecommunications, Inc.
7.625% due 05/15/35............... 1,956,660
5,000 Century Telephone Enterprises, Inc.
8.25% due 05/01/24................ 5,025,200
1,400 Century Telephone Enterprises, Inc.
7.20% due 12/01/25................ 1,306,242
2,000 Southwestern Bell Telephone Co.
7.20% due 10/15/26................ 1,880,320
2,000 Sprint Corp. 9.25% due 04/15/22..... 2,346,800
2,000 TCI Communications, Inc.
8.75% due 08/01/15................ 1,964,900
---------------
17,386,432
---------------
UTILITIES - ELECTRIC (2.8%)
2,000 Florida Power & Light Co.
7.05% due 12/01/26................ 1,836,620
3,000 Illinois Power Co.
8.75% due 07/01/21................ 3,076,560
3,000 Indianapolis Power Co.
7.05% due 02/01/24................ 2,739,330
1,500 Long Island Lighting Co.
9.625% due 07/01/24............... 1,496,250
2,000 South Carolina Electric & Gas Co.
7.625% due 06/01/23............... 1,938,380
2,000 Union Electric Co.
8.00% due 12/15/22................ 1,967,080
---------------
13,054,220
---------------
TOTAL CORPORATE BONDS (IDENTIFIED
COST $41,891,441)................. 41,018,742
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
PREFERRED STOCKS (0.6%)
TELECOMMUNICATIONS (0.0%)
7,000 GTE Delaware Corp. (Series A)
$2.3125........................... 187,250
---------------
UTILITIES - ELECTRIC (0.6%)
20,000 Alabama Power Capital Trust I
(Series Q) $1.84.................. 460,000
40,000 Arizona Public Service Co. (Series
A) $2.50.......................... 1,085,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
1,022 Cleveland Electric Illuminating Co.
(Series N) $9.125................. $ 102,967
25,600 Connecticut Light & Power Capital
(Series A) $2.325................. 630,400
14,000 Duquesne Capital LP
(Series A) $2.09.................. 341,250
---------------
2,619,617
---------------
TOTAL PREFERRED STOCKS (IDENTIFIED
COST $2,767,494).................. 2,806,867
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<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)...... 1,256,250
---------------
SHORT-TERM INVESTMENTS (2.3%)
U.S. GOVERNMENT AGENCY (A) (2.2%)
10,150 Federal Farm Credit Bank
5.45% due 07/01/96................ 10,150,000
---------------
REPURCHASE AGREEMENT (0.1%)
449 The Bank of New York 5.125% due
07/01/96 (dated 06/28/96; proceeds
$449,620; collateralized by
$456,453 U.S. Treasury Note 5.25%
due 07/31/98 valued at $458,417)
(Identified Cost $449,428)........ 449,428
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $10,599,428)..... 10,599,428
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $387,188,288) (B)......... 99.3% 461,325,238
OTHER ASSETS IN EXCESS OF
LIABILITIES.................... 0.7 3,314,811
---------- -------------
NET ASSETS....................... 100.0% $ 464,640,049
---------- -------------
---------- -------------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $85,134,013 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $10,997,063, RESULTING IN NET
UNREALIZED APPRECIATION OF $74,136,950.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
125
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -----------------
<C> <S> <C>
COMMON STOCKS (96.1%)
AEROSPACE (3.9%)
385,000 Raytheon Co....................... $ 19,875,625
181,500 United Technologies Corp.......... 20,872,500
-----------------
40,748,125
-----------------
ALUMINUM (1.9%)
347,000 Aluminum Co. of America........... 19,909,125
-----------------
AUTO PARTS (1.8%)
213,000 TRW, Inc.......................... 19,143,375
-----------------
AUTOMOTIVE (3.8%)
604,000 Ford Motor Co..................... 19,554,500
391,200 General Motors Corp............... 20,489,100
-----------------
40,043,600
-----------------
BANKS (5.7%)
591,000 Banc One Corp..................... 20,094,000
268,100 BankAmerica Corp.................. 20,308,575
511,000 KeyCorp........................... 19,801,250
-----------------
60,203,825
-----------------
BEVERAGES - SOFT DRINKS (2.0%)
582,000 PepsiCo Inc....................... 20,588,250
-----------------
CHEMICALS (5.6%)
261,600 Dow Chemical Co................... 19,881,600
323,000 Eastman Chemical Co............... 19,662,625
270,500 Grace (W.R.) & Co................. 19,171,687
-----------------
58,715,912
-----------------
COMPUTERS - SYSTEMS (1.9%)
200,000 International Business Machines
Corp............................ 19,800,000
-----------------
CONGLOMERATES (3.9%)
296,000 Minnesota Mining & Manufacturing
Co.............................. 20,424,000
392,600 Tenneco, Inc...................... 20,071,675
-----------------
40,495,675
-----------------
COSMETICS (2.0%)
336,000 Gillette Co....................... 20,958,000
-----------------
DRUGS (5.9%)
470,000 Abbott Laboratories............... 20,445,000
347,000 American Home Products Corp....... 20,863,375
231,200 Bristol-Myers Squibb Co........... 20,808,000
-----------------
62,116,375
-----------------
ELECTRIC - MAJOR (3.6%)
236,000 General Electric Co............... 20,414,000
930,000 Westinghouse Electric Corp........ 17,437,500
-----------------
37,851,500
-----------------
FINANCIAL - MISCELLANEOUS (2.0%)
278,000 Household International, Inc...... 21,128,000
-----------------
FOODS (3.7%)
561,400 Quaker Oats Company (The)......... 19,157,775
609,000 Sara Lee Corp..................... 19,716,375
-----------------
38,874,150
-----------------
HOUSEHOLD PRODUCTS (1.9%)
225,000 Procter & Gamble Co............... 20,390,625
-----------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -----------------
<C> <S> <C>
INSURANCE (1.9%)
279,500 Aetna Inc......................... $ 19,984,250
-----------------
MANUFACTURING - DIVERSIFIED (1.9%)
505,100 Timken Co......................... 19,572,625
-----------------
METALS & MINING (1.9%)
323,000 Phelps Dodge Corp................. 20,147,125
-----------------
NATURAL GAS (6.1%)
499,600 Burlington Resources, Inc......... 21,482,800
553,000 El Paso Natural Gas Co............ 21,290,500
644,000 PanEnergy Corp.................... 21,171,500
-----------------
63,944,800
-----------------
OFFICE EQUIPMENT (1.9%)
412,000 Pitney Bowes, Inc................. 19,673,000
-----------------
OIL - DOMESTIC (3.8%)
515,800 Ashland, Inc...................... 20,438,575
165,000 Atlantic Richfield Co............. 19,552,500
-----------------
39,991,075
-----------------
OIL INTEGRATED - INTERNATIONAL (5.8%)
229,000 Exxon Corp........................ 19,894,375
177,500 Mobil Corp........................ 19,902,188
134,300 Royal Dutch Petroleum Co. (ADR)
(Netherlands)................... 20,648,625
-----------------
60,445,188
-----------------
PAPER & FOREST PRODUCTS (3.7%)
529,000 International Paper Co............ 19,506,875
467,100 Weyerhaeuser Co................... 19,851,750
-----------------
39,358,625
-----------------
PHOTOGRAPHY (1.9%)
260,000 Eastman Kodak Co.................. 20,215,000
-----------------
RAILROADS (1.9%)
243,000 Burlington Northern Santa Fe
Corp............................ 19,652,625
-----------------
RETAIL - DEPARTMENT STORES (1.9%)
462,000 May Department Stores Co.......... 20,212,500
-----------------
RETAIL - FOOD CHAINS (2.0%)
520,700 American Stores Co................ 21,478,875
-----------------
TELECOMMUNICATIONS (5.8%)
321,800 Bell Atlantic Corp................ 20,514,750
490,000 Sprint Corp....................... 20,580,000
621,000 U.S. West Communications
Group........................... 19,794,375
-----------------
60,889,125
-----------------
TOBACCO (2.0%)
199,000 Philip Morris Companies, Inc...... 20,696,000
-----------------
UTILITIES - ELECTRIC (4.0%)
457,500 FPL Group, Inc.................... 21,045,000
746,000 Unicom Corp....................... 20,794,750
-----------------
41,839,750
-----------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $805,074,154).............. 1,009,067,100
-----------------
</TABLE>
126
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -----------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (3.5%)
$ 2,000 U.S. Treasury Bond
8.125% due 08/15/19............. $ 2,241,562
5,000 U.S. Treasury Bond
8.00% due 11/15/21.............. 5,555,469
5,000 U.S. Treasury Bond
7.125% due 02/15/23............. 5,050,000
14,000 U.S. Treasury Bond
6.25% due 08/15/23.............. 12,685,312
7,000 U.S. Treasury Bond
6.00% due 02/15/26.............. 6,209,219
5,000 U.S. Treasury Note
6.375% due 01/15/99............. 5,014,844
-----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $37,077,101)... 36,756,406
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -----------------
<C> <S> <C>
SHORT-TERM INVESTMENT (A) (0.4%)
U.S. GOVERNMENT AGENCY
$ 4,350 Federal Home Loan Mortgage Corp.
5.52% due 07/01/96 (Amortized
Cost $4,350,000)................. $ 4,350,000
-----------------
TOTAL INVESTMENTS (IDENTIFIED
COST $846,501,255)(B)......... 100.0% 1,050,173,506
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS.............. -- (389,181)
---------- ---------------
NET ASSETS...................... 100.0% $ 1,049,784,325
---------- ---------------
---------- ---------------
<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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $210,544,460 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $6,872,209, RESULTING IN NET
UNREALIZED APPRECIATION OF $203,672,251.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
127
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
COMMON STOCKS (91.4%)
ADVERTISING (2.1%)
35,500 Interpublic Group of Companies, Inc... $ 1,664,062
-------------
APPAREL (2.1%)
31,600 Cintas Corp........................... 1,666,900
-------------
AUTOMOTIVE - REPLACEMENT PARTS (2.1%)
37,300 Genuine Parts Co...................... 1,706,475
-------------
BANKING (1.5%)
23,150 Fifth Third Bancorp................... 1,244,312
-------------
BEVERAGES - ALCOHOLIC (1.7%)
18,700 Anheuser-Busch Companies, Inc......... 1,402,500
-------------
BEVERAGES - SOFT DRINKS (2.5%)
41,400 Coca Cola Co.......................... 2,023,425
-------------
BIOTECHNOLOGY (2.3%)
32,800 Medtronic Inc......................... 1,836,800
-------------
BUSINESS SYSTEMS (2.0%)
30,400 Electronic Data Systems Corp.......... 1,634,000
-------------
CHEMICALS - SPECIALTY (2.1%)
32,200 Sigma-Aldrich Corp.................... 1,706,600
-------------
COMMERCIAL SERVICES (0.7%)
12,000 Affiliated Computer Services, Inc.*... 564,000
-------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.9%)
27,000 Cisco Systems, Inc.*.................. 1,528,875
-------------
COMMUNICATIONS EQUIPMENT (0.7%)
8,800 Tellabs, Inc.*........................ 587,400
-------------
COMPUTER SERVICES (2.8%)
38,000 Automatic Data Processing, Inc........ 1,467,750
21,000 Sterling Commerce, Inc.*.............. 779,625
-------------
2,247,375
-------------
COMPUTER SOFTWARE (4.3%)
24,000 Computer Associates International,
Inc................................. 1,710,000
14,600 Microsoft Corp.*...................... 1,752,000
-------------
3,462,000
-------------
COMPUTERS - SYSTEMS (1.9%)
15,500 Hewlett-Packard Co.................... 1,544,187
-------------
CONSUMER BUSINESS SERVICES (2.3%)
32,000 Service Corp. International........... 1,840,000
-------------
CONSUMER SERVICES (0.3%)
7,000 Block (H.&R.), Inc.................... 228,375
-------------
DRUGS (4.5%)
41,000 Abbott Laboratories................... 1,783,500
29,800 Schering-Plough Corp.................. 1,869,950
-------------
3,653,450
-------------
ELECTRICAL EQUIPMENT (0.8%)
8,100 Grainger (W.W.), Inc.................. 627,750
-------------
ELECTRONICS (3.8%)
46,200 Dionex Corp.*......................... 1,489,950
32,300 Harman International Industries,
Inc................................. 1,590,775
-------------
3,080,725
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
ENTERTAINMENT/GAMING & LODGING (2.3%)
45,300 Circus Circus Enterprises, Inc.*...... $ 1,857,300
-------------
FINANCIAL - MISCELLANEOUS (3.0%)
55,500 Federal National Mortgage Assoc....... 1,859,250
7,000 Household International, Inc.......... 532,000
-------------
2,391,250
-------------
FINANCIAL SERVICES (0.8%)
20,000 Primark Corp.*........................ 652,500
-------------
FOOD WHOLESALERS (2.2%)
51,900 Sysco Corp............................ 1,777,575
-------------
FOODS (3.5%)
43,200 ConAgra, Inc.......................... 1,960,200
17,800 Wrigley (Wm.) Jr. Co. (Class A)....... 898,900
-------------
2,859,100
-------------
GOLD MINING (1.8%)
53,700 Barrick Gold Corp. (Canada)........... 1,456,613
-------------
HOTELS/MOTELS (3.8%)
22,000 HFS, Inc.*............................ 1,540,000
45,000 La Quinta Inns, Inc................... 1,507,500
-------------
3,047,500
-------------
HOUSEHOLD FURNISHINGS & APPLIANCES (1.0%)
32,500 Heilig-Meyers Co...................... 780,000
-------------
INSURANCE (2.2%)
18,250 American International Group, Inc..... 1,799,906
-------------
MACHINERY - DIVERSIFIED (2.1%)
41,400 Thermo Electron Corp.*................ 1,723,275
-------------
MANUFACTURED HOUSING (2.3%)
94,000 Clayton Homes, Inc.................... 1,880,000
-------------
MANUFACTURING (1.8%)
63,301 Federal Signal Corp................... 1,487,574
-------------
MANUFACTURING - DIVERSIFIED (2.1%)
36,500 Sherwin-Williams Co................... 1,697,250
-------------
MEDIA GROUP (1.8%)
18,000 Clear Channel Communications,
Inc.*............................... 1,482,750
-------------
MEDICAL EQUIPMENT (1.0%)
5,900 Biomet, Inc.*......................... 83,338
33,400 Stryker Corp.......................... 755,675
-------------
839,013
-------------
OFFICE EQUIPMENT & SUPPLIES (1.1%)
46,000 Staples, Inc.*........................ 891,250
-------------
PHARMACEUTICALS (2.2%)
35,800 Johnson & Johnson..................... 1,772,100
-------------
RESTAURANTS (2.1%)
84,100 Brinker International, Inc.*.......... 1,261,500
21,000 International Dairy Queen, Inc. (Class
A)*................................. 446,250
-------------
1,707,750
-------------
RETAIL - DEPARTMENT STORES (2.3%)
72,000 Wal-Mart Stores, Inc.................. 1,827,000
-------------
RETAIL - DRUG STORES (2.2%)
52,500 Walgreen Co........................... 1,758,750
-------------
</TABLE>
128
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------
<C> <S> <C>
RETAIL - FOOD CHAINS (2.2%)
43,900 Albertson's Inc....................... $ 1,816,363
-------------
RETAIL - SPECIALTY (2.4%)
35,600 Home Depot, Inc....................... 1,922,400
-------------
TELECOMMUNICATION EQUIPMENT (0.6%)
5,600 U.S. Robotics Corp.*.................. 477,400
-------------
UTILITIES (2.2%)
75,233 Citizens Utilities Co. (Series A)*.... 865,177
76,162 Citizens Utilities Co. (Series B)*.... 885,388
-------------
1,750,565
-------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$59,020,114)........................ 73,904,395
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (7.9%)
U.S. GOVERNMENT AGENCIES (A) (7.4%)
$ 2,000 Federal Farm Credit Bank
5.45% due 07/01/96................. 2,000,000
4,000 Federal Home Loan Mortgage Corp.
5.27% due 07/03/96................. 3,998,829
-------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $5,998,829)........ 5,998,829
-------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.5%)
$ 378 The Bank of New York 5.125% due
07/01/96 (dated 06/28/96; proceeds
$378,569; collateralized by
$384,322 U.S. Treasury Bill 5.25%
due 07/31/98 valued at $385,975)
(Identified Cost $378,407)......... $ 378,407
-------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,377,236)....... 6,377,236
-------------
TOTAL INVESTMENTS (IDENTIFIED COST
$65,397,350) (B)................ 99.3% 80,281,631
OTHER ASSETS IN EXCESS OF
LIABILITIES..................... 0.7 533,393
---------- ------------
NET ASSETS........................ 100.0% $ 80,815,024
---------- ------------
---------- ------------
<FN>
- ------------------
* 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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $15,668,129 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $783,848, RESULTING IN NET
UNREALIZED APPRECIATION OF $14,884,281.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
129
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (99.6%)
AUSTRALIA (1.5%)
BUILDING & CONSTRUCTION
463,000 Pioneer International Ltd.......... $ 1,348,553
---------------
MULTI-INDUSTRY
546,000 Southcorp Holdings Ltd............. 1,353,905
---------------
PAPER & FOREST PRODUCTS
200,000 Amcor Ltd.......................... 1,361,856
---------------
TOTAL AUSTRALIA.................... 4,064,314
---------------
CANADA (3.0%)
BANKS - COMMERCIAL
101,400 Toronto Dominion Bank.............. 1,780,970
---------------
NATURAL GAS
106,000 TransCanada Pipelines Ltd.......... 1,574,142
---------------
OIL RELATED
38,300 Imperial Oil Ltd................... 1,617,835
63,400 IPL Energy, Inc.................... 1,594,764
---------------
3,212,599
---------------
TELECOMMUNICATIONS
42,000 BCE, Inc........................... 1,655,544
---------------
TOTAL CANADA....................... 8,223,255
---------------
FRANCE (7.5%)
BANKING
15,750 Societe Generale................... 1,730,299
---------------
BUILDING & CONSTRUCTION
26,600 Lafarge S.A........................ 1,608,288
---------------
FINANCIAL SERVICES
4,500 Societe Eurafrance S.A............. 1,738,160
---------------
FOODS & BEVERAGES
10,850 Eridania Beghin-Say S.A............ 1,697,418
---------------
HOUSEHOLD PRODUCTS
12,200 BIC S.A............................ 1,731,017
---------------
MULTI-INDUSTRY
7,500 Compagnie Generale d'Industrie et
de Participations................ 1,723,603
6,500 Saint-Louis........................ 1,724,670
33,861 Worms et Compagnie................. 1,761,403
---------------
5,209,676
---------------
OIL INTEGRATED - INTERNATIONAL
23,900 Societe National Elf Aquitaine..... 1,756,316
23,300 Total S.A. (B Shares).............. 1,726,696
---------------
3,483,012
---------------
TELECOMMUNICATIONS
19,700 Alcatel Alsthom.................... 1,716,867
---------------
TELEVISION
14,603 Societe Television Francaise 1..... 1,666,647
---------------
TOTAL FRANCE....................... 20,581,384
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
GERMANY (6.6%)
BANKING
25,700 Deutsche Bank
Aktiengesellschaft............... $ 1,214,253
---------------
BUILDING & CONSTRUCTION
3,350 Bilfinger & Berger Bau AG.......... 1,411,313
---------------
CHEMICALS
4,900 BASF AG............................ 1,398,714
40,000 Bayer AG........................... 1,410,854
---------------
2,809,568
---------------
HEALTH & PERSONAL CARE
36,000 Douglas Holding AG................. 1,412,691
---------------
MACHINERY - DIVERSIFIED
4,250 IWKA AG............................ 872,925
2,500 M.A.N. AG.......................... 621,432
---------------
1,494,357
---------------
MULTI-INDUSTRY
5,600 Preussag AG........................ 1,414,791
35,400 RWE AG............................. 1,377,531
3,400 Viag AG............................ 1,354,288
---------------
4,146,610
---------------
RETAIL - DEPARTMENT STORES
3,400 Karstadt AG........................ 1,373,253
---------------
STEEL & IRON
7,400 Thyssen AG......................... 1,350,443
---------------
TEXTILES - APPAREL
1,150 Hugo Boss AG (Pref.)............... 1,320,625
---------------
UTILITIES - ELECTRIC
25,200 Veba AG............................ 1,337,308
---------------
TOTAL GERMANY...................... 17,870,421
---------------
HONG KONG (4.0%)
BANKING
146,200 HSBC Holdings PLC.................. 2,209,943
---------------
CONGLOMERATES
259,500 Swire Pacific Ltd. (Class A)....... 2,221,115
---------------
REAL ESTATE
297,000 Cheung Kong (Holdings) Ltd......... 2,139,189
---------------
TELECOMMUNICATIONS
1,252,400 Hong Kong
Telecommunications Ltd........... 2,249,084
---------------
UTILITIES - ELECTRIC
707,000 Hong Kong Electric Holdings Ltd.... 2,155,655
---------------
TOTAL HONG KONG.................... 10,974,986
---------------
ITALY (4.0%)
FINANCIAL SERVICES
219,000 Istituto Mobiliare Italiano SpA.... 1,827,379
---------------
NATURAL GAS
492,000 Italgas SpA........................ 1,836,180
---------------
OIL & GAS PRODUCTS
372,000 Ente Nazionale Idrocarburi SpA..... 1,853,938
---------------
</TABLE>
130
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
TELECOMMUNICATIONS
275,000 Sirti SpA.......................... $ 1,765,808
1,070,000 Telecom Italia SpA................. 1,844,948
---------------
3,610,756
---------------
TEXTILES - APPAREL
135,200 Benetton Group SpA................. 1,745,085
---------------
TOTAL ITALY........................ 10,873,338
---------------
JAPAN (25.7%)
AUTOMOTIVE
115,000 Honda Motor Co..................... 2,977,482
122,000 Toyota Motor Corp.................. 3,047,497
---------------
6,024,979
---------------
BREWERS
244,000 Kirin Brewery Co., Ltd............. 2,980,764
---------------
BUILDING & CONSTRUCTION
263,000 Sekisui House Ltd.................. 2,997,083
---------------
COMPUTER SERVICES
308,000 NCR Japan Ltd...................... 3,060,625
---------------
ELECTRONICS & ELECTRICAL
326,000 Hitachi, Ltd....................... 3,031,452
43,000 Kyocera Corp....................... 3,038,107
166,000 Matsushita Electric Industrial
Co. Ltd.......................... 3,087,246
278,000 Matsushita Electric Works.......... 3,015,954
442,000 Mitsubishi Electric Corp........... 3,078,567
286,000 NEC Corp........................... 3,102,744
179,000 Sharp Corp......................... 3,133,194
47,000 Sony Corp.......................... 3,089,343
51,000 TDK Corp........................... 3,040,751
---------------
27,617,358
---------------
ENTERTAINMENT & LEISURE TIME
322,000 Mizuno Corp........................ 3,023,612
41,100 Nintendo Corp., Ltd................ 3,057,489
---------------
---------------
6,081,101
---------------
FOODS & BEVERAGES
165,000 House Food Industry................ 3,128,818
431,000 Snow Brand Milk Products........... 2,927,295
---------------
6,056,113
---------------
MACHINERY - DIVERSIFIED
586,000 Furukawa Co., Ltd.................. 3,071,839
353,000 Mitsubishi Heavy Industries, Ltd... 3,066,907
---------------
6,138,746
---------------
PHARMACEUTICALS
142,000 Taisho Pharmaceutical Co., Ltd..... 3,068,101
172,000 Takeda Chemical Industries......... 3,042,027
---------------
6,110,128
---------------
TRANSPORTATION
254,000 Yamato Transport Co. Ltd........... 2,987,146
---------------
TOTAL JAPAN........................ 70,054,043
---------------
MALAYSIA (2.0%)
BANKING
68,000 AMMB Holdings Berhad............... 954,290
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
BUILDING & CONSTRUCTION
274,000 Cement Industries of Malaysia...... $ 922,855
130,000 United Engineers Malaysia
Berhad........................... 901,764
---------------
1,824,619
---------------
CONGLOMERATES
331,000 Sime Darby Berhad.................. 915,758
---------------
FOODS & BEVERAGES
114,000 Nestle Malaysia Berhad............. 918,765
---------------
OIL RELATED
275,000 Esso Malaysia Berhad............... 771,853
---------------
TOTAL MALAYSIA..................... 5,385,285
---------------
NETHERLANDS (3.0%)
APPLIANCES & HOUSEHOLD DURABLES
27,900 Philips Electronics NV............. 906,215
---------------
BANKING
16,700 ABN-AMRO Holding NV................ 895,254
---------------
BUILDING & CONSTRUCTION
11,700 Koninklijke Volker Stevin NV....... 908,638
---------------
CHEMICALS
9,200 DSM NV............................. 912,624
---------------
FINANCIAL SERVICES
30,600 ING Groep NV....................... 911,535
---------------
INSURANCE
31,250 Fortis Amev NV..................... 894,320
---------------
OIL
5,800 Royal Dutch Petroleum Co........... 894,762
---------------
TELECOMMUNICATIONS
25,000 Koninklijke PTT Nederland NV....... 945,163
---------------
TEXTILES
18,900 Gamma Holding NV................... 873,822
---------------
TOTAL NETHERLANDS.................. 8,142,333
---------------
SWITZERLAND (2.0%)
BANKING
9,400 Schweizerischer Bankverein......... 1,852,993
---------------
CHEMICALS
1,525 Ciba-Geigy AG...................... 1,847,526
---------------
FOODS & BEVERAGES
1,575 Nestle AG.......................... 1,796,229
---------------
TOTAL SWITZERLAND.................. 5,496,748
---------------
UNITED KINGDOM (9.9%)
BANKING
488,000 Hambros PLC........................ 1,757,112
351,960 Lloyds TSB Group PLC............... 1,720,662
177,000 National Westminster Bank
PLC.............................. 1,686,683
---------------
5,164,457
---------------
BREWERS
132,500 Bass PLC........................... 1,659,515
163,000 Scottish & Newcastle Breweries
PLC.............................. 1,669,642
---------------
3,329,157
---------------
</TABLE>
131
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
FOODS & BEVERAGES
1,053,000 Hazlewood Foods PLC................ $ 1,601,571
593,000 Hillsdown Holdings PLC............. 1,595,955
---------------
3,197,526
---------------
MULTI-INDUSTRY
634,000 Hanson PLC......................... 1,771,142
---------------
NATURAL GAS
600,000 British Gas PLC.................... 1,666,848
---------------
RETAIL - MERCHANDISING
363,000 Tesco PLC.......................... 1,661,959
---------------
STEEL & IRON
670,000 British Steel PLC.................. 1,700,138
---------------
TELECOMMUNICATIONS
315,000 British Telecommunications PLC..... 1,691,525
---------------
TOBACCO
222,000 B.A.T. Industries PLC.............. 1,726,165
---------------
UTILITIES - ELECTRIC
363,000 Scottish Hydro-Electric PLC........ 1,667,593
---------------
UTILITIES - WATER
155,000 Hyder PLC.......................... 1,707,976
121,500 Hyder PLC (Pref.).................. 183,382
191,000 Severn Trent PLC................... 1,612,590
---------------
3,503,948
---------------
TOTAL UNITED KINGDOM............... 27,080,458
---------------
UNITED STATES (30.4%)
AEROSPACE & DEFENSE
61,700 Northrop Grumman Corp.............. 4,203,312
---------------
AUTOMOTIVE
128,500 Ford Motor Co...................... 4,160,187
---------------
BANKS
55,700 BankAmerica Corp................... 4,219,275
108,800 KeyCorp............................ 4,216,000
---------------
8,435,275
---------------
CHEMICALS
129,800 Monsanto Co........................ 4,218,500
---------------
COMPUTERS - SYSTEMS
41,900 International Business Machines
Corp............................. 4,148,100
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
CONGLOMERATES
60,100 Minnesota Mining & Manufacturing
Co............................... $ 4,146,900
82,900 Tenneco, Inc....................... 4,238,262
---------------
8,385,162
---------------
MACHINERY - DIVERSIFIED
105,400 Deere & Co......................... 4,216,000
---------------
METALS & MINING
67,600 Phelps Dodge Corp.................. 4,216,550
---------------
OIL - DOMESTIC
104,900 Ashland, Inc....................... 4,156,663
---------------
OIL INTEGRATED - INTERNATIONAL
69,800 Chevron Corp....................... 4,118,200
---------------
PAPER & FOREST PRODUCTS
111,400 International Paper Co............. 4,107,875
---------------
PHARMACEUTICALS
46,400 Bristol-Myers Squibb Co............ 4,176,000
---------------
RAILROADS
61,500 Conrail, Inc....................... 4,082,063
---------------
RETAIL
41,000 Dayton-Hudson Corp................. 4,228,125
---------------
TELECOMMUNICATIONS
102,200 Sprint Corp........................ 4,292,400
---------------
TIRE & RUBBER GOODS
86,500 Goodyear Tire & Rubber Co.......... 4,173,625
---------------
TOBACCO
39,800 Philip Morris Companies, Inc....... 4,139,200
---------------
UTILITIES - ELECTRIC
145,000 Pacific Gas & Electric Co.......... 3,371,250
---------------
TOTAL UNITED STATES................ 82,828,487
---------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $242,632,323)
(A)............................ 99.6% 271,575,052
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 0.4 1,002,875
---------- -------------
NET ASSETS....................... 100.0% $ 272,577,927
---------- -------------
---------- -------------
<FN>
- ------------------
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES IDENTIFIED
COST. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $33,279,819 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $4,337,090, RESULTING IN NET
UNREALIZED APPRECIATION OF $28,942,729.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
132
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1996:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE DELIVERY APPRECIATION
RECEIVE FOR DATE (DEPRECIATION)
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 210,466 DEM 322,770 07/01/96 $ (1,340)
DEM 388,270 $ 255,256 07/01/96 (469)
Y 20,975,864 $ 192,087 07/01/96 (858)
$ 59,833 CHF 75,485 07/02/96 (411)
$ 39,388 CHF 49,377 07/02/96 (19)
$ 73,911 Y 8,116,937 07/02/96 (87)
L 49,446 $ 76,211 07/02/96 529
Y 21,226,835 $ 193,288 07/02/96 229
$ 31,535 DEM 48,071 07/03/96 (10)
L 50,401 $ 78,147 07/03/96 76
L 187,330 $ 289,744 07/03/96 993
Y 13,097,828 $ 119,310 07/03/96 98
$ 164,896 DEM 251,368 07/05/96 (54)
$ 52,917 DEM 80,693 07/05/96 (35)
$ 21,968 FRF 113,245 07/31/96 (13)
FRF 299,045 $ 57,695 07/31/96 349
-------
Net unrealized depreciation........$(1,022)
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
133
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------- -------------- -------------
<S> <C> <C>
Aerospace & Defense....... $ 4,203,312 1.6%
Appliances & Household
Durables................ 906,215 0.3
Automotive................ 10,185,166 3.7
Banking................... 14,021,489 5.2
Banks..................... 8,435,275 3.1
Banks - Commercial........ 1,780,970 0.7
Brewers................... 6,309,921 2.3
Building & Construction... 10,098,494 3.7
Chemicals................. 9,788,218 3.6
Computer Services......... 3,060,625 1.1
Computers - Systems....... 4,148,100 1.5
Conglomerates............. 11,522,035 4.2
Electronics & Electrical.. 27,617,358 10.1
Entertainment & Leisure
Time.................... 6,081,101 2.2
Financial Services........ 4,477,074 1.7
Foods & Beverages......... 13,666,051 5.0
Health & Personal Care.... 1,412,691 0.5
Household Products........ 1,731,017 0.6
Insurance................. 894,320 0.3
Machinery - Diversified... 11,849,103 4.4
Metals & Mining........... 4,216,550 1.5
Multi-Industry............ 12,481,333 4.6
Natural Gas............... 5,077,170 1.9
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------- -------------- -------------
<S> <C> <C>
Oil....................... $ 894,762 0.3%
Oil & Gas Products........ 1,853,938 0.7
Oil - Domestic............ 4,156,663 1.5
Oil Integrated -
International........... 7,601,212 2.8
Oil Related............... 3,984,452 1.5
Paper & Forest Products... 5,469,731 2.0
Pharmaceuticals........... 10,286,128 3.8
Railroads................. 4,082,063 1.5
Real Estate............... 2,139,189 0.8
Retail.................... 4,228,125 1.6
Retail - Department
Stores.................. 1,373,253 0.5
Retail - Merchandising.... 1,661,959 0.6
Steel & Iron.............. 3,050,581 1.1
Telecommunications........ 16,161,339 5.9
Television................ 1,666,647 0.6
Textiles.................. 873,822 0.3
Textiles - Apparel........ 3,065,710 1.1
Tire & Rubber Goods....... 4,173,625 1.5
Tobacco................... 5,865,365 2.2
Transportation............ 2,987,146 1.1
Utilities - Electric...... 8,531,806 3.1
Utilities - Water......... 3,503,948 1.3
-------------- -----
$ 271,575,052 99.6%
-------------- -----
-------------- -----
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks......................................................................... $ 270,071,045 99.1%
Preferred Stocks...................................................................... 1,504,007 0.5
-------------- -----
$ 271,575,052 99.6%
-------------- -----
-------------- -----
</TABLE>
134
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, BONDS, WARRANTS AND
RIGHTS (95.8%)
AUSTRIA (1.2%)
OIL & GAS PRODUCTS
12,000 OMV AG.......................... $ 1,214,099
---------------
TRANSPORTATION
22,000 Flughafen Wien AG............... 1,508,859
---------------
TOTAL AUSTRIA................... 2,722,958
---------------
BELGIUM (1.1%)
RETAIL
59,927 G.I.B. Holdings Ltd............. 2,687,464
---------------
DENMARK (1.5%)
AIR TRANSPORT
14,700 Kobenhavns Lufthavne AS......... 1,452,223
---------------
PHARMACEUTICALS
14,000 Novo-Nordisk AS (Series B)...... 1,979,220
---------------
TOTAL DENMARK................... 3,431,443
---------------
FINLAND (0.6%)
ELECTRONICS
36,600 Nokia AB (Series A)............. 1,349,331
---------------
FRANCE (14.0%)
BUILDING MATERIALS
15,530 IMETAL.......................... 2,200,485
---------------
ELECTRICAL EQUIPMENT
4,000 Legrand S.A. (Pref.)............ 469,721
---------------
ELECTRONICS
63,650 SGS-Thomson Microelectronics
NV*........................... 2,236,151
---------------
FINANCIAL SERVICES
10,200 Cetelem Groupe.................. 2,290,644
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
8,000 BIC S.A......................... 1,135,093
13,535 LVMH Moet-Hennessy Louis
Vuitton....................... 3,207,732
78,000 SEITA........................... 3,572,981
---------------
7,915,806
---------------
INSURANCE
48,565 Scor S.A........................ 1,890,001
---------------
PHARMACEUTICALS
39,587 Sanofi S.A...................... 2,964,415
FRF 2K Sanofi S.A. 4.00% due 01/01/00
(Conv. Pref.)................. 186,353
---------------
3,150,768
---------------
RETAIL
7,326 Carrefour Supermarche*.......... 4,100,967
12,377 Castorama Dubois
Investissement................ 2,436,001
FRF 495 Castorama Dubois Investissement
3.15% due 01/01/03 (Conv.
Pref.)........................ 115,295
---------------
6,652,263
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
STEEL & IRON
125,000 Usinor Sacilor.................. $ 1,801,485
---------------
TEXTILES
19,500 Christian Dior S.A.............. 2,535,908
3,500 Christian Dior S.A.
(Warrants due 06/30/98)*...... 73,370
6,454 Hermes International............ 1,703,696
---------------
4,312,974
---------------
TOTAL FRANCE.................... 32,920,298
---------------
GERMANY (8.6%)
AUTOMOTIVE
3,900 BMW AG.......................... 2,258,514
6,890 Volkswagen AG................... 2,556,792
---------------
4,815,306
---------------
CHEMICALS
8,200 BASF AG......................... 2,340,705
98,650 Bayer AG........................ 3,479,518
20,000 SGL Carbon AG................... 2,336,111
---------------
8,156,334
---------------
HEALTH & PERSONAL CARE
5,220 Rhoen-Klinikum AG............... 671,383
12,780 Rhoen-Klinikum AG (Pref.)....... 1,467,616
---------------
2,138,999
---------------
MANUFACTURING
28,700 Adidas AG....................... 2,408,773
---------------
MERCHANDISING
3,850 Gehe AG......................... 2,652,733
---------------
TOTAL GERMANY................... 20,172,145
---------------
ITALY (4.2%)
FOOD MANUFACTURER
1,091,000 Parmalat Finanzeria SpA......... 1,465,098
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
29,700 Industrie Natuzzi SpA (ADR)..... 1,522,125
---------------
OIL & GAS PRODUCTS
653,700 Ente Nazionale Idrocarburi
SpA........................... 3,257,846
---------------
TELECOMMUNICATIONS
1,599,750 Telecom Italia Mobile SpA....... 3,571,802
---------------
TOTAL ITALY..................... 9,816,871
---------------
NETHERLANDS (13.2%)
BANKING
51,700 ABN-AMRO Holding NV............. 2,771,534
---------------
FOOD DISTRIBUTION
51,194 Koninklijke Ahold NV............ 2,771,373
---------------
FOOD PROCESSING
20,696 Nutricia Vereenigde Bedrijven
NV............................ 2,186,240
---------------
INSURANCE
59,008 Aegon NV........................ 2,714,361
87,280 ING Groep NV.................... 2,599,960
---------------
5,314,321
---------------
</TABLE>
135
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
MANUFACTURING
37,550 ASM Lithography Holding
NV*........................... $ 1,549,292
---------------
MERCHANDISING
20,000 Gucci Group NV.................. 1,294,551
---------------
MULTI-INDUSTRY
55,365 Hunter Douglas NV............... 3,774,813
---------------
PUBLISHING
241,000 Elsevier NV..................... 3,653,011
157,000 Ver Ned Uitgev Ver Bezit NV..... 2,434,892
20,335 Wegener NV...................... 2,152,866
26,232 Wolters Kluwer NV............... 2,976,757
---------------
11,217,526
---------------
TOTAL NETHERLANDS............... 30,879,650
---------------
NORWAY (0.4%)
INSURANCE
225,000 UNI Storebrand AS*.............. 1,010,412
---------------
SPAIN (6.1%)
BANKS
71,686 Banco Bilbao Vizcaya............ 2,902,109
12,946 Banco Popular Espanol S.A....... 2,306,448
---------------
5,208,557
---------------
FINANCIAL SERVICES
28,160 Corporacion Financiera Alba..... 2,341,541
---------------
OIL RELATED
20,116 Gas Natural SDG S.A.
(Series E).................... 4,220,908
---------------
UTILITIES
239,750 Iberdrola S.A................... 2,459,214
---------------
TOTAL SPAIN..................... 14,230,220
---------------
SWEDEN (9.3%)
BUSINESS SERVICES
100,000 Assa Abloy AB (Series B)........ 1,444,956
183,000 Securitas AB
(Series "B" Free)............. 3,828,682
---------------
5,273,638
---------------
HEALTH & PERSONAL CARE
131,868 Getinge Industrier AB
(B Shares).................... 2,481,035
---------------
INSURANCE
122,381 Scandia Forsakrings AB.......... 3,232,768
---------------
MACHINERY
100,000 Kalmar Industries AB............ 2,107,228
---------------
PHARMACEUTICALS
45,525 Astra AB (Series "A" Free)...... 2,007,710
---------------
RETAIL
40,160 Hennes & Mauritz AB
(B Shares).................... 3,717,511
---------------
TELECOMMUNICATION EQUIPMENT
133,400 Ericsson (L.M.) Telephone Co. AB
(Series "B" Free)............. 2,871,279
---------------
TOTAL SWEDEN.................... 21,691,169
---------------
SWITZERLAND (5.8%)
BUSINESS SERVICES
400 Societe Generale de Surveillance
Holdings S.A.................. 956,105
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
INSURANCE
2,000 Schweizerische
Rueckversicherungs-
Gesellschaft.................. $ 2,051,078
---------------
MULTI-INDUSTRY
2,260 ABB AG.......................... 2,792,083
---------------
PHARMACEUTICALS
1,294 Ciba-Geigy AG................... 1,574,900
365 Roche Holdings AG............... 2,780,467
2,050 Sandoz AG....................... 2,341,221
1,000 Sandoz AG (Series B)............ 1,135,674
---------------
7,832,262
---------------
TOTAL SWITZERLAND............... 13,631,528
---------------
UNITED KINGDOM (29.8%)
AEROSPACE & DEFENSE
133,333 British Aerospace PLC........... 2,013,456
---------------
AUTOMOTIVE
405,000 BBA Group PLC................... 1,935,022
450,000 Rolls-Royce PLC................. 1,557,432
---------------
3,492,454
---------------
BANKING
225,000 Abbey National PLC.............. 1,896,156
100,000 National Westminster Bank
PLC........................... 952,928
180,000 TSB Group PLC................... 879,984
---------------
3,729,068
---------------
BREWERS
145,000 Scottish & Newcastle Breweries
PLC........................... 1,485,264
235,000 Vaux Group PLC.................. 1,035,805
---------------
2,521,069
---------------
BROADCAST MEDIA
147,000 British Sky Broadcasting Group
PLC........................... 1,003,834
155,000 Flextech PLC*................... 1,222,045
---------------
2,225,879
---------------
BUILDING & CONSTRUCTION
313,000 Blue Circle Industries PLC...... 1,748,794
207,400 CRH PLC......................... 2,098,689
217,800 Williams Holdings PLC........... 1,139,146
---------------
4,986,629
---------------
BUSINESS SERVICES
150,000 Reuters Holdings PLC............ 1,813,512
---------------
CHEMICALS
306,000 Albright & Wilson PLC........... 845,343
---------------
COMPUTER SOFTWARE & SERVICES
151,500 Sage Group (The) PLC............ 1,147,425
96,000 SEMA Group PLC.................. 1,095,091
---------------
2,242,516
---------------
COMPUTERS
350,000 Amstrad PLC..................... 1,048,376
---------------
</TABLE>
136
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
CONGLOMERATES
152,000 BTR PLC......................... $ 596,837
415,000 Tomkins PLC..................... 1,558,674
---------------
2,155,511
---------------
ELECTRICAL EQUIPMENT
145,250 The BICC Group PLC.............. 703,335
---------------
FOOD PROCESSING
275,000 Associated British Foods PLC.... 1,651,716
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
94,261 B.A.T. Industries PLC........... 732,928
187,000 Grand Metropolitan PLC.......... 1,239,256
177,500 Tate & Lyle PLC................. 1,261,698
---------------
3,233,882
---------------
FOREST PRODUCTS, PAPER & PACKAGING
90,000 De La Rue PLC................... 828,302
---------------
INSURANCE
55,000 Britannic Assurance PLC......... 613,738
123,057 Commercial Union PLC............ 1,103,413
261,200 Prudential Corp. PLC............ 1,645,853
213,000 Royal Insurance Holdings PLC.... 1,315,692
100,000 Sun Alliance Group PLC.......... 578,896
---------------
5,257,592
---------------
LEISURE
180,000 Granada Group PLC............... 2,402,496
---------------
METALS & MINING
125,750 Smiths Industries PLC........... 1,375,906
---------------
MISCELLANEOUS
146,000 Vendome Luxury Group PLC
(Units)++..................... 1,355,020
---------------
NATURAL GAS
240,000 British Gas PLC................. 666,739
---------------
OIL RELATED
591,000 Lasmo PLC....................... 1,605,156
245,000 Shell Transport & Trading Co.
PLC........................... 3,589,466
---------------
5,194,622
---------------
PHARMACEUTICALS
17,050 British Biotech PLC*............ 653,602
2,131 British Biotech PLC (Rights)*... 12,899
279,100 Glaxo Wellcome PLC.............. 3,755,525
554,166 Medeva PLC...................... 2,167,365
---------------
6,589,391
---------------
REAL ESTATE
205,100 Hammerson PLC................... 1,165,034
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
RETAIL
74,000 Boots Co. PLC................... $ 663,821
100,000 Great Universal Stores PLC...... 1,014,232
247,000 Morrison (W.M.) Supermarkets
PLC........................... 596,100
214,000 Next PLC........................ 1,869,881
140,000 W.H. Smith Group PLC
(Class A)..................... 1,029,907
---------------
5,173,941
---------------
TELECOMMUNICATIONS
674,700 British Telecommunications
PLC........................... 3,623,085
400,635 Securicor Group PLC
(Class A)..................... 1,625,969
---------------
5,249,054
---------------
TRANSPORTATION
140,500 British Airways PLC............. 1,205,850
---------------
UTILITIES
180,000 Scottish Power PLC.............. 846,461
---------------
TOTAL UNITED KINGDOM............ 69,973,154
---------------
TOTAL COMMON AND PREFERRED
STOCKS, BONDS, WARRANTS AND
RIGHTS
(IDENTIFIED COST
$178,129,189)................... 224,516,643
---------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT (IN
THOUSANDS)
- ---------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (0.1%)
FRF 16,500 November 5, 1996/FRF 5.192
(Identified Cost $333,300).... 194,700
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (A) (3.0%)
U.S. GOVERNMENT AGENCY
$ 7,000 Federal Home Loan Mortgage Corp.
5.26% due 07/03/96 (Amortized
Cost $6,997,954).............. 6,997,954
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $185,460,443) (B)......... 98.9% 231,709,297
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 1.1 2,480,229
---------- -------------
NET ASSETS....................... 100.0% $ 234,189,526
---------- -------------
---------- -------------
<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 STOCKS 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 APPROXIMATES IDENTIFIED
COST. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $49,619,563 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $3,370,709, RESULTING IN NET
UNREALIZED APPRECIATION OF $46,248,854.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
137
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1996:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE DELIVERY APPRECIATION
RECEIVE FOR DATE (DEPRECIATION)
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
CHF 1,294,749 $ 1,033,319 07/01/96 $ (2,314)
$ 270,304 L 174,165 07/01/96 (122)
CHF 1,287,990 $ 1,027,925 07/02/96 (657)
$ 195,576 DEM 298,038 07/02/96 90
L 154,356 $ 239,560 07/02/96 1,482
L 28,096 $ 43,605 07/03/96 90
-------
Net unrealized
depreciation................$(1,431)
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
138
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EUROPEAN GROWTH
SUMMARY OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------- -------------- -------------
<S> <C> <C>
Aerospace & Defense....... $ 2,013,456 0.9%
Air Transport............. 1,452,223 0.6
Automotive................ 8,307,760 3.5
Banking................... 6,500,602 2.8
Banks..................... 5,208,557 2.2
Brewers................... 2,521,069 1.1
Broadcast Media........... 2,225,878 1.0
Building & Construction... 4,986,629 2.1
Building Materials........ 2,200,485 1.0
Business Services......... 8,043,256 3.4
Chemicals................. 9,001,677 3.8
Computer Software &
Services................ 2,242,516 1.0
Computers................. 1,048,376 0.4
Conglomerates............. 2,155,511 0.9
Electrical Equipment...... 1,173,056 0.5
Electronics............... 3,585,482 1.5
Financial Services........ 4,632,186 2.0
Food Distribution......... 2,771,373 1.2
Food Manufacturer......... 1,465,098 0.6
Food Processing........... 3,837,956 1.7
Food, Beverage, Tobacco &
Household Products...... 11,149,690 4.8
Foreign Currency Put
Option.................. 194,700 0.1
Forest Products, Paper &
Packaging............... 828,302 0.3
Health & Personal Care.... 4,620,034 2.0
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------- -------------- -------------
<S> <C> <C>
Household Furnishings &
Appliances.............. $ 1,522,125 0.7%
Insurance................. 18,756,171 8.0
Leisure................... 2,402,496 1.0
Machinery................. 2,107,228 0.9
Manufacturing............. 3,958,065 1.6
Merchandising............. 3,947,284 1.6
Metals & Mining........... 1,375,906 0.6
Miscellaneous............. 1,355,020 0.5
Multi-Industry............ 6,566,896 2.8
Natural Gas............... 666,739 0.2
Oil & Gas Products........ 4,471,946 1.8
Oil Related............... 9,415,529 4.1
Pharmaceuticals........... 21,559,351 9.3
Publishing................ 11,217,526 4.8
Real Estate............... 1,165,034 0.5
Retail.................... 18,231,179 7.8
Steel & Iron.............. 1,801,485 0.8
Telecommunication
Equipment............... 2,871,278 1.2
Telecommunications........ 8,820,856 3.8
Textiles.................. 4,312,974 1.9
Transportation............ 2,714,708 1.2
U.S. Government Agency.... 6,997,954 3.0
Utilities................. 3,305,675 1.4
-------------- -----
$ 231,709,297 98.9%
-------------- -----
-------------- -----
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Common Stocks......................................................................... $ 222,191,389 94.9%
Convertible Preferred Stocks.......................................................... 301,648 0.1
Foreign Currency Put Option........................................................... 194,700 0.1
Preferred Stocks...................................................................... 1,937,337 0.8
Rights................................................................................ 12,899 --
Short-Term Investment................................................................. 6,997,954 3.0
Warrants.............................................................................. 73,370 --
-------------- -----
$ 231,709,297 98.9%
-------------- -----
-------------- -----
</TABLE>
139
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS
AND BONDS (96.2%)
AUSTRALIA (1.5%)
COMMERCIAL SERVICES
75,000 Mayne Nickless Ltd............. $ 438,667
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
99,000 Fosters Brewing Group Ltd.
(New)........................ 170,673
---------------
METALS & MINING
18,000 CRA Ltd........................ 277,157
200,000 M.I.M. Holdings, Ltd........... 258,202
130,000 North Ltd...................... 373,526
38,750 Odin Mining & Investment Co.,
Ltd.......................... 7,779
---------------
916,664
---------------
OIL RELATED
100,000 Santos, Ltd.................... 346,368
50,000 Woodside Petroleum Ltd......... 300,710
---------------
647,078
---------------
TRANSPORTATION
14,500 Brambles Industries, Ltd....... 201,807
---------------
TOTAL AUSTRALIA................ 2,374,889
---------------
CHINA (0.6%)
TRANSPORTATION
160,000 Jinhui Shipping and
Transportation Ltd........... 152,561
---------------
UTILITIES
20,000 Huaneng Power International,
Inc. (ADR)*.................. 357,500
45,000 Shandong Huaneng Power Co.,
Ltd. (ADR)................... 371,250
---------------
728,750
---------------
TOTAL CHINA.................... 881,311
---------------
HONG KONG (21.5%)
BANKING
163,000 Bank of East Asia, Ltd......... 595,966
80,000 Dao Heng Bank Group Ltd........ 309,036
75,000 Guoco Group Ltd................ 357,549
100,000 Hang Seng Bank Ltd............. 1,007,726
92,000 HSBC Holdings PLC.............. 1,390,662
500,000 International Bank of Asia..... 322,989
---------------
3,983,928
---------------
BUSINESS SERVICES
350,000 First Pacific Co. Ltd.......... 538,100
---------------
CONGLOMERATES
150,000 Citic Pacific, Ltd............. 606,573
106,136 Henderson China Holding
Ltd.*........................ 237,223
425,000 Hutchison Whampoa, Ltd......... 2,674,027
60,000 Jardine Matheson Holdings
Ltd.......................... 441,000
120,170 New World Infrastructure
Ltd.*........................ 256,170
234,000 Swire Pacific Ltd. (Class A)... 2,002,855
---------------
6,217,848
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
ELECTRONIC & ELECTRICAL EQUIPMENT
250,000 ASM Pacific Technology Ltd..... $ 197,023
---------------
ENGINEERING & CONSTRUCTION
600,000 Road King Infrastructure
Ltd.*........................ 657,768
---------------
FINANCIAL SERVICES
$ 425K Henderson Capital International
4.50% due 10/27/96 (Conv.)... 358,062
1,000,000 Manhattan Card Co. Ltd......... 478,024
$ 120 K Paliburg International Finance
- 144A** 3.50% due 02/06/01
(Conv.)...................... 116,700
---------------
952,786
---------------
FOOD PROCESSING
1,000,000 Tingyi Holding Co.............. 274,541
---------------
HOTELS/MOTELS
224,000 Shangri-La Asia Ltd............ 313,997
---------------
INSURANCE
389,000 National Mutual Asia Ltd....... 341,748
---------------
INVESTMENT COMPANIES
800,000 Guangdong Investments.......... 506,447
---------------
LEISURE
1,775,000 CDL Hotels International,
Ltd.......................... 974,620
---------------
OIL RELATED
505,000 Hong Kong & China Gas
Co........................... 805,761
39,500 Hong Kong & China Gas
Co. (Warrants due
09/30/97)*................... 10,334
---------------
816,095
---------------
PUBLISHING
550,000 South China Morning Post
(Holdings) Ltd............... 376,605
---------------
REAL ESTATE
487,000 Amoy Properties, Ltd........... 588,286
442,000 Cheung Kong (Holdings)
Ltd.......................... 3,183,574
200,000 Great Eagle Holding Co......... 585,256
330,000 Henderson Investment, Ltd...... 296,310
119,000 Henderson Land Development Co.
Ltd.......................... 891,708
380,000 Hong Kong Land Holdings
Ltd.......................... 855,000
125,000 Hysan Development Co.
Ltd.......................... 382,742
6,250 Hysan Development Co.
Ltd. (Warrants due
04/30/98)*................... 3,311
90,000 New Asia Realty & Trust Co.
(Class A).................... 290,690
155,000 New World Development.......... 718,909
285,000 Sun Hung Kai Properties
Ltd.......................... 2,881,224
167,000 Wharf (Holdings) Ltd........... 597,646
---------------
11,274,656
---------------
RETAIL
266,000 Dickson Concepts International
Ltd.......................... 340,224
---------------
</TABLE>
140
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
RETAIL - SPECIALTY
480,000 Giordano International Ltd..... $ 465,104
---------------
TELECOMMUNICATIONS
1,303,400 Hong Kong Telecommunications
Ltd.......................... 2,340,671
---------------
TRANSPORTATION
200,000 Cathay Pacific Airways......... 366,916
944,000 The Guangshen Railway Co.,
Ltd.......................... 356,735
---------------
723,651
---------------
UTILITIES
70,500 China Light & Power Co.
Ltd.......................... 319,701
300,000 Consolidated Electric Power
Asia Ltd..................... 496,111
240,000 Hong Kong Electric Holdings
Ltd.......................... 731,764
---------------
1,547,576
---------------
TOTAL HONG KONG................ 32,843,388
---------------
INDONESIA (8.3%)
AUTOMOTIVE
530,000 PT Astra International......... 769,024
1,250,000 PT Gadjah Tunggal.............. 618,014
---------------
1,387,038
---------------
BANKING
300,000 PT Bank Dagang Nasional
Indonesia.................... 251,505
220,000 PT Bank Internasional
Indonesia.................... 1,087,704
---------------
1,339,209
---------------
BUILDING & CONSTRUCTION
170,000 PT Indocement.................. 584,695
---------------
BUILDING MATERIALS
688,380 PT Mulia Industrindo........... 1,021,028
275,352 PT Mulia Industrindo
(Nil Paid) (Rights)*......... 207,165
200,000 PT Semen Gresik
(Alien Market)............... 582,545
---------------
1,810,738
---------------
COMMERCIAL SERVICES
300,000 PT Steady Safe................. 432,072
---------------
CONSTRUCTION EQUIPMENT
340,000 PT United Tractors............. 537,188
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
130,000 PT Hanjaya Mandala
Sampoerna.................... 1,481,083
121,775 PT Indofood Sukses
Makmur....................... 549,715
---------------
2,030,798
---------------
FOREST PRODUCTS, PAPER & PACKAGING
500,000 PT Indah Kiat Pulp Paper
Corp......................... 489,037
6,144 PT Pabrikkertas Tjiwi Kimia.... 6,274
---------------
495,311
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
INVESTMENT COMPANIES
1 Peregrine Indonesia*
(Units)++***................. $ 445,000
---------------
MACHINERY
300,000 PT Bukaka Teknik Utama......... 451,419
---------------
METALS
660,000 PT Tambang Timah............... 1,220,120
---------------
PHARMACEUTICALS
90,000 PT Tempo Scan Pacific.......... 193,465
---------------
PHOTOGRAPHY
95,000 PT Modern Photo &
Film Co...................... 408,427
---------------
TELECOMMUNICATIONS
240,000 PT Indosat..................... 807,395
300,000 PT Telekomunikasi Indonesia.... 454,643
---------------
1,262,038
---------------
TOTAL INDONESIA................ 12,597,518
---------------
JAPAN (13.2%)
AEROSPACE & DEFENSE
35,000 Ishikawajima-Harima Heavy
Industry..................... 170,708
---------------
AUTOMOTIVE
1,000 Autobacs Seven Co.............. 96,636
11,000 Honda Motor Co................. 284,803
46,000 Isuzu Motors Ltd............... 262,522
12,000 Toyota Motor Corp.............. 299,754
---------------
943,715
---------------
BANKING
17,000 Asahi Bank, Ltd................ 196,827
11,450 Bank of Tokyo - Mitsubishi
Ltd.......................... 265,138
6,000 Bank of Tokyo - Mitsubishi
Ltd.*........................ 139,484
9,000 Dai-Ichi Kangyo Bank........... 167,381
15,000 Long Term Credit Bank of
Japan........................ 116,100
20,000 Mitsui Trust & Banking......... 233,385
13,000 Sanwa Bank, Ltd................ 240,587
15,000 Shizuoka Bank.................. 192,816
10,000 Sumitomo Bank.................. 193,272
14,000 Sumitomo Trust & Banking....... 191,449
---------------
1,936,439
---------------
BUILDING & CONSTRUCTION
3,000 Higashi Nihon House............ 52,512
3,300 Japan Industrial Land
Development.................. 103,191
22,000 Kajima Corp.................... 226,639
5,000 Kaneshita Construction......... 63,816
11,000 Maeda Road Construction........ 189,534
5,000 Mitsui Home Co., Ltd........... 81,138
---------------
716,830
---------------
BUILDING MATERIALS
4,400 Oriental Construction Co....... 73,407
28,000 Sanwa Shutter.................. 262,923
10,000 Shin Nikkei Co., Ltd........... 74,756
9,000 Toyo Shutter................... 85,331
---------------
496,417
---------------
</TABLE>
141
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DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
BUSINESS SERVICES
6,000 Ichiken Co., Ltd............... $ 58,529
2,000 Nippon Kanzai.................. 61,264
1,900 Nissin Co. Ltd................. 84,876
3,000 Secom.......................... 198,013
5,000 Tanseisha Co................... 68,830
---------------
471,512
---------------
CHEMICALS
2,000 Maezawa Kasei Industries....... 85,878
37,000 Mitsubishi Chemical Corp....... 170,681
33,000 Nippon Zeon Co. Ltd............ 204,577
12,000 Sakai Chemical Industry Co..... 77,673
9,450 Shin-Etsu Chemical Co.......... 180,919
---------------
719,728
---------------
COMMERCIAL SERVICES
6,000 Kawasho Lease System
Corp......................... 71,109
2,200 Nichii Gakkan Co............... 114,322
---------------
185,431
---------------
COMPUTER SOFTWARE & SERVICES
2,000 Enix Corp...................... 62,540
5,000 Ines........................... 93,445
4,000 Meitec......................... 90,801
5 NTT Data Communications Systems
Corp......................... 149,512
---------------
396,298
---------------
COMPUTERS
16,000 Fujitsu, Ltd................... 145,866
1,200 Mars Engineering Corp.......... 94,630
500 TKC Corp....................... 14,769
---------------
255,265
---------------
COMPUTERS - SYSTEMS
3,000 Daiwabo Information Systems
Co........................... 73,334
---------------
DATA PROCESSING
6,000 Ricoh Elemex................... 92,989
---------------
ELECTRICAL EQUIPMENT
4,000 Maspro Denkoh Corp............. 97,730
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
5,000 Aiwa Co........................ 106,208
5,000 Canon, Inc..................... 103,929
Y 9,000K Canon, Inc. 1.00% due 12/20/02
(Conv.)...................... 124,305
24,000 Hitachi, Ltd................... 223,174
3,000 Kyocera Corp................... 211,961
1,500 Mabuchi Motor Co............... 95,451
3,000 Mitsui High-Tec................ 70,016
4,000 Murata Manufacturing Co.,
Ltd.......................... 151,336
7,000 Nitto Electric Works........... 115,507
8,000 Omron Corp..................... 169,933
12,000 Sharp Corp..................... 210,047
4,100 Sony Corp...................... 269,496
---------------
1,851,363
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
ELECTRONICS
28,000 Fujikura Ltd................... $ 231,780
10,000 Nissin Electric................ 83,143
2,000 Rohm Co., Ltd.................. 132,008
3,000 Ryoyo Electro Corp............. 64,546
---------------
511,477
---------------
ENTERTAINMENT
2,000 H.I.S. Company Ltd............. 121,615
---------------
FINANCIAL SERVICES
15,000 Daiwa Securities Co., Ltd...... 192,816
1,900 Nichiei Co., Ltd. (Kyoto)...... 126,447
10,000 Nomura Securities Co. Ltd...... 195,095
2,800 Promise Co., Ltd............... 137,843
1,000 Sanyo Shinpan Finance Co.,
Ltd.......................... 63,907
3,000 Shinki Co. Ltd................. 103,929
---------------
820,037
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
3,800 Amway Japan, Ltd............... 190,537
14,000 Nippon Meat Packers, Inc....... 199,107
1,000 Plenus Company, Ltd............ 45,127
4,000 Stamina Foods.................. 38,290
4 Yoshinoya D & C Company
Ltd.......................... 53,970
---------------
527,031
---------------
FOREST PRODUCTS, PAPER & PACKAGING
10,000 Daishowa Paper Manufacturing
Co. Ltd.*.................... 77,035
---------------
HEALTH & PERSONAL CARE
5,000 Kawasumi Laboratories, Inc..... 75,668
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
3,000 Beltecno Corp.................. 35,008
6,000 Juken Sangyo Co................ 65,093
---------------
100,101
---------------
INDUSTRIALS
10,000 Nippon Thompson Co............. 86,152
16,000 Tokai Carbon Co., Ltd.*........ 88,249
---------------
174,401
---------------
INSURANCE
15,000 Tokio Marine & Fire Insurance
Co............................. 199,654
16,000 Yasuda Fire & Marine
Insurance*................... 119,464
---------------
319,118
---------------
MACHINE TOOLS
2,000 Nitto Kohki Co. Ltd............ 91,166
10,000 OSG Corp....................... 76,671
---------------
167,837
---------------
</TABLE>
142
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
MACHINERY
8,000 Aichi Corp..................... $ 86,061
7,000 CKD Corp....................... 72,750
16,000 Daifuku Co. Ltd................ 245,054
4,700 Fanuc, Ltd..................... 186,817
3,000 Fuji Machine Manufacturing
Co........................... 84,511
1,700 Keyence Corp................... 230,924
Y 19,000K Minebea Co. Ltd. 0.80% due
03/31/03 (Conv.)............. 194,001
24,000 Mitsubishi Heavy Industries,
Ltd.......................... 208,515
5,000 Sansei Yusoki Co., Ltd......... 72,021
7,000 Sintokogio..................... 64,454
5,000 Takuma Co., Ltd................ 75,668
11,000 Tsudakoma...................... 77,719
---------------
1,598,495
---------------
MANUFACTURING
5,000 Arcland Sakamoto............... 78,403
8,000 Bridgestone Metalpha Corp...... 114,505
9,000 Daiwa House Industry........... 139,484
8,000 Itoki Crebio Corp.............. 72,276
1,500 KDD............................ 158,629
4,400 Nichiha Corp................... 89,051
10,000 Nippon Electric Glass Co.,
Ltd.......................... 170,480
4,000 Noritsu Koki Co. Ltd........... 202,024
4,000 Sony Music Entertainment
Inc.......................... 185,979
13,000 Tokyo Style.................... 226,365
---------------
1,437,196
---------------
MEDICAL SUPPLIES
1,100 Paramount Bed Co............... 75,112
15,000 Shimadzu Corp.................. 100,647
9,000 Terumo......................... 114,049
---------------
289,808
---------------
MERCHANDISING
3,000 Misumi Corp.................... 107,485
---------------
METALS
6,000 Takada Kiko.................... 60,717
9,200 Tokyo Steel Manufacturing...... 180,326
---------------
241,043
---------------
METALS & MINING
31,000 Nippon Light Metal Co.......... 175,786
75,000 Nippon Steel Co................ 257,088
---------------
432,874
---------------
MULTI-INDUSTRY
26,000 Mitsui & Co.................... 235,372
3,500 Trusco Nakayama Corp........... 91,257
5,000 Yamae Hisano................... 46,951
---------------
373,580
---------------
NATURAL GAS
56,000 Tokyo Gas Co., Ltd............. 204,212
---------------
OIL RELATED
16,000 General Sekiyu................. 140,760
---------------
PHARMACEUTICALS
12,500 Eisai Co. Ltd.................. 235,892
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
REAL ESTATE
8,000 Cesar Co....................... $ 79,497
5,000 Chubu Sekiwa Real Estate,
Ltd.......................... 80,682
4,000 Fuso Lexel, Inc................ 47,406
5,000 Kansai Sekiwa Real Estate...... 95,724
20,000 Mitsui Fudosan Co.............. 269,851
5,000 Sekiwa Real Estate............. 52,420
5,000 Tohoku Misawa Homes Co.,
Ltd.......................... 68,830
---------------
694,410
---------------
RETAIL
200 Belluna Co., Ltd............... 4,613
3,300 Ministop Co., Ltd.............. 87,848
3,000 Seven - Eleven Japan........... 191,175
6,000 Shimachu Co., Ltd.............. 177,774
2,000 Sundrug Co., Ltd............... 88,249
2,000 Xebio Co. Ltd.................. 74,938
---------------
624,597
---------------
RETAIL - GENERAL MERCHANDISE
2,000 Circle K Japan Co. Ltd......... 103,565
1,000 Ryohin Keikaku Co. Ltd......... 90,072
---------------
193,637
---------------
RETAIL - SPECIALTY
4,000 Aderans Co. Ltd................ 106,482
1,000 Paris Miki Inc................. 46,495
5,000 Seijo Corp..................... 147,233
---------------
300,210
---------------
TELECOMMUNICATIONS
30 DDI Corp....................... 261,464
17,000 Nippon Comsys Co............... 229,374
---------------
490,838
---------------
TEXTILES
5,000 Chuo Warehouse................. 65,640
18,000 Kuraray Co. Ltd................ 201,842
1,700 Maruco Co., Ltd................ 152,657
---------------
420,139
---------------
TRANSPORTATION
33 East Japan Railway Co.......... 172,988
17,000 Fukuyama Transporting Co....... 164,281
18,000 Kamigumi Co. Ltd............... 164,099
3,000 Kanto Seino Transportation..... 90,254
21,000 Tokyu Corp..................... 159,860
---------------
751,482
---------------
UTILITIES
5,900 Hokkaido Electric Power........ 130,167
---------------
WHOLESALE & INTERNATIONAL TRADE
2,400 Satori Electric Co. Ltd........ 83,143
---------------
WHOLESALE DISTRIBUTOR
4,000 Wakita & Co.................... 60,899
---------------
TOTAL JAPAN.................... 20,112,946
---------------
MALAYSIA (16.5%)
AGRICULTURE
245,000 Highlands & Lowlands
Berhad....................... 434,202
170,000 Lingui Developments Berhad..... 402,165
---------------
836,367
---------------
</TABLE>
143
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
AUTOMOTIVE
40,000 Cycle & Carriage Bintang
Berhad....................... $ 259,824
160,000 Diversified Resources
Berhad....................... 551,724
42,000 Oriental Holdings Berhad....... 274,499
75,000 Perusahaan Otomobil Nasional
Berhad....................... 408,982
185,000 Tan Chong Motor Holdings
Berhad....................... 270,008
---------------
1,765,037
---------------
BANKING
127,600 Malayan Banking Berhad......... 1,227,907
170,000 Public Bank Berhad
(Alien Market)............... 470,329
30,000 Public Bank Berhad
(Alien Market)............... 84,225
---------------
1,782,461
---------------
BANKS - COMMERCIAL
95,000 DCB Holdings Berhad............ 325,682
37,500 DCB Holdings Berhad (Warrants
due 12/27/99)*............... 49,318
152,000 Kwong Yik Bank................. 341,299
---------------
716,299
---------------
BUILDING & CONSTRUCTION
50,000 Gamuda Berhad.................. 314,755
32,000 Hume Industries (Malaysia)
Berhad....................... 156,536
120,000 Kedah Cement Berhad............ 222,294
150,000 Malayan Cement Berhad.......... 360,866
150,000 Metacorp Berhad................ 433,039
152,000 Sungei Way Holdings
Berhad....................... 713,071
135,000 United Engineers Malaysia
Berhad....................... 936,448
---------------
3,137,009
---------------
CHEMICALS
125,000 Chemical Co. of Malaysia
Berhad....................... 400,962
31,250 Chemical Co. of Malaysia
Berhad
(Warrants due 11/07/00)* ... 39,846
---------------
440,808
---------------
CONGLOMERATES
280,000 Malaysian Resources Corp.
Berhad....................... 684,844
210,000 Renong Berhad.................. 335,124
---------------
1,019,968
---------------
CONSTRUCTION PLANT & EQUIPMENT
97,500 YTL Corp. Berhad............... 508,220
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
39,666 Leader Universal Holdings
Berhad....................... 112,127
---------------
ENTERTAINMENT
325,000 Magnum Corporation Berhad...... 549,920
254,000 Resorts World Berhad........... 1,456,375
---------------
2,006,295
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
FINANCIAL SERVICES
266,000 Affin Holdings Berhad.......... $ 623,937
105,000 Gadek Capital Berhad........... 332,598
225,000 Public Finance Berhad.......... 405,974
72,000 Public Finance Berhad
(Rights)*.................... 40,417
50,000 Rashid Hussain Berhad.......... 183,440
---------------
1,586,366
---------------
INSURANCE
70,000 Malaysia Assurance............. 370,489
80,000 Pacific & Orient Berhad........ 224,539
---------------
595,028
---------------
MANUFACTURING
625 Box - Pak (Malaysia) Berhad.... 388
100,000 Kian Joo Can Factory Berhad.... 557,338
57,000 Malaysian Pacific Industries
Berhad....................... 237,691
31,250 O.Y.L. Industries Berhad....... 325,782
3,125 O.Y.L. Industries Berhad
(Rights)*.................... 13,783
---------------
1,134,982
---------------
MULTI-INDUSTRY
180,000 Multi-Purpose Holdings
Berhad....................... 290,136
150,000 Nylex Berhad................... 577,386
---------------
867,522
---------------
OIL & GAS PRODUCTS
160,000 Petronas Dagangan Berhad....... 433,039
---------------
PLANTATION
187,500 Kuala Lumpur Kepong
Berhad....................... 473,637
---------------
REAL ESTATE
100,000 IOI Properties Berhad.......... 314,755
277,500 Land & General Berhad.......... 684,292
268,000 Metroplex Berhad............... 287,987
225,000 Pelangi Berhad................. 221,933
300,000 Selangor Properties Berhad..... 365,678
---------------
1,874,645
---------------
TELECOMMUNICATIONS
190,000 Technology Resources Industries
Berhad*...................... 662,791
306,000 Telekom Malaysia Berhad........ 2,723,817
---------------
3,386,608
---------------
TRANSPORTATION
80,000 Konsortium Perkapalan
Berhad....................... 481,155
180,000 Malaysian Airline System
Berhad....................... 573,777
---------------
1,054,932
---------------
UTILITIES
60,000 Malakoff Berhad................ 262,229
75,000 Prime Utilities Berhad......... 565,357
12,000 Prime Utilities Berhad
(Warrants due 03/11/01)*..... 19,920
24,000 Prime Utilities Berhad 1.00%
due 03/01/01 (Loan Stock).... 6,544
145,000 Tenaga Nasional Berhad......... 610,465
---------------
1,464,515
---------------
TOTAL MALAYSIA................. 25,195,865
---------------
</TABLE>
144
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
PAKISTAN (0.1%)
TELECOMMUNICATIONS
1,100 Pakistan Telecommunications
Corp. (GDS)*................. $ 126,500
---------------
PHILIPPINES (4.4%)
BANKING
12,000 Far East Bank & Trust Co....... 422,341
750 Far East Bank & Trust Co.
(Rights)*.................... 26,397
29,780 Philippine National Bank....... 498,422
204,000 Security Bank Corp............. 550,191
---------------
1,497,351
---------------
BUILDING & CONSTRUCTION
68,199 Bacnotan Consolidated
Industries................... 320,906
---------------
CONGLOMERATES
325,000 Ayala Corp. (B Shares)......... 615,436
160,000 First Philippine Holdings Corp.
(B Shares)................... 391,737
600,000 JG Summit Holdings, Inc.
(B Shares)................... 224,943
---------------
1,232,116
---------------
ENGINEERING & CONSTRUCTION
550,000 DMCI Holdings Inc.............. 394,510
---------------
FOREST PRODUCTS, PAPER & PACKAGING
577,500 Paper Industries Corp.......... 110,463
---------------
REAL ESTATE
3,000,000 Belle Corp.*................... 723,030
460,000 Fil-Estate Land, Inc.*......... 589,518
---------------
1,312,548
---------------
TELECOMMUNICATIONS
344,000 Pilipino Telephone Corp........ 526,396
---------------
UTILITIES
75,000 Manila Electric Co.
(B Shares)................... 789,021
1,300 Philippine Long Distance
Telephone Co................. 77,582
6,650 Philippine Long Distance
Telephone Co. (ADR).......... 386,531
---------------
1,253,134
---------------
TOTAL PHILIPPINES.............. 6,647,424
---------------
SINGAPORE (12.1%)
APPLIANCES & HOUSEHOLD DURABLES
300,000 Courts Ltd..................... 478,554
---------------
AUTOMOTIVE
25,000 Cycle and Carriage Ltd......... 267,636
---------------
BANKING
116,000 Development Bank of Singapore,
Ltd.......................... 1,447,430
80,000 Keppel Bank.................... 246,154
11,100 Overseas Chinese Banking Corp.,
Ltd. (Fully Paid)
(Rights)*.................... 88,926
111,000 Overseas Chinese Banking Corp.,
Ltd.......................... 1,298,476
81,000 Overseas Union Bank, Ltd....... 557,036
161,000 United Overseas Bank, Ltd...... 1,540,943
---------------
5,178,965
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
CONGLOMERATES
45,000 Keppel Corp., Ltd.............. $ 376,462
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
320,000 Venture Manufacturing Ltd...... 589,862
80,000 Venture Manufacturing Ltd.
(Rights)*.................... 56,717
---------------
646,579
---------------
FINANCE
85,000 Hong Leong Finance Ltd......... 297,696
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
45,600 Fraser & Neave Ltd............. 472,003
---------------
HOTELS
50,000 Overseas Union Enterprise
Ltd.......................... 272,953
210,000 Republic Hotels & Resorts
Ltd.......................... 278,412
56,000 Republic Hotels & Resorts Ltd.
(Warrants due 07/12/00)*..... 32,754
---------------
584,119
---------------
MACHINERY
65,000 Van Der Horst Ltd.............. 304,147
---------------
METALS
340,000 Amtek Engineering Ltd.......... 614,676
---------------
PUBLISHING
45,200 Singapore Press Holdings....... 887,657
---------------
REAL ESTATE
12,000 Bukit Sembawang Estates
Ltd.......................... 312,230
150,000 City Developments, Ltd......... 1,169,798
160,000 DBS Land Ltd................... 549,025
165,000 Parkway Holdings Ltd........... 491,315
38,000 Singapore Land Ltd............. 257,285
320,000 United Overseas Land, Ltd...... 562,637
37,000 United Overseas Land, Ltd.
(Fully Paid) (Warrants due
06/09/97)*................... 18,362
---------------
3,360,652
---------------
RETAIL
450,000 Dairy Farm International
Holdings Ltd................. 380,250
---------------
SHIPBUILDING
60,000 Far East Levingston
Shipbuilding Ltd............. 331,797
181,000 Sembawang Corp. Ltd............ 898,263
---------------
1,230,060
---------------
STEEL & IRON
200,000 Natsteel Ltd................... 397,022
---------------
TELECOMMUNICATIONS
350,000 Singapore Telecommunications,
Ltd.......................... 933,002
---------------
TRANSPORTATION
350,000 Comfort Group Ltd.............. 347,395
166,000 Singapore Airlines Ltd......... 1,753,563
---------------
2,100,958
---------------
TOTAL SINGAPORE................ 18,510,438
---------------
</TABLE>
145
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
SOUTH KOREA (5.6%)
AUTOMOTIVE
50,000 Hyundai Motor Co., Ltd. (GDR).. $ 625,000
30,450 Kia Motors Corp. (GDR)* -
144A**....................... 502,425
---------------
1,127,425
---------------
BANKING
33,000 Kangwon Bank................... 313,317
---------------
CHEMICALS
16,000 Sunkyong Ltd................... 329,470
---------------
COMMUNICATIONS - EQUIPMENT/ MANUFACTURERS
3,500 LG Information & Communication
Ltd.......................... 403,514
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
4,500 Samsung Electronics Co......... 377,867
451 Samsung Electronics Co. (GDR) -
144A**....................... 22,775
4,388 Samsung Electronics Co. -
144A** (Non-Voting).......... 106,936
135 Samsung Electronics Co. -
144A** (Voting).............. 6,800
---------------
514,378
---------------
ENGINEERING & CONSTRUCTION
30,000 Dong-Ah Construction Industrial
Co........................... 585,000
---------------
FOOD PROCESSING
5,000 Cheil Foods & Chemicals........ 326,757
---------------
INDUSTRIALS
$ 400K Kia Precisions Works 0.50% due
12/31/09 (Conv.)............. 442,000
---------------
INSURANCE
10,000 Oriental Fire & Marine
Insurance.................... 351,418
---------------
INVESTMENT COMPANIES
5,000 Atlantis Korean Smaller
Co's*........................ 217,500
---------------
MULTI-INDUSTRY
$ 250 K Kolon International Corp. 1.00%
due 12/31/08 (Conv.)......... 245,000
---------------
OIL RELATED
12,500 Yukong, Ltd. (GDS)............. 366,831
---------------
PHARMACEUTICALS
$ 800 K Dong-A Pharmaceutical Co., Ltd.
3.125% due 12/31/06
(Conv.)...................... 980,000
---------------
STEEL & IRON
35,300 Pohang Iron & Steel, Ltd.
(ADR)........................ 860,437
---------------
UTILITIES
37,000 Korea Electric Power Corp.
(ADR)........................ 897,250
---------------
WHOLESALE DISTRIBUTOR
$ 500 K Daewoo Corp. 0.25% due 12/31/08
(Conv.)...................... 520,000
---------------
TOTAL SOUTH KOREA.............. 8,480,297
---------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
TAIWAN (1.4%)
INVESTMENT COMPANIES
90 Taipei Fund.................... $ 765,000
26,000 Taiwan American Fund
(Pref.)*..................... 292,500
---------------
1,057,500
---------------
TRANSPORTATION
$ 500K U-Ming Marine Transport 1.50%
due 02/07/01 (Conv.)......... 445,000
$ 504 K Yang Ming Marine Transportation
- 144A** 2.00% due 10/06/01
(Conv.)...................... 630,000
---------------
1,075,000
---------------
TOTAL TAIWAN................... 2,132,500
---------------
THAILAND (11.0%)
BANKING
115,000 Bank of Ayudhya PCL............ 634,058
28,750 Bank of Ayudhya PCL
(Rights)*.................... 84,918
175,000 First Bangkok City Bank PCL
(Alien Market)............... 289,461
125,000 First Bangkok City Bank PCL
(Local Market)............... 206,758
265,000 Krung Thai Bank PCL............ 1,241,927
950,000 Siam City Bank Ltd............. 1,038,221
80,000 Siam Commercial Bank Co.,
Ltd.......................... 1,159,420
229,200 Thai Military Bank, Ltd........ 902,646
---------------
5,557,409
---------------
BUILDING MATERIALS
15,000 Siam Cement Co., Ltd........... 736,059
16,600 Siam City Cement Co., Ltd...... 209,200
90,000 Tipco Asphalt Co., PCL
(Alien Market)............... 531,664
20,000 Tipco Asphalt Co., PCL (Local
Market)...................... 118,147
78,750 TPI Polene Co., Ltd............ 356,658
---------------
1,951,728
---------------
CONGLOMERATES
400,000 Saha-Union PCL................. 626,181
---------------
ENERGY
90,000 Cogeneration PCL............... 393,431
---------------
ENTERTAINMENT
40,000 Grammy Entertainment PLC....... 554,505
---------------
FINANCIAL SERVICES
130,000 Dhana Siam Finance and
Securities PCL............... 721,881
80,000 Krungthai Thanakit PLC......... 356,018
4,074 SCF Finance & Securities Co.,
Ltd.......................... 9,546
13,000 Securities One, Ltd............ 119,802
3,235 Siam City Finance & Securities
Co. PLC...................... 10,765
---------------
1,218,012
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
75,000 Charoen Pokphand Feedmill Co.
Ltd.......................... 440,099
---------------
</TABLE>
146
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- --------------- ---------------
<C> <S> <C>
INVESTMENT COMPANIES
600,000 Ruang Khao 2 Fund............. $ 301,276
---------------
METALS & MINING
35,000 Ban Pu Coal Co., Ltd.......... 1,008,979
56,300 Lanna Lignite PCL
(Alien Market).............. 492,226
20,000 Lanna Lignite PCL
(Local Market).............. 174,858
---------------
1,676,063
---------------
OIL RELATED
85,000 PTT Exploration & Production
PCL......................... 1,245,274
---------------
TELECOMMUNICATIONS
18,500 Advanced Information Service
PCL
(Alien Market) ... 289,973
20,000 Advanced Information Service
PCL
(Local Market) .... 313,485
90,000 Total Access Communication
PCL......................... 765,000
40,000 United Communication
Industry.................... 535,602
---------------
1,904,060
---------------
TRANSPORTATION
150,000 Bangkok Expressway Public Co.
(Alien Market).............. 246,633
200,000 Bangkok Expressway Public Co.
(Local Market).............. 328,844
167,400 Thai Airways International
Ltd......................... 356,002
---------------
931,479
---------------
TOTAL THAILAND................ 16,799,517
---------------
TOTAL COMMON AND PREFERRED
STOCKS, WARRANTS, RIGHTS AND
BONDS (IDENTIFIED COST
$137,809,043)............... 146,702,593
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------ ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (A) (4.0%)
COMMERCIAL PAPER (0.1%)
AUTOMOTIVE - FINANCE
$ 140 Ford Motor Credit Co.
5.29% due 07/09/96............. $ 139,835
---------------
U.S. GOVERNMENT AGENCY (3.9%)
6,000 Federal Home Loan Mortgage Corp.
5.52% due 07/01/96............. 6,000,000
---------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $6,139,835).... 6,139,835
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $143,948,878) (B)......... 100.2% 152,842,428
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS................... (0.2) (321,505)
---------- -------------
NET ASSETS....................... 100.0% $ 152,520,923
---------- -------------
---------- -------------
<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.
*** PARTIALLY PAID SHARES. RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL
INVESTORS.
++ CONSISTS OF MORE THAN ONE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY STOCKS WITH ATTACHED WARRANTS.
(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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $15,914,544 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $7,020,994, RESULTING IN NET
UNREALIZED APPRECIATION OF $8,893,550.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1996:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- ---------------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 418,665 IDR 974,023,898 07/01/96 $ 90
$ 333,128 MYR 830,488 07/01/96 (134)
HKD 1,462,703 $ 188,963 07/01/96 (12)
$ 45,753 MYR 114,182 07/03/96 30
------
Net
unrealized depreciation..................... $ (26)
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
147
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--PACIFIC GROWTH
SUMMARY OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Aerospace & Defense.......................... $ 170,708 0.1%
Agriculture.................................. 836,367 0.5
Appliances & Household Durables.............. 478,554 0.3
Automotive................................... 5,490,851 3.6
Automotive - Finance......................... 139,835 0.1
Banking...................................... 21,589,079 14.2
Banks - Commercial........................... 716,299 0.5
Building & Construction...................... 4,759,440 3.1
Building Materials........................... 4,258,883 2.8
Business Services............................ 1,009,612 0.7
Chemicals.................................... 1,490,006 1.0
Commercial Services.......................... 1,056,170 0.7
Communications - Equipment/
Manufacturers............................... 403,514 0.3
Computer Software & Services................. 396,298 0.3
Computers.................................... 255,265 0.2
Computers - Systems.......................... 73,334 --
Conglomerates................................ 9,472,575 6.1
Construction Plant & Equipment............... 1,045,408 0.7
Data Processing.............................. 92,989 0.1
Electrical Equipment......................... 97,730 0.1
Electronic & Electrical Equipment............ 3,321,470 2.2
Electronics.................................. 511,477 0.3
Energy....................................... 393,431 0.3
Engineering & Construction................... 1,637,278 1.1
Entertainment................................ 2,682,415 1.8
Finance...................................... 297,696 0.2
Financial Services........................... 4,577,201 3.0
Food Processing.............................. 601,298 0.4
Food, Beverage, Tobacco & Household
Products.................................... 3,640,604 2.4
Forest Products, Paper & Packaging........... 682,809 0.5
Health & Personal Care....................... 75,668 0.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Hotels....................................... $ 584,119 0.4%
Hotels/Motels................................ 313,997 0.2
Household Furnishings & Appliances........... 100,101 0.1
Industrials.................................. 616,401 0.4
Insurance.................................... 1,607,312 1.1
Investment Companies......................... 2,527,723 1.7
Leisure...................................... 974,620 0.6
Machine Tools................................ 167,837 0.1
Machinery.................................... 2,354,061 1.4
Manufacturing................................ 2,572,178 1.7
Medical Supplies............................. 289,808 0.2
Merchandising................................ 107,485 0.1
Metals....................................... 2,075,839 1.4
Metals & Mining.............................. 3,025,601 2.0
Multi-Industry............................... 1,486,102 1.0
Natural Gas.................................. 204,212 0.1
Oil & Gas Products........................... 433,040 0.3
Oil Related.................................. 3,216,038 2.1
Pharmaceuticals.............................. 1,409,357 0.9
Photography.................................. 408,427 0.3
Plantation................................... 473,637 0.3
Publishing................................... 1,264,262 0.8
Real Estate.................................. 18,516,911 12.0
Retail....................................... 1,345,071 0.9
Retail - General Merchandise................. 193,637 0.1
Retail - Specialty........................... 765,314 0.5
Shipbuilding................................. 1,230,060 0.8
Steel & Iron................................. 1,257,459 0.8
Telecommunications........................... 10,970,113 7.2
Textiles..................................... 420,139 0.3
Transportation............................... 6,991,870 4.6
U.S. Government Agency....................... 6,000,000 3.8
Utilities.................................... 6,021,392 3.8
Wholesale & International Trade.............. 83,143 0.1
Wholesale Distributor........................ 580,898 0.4
------------ ----------
$152,842,428 100.2%
------------ ----------
------------ ----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Common Stocks................................ $141,662,857 92.9%
Convertible Bonds............................ 4,055,068 2.7
Preferred Stocks............................. 292,500 0.2
Rights....................................... 518,323 0.3
Short-Term Investment........................ 6,139,835 4.0
Warrants..................................... 173,845 0.1
------------ ----------
$152,842,428 100.2%
------------ ----------
------------ ----------
</TABLE>
148
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
COMMON STOCKS (92.0%)
AEROSPACE (1.3%)
47,000 Boeing Co......................... $ 4,094,875
17,300 United Technologies Corp.......... 1,989,500
---------------
6,084,375
---------------
AGRICULTURE RELATED (1.8%)
50,000 Case Corp......................... 2,400,000
50,000 IMC Global, Inc................... 1,881,250
35,000 Pioneer Hi-Bred International,
Inc............................. 1,850,625
35,000 Potash Corp. of Saskatchewan, Inc.
(Canada)........................ 2,318,750
---------------
8,450,625
---------------
APPAREL & FOOTWEAR (1.4%)
27,018 Fila Holding SpA (ADR) (Italy).... 2,330,302
45,100 Jones Apparel Group, Inc.*........ 2,215,537
40,000 Nine West Group, Inc.............. 2,045,000
---------------
6,590,839
---------------
AUTO RELATED (1.8%)
74,900 AutoZone, Inc.*................... 2,602,775
40,000 Chrysler Corp..................... 2,480,000
80,000 Harley-Davidson, Inc.............. 3,290,000
---------------
8,372,775
---------------
AUTOMOTIVE (0.5%)
72,000 Ford Motor Co..................... 2,331,000
---------------
BANKS (1.9%)
60,000 BankAmerica Corp.................. 4,545,000
20,000 Corestates Financial Corp......... 770,000
10,000 First Bank System, Inc............ 580,000
15,000 Firstar Corp...................... 691,875
24,300 NationsBank Corp.................. 2,007,787
---------------
8,594,662
---------------
BANKS - MONEY CENTER (0.7%)
40,700 Citicorp.......................... 3,362,837
---------------
BEVERAGES - ALCOHOLIC (0.5%)
30,000 Anheuser-Busch Companies,
Inc............................. 2,250,000
---------------
BEVERAGES - SOFT DRINKS (1.5%)
60,000 Coca Cola Co...................... 2,932,500
115,000 PepsiCo Inc....................... 4,068,125
---------------
7,000,625
---------------
BIOTECHNOLOGY (2.1%)
3,100 Aksys, Ltd.*...................... 45,725
20,000 Amgen Inc.*....................... 1,075,000
19,000 Biochem Pharma, Inc.*............. 710,125
80,000 Centocor, Inc.*................... 2,390,000
89,100 Guidant Corp...................... 4,388,175
27,700 Interneuron Pharmaceuticals,
Inc.*........................... 817,150
900 SangStat Medical Corp.*........... 15,187
---------------
9,441,362
---------------
BROKERAGE (1.4%)
40,000 Merrill Lynch & Co., Inc.......... 2,605,000
80,000 Morgan Stanley Group, Inc......... 3,930,000
---------------
6,535,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
BUSINESS SYSTEMS (0.1%)
8,200 Electronic Data Systems Corp...... $ 440,750
---------------
CAPITAL GOODS (1.5%)
40,000 Lockheed Martin Corp.............. 3,360,000
50,600 Raychem Corp...................... 3,636,875
---------------
6,996,875
---------------
CHEMICALS (0.9%)
125,000 Monsanto Co....................... 4,062,500
---------------
COMMUNICATIONS (2.2%)
60,000 ACT Networks, Inc.*............... 1,935,000
25,000 Adtran, Inc.*..................... 1,768,750
50,000 Andrew Corp.*..................... 2,700,000
30,000 Pairgain Technologies, Inc.*...... 1,860,000
30,000 Premisys Communications,
Inc.*........................... 1,830,000
---------------
10,093,750
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.4%)
114,000 Cisco Systems, Inc.*.............. 6,455,250
---------------
COMMUNICATIONS - SOFTWARE & SERVICES (0.1%)
8,000 America Online, Inc.*............. 348,000
---------------
COMMUNICATIONS EQUIPMENT (1.2%)
80,000 Tellabs, Inc.*.................... 5,340,000
---------------
COMPUTER SERVICES (3.4%)
21,000 BDM International Inc............. 971,250
14,300 Boston Communications Group,
Inc............................. 232,375
54,000 Cambridge Technology Partners,
Inc.*........................... 1,647,000
19,200 Cognos, Inc.* (Canada)............ 436,800
40,000 Computer Horizons Corp.*.......... 1,570,000
3,900 First USA Paymentech, Inc......... 156,000
80,000 Gartner Group, Inc. (Class A)*.... 2,930,000
36,000 HNC Software, Inc................. 1,620,000
30,000 Keane, Inc........................ 1,106,250
3,800 NOVA Corp.*....................... 128,250
5,200 Renaissance Solutions, Inc.*...... 143,000
7,000 Sapient Corp...................... 288,750
2,600 Siebel Systems, Inc............... 78,000
88,000 Sterling Commerce, Inc.*.......... 3,267,000
12,500 Transaction Systems Architects,
Inc. (Class A).................. 837,500
---------------
15,412,175
---------------
COMPUTER SOFTWARE (7.5%)
22,500 Arbor Software Corp.*............. 1,338,750
23,000 Atria Software, Inc.*............. 1,150,000
50,000 Baan Company NV*
(Netherlands)................... 1,700,000
25,000 BMC Software, Inc.*............... 1,487,500
48,500 Business Objects S.A. (ADR)*
(France)........................ 1,952,125
32,000 Computer Associates International,
Inc............................. 2,280,000
50,000 Edify Corp.*...................... 1,300,000
29,900 Forte Software, Inc.*............. 1,562,275
50,000 Microsoft Corp.*.................. 6,000,000
90,000 Oracle Corp.*..................... 3,543,750
100,000 Parametric Technology Corp.*...... 4,325,000
30,000 Peoplesoft, Inc.*................. 2,130,000
21,000 Rational Software Corp.*.......... 1,128,750
22,000 Remedy Corp.*..................... 1,595,000
41,000 Viasoft, Inc.*.................... 2,639,375
---------------
34,132,525
---------------
</TABLE>
149
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (0.5%)
55,000 Citrix Systems, Inc.*............. $ 2,076,250
---------------
CONSUMER BUSINESS SERVICES (5.7%)
32,600 AccuStaff, Inc.*.................. 888,350
40,000 Apollo Group, Inc. (Class A)*..... 1,100,000
60,000 CBT Group PLC (ADR)*
(Ireland)....................... 2,700,000
5,000 Computer Sciences Corp.*.......... 373,750
12,400 CUC International, Inc.*.......... 440,200
52,500 DST Systems, Inc.*................ 1,680,000
40,000 First Data Corp................... 3,185,000
80,000 Mirage Resorts, Inc.*............. 4,320,000
146,500 National Education Corp.*......... 2,087,625
50,000 Reuters Holdings PLC (ADR) (United
Kingdom)........................ 3,618,750
70,000 Service Corp. International....... 4,025,000
41,200 Verifone, Inc..................... 1,740,700
---------------
26,159,375
---------------
CONSUMER PRODUCTS (4.5%)
44,600 Avon Products, Inc................ 2,012,575
60,000 Callaway Golf Co.................. 1,995,000
75,000 Dial Corp......................... 2,146,875
64,800 Gillette Co....................... 4,041,900
30,000 Kimberly-Clark Corp............... 2,317,500
60,000 Kroger Co.*....................... 2,370,000
30,000 Panamerican Beverages, Inc. (Class
A) (Mexico)..................... 1,342,500
35,000 Procter & Gamble Co............... 3,171,875
30,000 Vons Companies, Inc............... 1,121,250
---------------
20,519,475
---------------
DRUGS (2.6%)
85,000 American Home Products Corp....... 5,110,625
80,000 IDEC Pharmaceuticals Corp.*....... 1,840,000
75,000 Lilly (Eli) & Co.................. 4,875,000
---------------
11,825,625
---------------
ELECTRIC - MAJOR (0.6%)
30,000 General Electric Co............... 2,595,000
---------------
ELECTRONICS (0.1%)
7,000 Intel Corp........................ 513,625
---------------
ENERGY (4.8%)
110,000 Baker Hughes Inc.................. 3,616,250
40,600 BJ Services Co.*.................. 1,426,075
21,000 Chesapeake Energy Corp.*.......... 1,887,375
46,000 Diamond Offshore Drilling, Inc.*.. 2,633,500
78,300 Global Marine, Inc.*.............. 1,086,451
50,000 Halliburton Co.................... 2,775,000
40,000 Marine Drilling Company, Inc.*.... 400,000
75,000 Reading & Bates Corp.*............ 1,659,375
80,000 Rowan Companies, Inc.*............ 1,180,000
31,000 Smith International, Inc.*........ 933,875
70,000 Tidewater, Inc.................... 3,071,250
20,000 Western Atlas, Inc.*.............. 1,165,000
---------------
21,834,151
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
ENTERTAINMENT/GAMING & LODGING (1.7%)
10,000 Circus Circus Enterprises,
Inc.*........................... $ 410,000
100,000 MGM Grand, Inc.................... 3,987,500
114,500 Showboat, Inc..................... 3,449,313
---------------
7,846,813
---------------
FINANCIAL - MISCELLANEOUS (1.3%)
18,800 Associates First Capital Corp..... 707,350
20,000 First USA, Inc.................... 1,100,000
47,800 Green Tree Financial Corp......... 1,493,750
34,960 Household International, Inc...... 2,656,960
---------------
5,958,060
---------------
HEALTH MAINTENANCE ORGANIZATIONS (0.6%)
132,500 Health Management Associates, Inc.
(Class A)*...................... 2,683,125
---------------
HEALTHCARE PRODUCTS & SERVICES (4.0%)
58,000 HBO & Co.......................... 3,915,000
20,000 Healthsouth Corp.*................ 720,000
113,000 PhyCor, Inc.*..................... 4,265,750
30,000 Physician Sales & Service,
Inc.*........................... 727,500
54,300 Renal Treatment Centers, Inc.*.... 1,561,125
32,000 RoTech Medical Corp.*............. 616,000
67,000 Shared Medical Systems Corp....... 4,304,750
12,700 Sunrise Assisted Living, Inc.*.... 304,800
21,900 Total Renal Care Holdings,
Inc.*........................... 925,275
24,800 Vivra, Inc.*...................... 815,300
---------------
18,155,500
---------------
HOTELS/MOTELS (2.4%)
56,100 HFS, Inc.*........................ 3,927,000
34,000 Hilton Hotels Corp................ 3,825,000
50,000 ITT Corp.*........................ 3,312,500
---------------
11,064,500
---------------
HOUSEHOLD PRODUCTS (0.7%)
40,000 Colgate-Palmolive Co.............. 3,390,000
---------------
HOUSING RELATED (0.5%)
80,000 Bed Bath & Beyond, Inc.*.......... 2,110,000
4,600 Oakwood Homes Corp................ 94,875
---------------
2,204,875
---------------
INSURANCE (2.3%)
71,000 Allstate Corp. (Note 3)........... 3,239,375
35,000 American International
Group, Inc...................... 3,451,875
61,000 Conseco Inc....................... 2,440,000
26,000 SunAmerica, Inc................... 1,469,000
---------------
10,600,250
---------------
INTERNET (0.5%)
29,500 Security Dynamics Technologies,
Inc.*........................... 2,419,000
---------------
MACHINERY - DIVERSIFIED (1.1%)
120,500 Thermo Electron Corp.............. 5,015,813
---------------
</TABLE>
150
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
MEDIA GROUP (2.4%)
52,900 Clear Channel Communications,
Inc.*........................... $ 4,357,638
61,500 Emmis Broadcasting Corp. (Class
A)*............................. 3,044,250
30,000 Evergreen Media Corp.
(Class A)*...................... 1,267,500
71,000 Infinity Broadcasting Corp.*...... 2,130,000
3,000 Lin Television Corp.*............. 106,500
---------------
10,905,888
---------------
MEDICAL PRODUCTS & SUPPLIES (1.4%)
20,400 Becton, Dickinson & Co............ 1,637,100
50,000 IDEXX Laboratories, Inc.*......... 1,950,000
40,000 Omnicare, Inc..................... 1,060,000
42,000 Target Therapeutics, Inc.*........ 1,711,500
---------------
6,358,600
---------------
MEDICAL SUPPLIES (0.1%)
6,800 Arterial Vascular Engineering,
Inc............................. 243,100
4,200 Heartport, Inc.*.................. 126,000
---------------
369,100
---------------
OFFICE EQUIPMENT & SUPPLIES (0.2%)
26,000 Corporate Express, Inc.*.......... 1,040,000
---------------
OIL DRILLING & SERVICES (0.7%)
40,000 Schlumberger, Ltd................. 3,370,000
---------------
PHARMACEUTICALS (2.2%)
120,000 Johnson & Johnson................. 5,940,000
60,000 Pfizer, Inc....................... 4,282,500
---------------
10,222,500
---------------
RESTAURANTS (0.6%)
30,000 Cracker Barrel Old Country Store,
Inc............................. 720,000
45,300 Landry's Seafood Restaurants,
Inc.*........................... 1,087,200
26,000 Starbucks Corp.*.................. 731,250
---------------
2,538,450
---------------
RETAIL (3.5%)
37,300 Dayton-Hudson Corp................ 3,846,563
115,000 Federated Department Stores,
Inc.*........................... 3,924,375
19,000 Just For Feet, Inc.*.............. 1,007,000
70,000 Sears, Roebuck & Co............... 3,403,750
50,000 Tiffany & Co...................... 3,650,000
---------------
15,831,688
---------------
RETAIL - FOOD CHAINS (0.9%)
100,000 American Stores Co................ 4,125,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ---------------
<C> <S> <C>
RETAIL - SPECIALTY (1.4%)
40,000 Home Depot, Inc................... $ 2,160,000
18,500 Pacific Sunwear of California,
Inc.*........................... 434,750
94,600 Price/Costco, Inc.*............... 2,022,075
50,000 Safeway, Inc...................... 1,650,000
6,000 Urban Outfitters, Inc.*........... 148,500
---------------
6,415,325
---------------
RETAIL - SPECIALTY APPAREL (0.8%)
120,000 Gap, Inc.......................... 3,855,000
---------------
SHOES (0.8%)
35,000 Nike, Inc. (Class B).............. 3,596,250
---------------
TELECOMMUNICATION EQUIPMENT (0.7%)
38,000 U.S. Robotics Corp................ 3,239,500
---------------
TELECOMMUNICATIONS (6.0%)
90,000 Ascend Communications, Inc.*...... 5,051,250
70,000 Cascade Communications
Corp.*.......................... 4,760,000
97,000 MFS Communications Company,
Inc.*........................... 3,637,500
47,000 Newbridge Networks Corp.*
(Canada)........................ 3,078,500
1,000 Premiere Technologies, Inc.*...... 30,750
44,000 Shiva Corp.*...................... 3,509,000
52,000 Stratacom, Inc.*.................. 2,925,000
83,000 WorldCom, Inc.*................... 4,585,750
---------------
27,577,750
---------------
TOBACCO (0.7%)
30,000 Philip Morris Companies, Inc...... 3,120,000
---------------
TRANSPORTATION (2.5%)
45,000 AMR Corp.*........................ 4,095,000
40,000 Delta Air Lines, Inc.............. 3,320,000
72,000 UAL Corp.*........................ 3,870,000
---------------
11,285,000
---------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $384,744,417).............. 421,007,413
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- ------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (2.2%)
$11,200 U.S. Treasury Bond
6.00% due 02/15/26
(Identified Cost $9,735,250).... 9,934,750
---------------
SHORT-TERM INVESTMENTS (7.2%)
U.S. GOVERNMENT AGENCIES (A) (5.5%)
6,000 Federal Farm Credit Bank 5.31% -
5.45% due 07/01/96 - 07/08/96... 15,090,604
10,000 Federal Home Loan Mortgage Corp.
5.26% due 07/03/96.............. 9,997,078
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $25,087,682).... 25,087,682
---------------
</TABLE>
151
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ------------ ---------------
<C> <S> <C>
REPURCHASE AGREEMENT (1.7%)
$ 7,681 The Bank of New York 5.125% due
07/01/96 (dated 06/28/96;
proceeds $7,684,042;
collateralized by $6,733,862
U.S. Treasury Note 7.125% due
09/30/99 valued at $6,997,836
and $832,161 U.S. Treasury Note
5.625% due 10/31/97 valued at
$836,542) (Identified Cost
$7,680,762)..................... $ 7,680,762
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $32,768,444)... 32,768,444
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $427,248,111) (B)......... 101.4% 463,710,607
LIABILITIES IN EXCESS OF OTHER
ASSETS......................... (1.4) (6,335,883)
---------- -------------
NET ASSETS....................... 100.0% $ 457,374,724
---------- -------------
---------- -------------
<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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $44,202,556 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $7,740,060, RESULTING IN NET
UNREALIZED APPRECIATION OF $36,462,496.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
152
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
COMMON STOCKS (67.3%)
AEROSPACE (1.1%)
50,000 Boeing Co........................... $ 4,356,250
---------------
AEROSPACE & DEFENSE (2.2%)
80,000 Honeywell, Inc...................... 4,360,000
24,000 Rockwell International Corp......... 1,374,000
120,000 Watkins-Johnson Co.................. 3,285,000
---------------
9,019,000
---------------
ALUMINUM (0.7%)
52,000 Aluminum Co. of America............. 2,983,500
---------------
AUTOMOTIVE (2.2%)
135,000 Ford Motor Co....................... 4,370,625
87,000 General Motors Corp................. 4,556,625
---------------
8,927,250
---------------
BANKS - MONEY CENTER (1.3%)
30,000 Citicorp............................ 2,478,750
30,000 Morgan (J.P.) & Co., Inc............ 2,538,750
---------------
5,017,500
---------------
BANKS - REGIONAL (0.7%)
11,000 Wells Fargo & Co.................... 2,627,625
---------------
BEVERAGES - SOFT DRINKS (1.2%)
140,000 PepsiCo Inc......................... 4,952,500
---------------
BROKERAGE (1.3%)
40,000 Merrill Lynch & Co., Inc............ 2,605,000
50,000 Morgan Stanley Group, Inc........... 2,456,250
---------------
5,061,250
---------------
BUSINESS SYSTEMS (0.8%)
62,000 Electronic Data Systems Corp........ 3,332,500
---------------
CHEMICALS (0.9%)
108,000 Monsanto Co......................... 3,510,000
---------------
CHEMICALS - SPECIALTY (0.7%)
90,000 Georgia Gulf Corp................... 2,632,500
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (1.7%)
87,000 Bay Networks, Inc.*................. 2,240,250
80,000 Cisco Systems, Inc.*................ 4,530,000
---------------
6,770,250
---------------
COMPUTER EQUIPMENT (1.6%)
140,000 Komag Inc.*......................... 3,657,500
61,000 Seagate Technology, Inc.*........... 2,745,000
---------------
6,402,500
---------------
COMPUTER SOFTWARE (2.1%)
34,000 Microsoft Corp.*.................... 4,080,000
111,000 Oracle Corp.*....................... 4,370,625
---------------
8,450,625
---------------
COMPUTERS (1.1%)
130,000 Gateway 2000, Inc.*................. 4,403,750
---------------
COMPUTERS - SYSTEMS (1.8%)
38,000 Hewlett-Packard Co.................. 3,785,750
33,200 International Business Machines
Corp.............................. 3,286,800
---------------
7,072,550
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
DRUGS (2.5%)
88,000 American Home Products Corp......... $ 5,291,000
70,000 Lilly (Eli) & Co.................... 4,550,000
---------------
9,841,000
---------------
ELECTRIC - MAJOR (1.2%)
55,000 General Electric Co................. 4,757,500
---------------
ELECTRICAL EQUIPMENT (1.1%)
50,000 Emerson Electric Co................. 4,518,750
---------------
ENTERTAINMENT (1.2%)
170,000 Carnival Corp. (Class A)............ 4,908,750
---------------
ENTERTAINMENT/GAMING & LODGING (1.4%)
140,000 Circus Circus Enterprises, Inc.*.... 5,740,000
---------------
FINANCIAL - MISCELLANEOUS (0.8%)
90,000 Federal National Mortgage Assoc..... 3,015,000
---------------
HEALTHCARE - MISCELLANEOUS (3.1%)
190,000 Humana, Inc.*....................... 3,396,250
50,000 PacifiCare Health Systems
(Class B)*........................ 3,387,500
100,000 U.S. Healthcare, Inc................ 5,487,500
---------------
12,271,250
---------------
HOSPITAL MANAGEMENT (1.1%)
86,000 Columbia/HCA Healthcare Corp........ 4,590,250
---------------
HOUSEHOLD PRODUCTS (2.4%)
60,000 Colgate-Palmolive Co................ 5,085,000
50,000 Procter & Gamble Co................. 4,531,250
---------------
9,616,250
---------------
INDUSTRIALS (1.1%)
75,000 AlliedSignal, Inc................... 4,284,375
---------------
NATURAL GAS (0.8%)
68,000 Williams Companies, Inc............. 3,366,000
---------------
OFFICE EQUIPMENT & SUPPLIES (1.0%)
90,000 Alco Standard Corp.................. 4,072,500
---------------
OIL - DOMESTIC (0.9%)
29,000 Atlantic Richfield Co............... 3,436,500
---------------
OIL DRILLING & SERVICES (0.9%)
40,400 Schlumberger, Ltd................... 3,403,700
---------------
OIL INTEGRATED - INTERNATIONAL (3.5%)
65,000 Chevron Corp........................ 3,835,000
40,000 Exxon Corp.......................... 3,475,000
29,000 Mobil Corp.......................... 3,251,625
40,000 Texaco, Inc......................... 3,355,000
---------------
13,916,625
---------------
PHARMACEUTICALS (2.5%)
100,000 Johnson & Johnson................... 4,950,000
70,000 Pfizer, Inc......................... 4,996,250
---------------
9,946,250
---------------
RAILROADS (1.1%)
65,000 Conrail, Inc........................ 4,314,375
---------------
RETAIL (1.5%)
56,000 Dayton-Hudson Corp.................. 5,775,000
---------------
</TABLE>
153
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------
<C> <S> <C>
RETAIL - SPECIALTY (3.0%)
95,000 Home Depot, Inc..................... $ 5,130,000
155,000 Payless ShoeSource, Inc.*........... 4,921,250
81,700 Price/Costco, Inc.*................. 1,746,338
---------------
11,797,588
---------------
RETAIL - SPECIALTY APPAREL (1.3%)
166,000 Gap, Inc............................ 5,332,750
---------------
SAVINGS & LOAN ASSOCIATIONS (1.9%)
150,000 California Federal Bank*............ 2,737,500
50,000 Golden West Financial Corp.......... 2,800,000
100,000 Roosevelt Financial Group, Inc...... 1,925,000
---------------
7,462,500
---------------
SHOES (1.5%)
57,000 Nike, Inc. (Class B)................ 5,856,750
---------------
STEEL & IRON (1.4%)
246,000 Bethlehem Steel Corp.*.............. 2,921,250
133,000 Inland Steel Industries, Inc........ 2,610,125
---------------
5,531,375
---------------
TELECOMMUNICATIONS (0.8%)
73,000 GTE Corp............................ 3,266,750
---------------
TOBACCO (1.8%)
100,000 Dimon, Inc.......................... 1,850,000
50,000 Philip Morris Companies, Inc........ 5,200,000
---------------
7,050,000
---------------
UTILITIES - ELECTRIC (5.1%)
120,000 Baltimore Gas & Electric Co......... 3,405,000
110,000 CINergy Corp........................ 3,520,000
110,000 Consolidated Edison Company of New
York, Inc......................... 3,217,500
95,000 Florida Progress Corp............... 3,301,250
100,000 General Public Utilities Corp....... 3,525,000
120,000 Kansas City Power & Light Co........ 3,300,000
---------------
20,268,750
---------------
UTILITIES - GAS (1.0%)
130,000 Pacific Enterprises................. 3,851,250
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$240,712,504)..................... 267,711,338
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- -----------
<C> <S> <C>
CORPORATE BONDS (12.9%)
BANKS (1.9%)
$ 2,100 Banque Paribas of New York 8.35% due
06/15/07.......................... 2,184,126
1,000 First National Bank Corp.
7.32% due 12/01/10................ 940,860
2,160 First Nationwide Bank
10.00% due 10/01/06............... 2,430,540
2,000 First USA Bank
5.85% due 02/22/01................ 1,893,540
---------------
7,449,066
---------------
BROADCAST MEDIA (0.6%)
2,000 Time Warner, Inc.
9.625% due 05/01/02............... 2,200,140
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
BROKERAGE (0.5%)
$ 2,000 Lehman Brothers Holdings Inc. 8.05%
due 01/15/19...................... $ 2,086,100
---------------
CABLE TELEVISION EQUIPMENT (0.5%)
2,000 Continental Cablevision, Inc. 8.875%
due 09/15/05...................... 2,147,160
---------------
FINANCE (0.6%)
2,000 Terra Nova Holdings 10.75% due
07/01/05 (United Kingdom)......... 2,246,840
---------------
FINANCIAL (2.4%)
1,000 Arkwright CSN Trust - 144A** 9.625%
due 08/15/26...................... 1,028,750
2,000 Commercial Credit Co.
10.00% due 05/15/09............... 2,408,120
1,200 General Motors Acceptance Corp.
5.70% due 12/22/97................ 1,190,088
2,000 RHG Finance Corp.
8.875% due 10/01/05............... 2,070,380
3,000 Sun Canada Financial Co. - 144A**
6.625% due 12/15/07............... 2,808,750
---------------
9,506,088
---------------
FINANCIAL SERVICES (1.1%)
2,000 Conseco, Inc.
10.50% due 12/15/04............... 2,287,060
2,000 Lumbermens Mutual Casualty - 144A**
9.15% due 07/01/26................ 2,072,500
---------------
4,359,560
---------------
FOREIGN GOVERNMENT AGENCY (1.0%)
2,000 Finland (Republic of)
5.875% due 02/27/06............... 1,830,000
2,000 Quebec Province 8.625% due 12/01/26
(Canada).......................... 2,162,960
---------------
3,992,960
---------------
HOSPITAL MANAGEMENT (0.5%)
2,000 Columbia/HCA Healthcare Corp. 7.50%
due 11/15/95...................... 1,900,000
---------------
INDUSTRIALS (2.8%)
2,000 Harcourt General, Inc.
8.875% due 06/01/22............... 2,177,740
2,000 News America Holdings, Inc. 7.90%
due 12/01/95...................... 1,802,500
2,000 Pennzoil Co.
10.125% due 11/15/09.............. 2,359,580
1,950 Philips Electronics NV 7.20% due
06/01/26 (Netherlands)............ 1,933,737
2,000 Reliance Industries PLC
9.375% due 06/24/26 (India)....... 2,045,000
1,000 Tosco Corp. 7.625% due 05/15/06..... 1,000,320
---------------
11,318,877
---------------
TELECOMMUNICATIONS (0.5%)
2,000 Tele-Communications, Inc.
9.80% due 02/01/12................ 2,154,800
---------------
UTILITIES - ELECTRIC (0.5%)
2,000 Niagara Mohawk Power Corp. 9.25% due
10/01/01.......................... 1,974,660
---------------
TOTAL CORPORATE BONDS (IDENTIFIED
COST $51,560,267)................. 51,336,251
---------------
</TABLE>
154
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES--STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (12.7%)
$ 3,000 U.S. Treasury Bond
7.625% due 02/15/25............... $ 3,232,031
1,500 U.S. Treasury Bond
6.875% due 08/15/25............... 1,485,234
3,000 U.S. Treasury Note
5.75% due 09/30/97................ 2,993,438
2,000 U.S. Treasury Note
6.375% due 05/15/99............... 2,004,375
2,000 U.S. Treasury Note
6.875% due 08/31/99............... 2,028,438
12,000 U.S. Treasury Note
7.75% due 12/31/99................ 12,504,375
7,000 U.S. Treasury Note
6.875% due 03/31/00............... 7,103,906
11,000 U.S. Treasury Note
5.625% due 11/30/00............... 10,652,812
2,000 U.S. Treasury Note
6.375% due 08/15/02............... 1,984,063
6,000 U.S. Treasury Note
5.75% due 08/15/03................ 5,708,437
1,000 U.S. Treasury Note
7.25% due 05/15/04................ 1,035,625
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $52,720,933)..... 50,732,734
---------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (A) (6.4%)
U.S. GOVERNMENT AGENCIES
$ 12,000 Federal Home Loan Banks
5.26% due 07/08/96................ $ 11,987,727
13,600 Federal Home Loan Mortgage Corp.
5.24% - 5.52% due 07/01/96 -
07/03/96.......................... 13,597,671
---------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $25,585,398)...... 25,585,398
---------------
TOTAL INVESTMENTS (IDENTIFIED
COST $370,579,102) (B)......... 99.3% 395,365,721
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES................. 0.7 2,841,940
---------- -------------
NET ASSETS....................... 100.0% $ 398,207,661
---------- -------------
---------- -------------
<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. THE AGGREGATE GROSS UNREALIZED APPRECIATION WAS $33,852,765 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION WAS $9,066,146, RESULTING IN NET
UNREALIZED APPRECIATION OF $24,786,619.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
155
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value *..................... $286,283,720 $459,767,262 $202,415,882 $461,325,238
Cash.......................... 6,962 -- 20,783 --
Receivable for:
Investments sold............ -- 35,129,689 -- 2,649,580
Shares of beneficial
interest sold............. 448,552 575 317,894 20,582
Dividends................... -- -- -- 1,422,620
Interest.................... 446,928 6,723,835 4,256,990 741,318
Foreign withholding taxes
reclaimed................. -- -- -- --
Prepaid expenses and other
assets...................... 1,625 2,984 2,200 4,310
------------ ------------ ------------ ------------
TOTAL ASSETS.......... 287,187,787 501,624,345 207,013,749 466,163,648
------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased....... -- 31,152,285 5,285,757 1,045,717
Shares of beneficial
interest repurchased...... 876,381 77,933 581,731 182,072
Investment management fee... 109,555 190,645 80,273 242,409
Accrued expenses and other
payables.................... 47,453 103,794 50,081 53,401
Commitments (Note 6).......... -- -- -- --
------------ ------------ ------------ ------------
TOTAL LIABILITIES..... 1,033,389 31,524,657 5,997,842 1,523,599
------------ ------------ ------------ ------------
NET ASSETS:
Paid-in-capital............... 286,154,132 496,698,982 293,619,800 390,108,701
Accumulated undistributed net
investment income
(distributions in excess of
net investment income)...... 266 178,873 128,973 28,186
Accumulated undistributed net
realized gain (accumulated
net realized loss).......... -- (30,707,683) (76,898,603) 366,212
Net unrealized appreciation
(depreciation).............. -- 3,929,516 (15,834,263) 74,136,950
------------ ------------ ------------ ------------
NET ASSETS............ $286,154,398 $470,099,688 $201,015,907 $464,640,049
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
*IDENTIFIED COST.............. $286,283,720 $455,837,746 $218,250,145 $387,188,288
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING................. 286,154,132 46,171,051 32,093,616 30,968,699
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET ASSET VALUE PER
SHARE (unlimited authorized
shares of $.01 par value)... $1.00 $10.18 $6.26 $15.00
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<FN>
- ------------------
** Includes foreign cash of $1,401,554 and $933,883,
respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
156
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
GROWTH GROWTH GROWTH GROWTH GROWTH
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value *..................... $1,050,173,506 $80,281,631 $271,575,052 $231,709,297 $152,842,428
Cash.......................... 18,198 -- 1,852,731 4,154,916** 1,711,117**
Receivable for:
Investments sold............ 2,986,475 1,057,899 721,280 1,261,694 929,566
Shares of beneficial
interest sold............. 1,064,865 64,632 354,247 195,133 156,167
Dividends................... 1,712,764 45,185 887,732 311,046 231,378
Interest.................... 880,850 -- 10,547 6,225 33,579
Foreign withholding taxes
reclaimed................. -- -- 352,290 371,517 --
Prepaid expenses and other
assets...................... 2,229 1,150 1,311 1,698 13,664
------------ ----------- ------------ ------------ ------------
TOTAL ASSETS.......... 1,056,838,887 81,450,497 275,755,190 238,011,526 155,917,899
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased....... 6,508,863 535,980 2,942,150 3,580,749 3,182,041
Shares of beneficial
interest repurchased...... 484 25,449 247 9,922 --
Investment management fee... 477,639 42,638 164,534 188,274 123,524
Accrued expenses and other
payables.................... 67,576 31,406 70,332 43,055 91,411
Commitments (Note 6).......... -- -- -- -- --
------------ ----------- ------------ ------------ ------------
TOTAL LIABILITIES..... 7,054,562 635,473 3,177,263 3,822,000 3,396,976
------------ ----------- ------------ ------------ ------------
NET ASSETS:
Paid-in-capital............... 775,069,002 59,924,896 230,684,738 164,152,804 145,167,907
Accumulated undistributed net
investment income
(distributions in excess of
net investment income)...... (17,356) 326,563 (11,773) 1,532,424 2,411,337
Accumulated undistributed net
realized gain (accumulated
net realized loss).......... 71,060,428 5,679,284 12,955,669 22,273,171 (3,949,780)
Net unrealized appreciation
(depreciation).............. 203,672,251 14,884,281 28,949,293 46,231,127 8,891,459
------------ ----------- ------------ ------------ ------------
NET ASSETS............ $1,049,784,325 $80,815,024 $272,577,927 $234,189,526 $152,520,923
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
*IDENTIFIED COST.............. $846,501,255 $65,397,350 $242,632,323 $185,460,443 $143,948,878
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING................. 61,834,560 4,884,676 21,791,981 11,768,699 14,697,839
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
NET ASSET VALUE PER
SHARE (unlimited authorized
shares of $.01 par value)... $16.98 $16.54 $12.51 $19.90 $10.38
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
<CAPTION>
EQUITY STRATEGIST
----------- -----------
<S> <C> <C>
ASSETS:
Investments in securities, at
value *..................... $463,710,607 $395,365,721
Cash.......................... -- 13,956
Receivable for:
Investments sold............ 10,681,292 --
Shares of beneficial
interest sold............. 615,005 1,011,553
Dividends................... 189,373 196,630
Interest.................... 255,110 1,839,245
Foreign withholding taxes
reclaimed................. -- --
Prepaid expenses and other
assets...................... 2,989 3,006
----------- -----------
TOTAL ASSETS.......... 475,454,376 398,430,111
----------- -----------
LIABILITIES:
Payable for:
Investments purchased....... 17,840,520 --
Shares of beneficial
interest repurchased...... -- 1,337
Investment management fee... 186,360 162,896
Accrued expenses and other
payables.................... 52,772 58,217
Commitments (Note 6).......... -- --
----------- -----------
TOTAL LIABILITIES..... 18,079,652 222,450
----------- -----------
NET ASSETS:
Paid-in-capital............... 335,166,977 368,261,009
Accumulated undistributed net
investment income
(distributions in excess of
net investment income)...... 162 45,711
Accumulated undistributed net
realized gain (accumulated
net realized loss).......... 85,745,089 5,114,322
Net unrealized appreciation
(depreciation).............. 36,462,496 24,786,619
----------- -----------
NET ASSETS............ $457,374,724 $398,207,661
----------- -----------
----------- -----------
*IDENTIFIED COST.............. $427,248,111 $370,579,102
----------- -----------
----------- -----------
SHARES OF BENEFICIAL INTEREST
OUTSTANDING................. 15,597,874 30,719,360
----------- -----------
----------- -----------
NET ASSET VALUE PER
SHARE (unlimited authorized
shares of $.01 par value)... $29.32 $12.96
----------- -----------
----------- -----------
</TABLE>
157
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY
MONEY MARKET INCOME PLUS HIGH YIELD UTILITIES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest.................. $ 7,330,278 $ 17,835,547 $ 11,426,035 $ 2,182,674
Dividends................. -- -- -- 7,993,139**
------------- ------------- ------------- -------------
TOTAL INCOME.......... 7,330,278 17,835,547 11,426,035 10,175,813
------------- ------------- ------------- -------------
EXPENSES
Investment management
fee..................... 671,944 1,220,354 437,887 1,525,455
Transfer agent fees and
expenses................ 750 750 750 750
Shareholder reports and
notices................. 5,320 15,010 1,622 11,180
Professional fees......... 15,062 20,771 237 14,423
Trustees' fees and
expenses................ 724 2,402 377 1,152
Custodian fees............ 11,446 61,078 9,078 15,281
Other..................... 9,186 11,807 -- 3,927
------------- ------------- ------------- -------------
TOTAL EXPENSES........ 714,432 1,332,172 449,951 1,572,168
------------- ------------- ------------- -------------
NET INVESTMENT
INCOME.......... 6,615,846 16,503,375 10,976,084 8,603,645
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss)
on:
Investments............. -- (5,856,072) (2,785,453) (780,369)
Foreign exchange
transactions.......... -- -- -- --
------------- ------------- ------------- -------------
TOTAL GAIN (LOSS)..... -- (5,856,072) (2,785,453) (780,369)
------------- ------------- ------------- -------------
Net change in unrealized
appreciation/depreciation
on:
Investments (Note 3).... -- (30,650,839) 2,787,811 10,444,595
Translation of forward
foreign currency
contracts, other
assets and liabilities
denominated in foreign
currencies............ -- -- -- --
------------- ------------- ------------- -------------
TOTAL APPRECIATION
(DEPRECIATION)...... -- (30,650,839) 2,787,811 10,444,595
------------- ------------- ------------- -------------
NET GAIN (LOSS)....... -- (36,506,911) 2,358 9,664,226
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)...... $ 6,615,846 $ (20,003,536) $ 10,978,442 $ 18,267,871
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<FN>
- ------------------
* Net of $1,762 foreign witholding tax.
** Net of $80,929, $65,442, $564, $413,121, $424,845,
$136,931 and $6,022 foreign witholding tax,
respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
158
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY STRATEGIST
------------ --------- ------------ ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME
Interest.................. $ 1,393,760 $ 55,595 $ 100,770 $ 270,111 $ 215,832* $ 846,442 $3,875,977
Dividends................. 13,465,159** 399,917** 3,802,410** 2,563,996** 1,470,699** 1,507,192** 2,955,307
------------ --------- ------------ ------------- ------------- --------- ---------
TOTAL INCOME.......... 14,858,919 455,512 3,903,180 2,834,107 1,686,531 2,353,634 6,831,284
------------ --------- ------------ ------------- ------------- --------- ---------
EXPENSES
Investment management
fee..................... 2,723,506 239,087 885,363 1,033,606 663,551 1,007,084 977,563
Transfer agent fees and
expenses................ 750 750 750 750 750 750 750
Shareholder reports and
notices................. 15,794 940 3,351 4,098 4,246 9,635 4,096
Professional fees......... 14,818 12,612 16,212 18,677 20,125 11,782 14,088
Trustees' fees and
expenses................ 2,398 218 923 587 668 1,358 2,457
Custodian fees............ 26,983 7,273 88,686 29,823 143,006 67,950 27,516
Other..................... 6,731 49 4,716 3,425 6,305 216 4,026
------------ --------- ------------ ------------- ------------- --------- ---------
TOTAL EXPENSES........ 2,790,980 260,929 1,000,001 1,090,966 838,651 1,098,775 1,030,496
------------ --------- ------------ ------------- ------------- --------- ---------
NET INVESTMENT
INCOME.......... 12,067,939 194,583 2,903,179 1,743,141 847,880 1,254,859 5,800,788
------------ --------- ------------ ------------- ------------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss)
on:
Investments............. 47,469,626 4,979,853 6,942,451 10,255,451 840,690 31,141,960 1,571,948
Foreign exchange
transactions.......... -- -- (23,286) 673,828 (7,624) -- --
------------ --------- ------------ ------------- ------------- --------- ---------
TOTAL GAIN (LOSS)..... 47,469,626 4,979,853 6,919,165 10,929,279 833,066 31,141,960 1,571,948
------------ --------- ------------ ------------- ------------- --------- ---------
Net change in unrealized
appreciation/depreciation
on:
Investments (Note 3).... 31,225,445 674,947 8,654,123 13,658,062 5,235,939 (642,072) 14,376,253
Translation of forward
foreign currency
contracts, other
assets and liabilities
denominated in foreign
currencies............ -- -- 6,813 (133,592) (832) -- --
------------ --------- ------------ ------------- ------------- --------- ---------
TOTAL APPRECIATION
(DEPRECIATION)...... 31,225,445 674,947 8,660,936 13,524,470 5,235,107 (642,072) 14,376,253
------------ --------- ------------ ------------- ------------- --------- ---------
NET GAIN (LOSS)....... 78,695,071 5,654,800 15,580,101 24,453,749 6,068,173 30,499,888 15,948,201
------------ --------- ------------ ------------- ------------- --------- ---------
NET INCREASE
(DECREASE)...... $ 90,763,010 $5,849,383 $ 18,483,280 $ 26,196,890 $ 6,916,053 $31,754,747 $21,748,989
------------ --------- ------------ ------------- ------------- --------- ---------
------------ --------- ------------ ------------- ------------- --------- ---------
</TABLE>
159
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND FOR THE YEAR ENDED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY MARKET QUALITY INCOME PLUS
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $ 6,615,846 $ 13,741,500 $ 16,503,375 $ 32,845,926
Net realized gain
(loss).................. -- -- (5,856,072) 14,651,610
Net change in unrealized
appreciation/depreciation.. -- -- (30,650,839) 53,023,332
------------- ------------ ------------- ------------
Net increase
(decrease).......... 6,615,846 13,741,500 (20,003,536) 100,520,868
------------- ------------ ------------- ------------
Dividends and distributions
from:
Net investment income..... (6,615,602) (13,741,498) (16,932,668) (32,322,904)
Net realized gain......... -- -- -- --
In excess of net
investment income....... -- -- -- --
------------- ------------ ------------- ------------
Total................. (6,615,602) (13,741,498) (16,932,668) (32,322,904)
------------- ------------ ------------- ------------
Transactions in shares of
beneficial interest:
Net proceeds from sales... 102,208,271 96,881,194 11,226,263 36,146,570
Reinvestment of dividends
and distributions....... 6,615,602 13,741,498 16,932,668 32,322,904
Cost of shares
repurchased............. (72,456,305) (129,460,561) (41,701,594) (30,993,795)
------------- ------------ ------------- ------------
Net increase
(decrease).......... 36,367,568 (18,837,869) (13,542,663) 37,475,679
------------- ------------ ------------- ------------
Total increase
(decrease).......... 36,367,812 (18,837,867) (50,478,867) 105,673,643
NET ASSETS:
Beginning of period......... 249,786,586 268,624,453 520,578,555 414,904,912
------------- ------------ ------------- ------------
END OF PERIOD............... $ 286,154,398 $249,786,586 $ 470,099,688 $520,578,555
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Undistributed Net Investment
Income
(Distributions In Excess of
Net Investment Income)...... $ 266 $ 22 $ 178,873 $ 608,166
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
SHARES ISSUED AND REPURCHASED:
Sold........................ 102,208,271 96,881,194 1,058,957 3,515,633
Issued in reinvestment of
dividends and
distributions............. 6,615,602 13,741,498 1,632,299 3,154,028
Repurchased................. (72,456,305) (129,460,561) (4,032,954) (3,077,582)
------------- ------------ ------------- ------------
Net increase (decrease)..... 36,367,568 (18,837,869) (1,341,698) 3,592,079
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
160
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES DIVIDEND GROWTH
--------------------------- --------------------------- --------------------------
1996 1995 1996 1995 1996 1995
------------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $ 10,976,084 $ 17,067,326 $ 8,603,645 $ 16,939,135 $ 12,067,939 $ 19,552,389
Net realized gain
(loss).................. (2,785,453) (1,098,358) (780,369) 3,776,681 47,469,626 25,514,561
Net change in unrealized
appreciation/depreciation.. 2,787,811 2,521,011 10,444,595 86,839,183 31,225,445 170,908,947
------------- ------------ ------------- ------------ ------------ ------------
Net increase
(decrease).......... 10,978,442 18,489,979 18,267,871 107,554,999 90,763,010 215,975,897
------------- ------------ ------------- ------------ ------------ ------------
Dividends and distributions
from:
Net investment income..... (11,341,501) (16,648,733) (8,580,880) (18,544,715) (12,102,509) (20,821,765)
Net realized gain......... -- -- -- -- -- (12,652,636)
In excess of net
investment income....... -- -- -- -- -- --
------------- ------------ ------------- ------------ ------------ ------------
Total................. (11,341,501) (16,648,733) (8,580,880) (18,544,715) (12,102,509) (33,474,401)
------------- ------------ ------------- ------------ ------------ ------------
Transactions in shares of
beneficial interest:
Net proceeds from sales... 46,036,537 36,566,043 8,023,394 25,533,783 104,184,809 101,006,743
Reinvestment of dividends
and distributions....... 11,341,501 16,648,733 8,580,880 18,544,715 12,102,509 33,474,401
Cost of shares
repurchased............. (10,308,657) (12,680,679) (40,721,361) (36,430,389) (10,580,320) (24,518,137)
------------- ------------ ------------- ------------ ------------ ------------
Net increase
(decrease).......... 47,069,381 40,534,097 (24,117,087) 7,648,109 105,706,998 109,963,007
------------- ------------ ------------- ------------ ------------ ------------
Total increase
(decrease).......... 46,706,322 42,375,343 (14,430,096) 96,658,393 184,367,499 292,464,503
NET ASSETS:
Beginning of period......... 154,309,585 111,934,242 479,070,145 382,411,752 865,416,826 572,952,323
------------- ------------ ------------- ------------ ------------ ------------
END OF PERIOD............... $ 201,015,907 $154,309,585 $ 464,640,049 $479,070,145 $1,049,784,325 $865,416,826
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
Undistributed Net Investment
Income
(Distributions In Excess of
Net Investment Income)...... $ 128,973 $ 494,390 $ 28,186 $ 5,421 $ (17,356) $ 17,214
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold........................ 7,292,628 5,834,627 540,923 1,947,513 6,248,221 7,140,373
Issued in reinvestment of
dividends and
distributions............. 1,806,051 2,658,293 577,515 1,407,989 717,828 2,413,931
Repurchased................. (1,636,715) (2,029,027) (2,773,498) (2,821,228) (636,942) (1,815,800)
------------- ------------ ------------- ------------ ------------ ------------
Net increase (decrease)..... 7,461,964 6,463,893 (1,655,060) 534,274 6,329,107 7,738,504
------------- ------------ ------------- ------------ ------------ ------------
------------- ------------ ------------- ------------ ------------ ------------
</TABLE>
161
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND FOR THE YEAR ENDED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CAPITAL GROWTH GLOBAL DIVIDEND GROWTH
---------------------- ---------------------------
1996 1995 1996 1995
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $ 194,583 3$87,427 $ 2,903,179 $ 3,729,139
Net realized gain
(loss).................. 4,979,853 2,153,798 6,919,165 6,300,237
Net change in unrealized
appreciation/depreciation... 674,947 13,237,372 8,660,936 23,341,679
----------- --------- ------------- ------------
Net increase
(decrease).......... 5,849,383 15,778,597 18,483,280 33,371,055
----------- --------- ------------- ------------
Dividends and distributions
from:
Net investment income..... -- (310,895) (2,988,637) (4,044,117)
Net realized gain......... -- -- -- (222,586)
In excess of net
investment income....... -- -- -- --
----------- --------- ------------- ------------
Total................. -- (310,895) (2,988,637) (4,266,703)
----------- --------- ------------- ------------
Transactions in shares of
beneficial interest:
Net proceeds from sales... 12,629,086 14,176,359 50,302,526 41,054,512
Reinvestment of dividends
and distributions....... -- 310,895 2,988,637 4,266,703
Cost of shares
repurchased............. (4,658,615) (8,675,047) (1,946,403) (7,173,082)
----------- --------- ------------- ------------
Net increase
(decrease).......... 7,970,471 5,812,207 51,344,760 38,148,133
----------- --------- ------------- ------------
Total increase
(decrease).......... 13,819,854 21,279,909 66,839,403 67,252,485
NET ASSETS:
Beginning of period......... 66,995,170 45,715,261 205,738,524 138,486,039
----------- --------- ------------- ------------
END OF PERIOD............... $80,815,024 66,$995,170 $ 272,577,927 $205,738,524
----------- --------- ------------- ------------
----------- --------- ------------- ------------
Undistributed Net Investment
Income
(Distributions In Excess of
Net Investment Income)...... $ 326,563 1$31,980 $ (11,773) $ 73,685
----------- --------- ------------- ------------
----------- --------- ------------- ------------
SHARES ISSUED AND REPURCHASED:
Sold........................ 777,971 1,056,301 4,107,601 3,795,718
Issued in reinvestment of
dividends and
distributions............. -- 24,762 240,807 397,706
Repurchased................. (293,891) (649,418) (161,021) (688,539)
----------- --------- ------------- ------------
Net increase (decrease)..... 484,080 431,645 4,187,387 3,504,885
----------- --------- ------------- ------------
----------- --------- ------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
162
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPEAN GROWTH PACIFIC GROWTH EQUITY STRATEGIST
--------------------------- --------------------------- --------------------- ----------
1996 1995 1996 1995 1996 1995 1996
------------- ------------ ------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $ 1,743,141 $ 2,114,492 $ 847,880 $ 1,021,997 $1,254,859 $2,708,609 $5,800,788
Net realized gain
(loss).................. 10,929,279 10,996,721 833,066 (2,760,376) 31,141,960 66,181,855 1,571,948
Net change in unrealized
appreciation/depreciation... 13,524,470 24,638,745 5,235,107 6,493,134 (642,072) 28,684,738 14,376,253
------------- ------------ ------------- ------------ ---------- -------- ----------
Net increase
(decrease).......... 26,196,890 37,749,958 6,916,053 4,754,755 31,754,747 97,575,202 21,748,989
------------- ------------ ------------- ------------ ---------- -------- ----------
Dividends and distributions
from:
Net investment income..... -- (1,774,678) -- (719,960) (1,276,440) (3,058,144) (5,802,390)
Net realized gain......... -- (5,391,962) -- (15,252) -- -- --
In excess of net
investment income....... -- (210,717) -- -- -- -- --
------------- ------------ ------------- ------------ ---------- -------- ----------
Total................. -- (7,377,357) -- (735,212) (1,276,440) (3,058,144) (5,802,390)
------------- ------------ ------------- ------------ ---------- -------- ----------
Transactions in shares of
beneficial interest:
Net proceeds from sales... 26,418,248 18,351,213 52,647,664 33,260,368 74,060,386 60,875,983 12,384,984
Reinvestment of dividends
and distributions....... -- 7,377,357 -- 735,212 1,276,440 3,058,144 5,802,390
Cost of shares
repurchased............. (6,545,021) (20,019,201) (5,373,089) (15,110,167) (8,219,779) (23,961,072) (24,505,481)
------------- ------------ ------------- ------------ ---------- -------- ----------
Net increase
(decrease).......... 19,873,227 5,709,369 47,274,575 18,885,413 67,117,047 39,973,055 (6,318,107)
------------- ------------ ------------- ------------ ---------- -------- ----------
Total increase
(decrease).......... 46,070,117 36,081,970 54,190,628 22,904,956 97,595,354 134,490,113 9,628,492
NET ASSETS:
Beginning of period......... 188,119,409 152,037,439 98,330,295 75,425,339 359,779,370 225,289,257 388,579,169
------------- ------------ ------------- ------------ ---------- -------- ----------
END OF PERIOD............... $ 234,189,526 $188,119,409 $ 152,520,923 $ 98,330,295 $457,374,724 $359,779,370 $398,207,661
------------- ------------ ------------- ------------ ---------- -------- ----------
------------- ------------ ------------- ------------ ---------- -------- ----------
Undistributed Net Investment
Income
(Distributions In Excess of
Net Investment Income)...... $ 1,532,424 $ (210,717) $ 2,411,337 $ 1,563,457 $ 162 $ 21,743 $ 45,711
------------- ------------ ------------- ------------ ---------- -------- ----------
------------- ------------ ------------- ------------ ---------- -------- ----------
SHARES ISSUED AND REPURCHASED:
Sold........................ 1,396,230 1,106,630 5,079,449 3,543,683 2,591,282 2,501,214 959,023
Issued in reinvestment of
dividends and
distributions............. -- 454,397 -- 79,076 45,001 136,228 450,297
Repurchased................. (358,910) (1,268,442) (518,534) (1,630,781) (296,907) (1,080,135) (1,913,294)
------------- ------------ ------------- ------------ ---------- -------- ----------
Net increase (decrease)..... 1,037,320 292,585 4,560,915 1,991,978 2,339,376 1,557,307 (503,974)
------------- ------------ ------------- ------------ ---------- -------- ----------
------------- ------------ ------------- ------------ ---------- -------- ----------
<CAPTION>
1995
--------
<S> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $19,633,402
Net realized gain
(loss).................. 4,287,366
Net change in unrealized
appreciation/depreciation... 10,997,160
--------
Net increase
(decrease).......... 34,917,928
--------
Dividends and distributions
from:
Net investment income..... (21,267,198)
Net realized gain......... (13,902,986)
In excess of net
investment income....... --
--------
Total................. (35,170,184)
--------
Transactions in shares of
beneficial interest:
Net proceeds from sales... 24,116,300
Reinvestment of dividends
and distributions....... 35,170,184
Cost of shares
repurchased............. (63,215,404)
--------
Net increase
(decrease).......... (3,928,920)
--------
Total increase
(decrease).......... (4,181,176)
NET ASSETS:
Beginning of period......... 392,760,345
--------
END OF PERIOD............... $388,579,169
--------
--------
Undistributed Net Investment
Income
(Distributions In Excess of
Net Investment Income)...... $ 47,313
--------
--------
SHARES ISSUED AND REPURCHASED:
Sold........................ 1,957,299
Issued in reinvestment of
dividends and
distributions............. 2,891,755
Repurchased................. (5,160,690)
--------
Net increase (decrease)..... (311,636)
--------
--------
</TABLE>
163
<PAGE>
Dean Witter Variable Investment Series
Notes to Financial Statements JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
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>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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
Income of current income and, as a secondary objective,
Plus 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.
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 Growth 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.
</TABLE>
164
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Capital Seeks long-term capital growth by investing primarily
Growth in common stocks.
Global Dividend Seeks to provide reasonable current income and
Growth long-term growth of 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 is valued at its latest sale price on
that exchange prior to the time when assets are valued; if there were no
sales that day, the security is valued at the latest bid price (in cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by the Trustees);
(2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest available bid
price prior to the time of valuation; (3) listed options 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
165
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (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.
166
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (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 the Investment Manager 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 and Strategist - 0.50%; 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 million. Effective May 1, 1996, Dividend Growth and Equity calculate the
management fee at the following rates: Dividend Growth - 0.625% to the portion
of daily net assets not exceeding $500 million; 0.50% to the portion of daily
net assets exceeding $500 million but not exceeding $1 billion; and 0.475% to
the portion of daily net assets exceeding $1 billion; and Equity - 0.50% to the
portion of daily net assets not exceeding $1 billion and 0.475% to the portion
of daily net assets exceeding $1 billion.
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
167
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the European Growth and the Pacific Growth Portfolios with investment advice and
portfolio management relating to the Portfolios' investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for its services provided pursuant to the Sub-Advisory Agreement, the Investment
Manager pays the Sub-Advisor monthly compensation equal to 40% of its monthly
compensation.
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 six months ended June 30, 1996
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------------- ----------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Money Market.............................. $ 7,278,875 $ 3,348,283 $ 732,853,865 $ 700,168,262
Quality Income Plus....................... 332,980,371 331,979,501 178,483,148 197,320,140
High Yield................................ -- -- 96,481,569 51,560,641
Utilities................................. -- -- 18,018,182 35,466,950
Dividend Growth........................... 6,904,133 -- 240,247,960 140,688,494
Capital Growth............................ 276,950 -- 27,733,764 25,545,199
Global Dividend Growth.................... -- -- 99,657,169 48,419,629
European Growth........................... -- -- 83,186,790 58,252,746
Pacific Growth............................ -- -- 71,032,757 25,187,160
Equity.................................... 9,735,250 55,062,315 670,085,063 576,649,129
Strategist................................ 92,991,473 76,953,330 180,771,304 212,676,114
</TABLE>
Included in the aforementioned purchases and sales of portfolio securities
of the Equity Portfolio are purchases and sales 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 $4,893,248 and $3,424,962, respectively, realizing a gain in the
amount of $280,910.
For the six months ended June 30, 1996, 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............................ $ 26,750 $ 120,491 $ 18,800 $ 17,565 $ 118,765 $ 20,890
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>
For the six months ended June 30, 1996, the Pacific Growth Portfolio
incurred brokerage commissions of $13,957 with affiliates of Morgan Grenfell for
portfolio transactions executed.
Included in Global Dividend Growth's payable for investments purchased for
unsettled trades with DWR is $351,643 at June 30, 1996.
168
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Included in the receivable for investments sold for unsettled trades with
DWR at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND CAPITAL DIVIDEND
GROWTH GROWTH GROWTH EQUITY
------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Receivable for investments sold............................... $ 2,450,993 $ 70,948 $ 64,398 $ 675,557
------------- --------- --------- -----------
------------- --------- --------- -----------
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At June 30, 1996, each of the Portfolios had transfer
agent fees and expenses payable of $250.
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 six months ended June 30,
1996 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............................. $ 44 $ 79 $ 30 $ 78 $ 164 $ 12
--------- --------- --------- --------- ----------- -----
--------- --------- --------- --------- ----------- -----
Accrued Pension Liability.......................... $ 11,269 $ 8,315 $ 3,388 $ 4,880 $ 7,598 $ 321
--------- --------- --------- --------- ----------- -----
--------- --------- --------- --------- ----------- -----
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND EUROPEAN PACIFIC
GROWTH GROWTH GROWTH EQUITY STRATEGIST
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Aggregate Pension Cost....................................... $ 567 $ 35 $ 304 $ 70 $ 65
----- ----- ----- --------- -----------
----- ----- ----- --------- -----------
Accrued Pension Liability.................................... $ 481 $ 743 $ 867 $ 6,279 $ 9,681
----- ----- ----- --------- -----------
----- ----- ----- --------- -----------
</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:
<TABLE>
<CAPTION>
QUALITY INCOME
PLUS UTILITIES CAPITAL GROWTH EQUITY
- ------------------ ------------- -------------- -------------
<S> <C> <C> <C>
$ 9,908,000 $ 2,371,000 $ 1,105,000 $ 6,496,000
- ------------------ ------------- -------------- -------------
- ------------------ ------------- -------------- -------------
</TABLE>
169
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
GLOBAL DIVIDEND GROWTH EUROPEAN GROWTH PACIFIC GROWTH
- ---------------------- ---------------- --------------
<S> <C> <C>
$ 5,000 $ 633,000 $ 2,310,000
------- ---------------- --------------
------- ---------------- --------------
</TABLE>
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.
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 June 30, 1996, there were outstanding forward contracts used to
facilitate settlement of foreign currency denominated portfolio transactions and
to manage foreign currency exposure.
Forward contracts and over-the-counter purchased put options on foreign
currencies 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 and
over-the-counter purchased put options on foreign currencies from the potential
inability of the counterparties to meet the terms of their contracts.
At June 30, 1996, 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.
170
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
6. COMMITMENTS--As of June 30, 1996, the Pacific Growth Portfolio had an
outstanding commitment of $70,000 resulting from the purchase of partially paid
units of Peregrine Indonesia. The balance is payable on January 1, 1997.
171
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED RATIOS AND PER SHARE DATA FOR A COMMON SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO
YEAR ENDED DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS
---------- --------- ---------- -------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1991 $ 1.00 $0.056 $-- $ 0.056 $(0.056) $--
1992 1.00 0.034 -- 0.034 (0.034) --
1993 1.00 0.027 -- 0.027 (0.027) --
1994 1.00 0.037 -- 0.037 (0.037) --
1995 1.00 0.055 -- 0.055 (0.055) --
1996(a) 1.00 0.024 -- 0.024 (0.024) --
QUALITY INCOME PLUS
1991 9.49 0.85 0.85 1.70 (0.85) --
1992 10.34 0.77 0.05 0.82 (0.77) --
1993 10.39 0.69 0.64 1.33 (0.69) --
1994 11.03 0.69 (1.40) (0.71) (0.69) (0.18)
1995 9.45 0.72 1.50 2.22 (0.71) --
1996(a) 10.96 0.35 (0.77) (0.42) (0.36) --
HIGH YIELD
1991 4.55 0.70 1.81 2.51 (0.70) (0.11)*
1992 6.25 0.96 0.18 1.14 (0.96) --
1993 6.43 0.81 0.68 1.49 (0.81) --
1994 7.11 0.79 (0.95) (0.16) (0.79) --
1995 6.16 0.80 0.08 0.88 (0.78) --
1996(a) 6.26 0.38 0.02 0.40 (0.40) --
UTILITIES
1991 10.02 0.54 1.45 1.99 (0.54) --
1992 11.47 0.51 0.88 1.39 (0.52) --
1993 12.34 0.49 1.43 1.92 (0.50) (0.02)
1994 13.74 0.53 (1.75) (1.22) (0.52) (0.08)
1995 11.92 0.53 2.81 3.34 (0.58) --
1996(a) 14.68 0.27 0.32 0.59 (0.27) --
DIVIDEND GROWTH
1991 8.93 0.36 2.08 2.44 (0.37) --
1992 11.00 0.37 0.51 0.88 (0.37) --
1993 11.51 0.36 1.27 1.63 (0.36) --
1994 12.78 0.38 (0.80) (0.42) (0.37) --
1995 11.99 0.38 3.89 4.27 (0.41) (0.26)
1996(a) 15.59 0.20 1.39 1.59 (0.20) --
</TABLE>
- ------------
(a) For the six months ended June 30, 1996 (unaudited).
+ Calculated based on the net asset value as of the last business day of
the period.
* Distribution from capital.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
172
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
---------------------
TOTAL DIVIDENDS NET ASSET TOTAL NET ASSETS AT NET PORTFOLIO AVERAGE
AND VALUE END INVESTMENT END OF PERIOD INVESTMENT TURNOVER COMMISSION
DISTRIBUTIONS OF PERIOD RETURN+ (000'S) EXPENSES INCOME RATE RATE PAID
- ---------------- ----------- -------------- -------------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (0.056) $1.00 5.75% $ 104,277 0.57% 5.62% N/A N/A
(0.034) 1.00 3.43 96,151 0.59 3.38 N/A N/A
(0.027) 1.00 2.75 129,925 0.57 2.71 N/A N/A
(0.037) 1.00 3.81 268,624 0.55 3.93 N/A N/A
(0.055) 1.00 5.66 249,787 0.53 5.52 N/A N/A
(0.024) 1.00 2.48(1) 286,154 0.53(2) 4.92(2) N/A N/A
(0.85) 10.34 18.75 81,918 0.60 8.39 105% N/A
(0.77) 10.39 8.26 163,368 0.58 7.41 148 N/A
(0.69) 11.03 12.99 487,647 0.56 6.17 219 N/A
(0.87) 9.45 (6.63) 414,905 0.54 6.88 254 N/A
(0.71) 10.96 24.30 520,579 0.54 7.07 162 N/A
(0.36) 10.18 (3.75)(1) 470,100 0.55(2) 6.75(2) 105(1) N/A
(0.81) 6.25 58.14 34,603 1.01 12.29 300 N/A
(0.96) 6.43 18.35 40,042 0.74 14.05 204 N/A
(0.81) 7.11 24.08 90,200 0.60 11.80 177 N/A
(0.79) 6.16 (2.47) 111,934 0.59 11.71 105 N/A
(0.78) 6.26 14.93 154,310 0.54 12.67 58 N/A
(0.40) 6.26 6.54(1) 201,016 0.51(2) 12.50(2) 31(1) N/A
(0.54) 11.47 20.56 68,449 0.80 5.23 25 --
(0.52) 12.34 12.64 153,748 0.73 4.63 26 --
(0.52) 13.74 15.69 490,934 0.71 3.75 11 --
(0.60) 11.92 (9.02) 382,412 0.68 4.21 15 --
(0.58) 14.68 28.65 479,070 0.68 4.00 13 --
(0.27) 15.00 4.07(1) 464,640 0.67(2) 3.67(2) 4(1) $ 0.0539
(0.37) 11.00 27.76 98,023 0.73 3.61 6 --
(0.37) 11.51 8.16 192,551 0.69 3.42 4 --
(0.36) 12.78 14.34 483,145 0.68 3.01 6 --
(0.37) 11.99 (3.27) 572,952 0.64 3.13 20 --
(0.67) 15.59 36.38 865,417 0.61 2.75 24 --
(0.20) 16.98 10.23(1) 1,049,784 0.58(2) 2.50(2) 15(1) 0.0546
</TABLE>
173
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
SELECTED RATIOS AND PER SHARE DATA FOR A COMMON SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO
YEAR ENDED DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS
---------- --------- ---------- -------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1991(b) $10.00 $ 0.15 $ 2.67 $ 2.82 $ (0.13) $--
1992 12.69 0.07 0.13 0.20 (0.08) (0.02)
1993 12.79 0.08 (0.98) (0.90) (0.08) --
1994 11.81 0.10 (0.26) (0.16) (0.10) (0.03)
1995 11.52 0.10 3.68 3.78 (0.08) --
1996(a) 15.22 0.04 1.28 1.32 -- --
GLOBAL DIVIDEND GROWTH
1994(c) 10.00 0.23 (0.20) 0.03 (0.21) --
1995 9.82 0.24 1.90 2.14 (0.26) (0.01)
1996(a) 11.69 0.14 0.82 0.96 (0.14) --
EUROPEAN GROWTH
1991(b) 10.00 0.25 (0.13) 0.12 (0.23) --
1992 9.89 0.08 0.32 0.40 (0.10) (0.01)
1993 10.18 0.12 3.98 4.10 (0.12) (0.13)
1994 14.03 0.17 0.96 1.13 (0.16) (0.44)
1995 14.56 0.20 3.50 3.70 (0.19)** (0.54)
1996(a) 17.53 0.12 2.25 2.37 -- --
PACIFIC GROWTH
1994(c) 10.00 0.07 (0.74) (0.67) -- (0.07)
1995 9.26 0.12 0.41 0.53 (0.09) --
1996(a) 9.70 0.15 0.53 0.68 -- --
EQUITY
1991 14.10 0.20 8.05 8.25 (0.21) --
1992 22.14 0.23 (0.47) (0.24) (0.24) (1.86)
1993 19.80 0.15 3.63 3.78 (0.15) (1.28)
1994 22.15 0.23 (1.31) (1.08) (0.22) (1.60)
1995 19.25 0.22 7.92 8.14 (0.25) --
1996(a) 27.14 0.09 2.18 2.27 (0.09) --
STRATEGIST
1991 9.81 0.47 2.24 2.71 (0.50) --
1992 12.02 0.44 0.41 0.85 (0.45) (0.13)
1993 12.29 0.38 0.86 1.24 (0.38) (0.47)
1994 12.68 0.48 0.01 0.49 (0.46) (0.26)
1995 12.45 0.62 0.49 1.11 (0.67) (0.44)
1996(a) 12.45 0.19 0.51 0.70 (0.19) --
</TABLE>
- ------------
(a) For the six months ended June 30, 1996 (unaudited).
Commencement of operations:
(b) March 1, 1991.
(c) February 23, 1994.
+ Calculated based on the net asset value as of the last business day of
the period.
** 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, 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.
(4) 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 August 2, 1994 for
Pacific Growth, the ratios of expenses to average net assets would have
been 0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
SEE NOTES TO FINANCIAL STATEMENTS
174
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
---------------------------
TOTAL NET ASSET TOTAL NET ASSETS AT NET PORTFOLIO AVERAGE
DIVIDENDS AND VALUE END INVESTMENT END OF PERIOD INVESTMENT TURNOVER COMMISSION
DISTRIBUTIONS OF PERIOD RETURN+ (000'S) EXPENSES INCOME RATE RATE PAID
- -------------- ----------- -------------- -------------- -------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (0.13) $12.69 28.41%(1) $ 18,400 --%(2)(3) 1.82%(2) 32%(1) --
(0.10) 12.79 1.64 45,105 0.86 0.62 22 --
(0.08) 11.81 (6.99) 50,309 0.74 0.78 36 --
(0.13) 11.52 (1.28) 45,715 0.77 0.90 37 --
(0.08) 15.22 32.92 66,995 0.74 0.70 34 --
-- 16.54 8.67(1) 80,815 0.71(2) 0.53 36(1) $ 0.0555
(0.21) 9.82 0.27(1) 138,486 0.87(2)(4) 2.62(2) 20(1) --
(0.27) 11.69 22.14 205,739 0.88 2.23 55 --
(0.14) 12.51 8.25(1) 272,578 0.85(2) 2.46(2) 21(1) 0.0348
(0.23) 9.89 1.34(1) 3,653 -- (2)(3) 3.18(2) 77(1) --
(0.11) 10.18 3.99 10,686 1.73 0.74 97 --
(0.25) 14.03 40.88 79,052 1.28 0.97 77 --
(0.60) 14.56 8.36 152,037 1.16 1.51 58 --
(0.73) 17.53 25.89 188,119 1.17 1.25 69 --
-- 19.90 13.52(1) 234,190 1.05(2) 1.68(2) 29(1) 0.0449
(0.07) 9.26 (6.73)(1) 75,425 1.00(2)(4) 0.56(2) 22(1) --
(0.09) 9.70 5.74 98,330 1.44 1.23 53 --
-- 10.38 7.01(1) 152,521 1.26(2) 1.27(2) 20(1) 0.0118
(0.21) 22.14 59.05 63,524 0.64 1.09 214 --
(2.10) 19.80 0.05 77,527 0.62 1.22 286 --
(1.43) 22.15 19.72 182,828 0.58 0.69 265 --
(1.82) 19.25 (4.91) 225,289 0.57 1.19 299 --
(0.25) 27.14 42.53 359,779 0.54 0.97 269 --
(0.09) 29.32 8.41(1) 457,375 0.54(2) 0.62(2) 160(1) 0.0585
(0.50) 12.02 28.26 87,779 0.60 4.34 86 --
(0.58) 12.29 7.24 136,741 0.58 3.74 87 --
(0.85) 12.68 10.38 287,502 0.57 3.11 57 --
(0.72) 12.45 3.94 392,760 0.54 3.93 125 --
(1.11) 12.45 9.48 388,579 0.52 5.03 329 --
(0.19) 12.96 5.73(1) 398,208 0.53(2) 2.96(2) 74(1) 0.0574
</TABLE>
175
<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, 1989, 1990, 1991, 1992, 1993, 1994
and 1995 and (unaudited) for the six months ended
June 30, 1996 . . . . . . . . . . . . . . . . . . . . 8
(2) Financial statements included in the Statement of
Additional Information (Part B): PAGE IN
SAI
-----------
Portfolio of Investments at December 31, 1995. . . . . 53
Statements of Assets and Liabilities at December
31, 1995 . . . . . . . . . . . . . . . . . . . . . . 92
Statements of Operations for the year ended December
31, 1995 . . . . . . . . . . . . . . . . . . . . . . 94
Statements of Changes in Net Assets for the years
ended December 31, 1994 and 1995 . . . . . . . . . . 96
Notes to Financial Statements . . . . . . . . . . . . 100
Financial Highlights for the years ended December
31, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993,
1994 and 1995 . . . . . . . . . . . . . . . . . . . . 108
Portfolio of Investments at June 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . 113
Statements of Assets and Liabilities at June 30,
1996 (unaudited) . . . . . . . . . . . . . . . . . . 156
Statements of Operations for the six months ended
June 30, 1996 (unaudited) . . . . . . . . . . . . . . 158
Statements of Changes in Net Assets for the six
months ended June 30, 1996 (unaudited) and for the
year ended December 31, 1995 . . . . . . . . . . . . 160
1
<PAGE>
Notes to Financial Statements (unaudited) . . . . . . . 164
Financial Highlights for the years ended December
31, 1991, 1992, 1993, 1994 and 1995 and (unaudited)
for the six months ended June 30, 1996 . . . . . . . . 172
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1. - Instrument Establishing and Designating
Additional Series of Shares
5. - Instrument adding new Portfolios to Investment
Management Agreement with Dean Witter InterCapital
Inc.
9. - Services Agreement between Registrant and Dean Witter
InterCapital Inc.
11. - Consent of Independent Accountants
27. - Financial Data Schedules
-----------------
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 OCTOBER 17, 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
2
<PAGE>
and agents is permitted if it is determined that they acted under the belief
that their actions were in or not opposed to the best interest of the
Registrant, and, with respect to any criminal proceeding, they had reasonable
cause to believe their conduct was not unlawful. In addition,
indemnification is permitted only if it is determined that the actions in
question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant.
Trustees, officers, employees and agents will be indemnified for the expense
of litigation if it is determined that they are entitled to indemnification
against any liability established in such litigation. The Registrant may
also advance money for these expenses provided that they give their
undertakings to repay the Registrant unless their conduct is later determined
to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless
disregard of duties to the Registrant.
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.
3
<PAGE>
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was
a Trustee, officer, employee, or agent of Registrant, or who is or was
serving at the request of Registrant as a trustee, director, officer,
employee or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his position.
However, in no event will Registrant maintain insurance to indemnify any such
person for any act for which Registrant itself is not permitted to indemnify
him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. 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
4
<PAGE>
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
(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 Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
5
<PAGE>
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
- -----------------------------
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income 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
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
Charles A. Fiumefreddo Executive Vice President and Director of Dean Witter
Chairman, Chief Reynolds Inc. ("DWR"); Chairman, Chief Executive
Executive Officer and Officer and Director of Dean Witter Distributors
Director 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; Member (since January,
1993) and Chairman (since January, 1995) of the
Board of Directors of NASDAQ.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial Officer
Executive Vice of DWDC, DWR, DWSC and Distributors; Director of
President, Chief 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; Executive
Operating Officer Vice President and Director of DWTC; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
Joseph J. McAlinden Vice President of the Dean Witter Funds and
Executive Vice President Director of DWTC.
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.
Richard Felegy
Senior Vice President
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
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 and Director of 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.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
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 N. 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; Treasurer
and Assistant and Chief Financial Officer of the Dean Witter Funds
Treasurer and the TCW/DW Funds.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
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.
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 Vice President of Dean Witter Mid-Cap Growth 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.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
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 Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael G. Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne 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
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi
Vice President Vice President and Assistant Secretary of DWSC;
and Assistant Assistant Secretary of the Dean Witter Funds
Secretary and the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------
<S> <C>
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(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 Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(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
12
<PAGE>
(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 Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(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
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value 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 Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income 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 has duly caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 17th day of October, 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. 20 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 10/17/96
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/Thomas F. Caloia 10/17/96
----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/Sheldon Curtis 10/17/96
----------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/David M. Butowsky 10/17/96
-----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBITS
1. Instrument Establishing and Designating Additional
Series of Shares
5. Instrument adding new Portfolios to Investment Management
Agreement with Dean Witter InterCapital Inc.
9. Form of Services Agreement between Registrant and
Dean Witter Services Company Inc.
11. Consent of Independent Accountants
27. Financial Data Schedules
___________________________________
All other exhibits previously filed and incorporated
by reference.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
INSTRUMENT ESTABLISHING AND DESIGNATING
ADDITIONAL SERIES OF SHARES
WHEREAS, Dean Witter Variable Investment Series (the "Trust") was established by
the Declaration of Trust dated February 24, 1983, as amended from time to time
(the"Declaration"), under the laws of the Commonwealth of Massachusetts; and
WHEREAS, Section 6.9 (h) of the Declaration provides that the establishment and
designation of any additional Series of Shares shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights, preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of such Series, or as otherwise provided in such instrument which
instrument shall have the status of an amendment to the Declaration, and the
Trustees of the Trust have deemed it advisable to establish two additional
Series of Shares.
NOW, THEREFORE, pursuant to Section 6.9 (h) of the Declaration, there are hereby
established and designated two additional Series of Shares, to be known as the
Income Builder Portfolio and the Capital Appreciation Portfolio, which shall be
subject to the same relative rights, preferences, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as provided in the Declaration with respect to the initial Series of
Shares established in Section 6.1 of the Declaration.
<PAGE>
This instrument may be executed in more than one counterpart, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
IN WITNESS THEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 15th day of October, 1996.
/s/ Michael Bozic /s/ Manuel H. Johnson
-------------------------------- --------------------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corporation c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, N.W. 1133 Connecticut Avenue, N.W.
Boca Raton, Florida Washington, DC
/s/ Charles A. Fiumefreddo /s/ Michael E. Nugent
-------------------------------- --------------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, New York 237 Park Avenue
New York, New York
/s/ Edwin J. Garn /s/ Philip J. Purcell
-------------------------------- --------------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Hunstman Chemical Corporation Two World Trade Center
500 Huntsman Way New York, New York
Salt Lake City, Utah
/s/ John R. Haire /s/ John L. Schroeder
-------------------------------- --------------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky
New York, New York Weitzen Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
Two World Trade Center
New York, NY 10048
October , 1996
To Dean Witter InterCapital Inc.:
The Investment Management Agreement between you and this Fund (the
"Agreement") provides that in the event the Fund establishes additional
Portfolios with respect to which it desires to retain you to render investment
advisory services under the Agreement, it shall notify you in writing, and
further provides that if you are willing to render such services, you shall
notify the Fund in writing, whereupon such Portfolios shall become Portfolios
under the Agreement.
The Fund hereby informs you that it has established two additional
Portfolios, designated as the Income Builder Portfolio and the Capital
Appreciation Portfolio, and that it desires to retain you to render investment
advisory services to these Portfolios under the Agreement, for which the Fund
shall pay you monthly compensation determined by applying the annual rate of
__% to the net assets of each of the Income Builder Portfolio and the Capital
Appreciation Portfolio, determined as of the close of each business day.
Very truly yours,
DEAN WITTER VARIABLE
INVESTMENT SERIES
by
------------------------------------
Dean Witter InterCapital Inc. hereby notifies Dean Witter Variable Investment
Series of its willingness to render investment advisory services to the Income
Builder Portfolio and the Capital Appreciation Portfolio under the Agreement,
with the fee as specified above.
DEAN WITTER INTERCAPITAL INC.
by
------------------------------------
<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
AS AMENDED AS OF AUGUST 28, 1996
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 Appreciation Fund
11. Dean Witter Capital Growth Securities
12. Dean Witter Convertible Securities Trust
13. Dean Witter Developing Growth Securities Trust
14. Dean Witter Diversified Income Trust
15. Dean Witter Dividend Growth Securities Inc.
16. Dean Witter European Growth Fund Inc.
17. Dean Witter Federal Securities Trust
18. Dean Witter Global Asset Allocation Fund
19. Dean Witter Global Dividend Growth Securities
20. Dean Witter Global Short-Term Income Fund Inc.
21. Dean Witter Global Utilities Fund
22. Dean Witter Hawaii Municipal Trust
23. Dean Witter Health Sciences Trust
24. Dean Witter High Income Securities
25. Dean Witter High Yield Securities Inc.
26. Dean Witter Income Builder Fund
27. Dean Witter Information Fund
28. Dean Witter Intermediate Income Securities
29. Dean Witter Intermediate Term U.S. Treasury Trust
30. Dean Witter International SmallCap Fund
31. Dean Witter Japan Fund
32. Dean Witter Limited Term Municipal Trust
33. Dean Witter Liquid Asset Fund Inc.
34. Dean Witter Mid-Cap Growth Fund
35. Dean Witter Multi-State Municipal Series Trust
36. Dean Witter National Municipal Trust
37. Dean Witter Natural Resource Development Securities Inc.
38. Dean Witter New York Municipal Money Market Trust
39. Dean Witter New York Tax-Free Income Fund
40. Dean Witter Pacific Growth Fund Inc.
41. Dean Witter Precious Metals and Minerals Trust
42. Dean Witter Premier Income Trust
43. Dean Witter Retirement Series
44. Dean Witter Select Dimensions Investment Series
45. Dean Witter Select Municipal Reinvestment Fund
46. Dean Witter Short-Term Bond Fund
47. Dean Witter Short-Term U.S. Treasury Trust
48. Dean Witter Special Value Fund
49. Dean Witter Strategist Fund
50. Dean Witter Tax-Exempt Securities Trust
51. Dean Witter Tax-Free Daily Income Trust
52. Dean Witter U.S. Government Money Market Trust
53. Dean Witter U.S. Government Securities Trust
54. Dean Witter Utilities Fund
55. Dean Witter Value-Added Market Series
56. Dean Witter Variable Investment Series
57. Dean Witter World Wide Income Trust
58. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
59. High Income Advantage Trust
60. High Income Advantage Trust II
61. High Income Advantage Trust III
62. InterCapital Income Securities Inc.
63. Dean Witter Government Income Trust
64. InterCapital Insured Municipal Bond Trust
4
<PAGE>
65. InterCapital Insured Municipal Trust
66. InterCapital Insured Municipal Income Trust
67. InterCapital California Insured Municipal Income Trust
68. InterCapital Insured Municipal Securities
69. InterCapital Insured California Municipal Securities
70. InterCapital Quality Municipal Investment Trust
71. InterCapital Quality Municipal Income Trust
72. InterCapital Quality Municipal Securities
73. InterCapital California Quality Municipal Securities
74. InterCapital New York Quality Municipal Securities
5
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF AUGUST 28, 1996
Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:
FIXED INCOME FUNDS
- ------------------
Dean Witter Balanced Income Fund 0.060% to the net assets.
Dean Witter California Tax-Free
Income Fund 0.055% of the portion of daily net
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;
0.0475% of the portion of the daily net
assets exceeding $1 billion but not
exceeding $1.25 billion; and 0.045% of
the portion of daily net assets
exceeding $1.25 billion.
Dean Witter Convertible Securities
Securities Trust 0.060% of the portion of the daily net
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
Income Trust 0.040% of the net assets.
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
Income Fund Inc. 0.055% of the portion of the daily net
assets not exceeding $500 million; and
0.050% of the portion of the daily net
assets exceeding $500 million.
Dean Witter Hawaii Municipal
Trust 0.035% to the net assets.
Dean Witter High Income
Securities 0.050% of the portion of daily net
assets not exceeding $500 million; and
0.0425% of the portion of daily net
assets exceeding $500 million.
B-1
<PAGE>
Dean Witter High Yield
Securities Inc. 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 $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
Income Securities 0.060% of the portion of the daily net
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 Intermediate Term
U.S. Treasury Trust 0.035% to the net assets.
Dean Witter Limited Term
Municipal Trust 0.050% to the net assets.
Dean Witter Multi-State Municipal
Series Trust (10 Series) 0.035% to the net assets.
Dean Witter National
Municipal Trust 0.035% to the net assets.
Dean Witter New York Tax-Free
Income Fund 0.055% to the net assets not exceeding
$500 million and 0.0525% of the net
assets exceeding $500 million.
Dean Witter Premier
Income Trust 0.050% to the net assets.
Dean Witter Retirement Series--
Intermediate Income
Securities Series 0.065% to the net assets.
Dean Witter Retirement Series--
U.S. Government Securities Series 0.065% to the net assets.
Dean Witter Select Dimensions
Investment Series-North American
Government Securities Portfolio 0.039% to the net assets.
Dean Witter Short-Term
Bond Fund 0.070% to the net assets.
Dean Witter Short-Term U.S.
Treasury Trust 0.035% to the net assets.
Dean Witter Tax-Exempt
Securities Trust 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; 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.
B-2
<PAGE>
Dean Witter U.S. Government
Securities Trust 0.050% of the portion of such daily net
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 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
Series--High Yield Portfolio 0.050% to the net assets.
Dean Witter Variable Investment
Series--Quality Income Plus
Portfolio 0.050% to the net assets.
Dean Witter World Wide Income
Trust 0.075% of the daily net assets up to
$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
Reinvestment Fund 0.050% to the net assets.
EQUITY FUNDS
- ------------
Dean Witter American Value
Fund 0.0625% of the portion of the daily net
assets not exceeding $250 million;
0.050% of the portion of the daily net
assets exceeding $250 million but not
exceeding $2.5 billion; and 0.0475% of
the portion of daily net assets
exceeding $2.5 billion.
Dean Witter Balanced Growth Fund 0.060% to the net assets.
Dean Witter Capital
Appreciation Fund 0.075% to the net assets.
Dean Witter Capital Growth
Securities 0.065% to the portion of daily net
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
Securities Trust 0.050% of the portion of daily net
assets not exceeding $500 million; and
0.0475% of the portion of daily net
assets exceeding $500 million.
Dean Witter Dividend Growth
Securities Inc. 0.0625% of the portion of the daily net
assets not exceeding $250 million;
0.050% of the portion of daily net
assets exceeding $250 million but not
exceeding $1 billion; 0.0475% of the
B-3
<PAGE>
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; 0.0325% of
the portion of the daily net assets
exceeding $8 billion but not exceeding
$10 billion; and 0.030% of the portion
of daily net assets exceeding $10
billion.
Dean Witter European Growth
Fund Inc. 0.060% of the portion of daily net
assets not exceeding $500 million; and
0.057% of the portion of daily net
assets exceeding $500 million.
Dean Witter Global Asset
Allocation Fund 0.040% to the net assets.
Dean Witter Global Dividend
Growth Securities 0.075% of the portion of daily net
assets not exceeding $1 billion; 0.0725%
of the portion of daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.070% of daily net assets
exceeding $1.5 billion but not exceeding
$2.5 billion; and 0.0675% of the portion
of daily net assets exceeding $2.5
billion.
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% of the portion of daily net assets
not exceeding $500 million; and 0.095%
of the portion of daily net assets
exceeding $500 million.
Dean Witter Income
Builder Fund 0.075% to the net assets.
Dean Witter Information Fund 0.075% to the net assets.
Dean Witter International
SmallCap Fund 0.075% to the net assets.
Dean Witter Japan Fund 0.060% to the net assets.
Dean Witter Mid-Cap Growth Fund 0.075% to the net assets.
Dean Witter Natural Resource
Development Securities Inc. 0.0625% of the portion of the daily net
assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Pacific Growth
Fund Inc. 0.060% of the portion of daily net
assets not exceeding $1 billion; and
0.057% of the portion of daily net
assets exceeding $1 billion.
Dean Witter Precious Metals
and Minerals Trust 0.080% to the net assets.
Dean Witter Retirement Series--
American Value Series 0.085% to the net assets.
B-4
<PAGE>
Dean Witter Retirement Series--
Capital Growth Series 0.085% to the net assets.
Dean Witter Retirement Series--
Dividend Growth Series 0.075% to the net assets.
Dean Witter Retirement Series--
Global Equity Series 0.10% to the net assets.
Dean Witter Retirement Series--
Strategist Series 0.085% to the net assets.
Dean Witter Retirement Series--
Utilities Series 0.075% to the net assets.
Dean Witter Retirement Series--
Value Added Market Series 0.050% to the net assets.
Dean Witter Select Dimensions
Investment Series-
American Value Portfolio 0.0625% to the net assets.
Balanced Portfolio 0.045% to the net assets.
Core Equity Portfolio 0.051% to the net assets.
Developing Growth Portfolio 0.050% to the net assets.
Diversified Income Portfolio 0.040% to the net assets.
Dividend Growth Portfolio 0.0625% to the net assets.
Emerging Markets Portfolio 0.075% to the net assets.
Global Equity Portfolio 0.10% to the net assets.
Utilities Portfolio 0.065% to the net assets.
Value-Added Market Portfolio 0.050% to the net assets.
Dean Witter Special Value Fund 0.075% 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; 0.050% of the
portion of the daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; and 0.0475% of the portion
of the daily net assets exceeding $1.5
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
Series 0.050% of the portion of daily net
assets not exceeding $500 million; 0.45%
of the portion of daily net assets
exceeding $500 million but not exceeding
$1 billion; and 0.0425% of the portion
of daily net assets exceeding $1
billion.
Dean Witter Variable Investment
Series--Capital Growth Portfolio 0.065% to the net assets.
B-5
<PAGE>
Dean Witter Variable Investment
Series--Dividend Growth Portfolio 0.0625% of the portion of daily net
assets not exceeding $500 million; and
0.050% of the portion of daily net
assets exceeding $500 million but not
exceeding $1 billion; and 0.0475% of the
portion of daily net assets exceeding $1
billion.
Dean Witter Variable Investment
Series--Equity Portfolio 0.050% to the net assets of the portion
of daily net assets not exceeding $1
billion; and 0.0475% of the portion of
daily net assets exceeding $1 billion.
Dean Witter Variable Investment
Series--European Growth Portfolio 0.060% to the net assets.
Dean Witter Variable Investment
Series--Strategist Portfolio 0.050% to the net assets.
Dean Witter Variable Investment
Series--Utilities Portfolio 0.065% of the portion of daily net
assets exceeding $500 million and 0.055%
of the portion of daily net assets
exceeding $500 million.
Dean Witter World Wide
Investment Trust 0.055% of the portion of daily net
assets not exceeding $500 million; and
0.05225% of the portion of daily net
assets exceeding $500 million.
MONEY MARKET FUNDS
- ------------------
Active Assets Trusts:
(1) Active Assets Money Trust
(2) Active Assets Tax-Free Trust
(3) Active Assets California Tax-Free
Trust
(4) Active Assets Government
Securities Trust 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
Daily Income Trust 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 Liquid Asset
Fund Inc. 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;
B-6
<PAGE>
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
Money Market Trust 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 Retirement Series--
Liquid Asset Series 0.050% of the net assets.
Dean Witter Retirement Series--
U.S. Government Money
Market Series 0.050% of the net assets.
Dean Witter Select Dimensions
Investment Series--
Money Market Portfolio 0.050% to the net assets.
Dean Witter Tax-Free Daily
Income Trust 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 U.S. Government
Money Market Trust 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
B-7
<PAGE>
$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
Series--Money Market Portfolio 0.050% to the net assets.
- -- Monthly compensation calculated weekly by applying the following annual rates
to the weekly net assets.
CLOSED-END FUNDS
- ----------------
Dean Witter Government Income
Trust 0.060% to the average weekly net 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 $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
Bond Trust 0.035% to the average weekly net assets.
InterCapital Insured Municipal
Trust 0.035% to the average weekly net assets.
InterCapital Insured Municipal
Income Trust 0.035% to the average weekly net assets.
B-8
<PAGE>
InterCapital California Insured
Municipal Income Trust 0.035% to the average weekly net assets.
InterCapital Quality Municipal
Investment Trust 0.035% to the average weekly net assets.
InterCapital New York Quality
Municipal Securities 0.035% to the average weekly net assets.
InterCapital Quality Municipal
Income Trust 0.035% to the average weekly net assets.
InterCapital Quality Municipal
Securities 0.035% to the average weekly net assets.
InterCapital California Quality
Municipal Securities 0.035% to the average weekly net assets.
InterCapital Insured Municipal
Securities 0.035% to the average weekly net assets.
InterCapital Insured California
Municipal Securities 0.035% to the average weekly net assets.
B-9
<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. 20 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 references to us under the headings "Independent Accountants"
and "Experts" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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<INVESTMENTS-AT-VALUE> 286,283,720
<RECEIVABLES> 895,480
<ASSETS-OTHER> 8,587
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 286,154,398
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,330,278
<OTHER-INCOME> 0
<EXPENSES-NET> 714,432
<NET-INVESTMENT-INCOME> 6,615,846
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,615,846
<EQUALIZATION> 0
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 102,208,271
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<SHARES-REINVESTED> 6,615,602
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<ACCUMULATED-NII-PRIOR> 22
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<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 714,432
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.024
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.024)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> QUALITY INCOME PLUS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 455,837,746
<INVESTMENTS-AT-VALUE> 459,767,262
<RECEIVABLES> 41,854,099
<ASSETS-OTHER> 2,984
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 501,624,345
<PAYABLE-FOR-SECURITIES> 31,152,285
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 372,372
<TOTAL-LIABILITIES> 31,524,657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,698,982
<SHARES-COMMON-STOCK> 46,171,051
<SHARES-COMMON-PRIOR> 47,512,749
<ACCUMULATED-NII-CURRENT> 178,873
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,707,683)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,929,516
<NET-ASSETS> 470,099,688
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,835,547
<OTHER-INCOME> 0
<EXPENSES-NET> 1,332,172
<NET-INVESTMENT-INCOME> 16,503,375
<REALIZED-GAINS-CURRENT> (5,856,072)
<APPREC-INCREASE-CURRENT> (30,650,839)
<NET-CHANGE-FROM-OPS> (20,003,536)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,932,668)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,058,957
<NUMBER-OF-SHARES-REDEEMED> 4,032,954
<SHARES-REINVESTED> 1,632,299
<NET-CHANGE-IN-ASSETS> (50,478,867)
<ACCUMULATED-NII-PRIOR> 608,166
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,220,354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,332,172
<AVERAGE-NET-ASSETS> 491,365,980
<PER-SHARE-NAV-BEGIN> 10.96
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> (.77)
<PER-SHARE-DIVIDEND> (.36)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> (.55)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 3
<NAME> VARIABLE HIGH YIELD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 218,250,145
<INVESTMENTS-AT-VALUE> 202,415,882
<RECEIVABLES> 4,574,884
<ASSETS-OTHER> 22,983
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207,013,749
<PAYABLE-FOR-SECURITIES> 5,285,757
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 712,085
<TOTAL-LIABILITIES> 5,997,842
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 293,619,800
<SHARES-COMMON-STOCK> 32,093,616
<SHARES-COMMON-PRIOR> 24,631,652
<ACCUMULATED-NII-CURRENT> 128,973
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (76,898,603)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15,834,263)
<NET-ASSETS> 201,015,907
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,426,035
<OTHER-INCOME> 0
<EXPENSES-NET> 449,951
<NET-INVESTMENT-INCOME> 10,976,084
<REALIZED-GAINS-CURRENT> (2,785,453)
<APPREC-INCREASE-CURRENT> 2,787,811
<NET-CHANGE-FROM-OPS> 10,978,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,341,501)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,292,628
<NUMBER-OF-SHARES-REDEEMED> (1,636,715)
<SHARES-REINVESTED> 1,806,051
<NET-CHANGE-IN-ASSETS> 46,706,322
<ACCUMULATED-NII-PRIOR> 494,390
<ACCUMULATED-GAINS-PRIOR> (74,113,150)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 437,887
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 449,951
<AVERAGE-NET-ASSETS> 176,117,235
<PER-SHARE-NAV-BEGIN> 6.26
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> (.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.26
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 4
<NAME> UTILITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 387,188,288
<INVESTMENTS-AT-VALUE> 461,325,238
<RECEIVABLES> 4,834,100
<ASSETS-OTHER> 4,310
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 466,163,648
<PAYABLE-FOR-SECURITIES> 1,045,717
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 477,882
<TOTAL-LIABILITIES> 1,523,599
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 390,108,701
<SHARES-COMMON-STOCK> 30,968,699
<SHARES-COMMON-PRIOR> 32,623,759
<ACCUMULATED-NII-CURRENT> 28,186
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 366,212
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,136,950
<NET-ASSETS> 464,640,049
<DIVIDEND-INCOME> 7,993,139
<INTEREST-INCOME> 2,182,674
<OTHER-INCOME> 0
<EXPENSES-NET> 1,572,168
<NET-INVESTMENT-INCOME> 8,603,645
<REALIZED-GAINS-CURRENT> (782,369)
<APPREC-INCREASE-CURRENT> 10,444,595
<NET-CHANGE-FROM-OPS> 18,267,571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,550,880
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 540,923
<NUMBER-OF-SHARES-REDEEMED> (2,773,498)
<SHARES-REINVESTED> 577,515
<NET-CHANGE-IN-ASSETS> (14,430,096)
<ACCUMULATED-NII-PRIOR> 5,421
<ACCUMULATED-GAINS-PRIOR> 1,146,581
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,525,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,572,168
<AVERAGE-NET-ASSETS> 471,950,741
<PER-SHARE-NAV-BEGIN> 14.68
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.00
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> VARIABLE DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 846,501,255
<INVESTMENTS-AT-VALUE> 1,050,173,506
<RECEIVABLES> 6,644,954
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<EXPENSES-NET> 2,790,980
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<APPREC-INCREASE-CURRENT> 31,225,445
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<NUMBER-OF-SHARES-SOLD> 6,248,221
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<SHARES-REINVESTED> 717,828
<NET-CHANGE-IN-ASSETS> 184,367,499
<ACCUMULATED-NII-PRIOR> 17,214
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<GROSS-EXPENSE> 2,790,980
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<PER-SHARE-NAV-BEGIN> 15.59
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.39
<PER-SHARE-DIVIDEND> (.20)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> VARIABLE CAPITAL GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 65,397,350
<INVESTMENTS-AT-VALUE> 80,281,631
<RECEIVABLES> 1,167,716
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<OTHER-ITEMS-LIABILITIES> 99,493
<TOTAL-LIABILITIES> 635,473
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,924,896
<SHARES-COMMON-STOCK> 4,834,676
<SHARES-COMMON-PRIOR> 4,440,596
<ACCUMULATED-NII-CURRENT> 326,563
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,679,284
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,884,281
<NET-ASSETS> 80,815,024
<DIVIDEND-INCOME> 399,917
<INTEREST-INCOME> 55,595
<OTHER-INCOME> 0
<EXPENSES-NET> 260,929
<NET-INVESTMENT-INCOME> 194,583
<REALIZED-GAINS-CURRENT> 4,979,853
<APPREC-INCREASE-CURRENT> 674,947
<NET-CHANGE-FROM-OPS> 5,849,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 777,977
<NUMBER-OF-SHARES-REDEEMED> (293,891)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,819,854
<ACCUMULATED-NII-PRIOR> 131,980
<ACCUMULATED-GAINS-PRIOR> 699,431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 239,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 260,929
<AVERAGE-NET-ASSETS> 73,969,283
<PER-SHARE-NAV-BEGIN> 15.22
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.54
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> EUROPEAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 185,460,443
<INVESTMENTS-AT-VALUE> 231,709,297
<RECEIVABLES> 2,145,615
<ASSETS-OTHER> 1,698
<OTHER-ITEMS-ASSETS> 4,154,916
<TOTAL-ASSETS> 238,011,526
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<TOTAL-LIABILITIES> 3,822,000
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 234,189,526
<DIVIDEND-INCOME> 2,563,996
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<EXPENSES-NET> 1,090,966
<NET-INVESTMENT-INCOME> 1,743,141
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<NUMBER-OF-SHARES-SOLD> 1,396,230
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<NET-CHANGE-IN-ASSETS> 46,070,117
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EQUITY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 427,248,111
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<RECEIVABLES> 11,740,780
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<ACCUMULATED-NII-CURRENT> 162
<OVERDISTRIBUTION-NII> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> STRATEGIST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 370,579,102
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<PER-SHARE-DIVIDEND> (.19)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GLOBAL DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<ACCUMULATED-GAINS-PRIOR> 6,036,504
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<GROSS-EXPENSE> 1,000,001
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<PER-SHARE-NII> .14
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<PER-SHARE-DIVIDEND> (.14)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PACIFIC GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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</TABLE>
