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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1998
REGISTRATION NOS.: 2-82510
811-3692
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 24 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 25 /X/
------------------------
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
(FORMERLY NAMED 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
BARRY FINK, 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 November 1, 1998 pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
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ITEM CAPTION
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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
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.
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MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
PROSPECTUS
DATED NOVEMBER 1, 1998
<PAGE>
PROSPECTUS DATED
NOVEMBER 1, 1998
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550 OR (800) 869-NEWS
Morgan Stanley 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 fifteen 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 S&P 500 INDEX PORTFOLIO
- THE COMPETITIVE EDGE "BEST IDEAS" 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 Morgan Stanley Dean Witter & 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 November 1, 1998,
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.
------------------------
MORGAN STANLEY DEAN WITTER ADVISORS 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
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Prospectus Summary.................................................................................. 3
Financial Highlights................................................................................ 8
The Fund and its Management......................................................................... 14
Investment Objectives and Policies.................................................................. 16
The Money Market Portfolio........................................................................ 16
The Quality Income Plus Portfolio................................................................. 17
The High Yield Portfolio.......................................................................... 18
The Utilities Portfolio........................................................................... 20
The Income Builder Portfolio...................................................................... 21
The Dividend Growth Portfolio..................................................................... 23
The Capital Growth Portfolio...................................................................... 23
The Global Dividend Growth Portfolio.............................................................. 24
The European Growth Portfolio..................................................................... 25
The Pacific Growth Portfolio...................................................................... 26
The Capital Appreciation Portfolio................................................................ 27
The Equity Portfolio.............................................................................. 29
The S&P 500 Index Portfolio....................................................................... 29
The Competitive Edge "Best Ideas" Portfolio....................................................... 31
The Strategist Portfolio.......................................................................... 33
General Portfolio Techniques...................................................................... 34
Investment Restrictions............................................................................. 44
Determination of Net Asset Value.................................................................... 45
Purchase of Fund Shares............................................................................. 46
Redemption of Fund Shares........................................................................... 47
Dividends, Distributions and Taxes.................................................................. 47
Performance Information............................................................................. 48
Additional Information.............................................................................. 49
Appendix -- Ratings of Corporate Debt
Instruments Investments.......................................................................... 51
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PROSPECTUS SUMMARY
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THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business
trust, and is an open-end diversified management investment company. The Fund is
comprised of fifteen 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, the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO and the STRATEGIST PORTFOLIO (see pages 16 through 44). 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 47 and 49).
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INVESTMENT Each Portfolio has distinct investment objectives and policies, and is subject to
OBJECTIVES, various investment restrictions, some of which apply to all the Portfolios. The
POLICIES, MONEY MARKET PORTFOLIO seeks high current income, preservation of capital and
RESTRICTIONS liquidity by investing in short-term money market instruments (see pages 16-17).
AND RISKS 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 17-18). 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 18-20). 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 20-21). 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 page 23). The CAPITAL GROWTH PORTFOLIO
seeks long-term capital growth by investing primarily in common stocks (see pages
23-24). 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 24-25). The EUROPEAN GROWTH
PORTFOLIO seeks to maximize the capital
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appreciation of its investments by investing primarily in securities issued by
issuers located in Europe (see pages 25-26). 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
26-27). 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 27-29). 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 page 29). The S&P 500 INDEX
PORTFOLIO seeks to provide investment results that, before expenses, correspond to
the total return (I.E., the combination of capital changes and income) of the
Standard & Poor's-Registered Trademark- 500 Composite Stock Price Index (the "S&P
500 Index") by investing, under normal circumstances, at least 80% of the value of
its total assets in common stocks included in the S&P 500 Index in approximately
the same weightings as the Index (see pages 29-31). The COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO seeks long-term capital growth by investing, under normal
circumstances, at least 80% of its net assets in the common stock of U.S. and
non-U.S. companies included in the "Best Ideas" subgroup of "Global Investing: The
Competitive Edge," a research compilation assembled and maintained by Morgan
Stanley Dean Witter Equity Research, and such Supplemental Securities chosen by
the Investment Manager (see pages 31-33). 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).
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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, the COMPETITIVE
EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" 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 S&P 500 INDEX PORTFOLIO may enter into stock index futures contracts
to simulate full investment in the S&P 500 Index while retaining a cash balance
for portfolio management purposes, to facilitate trading, to reduce transaction
costs or to seek higher investment returns when a futures contract is priced more
attractively than stocks comprising the S&P 500 Index. 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 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
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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 S&P 500 INDEX PORTFOLIO,
the COMPETITIVE EDGE "BEST IDEAS" 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 36). 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 27). 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. Investors in the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO should be aware
that there can be no assurance that the securities contained in the Competitive
Edge "Best Ideas" List, which currently consists of only 40 companies, will
perform as anticipated. Past performance of securities and issuers included in the
Competitive Edge "Best Ideas" List cannot be used to predict future results of the
Portfolio, which is actively managed by the Investment Manager and the results of
which are expected to vary from the performance of the Competitive Edge "Best
Ideas" List.
Contract Owners are also directed to the discussion of options and futures
transactions (page 39), repurchase agreements (page 38), foreign securities (page
34), forward foreign currency exchange contracts (page 35), public utilities
securities (page 21), convertible securities (page 37), warrants (page 39), zero
coupon securities (page 39), when-issued and delayed delivery securities and
forward commitments (page 38) and "when, as and if issued" securities (page 38),
concerning risks associated with such securities and management techniques. The
Fund is a single diversified investment company, consisting of fifteen 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
16-44).
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INVESTMENT Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), the Investment Manager
MANAGER of the Fund, and its wholly-owned subsidiary, Morgan Stanley Dean Witter Services
Company Inc., serve in various investment management, advisory, management and
administrative capacities to investment companies and other portfolios with
assets of approximately $ billion at September 30, 1998. For its services as
Investment Manager, MSDW Advisors receives a monthly advisory fee at an annual
rate of 0.40% of the daily net assets of the S&P 500 INDEX PORTFOLIO; at an annual
rate of 0.50% of the daily net assets of the HIGH YIELD PORTFOLIO up to $500
million and 0.425% 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 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
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MONEY MARKET 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,
scaled down at various asset levels to 0.45% on the daily net assets of that
Portfolio exceeding $2 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 each of the CAPITAL GROWTH PORTFOLIO and the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO; at an annual rate of 0.75% of the daily net assets of each of
the INCOME BUILDER PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the CAPITAL
APPRECIATION PORTFOLIO; at an annual rate of 1.0% of the daily net assets of the
EUROPEAN GROWTH PORTFOLIO up to $500 million and 0.95% of the daily net assets of
the Portfolio exceeding $500 million; and at an annual rate of 0.95% of the daily
net assets of the PACIFIC GROWTH PORTFOLIO. Effective January 1, 1999, the
compensation payable for investment management services in respect of the EUROPEAN
GROWTH PORTFOLIO will be reduced so that MSDW Advisors will receive a monthly
advisory fee at an annual rate of 0.95% of the daily net assets of the EUROPEAN
GROWTH PORTFOLIO up to $500 million and 0.90% of the daily net assets of the
Portfolio exceeding $500 million. The Investment Manager has agreed to assume all
expenses of the S&P 500 INDEX PORTFOLIO (except for any brokerage expenses) and to
waive the compensation provided for that Portfolio in its Management Agreement
with the Fund to the extent that such expenses and compensation on an annualized
basis exceed 0.50% of the daily net assets of the S&P 500 INDEX PORTFOLIO (see
page 14).
Morgan Stanley Asset Management Inc. ("MSAM"), an affiliate of the Investment
Manager, has been retained by the Investment Manager as Sub-Advisor to the PACIFIC
GROWTH PORTFOLIO (and, effective January 1, 1999, to the EUROPEAN GROWTH
PORTFOLIO) to provide investment advice and manage the portfolios, subject to the
overall supervision of the Investment Manager. MSAM conducts a worldwide
investment advisory business. As of September 30, 1998, MSAM, together with its
institutional investment management affiliates, had approximately $ billion in
assets under management as an investment manager or as a fiduciary advisor. MSAM
receives a monthly fee from the Investment Manager equal to 40% of the Investment
Manager's monthly fee in respect of the PACIFIC GROWTH PORTFOLIO and, commencing
January 1, 1999, the EUROPEAN GROWTH PORTFOLIO (see page 14).
Morgan Grenfell Investment Services Limited ("MGIS") has been retained by the
Investment Manager as Sub-Advisor to the EUROPEAN GROWTH PORTFOLIO until December
31, 1998 to provide investment advice and manage the portfolio, subject to the
overall supervision of the Investment Manager. MGIS currently manages assets in
excess of $ primarily for U.S. corporate and public employee plans,
endowments, investment companies and foundations. For its services as Sub-Advisor
to the EUROPEAN GROWTH PORTFOLIO, MGIS receives a monthly fee from the Investment
Manager equal to 40% of the Investment Manager's monthly fee in respect of the
EUROPEAN GROWTH PORTFOLIO.
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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
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contracts it issues in connection with an employer-sponsored insurance program
offered only to certain employees of Morgan Stanley Dean Witter & Co., the parent
company of the Fund's Investment Manager. The separate accounts are sometimes
referred to individually as an "Account" and collectively as the "Accounts." The
variable annuity contracts issued by Northbrook, Allstate New York and Glenbrook
are sometimes referred to as the "Variable Annuity Contracts," the variable life
insurance contracts issued by Northbrook, Glenbrook and Paragon are sometimes
referred to as the "Variable Life Contracts," and the Variable Annuity Contracts
and the Variable Life Contracts are sometimes referred to as the "Contracts."
Northbrook, Allstate New York, Glenbrook and Paragon are sometimes referred to as
the "Companies." Accordingly, the interest of the Contract Owner with respect to
the Fund is subject to the terms of the Contract and is described in the
accompanying Prospectus for the Variable Annuity Contracts or the Variable Life
Contracts, which should be reviewed carefully by a person considering the purchase
of a Contract. The accompanying Prospectus for the Variable Annuity Contracts or
the Variable Life Contracts describes the relationship between increases or
decreases in the net asset value of Fund shares and any distributions on such
shares, and the benefits provided under a Contract. The rights of the Companies as
shareholders of the Fund should be distinguished from the rights of a Contract
Owner which are described in the Contract. In the future, shares may be allocated
to certain other separate accounts or sold to affiliated and/or non-affiliated
entities of the Companies in connection with variable annuity contracts or
variable life insurance contracts. As long as shares of the Fund are sold only to
the Companies, the terms "shareholder" or "shareholders" in this Prospectus shall
refer to the Companies. It is conceivable that in the future it may become
disadvantageous for both variable life and variable annuity contract separate
accounts to invest in the same underlying fund (see pages 46 and 49).
- ----------------------------------------------------------------------------------------------------------
PURCHASES Morgan Stanley Dean Witter Distributors Inc. is the distributor of the Fund's
AND shares. Shares of the Fund are sold and redeemed at net asset value, I.E., without
REDEMPTIONS sales charge (see pages 46-47).
- ----------------------------------------------------------------------------------------------------------
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.
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each of the periods through December 31, 1997 for each of
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 have been audited by PricewaterhouseCoopers LLP, independent
accountants. The information for the period ended June 30, 1998 is unaudited.
The financial highlights should be read in conjunction with the financial
statements, notes thereto, and the unqualified report of independent
accountants, which are contained in the Statement of Additional Information.
Further information
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
YEAR ENDED DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
---------- --------- ---------- -------------- ---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
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 1.00 0.050 -- 0.050 (0.050) -- (0.050 )
1997 1.00 0.051 -- 0.051 (0.051) -- (0.051 )
1998(f) 1.00 0.025 -- 0.025 (0.025) -- (0.025 )
QUALITY INCOME PLUS
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 10.96 0.71 (0.58) 0.13 (0.72) -- (0.72 )
1997 10.37 0.70 0.40 1.10 (0.70) -- (0.70 )
1998(f) 10.77 0.34 0.13 0.47 (0.34) -- (0.34 )
HIGH YIELD
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 6.26 0.77 (0.06) 0.71 (0.79) -- (0.79 )
1997 6.18 0.75 (0.06) 0.69 (0.75) -- (0.75 )
1998(f) 6.12 0.36 (0.11) 0.25 (0.36) -- (0.36 )
UTILITIES
1990(a) 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 14.68 0.55 0.70 1.25 (0.55) (0.04) (0.59 )
1997 15.34 0.57 3.46 4.03 (0.57) (0.21) (0.78 )
1998(f) 18.59 0.29 1.63 1.92 (0.29) (1.02) (1.31 )
INCOME BUILDER
1997(d) 10.00 0.44 1.76 2.20 (0.44) -- (0.44 )
1998(f) 11.76 0.27 0.32 0.59 (0.27) (0.11) (0.38 )
</TABLE>
8
<PAGE>
- ----------------------------------------------------------
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. Inclusion of any such charges would reduce the total
return figures for all periods shown. The S&P 500 INDEX PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO commenced operations on May 18, 1998.
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
NET ---------------------------
ASSET NET ASSETS NET
VALUE TOTAL AT END OF INVESTMENT PORTFOLIO
END OF INVESTMENT PERIOD INCOME TURNOVER
PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
------- -------------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 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 5.11 340,238 0.52 4.97 N/A
1.00 5.23 335,578 0.52 5.10 N/A
1.00 2.57(1) 350,070 0.52(2) 5.13(2) N/A
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
10.37 1.56 474,660 0.53 6.84 182
10.77 11.09 474,990 0.53 6.71 171
10.90 4.45(1) 494,138 0.53(2) 6.36(2) 73(1)
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
6.18 11.98 259,549 0.51 12.59 57
6.12 11.87 368,061 0.53 12.44 95
6.01 4.18(1) 420,565 0.53(2) 11.88(2) 55(1)
10.02 4.52(1) 37,597 0.40(2)(3) 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
15.34 8.68 440,662 0.67 3.61 9
18.59 27.15 458,134 0.67 3.48 13
19.20 10.34(1) 485,873 0.67(2) 3.01(2) 4(1)
11.76 22.38(1) 55,423 0.15(2)(6) 5.73(2)(6) 41(1)
11.97 4.94(1) 88,873 0.82(2) 4.88(2) 34(1)
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
YEAR ENDED DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
---------- --------- ---------- -------------- ---------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990(a) $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 15.59 0.41 3.22 3.63 (0.41) (0.41) (0.82)
1997 18.40 0.41 4.20 4.61 (0.41) (1.00) (1.41)
1998(f) 21.60 0.21 1.99 2.20 (0.21) (2.05) (2.26)
CAPITAL GROWTH
1991(b) 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 15.22 0.08 1.65 1.73 (0.03) (0.27) (0.30)
1997 16.65 0.01 3.90 3.91 (0.08) (2.19) (2.27)
1998(f) 18.29 (0.03) 2.85 2.82 -- (1.47) (1.47)
GLOBAL DIVIDEND GROWTH
1994(c) 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 11.69 0.24 1.75 1.99 (0.24) (0.31) (0.55)
1997 13.13 0.22 1.37 1.59 (0.23) (0.60) (0.83)
1998(f) 13.89 0.15 1.20 1.35 (0.15) (1.52) (1.67)
EUROPEAN GROWTH
1991(b) 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 17.53 0.17 4.91 5.08 (0.04) (1.01) (1.05)
1997 21.56 0.21 3.19 3.40 (0.24) (1.18) (1.42)
1998(f) 23.54 0.36 5.82 6.18 (0.31) (1.73) (2.04)
PACIFIC GROWTH
1994(c) 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 9.70 0.05 0.32 0.37 (0.11) -- (0.11)
1997 9.96 0.12 (3.82) (3.70) (0.14) -- (0.14)
1998(f) 6.12 0.04 (1.41) (1.37) (0.20) -- (0.20)
CAPITAL APPRECIATION
1997(d) 10.00 0.07 1.25 1.32 -- -- --
1998(f) 11.32 0.05 0.45 0.50 (0.07) -- (0.07)
EQUITY
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 27.14 0.16 2.70 2.86 (0.16) (3.45) (3.61)
1997 26.39 0.18 9.27 9.45 (0.18) (2.08) (2.26)
1998(f) 33.58 0.10 5.91 6.01 (0.10) (4.47) (4.57)
</TABLE>
10
<PAGE>
- ----------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
---------------------------
NET
NET ASSET TOTAL NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
----------- -------------- -------------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.93 (7.81)%(1) $ 57,282 0.54%(2)(3) 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
18.40 23.96 1,288,404 0.57 2.46 23
21.60 25.61 1,905,906 0.54 2.06 28
21.54 10.18(1) 2,174,186 0.53(2) 1.82(2) 15(1)
12.69 28.41(1) 18,400 -- (2)(4) 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
16.65 11.55 86,862 0.73 0.52 98
18.29 24.54 127,100 0.71 0.01 139
19.64 15.40(1) 145,154 0.70(2) (0.32)(2) 79(1)
9.82 0.27(1) 138,486 0.87(2)(5) 2.62(2) 20(1)
11.69 22.14 205,739 0.88 2.23 55
13.13 17.49 334,821 0.85 1.94 39
13.89 12.04 481,613 0.84 1.61 48
13.57 9.10(1) 522,975 0.83(2) 2.09(2) 25(1)
9.89 1.34(1) 3.653 -- (2)(4) 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 8.36 152,021 1.16 1.49 58
17.53 25.89 188,119 1.17 1.25 69
21.56 29.99 302,422 1.11 0.97 43
23.54 16.07 391,441 1.12 1.04 45
27.68 26.24(1) 520,932 1.09(2) 1.54(2) 26(1)
9.26 (6.73)(1) 75,425 1.00(2)(5) 0.56(2) 22(1)
9.70 5.74 98,330 1.44 1.23 53
9.96 3.89 144,536 1.37 1.01 50
6.12 (37.70) 68,904 1.44 1.09 58
4.55 (22.32)(1) 52,693 1.35(2) 1.38(2) 40(1)
11.32 13.20(1) 32,306 -- (6) 1.30(2)(6) 25(1)
11.75 4.39(1) 36,964 -- (2)(7) 0.94(2)(7) 125(1)
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
26.39 12.36 521,908 0.54 0.58 279
33.58 37.43 823,090 0.52 0.61 145
35.02 17.90(1) 1,011,556 0.51(2) 0.57(2) 92(1)
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
YEAR ENDED DEC. 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------- --------- ---------- -------------- ---------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500 INDEX
1998(e)(f) $10.00 $ 0.02 $ 0.25 $ 0.27 -- -- --
COMPETITIVE EDGE "BEST IDEAS"
1998(e)(f) 10.00 0.02 (0.16) (0.14) -- -- --
STRATEGIST
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 12.45 0.43 1.39 1.82 (0.43) (0.12) (0.55)
1997 13.72 0.45 1.40 1.85 (0.45) (0.32) (0.77)
1998(f) 14.80 0.19 2.29 2.48 (0.19) (1.56) (1.75)
</TABLE>
- ------------------------------
Commencement of operations:
(a) March 1, 1990.
(b) March 1, 1991.
(c) February 23, 1994.
(d) January 21, 1997.
(e) May 18, 1998.
(f) For the six months ended June 30, 1998 (UNAUDITED).
+ Calculated based on the net asset value as of the last business day of
the period.
* Distributions from capital.
** Includes dividends in excess of net investment income of $0.02.
*** Less than 0.05%.
(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, 1990 through August 31, 1990, the
ratio of expenses to average net assets would have been 0.75%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1991 through December 31, 1991,
the ratio of expenses to average net assets would have been 1.60% for
Capital Growth and 4.12% for European Growth.
(5) If the Investment Manager had not assumed all expenses and waived its
management fee for the period February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through August 2, 1994 for
Pacific Growth, the ratio of expenses to average net assets would have
been 0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
(6) If the Investment Manager had not assumed all expenses and waived its
management fee for the period January 21, 1997 through December 3, 1997
for Income Builder and January 21, 1997 through December 31, 1997 for
Capital Appreciation, the ratios of expenses and net investment income to
average net assets would have been 0.99% and 4.89%, respectively, for
Income Builder and 0.97% and 0.33%, respectively, for Capital
Appreciation.
(7) If the Investment Manager had not assumed all expenses and waived its
management fee for the six months ending June 30, 1998 for Capital
Appreciation, the ratio of expenses and net investment income to average
net assets would have been 0.85% and 0.10%, respectively.
(8) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 18, 1998 through June 30, 1998, for S&P
500 Index and Competitive Edge "Best Ideas", respectively, the ratios of
expenses and net investment income to average net assets would have been
1.17% and 0.99%, respectively, for S&P 500 Index and 0.98% and 2.36%,
respectively, for Competitive Edge "Best Ideas".
12
<PAGE>
- ----------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO
AVERAGE NET ASSETS
---------------------------
NET
NET ASSET TOTAL NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
----------- -------------- -------------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 10.27 $ 2.70(1) $ 7,192 -- (2)(8) -- (2)(8) --
9.86 (1.40)(1) 18,317 -- (2)(8) -- (2)(8) -- ***(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
13.72 15.02 423,768 0.52 3.30 153
14.80 13.71 497,028 0.52 3.09 159
15.53 16.82(1) 576,568 0.52(2) 2.43(2) 52(1)
</TABLE>
13
<PAGE>
THE FUND AND ITS MANAGEMENT
- ----------------------------------------------------------
Morgan Stanley Dean Witter Variable Investment Series (the "Fund") (formerly
named Dean Witter Variable Investment Series) 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.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" 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 is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to investment companies, 28
of which are listed on the New York Stock Exchange, with combined total assets
of approximately $ billion at September 30, 1998. 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. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
With regard to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO,
under a Sub-Advisory Agreement between Morgan Stanley Asset Management Inc.
("MSAM") and the Investment Manager, MSAM provides the PACIFIC GROWTH PORTFOLIO
and, commencing January 1, 1999, will provide the EUROPEAN GROWTH PORTFOLIO with
investment advice and portfolio management, in each case subject to the overall
supervision of the Investment Manager. MSAM, whose address is 1221 Avenue of the
Americas, New York, New York 10020, together with its institutional investment
management affiliates, had, as of September 30, 1998, approximately $ billion
in assets under management as an investment manager or as a fiduciary advisor,
primarily for U.S. corporate and public employee benefit plans, investment
companies, endowments, foundations and wealthy individuals. MSAM, like MSDW
Advisors, is a wholly-owned subsidiary of MSDW.
With regard to the EUROPEAN GROWTH PORTFOLIO, until December 31, 1998, under a
Sub-Advisory Agreement between Morgan Grenfell Investment Services Limited
("MGIS") and the Investment Manager, MGIS provides the EUROPEAN GROWTH PORTFOLIO
with investment advice and portfolio management, subject to the overall
supervision of the Investment Manager. MGIS, 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. MGIS is an indirect subsidiary of Deutsche
Bank AG, the largest commercial bank in Germany.
MSAM and MGIS are sometimes collectively referred to as the "Sub-Advisors" and
individually as a "Sub-Advisor."
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 applicable Sub-Advisor) 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 0.40% to the net assets of the S&P 500 INDEX PORTFOLIO, by
applying the annual rate of 0.50% to the net assets of the HIGH YIELD PORTFOLIO
up to $500 million and the annual rate of 0.425% to the net assets of that
Portfolio exceeding $500 million, 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 net assets of that Portfolio exceeding $500 million,
by applying the annual rate of 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, by applying the annual rate of 0.50% to the net assets of each of the
MONEY MARKET 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, the annual rate of 0.475% to
the next $1 billion, and the annual rate of 0.45% to the net assets of that
Portfolio exceeding $2 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 net assets of that Portfolio exceeding $500 million, by applying
the annual rate of 0.65% to the net assets of each of the CAPITAL GROWTH
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, by applying the
annual rate of 0.75% to the net assets of each of the INCOME BUILDER PORTFOLIO,
the GLOBAL DIVIDEND GROWTH PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO, by
applying the annual rate of 1.0% to the net assets of the EUROPEAN GROWTH
PORTFOLIO up to $500 million and the annual rate of 0.95% to the net assets of
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that Portfolio exceeding $500 million, and by applying the annual rate of 0.95%
to the net assets of the PACIFIC GROWTH PORTFOLIO, in each case determined as of
the close of each business day. Effective January 1, 1999, the compensation
payable for investment management services in respect of the EUROPEAN GROWTH
PORTFOLIO will be reduced so that the Fund will pay the Investment Manager
monthly compensation calculated daily by applying the annual rate of 0.95% to
the net assets of the EUROPEAN GROWTH PORTFOLIO up to $500 million and the
annual rate of 0.90% to the net assets of that Portfolio exceeding $500 million,
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 applicable Sub-Advisor 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, 1997, 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, 0.53% 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 0.52% of its average daily net assets, the
total expenses of the QUALITY INCOME PLUS PORTFOLIO amounted to 0.53% of the
average daily net assets, the total expenses of the HIGH YIELD PORTFOLIO
amounted to 0.53% of its average daily net assets, the total expenses of the
EQUITY PORTFOLIO amounted to 0.52% 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 0.54% of
its average daily net assets, the total expenses of the UTILITIES PORTFOLIO
amounted to 0.67% of its average daily net assets, the total expenses of the
CAPITAL GROWTH PORTFOLIO amounted to 0.71% of its average daily net assets, the
total expenses of the GLOBAL DIVIDEND GROWTH PORTFOLIO amounted to 0.84% of its
average daily net assets, the total expenses of the EUROPEAN GROWTH PORTFOLIO
amounted to 1.12% 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 commenced
operations on January 21, 1997. The Investment Manager had undertaken to assume
all expenses of each of these Portfolios (except for any brokerage fees) 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 July 31, 1998 (in the case of the INCOME BUILDER
PORTFOLIO) or December 31, 1998 (in the case of the CAPITAL APPRECIATION
PORTFOLIO), whichever occurs first. The INCOME BUILDER PORTFOLIO attained $50
million of net assets on December 3, 1997. As of the date of this Prospectus,
the CAPITAL APPRECIATION PORTFOLIO has not attained $50 million of net assets.
The S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
commenced operations on May 18, 1998. The Investment Manager has undertaken to
assume all expenses of each of these Portfolios (except for any brokerage fees)
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. Thereafter, the
Investment Manager has agreed to assume all expenses of the S&P 500 INDEX
PORTFOLIO (except for any brokerage fees) and to waive the compensation provided
for that Portfolio in its Management Agreement with the Fund to the extent that
such expenses and compensation on an annualized basis exceed 0.50% of the daily
net assets of the S&P 500 INDEX PORTFOLIO. As of the date of this Prospectus,
neither the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO nor the S&P 500 INDEX
PORTFOLIO has attained $50 million of net assets.
Prior to November 1, 1998, the PACIFIC GROWTH PORTFOLIO was sub-advised by MGIS,
which currently serves as Sub-Advisor of the EUROPEAN GROWTH PORTFOLIO. In May
1998, MGIS indicated its intention to resign as Sub-Advisor to the PACIFIC
GROWTH PORTFOLIO on October 31, 1998 and to resign as Sub-Advisor to the
EUROPEAN GROWTH PORTFOLIO on December 31, 1998 and, on June 2, 1998, the Board
of Trustees recommended that a new Sub-Advisory Agreement with MSAM be submitted
to shareholders of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO for approval. The shareholders of those Portfolios approved the new
Sub-Advisory Agreement with MSAM on August 18, 1998 and the new Sub-Advisory
Agreement became effective with respect to the PACIFIC GROWTH PORTFOLIO on
November 1, 1998 and will become effective with respect to the EUROPEAN GROWTH
PORTFOLIO on January 1, 1999. On November 1, 1998, the Investment Manager and
the Fund amended the Investment Management Agreement to reduce the fee paid by
the Fund to the Investment Manager under the Agreement in respect of the PACIFIC
GROWTH PORTFOLIO from 1.0% to 0.95% of the Portfolio's daily net assets
(effective November 1, 1998) and to reduce the fee paid by the Fund to the
Investment Manager under the Agreement in respect of the EUROPEAN GROWTH
PORTFOLIO from 1.0% of the Portfolio's daily net assets up to $500 million and
0.95% of the Portfolio's daily net assets over $500 million to 0.95% of the
Portfolio's daily net assets up to $500 million and 0.90% of the Portfolio's
daily net assets over $500 million (effective January 1, 1999), in each case
determined as of the close of each business day.
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INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------------------------------
THE MONEY MARKET PORTFOLIO
The investment objectives of the MONEY MARKET PORTFOLIO are high current income,
preservation of capital and liquidity. The MONEY MARKET PORTFOLIO seeks to
achieve those objectives by investing in the following money market instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to principal and
interest by the United States or its agencies (such as the Export-Import Bank of
the United States, Federal Housing Administration, and Government National
Mortgage Association) or its instrumentalities (such as the Federal Home Loan
Bank, Federal Intermediate Credit Banks and Federal Land Bank), including
Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and bankers'
acceptances) of banks subject to regulation by the U.S. Government and having
total assets of $1 billion or more, and instruments secured by such obligations,
not including obligations of foreign branches of domestic banks except to the
extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit issued by
foreign branches of domestic banks having total assets of $1 billion or more
(see the discussion of foreign securities under "General Portfolio Techniques"
below);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings banks
and savings and loan associations, having total assets of $1 billion or more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
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 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
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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) and "Yankee government
bonds," which are U.S. dollar denominated debt securities issued by foreign
governments or their respective instrumentalities or agencies which securities
are either registered under the Securities Act of 1933 or eligible for resale
pursuant to Rule 144A under that Act and pay both principal and interest in U.S.
dollars, which have a rating at the time of purchase within the three highest
grades as determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa or
A) or Standard & Poor's Corporation ("S&P") (AAA, AA or A) or which, if not
rated, are deemed to be of comparable quality by the Fund's Trustees, with a
maximum of 20% of the Portfolio's net assets in "Yankee government bonds."
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 and foreign securities. Securities which
may be purchased include zero coupon securities (see "General Portfolio
Techniques" below).
Generally, as prevailing interest rates rise, the value of the U.S. Government
and other debt securities held by the QUALITY INCOME PLUS PORTFOLIO, and
concomitantly, the net asset value of the Portfolio's shares, will fall. Such
securities with longer maturities generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Portfolio is not limited
as to the maturities of the U.S. Government and other debt securities in which
it may invest.
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations of
the U.S. Government and, as such, are backed by the "full faith and credit" of
the United States.
(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.
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These certificates are, in most cases, "pass-through" instruments, wherein the
issuing agency guarantees the timely payment of principal and interest on
mortgages underlying the certificates, whether or not such amounts are collected
by the issuer on the underlying mortgages.
The average life of such certificates varies with the maturities of the
underlying mortgage instruments, which may be up to thirty years. This average
life is likely to be substantially shorter than the original maturity of the
mortgage pools underlying the certificates, as a pool's duration may be
shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the prevailing level of interest rates, general economic conditions,
the location and age of the mortgage and other social and demographic
conditions. For example, during periods of declining interest rates, mortgage
prepayments can be expected to accelerate. As prepayment rates vary widely, it
is not possible to accurately predict the average life of a particular pool. The
net asset value of shares of the QUALITY INCOME PLUS PORTFOLIO and the
Portfolio's ability to achieve its investment objectives may be adversely
affected by mortgage prepayments.
While the QUALITY INCOME PLUS PORTFOLIO will invest primarily in U.S. Government
and other debt securities, it may invest up to 35% of its portfolio (including
options on debt instruments, options on futures contracts and futures contracts)
in money market instruments, including commercial paper, certificates of
deposit, bankers' acceptances and other obligations of domestic banks or
domestic branches of foreign banks, or foreign branches of domestic banks, in
each case having total assets of at least $500 million, and obligations issued
or guaranteed by the United States Government, and, within this portion of the
portfolio, up to 15% of its net assets in "Yankee corporate bonds," which are
U.S. dollar denominated debt securities issued by foreign corporations which
securities are either registered under the Securities Act of 1933 or eligible
for resale pursuant to Rule 144A under that Act and pay both principal and
interest in U.S. dollars, and which have a rating at the time of purchase within
the three highest grades as determined by Moody's or S&P or which, if not rated,
are deemed to be of comparable quality by the Fund's Trustees (any security
which subsequently receives a rating as low as Baa(3) by Moody's or BBB- by S&P
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) (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
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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 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 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).
19
<PAGE>
During the fiscal year ended December 31, 1997, 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 in debt
obligations, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- --------------------------------------------- -----------------
<S> <C>
AAA/Aaa...................................... 3.3%
AA/Aa........................................ --
A/A.......................................... 12.1
BBB/Baa...................................... --
BB/Ba........................................ 6.1
B/B.......................................... 59.4
CCC/Caa...................................... 2.3
CC/Ca........................................ --
C/C.......................................... --
D............................................ --
Unrated...................................... 16.8
-----
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 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
20
<PAGE>
United States or its agencies and instrumentalities), money market instruments,
repurchase agreements, options and futures (see "General Portfolio Techniques"
below and in the Statement of Additional Information). U.S. Government
securities are described above and in the Statement of Additional Information
under the caption "The Quality Income Plus Portfolio." The UTILITIES PORTFOLIO
may acquire warrants attached to other securities purchased by the Portfolio
(see "General Portfolio Techniques" below).
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the UTILITIES PORTFOLIO's
securities holdings. During such periods, the UTILITIES PORTFOLIO may adopt a
temporary "defensive" posture in which greater than 35% of its total assets are
invested in cash or money market instruments which would be eligible investments
for the Fund's MONEY MARKET PORTFOLIO (as set forth above under "The Money
Market Portfolio").
The UTILITIES PORTFOLIO may enter into repurchase agreements, invest in foreign
securities (including American Depository Receipts, European Depository Receipts
or other similar securities convertible into securities of foreign issuers),
invest in zero coupon securities, 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 contribute 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
21
<PAGE>
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.
Payments of interest and principal on U.S. Government securities are guaranteed
by the U.S. Government; however, neither the value nor the yield of corporate
notes and bonds and U.S. Government securities which may be invested in by the
INCOME BUILDER PORTFOLIO are guaranteed by the U.S. Government. Values and yield
of corporate and government bonds will fluctuate with changes in prevailing
interest rates and other factors. Generally, as prevailing interest rates rise,
the value of corporate notes and bonds and government bonds held by the
Portfolio will fall. Securities with longer maturities generally tend to produce
higher yields and are subject to greater market fluctuation as a result of
changes in interest rates than debt securities with shorter maturities. The
INCOME BUILDER PORTFOLIO is not limited as to the maturities of the debt
securities in which it may invest.
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, 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 S&P 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
22
<PAGE>
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, 1997, the monthly dollar weighted
average ratings of the debt obligations held by the INCOME BUILDER PORTFOLIO,
expressed as a percentage of the Portfolio's total investments in debt
obligations, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- --------------------------------------------- -----------------
<S> <C>
AAA/Aaa...................................... 4.0%
AA/Aa........................................ --
A/A.......................................... 3.5
BBB/Baa...................................... 12.3
BB/Ba........................................ 24.3
B/B.......................................... 34.8
CCC/Caa...................................... --
CC/Ca........................................ --
C/C.......................................... --
D............................................ --
Unrated...................................... 21.1
-----
100.0%
</TABLE>
THE DIVIDEND GROWTH PORTFOLIO
The investment objective of the DIVIDEND GROWTH PORTFOLIO is to provide
reasonable current income and long-term growth of income and capital. There is
no assurance that the objective will be achieved. The DIVIDEND GROWTH PORTFOLIO
seeks to achieve its investment objective primarily through investments in
common stock of companies with a record of paying dividends and the potential
for increasing dividends. Net asset value of the DIVIDEND GROWTH PORTFOLIO's
shares will fluctuate with changes in market values of portfolio securities. The
DIVIDEND GROWTH PORTFOLIO will attempt to avoid speculative securities or those
with speculative characteristics.
The investment objective of the DIVIDEND GROWTH PORTFOLIO may not be changed
without the approval of the shareholders of the DIVIDEND GROWTH PORTFOLIO. The
following policies may be changed by the Trustees of the Fund without
shareholder approval:
(1) Up to 30% of the value of the DIVIDEND GROWTH PORTFOLIO's total assets
may be invested in: (a) convertible debt securities, convertible preferred
securities, warrants (see "General Portfolio Techniques" below), U.S. Government
securities (securities issued or guaranteed as to principal and interest by the
United States or its agencies and instrumentalities), corporate debt securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. or BBB or better by Standard & Poor's Corporation or which, if
unrated, are deemed to be of comparable quality by the Fund's Trustees (see
"General Portfolio Techniques" below for a discussion of the characteristics and
risks of investments in fixed-income securities rated Baa or BBB) and/or money
market instruments which would be eligible investments for the Fund's MONEY
MARKET PORTFOLIO (as set forth above under "The Money Market Portfolio") when,
in the opinion of the Investment Manager, the projected total return on such
securities is equal to or greater than the expected total return on equity
securities or when such holdings might be expected to reduce the volatility of
the portfolio (for purposes of this provision, the term "total return" means the
difference between the cost of a security and the aggregate of its market value
and dividends received); or (b) in money market instruments under any one or
more of the following circumstances: (i) pending investment of proceeds of sale
of the DIVIDEND GROWTH PORTFOLIO's shares or of portfolio securities; (ii)
pending settlement of purchases of portfolio securities; or (iii) to maintain
liquidity for the purpose of meeting anticipated redemptions.
(2) Notwithstanding any of the foregoing limitations, the DIVIDEND GROWTH
PORTFOLIO may invest more than 30% of the value of its total assets in money
market instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions.
The DIVIDEND GROWTH PORTFOLIO may enter into repurchase agreements, invest in
American Depository Receipts, 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
23
<PAGE>
the Portfolio, the Investment Manager will utilize a screening process designed
to find companies which have demonstrated a history of consistent growth in
earnings and revenues for the past several years. Additionally, screened
companies will have solid future earnings growth characteristics and attractive
valuations. Companies meeting these requirements will be potential candidates
for investment by the CAPITAL GROWTH PORTFOLIO. 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 dividends and the potential for increasing dividends. The
following policies may be changed by the Trustees of the Fund without
shareholder approval:
The GLOBAL DIVIDEND GROWTH PORTFOLIO will invest at least 65% of its total
assets in dividend-paying equity securities issued by issuers located in various
countries around the world. The Portfolio's investment portfolio will also be
invested in at least three separate countries.
The GLOBAL DIVIDEND GROWTH PORTFOLIO will maintain a flexible investment policy
and, based on a worldwide investment strategy, will invest in a diversified
portfolio of securities of companies located throughout the world. The
Investment Manager will seek those companies with what, in its opinion, is a
strong record of earnings. The percentage of the GLOBAL DIVIDEND GROWTH
PORTFOLIO's assets invested in particular geographic sectors will shift from
time to time in accordance with the judgement of the Investment Manager.
Up to 35% of the value of the GLOBAL DIVIDEND GROWTH PORTFOLIO's total assets
may be invested in: (a) convertible debt securities, convertible preferred
securities, warrants (see "General Portfolio Techniques" below), U.S. Government
securities (securities issued or guaranteed as to principal and interest by the
United States or its agencies and instrumentalities), fixed-income securities
issued by foreign governments and international organizations, investment grade
corporate debt securities and/or money market instruments when, in the opinion
of the Investment Manager, the projected total return on such securities is
equal to or greater than the expected total return on equity securities or when
such holdings might be expected to reduce the volatility of the portfolio (for
purposes of this provision, the term "total return" means the difference between
the cost of a security and the aggregate of its market value and dividends
received) and forward foreign currency exchange contracts, futures contracts and
options (see "General Portfolio Techniques" below and in the Statement of
Additional Information); or (b) money market instruments under any one or more
of the following circumstances: (i) pending investment of proceeds of sale of
the Portfolio's shares or of portfolio securities; (ii) pending settlement of
purchases of portfolio securities; or (iii) to maintain liquidity for
24
<PAGE>
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 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 Portfolio's investment portfolio will be invested in at least three separate
countries.
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-Advisor 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-Advisor 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-Advisor 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-Advisor, a superior investment potential
(see "General Portfolio Techniques" below). The EUROPEAN GROWTH PORTFOLIO may
also purchase equity and fixed-income securities which are issued in private
placements and warrants or other securities conveying the right to purchase
common stock, and may invest up to 10% of its total assets in securities issued
by other investment companies (see the discussion of these securities under
"General Portfolio Techniques" below).
The remainder of the assets of the EUROPEAN GROWTH PORTFOLIO, equalling, at
times, up to 35% of the Portfolio's total assets, may be invested in equity
and/or governmental and convertible securities issued by issuers located
anywhere in the world, including the United States, subject to the Portfolio's
investment objective. In addition, this portion of the portfolio will consist of
various other financial instruments such as forward foreign currency exchange
contracts, futures contracts and options (see "General Portfolio Techniques"
below and in the Statement of Additional Information). U.S. Government
securities are described above and in the Statement of Additional Information
under "The Quality Income Plus Portfolio."
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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), which is expected to convert into the euro after December 31,
1998. 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, South Korea and India. The Portfolio's investment portfolio will be
invested in at least three separate countries.
The PACIFIC GROWTH PORTFOLIO may invest more than 25% of its total assets in
Japan, reflecting the dominance of the Japanese stock market in the Pacific
basin. The concentration of the Portfolio's assets in Japanese issuers will
subject the PACIFIC GROWTH PORTFOLIO to the risks of adverse social, political
or economic events which occur in Japan. Specifically, investments in the
Japanese stock market may entail a higher degree of risk than investments in
other markets as, by fundamental measures of corporate valuation, such as its
high price-earnings ratios and low dividend yields, the Japanese market as a
whole may appear expensive relative to other world stock markets (I.E., the
prices of Japanese stocks may be relatively high). In addition, the prices of
securities traded on the Japanese markets may be more volatile than many other
markets.
The PACIFIC GROWTH PORTFOLIO also may invest over 25% of its total assets in
securities issued by issuers located in Hong Kong. In common with the other
stock markets of the Pacific Basin, the Hong Kong stock market is more volatile,
as measured by standard deviation, than the major equity markets of North
America and Europe. On July 1, 1997, Hong Kong became part of the People's
Republic of China, and forms a Special Administrative Region within that
country. The Government of China has indicated that it will not seek to alter
the free market-oriented economic system of Hong Kong for at least fifty years
following 1997.
The PACIFIC GROWTH PORTFOLIO may also invest over 25% of its total assets in
securities issued by issuers located in each of Malaysia, South Korea and
Taiwan. These markets may also be more volatile than many other markets and, as
in the case of other international equity markets, the value of equities can be
impacted by unforeseen, adverse developments in the macro-economy or currency,
political and/or social instability, government regulatory changes or individual
corporate developments.
The securities invested in will primarily consist of equity securities issued by
companies based in Asian countries, Australia and New Zealand which the
Investment Manager and/or Sub-Advisor 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-Advisor that such investments are consistent with the
Portfolio's investment objective. For example, there may be times when the
Investment Manager or Sub-Advisor 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
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<PAGE>
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-Advisor 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-Advisor 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-Advisor, 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-Advisor 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, South Korean won and Indian rupee. Securities
of issuers within a given country may be denominated in the currency of a
different country.
The PACIFIC GROWTH PORTFOLIO may also invest in securities of foreign issuers in
the form of American Depository Receipts, European Depository Receipts or other
similar securities convertible into securities of foreign issuers (see the
discussion of these securities under "General Portfolio Techniques" below).
There may be periods during which market conditions warrant reduction of some or
all of the PACIFIC GROWTH PORTFOLIO's securities holdings. During such periods,
the Portfolio may adopt a temporary "defensive" posture in which greater than
35% of its net assets are invested in cash or money market instruments that
would be eligible investments for the Fund's MONEY MARKET PORTFOLIO (as set
forth above under "The Money Market Portfolio").
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities). In particular, the foreign securities in
which the PACIFIC GROWTH PORTFOLIO will be investing may be issued by issuers
located in developing countries. Compared to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Prices on these securities tend to be
especially volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
The PACIFIC GROWTH PORTFOLIO may enter into repurchase agreements, invest in
zero coupon securities, 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
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<PAGE>
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 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 BBB by
Standard & Poor's Corporation (the lowest credit ratings designated "investment
grade") and a discussion of investments in securities rated lower than
investment grade.
The securities in which the CAPITAL APPRECIATION PORTFOLIO invests may or may
not be listed on a national stock exchange, but if they are not so listed will
generally have an established over-the-counter market.
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.
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.
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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 (including American Depository Receipts), 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
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 S&P 500 INDEX PORTFOLIO
The investment objective of the S&P 500 INDEX PORTFOLIO is to provide investment
results that, before expenses, correspond to
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the total return (I.E., the combination of capital changes and income) of the
Standard & Poor's-Registered Trademark- 500 Composite Stock Price Index (the
"S&P 500 Index"). This is a fundamental policy and cannot be changed without the
approval of the shareholders of the S&P 500 INDEX PORTFOLIO. There is no
assurance that the investment objective of the S&P 500 INDEX PORTFOLIO will be
achieved. The following policies may be changed by the Trustees of the Fund
without shareholder approval:
The S&P 500 INDEX PORTFOLIO seeks to achieve its objective by investing, under
normal circumstances (including the attainment by the Portfolio of sufficient
asset size), at least 80% of its total assets in common stocks included in the
S&P 500 Index in approximately the same weightings as the Index. The Portfolio
intends to invest in substantially all of the stocks that comprise the S&P 500
Index in approximately the same weightings as they are represented in the Index.
The Portfolio operates as a "straight" index fund and will not be actively
managed; as such, adverse performance of a security will ordinarily not result
in the elimination of the security from the portfolio of the S&P 500 INDEX
PORTFOLIO. The Portfolio will remain fully invested in common stocks even when
stock prices are generally falling. Ordinarily, portfolio securities will not be
sold except to reflect additions or deletions of the stocks that comprise the
S&P 500 Index, including mergers, reorganizations and similar transactions, or
as may be necessary to satisfy redemption requests.
Over the long term, the Investment Manager seeks a correlation between the
performance of the S&P 500 INDEX PORTFOLIO, before expenses, and that of the S&P
500 Index of 0.95 or better. A figure of 1.00 would indicate perfect
correlation. The Portfolio's ability to correlate its performance, before
expenses, with the S&P 500 Index may be affected by, among other things, changes
in securities markets, the manner in which the S&P 500 Index is calculated and
the timing of purchases and redemptions. The Portfolio's ability to correlate
its performance to the Index also depends to some extent on the size of the
portfolio of the S&P 500 INDEX PORTFOLIO and the size of cash flows into and out
of the Portfolio. To accommodate these cash flows, investment changes may be
made to maintain the similarity of the Portfolio's portfolio to the S&P 500
Index to the maximum practicable extent. The Investment Manager regularly
monitors the correlation and, in the event the desired correlation is not
achieved, the Investment Manager will determine what additional investment
changes may need to be made.
The S&P 500 INDEX PORTFOLIO may purchase and sell stock index futures contracts,
for the following reasons: to simulate full investment in the S&P 500 Index
while retaining a cash balance for portfolio management purposes, to facilitate
trading, to reduce transaction costs or to seek higher investment returns when a
futures contract is priced more attractively than stocks comprising the S&P 500
Index (see the discussion of stock index futures under "General Portfolio
Techniques" below and in the Statement of Additional Information).
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX. The S&P 500 Index is a
well-known stock market index that includes common stocks of 500 companies from
several industrial sectors representing a significant portion of the market
value of all common stocks publicly traded in the United States, most of which
are listed on the New York Stock Exchange. Stocks in the S&P 500 Index are
weighted according to their market capitalization (I.E., the number of shares
outstanding multiplied by the stock's current price). The Investment Manager
believes that the performance of the S&P 500 Index is representative of the
performance of publicly traded common stocks in general. The composition of the
S&P 500 Index is determined by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed from
time to time.
"Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and "500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by the S&P 500
INDEX PORTFOLIO. The Portfolio is not sponsored, endorsed, sold or promoted by
S&P, and S&P makes no representation regarding the advisability of investing in
the S&P 500 INDEX PORTFOLIO. (Please see the Statement of Additional Information
which sets forth certain additional disclaimers and limitations of liabilities
on behalf on S&P.)
CASH FLOWS; EXPENSES. The ability of the S&P 500 INDEX PORTFOLIO to meet its
investment objective depends to some extent on the Investment Manager's ability
to manage cash flows (primarily from purchases and redemptions and distributions
from the Portfolio's portfolio investments). Generally, the Investment Manager
will employ stock index futures to provide liquidity necessary to meet
anticipated redemptions or for day-to-day operating purposes. In addition, if
considered appropriate, a portion of the Portfolio's assets not exceeding 20% of
its total assets may be invested in money market instruments. The Investment
Manager will also make investment changes to the portfolio of the S&P 500 INDEX
PORTFOLIO to accommodate cash flows while continuing to seek to replicate the
total return of the S&P 500 Index. Investors should also be aware that the S&P
500 Index is a hypothetical number which does not take into account brokerage
commissions and other transaction costs, custody and other costs of investing,
which will be borne by the Fund, and any incremental operating costs (E.G.,
transfer agency, accounting) borne by the Portfolio. Finally, since the
Portfolio seeks to provide investment results that, before expenses, correspond
to the total return of the S&P 500 Index, the Investment Manager will generally
not attempt to judge the merits of any particular security as an investment.
TEMPORARY INVESTMENTS. A portion of the S&P 500 INDEX PORTFOLIO's assets, not
exceeding 20% of its total assets, may be invested temporarily in money market
instruments under any one or more of the following circumstances: (a) pending
investment of proceeds of sale of shares of the Portfolio, (b) pending
settlement of purchases of portfolio securities, or (c) to maintain liquidity
for the purpose of meeting anticipated redemptions. The money market instruments
in which the
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Portfolio may invest are: certificates of deposit of U.S. domestic banks with
assets of $1 billion or more, bankers' acceptances, time deposits, U.S.
Government and U.S. Government agency securities, and commercial paper rated
within the two highest grades by S&P or Moody's Investors Service, Inc. or
which, if not rated, are of comparable quality as determined by the Fund's
Trustees, and which mature within one year from the date of purchase.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS"). The S&P 500 INDEX PORTFOLIO may
purchase interests in a unit investment trust holding a portfolio of securities
linked to the S&P 500 Index. SPDRs closely track the underlying portfolio of
securities, trade like a share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks that comprise the S&P 500
Index. The Portfolio may invest up to 10% of its total assets in the aggregate
in SPDRs and up to 5% of its total assets in SPDRs issued by a single unit
investment trust. As a holder of interest in a unit investment trust, the
Portfolio would indirectly bear its ratable share of that unit investment
trust's expenses. At the same time the Portfolio would continue to pay its own
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 such unit investment trusts. The liquidity of small holdings
of SPDRs will depend upon the existence and liquidity of a secondary market.
The S&P 500 INDEX PORTFOLIO may enter into repurchase agreements, invest in zero
coupon securities and foreign securities (including American Depository
Receipts) of foreign corporations represented in the S&P 500 Index, and lend its
portfolio securities, 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 COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
The investment objective of the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO is
long-term capital growth. This is a fundamental policy and cannot be changed
without the approval of the shareholders of the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO. There is no assurance that the investment objective of the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO will be achieved. The following policies
may be changed by the Trustees of the Fund without shareholder approval:
The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO seeks to achieve its investment
objective by investing, under normal circumstances, at least 80% of its net
assets in the common stock (including depository receipts, such as American
Depository Receipts or European Depository Receipts)(see "General Portfolio
Techniques" below) of U.S. and non-U.S. companies included in the "Best Ideas"
subgroup of "Global Investing: The Competitive Edge," a research compilation
assembled and maintained by Morgan Stanley Dean Witter Equity Research ("MSDW
Equity Research") and such Supplemental Securities (as defined below) chosen by
the Investment Manager.
MSDW EQUITY RESEARCH. MSDW Equity Research is recognized as a world leader in
global financial research and provides comprehensive research and in-depth
knowledge about general markets and specific companies from around the world. It
believes that companies with a sustainable competitive edge in the operations of
their businesses are worth more than their weaker competitors. Through its
ongoing research and analysis, MSDW Equity Research has developed and undertaken
a comprehensive study which it calls "Global Investing: The Competitive Edge"
which represents the list of those companies.
Specifically, MSDW Equity Research group's research analysts and strategists
presently evaluate approximately 2,000 companies in 21 industry sectors
worldwide (the "MSDW Covered Securities"). An initial comprehensive review was
conducted in October 1996 and identified 238 companies from the MSDW Covered
Securities (then nearly 1,650) as having a long-term sustainable competitive
advantage in the global arena (the "Competitive Edge List"). The criteria used
to select companies that have a global competitive advantage vary according to
industry sector. The Competitive Edge List is currently updated annually. From
the Competitive Edge List, MSDW Equity Research then assembled a subgroup of 40
companies which it considered at that time to be the most attractive investment
opportunities of the companies identified as having a long-term sustainable
competitive advantage in the global arena (the "Competitive Edge 'Best Ideas'
List"). MSDW Equity Research's Competitive Edge List and Competitive Edge "Best
Ideas" List are not compiled with any particular client or product in mind and
are not, and will not be, compiled with the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO in mind. When selecting the companies for its Competitive Edge "Best
Ideas" List, MSDW Equity Research does not take into account country or currency
risk, and country or industry sector diversification concerns. MSDW publishes
other lists of recommended securities that could be appropriate for Portfolio
investors but which will not be used by the Investment Manager for choosing
securities for the Portfolio. MSDW could at any time cease publishing the
Competitive Edge List and the Competitive Edge "Best Ideas" List. In that event
the Trustees of the Fund will make a determination of how to proceed in the best
interests of shareholders of the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
consistent with the Portfolio's investment objective. A list of the companies
contained on the Competitive Edge "Best Ideas" List as of March 31, 1998 is set
forth in the Statement of Additional Information. The Competitive Edge "Best
Ideas" List is currently updated by MSDW Equity Research quarterly.
In accordance with the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO's investment
restrictions described below, the Portfolio will not invest 25% or more of the
value of its total assets in any one industry. In addition, as the Portfolio
principally invests in the securities of companies on the Competitive Edge "Best
Ideas" List, which currently consists of only 40 companies, the Portfolio
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will invest in a relatively small universe of securities. Accordingly, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may be highly invested in any one
industry or country. It is the intention of the Investment Manager that at least
1% and not more than 5% of the Portfolio's net assets will be invested in each
company on the Competitive Edge "Best Ideas" List, determined at the time of
investment and subject to the specific investment policies and restrictions
described below. However, the Investment Manager may eliminate or reduce its
investment in any company on the Competitive Edge "Best Ideas" List below 1% of
the Portfolio's net assets, in the following circumstances: (a) the stock is no
longer publicly traded, such as in the case of a leveraged buyout or merger; (b)
in the view of the Investment Manager, there is a material adverse development
with respect to a company, including but not limited to the downgrading of the
company's rating by MSDW Equity Research; (c) concerns that, in view of the
price of the company's securities, the depth of the market in those securities
and the amount of those securities held or to be held by the Portfolio,
retaining shares of that company or making additional purchases would be
inadvisable because of liquidity concerns; or (d) the diversification and other
requirements that apply to registered investment companies. The Investment
Manager will monitor on an ongoing basis all companies falling within any of the
circumstances described in this paragraph, and may increase the Portfolio's
holdings in such company's shares when and if those conditions cease to exist.
The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO will purchase any security which is
added to the Competitive Edge "Best Ideas" List, and will sell a security which
is eliminated from the Competitive Edge "Best Ideas" List and any related
Supplemental Security (as defined below), as soon as practicable after the
Competitive Edge "Best Ideas" List has been updated by MSDW Equity Research,
unless the Investment Manager decides to hold such security as a Supplemental
Security. Accordingly, securities may be purchased and sold by the Portfolio
when such purchases and sales would not be made under traditional investment
criteria. The Investment Manager will not have access to the Competitive Edge
"Best Ideas" List prior to its quarterly update by MSDW Equity Research.
While the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO intends to invest in
securities on the Competitive Edge "Best Ideas" List, the Portfolio may purchase
one or more supplemental securities ("Supplemental Securities") that are not
included on the Competitive Edge "Best Ideas" List but are on the Competitive
Edge List or, in the event no suitable securities are on the Competitive Edge
List, such other securities deemed suitable by the Investment Manager.
Supplemental Securities will generally be selected by the Investment Manager
from the same or similar industry sector as the security which they are
supplementing or replacing. Accordingly, the Portfolio's holdings may not be
limited to those on the Competitive Edge "Best Ideas" List. While there is no
limit on the total number of Supplemental Securities that the Portfolio may
hold, Supplemental Securities and all other securities that are not on the
Competitive Edge "Best Ideas" List generally will not exceed 35% of the
Portfolio's total assets. In addition, each security on the Competitive Edge
"Best Ideas" List which is supplemented or replaced, together with its
corresponding Supplemental Securities, will have a combined weighting of no more
than 5% of the Portfolio's net assets, determined at the time of investment.
The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest up to 20% of its total
assets in money market instruments or cash. The money market instruments in
which the Portfolio may invest are securities issued or guaranteed by the U.S.
Government (Treasury bills, notes and bonds (including zero coupon securities)
(see "General Portfolio Techniques" below), obligations of American banks and
savings institutions having total assets of $1 billion or more, Eurodollar
certificates of deposit issued by foreign branches of domestic banks having
total assets of $1 billion or more, fully insured certificates of deposit, and
commercial paper of American issuers rated within the two highest grades by
Moody's Investors Service Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") 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.
There may be periods during which market conditions warrant reduction of some or
all of the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO's securities holdings. During
such periods, the Portfolio may adopt a temporary "defensive" posture in which
up to 100% of the Portfolio's net assets are invested in cash or money market
instruments.
COMPETITIVE EDGE "BEST IDEAS" SELECTION. The net asset value of the Portfolio
will fluctuate depending upon, among other things, the performance of the
securities included on the Competitive Edge "Best Ideas" List, which currently
consists of 40 companies and which is only updated quarterly. The Portfolio is
subject to all the risks associated with investing in a small universe of
securities. There can be no assurance that the securities contained in the
Competitive Edge "Best Ideas" List will perform as anticipated. The selection of
companies on the Competitive Edge "Best Ideas" List is a subjective
determination by MSDW Equity Research. Past performance of the securities and
issuers included in the Competitive Edge "Best Ideas" List cannot be used to
predict future results of the Portfolio, which is actively managed by the
Investment Manager and the results of which are expected to vary from the
performance of the Competitive Edge "Best Ideas" List.
POTENTIAL INVESTMENT RESTRICTIONS AND CONSIDERATIONS. The activities of an
affiliate of the Investment Manager, including but not limited to Dean Witter
Reynolds Inc. or Morgan Stanley & Co. Incorporated, may from time to time limit
the Portfolio's ability to purchase or sell securities on the Competitive Edge
"Best Ideas" List. For instance, when Dean Witter Reynolds Inc. or Morgan
Stanley & Co. Incorporated or one of their affiliates is engaged in an
underwriting or other distribution of stock of an issuer, the Investment Manager
may be prohibited from purchasing the stock of that issuer for the Portfolio. In
addition, the Competitive Edge "Best Ideas" List is available to other clients
of MSDW and its affiliates, including the Investment Manager, as well as the
Portfolio. The lists are also subject to
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restrictions related to MSDW's other businesses and particular securities may or
may not be on the lists due to other business concerns of, or legal restrictions
applicable to, MSDW.
MSDW BUSINESSES. As a diversified financial services firm, with three primary
businesses--securities, asset management and credit services, MSDW provides a
wide range of financial services to issuers of securities and investors in
securities. MSDW and others associated with it may create markets or specialize
in, have positions in and affect transactions in securities of companies
included on its research lists and may also perform or seek to perform
investment banking services for those companies. Within the last three years
MSDW may have managed or co-managed public security offerings for companies
included on their research lists, and they or their employees may have a long or
short position on holdings in the securities, or options on securities, or other
related investments of companies included on their research lists.
The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may enter into repurchase
agreements, invest in foreign securities, forward foreign currency exchange
contracts, rights and warrants, private placements and futures contracts and
options, and lend its portfolio securities, 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 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
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and techniques (and subject to the risks) set forth under "General Portfolio
Techniques" below and in the Statement of Additional Information.
GENERAL PORTFOLIO TECHNIQUES
FOREIGN SECURITIES. The EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO will invest primarily in foreign securities. The GLOBAL DIVIDEND
GROWTH PORTFOLIO will invest a substantial portion of its assets in foreign
securities. The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may 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 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 20% of its net assets in "Yankee government bonds," and up to 15%
of its net assets in "Yankee corporate bonds," which are U.S. dollar denominated
debt securities issued, respectively, by foreign governments or their respective
instrumentalities or agencies or by foreign corporations, which securities in
each case are either registered under the Securities Act of 1933, or eligible
for resale pursuant to Rule 144A under that Act and pay both principal and
interest in U.S. dollars. 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 S&P 500 INDEX PORTFOLIO may purchase common stocks,
including American Depository Receipts, of foreign corporations represented in
the S&P 500 Index (such securities are listed on the New York Stock Exchange,
the American Stock Exchange or the NASDAQ Market System). 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, the COMPETITIVE EDGE "BEST IDEAS" 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
different currencies 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, the PACIFIC GROWTH
PORTFOLIO, and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, through forward
foreign currency exchange contracts (described below) or, in the case of those
four 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 are not subject to the
regulatory requirements of U.S. companies and, as such, there may be less
publicly available information about such companies. Moreover, foreign companies
are not subject to uniform accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
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Securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Portfolio trades effected in such markets. Inability to dispose
of portfolio securities due to settlement delays could result in losses to a
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments. To the extent a Portfolio purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions, and future international political and economic developments which
might adversely affect the payment of principal or interest.
Many European countries are about to adopt a single European currency, the euro
(the "Euro Conversion"). The consequences of the Euro Conversion for foreign
exchange rates, interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
a Portfolio.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. 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 COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST
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 HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the
INCOME BUILDER PORTFOLIO, the CAPITAL GROWTH PORTFOLIO and the STRATEGIST
PORTFOLIO may enter into forward contracts to facilitate settlement. These
Portfolios (and the other Portfolios which may engage in such transactions) will
utilize forward foreign contracts in these instances as an attempt to limit the
effect of changes in the relationship between the U.S. dollar and the foreign
currency during the period between the trade date and settlement date for the
transaction. The GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO may enter into such contracts for the foregoing purpose and generally
may enter into such contracts as a hedge against fluctuations in future foreign
exchange rates.
At times, when, for example, it is believed that a particular foreign currency
may suffer a substantial decline against the U.S. dollar or some other foreign
currency, a Portfolio may enter into a forward contract to sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities (or
securities which the Portfolio has purchased for its portfolio) denominated in
such foreign currency. Under identical circumstances, the Portfolio may enter
into a forward contract to sell, for a fixed amount of U.S. dollars or other
currency, an amount of foreign currency other than the currency in which the
securities to be hedged are denominated approximating the value of some or all
of the portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when a Portfolio anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency. The Portfolio may, however,
close out the forward contract without purchasing the security which was the
subject of the "anticipatory" hedge.
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
Portfolios 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-Advisor. 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.
AMERICAN DEPOSITORY RECEIPTS AND EUROPEAN DEPOSITORY RECEIPTS. The HIGH YIELD
PORTFOLIO, the UTILITIES PORTFOLIO, the
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INCOME BUILDER PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION PORFOLIO, the EQUITY
PORTFOLIO and the S&P 500 INDEX 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 the
aggregate in shares of other investment companies and up to 5% of its total
assets in shares of any one investment company. A Portfolio may not own more
than 3% of the outstanding voting stock of any investment company. Such
investments may be the sole or most practical means by which the Portfolio may
participate in certain foreign securities markets. The Portfolio will incur any
indirect expenses incurred through investment in an investment company, such as
the payment of a management fee (which may result in the payment of an
additional advisory fee). Furthermore, it should be noted that foreign
investment companies are not subject to the U.S. securities laws and may be
subject to fewer or less stringent regulations than U.S. investment companies.
The S&P 500 INDEX PORTFOLIO may invest up to 10% of its total assets in the
aggregate in unit investment trusts holding a portfolio of securities linked to
the S&P 500 Index ("Standard & Poor's Depositary Receipts").
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, the Portfolio may continue to hold downgraded
securities but will not purchase a non-investment grade debt security if,
immediately after such purchase, the Portfolio would have more than 5% of its
total assets invested in such securities. 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.
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
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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,
the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO) may
acquire through purchase, and each Portfolio (other than the MONEY MARKET
PORTFOLIO) may acquire through 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 and the INCOME BUILDER 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% of its total assets 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 component 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
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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-Advisor 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 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 other
than the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
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, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
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 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.
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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, the PACIFIC GROWTH
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest up to 15%,
of its total assets in private placements or restricted securities. (With regard
to these nine 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 thirteen 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, the CAPITAL APPRECIATION PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" 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. 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 in warrants not attached to other
securities, provided that each of the DIVIDEND GROWTH PORTFOLIO and the EQUITY
PORTFOLIO may only 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. In addition, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest in warrants which are issued
as a distribution by the issuer or a security held in its portfolio. Warrants
are, in effect, an option to purchase equity securities at a specific price,
generally valid for a specific period of time, and have no voting rights, pay no
dividends and have no rights with respect to the corporation issuing them. If
warrants remain unexercised at the end of the exercise period, they will lapse
and the Portfolio's investment in them will be lost. The prices of warrants do
not necessarily move parallel to the prices of the underlying securities.
OPTIONS AND FUTURES TRANSACTIONS
As noted above, each of the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL
APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS"
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, the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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
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transactions involving currencies futures contracts and options on such
contracts. The S&P 500 INDEX PORTFOLIO may purchase and sell stock index futures
contracts that are traded on U.S. commodity exchanges on the S&P 500 Index.
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, the CAPITAL APPRECIATION PORTFOLIO or the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO, the currency) underlying an option it has written,
in accordance with the terms of that option, the Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC option transactions only with
member banks of the Federal Reserve System or primary dealers in U.S. Government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million.
COVERED CALL WRITING. The QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL
APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS"
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, the COMPETITIVE EDGE "BEST IDEAS" 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, the
CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL
APPRECIATION PORTFOLIO or the COMPETITIVE
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EDGE "BEST IDEAS" PORTFOLIO anticipates purchasing is denominated vis-a-vis the
currency in which the exercise price is denominated. The Portfolio may purchase
put options on securities which it holds (or has the right to acquire) in its
portfolio only to protect itself against a decline in the value of the security.
Similarly, each of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO or
the COMPETITIVE EDGE "BEST IDEAS" 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, the
COMPETITIVE EDGE "BEST IDEAS" 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, theCOMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" 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 S&P 500 INDEX PORTFOLIO may invest in stock index
futures contracts that are traded on U.S. commodity exchanges on the S&P 500
Index. The GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" 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, the
COMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and
the STRATEGIST PORTFOLIO will purchase or sell stock index futures contracts for
the purpose of hedging their equity portfolio (or anticipated portfolio)
securities against changes in their prices or, in the case of the UTILITIES
PORTFOLIO and the STRATEGIST PORTFOLIO, to facilitate asset reallocations into
and out of the equity area. The GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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. The S&P 500 INDEX
PORTFOLIO may purchase and sell stock index futures contracts that are traded on
U.S. commodity exchanges on the S&P 500 Index, for the following reasons: to
simulate full investment in the S&P 500 Index while retaining a cash balance for
portfolio management purposes, to facilitate trading, to reduce transaction
costs or to seek higher investment returns when a futures contracts is priced
more attractively than stocks comprising the S&P 500 Index.
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, the COMPETITIVE EDGE "BEST IDEAS" 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
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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, the COMPETITIVE EDGE "BEST IDEAS" 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.
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, the S&P 500
INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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,
the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO, the securities' denominated currencies). Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Portfolio seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
The GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE
"BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS"
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-Advisor) 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 applicable Sub-Advisor will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other broker-
dealer affiliates of the Investment Manager and MSAM, and the Investment
Manager's and, in the case of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC
GROWTH PORTFOLIO, the Sub-Advisor'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-Advisors 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.
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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., the principal underwriter of certain of the Variable
Annuity Contracts and the Variable Life Contracts, Morgan Stanley & Co.
Incorporated and other broker-dealer affiliates of the Investment Manager and
MSAM, and certain affiliated broker-dealers of MGIS. Pursuant to an order of the
Securities and Exchange Commission, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds Inc. In addition,
the Fund may incur brokerage commissions on transactions conducted through Dean
Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other affiliated
broker-dealers of the Investment Manager and MSAM and affiliated brokers of
MGIS. Substantially all of the orders for transactions in portfolio securities
and commodities listed on exchanges are expected to be placed for the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO with broker-dealers affiliated with the
Investment Manager and MSAM, including Dean Witter Reynolds Inc. and Morgan
Stanley & Co. Incorporated. Transactions effected through such affiliated
broker-dealers are effected pursuant to procedures adopted by the Fund's Board
of Trustees that are designed to ensure that the commissions paid to such
affiliated broker-dealers are not more than the commissions expected to be paid
to unaffiliated brokers or dealers in a commensurate arms-length transaction.
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%; S&P 500
INDEX PORTFOLIO: 100%; COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO: 100%; 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. Except as otherwise noted,
each of these individuals has been a primary portfolio manager of the designated
Portfolio for over five years or since the inception of the Portfolio (if less
than five years): Paula LaCosta, Vice President of MSDW Advisors, is the primary
portfolio manager of the QUALITY INCOME PLUS PORTFOLIO and has been a portfolio
manager with MSDW Advisors for over five years. Peter M. Avelar, Senior Vice
President of MSDW Advisors, is the primary portfolio manager of the HIGH YIELD
PORTFOLIO and has been assisted by James Kastberg, Vice President of MSDW
Advisors, since May 1998. Messrs. Avelar and Kastberg have been portfolio
managers with MSDW Advisors for over five years. Edward F. Gaylor, Senior Vice
President of MSDW Advisors, is the primary portfolio manager of the UTILITIES
PORTFOLIO and has been a portfolio manager with MSDW Advisors for over five
years. Paul D. Vance, Senior Vice President of MSDW Advisors, and Mr. Avelar
have been the primary portfolio co-managers of the INCOME BUILDER PORTFOLIO
since its inception and since January 1998, respectively. Mr. Vance has been a
portfolio manager with MSDW Advisors for over five years. Mr. Vance is also the
primary portfolio manager of the DIVIDEND GROWTH PORTFOLIO. Mr. Vance and
Matthew Haynes, Vice President of MSDW Advisors, have been the primary portfolio
co-managers of the GLOBAL DIVIDEND GROWTH PORTFOLIO since its inception and
since May 1997, respectively. Mr. Haynes has been a portfolio manager with MSDW
Advisors for over five years. Peter Hermann, Vice President of MSDW Advisors,
has been the primary portfolio manager of the CAPITAL GROWTH PORTFOLIO since May
1996. Prior to joining MSDW Advisors in March 1994, Mr. Hermann was a portfolio
manager at The Bank of New York. Julian Johnston has been the primary portfolio
manager of the EUROPEAN GROWTH PORTFOLIO since April 1998 and has been a
portfolio manager with MGIS or its affiliates for over five years. On January 1,
1999, , of MSAM, will become the primary portfolio manager of
the EUROPEAN GROWTH PORTFOLIO. Mr. has been a portfolio manager with an
affiliate of MSAM since , 1998; prior thereto he was
. Timothy Jensen, Principal of MSAM, and Ashutosh Sinha, Vice President
of MSAM, each a member of MSAM's emerging markets group, have been the primary
portfolio managers of the PACIFIC GROWTH PORTFOLIO since November 1998. Prior to
joining MSAM in January 1998, Mr. Jensen was a Partner at Ardsley Partners (July
1994-December 1997) and prior thereto was a Vice President of Bankers Trust
(June 1993-June 1994). Prior to joining MSAM in June 1995, Mr. Sinha was an
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analyst at SBI Funds Management Ltd. (1993-1995). Ronald J. Worobel, Senior Vice
President of MSDW Advisors, is the primary portfolio manager of the CAPITAL
APPRECIATION PORTFOLIO and has been assisted by Aaron Clark, Assistant Vice
President of MSDW Advisors, since October 1998. Mr. Worobel has been a portfolio
manager with MSDW Advisors for over five years. Mr. Clark has been a portfolio
manager with MSDW Advisors since April 1997, prior to which time he was an
independent analyst (December 1996-April 1997) and a junior bank stock analyst
(January 1995-December 1996) with Gerard Klauer Mattison & Co., and prior
thereto was a research analyst with Prudential Securities Inc. (October
1993-December 1994). Michelle Kaufman, Vice President of MSDW Advisors, has been
a primary portfolio manager of the EQUITY PORTFOLIO since May 1996, has been the
sole primary portfolio manager of that Portfolio since December 1996, and has
been a portfolio manager with MSDW Advisors for over five years. Kenton J.
Hinchliffe, Senior Vice President of MSDW Advisors, is the primary portfolio
manager of the S&P 500 INDEX PORTFOLIO and has been assisted by Kevin Jung, Vice
President of MSDW Advisors, since October 1998. Mr. Hinchliffe has been a
portfolio manager with MSDW Advisors for over five years. Mr. Jung has been a
portfolio manager with MSDW Advisors since September 1997, prior to which time
he was a Vice President and portfolio manager with UBS Asset Management (NY)
Inc. (April 1993-August 1997). Mark Bavoso, Senior Vice President of MSDW
Advisors, is the primary portfolio manager of the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO, has been the primary portfolio manager of the STRATEGIST PORTFOLIO
since September 1995 and has been a portfolio manager with MSDW Advisors 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, the CAPITAL APPRECIATION PORTFOLIO, the S&P 500
INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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 (i) 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, the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST PORTFOLIO may purchase or sell
futures contracts and related options thereon, (ii) the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
may purchase or sell currency futures contracts and related options thereon and
the S&P 500 INDEX PORTFOLIO may purchase or sell index futures contracts.
5. Borrow money (except insofar as the EUROPEAN GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO may be deemed to have borrowed by entrance into a
reverse repurchase agreement up to an amount not exceeding 10% of the
Portfolio's total assets), except from banks for temporary or emergency purposes
or to meet redemption requests which might otherwise require the untimely
disposition of securities, and, in the case of the Portfolios other than the
QUALITY INCOME PLUS PORTFOLIO, not for investment or leveraging, provided that
borrowing in the aggregate (other than, in the case of the QUALITY INCOME PLUS
PORTFOLIO, for
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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, the S&P 500
INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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. In the case of each Portfolio other than the S&P 500 INDEX PORTFOLIO and
the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, 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 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
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maintenance of a constant net asset value per share of $1.00. However, there can
be no assurance that the $1.00 net asset value will be maintained.
In the calculation of the net asset value of the Portfolios other than the MONEY
MARKET PORTFOLIO: (1) an equity portfolio security listed or traded on the New
York or American Stock Exchange or other domestic or foreign stock exchange is
valued at its latest sale price on that exchange prior to the time when assets
are valued (if there were no sales that day, the security is valued at the
latest bid price) (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market 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-Advisor)
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 debt securities for which market quotations are
not readily available may also be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors). For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts stated
in foreign currency are translated into U.S. dollar equivalents at the
prevailing market rates prior to the close of the New York Stock Exchange.
Dividends receivable are accrued as of the ex-dividend date except for certain
dividends from foreign securities which are accrued as soon as the Fund is
informed of such dividends after the ex-dividend date.
Short-term debt securities with remaining maturities of sixty days or less at
the time of purchase are valued at amortized cost, unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
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 may 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 that may affect the
value of such securities occur during such period, then these securities may be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of 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 MSDW, 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").
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<PAGE>
In the future, shares of the Portfolios of the Fund may be allocated to certain
other separate accounts or sold to affiliated and/or non-affiliated entities of
Northbrook, Allstate New York, Glenbrook and Paragon (the "Companies") in
connection with variable annuity contracts or variable life insurance contracts.
It is conceivable that in the future it may become disadvantageous for both
variable life and variable annuity contract separate accounts to invest in the
same underlying fund. Although neither the Companies nor the Fund currently
foresee any such disadvantage, the Fund's Board of Trustees intends to monitor
events in order to identify any material irreconcilable conflict between the
interests of variable annuity contract owners and variable life insurance
contract owners and to determine what action, if any, should be taken in
response thereto.
Shares of each Portfolio of the Fund are offered to the Companies for allocation
to the Accounts without sales charge at the respective net asset values of the
Portfolios next determined after receipt by the Fund of the purchase payment in
the manner set forth above under "Determination of Net Asset Value." In the
interest of economy and convenience, certificates representing the Fund's shares
will not be physically issued. Morgan Stanley Dean Witter Distributors Inc.
("MSDW Distributors" or 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 MSDW 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. It is anticipated that Dean Witter Reynolds
Inc. will undergo a change of corporate name which is expected to incorporate
the brand name of "Morgan Stanley Dean Witter," pending approval of various
regulatory authorities.) 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 acquisition, 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.
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<PAGE>
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 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,
CAPITAL APPRECIATION PORTFOLIO, S&P 500 INDEX PORTFOLIO AND COMPETITIVE EDGE
"BEST IDEAS" 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, the CAPITAL APPRECIATION PORTFOLIO, the
S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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, the S&P 500 INDEX PORTFOLIO or
the COMPETITIVE EDGE "BEST IDEAS" 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.
With respect to investments by a Portfolio in zero coupon bonds and investment
by the HIGH YIELD PORTFOLIO in payment-in-kind bonds, the Portfolios accrue
income prior to any actual cash payments by their issuers. In order to continue
to comply with Subchapter M of the Code and remain able to forego payment of
Federal income tax on their income and capital gains, each Portfolio must
distribute all of its net investment income, including income accrued from zero
coupon and payment-in-kind bonds. As such, a Portfolio may be required to
dispose of some of its portfolio securities under disadvantageous circumstances
to generate the cash required for distribution.
Dividends, interest and capital gains received by a Portfolio on investments in
foreign issuers or which are denominated in foreign currency may give rise to
withholding and other taxes imposed by foreign countries, which may or may not
be refunded to the Portfolio.
Since the Companies are the only shareholders of the Fund, no discussion is
stated herein as to the Federal income tax consequences at the shareholder
level. For information concerning the Federal income tax consequences to holders
of variable annuity or variable life insurance contracts, see the accompanying
Prospectus for either the Variable Annuity Contracts or the Variable Life
Contracts.
PERFORMANCE INFORMATION
- ----------------------------------------------------------
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
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<PAGE>
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.
ADDITIONAL INFORMATION
- ----------------------------------------------------------
The shares of beneficial interest of the Fund, with $0.01 par value, are divided
into fifteen 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. The Trustees of the Fund have been
elected by Northbrook Life Insurance Company, Allstate Life Insurance Company of
New York and Paragon Life Insurance Company, pursuant to the instructions of
Contract Owners.
The Fund is not required to hold Annual Meetings of Shareholders and in ordinary
circumstances the Fund does not intend to hold such meetings. The Trustees may
call Special Meetings of Shareholders for action by shareholder vote as may be
required by the Act or the Declaration of Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
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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. Morgan Stanley Dean Witter Trust
FSB, an affiliate of MSDW Advisors, MSDW Distributors and MSAM, whose address is
Harborside Financial Center, Plaza Two, Jersey City, NJ 07311, is the Transfer
Agent of the Fund's shares and Dividend Disbursing Agent for payments of
dividends and distributions on Fund shares.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors 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 MSDW Advisors ("Morgan Stanley 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 Morgan Stanley
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.
The Sub-Advisors of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO also each have a Code of Ethics which complies with regulatory
requirements and, insofar as it relates
to persons associated with the Fund, the 1994 report by the Investment Company
Institute Advisory Group on Personal Investing.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Advisors and the services provided to
shareholders by the Distributor and the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date, due
to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Sub-Advisors, the Distributor and the
Transfer Agent have been actively working on necessary changes to their own
computer systems to prepare for the year 2000 and expect that their systems will
be adapted before that date, but there can be no assurance that they will be
successful, or that interaction with other non-complying computer systems will
not impair their services at that time. In addition, it is possible that the
markets for securities in which the Fund invests may be detrimentally affected
by computer failures throughout the financial services industry beginning
January 1, 2000. Improperly functioning trading systems may result in settlement
problems and liquidity issues. In addition, corporate and governmental data
processing errors may result in production problems for individual companies and
overall economic uncertainties. Earnings of individual issuers will be affected
by remediation costs, which may be substantial and may be reported
inconsistently in U.S. and foreign financial statements. Accordingly, the Fund's
investments may be adversely affected.
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.
INITIAL SHAREHOLDER--S&P 500 INDEX PORTFOLIO. Northbrook Life Insurance Company
purchased 200,000 shares of the S&P 500 INDEX PORTFOLIO, for a purchase price of
$2 million, prior to the commencement of that Portfolio's operations. Northbrook
may redeem such shares at any time after the net assets of the S&P 500 INDEX
PORTFOLIO have attained a sufficient level so that such redemption will not
cause disruption of the operations of the Portfolio.
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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>
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.
51
<PAGE>
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.
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.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
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 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>
FITCH INVESTORS SERVICE, INC. ("FITCH")
BOND RATINGS
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.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
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.
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>
DUFF & PHELPS, INC.
LONG-TERM RATINGS
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.
54
<PAGE>
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 because of
AA economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic
A stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk
BBB during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection
BB factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently
BB- within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will
B fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent
B- 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.
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.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
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>
56
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
BOARD OF TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIANS
The Bank of New York
90 Washington Street
New York, New York 10286
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10081
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
11/98 #40239
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
NOVEMBER 1, 1998 SERIES
- ----------------------------------------------------------------------------
MORGAN STANLEY 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 fifteen 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 S&P 500 INDEX PORTFOLIO
-THE COMPETITIVE EDGE "BEST IDEAS" 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 November 1, 1998, 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, Morgan Stanley 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.
Morgan Stanley Dean Witter
Variable Investment Series
Two World Trade Center
New York, New York 10048
(212) 392-2550 or (800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management........................................................... 3
Trustees and Officers................................................................. 11
Investment Practices and Policies..................................................... 18
Investment Restrictions............................................................... 41
Portfolio Transactions and Brokerage.................................................. 43
Purchase and Redemption of Fund Shares................................................ 47
Dividends, Distributions and Taxes.................................................... 51
Performance Information............................................................... 53
Description of Shares of the Fund..................................................... 56
Custodians and Transfer Agent......................................................... 57
Independent Accountants............................................................... 58
Reports to Shareholders............................................................... 58
Legal Counsel......................................................................... 58
Experts............................................................................... 58
Registration Statement................................................................ 58
Financial Statements -- December 31, 1997............................................. 59
Report of Independent Accountants..................................................... 138
Financial Statements -- June 30, 1998 (unaudited)..................................... 139
</TABLE>
------------------------
Currently, the shares of the Fund will be sold only to (1) Northbrook Life
Insurance Company ("Northbrook") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts and certain flexible premium variable life insurance
contracts issued by Northbrook, to (2) Allstate Life Insurance Company of New
York ("Allstate New York") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts issued by Allstate New York, to (3) Glenbrook Life
and Annuity Company ("Glenbrook") for allocation to certain separate accounts
established to fund the benefits under certain flexible premium deferred
variable annuity contracts and certain flexible premium variable life insurance
contracts issued by Glenbrook, and to (4) Paragon Life Insurance Company
("Paragon") for allocation to a separate account established to fund the
benefits under certain flexible premium variable life insurance contracts it
issues in connection with an employer-sponsored insurance program offered only
to certain employees of Morgan Stanley Dean Witter & Co., the parent company of
the Fund's Investment Manager. The separate accounts are sometimes referred to
individually as an "Account" and collectively as the "Accounts." The variable
annuity contracts issued by Northbrook, Allstate New York and Glenbrook are
sometimes referred to as the "Variable Annuity Contracts." The variable life
insurance contracts issued by Northbrook, Glenbrook and Paragon are sometimes
referred to as the "Variable Life Contracts." The Variable Annuity Contracts and
the Variable Life Contracts are sometimes referred to as the "Contracts."
Northbrook, Allstate New York, Glenbrook and Paragon are sometimes referred to
as the "Companies." In the future, shares may be allocated to certain other
separate accounts or sold to affiliated and/or non-affiliated entities of the
Companies in connection with variable annuity contracts or variable life
insurance contracts. The Companies will invest in shares of the Fund in
accordance with allocation instructions received from Contract Owners, which
allocation rights are further described in the Prospectus for either the
Variable Annuity Contracts or the Variable Life Contracts, which accompanies the
Prospectus for the Fund. The Companies will redeem shares to the extent
necessary to provide benefits under the Contracts. It is conceivable that in the
future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
fund. Although neither the Companies nor the Fund currently foresee any such
disadvantage, the Fund's Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflict between the interests of variable
annuity contract owners and variable life insurance contract owners and to
determine what action, if any, should be taken in response thereto.
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was organized under the laws of the Commonwealth of Massachusetts
on February 25, 1983 under the name Dean Witter Variable Annuity Investment
Series and is a trust of the type commonly known 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. On June 22, 1998, the Trustees of the Fund adopted
an Amendment to the Declaration of Trust of the Fund changing the name of the
Fund to Morgan Stanley Dean Witter Variable Investment Series.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or "MSDW
Advisors"), a Delaware corporation, whose address is Two World Trade Center, New
York, New York 10048, is the Fund's Investment Manager. MSDW Advisors is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware
corporation. 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. 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. Paragon Life Insurance Company, a Missouri corporation, is a
wholly-owned subsidiary of General American Life Insurance Company, a Missouri
corporation.
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
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 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Morgan Stanley Dean Witter Global Dividend Growth Securities
23 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
24 Morgan Stanley Dean Witter Global Utilities Fund
25 Morgan Stanley Dean Witter Growth Fund
26 Morgan Stanley Dean Witter Hawaii Municipal Trust
27 Morgan Stanley Dean Witter Health Sciences Trust
28 Morgan Stanley Dean Witter High Yield Securities Inc.
29 Morgan Stanley Dean Witter Income Builder Fund
30 Morgan Stanley Dean Witter Information Fund
31 Morgan Stanley Dean Witter Intermediate Income Securities
32 Morgan Stanley Dean Witter International SmallCap Fund
33 Morgan Stanley Dean Witter Japan Fund
34 Morgan Stanley Dean Witter Limited Term Municipal Trust
35 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
36 Morgan Stanley Dean Witter Market Leader Trust
37 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
38 Morgan Stanley Dean Witter Mid-Cap Growth Fund
39 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
40 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
41 Morgan Stanley Dean Witter New York Municipal Money Market Trust
42 Morgan Stanley Dean Witter New York Tax-Free Income Fund
43 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
44 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
45 Morgan Stanley Dean Witter Select Dimensions Investment Series
46 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
47 Morgan Stanley Dean Witter Short-Term Bond Fund
48 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
49 Morgan Stanley Dean Witter Special Value Fund
50 Morgan Stanley Dean Witter S&P 500 Index Fund
51 Morgan Stanley Dean Witter S&P 500 Select Fund
52 Morgan Stanley Dean Witter Strategist Fund
53 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
54 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
55 Morgan Stanley Dean Witter U.S. Government Money Market Trust
56 Morgan Stanley Dean Witter U.S. Government Securities Trust
57 Morgan Stanley Dean Witter Utilities Fund
58 Morgan Stanley Dean Witter Value-Added Market Series
59 Morgan Stanley Dean Witter Variable Investment Series
60 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the assets of each Portfolio (other than the EUROPEAN
GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, discussed below), including
the placing of orders for the purchase and sale of portfolio securities. The
Investment Manager obtains and evaluates such information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously manage the assets of these Portfolios of the
Fund in a manner consistent with their investment objectives and policies.
Pursuant to the Management Agreement with the Investment Manager, the Fund
has retained the Investment Manager to supervise the investment of the assets of
each of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO. The
Investment Manager has retained Morgan Stanley Asset Management Inc. ("MSAM") as
Sub-Advisor to the PACIFIC GROWTH PORTFOLIO and, effective January 1,
5
<PAGE>
1999, as Sub-Advisor to the EUROPEAN GROWTH PORTFOLIO. The Investment Manager
has retained Morgan Grenfell Investment Services Limited ("MGIS") as Sub-Advisor
to the EUROPEAN GROWTH PORTFOLIO until December 31, 1998. The Investment
Manager, through consultation with MSAM and MGIS 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.
MSAM and MGIS are sometimes collectively referred to as the "Sub-Advisors"
and individually as a "Sub-Advisor."
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund. The Investment Manager has retained MSDW Services to provide its
administrative services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisor 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, Morgan Stanley Dean Witter
Distributors Inc. ("MSDW 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-Advisor) (not including compensation or expenses
of attorneys who are employees of the Investment Manager (or the Sub-Advisor))
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-Advisor) or any corporate affiliate of the
Investment Manager (or the Sub-Advisor); 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
6
<PAGE>
calculated daily by applying the annual rate of (1) 0.40% to the net assets of
the S&P 500 INDEX PORTFOLIO, (2) 0.50% to the net assets of the HIGH YIELD
PORTFOLIO up to $500 million and 0.425% to the net assets of that Portfolio
exceeding $500 million; (3) 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; (4) 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; (5) 0.50% to the net assets of each of the MONEY MARKET PORTFOLIO and
the STRATEGIST PORTFOLIO; (6) 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, 0.475% to the net assets of
that Portfolio exceeding $1 billion but not exceeding $2 billion, and 0.45% to
the net assets of that Portfolio exceeding $2 billion; (7) 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; (8) 0.65% to the net assets of each of
the CAPITAL GROWTH PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO;
(9) 0.75% to the net assets of each of the INCOME BUILDER PORTFOLIO, the GLOBAL
DIVIDEND GROWTH PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO; (10) 1.0% to
the net assets of the EUROPEAN GROWTH PORTFOLIO up to $500 million and 0.95% to
the net assets of that Portfolio exceeding $500 million; and (11) 0.95% to the
net assets of the PACIFIC GROWTH PORTFOLIO, in each case determined as of the
close of each business day. Effective January 1, 1999, the compensation payable
for investment management services in respect of the EUROPEAN GROWTH PORTFOLIO
will be reduced so that the Fund will pay the Investment Manager monthly
compensation calculated daily by applying the annual rate of 0.95% to the net
assets of the EUROPEAN GROWTH PORTFOLIO up to $500 million and the annual rate
of 0.90% to the net assets of that Portfolio exceeding $500 million, determined
as of the close of each business day. The Management Agreement also provides
that if the total operating expenses of certain of the Portfolios, exclusive of
taxes, interest, brokerage fees and certain legal claims and liabilities and
litigation and indemnification expenses, as described in the Management
Agreement, for the fiscal year exceed either 1.5% of the first $30,000,000 of
average daily net assets of the Portfolio and 1% of any excess over $30,000,000
(in the case of the MONEY MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO,
the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO) or 2.5% of the
first $30,000,000 of average daily net assets of the Portfolio, 2% of the next
$70,000,000 and 1.5% of any excess over $100,000,000 (in the case of the CAPITAL
GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
PORTFOLIO and the PACIFIC GROWTH PORTFOLIO), the Investment Manager will
reimburse the Portfolio for the amount of such excess, up to the amount of the
management fee for such Portfolio for that year. Such amount, if any, will be
calculated daily and credited on a monthly basis. For the fiscal years ended
December 31, 1995, 1996 and 1997, the amount of compensation accrued to the
Investment Manager under the Management Agreements in effect for the
then-existing Portfolios was as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE MANAGEMENT FEE MANAGEMENT FEE
FOR FISCAL YEAR FOR FISCAL YEAR FOR FISCAL YEAR
NAME OF PORTFOLIO ENDED 12/31/95 ENDED 12/31/96 ENDED 12/31/97
- -------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Money Market Portfolio.................................. $ 1,243,727 $ 1,454,423 $ 1,764,304
Quality Income Plus Portfolio........................... 2,323,329 2,407,993 2,301,725
High Yield Portfolio.................................... 673,472 1,009,452 1,539,080
Utilities Portfolio..................................... 2,749,873 2,972,835 2,710,383
Income Builder Portfolio................................ N/A N/A 30,071
Dividend Growth Portfolio............................... 4,179,067 5,902,896 8,563,208
Capital Growth Portfolio................................ 362,068 509,004 698,171
Global Dividend Growth Portfolio........................ 1,254,908 2,005,162 3,183,049
European Growth Portfolio............................... 1,686,856 2,332,742 3,589,371
Pacific Growth Portfolio................................ 828,671 1,397,813 1,195,454
Capital Appreciation Portfolio.......................... N/A N/A 0
Equity Portfolio........................................ 1,393,980 2,211,777 3,306,222
Strategist Portfolio.................................... 1,952,642 1,994,396 2,361,054
</TABLE>
No Portfolio exceeded the applicable expense limitation during the fiscal
years ended December 31, 1995, 1996 and 1997. The Investment Manager assumed all
expenses of the GLOBAL DIVIDEND
7
<PAGE>
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 INCOME BUILDER PORTFOLIO
and the CAPITAL APPRECIATION PORTFOLIO commenced operations on January 21, 1997.
The Investment Manager had undertaken to assume all expenses of each of these
Portfolios (except for any brokerage fees) and to waive the compensation
provided for each of these Portfolios in the Management Agreement until such
time as the pertinent Portfolio has $50 million of net assets or until July 31,
1998 (in the case of the INCOME BUILDER PORTFOLIO) or December 31, 1998 (in the
case of the CAPITAL APPRECIATION PORTFOLIO), whichever occurs first. The INCOME
BUILDER PORTFOLIO attained $50 million of net assets on December 3, 1997. As of
the date of this Statement of Additional Information, the CAPITAL APPRECIATION
PORTFOLIO has not attained $50 million of net assets. The S&P 500 INDEX
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO commenced operations
on May 18, 1998. The Investment Manager has undertaken to assume all expenses of
each of these Portfolios (except for any brokerage fees) and to waive the
compensation provided for each of these Portfolios in the Management Agreement
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. Thereafter, the Investment Manager has agreed to assume
all expenses of the S&P 500 INDEX PORTFOLIO (except for any brokerage fees) and
to waive the compensation provided for that Portfolio in the Management
Agreement to the extent that such expenses and compensation on an annualized
basis exceed 0.50% of the daily net assets of the S&P 500 INDEX PORTFOLIO. As of
the date of this Statement of Additional Information, neither the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO nor the S&P 500 INDEX PORTFOLIO has attained $50
million of net assets.
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 advisor to
others.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
MSAM, the Investment Manager has retained MSAM to provide the PACIFIC GROWTH
PORTFOLIO and (effective January 1, 1999) the EUROPEAN GROWTH PORTFOLIO with
investment advice and portfolio management, subject to the overall supervision
of the Investment Manager. MSAM, a subsidiary of MSDW and an affiliate of the
Investment Manager, became the Sub-Advisor of the PACIFIC GROWTH PORTFOLIO on
November 1, 1998, in the place of MGIS, which served as Sub-Advisor of that
Portfolio until October 31, 1998. MSAM, together with its affiliated
institutional asset management companies, conducts a worldwide portfolio
management business and provides a broad range of portfolio management services
to customers in the United States and abroad. As of September 30, 1998, MSAM,
together with its affiliated institutional asset management companies, had
approximately $ billion in assets under management as an investment manager or
as a fiduciary advisor.
Until December 31, 1998, pursuant to a Sub-Advisory Agreement between the
Investment Manager and MGIS, MGIS has been retained, subject to the overall
supervision of the Investment Manager and the Trustees of the Fund, 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. On occasion, MGIS will also provide the
Investment Manager with investment advice concerning potential investment
opportunities for the Fund which are available outside of Europe.
MGIS was organized as a British corporation in 1972 and currently manages
assets of approximately $ billion primarily for U.S. corporate and public
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 Group plc (which is owned by Deutsche
Bank AG, an international commercial and investment banking group) and is
registered as an
8
<PAGE>
investment advisor under the Investment Advisers Act of 1940. In 1838 Morgan
Grenfell was founded to provide merchant banking services, primarily trade
financial 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 $150 billion
worldwide.
Both the Investment Manager and the Sub-Advisors 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-Advisors may be furnished by
directors, officers and employees of the Investment Manager and the
Sub-Advisors. In connection with the services rendered by the Sub-Advisors, each
Sub-Advisor 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-Advisor, 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-Advisors, the Investment Manager pays the applicable Sub-Advisor 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-Advisor.
Prior to November 1, 1998, the PACIFIC GROWTH PORTFOLIO was sub-advised by
MGIS and, until December 31, 1998, the EUROPEAN GROWTH PORTFOLIO will be
sub-advised by MGIS, in each case pursuant to a sub-advisory agreement between
the Investment Manager and MGIS (the "MGIS Sub-Advisory Agreement"). In May
1998, MGIS indicated its intention to resign as Sub-Advisor of the PACIFIC
GROWTH PORTFOLIO on October 31, 1998 and as Sub-Advisor of the EUROPEAN GROWTH
PORTFOLIO on December 31, 1998, and on June 2, 1998 the Trustees of the Fund
determined that the Sub-Advisory Agreement with MSAM would be submitted to
shareholders for approval. Northbrook, Allstate New York and Paragon, pursuant
to the instructions of Contract Owners, approved the Sub-Advisory Agreement with
MSAM in respect of the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO on August 18, 1998 and the Sub-Advisory Agreement with MSAM became
effective with respect to the PACIFIC GROWTH PORTFOLIO on December 13, 1998, and
will become effective with respect to the EUROPEAN GROWTH PORTFOLIO on January
1, 1999.
At the time that the Sub-Advisory Agreement with MSAM took effect with
respect to the PACIFIC GROWTH PORTFOLIO, the Investment Manager and the Fund
amended the Investment Management Agreement between the Investment Manager and
the Fund: (1) effective November 1, 1998, to reduce the fee paid by the PACIFIC
GROWTH PORTFOLIO to the Investment Manager as full compensation for the services
and facilities furnished to the PACIFIC GROWTH PORTFOLIO under the Management
Agreement from 1.0% of the Portfolio's average daily net assets to 0.95% of the
Portfolio's average daily net assets, and (2) effective January 1, 1999, to
reduce the fee paid by the EUROPEAN GROWTH PORTFOLIO to the Investment Manager
as full compensation for the services and facilities furnished to the EUROPEAN
GROWTH PORTFOLIO from 1.0% of the Portfolio's average daily net assets up to
$500 million and 0.95% of the Portfolio's average daily net assets over $500
million to 0.95% of the Portfolio's average daily net assets up to $500 million
and 0.90% of the Portfolio's average daily net assets over $500 million.
The present Management Agreement and the MGIS Sub-Advisory Agreement were
initially approved in respect of the then-existing Portfolios by the Board of
Trustees on February 21, 1997 and by
9
<PAGE>
Northbrook, Allstate New York and Paragon, pursuant to the instructions of
Contract Owners, at a Special Meeting of Shareholders held on May 20, 1997, and
took effect on May 31, 1997 upon the merger of Dean Witter, Discover & Co.
("DWDC") with Morgan Stanley Group Inc. The present Management Agreement was
approved with respect to the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE
"BEST IDEAS" PORTFOLIO by the Board of Trustees on January 29, 1998 and by
Northbrook as the then sole shareholder of each Portfolio on February 4, 1998.
The present Management Agreement and the MGIS Sub-Advisory Agreement are
substantially identical to the prior Investment Management Agreement in respect
of all then-existing Portfolios and the prior Sub-Advisory Agreement that had
been initially approved by the Board of Trustees in respect of the EUROPEAN
GROWTH PORTFOLIO 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, and which took effect on June 30, 1993
upon the spin-off by Sears, Roebuck and Co. of its remaining shares of DWDC, as
such Investment Management Agreement had been amended by the Board of Trustees
to lower the management fees charged to certain Portfolios, as follows: 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 prior Investment 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 prior Investment 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 prior Investment Management Agreement to lower management fees
charged on average daily net assets of each of the EQUITY PORTFOLIO and the
DIVIDEND GROWTH PORTFOLIO in excess of $1 billion to 0.475%. Such prior
Investment Management Agreement had been initially approved with respect to the
GLOBAL DIVIDEND GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO by the Board
of Trustees on January 28, 1994 and such prior Sub-Advisory Agreement had been
initially approved with respect to the PACIFIC GROWTH PORTFOLIO by the Board of
Trustees on January 28, 1994 and by Northbrook as the then sole shareholder of
the Portfolio on February 8, 1994. Such prior Investment Management Agreement
had been initially approved with respect to the INCOME BUILDER PORTFOLIO and the
CAPITAL APPRECIATION PORTFOLIO by the Board of Trustees on October 25, 1996 and
by Northbrook as the then sole shareholder of each Portfolio on October 29,
1996. At their meeting held on April 30, 1998, 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 in excess of $2 billion to 0.45%, on average daily net
assets of the EUROPEAN GROWTH PORTFOLIO in excess of $500 million to 0.95%, and
on average daily net assets of the HIGH YIELD PORTFOLIO in excess of $500
million to 0.425%.
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 its terms, each Agreement has an
initial term ending April 30, 1999, 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, the outstanding shares of each sub-advised 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
10
<PAGE>
Investment Manager may nonetheless serve as Investment Manager with respect to
any Portfolio whose shareholders approved the Management Agreement.
To the extent required by law, Northbrook, Allstate New York, Glenbrook and
Paragon, which are the only shareholders of the Fund, will vote the shares of
the Fund held by them in the Accounts in accordance with instructions from
Contract Owners, as more fully described under the caption "Voting Rights" in
the Prospectuses for the Contracts.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use or, at any time, permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Management Agreement is terminated, or if the affiliation between MSDW Advisors
and its parent company is terminated, the Fund will eliminate the name "Morgan
Stanley Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW,
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 MSDW
Advisors and with the Morgan Stanley Dean Witter Funds and the 11 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 (57) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Trustee (since November, 1995); Director or Trustee of the Morgan Stanley Dean
c/o Levitz Furniture Corporation Witter Funds; formerly President and Chief Executive Officer of Hills
7887 N. Federal Highway Department Stores (May, 1991-July, 1995); formerly variously Chairman,
Boca Raton, Florida Chief 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. and Weirton Steel
Corporation.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee, President and Chief Executive Officer of
Chairman of the Board, the Morgan Stanley Dean Witter Funds; Chairman, Chief Executive Officer
President, Chief Executive Officer and Trustee of the TCW/DW Funds; formerly Chairman, Chief Executive
and Trustee Officer and Director of MSDW Advisors, MSDW Distributors and MSDW
Two World Trade Center Services, Executive Vice President and Director of Dean Witter Reynolds
New York, New York Inc. ("DWR"), Chairman and Director of Morgan Stanley Dean Witter Trust
FSB ("MSDW Trust"), and Director and/or officer of various MSDW
subsidiaries (until June, 1998).
Edwin J. Garn (66) Director or Trustee of the Morgan Stanley Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking
c/o Huntsman Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19,
Salt Lake City, Utah 1985); Vice Chairman, Huntsman Corporation; Director of Franklin Covey
(time management systems), John Alden Financial Corp. (health
insurance) United Space Alliance (joint venture between Lockheed Martin
and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing);
member of the board of various civic and charitable organizations.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
John R. Haire (73) Chairman of the Audit Committee and Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Chairman of the Audit Committee and Trustee
Two World Trade Center of the TCW/DW Funds; formerly Chairman of the Independent Directors or
New York, New York Trustees of the Dean Witter Funds and the TCW/DW Funds (until June,
1998); formerly President, Council for Aid to Education (1978-1989) and
Chairman and Chief Executive Officer of Anchor Corporation, an
Investment Advisor (1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds;
Trustee Director of The PMI Group, Inc. (private mortgage insurance); Trustee
c/o Gordon Altman Butowsky and Vice Chairman of The Field Museum of Natural History; formerly
Weitzen Shalov & Wein associated with the Allstate Companies (1966-1994), most recently as
Counsel to the Independent Chairman of The Allstate Corporation (March, 1993-December 1994) and
Trustees Chairman and Chief Executive Officer of its wholly-owned subsidiary,
114 West 47th Street Allstate Insurance Company (July, 1989-December, 1994); director of
New York, New York various other business and charitable organizations.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick International, international economic commission; Director or Trustee of the Morgan
Inc. Stanley Dean Witter Funds; Trustee of the TCW/DW Funds; Director of
1133 Connecticut Avenue, N.W. NASDAQ (since June, 1995); Director of Greenwich Capital Markets Inc.
Washington, DC (broker-dealer) and NVR, Inc. (home construction); Chairman and Trustee
of the Financial Accounting Foundation (oversight organization for the
Financial Accounting Standards Board); 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 (62) General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership; Director or Trustee of the Morgan Stanley Dean Witter Funds;
c/o Triumph Capital, L.P. Trustee of the TCW/DW Funds; formerly Vice President, Bankers Trust
237 Park Avenue Company and BT Capital Corporation (1984-1988); Director of various
New York, New York business organizations.
Philip J. Purcell* (55) Chairman of the Board of Directors and Chief Executive Officer of MSDW,
Trustee DWR and Novus Credit Services Inc.; Director of MSDW Distributors;
1585 Broadway Director or Trustee of the Morgan Stanley Dean Witter Funds; Director
New York, New York and/or officer of various MSDW subsidiaries.
John L. Schroeder (68) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky formerly Executive Vice President and Chief Investment Officer of the
Weitzen Shalov & Wein Home Insurance Company (August, 1991-September, 1995).
Counsel to the Independent
Trustees
114 West 47th Street
New York, New York
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Barry Fink (43) Senior Vice President (since March, 1997), Secretary and General
Vice President, Secretary and Counsel (since February, 1997) and Director (since July, 1998) of MSDW
General Counsel Advisors and MSDW Services; Senior Vice President (since March, 1997)
Two World Trade Center and Assistant Secretary and Assistant General Counsel (since February,
New York, New York 1997) of MSDW Distributors; Assistant Secretary of DWR (since August,
1996); Vice President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and the TCW/DW Funds (since February, 1997);
previously First Vice President (June, 1993-February, 1997), Vice
President (until June, 1993) and Assistant Secretary and Assistant
General Counsel of MSDW Advisors and MSDW Services and Assistant
Secretary of the Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar (40) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Mark Bavoso (37) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (56) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Matthew Haynes (32) Vice President of MSDW Advisors (since June, 1997) and portfolio
Vice President manager with MSDW Advisors (since April, 1993); Vice President or
Two World Trade Center Assistant Vice President of various Morgan Stanley Dean Witter Funds;
New York, New York previously Assistant Vice President of MSDW Advisors (May, 1995-June,
1997).
Peter Hermann (38) Vice President of MSDW Advisors (since May, 1995) and portfolio manager
Vice President with MSDW Advisors (since March, 1994); Vice President of various
Two World Trade Center Morgan Stanley Dean Witter Funds; previously portfolio manager with The
New York, New York Bank of New York (August, 1987-February, 1994).
Kenton J. Hinchliffe (54) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Michelle Kaufman (34) Vice President of MSDW Advisors (since June, 1997) and portfolio
Vice President manager with MSDW Advisors (since September, 1993); Vice President or
Two World Trade Center Assistant Vice President of various Morgan Stanley Dean Witter Funds;
New York, New York previously Assistant Vice President of MSDW Advisors (May, 1995-June,
1997).
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Anita H. Kolleeny (43) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paula LaCosta (47) Vice President of MSDW Advisors; Vice President of various Morgan
Vice President Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page (52) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Rochelle G. Siegel (50) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paul D. Vance (62) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Ronald J. Worobel (56) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York.
Aaron Clark (30) Assistant Vice President of MSDW Advisors (since April, 1997); formerly
Assistant Vice President independent analyst (December, 1996-April, 1997) and junior bank stock
Two World Trade Center analyst (January, 1995-December, 1996) with Gerard Klauer Mattison &
New York, New York Co. and prior thereto a research analyst with Prudential Securities
Inc. (October, 1993-December 1994).
Kevin Jung (32) Vice President of MSDW Advisors (since September, 1997); formerly Vice
Assistant Vice President President of UBS Asset Management (NY) Inc. (April, 1993-August, 1997).
Two World Trade Center
New York, New York
James Kastberg (34) Vice President of MSDW Advisors (since April, 1996); formerly Assistant
Assistant Vice President Vice President of MSDW Advisors.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of MSDW Advisors and MSDW
Treasurer Services; Treasurer of the Morgan Stanley Dean Witter Funds and the
Two World Trade Center TCW/DW Funds.
New York, New York
</TABLE>
- ---------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Investment Company Act of 1940, as amended.
14
<PAGE>
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries,
Robert M. Scanlan, President, Chief Operating Officer and Director of MSDW
Advisors and MSDW Services, Executive Vice President of MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of MSDW Advisors and Director of MSDW
Trust, Robert S. Giambrone, Senior Vice President of MSDW Advisors, MSDW
Services, MSDW Distributors and MSDW Trust and Director of MSDW Trust, Kevin
Hurley, Senior Vice President of MSDW Advisors, and Jayne Stevlingson, Vice
President of MSDW Advisors, are Vice Presidents of the Fund, and Marilyn K.
Cranney and Carsten Otto, First Vice Presidents and Assistant General Counsels
of MSDW Advisors and MSDW Services, Frank Bruttomesso, LouAnne D. McInnis and
Ruth Rossi, Vice Presidents and Assistant General Counsels of MSDW Advisors and
MSDW Services, and Todd Lebo, a staff attorney with MSDW Advisors, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Morgan Stanley 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 Morgan Stanley Dean
Witter Funds, comprised of portfolios. As of September 30, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $ billion and
more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Morgan Stanley 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.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.
The Independent Trustees are 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 Morgan Stanley Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
15
<PAGE>
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley 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 of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750).
If a Board meeting and a meeting of the Independent Trustees or a Committee
meeting, or a meeting of the Independent Trustees and/or more than one Committee
meeting, take place on a single day, the Trustees are paid a single meeting fee
by the Fund. 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 for their services as Trustee. Mr. Haire currently
serves as Chairman of the Audit Committee. Prior to June 1, 1998, Mr. Haire also
served as Chairman of the Independent Trustees, for which services the Fund paid
him an additional annual fee of $1,200.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended December 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,650
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,800
Wayne E. Hedien............................................... 482
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,850
John L. Schroeder............................................. 1,850
</TABLE>
16
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1, 1998,
also served as Chairman of the Independent Directors or Trustees of those Funds.
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 Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term as
Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
FOR SERVICE AS FOR SERVICE COMPENSATION
CHAIRMAN OF AS FOR
FOR SERVICE INDEPENDENT CHAIRMAN OF SERVICES TO
AS DIRECTOR OR DIRECTORS/TRUSTEES INDEPENDENT 84
TRUSTEE AND FOR SERVICE AS AND AUDIT TRUSTEES MORGAN
COMMITTEE TRUSTEE AND COMMITTEES OF AND AUDIT STANLEY
MEMBER OF 84 COMMITTEE 84 COMMITTEES OF DEAN WITTER
MORGAN STANLEY MEMBER OF 14 MORGAN STANLEY 14 FUNDS AND 14
NAME OF DEAN WITTER TCW/DW DEAN WITTER TCW/DW TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Morgan
Stanley 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 Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such Trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service. Currently,
upon retirement, each Eligible Trustee is entitled to receive from the 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 29.41% of his or her Eligible Compensation plus 0.4901667% 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 58.82% after ten years of service. The foregoing percentages may be changed
by the Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the 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.
- ---------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
17
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended December 31,
1997 and by the 57 Morgan Stanley Dean Witter Funds (including the Fund) for the
year ended December 31, 1997, and the estimated retirement benefits for the
Fund's Independent Trustees, to commence upon their retirement, from the Fund as
of December 31, 1997 and from the 57 Morgan Stanley Dean Witter Funds as of
December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------- ESTIMATED ANNUAL
ESTIMATED RETIREMENT BENEFITS BENEFITS
CREDITED ACCRUED AS EXPENSES UPON
YEARS ESTIMATED RETIREMENT(2)
OF SERVICE PERCENTAGE ------------------------- ----------------
AT 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 58.82% $ 370 $ 20,499 $ 925 $ 55,026
Edwin J. Garn................. 10 58.82 530 30,878 925 55,026
John R. Haire................. 10 58.82 (857)(3) (19,823)(3) 2,246 132,002
Wayne E. Hedien............... 9 50.00 0 0 786 46,772
Dr. Manuel H. Johnson......... 10 58.82 224 12,832 925 55,026
Michael E. Nugent............. 10 58.82 380 22,546 925 55,026
John L. Schroeder............. 8 49.02 709 39,350 771 46,123
</TABLE>
- ---------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
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, none of the Fund's Trustees was a Contract Owner under the
Accounts, and the aggregate number of shares of each Portfolio of the Fund
allocated to Contracts owned by the Fund's officers as a group was less than one
percent of each Portfolio's outstanding shares.
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 fifteen
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.
-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.
18
<PAGE>
-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 S&P 500 INDEX PORTFOLIO seeks to provide investment results that,
before expenses, correspond to the total return (I.E., the combination of
capital changes and income) of the Standard & Poor's-Registered Trademark-
500 Composite Stock Price Index (the "S&P 500 Index") by investing, under
normal circumstances, at least 80% of the value of its total assets in
common stocks included in the S&P 500 Index in approximately the same
weightings as the Index.
-THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO seeks long-term capital growth
by investing, under normal circumstances, at least 80% of its net assets in
the common stock of U.S. and non-U.S. companies included in the "Best
Ideas" subgroup of "Global Investing: The Competitive Edge," a research
compilation assembled and maintained by Morgan Stanley Dean Witter Equity
Research.
-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
19
<PAGE>
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
20
<PAGE>
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.
S&P 500 INDEX PORTFOLIO
- ----------------------
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX. As set forth above,
the investment objective of the S&P 500 INDEX PORTFOLIO is to provide investment
results that, before expenses, correspond to the total return of the S&P 500
Index.
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The S&P 500 INDEX PORTFOLIO is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, express or implied, to the owners of shares
of the Portfolio or any member of the public regarding the advisability of
investing in securities generally or in the Portfolio particularly or the
ability of the S&P 500 Index to track general stock market performance. S&P's
only relationship to the S&P 500 INDEX PORTFOLIO is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Portfolio. S&P has no
obligation to take the needs of the Portfolio or the owners of shares of the
Portfolio into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Portfolio or the timing of the
issuance or sale of shares of the Portfolio. S&P has no obligation or liability
in connection with the administration, marketing or trading of the Portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Portfolio, owners of shares of the
Portfolio, or any other person or entity from the use of the S&P 500 Index or
any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS"). SPDRs are interests in a
unit investment trust ("UIT") that may be obtained from the UIT or purchased in
the secondary market as SPDRs listed on the American Stock Exchange.
The UIT will issue SPDRs in aggregations of 50,000 known as "Creation Units"
in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the S&P 500 Index, (b) a cash payment equal to a pro rata
portion of the dividends accrued on the UIT's portfolio securities since the
last dividend payment by the UIT, net of expenses and liabilities, and (c) a
cash payment or credit ("Balancing Amount") designed to equalize the net asset
value of the S&P 500 Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the S&P 500 INDEX PORTFOLIO must accumulate enough SPDRs to
reconstitute a Creation Unit. The liquidity of small holdings of SPDRs,
therefore, will depend upon the existence of a secondary market. Upon redemption
of a Creation Unit, the Portfolio will receive Index Securities and cash
identical to the Portfolio Deposit required of an investor wishing to purchase a
Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by the Portfolio could result in losses on SPDRs.
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
- -------------------------------------
"BEST IDEAS" LIST. As of June 30, 1998, the companies in the "Best Ideas"
subgroup of "Global Investing: The Competitive Edge" were as follows: AES Corp.,
American Express, American Home Products, AXA-UAP, Bank of New York, BMW,
Boeing, Chevron, Cisco Systems, Citicorp, Coca-Cola Enterprises, Computer
Associates, Diageo, Dresser Industries, DuPont, Eli Lilly, Emerson Electric,
Federal Express, Fuji Photo Film, General Electric, Holderbank, HSBC Holdings,
Intel, MAN, Medtronic, Michelin, Microsoft, Nestle, News Corp., Quintiles
Transnational, Sandvik, Schlumberger, Siebe, Skandia, Sony, Time Warner, Total,
UBS AG, Unilever plc and UPM-Kymmene. The "Best Ideas" List is updated
quarterly.
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GENERAL PORTFOLIO TECHNIQUES
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, 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 COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST
PORTFOLIO may enter into forward foreign currency exchange contracts ("forward
contracts") to facilitate settlement in an attempt to limit the effect of
changes in the relationship between the U.S. dollar and the foreign currency
during the period between the trade date and settlement date for the
transaction, or, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the COMPETITIVE EDGE
"BEST IDEAS" PORTFOLIO, 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, the PACIFIC GROWTH PORTFOLIO or the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO believes that a particular foreign currency 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, Management 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.
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If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
If the Portfolio purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied to
the exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Portfolio has written a call option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of the
security on which a call currency option has been written declining in value to
a greater extent than the value of the premium received for the options. The
Portfolio will maintain with its Custodian, at all times, cash, U.S. Government
securities, or other high grade debt obligations in a segregated account equal
in value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although each Portfolio values its assets daily in terms of U.S. dollars,
the Portfolios do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. Each Portfolio will, however, do so from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the spread between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Portfolio at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
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
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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.
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 resale price, which consists of the purchase price paid to the
seller of the securities plus the accrued resale premium which is defined as the
amount specified in the repurchase agreement or the daily amortization of the
difference between the purchase price and the resale price specified in the
repurchase agreement. In the case of the MONEY MARKET PORTFOLIO, such collateral
will consist entirely of securities that are direct obligations of, or that are
fully guaranteed as to principal and interest by, the United States or any
agency thereof, and/or certificates of deposit, bankers' acceptances which are
eligible for acceptance by a Federal Reserve Bank, and, if the seller is a bank,
mortgage related securities (as such term is defined in section 3(a)(41) of the
Securities Exchange Act of 1934) that at the time the repurchase agreement is
entered into are rated in the highest rating category by the "Requisite NRSROs"
(see "Purchase and Redemption of Fund Shares--Determination of Net Asset
Value"). Additionally, in the case of the MONEY MARKET PORTFOLIO, the collateral
must qualify the repurchase agreement for preferential treatment under the
Federal Deposit Insurance Act of the Federal Bankruptcy Code. 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
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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 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 other than the S&P 500 INDEX PORTFOLIO and
the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO 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
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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.
WHEN, AS AND IF ISSUED SECURITIES
As discussed in the Prospectus, each Portfolio other than the MONEY MARKET
Portfolio, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
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 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. 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, the COMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST
IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" 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
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currencies futures contracts and options on such contracts. The S&P 500 INDEX
PORTFOLIO may invest in stock index futures contracts that are traded on U.S.
commodity exchanges on the S&P 500 Index.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Portfolio,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Portfolio will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Portfolio to cover an option position in any but the nearest expiration
month may cease to represent cover for the option in the event of a decline in
the GNMA coupon rate at which new pools are originated under the FHA/VA loan
ceiling in effect at any given time, as such decline may increase the
prepayments made on other mortgage pools. If this should occur, the Portfolio
will no longer be covered, and the Portfolio will either enter into a closing
purchase transaction or replace such Certificate with a Certificate which
represents cover. When the Portfolio closes out its position or replaces such
Certificate, it may realize an unanticipated loss and incur transaction costs.
OPTIONS ON FOREIGN CURRENCIES. The GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL
APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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 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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" 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
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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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. Although a Portfolio
will not purchase or write such options unless and until, in the opinion of the
management of the Portfolio, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. As stated in the Prospectus, the QUALITY INCOME PLUS
PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE
"BEST IDEAS" 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.
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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, the CAPITAL APPRECIATION
PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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,
the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO, the currencies in which they are denominated) upon
which call options have been written increases, the Portfolio may receive a
lower total return from the portion of its portfolio upon which calls have been
written than it would have had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Portfolio may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Portfolio to write another call option
on the underlying security (currency) with either a different exercise price or
expiration date or both. The Portfolio may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security (currency). Conversely, a gain resulting
from a closing purchase transaction could be offset in whole or in part or
exceeded by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received when the option was written, less the commission paid.
Options written by a Portfolio normally have expiration dates of up to to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
(currency) at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the
CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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
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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, the
COMPETITIVE EDGE "BEST IDEAS" 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-Advisor)
wishes to purchase the security underlying the option at a price lower than its
current market price, in which case the Portfolio will write the covered put at
an exercise price reflecting the lower purchase price sought. The potential gain
on a covered put option is limited to the premium received on the option (less
the commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the QUALITY
INCOME PLUS PORTFOLIO may purchase listed and OTC call and put options in
amounts equalling up to 10% of its total assets. Each of the CAPITAL GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" 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,
the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
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, the COMPETITIVE EDGE "BEST
IDEAS" 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, the CAPITAL
APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, on
currencies) which it holds (or has the right to acquire) in its portfolio only
to protect itself
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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, the CAPITAL APPRECIATION PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" 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, the CAPITAL
APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the
value of the security's denominated currency) decline. The covered put writer
also retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option less the premium received on the
sale of the option. In both cases, the writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A secured put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting
over-the-counter option would continue to bear the risk of decline in the market
price of the underlying security until the option expires or is exercised. In
addition, a covered writer would be unable to utilize the amount held in cash or
U.S. Government securities or other 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
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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, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST PORTFOLIO may invest
in options on stock indexes. As stated in the Prospectus, options on stock
indexes are similar to options on stock except that, rather than the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The
multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and a gain or loss depends on price movements in the
stock market generally (or in a particular segment of the market) rather than
the price movements in individual stocks. Currently, options are traded on,
among other indexes, the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." Options on
broad-based stock indexes provide the Portfolio with a means of protecting the
Portfolio against the risk of market-wide price movements. If the Investment
Manager anticipates a market decline, the Portfolio could purchase a stock index
put option. If the expected market decline materialized, the resulting decrease
in the value of the Portfolio's portfolio would be offset to the extent of the
increase in the value of the put option. If the Investment Manager anticipates a
market rise, the Portfolio may purchase a stock index call option to enable the
Portfolio to participate in such rise until completion of anticipated common
stock purchases by the Portfolio. Purchases and sales of stock index options
also enable the Investment Manager to more speedily achieve changes in a
Portfolio's equity positions.
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The UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" 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.
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, the COMPETITIVE EDGE "BEST IDEAS"
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
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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. The S&P 500 INDEX PORTFOLIO may invest in stock index
futures contracts that are traded on U.S. commodity exchanges on the S&P 500
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, the
COMPETITIVE EDGE "BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
and the STRATEGIST PORTFOLIO will purchase or sell stock index futures contracts
for the purpose of hedging their equity portfolio (or anticipated portfolio)
securities against changes in their prices. If the Investment Manager
anticipates that the prices of stock held by a Portfolio may fall or wishes to
decrease the UTILITIES PORTFOLIO's, or the STRATEGIST PORTFOLIO's, asset
allocation in equity securities, the Portfolio may sell a stock index futures
contract. Conversely, if the Investment Manager wishes to increase the assets of
the UTILITIES PORTFOLIO or the STRATEGIST PORTFOLIO which are invested in stocks
or as a hedge against anticipated prices rises in those stocks which the
UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
CAPITAL APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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 S&P 500 INDEX PORTFOLIO may purchase and sell stock index futures
contracts that are traded on U.S. commodity exchanges on the S&P 500 Index, for
the following reasons: to simulate full investment in the S&P 500 Index while
retaining a cash balance for portfolio management purposes, to facilitate
trading, to reduce transaction costs or to seek higher investment returns when a
futures contracts is priced more attractively than stocks comprising the S&P 500
Index.
The GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO will purchase or sell currency futures on currencies
in which their portfolio securities (or anticipated portfolio securities) are
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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, the CAPITAL APPRECIATION PORTFOLIO or the COMPETITIVE EDGE
"BEST IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS" 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 GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" 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, the COMPETITIVE EDGE "BEST IDEAS"
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
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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, the CAPITAL
APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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 (which is expected to convert into the euro after December 31, 1998).
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.
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, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and
the STRATEGIST PORTFOLIO may purchase and write call and put options on futures
contracts which are traded on
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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, the
COMPETITIVE EDGE "BEST IDEAS" 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-Advisor) 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, the COMPETITIVE EDGE "BEST
IDEAS" 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. The S&P 500 INDEX
PORTFOLIO may enter into stock index futures contracts provided that not more
than 5% of its assets are required as an initial margin deposit and provided
that the contract prices of the stock index futures contracts do not exceed 20%
of its total assets. 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, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the STRATEGIST
PORTFOLIO may sell a futures
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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
PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" 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,
the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
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 and
the COMPETITIVE EDGE "BEST IDEAS" 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, the
CAPITAL APPRECIATION PORTFOLIO or the COMPETITIVE EDGE "BEST IDEAS" 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 COMPETITIVE EDGE "BEST IDEAS" 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
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positions. In such situations, if the Portfolio has insufficient cash, it may
have to sell portfolio securities to meet daily variation margin requirements at
a time when it may be disadvantageous to do so. In addition, the Portfolio may
be required to take or make delivery of the instruments underlying interest rate
futures contracts it holds at a time when it is disadvantageous to do so. The
inability to close out options and futures positions could also have an adverse
impact on the Portfolio's ability to effectively hedge its portfolio.
With regard to the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and
the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, futures contracts and options
thereon which are purchased or sold on foreign commodities exchanges may have
greater price volatility than their U.S. counterparts. Furthermore, foreign
commodities exchanges may be less regulated and under less governmental scrutiny
than U.S. exchanges. Brokerage commissions, clearing costs and other transaction
costs may be higher on foreign exchanges. Greater margin requirements may limit
the ability of these Portfolios to enter into certain commodity transactions on
foreign exchanges. Moreover, differences in clearance and delivery requirements
on foreign exchanges may occasion delays in the settlement of the Portfolio's
transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, the Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by a
Portfolio only with brokers or financial institutions deemed creditworthy by the
Portfolio's management.
While the futures contracts and options transactions to be engaged in by a
Portfolio for the purpose of hedging the Portfolio's portfolio securities are
not speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and, for the
GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC
GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE
"BEST IDEAS" 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, the COMPETITIVE EDGE "BEST
IDEAS" 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
40
<PAGE>
in the prices of futures contracts, a correct forecast of interest rate trends
may still not result in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the QUALITY
INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO,
the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" 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, the COMPETITIVE EDGE "BEST
IDEAS" 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%; S&P 500 INDEX PORTFOLIO: 100%; COMPETITIVE EDGE
"BEST IDEAS" PORTFOLIO: 100%; 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.
41
<PAGE>
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio of the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of
debt obligations in which the Portfolio may invest consistent with its
investment objectives and policies; (b) by investing in repurchase
agreements; or (c) by lending its portfolio securities, not in excess of 10%
of the value of a Portfolio's total assets, made in accordance with
guidelines adopted by the Fund's Board of Trustees, including maintaining
collateral from the borrower equal at all times to the current market value
of the securities loaned, provided that lending of portfolio securities is
not deemed to be loans in the case of the S&P 500 INDEX PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO.
2. In the case of each Portfolio other than the S&P 500 INDEX PORTFOLIO
and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, 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 MSDW Advisors) 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.
42
<PAGE>
RESTRICTION APPLICABLE TO THE QUALITY INCOME PLUS PORTFOLIO ONLY
The QUALITY INCOME PLUS PORTFOLIO may not acquire any common stocks except
when acquired upon conversion of fixed-income securities. The QUALITY INCOME
PLUS PORTFOLIO will attempt to dispose in an orderly fashion of any common
stocks acquired under these circumstances.
RESTRICTIONS APPLICABLE TO THE HIGH YIELD PORTFOLIO ONLY
The HIGH YIELD PORTFOLIO may not:
1. Acquire any common stocks, except (a) when attached to or included
in a unit with fixed-income securities; (b) when acquired upon conversion of
fixed-income securities; or (c) when acquired upon exercise of warrants
attached to fixed-income securities. THE HIGH YIELD PORTFOLIO may retain
common stocks so acquired but not in excess of 10% of its total assets.
2. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
RESTRICTION APPLICABLE TO THE DIVIDEND GROWTH PORTFOLIO ONLY
The DIVIDEND GROWTH PORTFOLIO may not invest more than 5% of the value of
its total assets in warrants, including not more than 2% of such assets in
warrants not listed on either the New York or American Stock Exchange. However,
the acquisition of warrants attached to other securities is not subject to this
restriction.
RESTRICTIONS APPLICABLE TO THE EQUITY PORTFOLIO ONLY
The EQUITY PORTFOLIO may not:
1. Invest more than 5% of the value of its total assets in warrants,
including not more than 2% of such assets in warrants not listed on either
the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
2. Purchase non-convertible corporate bonds unless rated at the time of
purchase Aa or better by Moody's or AA or better by S&P, or purchase
commercial paper unless issued by a U.S. corporation and rated at the time
of purchase Prime-1 by Moody's or A-1 by S&P, although it may continue to
hold a security if its quality rating is reduced by a rating service below
those specified.
3. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
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-Advisor 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
43
<PAGE>
commissions or discounts are paid. For the fiscal years ended December 31, 1995,
1996 and 1997, 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 12/31/95 ENDED 12/31/96 ENDED 12/31/97
- -------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
High Yield Portfolio.............................. $ 98,275 $ 10,013 --
Utilities Portfolio............................... 29,800 120,935 $ 110,773
Income Builder Portfolio.......................... N/A N/A 39,789
Dividend Growth Portfolio......................... 565,780 796,688 1,267,591
Capital Growth Portfolio.......................... 53,746 176,767 265,450
Global Dividend Growth Portfolio.................. 604,355 762,353 1,244,001
European Growth Portfolio......................... 437,643 575,660 783,716
Pacific Growth Portfolio.......................... 581,012 878,874 670,101
Capital Appreciation Portfolio.................... N/A N/A 24,723
Equity Portfolio.................................. 1,091,067 1,825,817 1,573,295
Strategist Portfolio.............................. 435,379 429,659 455,450
</TABLE>
Purchases of money market instruments are made from dealers, underwriters
and issuers; sales, if any, prior to maturity, are made to dealers and issuers.
The Fund does not normally incur brokerage commission expense on such
transactions. Money market instruments are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer.
The Investment Manager and, for the EUROPEAN GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO, the Sub-Advisors currently serve as investment
advisors to a number of clients, including other investment companies, and may
in the future act as investment manager or advisor to others. It is the practice
of the Investment Manager or the applicable Sub-Advisor 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 applicable
Sub-Advisor utilizes a pro rata allocation process based on the size of the
Morgan Stanley 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 applicable Sub-Advisor)
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 applicable Sub-Advisor) 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
44
<PAGE>
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 applicable Sub-Advisor effects transactions with those
brokers and dealers who the Investment Manager or the applicable Sub-Advisor
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager or the Sub-Advisor 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 applicable Sub-Advisor. 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-Advisors are from brokers and dealers may be of benefit to the Investment
Manager or the Sub-Advisor 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 applicable Sub-Advisor and thus reduce its
expenses, it is of indeterminable value and the fees paid to the Investment
Manager and the Sub-Advisor are not reduced by any amount that may be
attributable to the value of such services. For its fiscal year ended December
31, 1997, the Fund paid brokerage commissions in connection with transactions in
the following aggregate amounts to brokers because of research services
provided, as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
DIRECTED IN CONNECTION AGGREGATE DOLLAR AMOUNT
WITH RESEARCH SERVICES OF TRANSACTIONS FOR
PROVIDED WHICH SUCH COMMISSIONS
FOR FISCAL YEAR WERE PAID FOR FISCAL
NAME OF PORTFOLIO ENDED 12/31/97 YEAR ENDED 12/31/97
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Utilities Portfolio.................. $ 71,523 $ 42,500,937
Income Builder Portfolio............. 13,717 7,184,066
Dividend Growth Portfolio............ 935,993 797,400,739
Capital Growth Portfolio............. 201,576 127,513,701
Global Dividend Growth Portfolio..... 1,063,894 399,962,861
Capital Appreciation Portfolio....... 3,270 1,601,119
Equity Portfolio..................... 1,305,670 962,633,186
Strategist Portfolio................. 327,726 263,604,055
</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, 1995, 1996 and
1997, 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, Morgan Stanley & Co. Incorporated ("MS & Co.") and/or
other affiliated broker-dealers of the Investment Manager and/or the Sub-
Advisor(s). In order for an affiliated broker or dealer to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by the affiliated broker or dealer 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 the
affiliated broker or dealer to receive no more
45
<PAGE>
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 an affiliated broker or dealer.
For its fiscal years ended December 31, 1995 and 1996, the Fund paid a total
of $578,933 ($6,500 for the UTILITIES PORTFOLIO, $216,308 for the DIVIDEND
GROWTH PORTFOLIO, $32,841 for the CAPITAL GROWTH PORTFOLIO, $50,294 for the
GLOBAL DIVIDEND GROWTH PORTFOLIO, $192,565 for the EQUITY PORTFOLIO, and $80,425
for the STRATEGIST PORTFOLIO) and $558,707 ($49,500 for the UTILITIES PORTFOLIO,
$181,121 for the DIVIDEND GROWTH PORTFOLIO, $38,010 for the CAPITAL GROWTH
PORTFOLIO, $35,401 for the GLOBAL DIVIDEND GROWTH PORTFOLIO, $220,150 for the
EQUITY PORTFOLIO and $34,525 for the STRATEGIST PORTFOLIO), respectively, in
brokerage commissions to DWR. For its fiscal year ended December 31, 1997 the
Fund paid a total of $639,713 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 12/31/97 FISCAL YEAR ENDED 12/31/97 FISCAL YEAR ENDED 12/31/97
- ---------------------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Utilities Portfolio..................... $ 35,250 31.82% 36.57%
Income Builder Portfolio................ 24,982 62.79 70.86
Dividend Growth Portfolio............... 229,890 18.14 21.33
Capital Growth Portfolio................ 45,335 17.08 21.72
Global Dividend Growth Portfolio........ 54,004 4.34 12.94
Capital Appreciation Portfolio.......... 17,785 71.94 72.45
Equity Portfolio........................ 158,587 10.08 11.72
Strategist Portfolio.................... 73,880 16.22 18.24
</TABLE>
During the period June 1 through December 31, 1997, the Fund paid a total of
$332,416 in brokerage commissions to MS & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. These
commissions were paid for transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
BROKERAGE COMMISSIONS PAID DOLLAR AMOUNT OF EXECUTED
TO MS & CO. FOR FISCAL PERCENTAGE OF AGGREGATE TRADES ON WHICH BROKERAGE
YEAR BROKERAGE COMMISSIONS FOR COMMISSIONS WERE PAID FOR
NAME OF PORTFOLIO ENDED 12/31/97 FISCAL YEAR ENDED 12/31/97 FISCAL YEAR ENDED 12/31/97
- ---------------------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Utilities Portfolio..................... $ 1,000 0.90% 0.79%
Income Builder Portfolio................ 710 1.78 0.99
Dividend Growth Portfolio............... 73,920 5.83 6.40
Capital Growth Portfolio................ 10,305 3.88 5.60
Global Dividend Growth Portfolio........ 123,860 9.96 7.63
European Growth Portfolio............... 4,655 0.59 1.09
Pacific Growth Portfolio................ 13,927 2.08 2.24
Equity Portfolio........................ 69,900 4.44 5.77
Strategist Portfolio.................... 34,140 7.50 6.29
</TABLE>
For the fiscal year ended December 31, 1995, the PACIFIC GROWTH PORTFOLIO
paid a total of $19,846 in brokerage commissions to Deutsche Morgan Grenfell &
Partners Securities Pte Ltd. and a total of $19,058 to Deutsche Morgan Grenfell
Securities Hong Kong Limited, affiliated brokers of the Sub-Advisor of the
46
<PAGE>
EUROPEAN GROWTH PORTFOLIO and the former Sub-Advisor of the PACIFIC GROWTH
PORTFOLIO. For the fiscal year ended December 31, 1996, the PACIFIC GROWTH
PORTFOLIO paid a total of $ 2,146 in brokerage commissions to Deutsche Morgan
Grenfell & Partners Securities Pte Ltd. and a total of $14,787 in brokerage
commissions to Deutsche Morgan Grenfell Securities Hong Kong Limited. For the
fiscal year ended December 31, 1997, the EUROPEAN GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO paid brokerage commissions to affiliated brokers of
their Sub-Advisor for transactions as follows:
<TABLE>
<CAPTION>
BROKERAGE
COMMISSIONS PAID TO PERCENTAGE OF
AFFILIATED BROKER AGGREGATE DOLLAR
OF MORGAN GRENFELL PERCENTAGE OF AMOUNT OF
INVESTMENT SERVICES AGGREGATE BROKERAGE EXECUTED TRADES
LTD. FOR FISCAL COMMISSIONS FOR ON WHICH BROKERAGE
YEAR FISCAL YEAR COMMISSIONS WERE PAID
ENDED ENDED FOR FISCAL YEAR ENDED
NAME OF PORTFOLIO NAME OF BROKER 12/31/97 12/31/97 12/31/97
- ------------------ ------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
European Growth
Portfolio........ Deutsche Bank AG, London $ 1,849 0.24% 0.33%
Deutsche Morgan Grenfell, 2,624 0.33 0.25
London
Pacific Growth
Portfolio........ Deutsche Morgan Grenfell & 3,263 0.49 0.41
Partners Securities Pte Ltd.
Deutsche Morgan Grenfell 7,569 1.13 1.25
Securities Hong Kong Limited
</TABLE>
During the fiscal year ended December 31, 1997, the QUALITY INCOME PLUS
PORTFOLIO purchased bonds issued by Bear, Stearns & Co. Inc., Donaldson Lufkin &
Jenrette, Inc., Lehman Brothers and Merrill Lynch & Co. Inc., the INCOME BUILDER
PORTFOLIO purchased convertible preferred stock issued by Merrill Lynch & Co.
Inc., the DIVIDEND GROWTH PORTFOLIO purchased common stock issued by Bank
America Corp., the GLOBAL DIVIDEND GROWTH PORTFOLIO purchased common stock
issued by Bank America Corp., the EQUITY PORTFOLIO purchased common stock issued
by Lehman Brothers, Inc. and Merrill Lynch & Co. Inc., and the STRATEGIST
PORTFOLIO purchased bonds issued by Donaldson Lufkin & Jenrette, Inc. and
PaineWebber Group, 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, 1997, the QUALITY
INCOME PLUS PORTFOLIO held bonds issued by Bear, Stearns & Co. Inc., Lehman
Brothers Inc., Donaldson Lufkin & Jenrette, Inc. and Merrill Lynch & Co. Inc.
with market values of $2,219,060, $7,909,750, $5,073,550 and $2,012,220,
respectively, the INCOME BUILDER PORTFOLIO held convertible preferred stock
issued by Merrill Lynch & Co. Inc. with a market value of $1,065,180, the
DIVIDEND GROWTH PORTFOLIO held common stock issued by Bank America Corp. with a
market value of $35,770,000, the GLOBAL DIVIDEND GROWTH PORTFOLIO held common
stock issued by Bank America Corp. with a market value of $6,898,500, the EQUITY
PORTFOLIO held common stock issued by Merrill Lynch & Co. Inc. with a market
value of $3,646,875, and the STRATEGIST PORTFOLIO held a bond issued by
PaineWebber Group with a market value of $2,029,940.
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
47
<PAGE>
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 MSDW, the parent company of the Fund's
Investment Manager and of the Sub-Advisor of the PACIFIC GROWTH PORTFOLIO and,
effective January 1, 1999, of the EUROPEAN GROWTH PORTFOLIO. (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, Morgan Stanley 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. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW. 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 April 24, 1997, 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 May 31, 1997 upon the consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc., and is
identical to the Fund's previous Distribution Agreement except for its dates of
effectiveness and termination. By its terms, the Distribution Agreement had an
initial term ending April 30, 1998, and will remain in effect from year to year
thereafter if approved by the Board. At their meeting held on April 30, 1998,
the Fund's Board of Trustees, including all of the Independent Trustees,
approved continuation of the present Distribution Agreement until April 30,
1999.
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,
Reverend Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
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As discussed in the Prospectus, the MONEY MARKET PORTFOLIO utilizes the
amortized cost method in valuing its portfolio securities for purposes of
determining the net asset value of its shares. The MONEY MARKET PORTFOLIO
utilizes the amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in market value,
generally in connection with changes in interest rates. The amortized cost
method of valuation involves valuing a security at its cost at the time of
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the MONEY MARKET PORTFOLIO would receive if it
sold the investment. During such periods, the yield to investors in the MONEY
MARKET PORTFOLIO may differ somewhat from that obtained in a similar company
which uses mark-to-market values for all of its portfolio securities. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in the MONEY MARKET
PORTFOLIO would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company and existing investors would
receive less (more) investment income. The purpose of this method of calculation
is to facilitate the maintenance of a constant net asset value per share of
$1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "Rule") and is
conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Portfolio's shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Portfolio's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust, reducing the number of outstanding shares of the MONEY
MARKET PORTFOLIO) to eliminate or reduce to the extent reasonably practicable
material dilution or other unfair results to investors or existing shareholders
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the MONEY MARKET PORTFOLIO'S capital the necessary
shares that represent the amount of excess upon such determination. Each
Contract Owner will be deemed to have agreed to such contribution in these
circumstances by allocating investment under his or her Contract to the MONEY
MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security 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 on which in accordance with the terms of the security the principal amount
must unconditionally be paid, or in the case of a security called for
redemption, the date on which the redemption payment must be made.
A variable rate security 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. A floating rate security 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.
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A "NRSRO" is a nationally recognized statistical rating organization. The
term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (ii) if only
one NRSRO has issued a rating with respect to such security or issuer at the
time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) a security: (A) that at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligation within that class) that is now comparable in
priority and security with the security, in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (iii) an unrated security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the money market fund's board of directors. 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.
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As stated in the Prospectus, in the calculation of the net asset value of
the Portfolios other than the MONEY MARKET PORTFOLIO, short-term debt securities
with remaining maturities of sixty days or less at the time of purchase are
valued at amortized cost, unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt securities
will be valued on a mark-to-market basis until such time as they reach a
remaining maturity of sixty days, whereupon they will be valued at amortized
cost using their value on the 61st day unless the Trustees determine such does
not reflect the securities' market value, in which case these securities will be
valued at their fair value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their latest bid and asked prices.
Unlisted options on debt securities and all options on equity securities are
valued at the mean between their latest bid and asked prices. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the Trustees determine that such price does not reflect their market value, in
which case they will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
a Portfolio's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may 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 that may affect
the value of such securities occur during such period, then these securities may
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
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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 acquisition, 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
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PORTFOLIO, the CAPITAL APPRECIATION PORTFOLIO, the EQUITY PORTFOLIO, the S&P 500
INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" 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.
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.
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, CAPITAL
APPRECIATION PORTFOLIO AND COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO). In
general, gains from foreign currencies and from foreign currency options,
foreign currency futures and forward foreign exchange contracts relating to
investments in
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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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE EDGE "BEST
IDEAS" 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 these Portfolios.
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, the CAPITAL APPRECIATION PORTFOLIO and the COMPETITIVE
EDGE "BEST IDEAS" 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, the CAPITAL APPRECIATION PORTFOLIO or
the COMPETITIVE EDGE "BEST IDEAS" 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 Taxpayer Relief Act of 1997 establishes a
mark-to-market regime which allows taxpayers 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
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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
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capital changes and including the value of additional shares purchased with
dividends and any dividends declared therefrom, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the MONEY MARKET PORTFOLIO in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the MONEY MARKET
PORTFOLIO and changes in interest rates on such investments, but also on changes
in the Portfolio's expenses during the period.
Yield information may be useful in reviewing the performance of the MONEY
MARKET PORTFOLIO and for providing a basis for comparison with other investment
alternatives. However unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the MONEY MARKET PORTFOLIO'S
yield fluctuates. Furthermore, the quoted yield does not reflect charges which
may be imposed on the Contracts by the applicable Account and therefore is not
equivalent to total return under a Contract (for a description of such charges,
see the Prospectus for the Contracts which accompanies the Prospectus for the
Fund).
The current yield of the MONEY MARKET PORTFOLIO for the seven days ending
December 31, 1997 was 5.24%. The effective annual yield on 5.24% is 5.38%,
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, 1997, the yield of the QUALITY
INCOME PLUS PORTFOLIO, calculated pursuant to this formula, was 6.41%, the yield
of the HIGH YIELD PORTFOLIO, calculated pursuant to this formula, was 11.24%,
and the yield of the UTILITIES PORTFOLIO, calculated pursuant to this formula,
was 3.25%.
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, 1997 were 5.23%, 4.51% and 5.58%, respectively, for the MONEY
MARKET PORTFOLIO; 11.09%, 8.15% and 9.42%, respectively, for the
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QUALITY INCOME PLUS PORTFOLIO; 11.87%, 11.75% and 8.95%, respectively, for the
HIGH YIELD PORTFOLIO; 37.43%, 20.17% and 17.50%, respectively, for the EQUITY
PORTFOLIO; and 13.71%, 10.42% and 11.09%, respectively, for the STRATEGIST
PORTFOLIO. The average annual total returns of the UTILITIES PORTFOLIO and the
DIVIDEND GROWTH PORTFOLIO for the one and five year periods ended December 31,
1997 and for the period from March 1, 1990 (commencement of these Portfolios'
operations) through December 31, 1997 were 27.15% 13.35% and 13.28%,
respectively, for the UTILITIES PORTFOLIO and 25.61%, 18.62% and 15.01%,
respectively, for the DIVIDEND GROWTH PORTFOLIO. The average annual total
returns of the CAPITAL GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO for
one and five year periods ended December 31, 1997 and for the period from March
1, 1991 (commencement of these Portfolios' operations) through December 31, 1997
were 24.54%, 11.14% and 12.32%, respectively, for the CAPITAL GROWTH PORTFOLIO
and 16.07%, 23.73% and 17.75%, 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, 1997 and for
the period from February 23, 1994 (commencement of these Portfolios' operations)
through December 31, 1997 were 12.04% and 13.20%, respectively, for the GLOBAL
DIVIDEND GROWTH PORTFOLIO and -37.70% and -11.00%, respectively, for the PACIFIC
GROWTH PORTFOLIO.
The Fund quotes the "total return" of a Portfolio that has been in operation
for less than one year on a non-annualized basis. The Fund may compute the
aggregate total return of each of the INCOME BUILDER PORTFOLIO and the CAPITAL
APPRECIATION PORTFOLIO, which commenced operations on January 21, 1997, for
specified periods by determining the aggregate percentage rate that 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 by the
initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the total returns of the INCOME BUILDER PORTFOLIO and the
CAPITAL APPRECIATION PORTFOLIO for the period January 21, 1997 through December
31, 1997 were 22.38% and 13.20%, respectively. The Investment Manager has
undertaken to assume all operating expenses of the INCOME BUILDER PORTFOLIO and
the CAPITAL APPRECIATION PORTFOLIO until the earlier of July 31, 1998 or the
attainment by the Portfolio of $50 million of net assets. The INCOME BUILDER
PORTFOLIO attained $50 million of net assets on December 3, 1997. Without the
waiver of fees and assumption of expenses by the Investment Manager, the total
returns of the INCOME BUILDER PORTFOLIO and the CAPITAL APPRECIATION PORTFOLIO
for the period January 21, 1997 through December 31, 1997 would have been 21.97%
and 12.60%, respectively.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by an Account. The Fund may also compute the aggregate total returns
of the Portfolios for specified periods by determining the aggregate percentage
rate which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without the reduction for any charges imposed on the Contracts by
the applicable Account) by the initial $1,000 investment and subtracting 1 from
the result. Based on the foregoing calculation, the total returns of the MONEY
MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO,
the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO for the one, five and ten year
periods ended December 31, 1997 were 5.23%, 24.67% and 72.08%, respectively, for
the MONEY MARKET PORTFOLIO, 11.09%, 47.96% and 145.97%, respectively, for the
QUALITY INCOME PLUS PORTFOLIO; 11.87%, 74.30% and 135.71%, respectively, for the
HIGH YIELD PORTFOLIO, 37.43%, 150.56% and 401.59%, respectively, for the EQUITY
PORTFOLIO; and 13.71%, 64.16% and 186.24%, respectively, for the STRATEGIST
PORTFOLIO, the total returns of the UTILITIES PORTFOLIO and the DIVIDEND GROWTH
PORTFOLIO for the one and five year periods ended December 31, 1997 and for the
period from March 1, 1990 through December 31, 1997 were 27.15%, 87.12% and
165.61%, respectively, for the UTILITIES PORTFOLIO and 25.61%, 134.87% and
199.21%, respectively, for the DIVIDEND GROWTH PORTFOLIO, the total returns of
the CAPITAL GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO for the one and
five year periods ended December 31, 1997 and for the period from March 1, 1991
through December 31, 1997
55
<PAGE>
were 24.54%, 69.55% and 121.28%, respectively, for the CAPITAL GROWTH PORTFOLIO
and 16.07%, 189.98% and 205.61%, respectively, for the EUROPEAN GROWTH
PORTFOLIO, and the total returns of the GLOBAL DIVIDEND GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO for the one year period ended December 31, 1997 and for
the period from February 23, 1994 through December 31, 1997 were 12.04% and
61.21%, respectively, for the GLOBAL DIVIDEND GROWTH PORTFOLIO and -37.70% and
- -36.17%, respectively, for the PACIFIC GROWTH 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, 1997:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT OF
OPERATIONS OF
-----------------------------------
PORTFOLIO $10,000 $50,000 $100,000
- ---------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Money Market Portfolio...................................................... $ 22,582 $ 112,910 $ 225,820
Quality Income Plus Portfolio............................................... 25,242 126,210 252,420
High Yield Portfolio........................................................ 38,534 192,670 385,340
Utilities Portfolio......................................................... 26,561 132,805 265,610
Income Builder Portfolio.................................................... 12,238 61,190 122,380
Dividend Growth Portfolio................................................... 29,921 149,605 299,210
Capital Growth Portfolio.................................................... 22,128 110,640 221,280
Global Dividend Growth Portfolio............................................ 16,121 80,605 161,210
European Growth Portfolio................................................... 30,561 152,805 305,610
Pacific Growth Portfolio.................................................... 6,383 31,915 63,830
Capital Appreciation Portfolio.............................................. 11,320 56,600 113,200
Equity Portfolio............................................................ 75,621 378,105 756,210
Strategist Portfolio........................................................ 28,977 144,885 289,770
</TABLE>
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 fifteen 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.
56
<PAGE>
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 have been elected by Northbrook Life Insurance
Company, Allstate Life Insurance Company of New York and Paragon Life Insurance
Company, pursuant to the instructions of Contract Owners, most recently at a
Special Meeting of Shareholders held on May 21, 1997. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees, and
they may at any time lengthen their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund. Under
certain circumstances the Trustees may be removed by action of the Trustees.
Under certain circumstances the shareholders may call a meeting to remove
Trustees and the Fund is required to provide assistance in communicating with
shareholders about such a meeting.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
With respect to the submission to shareholder vote of a matter requiring
separate voting by Portfolio, the matter shall have been effectively acted upon
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio votes for the approval of the matter, notwithstanding that:
(1) the matter has not been approved by a majority of the outstanding voting
securities of any other Portfolio; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Trust shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
CUSTODIANS AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the assets of each Portfolio other than the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO. The
Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the Custodian
of the assets of the Global Dividend Growth Portfolio, the European Growth
Portfolio and the Pacific Growth Portfolio in the United States and around the
world. As Custodian, The Chase Manhattan Bank has contracted with various
foreign banks and depositories to hold portfolio securities of non-U.S. issuers
on behalf of those Portfolios. All of a Portfolio's cash balances with the
57
<PAGE>
Custodians in excess of $100,000 are unprotected by Federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), 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. MSDW Trust is an affiliate of Morgan Stanley Dean
Witter Advisors Inc., the Fund's Investment Manager, of Morgan Stanley Asset
Management Inc., the Sub-Advisor of the PACIFIC GROWTH PORTFOLIO and, effective
January 1, 1999, of the EUROPEAN GROWTH PORTFOLIO, and of Morgan Stanley Dean
Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and Dividend
Disbursing Agent, MSDW Trust'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 MSDW Trust
receives a fee from each Portfolio of the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036 serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Statements showing the portfolio of each Portfolio and other information
will be furnished, at least semi-annually, to Contract Owners, and annually such
statements will be audited by independent accountants whose selection must be
approved annually by the Fund's Trustees. The Fund's fiscal year ends on
December 31.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, 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,
1997, 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 PricewaterhouseCoopers 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.
58
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (79.0%)
AUTOMOTIVE - FINANCE (13.3%)
$ 15,685 Chrysler Financial Corp........................... 5.66-5.80 % 01/27/98-03/10/98 $ 15,551,184
8,370 Ford Motor Credit Co.............................. 5.59-5.75 01/05/98-01/15/98 8,358,720
16,000 General Motors Acceptance Corp.................... 5.73-5.82 01/20/98-05/22/98 15,781,179
5,000 Toyota Motor Credit Corp.......................... 5.76 04/27/98 4,908,972
------------
44,600,055
------------
BANK HOLDING COMPANIES (8.9%)
7,125 BankAmerica Corp.................................. 5.68-5.71 01/13/98-02/10/98 7,096,603
13,225 Bankers Trust New York Corp....................... 5.74-5.83 01/29/98-06/30/98 12,968,960
5,000 NationsBank Corp.................................. 5.64 01/28/98 4,979,150
5,000 PNC Funding Corp.................................. 5.84 03/30/98 4,929,722
------------
29,974,435
------------
BANKS - COMMERCIAL (17.8%)
13,975 Abbey National North America Corp................. 5.67-5.71 02/02/98-03/03/98 13,871,712
3,425 ABN-AMRO North America Finance Inc................ 5.69 02/05/98 3,406,586
5,000 Barclays U.S. Funding Corp........................ 5.81 03/12/98 4,944,486
5,000 Dresdner U.S. Finance Inc......................... 5.63 01/08/98 4,994,633
4,700 KfW International Finance Inc..................... 5.69 01/12/98 4,692,058
10,000 National Australia Funding (DE) Inc............... 5.72-5.81 03/11/98-06/01/98 9,828,433
5,000 Rabobank USA Financial Corp....................... 5.76 04/30/98 4,907,114
3,500 Societe Generale N.A., Inc........................ 5.65 04/06/98 3,449,248
5,000 Toronto-Dominion Holdings U.S.A. Inc.............. 5.83 06/10/98 4,874,222
5,000 WestPac Capital Corp.............................. 5.79 04/20/98 4,914,465
------------
59,882,957
------------
ENERGY (1.6%)
5,430 Chevron U.S.A., Inc............................... 6.75 01/02/98 5,428,982
------------
FINANCE - COMMERCIAL (4.1%)
13,950 CIT Group Holdings, Inc........................... 5.65-5.79 02/13/98-05/29/98 13,755,593
------------
FINANCE - CONSUMER (15.0%)
3,750 American Express Credit Corp...................... 5.64 01/22/98 3,737,991
10,000 American General Finance Corp..................... 5.68-5.81 02/06/98-04/14/98 9,890,508
9,425 Avco Financial Services Inc....................... 5.66-5.67 01/26/98-02/19/98 9,372,242
10,000 Beneficial Corp................................... 5.70-5.77 03/05/98-03/31/98 9,880,912
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 13,050 Household Finance Corp............................ 5.61-5.67 % 01/30/98-02/24/98 $ 12,971,743
4,450 Norwest Financial Inc............................. 5.67 03/17/98 4,398,732
------------
50,252,128
------------
FINANCE - CORPORATE (3.5%)
11,775 Ciesco, L.P....................................... 5.63-5.79 01/14/98-04/08/98 11,693,904
------------
FINANCE - DIVERSIFIED (5.0%)
17,100 General Electric Capital Corp..................... 5.67-5.77 01/09/98-03/19/98 16,992,637
------------
INDUSTRIALS (0.7%)
2,375 Caterpillar Financial Services Corp............... 5.64 01/20/98 2,368,093
------------
OFFICE EQUIPMENT (1.5%)
4,950 IBM Credit Corp................................... 5.71 02/11/98 4,918,599
------------
RETAIL (3.5%)
11,815 Sears Roebuck Acceptance Corp..................... 5.62-5.77 01/06/98-02/18/98 11,771,837
------------
UTILITIES - FINANCE (4.1%)
13,825 National Rural Utilities Cooperative Finance
Corp............................................ 5.66-5.81 01/23/98-04/28/98 13,664,035
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $265,303,255)................................................... 265,303,255
------------
SHORT-TERM BANK NOTES (12.6%)
13,950 BankBoston, N.A................................... 5.66-5.72 01/16/98-04/15/98 13,950,000
15,000 F.C.C. National Bank.............................. 5.79-5.82 05/08/98-06/17/98 15,000,000
13,500 La Salle National Bank............................ 5.68-5.71 02/20/98-03/09/98 13,500,000
------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $42,450,000).................................................... 42,450,000
------------
CERTIFICATES OF DEPOSIT (4.5%)
10,000 Chase Manhattan Bank (USA)........................ 5.75 02/09/98-02/12/98 10,000,000
5,000 Regions Bank of Alabama........................... 5.67 03/04/98 5,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $15,000,000).................................................... 15,000,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BANKERS' ACCEPTANCES (2.4%)
$ 3,000 BankBoston, N.A................................... 5.73 % 01/07/98 $ 2,997,215
5,000 Union Bank of California, N.A..................... 5.78 04/09/98 4,923,097
------------
TOTAL BANKERS' ACCEPTANCES
(AMORTIZED COST $7,920,312)..................................................... 7,920,312
------------
U.S. GOVERNMENT AGENCY (1.4%)
4,754 Federal National Mortgage Assoc.
(AMORTIZED COST $4,719,926)..................... 5.52-5.56 01/21/98-03/20/98 4,719,926
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $335,393,493) (a)........................................ 99.9% 335,393,493
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 0.1 184,656
----- ------------
NET ASSETS............................................................... 100.0% $335,578,149
----- ------------
----- ------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (64.0%)
BANKS AND BANK HOLDING COMPANIES (8.9%)
$ 5,000 Banco Central Hispanoamericano (Cayman Islands)........ 7.50 % 06/15/05 $ 5,215,750
5,000 First Bank N.A......................................... 8.35 11/01/04 5,524,200
5,000 First Bank System...................................... 7.625 05/01/05 5,331,050
3,000 Mellon Bank N.A........................................ 7.625 09/15/07 3,233,880
3,000 Old Kent Financial Corp................................ 6.625 11/15/05 3,011,790
3,145 PNC Funding Corp....................................... 9.875 03/01/01 3,470,004
5,000 Republic New York Corp................................. 7.20 07/15/97 5,227,700
2,000 Santander Financial Issuances (Cayman Islands)......... 7.75 05/15/05 2,122,300
5,000 State Street Boston Corp............................... 5.95 09/15/03 4,921,500
2,000 Swiss Bank Corp........................................ 7.375 07/15/15 2,132,420
2,000 Wachovia Corp.......................................... 6.375 04/15/03 2,014,640
------------
42,205,234
------------
BEVERAGES (0.5%)
2,000 Coca-Cola Enterprises Inc.............................. 8.50 02/01/22 2,400,960
------------
BROKERAGE (3.6%)
2,000 Bear Stearns Companies, Inc............................ 8.75 03/15/04 2,219,060
5,000 Donaldson Lufkin & Jenrette, Inc....................... 6.875 11/01/05 5,073,550
2,000 Lehman Brothers Holdings, Inc.......................... 8.75 03/15/05 2,227,800
5,000 Lehman Brothers Holdings, Inc.......................... 8.50 08/01/15 5,681,950
2,000 Merrill Lynch & Co..................................... 6.56 12/16/07 2,012,220
------------
17,214,580
------------
CONSUMER PRODUCTS (3.4%)
4,000 Becton Dickinson & Co.................................. 8.70 01/15/25 4,537,880
5,000 CPC International, Inc................................. 7.25 12/15/26 5,365,400
1,000 Maytag Corp............................................ 9.75 05/15/02 1,129,590
5,000 Philip Morris Companies, Inc........................... 7.125 10/01/04 5,136,950
------------
16,169,820
------------
DEFENSE (1.8%)
3,000 Lockheed Martin Corp.+................................. 7.70 06/15/08 3,278,010
5,000 Lockheed Martin Corp................................... 7.20 05/01/36 5,319,500
------------
8,597,510
------------
ENERGY (3.1%)
2,000 Anadarko Petroleum Corp................................ 7.73 09/15/96 2,180,380
5,000 Dresser Industries, Inc................................ 7.60 08/15/96 5,541,450
390 Mobil Corp............................................. 9.17 02/29/00 404,469
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Petroliam Nasional Berhad - 144A* (Malaysia)........... 7.75 % 08/15/15 $ 1,842,520
1,000 Texaco Capital, Inc.................................... 9.75 03/15/20 1,358,870
3,000 Transocean Offshore Inc................................ 8.00 04/15/27 3,401,370
------------
14,729,059
------------
FINANCIAL SERVICES (3.5%)
3,000 Ford Capital BV........................................ 9.50 06/01/10 3,730,170
5,000 Ford Motor Credit Corp................................. 7.75 03/15/05 5,379,500
3,000 General Motors Acceptance Corp......................... 9.00 10/15/02 3,336,150
4,000 Norwest Financial Inc.................................. 7.875 02/15/02 4,239,960
------------
16,685,780
------------
HEALTHCARE - DIVERSIFIED (0.2%)
1,000 Kaiser Foundation Health Plan, Inc..................... 9.55 07/15/05 1,189,660
------------
INDUSTRIALS (8.5%)
5,000 Barrick Gold Corp...................................... 7.50 05/01/07 5,275,050
5,000 Boeing Co.............................................. 7.95 08/15/24 5,885,850
4,786 Burlington Northern Santa Fe Corp...................... 7.33 06/23/10 5,025,853
4,759 Burlington Northern Santa Fe Corp...................... 7.97 01/01/15 5,221,139
1,000 Caterpillar, Inc....................................... 9.375 07/15/01 1,099,590
3,000 Caterpillar, Inc....................................... 9.375 08/15/11 3,788,190
1,000 Hutchison Whampoa Ltd. (Series B) - 144A* (Hong
Kong)................................................ 7.45 08/01/17 902,720
5,000 ICI Wilmington, Inc.................................... 6.95 09/15/04 5,133,350
3,000 Ikon Office Solutions, Inc............................. 7.30 11/01/27 3,082,590
5,000 Kerr McGee Corp........................................ 7.125 10/15/27 5,254,700
------------
40,669,032
------------
INSURANCE (5.3%)
5,000 Cigna Corp............................................. 7.875 05/15/27 5,424,950
3,000 Jackson National Life Insurance Co. - 144A*............ 8.15 03/15/27 3,323,010
5,000 Liberty Mutual Insurance Co. - 144A*................... 7.875 10/15/26 5,441,650
5,000 Lumbermens Mutual Casualty - 144A*..................... 9.15 07/01/26 5,847,700
5,000 Nationwide Financial Service........................... 8.00 03/01/27 5,358,500
------------
25,395,810
------------
PHARMACEUTICALS (2.6%)
3,500 Amgen, Inc............................................. 6.50 12/01/07 3,526,390
2,000 Bristol-Myers Squibb................................... 6.80 11/15/26 2,081,280
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Johnson & Johnson...................................... 8.72 % 11/01/24 $ 5,784,100
665 Marion Merrell Corp.................................... 9.11 08/01/05 735,107
------------
12,126,877
------------
PUBLISHING (1.8%)
5,000 Times Mirror Co........................................ 7.25 11/15/96 5,286,450
3,000 Times Mirror Co........................................ 6.61 09/15/27 3,072,630
------------
8,359,080
------------
REAL ESTATE INVESTMENT TRUST (1.1%)
5,000 Kimco Realty Corp...................................... 6.50 10/01/03 4,991,900
------------
RESTAURANTS (0.3%)
1,000 McDonald's Corp........................................ 8.875 04/01/11 1,224,140
------------
RETAIL (3.8%)
5,000 May Department Stores Co............................... 6.875 11/01/05 5,125,600
5,000 May Department Stores Co............................... 7.625 08/15/13 5,450,150
1,000 Penney (J.C.) Co., Inc................................. 9.75 06/15/21 1,126,580
3,000 Sears Roebuck Acceptance Corp.......................... 6.875 10/15/17 3,008,880
3,000 Wal-Mart Stores, Inc................................... 7.49 06/21/07 3,166,170
------------
17,877,380
------------
TELECOMMUNICATIONS (4.3%)
5,000 AT&T Corp.............................................. 8.35 01/15/25 5,473,000
4,000 Frontier Corp.......................................... 7.25 05/15/04 4,181,160
5,000 GTE Corp............................................... 7.90 02/01/27 5,249,650
5,000 Lucent Technologies Inc................................ 7.25 07/15/06 5,325,300
------------
20,229,110
------------
TRANSPORTATION (1.1%)
4,952 America West Airlines.................................. 6.85 07/02/09 5,027,931
------------
UTILITIES - ELECTRIC (10.2%)
1,000 Chugach Electric Co.................................... 9.14 03/15/22 1,149,960
2,200 Consolidated Edison Co. of New York, Inc............... 8.05 12/15/27 2,311,848
5,000 Florida Power & Light Co............................... 7.05 12/01/26 5,064,050
3,000 Oglethorpe Power Co. 144A*............................. 6.974 06/30/11 3,037,560
3,500 Oklahoma Gas & Electric Co............................. 6.50 07/15/17 3,596,040
5,000 Pennsylvania Power & Light Co.......................... 7.70 10/01/09 5,467,200
5,000 Potomac Electric Power Co.............................. 7.25 07/01/23 5,131,950
4,000 Public Service Electric & Gas Co....................... 7.375 03/01/14 4,180,440
4,000 Puget Sound Energy Co.................................. 7.02 12/01/27 4,052,840
5,000 South Carolina Electric & Gas Co....................... 7.625 06/01/23 5,308,900
3,000 Southern California Edison Co.......................... 7.25 03/01/26 3,070,410
1,000 Tampa Electric Co...................................... 7.75 11/01/22 1,084,340
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Virginia Electric Power Co............................. 7.25 % 02/01/23 $ 5,101,150
------------
48,556,688
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $286,250,665)......................................................... 303,650,551
------------
TAXABLE MUNICIPAL BOND (0.2%)
4,000 New Jersey Development Authority
(IDENTIFIED COST $962,408)........................... 0.00 02/15/17 1,146,200
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (32.0%)
18 Federal Home Loan Mortgage Corp........................ 11.50 06/01/11-05/01/19 19,644
9,902 Federal Home Loan Mortgage Corp. PC Gold............... 6.00 10/01/23-11/01/27 9,549,071
2,907 Federal Home Loan Mortgage Corp. PC Gold............... 8.50 01/01/22-12/01/24 3,036,732
10,000 Federal National Mortgage Assoc........................ 0.00 10/09/19 2,607,200
11,061 Federal National Mortgage Assoc........................ 6.00 01/01/26-10/01/27 10,659,794
4,988 Federal National Mortgage Assoc........................ 6.50 02/01/26-09/01/27 4,924,204
7,335 Federal National Mortgage Assoc........................ 7.00 10/01/27 7,388,022
415 Federal National Mortgage Assoc........................ 7.50 05/01/27 424,782
1,225 Federal National Mortgage Assoc........................ 9.00 06/01/21-02/01/25 1,301,345
2,000 Government National Mortgage Assoc. (a)................ 6.50 01/15/28 1,979,375
27,214 Government National Mortgage Assoc..................... 7.00 09/15/27-12/15/27 27,434,655
30,953 Government National Mortgage Assoc..................... 7.50 04/15/24-09/15/27 31,716,959
17,783 Government National Mortgage Assoc..................... 8.00 10/15/24-09/15/26 18,439,161
4,353 Government National Mortgage Assoc..................... 8.50 01/15/17-07/15/26 4,572,054
2,715 Government National Mortgage Assoc..................... 9.00 07/15/24-12/15/24 2,903,533
182 Government National Mortgage Assoc..................... 10.00 05/15/16-04/15/19 198,557
5,000 Tennessee Valley Authority............................. 7.85 06/15/44 5,328,400
5,000 U.S. Treasury Bond..................................... 6.125 11/15/27 5,137,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,000 U.S. Treasury Bond..................................... 6.375% 08/15/27 $ 8,440,240
1,000 U.S. Treasury Note..................................... 6.875 05/15/06 1,070,130
5,000 U.S. Treasury Note..................................... 7.25 02/15/98 5,008,800
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $148,980,451)......................................................... 152,140,058
------------
CANADIAN GOVERNMENT OBLIGATIONS (2.5%)
5,000 Hydro-Quebec........................................... 9.50 11/15/30 6,642,700
5,000 Province of New Brunswick.............................. 7.625 06/29/04 5,382,550
------------
TOTAL CANADIAN GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $10,380,050).......................................................... 12,025,250
------------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
The Bank of New York
(dated 12/31/97; proceeds $1,377,838) (b)
(IDENTIFIED COST $1,377,542)......................... 3.875 01/02/98 1,377,542
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $447,951,116) (c)........................................................... 99.0 % 470,339,601
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................... 1.0 4,649,907
------ -------------
NET ASSETS................................................................................... 100.0 % $ 474,989,508
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Securities segregated as collateral for securities purchased on a forward
committment basis.
PC Participation Certificate.
(a) Securities purchased on a forward commitment basis with an approximate
principal amount. The actual principal amount will be determined upon
settlement.
(b) Collateralized by $1,356,763 U.S. Treasury Note 6.125% due 07/31/00 valued
at $1,405,093.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $22,816,874 and the
aggregate gross unrealized depreciation is $428,389, resulting in net
unrealized appreciation of $22,388,485.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (95.9%)
AEROSPACE (0.9%)
$ 3,200 Sabreliner Corp. (Series B)....................................... 12.50 % 04/15/03 $ 3,352,000
------------
AUTOMOTIVE (4.6%)
4,175 APS, Inc. (a)..................................................... 11.875 01/15/06 2,212,750
6,000 General Motors Acceptance Corp.................................... 15.00 03/17/98 6,105,540
8,000 Toyota Motor Credit Corp.......................................... 15.00 09/25/98 8,514,560
------------
16,832,850
------------
BROADCAST MEDIA (7.8%)
3,750 Australis Holdings Ltd. (Australia)............................... 15.00++ 11/01/02 2,062,500
10,000 Brill Media Co. LLC (Units)++ - 144A*............................. 7.50 12/15/07 9,325,000
3,000 Echostar DBS Corp................................................. 12.50 07/01/02 3,255,000
5,500 Echostar Satellite Broadcasting................................... 13.125++ 03/15/04 4,620,000
2,000 Paxson Communications Corp........................................ 11.625 10/01/02 2,145,000
2,005 Spanish Broadcasting System, Inc.................................. 12.50 06/15/02 2,305,750
7,500 TCI Satellite Entertainment Corp. - 144A*......................... 12.25++ 02/15/07 5,043,750
------------
28,757,000
------------
BUSINESS SERVICES (5.7%)
5,000 Anacomp, Inc. (Series B).......................................... 10.875 04/01/04 5,250,000
5,000 Comforce Corp. (Units)++ - 144A*.................................. 15.00+ 12/01/09 5,025,000
2,250 Comforce Operating Inc. - 144A*................................... 12.00 12/01/07 2,278,125
5,000 Xerox Credit Corp................................................. 15.00 06/26/98 5,217,350
3,000 Xerox Credit Corp................................................. 15.00 10/07/98 3,202,800
------------
20,973,275
------------
CABLE & TELECOMMUNICATIONS (22.0%)
3,000 Adelphia Communications, Inc. (Series B).......................... 9.875 03/01/07 3,165,000
3,000 Advanced Radio Telecommunication (Units)++........................ 14.00 02/15/07 2,880,000
3,100 American Communications Services, Inc............................. 12.75++ 04/01/06 2,387,000
5,000 American Communications Services, Inc. - 144A*.................... 13.75 07/15/07 5,950,000
2,350 Cablevision Systems Corp.......................................... 10.50 05/15/16 2,726,000
7,000 Clearnet Communications Inc. (Canada)............................. 14.75++ 12/15/05 5,573,750
2,000 Esprit Telecom Group PLC (United Kingdom)......................... 11.50 12/15/07 2,065,000
3,000 FrontierVision Operating Partners, L.P............................ 11.00 10/15/06 3,330,000
3,000 GST Equipment Funding, Inc. - 144A*............................... 13.25 05/01/07 3,420,000
8,000 Hyperion Telecommunication, Inc. (Series B)....................... 13.00++ 04/15/03 5,800,000
2,000 Hyperion Telecommunication, Inc. (Series B)....................... 12.25 09/01/04 2,220,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 28,500 In-Flight Phone Corp. (Series B) (a).............................. 14.00++% 05/15/02 $ 3,990,000
2,000 IXC Communications, Inc. (Series B)............................... 12.50 10/01/05 2,300,000
2,000 James Cable Partners L.P. (Series B).............................. 10.75 08/15/04 2,110,000
8,000 McCaw International Ltd........................................... 13.00++ 04/15/07 4,640,000
4,000 Nextel Communications, Inc. - 144A*............................... 10.65++ 09/15/07 2,505,000
1,500 Paging Network, Inc............................................... 10.125 08/01/07 1,560,000
3,000 Paging Network, Inc............................................... 10.00 10/15/08 3,112,500
2,000 Peoples Telephone Co., Inc........................................ 12.25 07/15/02 2,100,000
10,000 Price Communications Cellular Holdings (Units)++ - 144A*.......... 13.50++ 08/01/07 6,300,000
7,000 Star Choice Communications (Units)++ (Canada)..................... 13.00 12/15/05 7,210,000
4,000 Transtel Pass-Thru Trust - 144A*.................................. 12.50 11/01/07 3,780,000
2,250 Winstar Communications, Inc....................................... 14.00++ 10/15/05 1,800,000
------------
80,924,250
------------
COMPUTER EQUIPMENT (1.7%)
6,000 IBM Credit Corp................................................... 15.00 03/04/98 6,087,300
------------
CONSUMER PRODUCTS (2.5%)
3,000 IHF Holdings Inc. (Series B)...................................... 15.00 11/15/04 2,580,000
3,000 J.B. Williams Holdings, Inc....................................... 12.00 03/01/04 3,090,000
4,000 Renaissance Cosmetics, Inc........................................ 11.75 02/15/04 3,680,000
------------
9,350,000
------------
CONTAINERS (1.4%)
2,000 Mail-Well Corp.................................................... 10.50 02/15/04 2,145,000
3,000 Packaging Resources, Inc.......................................... 11.625 05/01/03 3,180,000
------------
5,325,000
------------
ELECTRICAL & ALARM SYSTEMS (1.4%)
6,500 Mosler, Inc....................................................... 11.00 04/15/03 5,005,000
------------
ENTERTAINMENT/GAMING & LODGING (12.6%)
2,000 AMF Group Inc. (Series B)......................................... 10.875 03/15/06 2,190,000
2,000 Argosy Gaming Co.................................................. 13.25 06/01/04 2,085,000
7,000 Fitzgerald Gaming Corp. - 144A*................................... 12.25 12/15/04 7,105,000
5,325 Lady Luck Gaming Finance Corp..................................... 11.875 03/01/01 5,458,125
8,000 Motels of America, Inc. (Series B)................................ 12.00 04/15/04 7,780,000
3,000 Players International, Inc........................................ 10.875 04/15/05 3,232,500
3,400 Plitt Theaters, Inc. (Canada)..................................... 10.875 06/15/04 3,672,000
10,000 Resort At Summer Co. (Units)++ - 144A*............................ 13.00+ 12/15/07 10,000,000
5,950 Stuart Entertainment, Inc. (Series B)............................. 12.50 11/15/04 4,879,000
------------
46,401,625
------------
FINANCE (4.5%)
5,000 Commercial Credit Co.............................................. 15.00 07/10/98 5,235,300
3,000 General Electric Capital Corp..................................... 13.50 01/20/98 3,008,850
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,000 Household Finance Corp............................................ 15.00 % 09/25/98 $ 8,499,760
------------
16,743,910
------------
FOODS & BEVERAGES (9.1%)
5,330 Envirodyne Industries, Inc........................................ 10.25 12/01/01 5,250,050
2,500 Fleming Companies, Inc............................................ 10.625 12/15/01 2,653,125
2,000 General Mills, Inc................................................ 13.50 01/21/98 2,006,260
10,250 PepsiCo, Inc...................................................... 15.00 08/06/98 10,798,272
4,000 Specialty Foods Acquisition Corp. (Series B)...................... 11.25 08/15/03 3,800,000
20,250 Specialty Foods Acquisition Corp. (Series B)...................... 13.00++ 08/15/05 9,011,250
------------
33,518,957
------------
HEALTHCARE (3.6%)
3,500 Unilab Corp....................................................... 11.00 04/01/06 3,570,000
3,750 Unison Healthcare Corp. - 144A*................................... 13.00 12/01/99 3,787,500
6,500 Unison Healthcare Corp. - 144A*................................... 12.25 11/01/06 5,850,000
------------
13,207,500
------------
MANUFACTURING (2.6%)
2,000 Berry Plastics Corp............................................... 12.25 04/15/04 2,180,000
2,500 Deere John Capital Corp........................................... 15.00 02/24/98 2,530,225
2,000 International Wire Group, Inc..................................... 11.75 06/01/05 2,190,000
2,500 Uniroyal Technology Corp.......................................... 11.75 06/01/03 2,600,000
------------
9,500,225
------------
MANUFACTURING - DIVERSIFIED (5.1%)
3,000 Interlake Corp.................................................... 12.00 11/15/01 3,322,500
3,000 Interlake Corp.................................................... 12.125 03/01/02 3,105,000
3,000 J.B. Poindexter & Co., Inc........................................ 12.50 05/15/04 3,060,000
5,000 Jordan Industries, Inc. (Series B)................................ 10.375 08/01/07 5,075,000
7,200 Jordan Industries, Inc. (Series B)................................ 11.75++ 04/01/09 4,320,000
------------
18,882,500
------------
METALS & MINING (2.3%)
3,500 Centaur Mining & Exploration Ltd. - 144A* (Australia)............. 11.00 12/01/07 3,517,500
5,000 Murrin Murrin Holdings - 144A* (Australia)........................ 9.375 08/31/07 4,925,000
------------
8,442,500
------------
OIL & GAS (0.6%)
2,500 Key Energy Group Inc. - 144A* (Conv.)............................. 5.00 09/15/04 2,135,950
------------
PUBLISHING (0.8%)
2,975 United States Banknote Corp....................................... 10.375 06/01/02 2,945,250
------------
RESTAURANTS (3.8%)
7,750 American Restaurant Group Holdings, Inc........................... 14.00++ 12/15/05 2,402,500
6,000 Boston Chicken, Inc. (Conv.)...................................... 0.00 06/01/15 877,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Carrols Corp...................................................... 11.50 % 08/15/03 $ 4,240,000
5,975 FRD Acquisition Corp. (Series B).................................. 12.50 07/15/04 6,512,750
------------
14,032,750
------------
RETAIL (1.6%)
10,450 County Seat Stores, Inc. (a)...................................... 12.00 10/01/02 5,747,500
------------
RETAIL - FOOD CHAINS (0.8%)
2,875 Pantry Inc. - 144A*............................................... 10.25 10/15/07 2,954,063
------------
TEXTILES - APPAREL MANUFACTURERS (0.5%)
4,000 U.S. Leather, Inc. (b)............................................ 10.25 07/31/03 1,880,000
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $366,330,449)......................................................... 352,999,405
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C>
COMMON STOCKS (c) (0.7%)
AUTOMOTIVE (0.0%)
87 Northern Holdings Industrial Corp. *(d)................................................ --
------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
2,000 Motels of America, Inc. - 144A*........................................................ 80,072
71,890 Vagabond Inns, Inc. (Class D) (a)...................................................... --
------------
80,072
------------
FOODS & BEVERAGES (0.0%)
120,000 Specialty Foods Acquisition Corp. - 144A*.............................................. 120,000
------------
MANUFACTURING - DIVERSIFIED (0.7%)
84,072 Thermadyne Holdings Corp. (d).......................................................... 2,375,034
------------
RESTAURANTS (0.0%)
7,750 American Restaurant Group Holdings, Inc. - 144A*....................................... 7,750
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $8,566,039)........................................................... 2,582,856
------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE
----------
<C> <S> <C> <C>
WARRANTS (c) (0.1%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. - 144A*................................................... 04/15/03 15,000
------------
BROADCAST MEDIA (0.0%)
3,750 Australis Holdings Ltd. - 144A* (Australia)................................ 10/30/01 --
------------
CABLE & TELECOMMUNICATIONS (0.1%)
2,000 Hyperion Telecommunication, Inc. (Series B) - 144A*........................ 04/01/01 180,059
34,400 Price Communications Corp. - 144A*......................................... 08/01/07 344
------------
180,403
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONTAINERS (0.0%)
2,000 Crown Packaging Holdings Ltd. - 144A*...................................... 11/01/03 --
------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
1,000 Boomtown, Inc. - 144A*..................................................... 11/01/98 --
2,000 Fitzgeralds Gaming Corp.................................................... 12/19/98 $ 9,045
3,500 Fitzgeralds South Inc. - 144A*............................................. 03/15/99 --
------------
9,045
------------
MANUFACTURING (0.0%)
15,000 Uniroyal Technology Corp................................................... 06/01/03 54,375
------------
RETAIL (0.0%)
2,000 County Seat Holdings Co. (a)............................................... 10/15/98 --
------------
TOTAL WARRANTS
(IDENTIFIED COST $270,736)............................................................. 258,823
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.2%)
REPURCHASE AGREEMENT
$ 11,715 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $11,717,888) (e)
(IDENTIFIED COST $11,715,366)........................................................ 11,715,366
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $386,882,590) (f)........................................................ 99.9 % 367,556,450
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 504,821
------ -------------
NET ASSETS................................................................................ 100.0 % $ 368,061,271
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
bonds or preferred stocks with attached warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond which 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) Collateralized by $11,373,869 U.S. Treasury Note 6.125% due 08/15/07 valued
at $11,949,673.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $14,619,049 and the
aggregate gross unrealized depreciation is $33,945,189, resulting in net
unrealized depreciation of $19,326,140.
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (87.8%)
NATURAL GAS (9.5%)
163,625 Burlington Resources, Inc................................................................ $ 7,332,445
209,930 EEX Corp.*............................................................................... 1,902,491
110,230 El Paso Natural Gas Co................................................................... 7,330,295
198,250 Enron Corp............................................................................... 8,239,766
125,000 Questar Corp............................................................................. 5,578,125
145,000 Seagull Energy Corp.*.................................................................... 2,990,625
360,000 Williams Companies, Inc.................................................................. 10,215,000
------------
43,588,747
------------
TELECOMMUNICATIONS (30.7%)
71,666 360 DEG. Communications Co.*............................................................. 1,446,757
120,000 Airtouch Communications, Inc.*........................................................... 4,987,500
195,000 Alltel Corp.............................................................................. 8,007,187
120,000 AT&T Corp................................................................................ 7,350,000
200,000 BCE, Inc. (Canada)....................................................................... 6,662,500
82,160 Bell Atlantic Corp....................................................................... 7,476,560
195,000 Cable & Wireless PLC (ADR) (United Kingdom).............................................. 5,301,562
155,000 Century Telephone Enterprises, Inc....................................................... 7,720,937
135,000 Ericsson (L.M.) Telephone Co. (Class B) (ADR) (Sweden)................................... 5,037,187
91,100 Esat Telecom Group PLC (ADR)*............................................................ 1,224,156
150,000 Frontier Corp............................................................................ 3,609,375
150,000 GTE Corp................................................................................. 7,837,500
125,000 LCI International, Inc.*................................................................. 3,843,750
16,992 Lucent Technologies, Inc................................................................. 1,357,236
105,000 MCI Communications Corp.................................................................. 4,495,312
142,173 SBC Communications, Inc.................................................................. 10,414,172
150,000 Southern New England Telecommunications Corp............................................. 7,546,875
120,000 Sprint Corp.............................................................................. 7,035,000
65,000 Tele Danmark AS (ADR) (Denmark).......................................................... 2,002,812
120,000 Telecom Corp. of New Zealand Ltd. (ADR) (New Zealand).................................... 4,650,000
80,000 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)........................................ 4,485,000
130,000 Telephone & Data Systems, Inc............................................................ 6,053,125
45,300 Teleport Communications Group Inc.*...................................................... 2,485,837
51,500 Telstra Corp., Ltd. (ADR)*............................................................... 2,150,125
110,000 U.S. West Communications Group, Inc...................................................... 4,963,750
115,000 U.S. West Media Group, Inc.*............................................................. 3,320,625
<CAPTION>
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
304,500 WorldCom, Inc.*.......................................................................... $ 9,211,125
------------
140,675,965
------------
UTILITIES - ELECTRIC (47.6%)
50,000 AES Corp.*............................................................................... 2,331,250
210,000 Baltimore Gas & Electric Co.............................................................. 7,153,125
135,000 Carolina Power & Light Co................................................................ 5,729,062
135,000 Central & South West Corp................................................................ 3,653,437
215,865 CINergy Corp............................................................................. 8,270,328
225,000 CMS Energy Corp.......................................................................... 9,914,062
130,000 Consolidated Edison Co. of New York, Inc................................................. 5,330,000
225,000 DPL, Inc................................................................................. 6,468,750
212,500 DQE, Inc................................................................................. 7,464,063
135,000 DTE Energy Co............................................................................ 4,682,813
141,216 Duke Energy Corp......................................................................... 7,819,836
130,000 Edison International..................................................................... 3,534,375
140,000 Enova Corp............................................................................... 3,788,750
215,000 Entergy Corp............................................................................. 6,436,563
140,000 FPL Group, Inc........................................................................... 8,286,250
175,000 GPU, Inc................................................................................. 7,371,875
125,000 Hawaiian Electric Industries, Inc........................................................ 5,109,375
200,000 Houston Industries, Inc.................................................................. 5,337,500
215,000 Illinova Corp............................................................................ 5,791,563
225,000 IPALCO Enterprises, Inc.................................................................. 9,435,938
125,000 Kansas City Power & Light Co............................................................. 3,695,313
75,000 Montana Power Co......................................................................... 2,385,938
200,000 New Century Energies, Inc................................................................ 9,587,500
110,000 New England Electric System.............................................................. 4,702,500
110,000 New York State Electric & Gas Corp....................................................... 3,905,000
170,000 NIPSCO Industries, Inc................................................................... 8,404,375
285,000 PacifiCorp............................................................................... 7,784,063
220,000 Pinnacle West Capital Corp............................................................... 9,322,500
60,000 Potomac Electric Power Co................................................................ 1,548,750
215,000 Public Service Company of New Mexico..................................................... 5,092,813
115,000 Public Service Enterprise Group, Inc..................................................... 3,644,063
215,000 SCANA Corp............................................................................... 6,436,563
275,000 Southern Co.............................................................................. 7,115,625
161,500 Texas Utilities Co....................................................................... 6,712,344
190,000 Western Resources, Inc................................................................... 8,170,000
200,000 Wisconsin Energy Corp.................................................................... 5,750,000
------------
218,166,262
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $264,700,665)........................................................... 402,430,974
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (9.1%)
NATURAL GAS (1.2%)
$ 3,000 Coastal Corp.
7.75% due 10/15/35.................................................................... $ 3,264,630
2,000 Panhandle Eastern Corp.
8.625% due 04/15/25................................................................... 2,227,600
------------
5,492,230
------------
TELECOMMUNICATIONS (1.9%)
2,000 GTE Corp.
7.90% due 02/01/27.................................................................... 2,099,860
2,000 Southwestern Bell Telephone Co.
7.20% due 10/15/26.................................................................... 2,049,980
2,000 Sprint Corp.
9.25% due 04/15/22.................................................................... 2,556,360
2,000 WorldCom, Inc.
7.75% due 04/01/07.................................................................... 2,136,200
------------
8,842,400
------------
UTILITIES - ELECTRIC (6.0%)
1,500 Consolidated Edison Co. of New York, Inc.
8.05% due 12/15/27.................................................................... 1,576,260
2,000 Empresa Nacional de Electricidad Chile
8.125% due 02/01/97................................................................... 2,089,560
2,250 Florida Power & Light Co.
7.05% due 12/01/26.................................................................... 2,278,822
3,000 Illinois Power Co.
8.75% due 07/01/21.................................................................... 3,199,530
3,000 Indianapolis Power Co.
7.05% due 02/01/24.................................................................... 2,990,610
1,500 Long Island Lighting Co.
9.625% due 07/01/24................................................................... 1,530,000
3,000 Public Service Electric & Gas Co.
7.00% due 09/01/24.................................................................... 2,965,380
2,000 South Carolina Electric & Gas Co.
7.625% due 06/01/23................................................................... 2,123,560
1,000 Southern California Edison Co.
7.25% due 03/01/26.................................................................... 1,023,470
2,000 Southwestern Public Service
8.50% due 02/15/25.................................................................... 2,295,640
5,000 Wisconsin Electric Power Co.
7.125% due 03/15/16................................................................... 5,127,500
------------
27,200,332
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $38,986,990)........................................................... 41,534,962
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<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).......................................................... $ 1,321,875
------------
SHORT-TERM INVESTMENTS (2.4%)
U.S. GOVERNMENT AGENCY (a) (2.4%)
11,000 Federal Home Loan Banks 5.75% due 01/02/98
(AMORITZED COST $10,998,243).......................................................... 10,998,243
------------
REPURCHASE AGREEMENT (0.0%)
189 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97, proceeds $188,930) (b)
(IDENTIFIED COST $188,889)............................................................ 188,889
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $11,187,132)........................................................... 11,187,132
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $316,124,787) (c)........................................................ 99.6 % 456,474,943
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.4 1,659,313
------ -------------
NET ASSETS................................................................................ 100.0 % $ 458,134,256
------ -------------
------ -------------
</TABLE>
- ---------------------
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) Collateralized by $52,218 U.S. Treasury Bond 9.25% due 02/15/16 valued at
$72,633 and by $88,147 U.S. Treasury Bond 9.00% due 11/15/18 valued at
$120,034.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $141,249,536 and the
aggregate gross unrealized depreciation is $899,380, resulting in net
unrealized appreciation of $140,350,156.
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (44.8%)
AEROSPACE (0.0%)
433 Raytheon Co. (Class A).................................................................. $ 21,384
-----------
APPAREL (0.9%)
16,700 Kellwood Co............................................................................. 501,000
-----------
AUTO PARTS (0.9%)
10,200 Dana Corp............................................................................... 484,500
-----------
AUTOMOTIVE (2.5%)
12,800 Chrysler Corp........................................................................... 450,400
9,400 Ford Motor Co........................................................................... 457,662
7,400 General Motors Corp..................................................................... 448,625
-----------
1,356,687
-----------
BANKS (4.2%)
11,900 First Security Corp..................................................................... 498,312
6,800 First Tennessee National Corp........................................................... 453,900
6,500 KeyCorp................................................................................. 460,281
14,500 Washington Federal, Inc................................................................. 455,844
7,100 Wilmington Trust Corp................................................................... 438,425
-----------
2,306,762
-----------
BANKS - THRIFT INSTITUTIONS (0.8%)
7,300 Washington Mutual, Inc.................................................................. 465,375
-----------
BUILDING MATERIALS (0.8%)
4,600 Vulcan Materials Co..................................................................... 469,775
-----------
CHEMICALS (3.3%)
4,500 Dow Chemical Co......................................................................... 456,750
9,100 Hercules, Inc........................................................................... 455,569
7,800 PPG Industries, Inc..................................................................... 445,575
5,000 Rohm & Haas Co.......................................................................... 478,750
-----------
1,836,644
-----------
CONGLOMERATES (0.9%)
12,000 Tenneco, Inc............................................................................ 474,000
-----------
CONTAINERS - METAL & GLASS (0.8%)
9,100 Crown Cork & Seal Co., Inc.............................................................. 456,137
-----------
FINANCIAL (1.0%)
2,400 Providian Financial Corp................................................................ 108,450
13,600 TCF Financial Corp...................................................................... 461,550
-----------
570,000
-----------
FINANCIAL - MISCELLANEOUS (1.6%)
8,100 Fannie Mae.............................................................................. 462,206
3,200 SLM Holding Corp........................................................................ 445,200
-----------
907,406
-----------
FOOD PROCESSING (0.9%)
14,400 Hormel Foods Corp....................................................................... 471,600
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE - DRUGS (0.8%)
7,400 Schering-Plough Corp.................................................................... $ 459,725
-----------
INSURANCE (2.5%)
5,900 Jefferson-Pilot Corp.................................................................... 459,462
5,800 Lincoln National Corp................................................................... 453,125
11,300 Torchmark Corp.......................................................................... 475,306
-----------
1,387,893
-----------
LIFE INSURANCE (0.2%)
1,042 Aegon N.V. (ARS) (Netherlands).......................................................... 93,389
-----------
MACHINERY - DIVERSIFIED (0.8%)
9,800 Johnson Controls, Inc................................................................... 467,950
-----------
MANUFACTURING - CONSUMER & INDUSTRIAL PRODUCTS (0.8%)
8,300 Whirlpool Corp.......................................................................... 456,500
-----------
METALS & MINING (0.8%)
30,000 Cyprus Amax Minerals Co................................................................. 461,250
-----------
MISCELLANEOUS (0.9%)
12,500 American Greetings Corp. (Class A)...................................................... 489,062
-----------
MOBIL HOME & RECREATION (0.8%)
11,000 Fleetwood Enterprises, Inc.............................................................. 466,813
-----------
OIL & GAS (0.9%)
9,100 Ashland, Inc............................................................................ 488,556
-----------
REAL ESTATE INVESTMENT TRUST (5.9%)
8,000 American General Hospitality Corp....................................................... 214,000
2,700 Boston Properties, Inc.................................................................. 89,269
9,800 Excel Realty Trust, Inc................................................................. 308,700
15,700 Glenborough Realty Trust Inc............................................................ 465,113
3,750 Healthcare Realty Trust, Inc............................................................ 108,516
19,000 Liberty Property Trust.................................................................. 542,688
27,500 LTC Properties, Inc..................................................................... 570,625
15,000 Reckson Associates Realty Corp.......................................................... 380,625
34,200 Sunstone Hotel Investors, Inc........................................................... 589,950
-----------
3,269,486
-----------
RESTAURANTS (0.8%)
17,000 Sbarro, Inc............................................................................. 447,313
-----------
RETAIL - SPECIALTY APPAREL (0.9%)
18,600 Limited (The), Inc...................................................................... 474,300
-----------
STEEL (0.9%)
16,000 USX-U.S. Steel Group, Inc............................................................... 500,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS (1.6%)
4,900 Bell Atlantic Corp...................................................................... $ 445,900
10,200 U.S. West Communications Group, Inc..................................................... 460,275
-----------
906,175
-----------
TELEPHONES (0.8%)
7,400 AT&T Corp............................................................................... 453,250
-----------
TOBACCO (1.7%)
10,000 Philip Morris Companies, Inc............................................................ 453,125
12,700 UST, Inc................................................................................ 469,106
-----------
922,231
-----------
UTILITIES - ELECTRIC (3.4%)
11,300 Consolidated Edison Co. of New York, Inc................................................ 463,300
10,900 New England Electric System............................................................. 465,975
19,000 PECO Energy Co.......................................................................... 460,750
15,000 Public Service Enterprise Group, Inc.................................................... 475,313
-----------
1,865,338
-----------
UTILITIES - TELEPHONE (0.9%)
9,000 GTE Corp................................................................................ 470,250
-----------
WHOLESALE DISTRIBUTOR (0.8%)
10,800 Supervalu, Inc.......................................................................... 452,250
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $21,750,845)........................................................... 24,853,001
-----------
CONVERTIBLE PREFERRED STOCKS (13.9%)
AUTO PARTS (1.2%)
12,000 BTI Capital Trust $3.25 - 144A*......................................................... 583,500
3,700 Walbro Capital Trust $2.00.............................................................. 85,562
-----------
669,062
-----------
BANKS-INTERNATIONAL (1.5%)
15,500 National Australia Bank, Ltd. $1.969 (Australia) (Units)++.............................. 440,781
12,500 Westpak Banking Corp. (STRYPES) $3.135.................................................. 418,750
-----------
859,531
-----------
BROADCAST MEDIA (1.0%)
11,500 Metromedia International Group $3.625................................................... 520,375
4,000 Triathlon Broadcasting Co. $0.945....................................................... 40,500
-----------
560,875
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CABLE & TELECOMMUNICATIONS (0.9%)
10,250 Echostar Communications Corp. (Series C) $3.375......................................... $ 476,625
-----------
FINANCE (2.6%)
6,890 Insignia Financing, Inc. $3.25.......................................................... 360,864
10,440 Merrill Lynch & Co., Inc. (STRYPES) $2.39 (1)........................................... 360,180
10,000 Merrill Lynch & Co., Inc. (STRYPES) $4.087 (2).......................................... 705,000
-----------
1,426,044
-----------
HEALTHCARE (0.7%)
12,600 Kapson Senior Quarters $2.00 - 144A*.................................................... 377,219
-----------
INSURANCE (0.2%)
2,500 American Heritage Life Investment Corp. $4.25........................................... 142,500
-----------
PUBLISHING (0.7%)
29,090 Hollinger International, Inc. $0.951.................................................... 374,534
-----------
REAL ESTATE (0.6%)
7,000 Rouse Co. (Series B) $3.00.............................................................. 350,000
-----------
REAL ESTATE INVESTMENT TRUST (2.3%)
9,000 Equity Residential Properties Trust (Series E) $1.75.................................... 258,750
22,560 FelCor Suite Hotels, Inc. (Series A) $1.95.............................................. 645,780
1,085 Merry Land & Investment Co., Inc. (Series C) $2.15...................................... 30,312
13,700 Oasis Residential, Inc. (Series A) $2.25................................................ 351,063
-----------
1,285,905
-----------
TELECOMMUNICATIONS (1.4%)
12,330 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda)............................ 759,836
-----------
TEXTILES & APPAREL (0.8%)
10,000 Warnaco Group, Inc. $3.00............................................................... 430,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $7,457,545)............................................................ 7,712,131
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (35.5%)
CONVERTIBLE BONDS (14.4%)
AUTO PARTS (1.1%)
$ 350 MascoTech, Inc.
4.50% due 12/15/03.................................................................... $ 306,908
300 Tower Automotive, Inc. - 144A*
5.00% due 08/01/04.................................................................... 310,875
-----------
617,783
-----------
CABLE/CELLULAR (0.3%)
400 U.S. Cellular Corp.
0.00% due 06/15/15.................................................................... 144,948
-----------
HEALTHCARE (2.2%)
280 Emeritus Corp. - 144A*
6.25% due 01/01/06.................................................................... 240,898
650 Phymatrix Corp.
6.75% due 06/15/03.................................................................... 586,625
600 Physicians Resource Group, Inc. - 144A*
6.00% due 12/01/01.................................................................... 402,054
-----------
1,229,577
-----------
HEALTHCARE - MISCELLANEOUS (0.3%)
225 Pharmaceutical Marketing Services, Inc. (Eurobond)
6.25% due 02/01/03.................................................................... 189,000
-----------
HOTELS/MOTELS (1.0%)
560 Capstar Hotel Corp.
4.75% due 10/15/04.................................................................... 561,993
-----------
MACHINERY (0.4%)
200 Thermo Fibertek, Inc. - 144A*
4.50% due 07/15/04.................................................................... 213,828
-----------
MANUFACTURING - DIVERSIFIED (0.7%)
400 Mark IV Industries, Inc. - 144A*
4.75% due 11/01/04.................................................................... 371,876
-----------
MEDICAL EQUIPMENT (0.7%)
400 ThermoTrex Corp.
3.25% due 11/01/07.................................................................... 394,980
-----------
OFFICE EQUIPMENT & SUPPLIES (3.0%)
550 Danka Business Systems (United Kingdom)
6.75% due 04/01/02.................................................................... 490,171
1,275 U.S. Office Products Co.
5.50% due 05/15/03.................................................................... 1,182,639
-----------
1,672,810
-----------
PUBLISHING (0.5%)
300 Nelson (Thomas), Inc.
5.75% due 11/30/99.................................................................... 296,904
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUST (1.0%)
$ 575 Capstone Capital Corp.
6.55% due 03/14/02.................................................................... $ 550,085
-----------
RESTAURANTS (0.3%)
160 Boston Chicken, Inc.
4.50% due 02/01/04.................................................................... 77,600
500 Boston Chicken, Inc.
0.00% due 06/01/15.................................................................... 73,125
-----------
150,725
-----------
RETAIL (1.2%)
400 Petsmart, Inc. - 144A*
6.75% due 11/01/04.................................................................... 404,792
300 Saks Holdings, Inc.
5.50% due 09/15/06.................................................................... 258,642
-----------
663,434
-----------
SHOES (1.1%)
405 Nine West Group, Inc.
5.50% due 07/15/03.................................................................... 326,151
350 Nine West Group, Inc. - 144A*
5.50% due 07/15/03.................................................................... 281,858
-----------
608,009
-----------
TELECOMMUNICATIONS (0.6%)
300 SmarTalk TeleServices, Inc. - 144A*
5.75% due 09/15/04.................................................................... 317,991
-----------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $8,184,404)............................................................ 7,983,943
-----------
NONCONVERTIBLE BONDS (21.1%)
BROADCAST MEDIA (0.4%)
195 Outlet Broadcasting, Inc.
10.875% due 07/15/03.................................................................. 207,925
-----------
BUILDING & CONSTRUCTION (1.2%)
600 Johns Manville International Group
10.875% due 12/15/04.................................................................. 664,500
-----------
BUSINESS SERVICES (3.2%)
1,650 Neodata Services, Inc. (Series B)
12.00% due 05/01/03................................................................... 1,776,208
-----------
CABLE/CELLULAR (3.2%)
1,600 Continental Cablevision, Inc.
11.00% due 06/01/07................................................................... 1,768,288
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE (1.5%)
$ 750 Magellan Health Services, Inc. (Series A)
11.25% due 04/15/04................................................................... $ 832,500
-----------
INDUSTRIALS (2.7%)
1,500 American Standard Companies, Inc.
10.50%+ due 06/01/05.................................................................. 1,522,500
-----------
PUBLISHING (1.5%)
800 Big Flower Press Holdings, Inc.
8.875% due 07/01/07................................................................... 806,000
-----------
RETAIL (5.9%)
1,600 Barnes & Noble, Inc. (Series B)
11.875% due 01/15/03.................................................................. 1,700,160
1,500 Orchard Supply Hardware Corp.
9.375% due 02/15/02................................................................... 1,550,895
-----------
3,251,055
-----------
SUPERMARKETS (1.5%)
800 Kroger Co.
9.25% due 01/01/05.................................................................... 838,576
-----------
TOTAL NONCONVERTIBLE BONDS
(IDENTIFIED COST $11,753,278)........................................................... 11,667,552
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $19,937,682)........................................................... 19,651,495
-----------
SHORT-TERM INVESTMENTS (6.1%)
U.S. GOVERNMENT AGENCIES (a) (5.4%)
3,000 Federal Home Loan Mortgage Corp. 5.78-6.00% due 01/02/98-01/09/98
(AMORTIZED COST $2,998,383)........................................................... 2,998,383
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.7%)
$ 357 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $357,495) (b)
(IDENTIFIED COST $357,418)............................................................ $ 357,418
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,355,801)............................................................ 3,355,801
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $52,501,873) (c).......................................................... 100.3 % 55,572,428
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (0.3) (149,595)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 55,422,833
------ ------------
------ ------------
</TABLE>
- ---------------------
ARS American Regulatory Share.
STRYPES Structured yield product exchangeable for stock.
* Resale is restricted to qualified institutional investors.
+ Currently a zero coupon bond which will pay interest at the rate shown
at a future specified date.
++ Consists of one or more class of securities traded together as a unit;
stocks with attached warrants.
(1) Convertible into IMC Global, Inc. common stock.
(2) Convertible into SunAmerica, Inc. common stock.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $355,274 U.S. Treasury Note 6.25% due 04/30/01 valued
at $364,567.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,812,018 and the aggregate gross unrealized depreciation is $741,463,
resulting in net unrealized appreciation of $3,070,555.
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.9%)
AEROSPACE (3.7%)
35,392 Raytheon Co. (Class A)............................................................... $ 1,745,285
686,000 Raytheon Co. (Class B)............................................................... 34,643,000
483,000 United Technologies Corp............................................................. 35,168,437
--------------
71,556,722
--------------
ALUMINUM (1.9%)
505,000 Aluminum Co. of America.............................................................. 35,539,375
--------------
AUTO PARTS (1.8%)
657,000 TRW, Inc............................................................................. 35,067,375
--------------
AUTOMOTIVE (3.7%)
745,000 Ford Motor Co........................................................................ 36,272,187
570,000 General Motors Corp.................................................................. 34,556,250
--------------
70,828,437
--------------
BANKS (5.6%)
664,000 Banc One Corp........................................................................ 36,063,500
490,000 BankAmerica Corp..................................................................... 35,770,000
499,000 KeyCorp.............................................................................. 35,335,437
--------------
107,168,937
--------------
BEVERAGES - SOFT DRINKS (1.9%)
984,000 PepsiCo Inc.......................................................................... 35,854,500
--------------
BROADCASTING (0.2%)
122,800 CBS Corp............................................................................. 3,614,925
--------------
CHEMICALS (5.6%)
365,000 Dow Chemical Co...................................................................... 37,047,500
594,000 Eastman Chemical Co.................................................................. 35,380,125
606,000 PPG Industries, Inc.................................................................. 34,617,750
--------------
107,045,375
--------------
COMPUTERS (1.9%)
339,000 International Business Machines Corp................................................. 35,446,687
--------------
CONGLOMERATES (3.7%)
411,000 Minnesota Mining & Manufacturing Co.................................................. 33,727,687
932,000 Tenneco, Inc......................................................................... 36,814,000
--------------
70,541,687
--------------
COSMETICS (1.9%)
359,000 Gillette Co.......................................................................... 36,057,062
--------------
DRUGS (5.5%)
527,000 Abbott Laboratories.................................................................. 34,551,437
458,000 American Home Products Corp.......................................................... 35,037,000
373,000 Bristol-Myers Squibb Co.............................................................. 35,295,125
--------------
104,883,562
--------------
ELECTRIC - MAJOR (1.9%)
485,000 General Electric Co.................................................................. 35,586,875
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL - MISCELLANEOUS (1.9%)
282,000 Household International, Inc......................................................... $ 35,972,625
--------------
FOODS (3.7%)
668,000 Quaker Oats Company (The)............................................................ 35,237,000
623,000 Sara Lee Corp........................................................................ 35,082,687
--------------
70,319,687
--------------
HOUSEHOLD PRODUCTS (1.8%)
443,000 Procter & Gamble Co.................................................................. 35,356,938
--------------
INSURANCE (1.9%)
507,500 Aetna Inc............................................................................ 35,810,469
--------------
MACHINERY - CONSTRUCTION & MATERIALS (1.8%)
720,000 Caterpillar, Inc..................................................................... 34,965,000
--------------
METALS & MINING (1.8%)
560,000 Phelps Dodge Corp.................................................................... 34,860,000
--------------
NATURAL GAS (3.8%)
795,000 Burlington Resources, Inc............................................................ 35,625,938
564,000 El Paso Natural Gas Co............................................................... 37,506,000
--------------
73,131,938
--------------
OFFICE EQUIPMENT (1.9%)
412,000 Pitney Bowes, Inc.................................................................... 37,054,250
--------------
OIL - DOMESTIC (3.9%)
704,000 Ashland, Inc......................................................................... 37,796,000
453,000 Atlantic Richfield Co................................................................ 36,296,625
--------------
74,092,625
--------------
OIL INTEGRATED - INTERNATIONAL (5.6%)
584,000 Exxon Corp........................................................................... 35,733,500
488,000 Mobil Corp........................................................................... 35,227,500
655,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................ 35,492,813
--------------
106,453,813
--------------
PAPER & FOREST PRODUCTS (3.8%)
830,000 International Paper Co............................................................... 35,793,750
742,000 Weyerhaeuser Co...................................................................... 36,404,375
--------------
72,198,125
--------------
PHOTOGRAPHY (2.0%)
613,000 Eastman Kodak Co..................................................................... 37,278,063
--------------
RAILROADS (1.8%)
374,000 Burlington Northern Santa Fe Corp.................................................... 34,758,625
--------------
RESTAURANTS (0.1%)
91,400 Tricon Global Restaurants, Inc.*..................................................... 2,656,313
--------------
RETAIL - DEPARTMENT STORES (1.9%)
702,000 May Department Stores Co............................................................. 36,986,625
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - FOOD CHAINS (1.9%)
1,728,000 American Stores Co................................................................... $ 35,532,000
--------------
STEEL (1.8%)
1,005,000 Timken Co............................................................................ 34,546,875
--------------
TELECOMMUNICATIONS (5.7%)
400,000 Bell Atlantic Corp................................................................... 36,400,000
613,000 Sprint Corp.......................................................................... 35,937,125
786,000 U.S. West Communications Group, Inc.................................................. 35,468,250
--------------
107,805,375
--------------
TOBACCO (1.9%)
783,000 Philip Morris Companies, Inc......................................................... 35,479,688
--------------
TRANSPORTATION (1.9%)
1,091,000 Ryder System, Inc.................................................................... 35,730,250
--------------
UTILITIES - ELECTRIC (3.8%)
603,000 FPL Group, Inc....................................................................... 35,690,063
1,180,000 Unicom Corp.......................................................................... 36,285,000
--------------
71,975,063
--------------
UTILITIES - GAS (1.9%)
596,900 Consolidated Natural Gas Co.......................................................... 36,112,450
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $1,400,630,192)..................................................... 1,828,268,316
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (2.1%)
$ 4,000 U.S. Treasrury Bond
8.00% due 11/15/21................................................................. 4,989,000
5,000 U.S. Treasury Bond
7.125% due 02/15/23................................................................ 5,707,250
17,000 U.S. Treasury Bond
6.25% due 08/15/23................................................................. 17,522,920
7,000 U.S. Treasury Bond
6.00% due 02/15/26................................................................. 6,993,070
5,000 U.S. Treasury Note
6.375% due 01/15/99................................................................ 5,037,550
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $36,992,101)........................................................ 40,249,790
--------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (1.6%)
U.S. GOVERNMENT AGENCY (a) (1.5%)
$ 29,600 Federal Home Loan Mortgage Corp. 6.00% due 01/02/98
(AMORTIZED COST $29,595,067)....................................................... $ 29,595,067
--------------
REPURCHASE AGREEMENT (0.1%)
155 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $154,557) (b)
(IDENTIFIED COST $154,524)......................................................... 154,524
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $29,749,591)........................................................ 29,749,591
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,467,371,884) (c).................................................... 99.6 % 1,898,267,697
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 0.4 7,638,061
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 1,905,905,758
------ ---------------
------ ---------------
</TABLE>
- ---------------------
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) Collateralized by $113,315 U.S. Treasury Bond 9.25% due 02/15/16 valued at
$157,614.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $451,254,905 and the
aggregate gross unrealized depreciation is $20,359,092, resulting in net
unrealized appreciation of $430,895,813.
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.2%)
BANKING (1.5%)
33,000 State Street Corp...................................................................... $ 1,920,187
------------
BUILDING MATERIALS (1.6%)
35,000 Southdown, Inc......................................................................... 2,065,000
------------
COMMUNICATIONS EQUIPMENT (4.1%)
50,000 ADC Telecommunications, Inc.*.......................................................... 2,087,500
60,000 Tellabs, Inc.*......................................................................... 3,161,250
------------
5,248,750
------------
COMPUTER SOFTWARE (2.5%)
60,000 Computer Associates International, Inc................................................. 3,172,500
------------
COMPUTERS - SYSTEMS (1.6%)
75,000 EMC Corp.*............................................................................. 2,057,812
------------
CONSUMER SERVICES (1.9%)
105,000 AccuStaff, Inc.*....................................................................... 2,415,000
------------
DRUGS (2.8%)
70,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 3,583,125
------------
ELECTRONICS (0.9%)
30,000 Jabil Circuit, Inc.*................................................................... 1,185,000
------------
ENVIRONMENTAL CONTROL (1.8%)
130,000 Newpark Resources, Inc.*............................................................... 2,275,000
------------
FINANCIAL - MISCELLANEOUS (9.9%)
22,000 Household International, Inc........................................................... 2,806,375
110,000 MBNA Corp.............................................................................. 3,004,375
48,000 MGIC Investment Corp................................................................... 3,192,000
80,000 Providian Financial Corp............................................................... 3,615,000
------------
12,617,750
------------
FINANCIAL SERVICES (5.3%)
80,000 SunAmerica, Inc........................................................................ 3,420,000
62,000 Travelers Group, Inc................................................................... 3,340,250
------------
6,760,250
------------
HEALTHCARE PRODUCTS & SERVICES (2.5%)
53,000 Express Scripts, Inc. (Class A)*....................................................... 3,180,000
------------
HOSPITAL MANAGEMENT (4.0%)
62,000 Quorum Health Group, Inc.*............................................................. 1,619,750
70,000 Universal Health Services, Inc. (Class B)*............................................. 3,526,250
------------
5,146,000
------------
HOUSEHOLD FURNISHINGS & APPLIANCES (1.1%)
35,000 Ethan Allen Interiors, Inc............................................................. 1,349,687
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE (2.7%)
75,000 Conseco, Inc........................................................................... $ 3,407,813
------------
MACHINERY - DIVERSIFIED (2.0%)
44,000 Deere & Co............................................................................. 2,565,750
------------
MANUFACTURING - DIVERSIFIED (2.9%)
80,000 Tyco International Ltd................................................................. 3,605,000
------------
MEDIA GROUP (3.1%)
50,000 Clear Channel Communications, Inc.*.................................................... 3,971,875
------------
OFFICE EQUIPMENT & SUPPLIES (6.1%)
125,000 Corporate Express, Inc.*............................................................... 1,609,375
115,000 Staples, Inc.*......................................................................... 3,191,250
150,000 U.S. Office Products Co.*.............................................................. 2,906,250
------------
7,706,875
------------
OIL DRILLING & SERVICES (3.4%)
130,000 Global Industries Ltd.*................................................................ 2,210,000
30,000 Pride International, Inc.*............................................................. 757,500
25,000 Tidewater, Inc......................................................................... 1,378,125
------------
4,345,625
------------
OIL EQUIPMENT & SERVICES (2.4%)
30,000 Falcon Drilling Company, Inc.*......................................................... 1,051,875
90,000 Varco International, Inc.*............................................................. 1,929,375
------------
2,981,250
------------
PHARMACEUTICALS (5.3%)
85,000 Medicis Pharmaceutical Corp. (Class A)*................................................ 4,356,250
70,000 Watson Pharmaceuticals, Inc.*.......................................................... 2,270,625
------------
6,626,875
------------
RESTAURANTS (1.5%)
50,000 Starbucks Corp.*....................................................................... 1,918,750
------------
RETAIL - DEPARTMENT STORES (5.5%)
55,000 Dollar General Corp.................................................................... 1,993,750
95,000 Proffitt's, Inc.*...................................................................... 2,701,563
60,000 Stage Stores, Inc.*.................................................................... 2,242,500
------------
6,937,813
------------
RETAIL - DRUG STORES (0.7%)
30,000 Walgreen Co............................................................................ 941,250
------------
RETAIL - FOOD CHAINS (6.2%)
110,000 Kroger Co.*............................................................................ 4,063,125
60,000 Safeway, Inc.*......................................................................... 3,795,000
------------
7,858,125
------------
RETAIL - SPECIALTY (5.2%)
40,000 CompUSA, Inc.*......................................................................... 1,240,000
45,000 Consolidated Stores Corp.*............................................................. 1,977,188
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
100,000 General Nutrition Companies, Inc.*..................................................... $ 3,387,500
------------
6,604,688
------------
SAVINGS & LOAN COMPANIES (1.5%)
30,000 Washington Mutual, Inc................................................................. 1,912,500
------------
TELECOMMUNICATIONS (6.3%)
100,000 Airtouch Communications, Inc.*......................................................... 4,156,250
125,000 LCI International, Inc.*............................................................... 3,843,750
------------
8,000,000
------------
UTILITIES - ELECTRIC (2.9%)
80,000 AES Corp.*............................................................................. 3,730,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $104,597,246)......................................................... 126,090,250
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (8.7%)
U.S. GOVERNMENT AGENCY (a) (8.6%)
$ 10,900 Federal Home Loan Banks 5.75% due 01/02/98
(AMORTIZED COST $10,898,259)......................................................... 10,898,259
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 191 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $191,148) (b)
(IDENTIFIED COST $191,107)........................................................... $ 191,107
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $11,089,366).......................................................... 11,089,366
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $115,686,612) (c)........................................................ 107.9 % 137,179,616
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (7.9) (10,079,540)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 127,100,076
------ -------------
------ -------------
</TABLE>
- ---------------------
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) Collateralized by $143,146 U.S. Treasury Note 9.00% due 11/15/18 valued at
$194,929.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $23,512,288 and the
aggregate gross unrealized depreciation is $2,019,284, resulting in net
unrealized appreciation of $21,493,004.
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON & PREFERRED STOCKS (99.4%)
AUSTRALIA (2.0%)
BANKING
275,000 Australia & New Zealand Banking Group Ltd......................... $ 1,813,919
------------
BUILDING & CONSTRUCTION
718,000 Pioneer International Ltd......................................... 1,956,977
------------
GOLD
2,140,000 Normandy Mining Ltd............................................... 2,074,184
------------
OIL RELATED
440,000 Santos Ltd........................................................ 1,808,911
------------
PAPER & FOREST PRODUCTS
420,000 Amcor Ltd......................................................... 1,844,168
------------
TOTAL AUSTRALIA................................................... 9,498,159
------------
CANADA (2.6%)
BANKS - COMMERCIAL
81,800 Toronto Dominion Bank............................................. 3,079,018
------------
NATURAL GAS
71,000 IPL Energy, Inc................................................... 3,248,723
143,000 TransCanada Pipelines Ltd......................................... 3,191,562
------------
6,440,285
------------
OIL RELATED
50,000 Imperial Oil Ltd.................................................. 3,218,359
------------
TOTAL CANADA...................................................... 12,737,662
------------
FRANCE (6.6%)
BANKING
20,100 Societe Generale.................................................. 2,736,510
------------
BUILDING & CONSTRUCTION
43,300 Lafarge S.A....................................................... 2,838,979
------------
FINANCIAL SERVICES
34,500 Compagnie Financiere de Paribas (A Shares)........................ 2,995,766
6,700 Societe Eurafrance S.A............................................ 2,725,386
------------
5,721,152
------------
FOODS & BEVERAGES
18,000 Eridania Beghin-Say S.A........................................... 2,812,220
------------
MISCELLANEOUS MATERIALS & COMMODITIES
20,500 Compagnie de Saint Gobain......................................... 2,910,095
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-INDUSTRY
8,901 Compagnie Generale d'Industrie et de Participations............... $ 3,192,123
------------
OIL INTEGRATED - INTERNATIONAL
24,400 Elf Aquitaine S.A................................................. 2,835,796
27,500 Total S.A. (B Shares)............................................. 2,990,619
------------
5,826,415
------------
TELECOMMUNICATIONS
23,000 Alcatel Alsthom................................................... 2,921,302
------------
TELEVISION
29,000 Societe Television Francaise 1.................................... 2,961,149
------------
TOTAL FRANCE...................................................... 31,919,945
------------
GERMANY (6.8%)
BANKING
61,600 Commerzbank AG.................................................... 2,425,628
------------
BUILDING & CONSTRUCTION
78,000 Bilfinger & Berger Bau AG......................................... 2,420,690
------------
CHEMICALS
68,000 BASF AG........................................................... 2,411,012
66,000 Bayer AG.......................................................... 2,466,741
------------
4,877,753
------------
ELECTRICAL EQUIPMENT
39,000 Siemens AG........................................................ 2,310,067
------------
HEALTH & PERSONAL CARE
70,000 Douglas Holding AG................................................ 2,114,016
------------
MACHINERY - DIVERSIFIED
8,000 M.A.N. AG......................................................... 2,318,131
------------
MULTI-INDUSTRY
8,200 Preussag AG....................................................... 2,503,782
48,000 RWE AG............................................................ 2,576,196
4,700 Viag AG........................................................... 2,532,981
------------
7,612,959
------------
RETAIL - DEPARTMENT STORES
7,100 Karstadt AG....................................................... 2,424,978
------------
STEEL & IRON
10,200 Thyssen AG........................................................ 2,184,093
------------
TEXTILES - APPAREL
1,150 Hugo Boss AG (Pref.).............................................. 1,471,079
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC
37,800 VEBA AG........................................................... $ 2,575,361
------------
TOTAL GERMANY..................................................... 32,734,755
------------
HONG KONG (5.0%)
BANKING
159,800 HSBC Holdings PLC................................................. 3,939,669
------------
CONGLOMERATES
735,000 Swire Pacific Ltd. (Class A)...................................... 4,032,050
------------
REAL ESTATE
600,000 Cheung Kong (Holdings) Ltd........................................ 3,930,402
835,000 Henderson Land Development Co., Ltd............................... 3,933,951
------------
7,864,353
------------
TELECOMMUNICATIONS
1,971,800 Hong Kong Telecommunications Ltd.................................. 4,059,506
------------
UTILITIES - ELECTRIC
1,100,000 Hong Kong Electric Holdings Ltd................................... 4,181,457
------------
TOTAL HONG KONG................................................... 24,077,035
------------
ITALY (4.1%)
FINANCIAL SERVICES
336,000 Istituto Mobiliare Italiano SpA................................... 3,989,709
------------
OIL & GAS PRODUCTS
680,000 Ente Nazionale Idrocarburi SpA.................................... 3,856,493
------------
TELECOMMUNICATIONS
638,000 Sirti SpA......................................................... 3,859,998
915,000 Telecom Italia SpA................................................ 4,035,509
------------
7,895,507
------------
TEXTILES - APPAREL
243,000 Benetton Group SpA................................................ 3,977,750
------------
TOTAL ITALY....................................................... 19,719,459
------------
JAPAN (23.5%)
AUTOMOTIVE
158,000 Honda Motor Co.................................................... 5,799,387
206,000 Toyota Motor Corp................................................. 5,903,755
------------
11,703,142
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
BREWERS
767,000 Kirin Brewery Co., Ltd............................................ $ 5,583,525
------------
BUILDING & CONSTRUCTION
870,000 Sekisui House Ltd................................................. 5,593,333
------------
COMPUTER SERVICES
583,000 NCR Japan Limited................................................. 1,764,636
------------
ELECTRONICS & ELECTRICAL
790,000 Hitachi, Ltd...................................................... 5,629,885
129,000 Kyocera Corp...................................................... 5,851,954
412,000 Matsushita Electric Industrial Co., Ltd........................... 6,030,038
705,000 Matsushita Electric Works......................................... 6,104,598
2,400,000 Mitsubishi Electric Corp.......................................... 6,142,529
548,000 NEC Corp.......................................................... 5,836,935
880,000 Sharp Corp........................................................ 6,055,479
66,000 Sony Corp......................................................... 5,866,667
78,000 TDK Corp.......................................................... 5,881,379
------------
53,399,464
------------
ENTERTAINMENT & LEISURE TIME
60,000 Nintendo Co., Ltd................................................. 5,885,057
------------
MACHINERY - DIVERSIFIED
1,410,000 Mitsubishi Heavy Industries, Ltd.................................. 5,877,701
------------
PHARMACEUTICALS
230,000 Taisho Pharmaceutical Co., Ltd.................................... 5,868,966
203,000 Takeda Chemical Industries........................................ 5,786,667
------------
11,655,633
------------
TOBACCO
805 Japan Tobacco, Inc................................................ 5,712,107
------------
TRANSPORTATION
438,000 Yamato Transport Co., Ltd......................................... 5,873,563
------------
TOTAL JAPAN....................................................... 113,048,161
------------
MALAYSIA (0.7%)
BANKING
1,351,000 AMMB Holdings Berhad.............................................. 887,900
------------
BUILDING & CONSTRUCTION
1,185,000 United Engineers (Malaysia) Berhad................................ 989,536
------------
CONGLOMERATES
1,595,000 Sime Darby Berhad................................................. 1,537,448
------------
TOTAL MALAYSIA.................................................... 3,414,884
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS (3.0%)
APPLIANCES & HOUSEHOLD DURABLES
29,000 Philips Electronics NV............................................ $ 1,740,573
------------
BANKING
92,800 ABN-AMRO Holding NV............................................... 1,809,279
------------
CHEMICALS
19,500 DSM NV............................................................ 1,782,527
------------
INSURANCE
41,950 Fortis Amev NV.................................................... 1,830,395
------------
OIL INTEGRATED - INTERNATIONAL
33,400 Royal Dutch Petroleum Co.......................................... 1,834,857
------------
STEEL & IRON
40,000 Koninklijke Hoogovens NV.......................................... 1,640,671
------------
TELECOMMUNICATIONS
45,700 Koninklijke PTT Nederland NV...................................... 1,908,302
------------
TRANSPORTATION
50,000 KLM Royal Dutch Air Lines NV...................................... 1,850,938
------------
TOTAL NETHERLANDS................................................. 14,397,542
------------
SPAIN (1.5%)
BANKING
35,000 Banco Popular Espanol S.A......................................... 2,445,866
------------
ELECTRIC
130,000 Endesa S.A........................................................ 2,307,415
------------
OIL RELATED
58,000 Repsol S.A........................................................ 2,473,753
------------
TOTAL SPAIN....................................................... 7,227,034
------------
SWEDEN (1.5%)
AUTOMOBILES
89,000 Volvo AB (B Shares)............................................... 2,390,060
------------
BANKING
434,000 Nordbanken Holding AB*............................................ 2,456,831
------------
MACHINERY - DIVERSIFIED
78,600 Sandvik AB (B Shares)............................................. 2,249,508
------------
TOTAL SWEDEN...................................................... 7,096,399
------------
SWITZERLAND (2.1%)
BANKING
10,500 Swiss Bank Corp................................................... 3,261,718
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
FOODS & BEVERAGES
2,220 Nestle S.A........................................................ $ 3,325,063
------------
PHARMACEUTICALS
2,060 Novartis AG - Bearer.............................................. 3,347,588
------------
TOTAL SWITZERLAND................................................. 9,934,369
------------
UNITED KINGDOM (9.9%)
BANKING
185,000 National Westminster Bank PLC..................................... 3,085,385
250,000 Royal Bank of Scotland Group PLC.................................. 3,184,760
------------
6,270,145
------------
BREWERS
199,000 Bass PLC.......................................................... 3,097,507
------------
ENERGY
135,000 Energy Group PLC.................................................. 1,495,066
------------
FOODS & BEVERAGES
1,200,000 Hillsdown Holdings PLC............................................ 2,926,848
------------
LEISURE
521,000 Rank Group PLC.................................................... 2,910,681
------------
MULTI-INDUSTRY
300,000 Hanson PLC........................................................ 1,342,914
------------
NATURAL GAS
617,941 BG PLC............................................................ 2,790,325
------------
RETAIL - MERCHANDISING
358,000 Tesco PLC......................................................... 2,920,421
------------
STEEL & IRON
1,300,000 British Steel PLC................................................. 2,795,832
------------
TELECOMMUNICATIONS
377,000 British Telecommunications PLC.................................... 2,972,901
------------
TOBACCO
320,000 B.A.T. Industries PLC............................................. 2,921,574
------------
UTILITIES - ELECTRIC
596,000 National Grid Group PLC........................................... 2,838,581
320,000 National Power PLC................................................ 3,164,160
385,000 Scottish Hydro-Electric PLC....................................... 3,185,090
------------
9,187,831
------------
UTILITIES - WATER
193,000 Hyder PLC......................................................... 3,078,859
121,500 Hyder PLC (Pref.)................................................. 238,777
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
186,000 Severn Trent PLC.................................................. $ 2,997,844
------------
6,315,480
------------
TOTAL UNITED KINGDOM.............................................. 47,947,525
------------
UNITED STATES (30.1%)
AEROSPACE & DEFENSE
61,500 Northrop Grumman Corp............................................. 7,072,500
------------
AUTOMOTIVE
142,500 Ford Motor Co..................................................... 6,937,969
------------
BANKS
94,500 BankAmerica Corp.................................................. 6,898,500
95,500 KeyCorp........................................................... 6,762,594
------------
13,661,094
------------
CHEMICALS
69,000 Dow Chemical Co................................................... 7,003,500
------------
COMPUTERS - SYSTEMS
66,000 International Business Machines Corp.............................. 6,901,125
------------
CONGLOMERATES
80,500 Minnesota Mining & Manufacturing Co............................... 6,606,031
177,000 Tenneco, Inc...................................................... 6,991,500
------------
13,597,531
------------
CONTAINERS - METAL & GLASS
136,000 Crown Cork & Seal Co., Inc........................................ 6,817,000
------------
ENGINEERING & CONSTRUCTION
183,000 Fluor Corp........................................................ 6,839,625
------------
MACHINERY - DIVERSIFIED
121,800 Deere & Co........................................................ 7,102,462
------------
METALS & MINING
108,000 Phelps Dodge Corp................................................. 6,723,000
------------
OIL - DOMESTIC
132,500 Ashland, Inc...................................................... 7,113,594
------------
OIL INTEGRATED - INTERNATIONAL
89,200 Chevron Corp...................................................... 6,868,400
------------
PAPER & FOREST PRODUCTS
158,600 International Paper Co............................................ 6,839,625
------------
PHARMACEUTICALS
73,000 Bristol-Myers Squibb Co........................................... 6,907,625
------------
RETAIL
101,500 Dayton-Hudson Corp................................................ 6,851,250
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
118,500 Sprint Corp....................................................... $ 6,947,062
------------
TIRE & RUBBER GOODS
107,500 Goodyear Tire & Rubber Co......................................... 6,839,688
------------
TOBACCO
152,200 Philip Morris Companies, Inc...................................... 6,896,563
------------
UTILITIES - ELECTRIC
164,400 GPU, Inc.......................................................... 6,925,350
------------
TOTAL UNITED STATES............................................... 144,844,963
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $450,139,081) (a)................................... 99.4 % 478,597,892
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES....................... 0.6 3,015,568
------ -------------
NET ASSETS........................................................... 100.0 % $ 481,613,460
------ -------------
------ -------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $72,556,822 and the
aggregate gross unrealized depreciation is $44,098,011, resulting in net
unrealized appreciation of $28,458,811.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- -------------------------------------------------------
<S> <C> <C> <C>
$ 137,568 DEM 247,484 01/02/98 (76)
$ 121,537 DEM 218,596 01/06/98 (40)
$ 137,442 L 83,712 01/07/98 (516)
$ 787,598 Y 102,860,263 01/07/98 (603)
$ 151,368 ITL 267,965,308 01/08/98 (149)
$ 128,343 FRF 771,317 01/30/98 281
-------
Net unrealized
depreciation............. $(1,103)
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------------------------
Aerospace & Defense......................................... $ 7,072,500 1.5%
Appliances & Household Durables............................. 1,740,573 0.4
Automobiles................................................. 2,390,060 0.5
Automotive.................................................. 18,641,111 3.9
Banking..................................................... 28,047,465 5.8
Banks....................................................... 13,661,094 2.8
Banks - Commercial.......................................... 3,079,018 0.6
Brewers..................................................... 8,681,032 1.8
Building & Construction..................................... 13,799,515 2.9
Chemicals................................................... 13,663,780 2.8
Computer Services........................................... 1,764,636 0.4
Computers - Systems......................................... 6,901,125 1.4
Conglomerates............................................... 19,167,029 4.0
Containers - Metal & Glass.................................. 6,817,000 1.4
Electric.................................................... 2,307,415 0.5
Electrical Equipment........................................ 2,310,067 0.5
Electronics & Electrical.................................... 53,399,464 11.1
Energy...................................................... 1,495,066 0.3
Engineering & Construction.................................. 6,839,625 1.4
Entertainment & Leisure Time................................ 5,885,057 1.2
Financial Services.......................................... 9,710,861 2.0
Foods & Beverages........................................... 9,064,131 1.9
Gold........................................................ 2,074,184 0.4
Health & Personal Care...................................... 2,114,016 0.4
Insurance................................................... 1,830,395 0.4
Leisure..................................................... 2,910,681 0.6
Machinery - Diversified..................................... 17,547,802 3.7
Metals & Mining............................................. 6,723,000 1.4
Miscellaneous Materials & Commodities....................... 2,910,095 0.6
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Multi-Industry.............................................. $ 12,147,996 2.5%
Natural Gas................................................. 9,230,610 1.9
Oil & Gas Products.......................................... 3,856,493 0.8
Oil - Domestic.............................................. 7,113,594 1.5
Oil Integrated - International.............................. 14,529,672 3.0
Oil Related................................................. 7,501,023 1.6
Paper & Forest Products..................................... 8,683,793 1.8
Pharmaceuticals............................................. 21,910,846 4.6
Real Estate................................................. 7,864,353 1.6
Retail...................................................... 6,851,250 1.4
Retail - Department Stores.................................. 2,424,978 0.5
Retail - Merchandising...................................... 2,920,421 0.6
Steel & Iron................................................ 6,620,596 1.4
Telecommunications.......................................... 26,704,580 5.5
Television.................................................. 2,961,149 0.6
Textiles - Apparel.......................................... 5,448,829 1.1
Tire & Rubber Goods......................................... 6,839,688 1.4
Tobacco..................................................... 15,530,244 3.2
Transportation.............................................. 7,724,501 1.6
Utilities - Electric........................................ 22,869,999 4.8
Utilities - Water........................................... 6,315,480 1.4
------------ -----
$478,597,892 99.4%
------------ -----
------------ -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------------------------
Common Stocks............................................... $476,888,036 99.0%
Preferred Stocks............................................ 1,709,856 0.4
------------ -----
$478,597,892 99.4%
------------ -----
------------ -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (97.8%)
DENMARK (2.7%)
AIR TRANSPORT
33,093 Kobenhavns Lufthavne AS............................................................... $ 3,986,293
------------
PHARMACEUTICALS
44,800 Novo-Nordisk AS (Series B)............................................................ 6,410,373
------------
TOTAL DENMARK......................................................................... 10,396,666
------------
FINLAND (2.1%)
INSURANCE
51,602 Pohjola Insurance Co. "B"............................................................. 1,914,274
------------
PAPER PRODUCTS
182,000 UPM-Kymmene Oy........................................................................ 3,643,209
------------
TELECOMMUNICATION EQUIPMENT
38,200 Nokia Oyj (A Shares).................................................................. 2,714,941
------------
TOTAL FINLAND......................................................................... 8,272,424
------------
FRANCE (14.8%)
BANKING
72,467 Banque Nationale de Paris............................................................. 3,848,945
------------
BANKS - COMMERCIAL
59,560 Credit Commercial de France........................................................... 4,079,114
------------
ELECTRICAL EQUIPMENT
48,050 Alcatel Alsthom....................................................................... 6,102,980
------------
ELECTRONICS - SEMICONDUCTORS
62,300 SGS-Thomson Microelectronics N.V.*.................................................... 3,853,022
------------
HOTELS/MOTELS
41,330 Accor S.A............................................................................. 7,678,610
------------
HOUSEHOLD PRODUCTS
50,940 Societe BIC S.A....................................................................... 3,715,415
------------
INSURANCE
99,400 AXA-UAP............................................................................... 7,685,635
------------
OIL RELATED
42,700 Elf Aquitaine S.A..................................................................... 4,962,643
42,000 Total S.A. (B Shares)................................................................. 4,567,491
------------
9,530,134
------------
PHARMACEUTICALS
45,850 Sanofi S.A............................................................................ 5,100,365
------------
TELEVISION
28,380 Canal Plus............................................................................ 5,272,658
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TIRE & RUBBER GOODS
20,430 Michelin (C.G.D.E.) (Class B)......................................................... $ 1,027,775
------------
TOTAL FRANCE.......................................................................... 57,894,653
------------
GERMANY (6.5%)
APPAREL MANUFACTURER
1,490 Hugo Boss AG (Pref.).................................................................. 1,906,007
------------
AUTOMOTIVE
4,989 Bayerische Motoren Werke (BMW) AG..................................................... 3,732,038
------------
CHEMICALS
117,000 Hoechst AG............................................................................ 4,099,555
------------
HEALTH & PERSONAL CARE
81 Rhoen-Klinikum AG..................................................................... 7,929
103 Rhoen-Klinikum AG (Pref.)............................................................. 10,025
------------
17,954
------------
STEEL & IRON
33,490 SGL Carbon AG......................................................................... 4,321,290
20,500 Thyssen AG............................................................................ 4,389,600
------------
8,710,890
------------
UTILITIES
101,050 VEBA AG............................................................................... 6,884,663
------------
TOTAL GERMANY......................................................................... 25,351,107
------------
ITALY (3.5%)
HOUSEHOLD FURNISHINGS & APPLIANCES
116,400 Industrie Natuzzi SpA (ADR)........................................................... 2,400,750
------------
TELECOMMUNICATIONS
765,850 Telecom Italia Mobile SpA............................................................. 3,535,758
1,203,500 Telecom Italia SpA.................................................................... 7,689,661
------------
11,225,419
------------
TOTAL ITALY........................................................................... 13,626,169
------------
NETHERLANDS (13.2%)
CHEMICALS
30,560 Akzo Nobel NV......................................................................... 5,273,335
------------
ELECTRICAL EQUIPMENT
109,400 Philips Electronics NV................................................................ 6,566,160
------------
ELECTRONICS - SEMICONDUCTORS
37,175 ASM Lithography Holding NV*........................................................... 2,440,412
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE
64,202 Aegon NV.............................................................................. $ 5,719,872
152,079 ING Groep NV.......................................................................... 6,410,438
------------
12,130,310
------------
PUBLISHING
272,000 Ver Ned Uitgev Ver Bezit NV........................................................... 7,679,368
50,293 Wolters Kluwer NV..................................................................... 6,501,351
------------
14,180,719
------------
RECORD & TAPE DISTRIBUTION
95,500 PolyGram NV........................................................................... 4,572,310
------------
RETAIL
188,137 Koninklijke Ahold NV.................................................................. 4,912,363
------------
STEEL & IRON
37,250 Koninklijke Hoogovens NV.............................................................. 1,527,875
------------
TOTAL NETHERLANDS..................................................................... 51,603,484
------------
SPAIN (4.4%)
BANKS
192,283 Banco Bilbao Vizcaya S.A.............................................................. 6,220,179
96,252 Banco Popular Espanol S.A............................................................. 6,726,272
------------
12,946,451
------------
TELECOMMUNICATIONS
151,370 Telefonica de Espana.................................................................. 4,320,600
------------
TOTAL SPAIN........................................................................... 17,267,051
------------
SWEDEN (9.5%)
AUTOMOBILES
208,750 Volvo AB (B Shares)................................................................... 5,605,899
------------
BANKS - COMMERCIAL
200,000 Nordbanken Holding AB*................................................................ 1,132,180
------------
BUSINESS SERVICES
110,000 Assa Abloy AB (Series B).............................................................. 2,912,401
169,000 Securitas AB (Series "B" Free)........................................................ 5,113,723
------------
8,026,124
------------
INSURANCE
157,181 Skandia Forsakrings AB................................................................ 7,421,489
------------
PHARMACEUTICALS
202,667 Astra AB (B Shares)................................................................... 3,411,171
105,600 Astra AB (Series "A" Free)............................................................ 1,830,652
------------
5,241,823
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL
62,080 Hennes & Mauritz AB (B Shares)........................................................ $ 2,739,422
------------
TELECOMMUNICATION EQUIPMENT
182,270 Ericsson (L.M.) Telephone Co. AB (Series "B" Free).................................... 6,859,599
------------
TOTAL SWEDEN.......................................................................... 37,026,536
------------
SWITZERLAND (7.4%)
BANKING
2,350 UBS - Bearer.......................................................................... 3,395,963
------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
3,790 Nestle S.A............................................................................ 5,676,572
------------
PHARMACEUTICALS
4,850 Novartis AG........................................................................... 7,864,865
1,000 Novartis AG - Bearer.................................................................. 1,625,043
847 Roche Holdings AG..................................................................... 8,406,250
------------
17,896,158
------------
TRANSPORTATION
1,500 Sairgroup*............................................................................ 2,052,686
------------
TOTAL SWITZERLAND..................................................................... 29,021,379
------------
UNITED KINGDOM (33.7%)
AEROSPACE & DEFENSE
133,333 British Aerospace PLC................................................................. 3,812,364
810,000 Rolls-Royce PLC*...................................................................... 3,136,968
104,000 Smiths Industries PLC................................................................. 1,453,404
------------
8,402,736
------------
AIR TRANSPORT
235,500 British Airways PLC................................................................... 2,173,382
------------
AUTOMOTIVE
461,838 BBA Group PLC......................................................................... 3,090,103
------------
BANKING
339,000 Abbey National PLC.................................................................... 6,095,111
159,000 Barclays Bank PLC..................................................................... 4,239,678
290,000 Lloyds TSB Group PLC.................................................................. 3,761,230
------------
14,096,019
------------
BREWERS
145,000 Scottish & Newcastle Breweries PLC.................................................... 1,781,447
171,958 Vaux Group PLC........................................................................ 745,307
------------
2,526,754
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BROADCAST MEDIA
160,000 Flextech PLC*......................................................................... $ 1,376,410
------------
BUILDING & CONSTRUCTION
313,000 Blue Circle Industries PLC............................................................ 1,761,539
------------
BUSINESS SERVICES
196,000 Reuters Holdings PLC.................................................................. 2,148,003
------------
CHEMICALS
306,000 Albright & Wilson PLC................................................................. 731,218
------------
COMPUTER SOFTWARE & SERVICES
200,000 Sage Group (The) PLC.................................................................. 2,745,568
153,454 SEMA Group PLC........................................................................ 3,742,804
------------
6,488,372
------------
CONGLOMERATES
749,000 BTR PLC............................................................................... 2,271,208
415,000 Tomkins PLC........................................................................... 1,990,207
------------
4,261,415
------------
ELECTRICAL EQUIPMENT
306,363 BICC Group (The) PLC.................................................................. 878,502
210,000 General Electric Co. PLC.............................................................. 1,365,286
------------
2,243,788
------------
FINANCIAL SERVICES
20,694 HSBC Holdings PLC..................................................................... 532,018
143,000 Northern Rock PLC*.................................................................... 1,406,914
------------
1,938,932
------------
FOOD PROCESSING
262,000 Associated British Foods PLC.......................................................... 2,288,413
------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
423,000 Guinness PLC.......................................................................... 3,900,297
177,500 Tate & Lyle PLC....................................................................... 1,465,525
------------
5,365,822
------------
HEALTH & PERSONAL CARE
880,000 London International Group PLC........................................................ 2,320,384
------------
INSURANCE
55,000 Britannic Assurance PLC............................................................... 992,508
74,342 Commercial Union PLC.................................................................. 1,040,157
334,200 Prudential Corp. PLC.................................................................. 4,042,590
327,271 Royal & Sun Alliance Insurance Group PLC.............................................. 3,306,170
------------
9,381,425
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LEISURE
169,000 Granada Group PLC..................................................................... $ 2,590,162
300,654 Ladbroke Group PLC.................................................................... 1,308,061
508,000 Rank Group PLC........................................................................ 2,838,054
------------
6,736,277
------------
MISCELLANEOUS
274,000 Vendome Luxury Group PLC (Units) ++................................................... 2,167,450
------------
NATURAL GAS
347,541 BG PLC*............................................................................... 1,569,328
------------
OIL RELATED
794,000 Lasmo PLC............................................................................. 3,611,493
1,244,000 Shell Transport & Trading Co. PLC..................................................... 9,020,493
------------
12,631,986
------------
PHARMACEUTICALS
115,993 British Biotech PLC*.................................................................. 202,626
319,100 Glaxo Wellcome PLC.................................................................... 7,572,626
340,344 SmithKline Beecham PLC................................................................ 3,494,325
------------
11,269,577
------------
PUBLISHING - NEWSPAPER
198,000 United News & Media PLC............................................................... 2,261,287
------------
REAL ESTATE
203,200 Hammerson PLC......................................................................... 1,573,069
------------
RETAIL
145,200 Great Universal Stores PLC............................................................ 1,835,351
247,000 Morrison (W.M.) Supermarkets PLC...................................................... 936,229
214,000 Next PLC.............................................................................. 2,440,490
------------
5,212,070
------------
RETAIL - DEPARTMENT STORES
201,000 Kingfisher PLC........................................................................ 2,808,983
------------
RETAIL - MERCHANDISING
177,820 Tesco PLC............................................................................. 1,450,584
------------
TELECOMMUNICATIONS
829,000 British Telecommunications PLC........................................................ 6,537,229
474,000 General Cable PLC*.................................................................... 648,356
550,635 Securicor PLC......................................................................... 2,590,760
180,000 Vodafone Group PLC.................................................................... 1,302,250
------------
11,078,595
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC
281,000 National Power PLC.................................................................... $ 2,778,528
------------
TOTAL UNITED KINGDOM.................................................................. 132,132,449
------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $293,301,027)........................................................ 382,591,918
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.0%)
U.S. GOVERNMENT AGENCY
$ 7,900 Federal Home Loan Bank 5.75% due 01/02/98
(AMORTIZED COST $7,898,738)......................................................... 7,898,738
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $301,199,765) (b)........................................................ 99.8 % 390,490,656
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 950,597
------ -------------
NET ASSETS................................................................................ 100.0 % $ 391,441,253
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt
* Non-income producing security.
++ Consists of more than one class of securities traded together as a unit;
stock with attached 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 is $98,246,618 and the
aggregate gross unrealized depreciation is $8,955,727, resulting in net
unrealized appreciation of $89,290,891.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1997:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- --------------------------------------------------
<S> <C> <C> <C>
L 91,143 $ 152,811 01/02/98 $ (2,607)
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------
Aerospace & Defense............................... $ 8,402,736 2.1%
Air Transport..................................... 6,159,675 1.6
Apparel Manufacturer.............................. 1,906,007 0.5
Automobiles....................................... 5,605,899 1.4
Automotive........................................ 6,822,141 1.7
Banking........................................... 21,340,927 5.5
Banks............................................. 12,946,451 3.3
Banks - Commercial................................ 5,211,294 1.3
Brewers........................................... 2,526,754 0.6
Broadcast Media................................... 1,376,410 0.4
Building & Construction........................... 1,761,539 0.5
Business Services................................. 10,174,127 2.6
Chemicals......................................... 10,104,108 2.6
Computer Software & Services...................... 6,488,372 1.7
Conglomerates..................................... 4,261,415 1.1
Electrical Equipment.............................. 14,912,928 3.8
Electronics - Semiconductors...................... 6,293,434 1.6
Financial Services................................ 1,938,932 0.5
Food Processing................................... 2,288,413 0.6
Food, Beverage, Tobacco & Household Products...... 11,042,394 2.9
Health & Personal Care............................ 2,338,338 0.6
Hotels/Motels..................................... 7,678,610 2.0
Household Furnishings & Appliances................ 2,400,750 0.6
Household Products................................ 3,715,415 0.9
Insurance......................................... 38,533,133 9.8
Leisure........................................... 6,736,277 1.7
Miscellaneous..................................... 2,167,450 0.6
Natural Gas....................................... 1,569,328 0.4
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C>
Oil Related....................................... $ 22,162,120 5.7%
Paper Products.................................... 3,643,209 0.9
Pharmaceuticals................................... 45,918,296 11.7
Publishing........................................ 14,180,719 3.6
Publishing - Newspaper............................ 2,261,287 0.6
Real Estate....................................... 1,573,069 0.4
Record & Tape Distribution........................ 4,572,310 1.2
Retail............................................ 12,863,855 3.3
Retail - Department Stores........................ 2,808,983 0.7
Retail - Merchandising............................ 1,450,584 0.4
Steel & Iron...................................... 10,238,765 2.6
Telecommunication Equipment....................... 9,574,540 2.4
Telecommunications................................ 26,624,614 6.8
Television........................................ 5,272,658 1.3
Tire & Rubber Goods............................... 1,027,775 0.3
Transportation.................................... 2,052,686 0.5
U.S. Government Agency............................ 7,898,738 2.0
Utilities......................................... 6,884,663 1.8
Utilities - Electric.............................. 2,778,528 0.7
------------ -----
$390,490,656 99.8%
------------ -----
------------ -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------
Common Stocks..................................... $380,675,886 97.3%
Preferred Stocks.................................. 1,916,032 0.5
Short-Term Investments............................ 7,898,738 2.0
------------ -----
$390,490,656 99.8%
------------ -----
------------ -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, WARRANTS, RIGHTS AND BONDS (92.3%)
AUSTRALIA (5.6%)
BANKING
130,000 Westpac Banking Corp., Ltd....................................................... $ 830,090
-----------
COMMERCIAL SERVICES
13,000 Mayne Nickless Ltd............................................................... 68,582
-----------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
268,000 Fosters Brewing Group Ltd........................................................ 509,055
440,000 Goodman Fielder Ltd.............................................................. 698,377
-----------
1,207,432
-----------
METALS & MINING
60,000 Broken Hill Proprietary Co., Ltd................................................. 556,177
-----------
MULTI-INDUSTRY
240,000 Pacific Dunlop Ltd............................................................... 507,390
-----------
OIL - EXPLORATION & PRODUCTION
94,000 Oil Search Ltd................................................................... 169,622
-----------
RETAIL STORES
100,000 Coles Myer Ltd................................................................... 479,419
-----------
TOTAL AUSTRALIA.................................................................. 3,818,712
-----------
BERMUDA (0.3%)
RETAIL - FOOD CHAINS
200,000 Dairy Farm International Holdings Ltd............................................ 216,000
-----------
CHINA (0.5%)
AUTOMOTIVE
200,000 Qingling Motors Co............................................................... 98,099
-----------
UTILITIES - ELECTRIC
800,000 Zhejiang Southeast Electric Power Co., Ltd. (B Shares)........................... 257,600
-----------
TOTAL CHINA...................................................................... 355,699
-----------
HONG KONG (33.8%)
APPLIANCES & HOUSEHOLD DURABLES
135,000 Guangdong Kelon Elec Holding (Class H)........................................... 138,532
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKING
203,000 Dao Heng Bank Group Ltd.......................................................... $ 507,022
50,000 Guoco Group Ltd.................................................................. 122,301
127,500 Hang Seng Bank Ltd............................................................... 1,230,187
28,000 HSBC Holdings PLC................................................................ 690,305
-----------
2,549,815
-----------
BUILDING & CONSTRUCTION
80,000 New World Infrastructure Ltd.*................................................... 180,192
-----------
CONGLOMERATES
43,000 Citic Pacific, Ltd............................................................... 170,950
494,000 Hutchison Whampoa, Ltd........................................................... 3,098,938
54,000 Jardine Matheson Holdings Ltd.................................................... 275,400
99,000 Shanghai Industrial Holdings Ltd................................................. 368,025
160,000 Swire Pacific Ltd. (Class A)..................................................... 877,725
-----------
4,791,038
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT
150,000 ASM Pacific Technology Ltd....................................................... 94,872
450,000 Elec & Eltek International Holdings Ltd.......................................... 111,523
98,000 Johnson Electric Holdings, Ltd................................................... 282,085
-----------
488,480
-----------
ENGINEERING & CONSTRUCTION
90,000 Cheung Kong Infrastructure Holdings.............................................. 254,411
150,000 Road King Infrastructure Ltd.*................................................... 137,467
-----------
391,878
-----------
LEISURE
731,000 CDL Hotels International, Ltd.................................................... 221,735
-----------
LIFE INSURANCE
100,000 National Mutual Asia Ltd......................................................... 99,389
-----------
PUBLISHING
400,000 South China Morning Post (Holdings) Ltd.......................................... 281,388
-----------
REAL ESTATE
180,000 Amoy Properties, Ltd............................................................. 157,991
403,000 Cheung Kong (Holdings) Ltd....................................................... 2,639,920
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
115,000 China Resources Enterprise Ltd................................................... $ 256,799
153,000 Great Eagle Holdings Ltd......................................................... 214,275
20,000 Great Eagle Holdings (Warrants due 11/30/98)..................................... 2,582
220,000 Hong Kong Land Holdings Ltd...................................................... 422,400
75,000 Hysan Development Co., Ltd....................................................... 149,568
6,250 Hysan Development Co. Ltd. (Warrants due 04/30/98)*.............................. 40
530,000 New World Development Co., Ltd................................................... 1,833,413
331,000 Sun Hung Kai Properties Ltd...................................................... 2,307,126
228,000 Wharf (Holdings) Ltd............................................................. 500,303
-----------
8,484,417
-----------
RETAIL - SPECIALTY APPAREL
60 Dickson Concepts International Ltd. (New)........................................ 88
-----------
TELECOMMUNICATIONS
1,233,000 Hong Kong Telecommunications Ltd................................................. 2,538,478
-----------
TRANSPORTATION
291,000 Cosco Pacific Ltd................................................................ 236,637
-----------
UTILITIES
197,500 China Light & Power Co., Ltd..................................................... 1,096,188
589,539 Hong Kong & China Gas Co., Ltd................................................... 1,141,441
163,000 Hong Kong Electric Holdings Ltd.................................................. 619,616
-----------
2,857,245
-----------
TOTAL HONG KONG.................................................................. 23,259,312
-----------
INDIA (1.5%)
ALUMINUM
9,000 Hindalco Industries Ltd. (GDR)*.................................................. 173,250
-----------
BANKING
18,000 State Bank of India (GDR)*....................................................... 318,600
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELEPHONES
13,500 Mahanagar Telephone Nigam (GDR)*................................................. $ 205,200
-----------
TEXTILES
38,000 Reliance Industries Ltd. (GDR)................................................... 307,800
-----------
TOTAL INDIA...................................................................... 1,004,850
-----------
INDONESIA (3.6%)
AUTO PARTS
2,300,000 PT Gajah Tunggal................................................................. 223,611
-----------
BANKING
302,000 PT Bank Negara Indonesia......................................................... 29,361
-----------
BUILDING MATERIALS
100,464 PT Mulia Industrindo*............................................................ 11,628
-----------
CONSTRUCTION EQUIPMENT
92,200 PT United Tractors............................................................... 11,098
-----------
CONSTRUCTION PLANT & EQUIPMENT
1,000,000 PT Citra Marga Nusaphala Persada................................................. 111,111
-----------
FOREST PRODUCTS, PAPER & PACKING
259,380 PT Indah Kiat Pulp & Paper Corp.................................................. 46,832
-----------
INVESTMENT COMPANIES
500,000 Peregrine Indonesia Fund Ltd.**.................................................. 477,550
-----------
METALS
290,000 PT Tambang Timah................................................................. 316,852
-----------
OIL & GAS EXPLORATION
19,400 Gulf Indonesia Resources Ltd.*................................................... 426,800
-----------
PHARMACEUTICALS
400,000 PT Kalbe Farma................................................................... 72,222
-----------
PLANTATION
450,000 PT London Sumatra Indonesia...................................................... 260,417
-----------
RETAIL - DEPARTMENT STORES
200,000 PT Ramayana Lestari Sentosa*..................................................... 191,667
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
520,000 PT Telekomunikasi Indonesia...................................................... $ 281,667
-----------
TOTAL INDONESIA.................................................................. 2,460,816
-----------
JAPAN (21.2%)
APPAREL
17,000 Tokyo Style...................................................................... 153,716
4,000 World Co., Ltd................................................................... 88,889
-----------
242,605
-----------
AUTO TRUCKS & PARTS
20,000 NGK Spark Plug Co., Ltd.......................................................... 113,410
6,000 Yasunaga Corp.................................................................... 38,161
-----------
151,571
-----------
AUTOMOTIVE
9,000 Honda Motor Co................................................................... 330,345
10,000 Toyota Motor Corp................................................................ 286,590
-----------
616,935
-----------
BANKING
33,000 Asahi Bank, Ltd.................................................................. 134,023
26,000 Bank of Tokyo-Mitsubishi Ltd..................................................... 358,621
38,000 Mitsui Trust & Banking Co., Ltd.................................................. 73,670
20,000 Sanwa Bank, Ltd.................................................................. 202,299
20,000 Sumitomo Bank.................................................................... 228,352
17,000 Sumitomo Trust & Banking......................................................... 88,322
-----------
1,085,287
-----------
BEVERAGES
6,300 Itoen, Ltd....................................................................... 166,552
-----------
BUILDING & CONSTRUCTION
36,000 Kajima Corp...................................................................... 90,759
8,000 Kaneshita Construction........................................................... 36,169
-----------
126,928
-----------
BUILDING MATERIALS
11,000 Ibiden Co., Ltd.................................................................. 133,180
18,000 Sanwa Shutter.................................................................... 90,483
-----------
223,663
-----------
BUSINESS SERVICES
3,000 Secom Co......................................................................... 191,724
-----------
CHEMICALS
80,000 Mitsubishi Chemical Corp......................................................... 114,636
46,000 Nippon Zeon Co., Ltd............................................................. 95,172
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
9,000 Shin-Etsu Chemical Co............................................................ $ 171,724
20,000 Sumitomo Bakelite Co., Ltd....................................................... 118,774
-----------
500,306
-----------
COMMERCIAL SERVICES
3,000 Nichii Gakkan Co................................................................. 103,448
-----------
COMPUTER SOFTWARE & SERVICES
6,000 Hitachi Software Engineering Co., Ltd............................................ 174,253
5,000 Meitec Corp...................................................................... 140,613
5 NTT Data Communications Systems Corp............................................. 269,349
-----------
584,215
-----------
COMPUTERS
3,000 Nidec Corp....................................................................... 126,437
-----------
ELECTRIC
7,500 Tokyo Electric Power Co.......................................................... 136,782
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT
2,800 Advantest Corp................................................................... 158,774
11,000 Aiwa Co., Ltd.................................................................... 277,318
5,000 Canon, Inc....................................................................... 116,475
Y 9,000 K Canon, Inc. 1.00% due 12/20/02 (Conv.)........................................... 137,931
22,000 Fujitsu, Ltd..................................................................... 236,015
16,000 Hitachi, Ltd..................................................................... 114,023
6,000 Mitsui High-Tec.................................................................. 97,471
3,000 Murata Manufacturing Co., Ltd.................................................... 75,402
3,800 Sony Corp........................................................................ 337,778
14,000 Sumitomo Electric Industries..................................................... 190,958
3,000 TDK Corp......................................................................... 226,207
-----------
1,968,352
-----------
ELECTRONIC COMPONENTS
7,000 Mitsumi Electric Co., Ltd........................................................ 99,770
-----------
ELECTRONICS
2,000 Rohm Co., Ltd.................................................................... 203,831
4,000 Tokyo Electron Ltd............................................................... 128,123
-----------
331,954
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
3,300 Shinko Electric Industries Co., Ltd.............................................. 110,506
3,000 Tokyo Seimitsu................................................................... 67,126
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Toshiba Ceramics Co., Ltd........................................................ $ 40,230
-----------
217,862
-----------
ENTERTAINMENT
2,300 H.I.S. Company Ltd............................................................... 40,008
2,000 Nintendo Co., Ltd................................................................ 196,169
4,000 Sony Music Entertainment Inc..................................................... 147,126
-----------
383,303
-----------
FINANCIAL SERVICES
1,900 Nichiei Co., Ltd. (Kyoto)........................................................ 202,375
13,000 Nomura Securities Co. Ltd........................................................ 173,333
10,700 Orix Corp........................................................................ 746,130
-----------
1,121,838
-----------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
14,000 Nippon Meat Packers, Inc......................................................... 190,958
-----------
HAND TOOLS
4,000 Disco Corp....................................................................... 86,130
-----------
INDUSTRIALS
Y 5,000 K Nippon Densan Corp. 1.00% 09/30/03 (Conv.)....................................... 57,088
-----------
INSURANCE
25,000 Tokio Marine & Fire Insurance Co................................................. 283,525
-----------
MACHINERY
18,000 Daifuku Co., Ltd................................................................. 87,586
10,000 Fuji Machine Manufacturing Co., Ltd.............................................. 241,379
1,300 Keyence Corp..................................................................... 192,261
9,000 Minebea Co., Ltd................................................................. 96,552
Y 19,000 K Minebea Co. Ltd. 0.80% due 03/31/03 (Conv.)...................................... 236,736
43,000 Mitsubishi Heavy Industries, Ltd................................................. 179,249
23,000 OSG Corp......................................................................... 121,609
1,400 Shima Seiki Manufacturing Ltd.................................................... 52,460
-----------
1,207,832
-----------
MANUFACTURING
14,000 Dainippon Screen Manufacturing Co., Ltd.......................................... 64,368
5,000 Nichiha Corp..................................................................... 30,575
-----------
94,943
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SUPPLIES
6,000 Terumo Corp...................................................................... $ 88,276
-----------
MERCHANDISING
4,400 Misumi Corp...................................................................... 71,816
-----------
METALS
2,900 Fujimi Inc....................................................................... 123,333
-----------
METALS & MINING
110,000 Nippon Steel Co.................................................................. 162,682
8,000 Sumitomo Sitix Corp.............................................................. 85,211
6,000 Sumitomo Special Metals.......................................................... 120,460
-----------
368,353
-----------
METALS NON-FERROUS
30,000 Fujikura Ltd..................................................................... 198,621
47,000 Mitsui Mining & Smelting......................................................... 188,720
-----------
387,341
-----------
MULTI-INDUSTRY
23,000 Mitsui & Co...................................................................... 136,061
-----------
NATURAL GAS
61,000 Tokyo Gas Co., Ltd............................................................... 138,360
-----------
OFFICE EQUIPMENT
19,000 Ricoh Company, Ltd............................................................... 235,862
2,000 Riso Kagaku...................................................................... 114,483
-----------
350,345
-----------
PAPER PRODUCTS
2,000 Tomoegawa Paper Co. Ltd.......................................................... 5,517
-----------
PHARMACEUTICALS
7,000 Eisai Co., Ltd................................................................... 106,743
8,000 Takeda Chemical Industries....................................................... 228,046
-----------
334,789
-----------
REAL ESTATE
14,000 Mitsubishi Estate Co., Ltd....................................................... 152,337
15,000 Mitsui Fudosan Co................................................................ 144,828
-----------
297,165
-----------
RETAIL
4,000 Ministop Co., Ltd................................................................ 103,295
1,500 Otsuka Kagu Ltd.................................................................. 51,724
-----------
155,019
-----------
RETAIL - DEPARTMENT STORES
21,000 Hankyu Department Stores......................................................... 116,667
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - GENERAL MERCHANDISE
3,000 Circle K Japan Co., Ltd.......................................................... $ 143,678
3,000 Seven - Eleven Japan Co., Ltd.................................................... 212,414
6,000 Shimamura Co. Ltd................................................................ 104,368
-----------
460,460
-----------
RETAIL - SPECIALTY
5,000 Aderans Co., Ltd................................................................. 120,690
-----------
STEEL
68,000 Sumitomo Metal Industries........................................................ 87,019
13,000 Yamato Kogyo Co., Ltd............................................................ 78,199
-----------
165,218
-----------
TELECOMMUNICATIONS
35 DDI Corp......................................................................... 92,529
15,000 Nippon Comsys Corp............................................................... 185,057
34 Nippon Telegraph & Telephone Corp................................................ 291,801
-----------
569,387
-----------
TEXTILES
57,000 Mitsubishi Rayon Co., Ltd........................................................ 139,770
21,000 Nitto Boseki Co., Ltd............................................................ 52,621
-----------
192,391
-----------
TIRE & RUBBER GOODS
6,000 Bridgestone Corp................................................................. 130,115
-----------
TRANSPORTATION
32,000 Tokyu Corp....................................................................... 123,586
-----------
TOTAL JAPAN...................................................................... 14,634,897
-----------
MALAYSIA (4.9%)
AUTOMOTIVE
35,000 Edaran Otomobil Nasional Berhad.................................................. 71,714
87,680 Oriental Holdings Berhad......................................................... 107,566
-----------
179,280
-----------
BANKING
120,000 Commerce Asset Holdings Berhad................................................... 57,526
60,600 Malayan Banking Berhad........................................................... 176,490
163,999 Public Bank Berhad............................................................... 56,639
27,333 Public Bank Berhad (Rights)*..................................................... 1,409
-----------
292,064
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BUILDING & CONSTRUCTION
8,000 Dialog Group Berhad.............................................................. $ 13,814
60,999 Gamuda Berhad.................................................................... 33,958
16,666 Gamuda Berhad (Warrants due 12/29/01)*........................................... 730
135,000 Lingkaran Trans Kota Holdings Berhad*............................................ 86,289
105,000 United Engineers Malaysia Berhad................................................. 87,680
30,250 YTL Corp. Berhad................................................................. 40,931
-----------
263,402
-----------
ELECTRONICS
42,000 Malaysian Pacific Industries Berhad.............................................. 101,211
-----------
INSURANCE
39,400 Malaysian Assurance Alliance Berhad.............................................. 45,290
-----------
LEISURE
40,000 Berjaya Sports Toto Berhad....................................................... 102,577
350,000 Metroplex Berhad................................................................. 89,755
80,000 Resorts World Berhad............................................................. 135,052
-----------
327,384
-----------
MANUFACTURING
19,375 O.Y.L. Industries Berhad......................................................... 45,441
-----------
MULTI-INDUSTRY
110,000 Hong Leong Industries Berhad..................................................... 112,268
-----------
PLANTATION
170,000 Highlands & Lowlands Berhad...................................................... 174,381
360,000 IOI Corporated Berhad............................................................ 116,907
105,500 Kuala Lumpur Kepong Berhad....................................................... 227,043
-----------
518,331
-----------
PUBLISHING
87,000 Star Publications................................................................ 99,557
-----------
TELECOMMUNICATIONS
174,000 Telekom Malaysia Berhad.......................................................... 515,722
-----------
TOBACCO
60,000 RJ Reynolds Berhad............................................................... 98,196
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES
12,000 Prime Utilities Berhad (Warrants due 03/11/01)*.................................. $ 2,041
24,000 Prime Utilities Berhad 1.00% due 03/11/01 (Loan Stock)........................... 3,124
240,000 Tenaga Nasional Berhad........................................................... 513,402
-----------
518,567
-----------
WATER
280,000 Puncak Niaga Holdings Berhad*.................................................... 209,278
-----------
WIRE & CABLE
140,000 Leader Universal Holdings Berhad................................................. 43,299
-----------
TOTAL MALAYSIA................................................................... 3,369,290
-----------
PHILIPPINES (1.0%)
BANKING
7,500 Far East Bank & Trust Co.***..................................................... 9,187
7 Philippine National Bank......................................................... 16
-----------
9,203
-----------
CONGLOMERATES
245,000 First Philippine Holdings Corp. (B Shares)....................................... 192,938
-----------
TELECOMMUNICATIONS
13,000 Philippine Long Distance Telephone Co. (ADR)..................................... 292,500
-----------
UTILITIES
66,900 Manila Electric Co. (B Shares)................................................... 224,115
-----------
TOTAL PHILIPPINES................................................................ 718,756
-----------
SINGAPORE (10.5%)
BANKING
40,000 Development Bank of Singapore, Ltd............................................... 342,653
169,520 Overseas Chinese Banking Corp., Ltd.............................................. 988,278
145,000 Overseas Union Bank, Ltd......................................................... 556,365
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
120,000 United Overseas Bank, Ltd........................................................ $ 667,460
-----------
2,554,756
-----------
COMPUTERS - SYSTEMS
499,471 Singapore Technologies Engineering Ltd.*......................................... 377,352
-----------
CONGLOMERATES
74,000 Jardine Strategic Holdings Ltd................................................... 195,360
107,500 Keppel Corp., Ltd.*.............................................................. 309,518
200,000 Natsteel Ltd..................................................................... 271,267
87,000 Sembawang Corp., Ltd............................................................. 186,318
-----------
962,463
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT
40,700 Elec & Eltek International Co., Ltd.............................................. 186,406
145,000 Venture Manufacturing Ltd........................................................ 405,413
-----------
591,819
-----------
ELECTRONICS
30,000 GP Batteries International Ltd................................................... 78,168
-----------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
600 Fraser & Neave Ltd............................................................... 2,606
-----------
METALS - MISCELLANEOUS
168,000 Amtek Engineering Ltd............................................................ 101,939
-----------
PUBLISHING
32,200 Singapore Press Holdings Ltd..................................................... 404,176
-----------
REAL ESTATE
102,000 City Developments, Ltd........................................................... 473,290
151,000 DBS Land Ltd..................................................................... 231,755
148,000 Straits Steamship Land........................................................... 204,259
204,000 United Overseas Land, Ltd........................................................ 172,326
-----------
1,081,630
-----------
SHIPBUILDING
85,000 Keppel Fels Ltd.................................................................. 237,656
-----------
TELECOMMUNICATIONS
130,000 Singapore Telecommunications, Ltd................................................ 242,832
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION
95,000 Singapore Airlines Ltd........................................................... $ 621,654
-----------
TOTAL SINGAPORE.................................................................. 7,257,051
-----------
SOUTH KOREA (0.7%)
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
1 LG Information & Communication Ltd............................................... 28
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT
3,000 Samsung Display Devices Co....................................................... 56,637
4,605 Samsung Electronics Co. (GDR).................................................... 104,326
74 Samsung Electronics Co. (Rights)*................................................ 1,008
-----------
161,971
-----------
INVESTMENT COMPANIES
25,000 Atlantis Korean Smaller Companies*............................................... 87,500
-----------
STEEL & IRON
9,380 Pohang Iron & Steel Co., Ltd..................................................... 254,007
-----------
TOTAL SOUTH KOREA................................................................ 503,506
-----------
TAIWAN (6.6%)
BUILDING MATERIALS
45,532 Asia Cement Corp. (GDR).......................................................... 509,958
-----------
CHEMICALS
$ 205 K Nan Ya Plastics Corp. 1.75% due 07/19/01 (Conv.)................................. 231,650
-----------
COMPUTERS
$ 185 K Compal Electronics 1.00% due 11/21/03 (Conv.).................................... 277,500
-----------
ELECTRONICS - SEMICONDUCTOR/COMPONENTS
$ 210 K Siliconware Precision Industries Co. 0.50% due 07/21/04 (Conv.).................. 199,500
$ 180 K United Microelectronics Corp. 0.25% due 05/16/04 (Conv.)......................... 203,400
-----------
402,900
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES
148 Taipei Fund*..................................................................... $ 1,435,600
-----------
RETAIL
$ 330 K Far Eastern Department Stores - 144A** 3.00% due 07/06/01 (Conv.)................ 293,700
-----------
STEEL & IRON
31,262 China Steel Corp. (GDR).......................................................... 437,668
-----------
TRANSPORTATION
$ 500 K U-Ming Marine Transport 1.50% due 02/07/01 (Conv.)............................... 420,000
$ 504 K Yang Ming Marine Transportation - 144A** 2.00% due 10/06/01 (Conv.).............. 554,400
-----------
974,400
-----------
TOTAL TAIWAN..................................................................... 4,563,376
-----------
THAILAND (2.1%)
BANKING
32,000 Bangkok Bank PCL................................................................. 82,403
-----------
ELECTRIC
37,800 Electricity Generating Public Co. Ltd............................................ 73,004
-----------
ENERGY
10,100 Ban Pu Coal Co., Ltd............................................................. 41,831
-----------
ENTERTAINMENT
15,000 Grammy Entertainment PLC......................................................... 67,597
-----------
OIL RELATED
52,000 PTT Exploration & Production PCL................................................. 618,197
-----------
TELECOMMUNICATIONS
20,000 Advanced Info Service Public Co., Ltd............................................ 99,571
-----------
TELEVISION
25,000 BEC World Public Co., Ltd........................................................ 103,004
-----------
TRANSPORTATION
375,000 Bangkok Expressway Public Co., Ltd.*............................................. 215,263
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC
220,000 Cogeneration Public Co.*......................................................... $ 134,549
-----------
TOTAL THAILAND................................................................... 1,435,419
-----------
TOTAL COMMON STOCKS, WARRANTS, RIGHTS AND BONDS
(IDENTIFIED COST $86,796,856).................................................... 63,597,684
-----------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY DESCRIPTION,
AMOUNT IN EXPIRATION DATE
THOUSANDS AND STRIKE PRICE
- ---------------- -------------------------------------
<C> <S> <C>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (1.5%)
HKD 24,165 April 24, 1998/HKD 8.055......................................................... 29,400
HKD 32,280 April 24, 1998/HKD 8.07.......................................................... 37,800
Y 603,600 February 10, 1998/
Y 120.72....................................................................... 345,000
Y 718,084 February 10, 1998/
Y 115.82....................................................................... 653,170
-----------
TOTAL PURCHASED PUT OPTIONS ON FOREIGN CURRENCY
(IDENTIFIED COST $524,740)....................................................... 1,065,370
-----------
SHORT-TERM INVESTMENT (a) (5.8%)
U.S. GOVERNMENT AGENCY
$ 4,000 Federal Home Loan Mortgage Corp. 6.00% due 01/02/98
(IDENTIFIED COST $3,999,333)................................................... 3,999,333
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $91,320,929).................................................... 68,662,387
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY DESCRIPTION,
AMOUNT EXPIRATION DATE
IN THOUSANDS AND STRIKE PRICE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WRITTEN OPTIONS ON FOREIGN CURRENCY (-0.4%)
HKD 32,280 April 24, 1998/HKD 8.07.......................................................... $ (154,000)
HKD 24,165 April 24, 1998/HKD 8.055......................................................... (111,000)
-----------
TOTAL WRITTEN PUT OPTIONS ON FOREIGN CURRENCY
(PREMIUM RECEIVED $267,260)...................................................... (265,000)
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $91,320,929) (b).......................................................... 99.6 % 68,662,387
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL WRITTEN OPTIONS OUTSTANDING.......................................................... (0.4) (265,000)
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.8 506,150
------ ------------
NET ASSETS................................................................................. 100.0 % $ 68,903,537
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt
GDR Global Depository Receipt
K In thousands
* Non-income producing security
** Resale is restricted to qualified institutional investors.
*** Partially paid shares.
(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 is $3,237,069 and the
aggregate gross unrealized depreciation is $25,895,611, resulting in net
unrealized depreciation of $22,658,542.
SEE NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------------------
Aluminum.......................................... $ 173,250 0.3%
Apparel........................................... 242,605 0.4
Appliances & Household Durables................... 138,532 0.2
Auto Trucks & Parts............................... 375,182 0.5
Automotive........................................ 894,314 1.3
Banking........................................... 7,751,579 11.2
Beverages......................................... 166,552 0.2
Building & Construction........................... 570,522 0.8
Building Materials................................ 745,249 1.1
Business Services................................. 191,724 0.3
Chemicals......................................... 731,956 1.1
Commercial Services............................... 172,030 0.2
Communications - Equipment/Manufacturers.......... 28 0.0
Computer Software & Services...................... 584,215 0.9
Computers......................................... 403,937 0.6
Computers - Systems............................... 377,352 0.6
Conglomerates..................................... 5,946,439 8.6
Construction Equipment............................ 11,098 0.0
Construction Plant & Equipment.................... 111,111 0.2
Currency Options.................................. 1,065,370 1.5
Electric.......................................... 209,786 0.3
Electronic & Electrical Equipment................. 3,210,622 4.7
Electronic Components............................. 99,770 0.1
Electronics....................................... 511,333 0.7
Electronics - Semiconductors/ Components.......... 620,762 0.9
Energy............................................ 41,831 0.1
Engineering & Construction........................ 391,878 0.6
Entertainment..................................... 450,900 0.7
Financial Services................................ 1,121,838 1.6
Food, Beverage, Tobacco & Household Products...... 1,400,996 2.0
Forest Products, Paper Packaging.................. 46,832 0.1
Hand Tools........................................ 86,130 0.1
Industrials....................................... 57,088 0.1
Insurance......................................... 328,815 0.5
Investment Companies.............................. 2,000,650 2.9
Leisure........................................... 549,119 0.8
Life Insurance.................................... 99,389 0.1
Machinery......................................... 1,207,832 1.8
Manufacturing..................................... 140,384 0.2
Medical Supplies.................................. 88,276 0.1
Merchandising..................................... 71,816 0.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
<S> <C> <C>
Metals............................................ $ 440,185 0.6%
Metals & Mining................................... 924,530 1.3
Metals - Miscellaneous............................ 101,939 0.2
Metals - Non-Ferrous.............................. 387,341 0.6
Multi-Industry.................................... 755,719 1.1
Natural Gas....................................... 138,360 0.2
Office Equipment.................................. 350,345 0.5
Oil & Gas Exploration............................. 426,800 0.6
Oil - Exploration & Production.................... 169,622 0.2
Oil Related....................................... 618,197 0.9
Paper Products.................................... 5,517 0.0
Pharmaceuticals................................... 407,011 0.6
Plantation........................................ 778,748 1.1
Publishing........................................ 785,121 1.1
Real Estate....................................... 9,863,212 14.3
Retail............................................ 448,719 0.7
Retail - Department Stores........................ 308,334 0.5
Retail - Food Chains.............................. 216,000 0.3
Retail - General Merchandising.................... 460,460 0.7
Retail - Specialty................................ 120,778 0.2
Retail Stores..................................... 479,419 0.7
Shipbuilding...................................... 237,656 0.3
Steel............................................. 165,218 0.2
Steel & Iron...................................... 691,675 1.0
Telecommunications................................ 4,540,157 6.6
Telephones........................................ 205,200 0.3
Television........................................ 103,004 0.1
Textiles.......................................... 500,191 0.7
Tire & Rubber Goods............................... 130,115 0.2
Tobacco........................................... 98,196 0.1
Transportation.................................... 2,171,540 3.2
U.S. Government Agency............................ 3,999,333 5.8
Utilities......................................... 3,599,927 5.2
Utilities - Electric.............................. 392,149 0.6
Water............................................. 209,278 0.3
Wire & Cable...................................... 43,299 0.1
------------ -----
$ 68,662,387 99.6%
------------ -----
------------ -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------------------
Common Stocks..................................... $ 60,977,969 88.5%
Convertible Bonds................................. 2,611,905 3.8
Foreign Currency Put Options...................... 1,065,370 1.5
Rights & Warrants................................. 7,810 0.0
Short-Term Investments............................ 3,999,333 5.8
------------ -----
$ 68,662,387 99.6%
------------ -----
------------ -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
100
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (78.5%)
ADVERTISING (0.7%)
6,100 Snyder Communications, Inc.*............................................................ $ 222,650
-----------
AEROSPACE & DEFENSE (1.2%)
15,100 Kellstrom Industries, Inc.*............................................................. 373,725
-----------
AUTO PARTS - ORIGINAL EQUIPMENT (0.6%)
4,600 Tower Automotive, Inc.*................................................................. 193,487
-----------
BIOTECHNOLOGY (2.3%)
6,500 Centocor, Inc.*......................................................................... 216,125
10,000 ESC Medical Systems Ltd................................................................. 386,250
7,200 Guilford Pharmaceuticals, Inc.*......................................................... 144,900
-----------
747,275
-----------
BUSINESS SERVICES (2.1%)
17,000 AccuStaff, Inc.*........................................................................ 391,000
7,200 Metzler Group, Inc.*.................................................................... 284,400
-----------
675,400
-----------
COMMERCIAL SERVICES (3.8%)
7,200 Caribiner International, Inc.*.......................................................... 320,400
14,000 Primark Corp.*.......................................................................... 569,625
9,600 Whittman-Hart, Inc...................................................................... 328,800
-----------
1,218,825
-----------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.3%)
6,228 Excel Communications, Inc............................................................... 90,305
-----------
COMPUTER EQUIPMENT (1.0%)
5,300 Storage Technology Corp.*............................................................... 328,269
-----------
COMPUTER SERVICES (0.2%)
3,000 American Business Information, Inc. (A Shares).......................................... 29,250
3,000 American Business Information, Inc. (B Shares).......................................... 30,000
-----------
59,250
-----------
COMPUTER SOFTWARE (3.2%)
5,000 Alladin Knowledge Systems Ltd........................................................... 85,000
8,000 American Software, Inc. (Class A)....................................................... 74,000
2,500 Avant! Corp.*........................................................................... 41,875
10,400 Compuware Corp.*........................................................................ 332,800
10,400 Systems & Computer Technology Corp.*.................................................... 516,100
-----------
1,049,775
-----------
COMPUTER SOFTWARE & SERVICES (7.5%)
14,250 Analysts International Corp............................................................. 491,625
8,300 Harbinger Corp.*........................................................................ 231,362
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
13,400 ISG International Software Group Ltd.* (Israel)......................................... $ 189,275
10,300 Keane, Inc.*............................................................................ 418,437
7,800 Manugistics Group, Inc.*................................................................ 346,125
6,400 PRI Automation, Inc.*................................................................... 184,800
9,200 Scopus Technology, Inc.*................................................................ 110,400
11,000 SMART Modular Technologies, Inc.*....................................................... 250,250
9,300 STB Systems, Inc.*...................................................................... 203,437
-----------
2,425,711
-----------
COMPUTERS (2.3%)
9,000 Data General Corp.*..................................................................... 156,937
8,200 Gulfstream Aerospace Corp.*............................................................. 239,850
10,500 Micron Electronics, Inc.*............................................................... 95,156
5,800 MICROS Systems, Inc.*................................................................... 261,000
-----------
752,943
-----------
CONSUMER SERVICES (0.8%)
11,000 E*TRADE Group, Inc.*.................................................................... 253,000
-----------
DRUGS (1.3%)
8,500 Elan Corp. PLC (ADR)* (Ireland)......................................................... 435,094
-----------
ELECTRICAL EQUIPMENT (0.7%)
10,200 JPM Co.*................................................................................ 211,650
-----------
ELECTRONICS (3.1%)
2,000 Analog Devices, Inc.*................................................................... 55,375
6,600 Sawtek, Inc.*........................................................................... 173,250
12,400 Sipex Corp.*............................................................................ 375,100
6,600 Teradyne, Inc.*......................................................................... 211,200
5,000 Vitesse Semiconductor Corp.*............................................................ 188,750
-----------
1,003,675
-----------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.9%)
6,200 CFM Technologies, Inc.*................................................................. 94,550
5,300 Etec Systems, Inc.*..................................................................... 245,787
6,900 Kulicke & Soffa Industries, Inc.*....................................................... 128,512
6,500 TriQuint Semiconductor, Inc.*........................................................... 131,625
-----------
600,474
-----------
ENVIRONMENTAL CONTROL (1.5%)
5,200 Culligan Water Technologies, Inc.*...................................................... 261,300
5,500 U.S.A Waste Services, Inc.*............................................................. 215,875
-----------
477,175
-----------
FINANCIAL SERVICES (1.5%)
7,000 Arcadia Financial Ltd................................................................... 52,062
12,000 HealthCare Financial Partners*.......................................................... 420,000
-----------
472,062
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
101
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD PROCESSING (0.7%)
8,100 International Multifoods Corp........................................................... $ 229,331
-----------
HEALTH SERVICES (1.2%)
19,500 Assisted Living Concepts, Inc.*......................................................... 385,125
-----------
HEALTHCARE (1.6%)
15,000 Allegiance Corp......................................................................... 531,562
-----------
HEALTHCARE - MISCELLANEOUS (1.1%)
12,100 Superior Consultant Holdings Corp.*..................................................... 356,950
-----------
HOSPITAL RELATED (0.4%)
5,200 Genesis Health Ventures, Inc.*.......................................................... 137,150
-----------
INSURANCE (0.7%)
7,400 Penn Treaty American Corp.*............................................................. 234,950
-----------
LEISURE (0.5%)
12,000 Funco, Inc.*............................................................................ 174,000
-----------
MACHINERY (1.1%)
10,600 National-Oilwell, Inc.*................................................................. 362,387
-----------
MACHINERY - DIVERSIFIED (0.3%)
1,700 Ade Corp................................................................................ 29,537
2,500 Advanced Energy Industries, Inc.*....................................................... 36,563
1,500 Asyst Technologies, Inc.*............................................................... 32,625
-----------
98,725
-----------
MANUFACTURING - DIVERSIFIED (0.1%)
1,800 Safety Components International, Inc.................................................... 21,150
-----------
MEDICAL PRODUCTS & SUPPLIES (1.0%)
19,600 Graham-Field Health Products, Inc....................................................... 327,075
-----------
MISCELLANEOUS (5.5%)
3,500 Advance Paradigm, Inc................................................................... 111,125
7,000 Agribiotech, Inc.*...................................................................... 119,000
15,000 Brunswick Technologies, Inc.*........................................................... 215,625
6,400 Immunex Corp.*.......................................................................... 345,600
4,700 Innovex, Inc............................................................................ 107,806
12,000 ITEQ, Inc.*............................................................................. 137,250
12,500 Mail-Well, Inc.*........................................................................ 506,250
7,400 Scotts Company (The) (Class A)*......................................................... 223,850
-----------
1,766,506
-----------
OIL & GAS (1.5%)
11,800 Lomak Petroleum, Inc.................................................................... 191,750
9,900 Noble Drilling Corp.*................................................................... 303,188
-----------
494,938
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS DRILLING (0.9%)
8,000 Patterson Energy, Inc.*................................................................. $ 309,500
-----------
OIL & GAS EXPLORATION (1.2%)
11,000 St. Mary Land & Exploration Co.......................................................... 378,125
-----------
OIL EQUIPMENT & SERVICES (2.0%)
20,000 Core Laboratories N.V................................................................... 360,000
8,200 ENSCO International, Inc................................................................ 274,700
-----------
634,700
-----------
PHARMACEUTICALS (3.7%)
10,100 Alkermes, Inc.*......................................................................... 198,213
9,500 Dura Pharmaceuticals, Inc.*............................................................. 435,813
9,700 North American Vaccine, Inc............................................................. 241,894
7,600 SangStat Medical Corp.*................................................................. 306,850
-----------
1,182,770
-----------
POLLUTION CONTROL (1.3%)
12,000 American Disposal Services, Inc......................................................... 436,500
-----------
PUBLISHING (0.9%)
7,900 Valassis Communications, Inc.*.......................................................... 292,300
-----------
RETAIL (3.3%)
11,300 Claire's Stores, Inc.................................................................... 219,644
10,900 Michaels Stores, Inc.*.................................................................. 318,825
7,900 Ross Stores, Inc........................................................................ 287,363
8,700 Stein Mart, Inc.*....................................................................... 230,550
-----------
1,056,382
-----------
RETAIL - SPECIALTY (1.6%)
6,500 Cole National Corp. (Class A)*.......................................................... 194,594
7,675 Consolidated Stores Corp.*.............................................................. 337,220
-----------
531,814
-----------
SEMICONDUCTORS (0.8%)
2,500 ATMI, Inc............................................................................... 59,688
5,100 KLA-Tencor Corp.*....................................................................... 196,669
-----------
256,357
-----------
SPECIALIZED SERVICES (0.8%)
7,100 Service Corp. International............................................................. 262,256
-----------
STEEL (1.7%)
12,100 Maverick Tube Corp.*.................................................................... 300,988
15,000 Steel Dynamics, Inc.*................................................................... 240,000
-----------
540,988
-----------
STEEL & IRON (0.7%)
10,000 Tubos de Acero de Mexico S.A. de C.V. (ADR)* (Mexico)................................... 216,250
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (3.7%)
2,400 Associated Group, Inc. (Class B)........................................................ $ 69,600
14,400 Davox Corp.*............................................................................ 464,400
15,400 Digital Microwave Corp.*................................................................ 223,300
9,300 DSC Communications Corp.*............................................................... 222,038
12,400 P-COM, Inc.*............................................................................ 213,900
-----------
1,193,238
-----------
TELECOMMUNICATIONS (1.6%)
2,000 Advanced Fibre Communications, Inc.*.................................................... 58,250
7,200 Aerial Communications, Inc.*............................................................ 51,300
8,000 ARC International Corp.................................................................. 50,000
2,900 QUALCOMM, Inc.*......................................................................... 146,450
10,500 Tel-Save Holdings, Inc.*................................................................ 207,375
-----------
513,375
-----------
TRANSPORTATION (0.8%)
2,500 Air Express International Corp.......................................................... 75,313
6,100 Trico Marine Service, Inc.*............................................................. 179,188
-----------
254,501
-----------
TRUCKERS (1.1%)
7,100 Caliber System, Inc..................................................................... 345,681
-----------
WHOLESALE DISTRIBUTOR (0.7%)
15,200 ADFlex Solutions, Inc.*................................................................. 243,200
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $23,974,391)........................................................... 25,358,531
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (21.2%)
U.S. GOVERNMENT AGENCY (a) (20.7%)
$ 6,700 Federal Home Loan Bank 5.75% due 01/02/98 (AMORTIZED COST $6,698,930)................... 6,698,930
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.5%)
$ 151 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $150,574) (b)
(IDENTIFIED COST $150,541)............................................................ $ 150,541
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,849,471)............................................................ 6,849,471
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $30,823,862) (c).......................................................... 99.7 % 32,208,002
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.3 97,909
------ ------------
NET ASSETS................................................................................. 100.0 % $ 32,305,911
------ ------------
------ ------------
</TABLE>
- ---------------------
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) Collateralized by $110,395 U.S. Treasury Bond 9.25% due 02/15/16 valued at
$153,552.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $3,662,201 and the
aggregate gross unrealized depreciation is $2,278,061, resulting in net
unrealized appreciation of $1,384,140.
SEE NOTES TO FINANCIAL STATEMENTS
103
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (88.9%)
AGRICULTURE RELATED (2.1%)
167,000 Archer-Daniels-Midland Co.............................................................. $ 3,621,812
150,000 Dekalb Genetics Corp. (Class B)........................................................ 5,887,500
66,666 Delta & Pine Land Co................................................................... 2,033,313
50,000 Pioneer Hi-Bred International, Inc..................................................... 5,362,500
------------
16,905,125
------------
APPAREL (0.8%)
200,000 Warnaco Group, Inc. (Class A).......................................................... 6,275,000
------------
AUTO RELATED (0.4%)
92,100 Budget Group, Inc. (Class A)*.......................................................... 3,183,206
------------
BANKS (8.8%)
78,000 AmSouth Bancorporation................................................................. 4,236,375
50,000 First Chicago NBD Corp................................................................. 4,175,000
120,000 First of America Bank Corp............................................................. 9,255,000
160,000 First Union Corp....................................................................... 8,200,000
100,000 NationsBank Corp....................................................................... 6,081,250
116,000 Norwest Corp........................................................................... 4,480,500
34,000 State Street Corp...................................................................... 1,978,375
250,000 TCF Financial Corp..................................................................... 8,484,375
74,000 U.S. Bancorp........................................................................... 8,283,375
60,000 Union Planters Corp.................................................................... 4,076,250
26,000 Wells Fargo & Co....................................................................... 8,825,375
40,000 Westamerica Bancorporation............................................................. 4,090,000
------------
72,165,875
------------
BIOTECHNOLOGY (2.8%)
97,000 Alkermes, Inc.*........................................................................ 1,903,625
260,000 BioChem Pharma, Inc. (Canada)*......................................................... 5,411,250
200,000 Centocor, Inc.*........................................................................ 6,650,000
19,000 Gilead Sciences, Inc.*................................................................. 726,750
233,000 IDEC Pharmaceuticals Corp.*............................................................ 8,009,375
------------
22,701,000
------------
CABLE & TELECOMMUNICATIONS (2.0%)
220,000 Cox Communications, Inc. (Class A)*.................................................... 8,813,750
120,000 Time Warner, Inc....................................................................... 7,440,000
------------
16,253,750
------------
COMMUNICATIONS EQUIPMENT (1.1%)
60,000 CIENA Corp.*........................................................................... 3,667,500
120,000 Newbridge Networks Corp. (Canada)*..................................................... 4,185,000
40,000 Tekelec*............................................................................... 1,220,000
------------
9,072,500
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE (8.2%)
100,000 Arbor Software Corp.*.................................................................. $ 4,037,500
210,000 BEA Systems, Inc.*..................................................................... 3,635,625
102,000 Citrix Systems, Inc.*.................................................................. 7,752,000
150,000 Computer Associates International, Inc................................................. 7,931,250
230,000 Compuware Corp.*....................................................................... 7,360,000
40,000 Great Plains Software, Inc.*........................................................... 1,090,000
180,000 Legato Systems, Inc.*.................................................................. 7,875,000
225,000 Manugistics Group, Inc.*............................................................... 9,984,375
240,000 PeopleSoft, Inc.*...................................................................... 9,300,000
171,000 Veritas Software Corp.*................................................................ 8,656,875
------------
67,622,625
------------
CONSTRUCTION (1.1%)
100,000 Kaufman & Broad Home Corp.............................................................. 2,243,750
240,000 Lafarge Corp........................................................................... 7,095,000
------------
9,338,750
------------
CONSUMER - NONCYCLICAL (4.6%)
86,000 Clorox Co.............................................................................. 6,799,375
100,000 Crown Cork & Seal Co., Inc............................................................. 5,012,500
150,000 General Mills, Inc..................................................................... 10,743,750
132,000 Kroger Co.*............................................................................ 4,875,750
78,000 Lance, Inc............................................................................. 2,047,500
10,000 McCormick & Co., Inc. (Non Vtg)........................................................ 280,000
100,000 Procter & Gamble Co.................................................................... 7,981,250
------------
37,740,125
------------
CONSUMER BUSINESS SERVICES (3.4%)
240,310 Cendant Corp.*......................................................................... 8,260,656
200,000 Corrections Corp. of America*.......................................................... 7,412,500
150,000 Interpublic Group of Companies, Inc.................................................... 7,471,875
82,800 Service Corp. International............................................................ 3,058,425
40,000 U.S.A. Waste Services, Inc.*........................................................... 1,570,000
------------
27,773,456
------------
CONSUMER PRODUCTS (3.0%)
30,000 CVS Corp............................................................................... 1,921,875
200,000 Dominick's Supermarkets, Inc.*......................................................... 7,300,000
150,000 Great Atlantic & Pacific Tea Co., Inc.................................................. 4,453,125
80,000 Rite Aid Corp.......................................................................... 4,695,000
100,000 Safeway, Inc.*......................................................................... 6,325,000
------------
24,695,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DRUGS (5.6%)
100,000 ALZA Corp.*............................................................................ $ 3,181,250
90,000 Bristol-Myers Squibb Co................................................................ 8,516,250
59,000 Dura Pharmaceuticals, Inc.*............................................................ 2,706,625
120,000 Lilly (Eli) & Co....................................................................... 8,355,000
70,000 Medicis Pharmaceutical Corp. (Class A)*................................................ 3,587,500
120,000 Pfizer, Inc............................................................................ 8,947,500
68,000 Schering-Plough Corp................................................................... 4,224,500
50,000 Warner-Lambert Co...................................................................... 6,200,000
------------
45,718,625
------------
ENTERTAINMENT (0.5%)
100,000 Electronic Arts, Inc.*................................................................. 3,781,250
------------
FINANCIAL - MISCELLANEOUS (2.5%)
43,700 Affiliated Managers Group, Inc.*....................................................... 1,267,300
30,000 American Express Co.................................................................... 2,677,500
110,000 Associates First Capital Corp. (Class A)............................................... 7,823,750
78,000 Edwards (A.G.), Inc.................................................................... 3,100,500
56,100 Hambrecht & Quist Group*............................................................... 2,047,650
50,000 Merrill Lynch & Co., Inc............................................................... 3,646,875
------------
20,563,575
------------
HEALTHCARE PRODUCTS & SERVICES (3.3%)
217,500 Health Management Associates, Inc. (Class A)*.......................................... 5,491,875
220,000 Healthsouth Corp.*..................................................................... 6,105,000
200,000 Renal Treatment Centers, Inc.*......................................................... 7,225,000
250,000 Tenet Healthcare Corp.*................................................................ 8,281,250
------------
27,103,125
------------
INSURANCE (4.2%)
130,000 Equitable Companies, Inc............................................................... 6,467,500
22,300 Executive Risk, Inc.................................................................... 1,556,819
109,800 Hartford Life, Inc. (Class A).......................................................... 4,975,312
42,000 Marsh & McLennan Companies, Inc........................................................ 3,131,625
32,500 Nationwide Financial Services, Inc. (Class A).......................................... 1,174,062
100,000 Provident Companies, Inc............................................................... 3,862,500
100,000 Torchmark Corp......................................................................... 4,206,250
94,500 Travelers Group, Inc................................................................... 5,091,187
80,000 UNUM Corp.............................................................................. 4,350,000
------------
34,815,255
------------
INTERNET (3.3%)
100,000 America Online, Inc.*.................................................................. 8,918,750
165,000 Check Point Software Technologies Ltd.* (Israel)....................................... 6,723,750
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
200,000 CheckFree Holdings Corp.*.............................................................. $ 5,400,000
250,000 Netscape Communications Corp.*......................................................... 6,062,500
------------
27,105,000
------------
MEDIA GROUP (9.7%)
121,410 CBS Corp............................................................................... 3,574,007
67,500 Chancellor Media Corp.*................................................................ 5,037,188
61,600 Clear Channel Communications, Inc.*.................................................... 4,893,350
200,000 Heftel Broadcasting Corp. (Class A)*................................................... 9,350,000
160,000 Jacor Communications, Inc.*............................................................ 8,500,000
61,000 Lin Television Corp.*.................................................................. 3,324,500
500,000 News Corp., Ltd. (ADR) (Australia)..................................................... 11,156,250
181,687 Outdoor Systems, Inc.*................................................................. 6,972,239
135,000 Tribune Co............................................................................. 8,403,750
33,500 Universal Outdoor Holdings, Inc.*...................................................... 1,742,000
66,600 Univision Communications, Inc. (Class A)*.............................................. 4,649,513
300,000 Viacom, Inc. (Class B)*................................................................ 12,431,250
------------
80,034,047
------------
MEDICAL SUPPLIES (1.1%)
84,000 Guidant Corp........................................................................... 5,229,000
100,000 Mentor Corp............................................................................ 3,650,000
24,000 Somnus Medical Technologies, Inc.*..................................................... 298,500
------------
9,177,500
------------
REAL ESTATE (0.0%)
3,900 LaSalle Partners, Inc.*................................................................ 138,938
8,500 Trammell Crow Co.*..................................................................... 218,875
------------
357,813
------------
RETAIL (10.1%)
53,200 Barnes & Noble, Inc.*.................................................................. 1,775,550
170,000 Costco Companies, Inc.*................................................................ 7,575,625
120,000 Dayton-Hudson Corp..................................................................... 8,100,000
322,500 Family Dollar Stores, Inc.............................................................. 9,453,281
150,000 General Nutrition Companies*........................................................... 5,081,250
225,000 Hasbro, Inc............................................................................ 7,087,500
112,500 Home Depot, Inc........................................................................ 6,623,438
550,000 Kmart Corp.*........................................................................... 6,359,375
320,000 Limited (The), Inc..................................................................... 8,160,000
120,000 Payless ShoeSource, Inc.*.............................................................. 8,055,000
240,000 Proffitt's, Inc.*...................................................................... 6,825,000
200,000 Wal-Mart Stores, Inc................................................................... 7,887,500
------------
82,983,519
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
105
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (0.1%)
40,000 Vitesse Semiconductor Corp.*........................................................... $ 1,510,000
------------
TELECOMMUNICATIONS (2.4%)
200,000 LCI International, Inc.*............................................................... 6,150,000
150,000 Pacific Gateway Exchange, Inc.*........................................................ 8,062,500
100,000 Teleport Communications Group Inc.*.................................................... 5,487,537
------------
19,700,037
------------
TRANSPORTATION (0.9%)
125,000 US Airways Group Inc.*................................................................. 7,812,500
------------
UTILITIES (6.9%)
210,000 Consolidated Edison Co. of New York, Inc............................................... 8,610,000
150,000 Dominion Resources, Inc................................................................ 6,384,375
160,000 GTE Corp............................................................................... 8,360,000
265,000 New York State Electric & Gas Corp..................................................... 9,407,500
280,000 SCANA Corp............................................................................. 8,382,500
200,000 Texas Utilities Co..................................................................... 8,312,500
180,000 U.S. West Communications Group, Inc.................................................... 8,122,500
------------
57,579,375
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $603,563,479)......................................................... 731,968,033
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (8.4%)
$ 59,100 U.S. Treasury Bond 6.375% due 08/15/27................................................. 62,352,273
23,500 U.S. Treasury Note 0.00% due 11/15/19.................................................. 6,294,240
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $66,400,693).......................................................... 68,646,513
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.6%)
U.S. GOVERNMENT AGENCY (a) (3.6%)
$ 29,300 Federal Home Loan Mortgage Corp. 6.00% due 01/02/98
(AMORTIZED COST $29,295,117)......................................................... $ 29,295,117
------------
REPURCHASE AGREEMENT (0.0%)
274 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $274,232) (b)
(IDENTIFIED COST $274,173)........................................................... 274,173
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $29,569,290).......................................................... 29,569,290
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $699,533,462) (c)........................................................ 100.9 % 830,183,836
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.9) (7,093,554)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 823,090,282
------ -------------
------ -------------
</TABLE>
- ---------------------
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) Collateralized by $273,473 U.S. Treasury Note 5.875% due 02/28/99 valued at
$279,657.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $142,629,367 and the
aggregate gross unrealized depreciation is $11,978,993, resulting in net
unrealized appreciation of $130,650,374.
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (62.5%)
AEROSPACE & DEFENSE (2.0%)
62,000 General Motors Corp. (Class H).................................................................. $ 2,290,125
60,500 Honeywell, Inc.................................................................................. 4,144,250
34,868 Raytheon Co. (Class A).......................................................................... 1,719,468
63,300 Watkins-Johnson Co.............................................................................. 1,641,844
------------
9,795,687
------------
AIRLINES (1.0%)
100,000 Continental Airlines, Inc. (Class B)*........................................................... 4,812,500
------------
ALUMINUM (0.7%)
52,000 Aluminum Co. of America......................................................................... 3,659,500
------------
APPLIANCES & HOUSEHOLD DURABLES (0.9%)
125,000 Maytag Corp..................................................................................... 4,664,062
------------
AUTOMOTIVE (1.7%)
122,900 Chrysler Corp................................................................................... 4,324,544
85,000 Ford Motor Co................................................................................... 4,138,437
------------
8,462,981
------------
BANKS (1.8%)
64,000 NationsBank Corp................................................................................ 3,892,000
14,050 Wells Fargo & Co................................................................................ 4,769,097
------------
8,661,097
------------
BANKS - MONEY CENTER (1.5%)
33,300 Chase Manhattan Corp............................................................................ 3,646,350
30,000 Citicorp........................................................................................ 3,793,125
------------
7,439,475
------------
BEVERAGES - SOFT DRINKS (0.8%)
104,900 PepsiCo, Inc.................................................................................... 3,822,294
------------
CABLE & TELECOMMUNICATIONS (1.0%)
170,000 U.S. West Media Group, Inc.*.................................................................... 4,908,750
------------
CHEMICALS (1.8%)
45,800 Dow Chemical Co................................................................................. 4,648,700
104,200 Monsanto Co..................................................................................... 4,376,400
------------
9,025,100
------------
COMMUNICATIONS EQUIPMENT (2.4%)
76,650 Cisco Systems, Inc.*............................................................................ 4,273,237
46,400 Lucent Technologies, Inc........................................................................ 3,706,200
72,100 Tellabs, Inc.*.................................................................................. 3,798,769
------------
11,778,206
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER EQUIPMENT (1.1%)
42,500 Dell Computer Corp.*............................................................................ $ 3,570,000
104,200 Seagate Technology, Inc.*....................................................................... 2,005,850
------------
5,575,850
------------
COMPUTER SOFTWARE (0.8%)
30,300 Microsoft Corp.*................................................................................ 3,914,381
------------
COMPUTERS (2.4%)
91,600 Diebold, Inc.................................................................................... 4,637,250
114,000 Gateway 2000, Inc.*............................................................................. 3,719,250
92,900 Sun Microsystems, Inc.*......................................................................... 3,704,387
------------
12,060,887
------------
ELECTRIC - MAJOR (0.9%)
59,200 General Electric Co............................................................................. 4,343,800
------------
ENTERTAINMENT/GAMING (0.7%)
149,000 Mirage Resorts, Inc.*........................................................................... 3,389,750
------------
FINANCIAL SERVICES (2.8%)
50,000 American Express Co............................................................................. 4,462,500
87,300 Fannie Mae...................................................................................... 4,981,556
83,850 Travelers Group, Inc............................................................................ 4,517,419
------------
13,961,475
------------
FOODS (1.8%)
60,300 General Mills, Inc.............................................................................. 4,318,987
95,000 Kellogg Co...................................................................................... 4,714,375
------------
9,033,362
------------
HEALTHCARE - HMOS (0.7%)
175,000 Humana, Inc.*................................................................................... 3,631,250
------------
HOUSEHOLD PRODUCTS (0.9%)
57,800 Colgate-Palmolive Co............................................................................ 4,248,300
------------
INSURANCE (2.6%)
41,500 Ace, Ltd. (Bermuda)............................................................................. 4,004,750
38,500 American International Group, Inc............................................................... 4,186,875
96,000 Equitable Companies, Inc........................................................................ 4,776,000
------------
12,967,625
------------
INTERNET (0.9%)
50,300 America Online, Inc.*........................................................................... 4,486,131
------------
MEDIA GROUP (1.0%)
64,500 Clear Channel Communications, Inc.*............................................................. 5,123,719
------------
OIL - DOMESTIC (0.8%)
48,300 Atlantic Richfield Co........................................................................... 3,870,037
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
107
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL INTEGRATED - DOMESTIC (1.5%)
68,000 Amerada Hess Corp............................................................................... $ 3,731,500
151,000 Union Pacific Resources Group, Inc.............................................................. 3,661,750
------------
7,393,250
------------
OIL INTEGRATED - INTERNATIONAL (3.1%)
64,200 Exxon Corp...................................................................................... 3,928,237
55,200 Mobil Corp...................................................................................... 3,984,750
72,300 Royal Dutch Petroleum Co. (ADR) (Netherlands)................................................... 3,917,756
65,700 Texaco, Inc..................................................................................... 3,572,437
------------
15,403,180
------------
PAPER PRODUCTS (1.3%)
82,400 Bowater, Inc.................................................................................... 3,661,650
64,200 Champion International Corp..................................................................... 2,909,062
------------
6,570,712
------------
PHARMACEUTICALS (4.3%)
64,300 Abbott Laboratories............................................................................. 4,215,669
56,300 American Home Products Corp..................................................................... 4,306,950
68,400 Johnson & Johnson............................................................................... 4,505,850
66,600 Lilly (Eli) & Co................................................................................ 4,637,025
29,100 Warner-Lambert Co............................................................................... 3,608,400
------------
21,273,894
------------
PROPERTY - CASUALTY INSURANCE (0.9%)
58,000 Chubb Corp...................................................................................... 4,386,250
------------
RETAIL (0.8%)
77,300 May Department Stores Co........................................................................ 4,072,744
------------
RETAIL - DEPARTMENT STORES (0.6%)
265,000 Kmart Corp.*.................................................................................... 3,064,062
------------
RETAIL - SPECIALTY (4.5%)
122,400 Bed Bath & Beyond, Inc.*........................................................................ 4,697,100
106,000 Costco Companies, Inc.*......................................................................... 4,723,625
190,000 Eagle Hardware & Garden, Inc.*.................................................................. 3,681,250
76,300 Home Depot, Inc................................................................................. 4,492,163
68,300 Payless ShoeSource, Inc.*....................................................................... 4,584,638
------------
22,178,776
------------
RETAIL - SPECIALTY APPAREL (2.7%)
125,700 Gap, Inc........................................................................................ 4,454,494
170,000 Limited (The), Inc.............................................................................. 4,335,000
163,000 Wet Seal, Inc. (Class A)*....................................................................... 4,808,500
------------
13,597,994
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOAN ASSOCIATIONS (1.7%)
46,000 Golden West Financial Corp...................................................................... $ 4,499,375
60,300 Washington Mutual, Inc.......................................................................... 3,844,125
------------
8,343,500
------------
SEMICONDUCTOR EQUIPMENT (1.9%)
79,000 Altera Corp.*................................................................................... 2,616,875
80,800 Applied Materials, Inc.*........................................................................ 2,429,050
56,500 KLA-Tencor Corp.*............................................................................... 2,178,781
71,700 Teradyne, Inc.*................................................................................. 2,294,400
------------
9,519,106
------------
SEMICONDUCTORS (1.2%)
45,000 Intel Corp...................................................................................... 3,158,438
113,000 Micron Technology, Inc.*........................................................................ 2,938,000
------------
6,096,438
------------
SHOES (0.6%)
79,500 Nike, Inc. (Class B)............................................................................ 3,120,375
------------
STEEL & IRON (0.8%)
78,600 Nucor Corp...................................................................................... 3,797,363
------------
TELECOMMUNICATIONS (1.8%)
175,000 Frontier Corp................................................................................... 4,210,938
191,000 Winstar Communications, Inc.*................................................................... 4,763,063
------------
8,974,001
------------
TOBACCO (0.9%)
100,000 Philip Morris Companies, Inc.................................................................... 4,531,250
------------
TRUCKERS (0.6%)
126,600 Yellow Corp.*................................................................................... 3,172,913
------------
WHOLESALE DISTRIBUTOR (0.3%)
95,000 CHS Electronics, Inc.*.......................................................................... 1,591,250
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $277,707,969).................................................................. 310,723,277
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (10.1%)
AEROSPACE & DEFENSE (0.2%)
$ 1,000 Raytheon Co.
7.20% due 08/15/27.................................................................... 1,045,880
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
108
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKS (0.8%)
$ 1,000 Central Fidelity Capital I, Inc. (Series A)
6.758%+ due 04/15/27.................................................................. $ 1,018,930
1,000 Norwest Financial, Inc.
6.20% due 02/15/01.................................................................... 1,000,670
2,000 St. Paul Bancorp, Inc.
7.125% due 02/15/04................................................................... 2,047,580
------------
4,067,180
------------
BANKS - REGIONAL (0.4%)
2,000 Firstar Bank Milwaukee
6.25% due 12/01/02.................................................................... 2,005,000
------------
BROKERAGE (1.6%)
2,000 Bear Stearns Co., Inc.
6.75% due 12/15/07.................................................................... 2,010,660
2,000 Lehman Brothers Holdings, Inc. (Series E)
6.50% due 07/18/00.................................................................... 2,010,840
2,000 Paine Webber Group, Inc.
6.79% due 10/04/04.................................................................... 2,029,940
2,000 Salomon, Inc.
6.65% due 07/15/01.................................................................... 2,022,640
------------
8,074,080
------------
CABLE & TELECOMMUNICATIONS (0.2%)
1,000 TCI Communications, Inc.
8.75% due 08/01/15.................................................................... 1,157,910
------------
FINANCE - CONSUMER (0.3%)
1,500 Commercial Credit Co.
6.50% due 06/01/05.................................................................... 1,503,180
------------
FINANCIAL SERVICES (3.1%)
3,000 Advanta National Bank
5.98% due 02/10/98.................................................................... 2,999,460
2,000 Arkwright CSN Trust - 144A**
9.625% due 08/15/26................................................................... 2,345,000
3,000 Centura Capital Trust I - 144A**
8.845% due 06/01/27................................................................... 3,333,750
3,000 Markel Capital Trust I (Series B)
8.71% due 01/01/46.................................................................... 3,269,550
1,000 MBIA Inc.
7.15% due 07/15/27.................................................................... 1,052,760
2,000 Orion Capital Trust I
8.73% due 01/01/37.................................................................... 2,180,000
------------
15,180,520
------------
METALS & MINING (0.4%)
2,000 Placer Dome, Inc. (Canada)
8.50% due 12/31/45.................................................................... 1,897,500
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MISCELLANEOUS (0.4%)
$ 1,000 Northrop-Grumman Corp.
7.875% due 03/01/26................................................................... $ 1,116,740
1,000 Solutia, Inc.
7.375% due 10/15/27................................................................... 1,034,060
------------
2,150,800
------------
OIL & GAS (0.4%)
2,000 Noble Affiliates, Inc.
7.25% due 08/01/97.................................................................... 2,006,520
------------
OIL INTEGRATED - DOMESTIC (0.4%)
1,950 Mitchell Energy & Development Corp.
6.75% due 02/15/04.................................................................... 1,956,845
------------
REAL ESTATE (0.4%)
2,000 Crescent Real Estate Equities Co. - 144A**
6.625% due 09/15/02................................................................... 1,997,440
------------
RETAIL - DEPARTMENT STORES (0.6%)
2,500 Shopko Stores, Inc.
8.50% due 03/15/02.................................................................... 2,661,600
------------
RETAIL - SPECIALTY (0.4%)
2,000 Staples, Inc.
7.125% due 08/15/07................................................................... 2,041,580
------------
UTILITIES - TELEPHONE (0.3%)
1,000 GTE Corp.
8.75% due 11/01/21.................................................................... 1,201,820
------------
WASTE MANAGEMENT (0.2%)
1,000 USA Waste Services, Inc.
6.50% due 12/15/02.................................................................... 1,000,000
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $48,709,691)........................................................... 49,947,855
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (10.7%)
3,000 Federal Home Loan Mortgage Corp.
6.943% due 03/21/07................................................................... 3,183,570
1,000 U.S. Treasury Bond
6.375% due 08/15/27................................................................... 1,055,030
5,000 U.S. Treasury Bond
6.625% due 02/15/27................................................................... 5,429,200
10,000 U.S. Treasury Note
5.00% due 01/31/98.................................................................... 9,994,500
3,000 U.S. Treasury Note
5.125% due 02/28/98................................................................... 2,997,780
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
109
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 4,000 U.S. Treasury Note
5.875% due 02/28/99................................................................... $ 4,011,040
2,000 U.S. Treasury Note
6.375% due 05/15/99................................................................... 2,018,440
500 U.S. Treasury Note
6.50% due 04/30/99.................................................................... 505,470
7,000 U.S. Treasury Note
6.875% due 08/31/99................................................................... 7,131,670
5,000 U.S. Treasury Note
6.875% due 03/31/00................................................................... 5,124,500
11,000 U.S. Treasury Note
6.875% due 05/15/06................................................................... 11,771,430
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $52,998,860)........................................................... 53,222,630
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (16.3%)
U.S. GOVERNMENT AGENCIES (a) (16.2%)
30,000 Federal Home Loan Banks 5.75-5.80% due 01/02/98-01/07/98................................ 29,977,456
50,825 Federal National Mortgage Association 5.72-5.73% due 01/08/98-01/13/98.................. 50,743,012
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $80,720,468)............................................................ 80,720,468
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 461 The Bank of New York 3.875% due 01/02/98 (dated 12/31/97; proceeds $460,749) (b)
(IDENTIFIED COST $460,650)............................................................ $ 460,650
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $81,181,118)........................................................... 81,181,118
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $460,597,638) (C)........................................................ 99.6 % 495,074,880
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.4 1,953,265
------ -------------
NET ASSETS................................................................................ 100.0 % $ 497,028,145
------ -------------
------ -------------
</TABLE>
- ---------------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Floating rate security. Coupon rate shown is the rate in effect at December
31, 1997.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $459,575 U.S. Treasury Note 5.875% due 08/31/99 valued at
$469,863.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $52,453,509 and the
aggregate gross unrealized depreciation is $17,976,267, resulting in net
unrealized appreciation of $34,477,242.
SEE NOTES TO FINANCIAL STATEMENTS
110
<PAGE>
(This page has been left blank intentionally.)
111
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY QUALITY HIGH INCOME
MARKET INCOME PLUS YIELD UTILITIES BUILDER
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value *..................... $335,393,493 $ 470,339,601 $ 367,556,450 $ 456,474,943 $55,572,428
Cash.......................... 11,373 -- 2,298,669 25,000 --
Receivable for:
Investments sold.......... -- -- -- -- --
Shares of beneficial
interest sold........... 264,484 108,023 366,216 85,475 223,206
Dividends................. -- -- -- 1,065,120 91,817
Interest.................. 688,162 6,934,333 8,114,681 918,812 404,511
Foreign withholding taxes
reclaimed............... -- -- -- -- --
Receivable from affiliate..... -- -- -- -- 16,403
Prepaid expenses and other
assets...................... 3,212 6,229 4,788 5,905 --
------------ -------------- -------------- -------------- -----------
TOTAL ASSETS............. 336,360,724 477,388,186 378,340,804 458,575,255 56,308,365
------------ -------------- -------------- -------------- -----------
LIABILITIES:
Written call options
outstanding, at value....... -- -- -- -- --
Payable for:
Investments purchased..... -- 1,989,458 10,000,000 -- 831,962
Shares of beneficial
interest repurchased.... 583,989 140,351 76,514 137,901 2,392
Investment management
fee..................... 154,313 213,451 162,642 259,020 30,070
Accrued expenses and other
payables.................... 44,273 55,418 40,377 44,078 21,108
------------ -------------- -------------- -------------- -----------
TOTAL LIABILITIES........ 782,575 2,398,678 10,279,533 440,999 885,532
------------ -------------- -------------- -------------- -----------
NET ASSETS:
Paid-in-capital............... 335,578,084 475,844,420 450,437,980 293,549,661 51,578,863
Accumulated undistributed net
investment income (loss).... 65 148 294,896 53 41
Accumulated undistributed net
realized gain (loss)........ -- (23,243,545) (63,345,465) 24,234,386 773,374
Net unrealized appreciation
(depreciation).............. -- 22,388,485 (19,326,140) 140,350,156 3,070,555
------------ -------------- -------------- -------------- -----------
NET ASSETS............... $335,578,149 $ 474,989,508 $ 368,061,271 $ 458,134,256 $55,422,833
------------ -------------- -------------- -------------- -----------
------------ -------------- -------------- -------------- -----------
*IDENTIFIED COST......... $335,393,493 $ 447,951,116 $ 386,882,590 $ 316,124,787 $52,501,873
------------ -------------- -------------- -------------- -----------
------------ -------------- -------------- -------------- -----------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 335,578,084 44,123,343 60,135,547 24,650,021 4,711,055
------------ -------------- -------------- -------------- -----------
------------ -------------- -------------- -------------- -----------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $1.00 $10.77 $6.12 $18.59 $11.76
------------ -------------- -------------- -------------- -----------
------------ -------------- -------------- -------------- -----------
- ------------------
** Includes foreign cash of $86,512 and $21,164, respectively.
*** Premiums received $267,260.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
112
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
GROWTH GROWTH GROWTH GROWTH GROWTH APPRECIATION EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value *..................... $1,898,267,697 $137,179,616 $478,597,892 $390,490,656 $68,662,387 $32,208,002 $830,183,836
Cash.......................... -- -- 523,453 388,583** 633,493** -- --
Receivable for:
Investments sold.......... 8,697,540 79,847 2,185,527 108,123 18,543 -- 6,472,342
Shares of beneficial
interest sold........... 881,113 96,973 205,562 89,352 17,550 97,011 344,355
Dividends................. 3,448,301 46,525 856,401 445,269 85,864 3,476 269,590
Interest.................. 883,340 22 3,856 6,509 37,726 16 1,423,127
Foreign withholding taxes
reclaimed............... -- -- 394,518 600,133 -- -- --
Receivable from affiliate..... -- -- -- -- -- 18,086 --
Prepaid expenses and other
assets...................... 12,994 948 4,229 506 762 6 4,430
-------------- ------------ ------------ ------------ ----------- ----------- ------------
TOTAL ASSETS............. 1,912,190,985 137,403,931 482,771,438 392,129,131 69,456,325 32,326,597 838,697,680
-------------- ------------ ------------ ------------ ----------- ----------- ------------
LIABILITIES:
Written call options
outstanding, at value....... -- -- -- -- 265,000*** -- --
Payable for:
Investments purchased..... 3,699,280 10,102,470 503,943 150,204 26,579 -- 14,981,760
Shares of beneficial
interest repurchased.... 1,618,588 97,925 196,846 54,746 71,631 2,600 220,523
Investment management
fee..................... 885,557 73,534 323,656 350,605 64,413 -- 357,209
Accrued expenses and other
payables.................... 81,802 29,926 133,533 132,323 125,165 18,086 47,906
-------------- ------------ ------------ ------------ ----------- ----------- ------------
TOTAL LIABILITIES........ 6,285,227 10,303,855 1,157,978 687,878 552,788 20,686 15,607,398
-------------- ------------ ------------ ------------ ----------- ----------- ------------
NET ASSETS:
Paid-in-capital............... 1,289,995,423 96,754,405 405,875,384 266,541,003 116,472,573 30,969,777 579,416,117
Accumulated undistributed net
investment income (loss).... 141 9,662 (74,436) 5,394,724 2,054,796 209,858 --
Accumulated undistributed net
realized gain (loss)........ 185,014,381 8,843,005 47,370,806 30,237,204 (26,966,368) (257,864) 113,023,791
Net unrealized appreciation
(depreciation).............. 430,895,813 21,493,004 28,441,706 89,268,322 (22,657,464) 1,384,140 130,650,374
-------------- ------------ ------------ ------------ ----------- ----------- ------------
NET ASSETS............... $1,905,905,758 $127,100,076 $481,613,460 $391,441,253 $68,903,537 $32,305,911 $823,090,282
-------------- ------------ ------------ ------------ ----------- ----------- ------------
-------------- ------------ ------------ ------------ ----------- ----------- ------------
*IDENTIFIED COST......... $1,467,371,884 $115,686,612 $450,139,081 $301,199,765 $91,320,929 $30,823,862 $699,533,462
-------------- ------------ ------------ ------------ ----------- ----------- ------------
-------------- ------------ ------------ ------------ ----------- ----------- ------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 88,256,107 6,947,418 34,680,608 16,628,832 11,264,299 2,854,685 24,511,800
-------------- ------------ ------------ ------------ ----------- ----------- ------------
-------------- ------------ ------------ ------------ ----------- ----------- ------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $21.60 $18.29 $13.89 $23.54 $6.12 $11.32 $33.58
-------------- ------------ ------------ ------------ ----------- ----------- ------------
-------------- ------------ ------------ ------------ ----------- ----------- ------------
<CAPTION>
STRATEGIST
<S> <C>
- ------------------------------
ASSETS:
Investments in securities, at
value *..................... $495,074,880
Cash.......................... --
Receivable for:
Investments sold.......... --
Shares of beneficial
interest sold........... 107,575
Dividends................. 267,318
Interest.................. 2,016,790
Foreign withholding taxes
reclaimed............... --
Receivable from affiliate..... --
Prepaid expenses and other
assets...................... 6,635
------------
TOTAL ASSETS............. 497,473,198
------------
LIABILITIES:
Written call options
outstanding, at value....... --
Payable for:
Investments purchased..... --
Shares of beneficial
interest repurchased.... 173,615
Investment management
fee..................... 222,817
Accrued expenses and other
payables.................... 48,621
------------
TOTAL LIABILITIES........ 445,053
------------
NET ASSETS:
Paid-in-capital............... 410,247,461
Accumulated undistributed net
investment income (loss).... 62
Accumulated undistributed net
realized gain (loss)........ 52,303,380
Net unrealized appreciation
(depreciation).............. 34,477,242
------------
NET ASSETS............... $497,028,145
------------
------------
*IDENTIFIED COST......... $460,597,638
------------
------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 33,589,395
------------
------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $14.80
------------
------------
</TABLE>
113
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
QUALITY
MONEY INCOME HIGH INCOME
MARKET PLUS YIELD UTILITIES BUILDER*
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 19,856,775 $ 33,318,522 $ 39,904,178 $ 3,537,001 $ 735,605
Dividends..................... -- -- -- 13,784,320** 600,057**
------------- ------------- ------------- ------------- -----------
TOTAL INCOME............. 19,856,775 33,318,522 39,904,178 17,321,321 1,335,662
------------- ------------- ------------- ------------- -----------
EXPENSES
Investment management fee..... 1,764,304 2,301,725 1,539,080 2,710,383 170,282
Professional fees............. 28,271 31,458 29,468 30,153 18,848
Custodian fees................ 20,977 53,009 26,126 28,366 26,715
Shareholder reports and
notices..................... 23,726 25,683 19,691 26,668 5,343
Trustees' fees and expenses... 1,353 3,091 945 1,832 38
Transfer agent fees and
expenses.................... 500 500 500 500 500
Other......................... 4,373 12,525 10,618 7,024 2,107
------------- ------------- ------------- ------------- -----------
TOTAL EXPENSES........... 1,843,504 2,427,991 1,626,428 2,804,926 223,833
Less: amounts
waived/assumed.............. -- -- -- -- (189,050)
------------- ------------- ------------- ------------- -----------
NET EXPENSES............. 1,843,504 2,427,991 1,626,428 2,804,926 34,783
------------- ------------- ------------- ------------- -----------
NET INVESTMENT INCOME.... 18,013,271 30,890,531 38,277,750 14,516,395 1,300,879
------------- ------------- ------------- ------------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... -- 4,211,639 184,126 24,274,209 773,374
Options written........... -- -- -- -- --
Foreign exchange
transactions............ -- -- -- -- --
------------- ------------- ------------- ------------- -----------
NET GAIN (LOSS).......... -- 4,211,639 184,126 24,274,209 773,374
------------- ------------- ------------- ------------- -----------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... -- 12,724,498 (2,939,937) 61,888,240 3,070,555
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- -- --
------------- ------------- ------------- ------------- -----------
NET APPRECIATION
(DEPRECIATION)........... -- 12,724,498 (2,939,937) 61,888,240 3,070,555
------------- ------------- ------------- ------------- -----------
NET GAIN (LOSS).......... -- 16,936,137 (2,755,811) 86,162,449 3,843,929
------------- ------------- ------------- ------------- -----------
NET INCREASE (DECREASE)....... $ 18,013,271 $ 47,826,668 $ 35,521,939 $ 100,678,844 $ 5,144,808
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
- ------------------
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
** Net of $129,452, $107, $139,529, $1,492, $1,056,020, $1,203,783, $205,546
and $21,722 foreign withholding tax, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
114
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
GLOBAL
DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
GROWTH GROWTH GROWTH GROWTH GROWTH APPRECIATION*
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 3,324,923 $ 434,870 $ 451,996 $ 571,504 $ 180,552 $ 196,097
Dividends..................... 38,767,567** 338,223** 9,977,541** 7,167,296** 2,839,959** 13,761
------------ ------------ ------------ ----------- ------------ -------------
TOTAL INCOME............. 42,092,490 773,093 10,429,537 7,738,800 3,020,511 209,858
------------ ------------ ------------ ----------- ------------ -------------
EXPENSES
Investment management fee..... 8,563,208 698,171 3,183,049 3,589,371 1,195,454 120,968
Professional fees............. 29,499 27,933 32,299 33,728 32,670 20,713
Custodian fees................ 79,729 26,653 323,336 352,078 453,370 11,870
Shareholder reports and
notices..................... 108,128 5,935 29,232 25,051 12,722 2,911
Trustees' fees and expenses... 5,580 245 1,173 944 465 4
Transfer agent fees and
expenses.................... 500 500 500 500 500 500
Other......................... 10,993 3,674 10,349 19,319 22,168 --
------------ ------------ ------------ ----------- ------------ -------------
TOTAL EXPENSES........... 8,797,637 763,111 3,579,938 4,020,991 1,717,349 156,966
Less: amounts
waived/assumed.............. -- -- -- -- -- (156,966)
------------ ------------ ------------ ----------- ------------ -------------
NET EXPENSES............. 8,797,637 763,111 3,579,938 4,020,991 1,717,349 --
------------ ------------ ------------ ----------- ------------ -------------
NET INVESTMENT INCOME.... 33,294,853 9,982 6,849,599 3,717,809 1,303,162 209,858
------------ ------------ ------------ ----------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 187,796,245 9,166,337 48,913,165 31,694,166 (18,184,858) (257,864)
Options written........... -- -- -- -- 67,380 --
Foreign exchange
transactions............ -- -- (68,992) 2,021,800 (272,769) --
------------ ------------ ------------ ----------- ------------ -------------
NET GAIN (LOSS).......... 187,796,245 9,166,337 48,844,173 33,715,966 (18,390,247) (257,864)
------------ ------------ ------------ ----------- ------------ -------------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... 131,882,494 11,601,734 (13,055,989) 15,515,742 (29,854,379) 1,384,140
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- (27,162) (28,740) 218 --
------------ ------------ ------------ ----------- ------------ -------------
NET APPRECIATION
(DEPRECIATION)........... 131,882,494 11,601,734 (13,083,151) 15,487,002 (29,854,161) 1,384,140
------------ ------------ ------------ ----------- ------------ -------------
NET GAIN (LOSS).......... 319,678,739 20,768,071 35,761,022 49,202,968 (48,244,408) 1,126,276
------------ ------------ ------------ ----------- ------------ -------------
NET INCREASE (DECREASE)....... $352,973,592 $ 20,778,053 $ 42,610,621 $52,920,777 $(46,941,246) $1,336,134
------------ ------------ ------------ ----------- ------------ -------------
------------ ------------ ------------ ----------- ------------ -------------
<CAPTION>
EQUITY STRATEGIST
<S> <C> <C>
- ------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 3,150,825 $13,603,014
Dividends..................... 4,283,552** 3,428,837
------------ -----------
TOTAL INCOME............. 7,434,377 17,031,851
------------ -----------
EXPENSES
Investment management fee..... 3,306,222 2,361,054
Professional fees............. 25,700 28,272
Custodian fees................ 50,311 32,189
Shareholder reports and
notices..................... 42,469 25,720
Trustees' fees and expenses... 1,704 1,177
Transfer agent fees and
expenses.................... 500 500
Other......................... 6,838 7,410
------------ -----------
TOTAL EXPENSES........... 3,433,744 2,456,322
Less: amounts
waived/assumed.............. -- --
------------ -----------
NET EXPENSES............. 3,433,744 2,456,322
------------ -----------
NET INVESTMENT INCOME.... 4,000,633 14,575,529
------------ -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 114,548,760 52,520,724
Options written........... -- --
Foreign exchange
transactions............ -- --
------------ -----------
NET GAIN (LOSS).......... 114,548,760 52,520,724
------------ -----------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... 87,770,605 (8,667,550)
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- --
------------ -----------
NET APPRECIATION
(DEPRECIATION)........... 87,770,605 (8,667,550)
------------ -----------
NET GAIN (LOSS).......... 202,319,365 43,853,174
------------ -----------
NET INCREASE (DECREASE)....... $206,319,998 $58,428,703
------------ -----------
------------ -----------
</TABLE>
115
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
QUALITY INCOME PLUS
MONEY MARKET ------------------------------
------------------------------- FOR THE YEAR
FOR THE YEAR FOR THE YEAR ENDED FOR THE YEAR
ENDED DECEMBER ENDED DECEMBER DECEMBER 31, ENDED DECEMBER
31, 1997 31, 1996 1997 31, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 18,013,271 $ 14,442,540 $ 30,890,531 $ 32,950,563
Net realized gain............. -- -- 4,211,639 (2,603,573)
Net change in unrealized
appreciation/depreciation... -- -- 12,724,498 (24,916,368)
-------------- -------------- ------------- --------------
NET INCREASE............. 18,013,271 14,442,540 47,826,668 5,430,622
-------------- -------------- ------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (18,013,450) (14,442,318) (30,957,912) (33,491,200)
Net realized gain............. -- -- -- --
-------------- -------------- ------------- --------------
TOTAL.................... (18,013,450) (14,442,318) (30,957,912) (33,491,200)
-------------- -------------- ------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 186,625,741 199,781,437 20,704,612 18,363,915
Reinvestment of dividends and
distributions............... 18,013,450 14,442,318 30,957,912 33,491,200
Cost of shares repurchased.... (209,298,904) (123,772,522) (68,201,984) (69,712,880)
-------------- -------------- ------------- --------------
NET INCREASE
(DECREASE)............... (4,659,713) 90,451,233 (16,539,460) (17,857,765)
-------------- -------------- ------------- --------------
TOTAL INCREASE
(DECREASE)............... (4,659,892) 90,451,455 329,296 (45,918,343)
NET ASSETS:
Beginning of period........... 340,238,041 249,786,586 474,660,212 520,578,555
-------------- -------------- ------------- --------------
END OF PERIOD............ $ 335,578,149 $ 340,238,041 $474,989,508 $ 474,660,212
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 65 $ 244 $ 148 $ 67,529
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 186,625,741 199,781,437 1,958,805 1,751,757
Issued in reinvestment of
dividends and
distributions............... 18,013,450 14,442,318 2,970,264 3,241,058
Repurchased................... (209,298,904) (123,772,522) (6,558,494) (6,752,796)
-------------- -------------- ------------- --------------
NET INCREASE (DECREASE)....... (4,659,713) 90,451,233 (1,629,425) (1,759,981)
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
- ------------------
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
116
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCOME
HIGH YIELD UTILITIES BUILDER*
--------------------------- --------------------------- ------------- DIVIDEND GROWTH
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ------------------------------
ENDED ENDED ENDED ENDED ENDED FOR THE YEAR FOR THE YEAR
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER ENDED DECEMBER
1997 1996 1997 1996 1997 31, 1997 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 38,277,750 $ 25,415,550 $ 14,516,395 $ 16,513,033 $ 1,300,879 $ 33,294,853 $ 26,113,139
Net realized gain............. 184,126 (5,282,128) 24,274,209 5,380,515 773,374 187,796,245 76,341,307
Net change in unrealized
appreciation/depreciation... (2,939,937) 2,235,871 61,888,240 14,769,561 3,070,555 131,882,494 126,566,513
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE............. 35,521,939 22,369,293 100,678,844 36,663,109 5,144,808 352,973,592 229,020,959
------------- ------------- ------------- ------------- ------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (37,998,064) (25,894,730) (14,516,342) (16,518,454) (1,300,838) (33,294,817) (26,130,248)
Net realized gain............. -- -- (5,380,346) (1,186,573) -- (76,862,062) (25,851,911)
------------- ------------- ------------- ------------- ------------- -------------- --------------
TOTAL.................... (37,998,064) (25,894,730) (19,896,688) (17,705,027) (1,300,838) (110,156,879) (51,982,159)
------------- ------------- ------------- ------------- ------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 94,751,829 97,281,752 10,084,184 10,173,470 51,206,002 315,154,387 216,135,874
Reinvestment of dividends and
distributions............... 37,998,064 25,894,730 19,896,688 17,705,027 1,300,838 110,156,879 51,982,159
Cost of shares repurchased.... (21,761,038) (14,412,089) (93,290,638) (85,244,858) (927,977) (50,626,648) (22,169,232)
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE
(DECREASE)............... 110,988,855 108,764,393 (63,309,766) (57,366,361) 51,578,863 374,684,618 245,948,801
------------- ------------- ------------- ------------- ------------- -------------- --------------
TOTAL INCREASE
(DECREASE)............... 108,512,730 105,238,956 17,472,390 (38,408,279) 55,422,833 617,501,331 422,987,601
NET ASSETS:
Beginning of period........... 259,548,541 154,309,585 440,661,866 479,070,145 -- 1,288,404,427 865,416,826
------------- ------------- ------------- ------------- ------------- -------------- --------------
END OF PERIOD............ $368,061,271 $259,548,541 $458,134,256 $440,661,866 $ 55,422,833 $1,905,905,758 $1,288,404,427
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 294,896 $ 15,210 $ 53 $ -- $ 41 $ 141 $ 105
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 15,438,103 15,513,116 586,036 688,255 4,681,304 15,299,661 12,705,268
Issued in reinvestment of
dividends and
distributions............... 6,235,666 4,153,525 1,234,020 1,195,247 114,240 5,383,295 3,121,829
Repurchased................... (3,542,834) (2,293,681) (5,905,011) (5,772,285) (84,489) (2,443,929) (1,315,470)
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE (DECREASE)....... 18,130,935 17,372,960 (4,084,955) (3,888,783) 4,711,055 18,239,027 14,511,627
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
</TABLE>
117
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
CAPITAL GROWTH
----------------------------- GLOBAL DIVIDEND GROWTH
FOR THE YEAR FOR THE YEAR ----------------------------------
ENDED ENDED FOR THE YEAR FOR THE YEAR
DECEMBER 31, DECEMBER 31, ENDED DECEMBER ENDED DECEMBER
1997 1996 31, 1997 31, 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 9,982 $ 406,814 $ 6,849,599 $ 5,178,815
Net realized gain............. 9,166,337 11,957,509 48,844,173 17,454,295
Net change in unrealized
appreciation/depreciation... 11,601,734 (4,318,064) (13,083,151) 21,236,500
------------- ------------- -------------- -----------------
NET INCREASE
(DECREASE)............... 20,778,053 8,046,259 42,610,621 43,869,610
------------- ------------- -------------- -----------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (406,792) (132,322) (7,198,015) (5,251,753)
Net realized gain............. (11,642,832) (1,337,440) (17,705,621) (6,985,312)
------------- ------------- -------------- -----------------
TOTAL.................... (12,049,624) (1,469,762) (24,903,636) (12,237,065)
------------- ------------- -------------- -----------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 33,654,933 21,627,226 124,800,012 90,625,831
Reinvestment of dividends and
distributions............... 12,049,624 1,469,762 24,903,636 12,237,065
Cost of shares repurchased.... (14,195,060) (9,806,505) (20,618,115) (5,413,023)
------------- ------------- -------------- -----------------
NET INCREASE
(DECREASE)............... 31,509,497 13,290,483 129,085,533 97,449,873
------------- ------------- -------------- -----------------
TOTAL INCREASE
(DECREASE)............... 40,237,926 19,866,980 146,792,518 129,082,418
NET ASSETS:
Beginning of period........... 86,862,150 66,995,170 334,820,942 205,738,524
------------- ------------- -------------- -----------------
END OF PERIOD............ $127,100,076 $ 86,862,150 $ 481,613,460 $ 334,820,942
------------- ------------- -------------- -----------------
------------- ------------- -------------- -----------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 9,662 $ 406,472 $ (74,436) $ 348,453
------------- ------------- -------------- -----------------
------------- ------------- -------------- -----------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 1,796,050 1,329,674 8,901,084 7,330,384
Issued in reinvestment of
dividends and
distributions............... 710,054 96,568 1,756,694 1,008,262
Repurchased................... (774,142) (611,382) (1,479,827) (440,583)
------------- ------------- -------------- -----------------
NET INCREASE (DECREASE)....... 1,731,962 814,860 9,177,951 7,898,063
------------- ------------- -------------- -----------------
------------- ------------- -------------- -----------------
- ------------------
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
118
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAPITAL
EUROPEAN GROWTH PACIFIC GROWTH APPRECIATION*
---------------------------- ---------------------------- ------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 3,717,809 $ 2,264,492 $ 1,303,162 $ 1,412,599 $ 209,858
Net realized gain............. 33,715,966 19,547,703 (18,390,247) (2,475,077) (257,864)
Net change in unrealized
appreciation/depreciation... 15,487,002 41,074,663 (29,854,161) 3,540,345 1,384,140
------------- ------------- ------------- ------------- ------------
NET INCREASE
(DECREASE)............... 52,920,777 62,886,858 (46,941,246) 2,477,867 1,336,134
------------- ------------- ------------- ------------- ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (3,760,260) (531,371) (1,891,258) (1,651,362) --
Net realized gain............. (18,466,454) (11,996,632) -- -- --
------------- ------------- ------------- ------------- ------------
TOTAL.................... (22,226,714) (12,528,003) (1,891,258) (1,651,362) --
------------- ------------- ------------- ------------- ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 69,322,769 60,993,831 27,108,335 66,862,929 33,834,119
Reinvestment of dividends and
distributions............... 22,226,714 12,528,003 1,891,258 1,651,362 --
Cost of shares repurchased.... (33,224,347) (9,578,044) (55,800,009) (23,134,634) (2,864,342)
------------- ------------- ------------- ------------- ------------
NET INCREASE
(DECREASE)............... 58,325,136 63,943,790 (26,800,416) 45,379,657 30,969,777
------------- ------------- ------------- ------------- ------------
TOTAL INCREASE
(DECREASE)............... 89,019,199 114,302,645 (75,632,920) 46,206,162 32,305,911
NET ASSETS:
Beginning of period........... 302,422,054 188,119,409 144,536,457 98,330,295 --
------------- ------------- ------------- ------------- ------------
END OF PERIOD............ $391,441,253 $302,422,054 $ 68,903,537 $144,536,457 $32,305,911
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 5,394,724 $ 2,259,627 $ 2,054,796 $ 1,663,988 $ 209,858
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 3,070,886 3,131,701 3,373,487 6,522,537 3,118,030
Issued in reinvestment of
dividends and
distributions............... 983,918 677,922 188,937 173,462 --
Repurchased................... (1,452,789) (514,185) (6,804,802) (2,326,246) (263,345)
------------- ------------- ------------- ------------- ------------
NET INCREASE (DECREASE)....... 2,602,015 3,295,438 (3,242,378) 4,369,753 2,854,685
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
<CAPTION>
EQUITY
----------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 4,000,633 $ 2,556,972
Net realized gain............. 114,548,760 42,116,968
Net change in unrealized
appreciation/depreciation... 87,770,605 5,775,201
------------- -------------
NET INCREASE
(DECREASE)............... 206,319,998 50,449,141
------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (4,001,396) (2,577,952)
Net realized gain............. (43,430,509) (54,814,557)
------------- -------------
TOTAL.................... (47,431,905) (57,392,509)
------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 150,537,439 132,116,853
Reinvestment of dividends and
distributions............... 47,431,905 57,392,509
Cost of shares repurchased.... (55,675,579) (20,436,940)
------------- -------------
NET INCREASE
(DECREASE)............... 142,293,765 169,072,422
------------- -------------
TOTAL INCREASE
(DECREASE)............... 301,181,858 162,129,054
NET ASSETS:
Beginning of period........... 521,908,424 359,779,370
------------- -------------
END OF PERIOD............ $823,090,282 $521,908,424
------------- -------------
------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ -- $ 763
------------- -------------
------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 4,895,346 4,838,072
Issued in reinvestment of
dividends and
distributions............... 1,670,194 2,452,920
Repurchased................... (1,832,698) (770,532)
------------- -------------
NET INCREASE (DECREASE)....... 4,732,842 6,520,460
------------- -------------
------------- -------------
</TABLE>
119
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
STRATEGIST
----------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
- -----------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 14,575,529 $ 13,143,825
Net realized gain............. 52,520,724 9,836,251
Net change in unrealized
appreciation/depreciation... (8,667,550) 32,734,426
------------- -------------
NET INCREASE............. 58,428,703 55,714,502
------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (14,592,034) (13,174,571)
Net realized gain............. (10,026,602) (3,569,367)
------------- -------------
TOTAL.................... (24,618,636) (16,743,938)
------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 49,903,217 25,629,890
Reinvestment of dividends and
distributions............... 24,618,636 16,743,938
Cost of shares repurchased.... (35,071,627) (46,155,709)
------------- -------------
NET INCREASE
(DECREASE)............... 39,450,226 (3,781,881)
------------- -------------
TOTAL INCREASE........... 73,260,293 35,188,683
NET ASSETS:
Beginning of period........... 423,767,852 388,579,169
------------- -------------
END OF PERIOD............ $497,028,145 $423,767,852
------------- -------------
------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 62 $ 16,567
------------- -------------
------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 3,393,163 1,954,971
Issued in reinvestment of
dividends and
distributions............... 1,704,636 1,285,378
Repurchased................... (2,398,648) (3,573,439)
------------- -------------
NET INCREASE (DECREASE)....... 2,699,151 (333,090)
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
120
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997
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. Investments in the Fund may be made only by (1)
Northbrook Life Insurance Company to fund the benefits under variable annuity
contracts and variable life insurance contracts it issues; (2) Allstate Life
Insurance Company of New York to fund the benefits under variable annuity
contracts it issues; (3) Glenbrook Life and Annuity Company to fund the benefits
under variable annuity contracts and variable life insurance contracts it
issues; and (4) Paragon Life Insurance Company to fund the benefits under
variable life insurance contracts it issues to certain employees of Morgan
Stanley, Dean Witter, Discover & Co., the parent company of Dean Witter
InterCapital Inc. (the "Investment Manager").
The Fund, organized on February 25, 1983 as a Massachusetts business trust,
consists of thirteen Portfolios ("Portfolios") which commenced operations as
follows:
<TABLE>
<CAPTION>
COMMENCEMENT OF COMMENCEMENT OF
PORTFOLIO OPERATIONS PORTFOLIO OPERATIONS
- ------------------------------ ----------------- ------------------------------ -----------------
<S> <C> <C> <C>
Money Market.................. March 9, 1984 Global Dividend Growth........ February 23, 1994
Quality Income Plus........... March 1, 1987 European Growth............... March 1, 1991
High Yield.................... March 9, 1984 Pacific Growth................ February 23, 1994
Utilities..................... March 1, 1990 Capital Appreciation.......... January 21, 1997
Income Builder................ January 21, 1997 Equity........................ March 9, 1984
Dividend Growth............... March 1, 1990 Strategist.................... March 1, 1987
Capital Growth................ March 1, 1991
</TABLE>
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 Income Plus 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.
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.
Income Builder Seeks, as its primary objective, to earn reasonable income and,
as a secondary objective, growth of capital by investing
primarily in income-producing equity securities.
</TABLE>
121
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Dividend Growth Seeks to provide reasonable current income and long-term growth
of income and capital by investing primarily in common stocks of
companies with a record of paying dividends and the potential for
increasing dividends.
Capital Growth Seeks long-term capital growth by investing primarily in common
stocks.
Global Dividend Seeks to provide reasonable current income and long-term growth
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.
Capital Appreciation 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.
Equity Seeks, as its primary objective, capital growth and, as a
secondary objective, income, but only when consistent with its
primary objective, by investing primarily in common stocks.
Strategist Seeks a high total investment return through a fully managed
investment policy utilizing equity, investment grade fixed income
and money market securities and writing covered 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 pursuant to procedures adopted 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 are valued at the mean between their latest
bid and asked price; (4) when market quotations are not readily available,
including circumstances under which it is determined by the Investment Manager
(or, in the case of
122
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
European Growth and Pacific Growth, by Morgan Grenfell Investment Services
Limited (the "Sub-Advisor")) 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 Trustees (valuation of debt 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); (5) certain of the Fund's
portfolio securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or research
and evaluations by its staff, including review of broker-dealer market price
quotations in determining what it believes is the fair valuation of the
securities valued by such pricing service; and (6) short-term debt securities
having a maturity date of more than sixty days at the time of purchase are
valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined 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. Money Market 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
123
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
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 foreign currency contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Portfolios do not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
forward 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
124
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
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 "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%; Quality Income Plus -- 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; 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, Capital
Appreciation and Income Builder -- 0.75%; European Growth and Pacific Growth --
1.0%; 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
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.
125
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
Under a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor provides European Growth and Pacific Growth 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.
The Investment Manager has undertaken to reimburse all operating expenses and
waive the compensation provided for in its Investment Management Agreement with
Capital Appreciation and Income Builder until such time as the respective
Portfolios have $50 million of net assets or July 31, 1998, whichever occurs
first. Income Builder attained $50 million of net assets on December 3, 1997. At
December 31, 1997, included in the Statements of Assets and Liabilities are
receivables from an affiliate which represent expense reimbursements due to the
Portfolios.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities of portfolio securities, excluding short-term
investments (except for Money Market), for the period ended December 31, 1997
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Money Market............................ $19,206,653 $ 14,842,160 $1,322,758,250 $ 1,348,616,023
Quality Income Plus..................... 566,971,703 571,045,359 210,736,397 222,119,300
High Yield.............................. -- -- 389,565,961 275,770,953
Utilities............................... -- -- 52,663,994 125,373,342
Income Builder.......................... 801,583 40,381 57,136,711 9,551,777
Dividend Growth......................... -- 3,296,094 723,066,604 448,622,873
Capital Growth.......................... 650,436 2,538,702 164,592,009 136,594,545
Global Dividend Growth.................. -- -- 312,940,092 198,638,634
European Growth......................... -- -- 201,833,360 154,355,339
Pacific Growth.......................... -- -- 66,481,393 92,660,527
Capital Appreciation.................... -- -- 28,589,857 4,234,692
Equity.................................. 74,242,691 23,113,718 913,474,791 873,139,301
Strategist.............................. 122,501,744 147,959,220 478,265,005 487,919,364
</TABLE>
Included in the payable for investments purchased at December 31, 1997 for
Income Builder, Capital Growth and Global Dividend Growth, are $210,541,
$2,889,990 and $214,463, respectively, for unsettled trades with Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager. Included in the
receivable for investments sold at December 31, 1997 for Dividend Growth, Equity
and Global Dividend Growth are $1,726,318, $114,152 and $720,568, respectively,
for unsettled trades with DWR.
126
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
Included in the receivable for investments sold at December 31, 1997 for
Dividend Growth and Global Dividend Growth are $3,795,231 and $622,932,
respectively, for unsettled trades with Morgan Stanley & Co. Inc. ("Morgan
Stanley"), an affiliate of the Investment Manager since May 31, 1997. Included
in the payable for investments purchased at December 31, 1997 for Income Builder
and Capital Growth are $123,823 and $1,110,355, respectively, for unsettled
trades with Morgan Stanley.
For the period ended December 31, 1997, the following Portfolios incurred
brokerage commissions with DWR for portfolio transactions executed on behalf of
the Portfolio:
<TABLE>
<CAPTION>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND CAPITAL
UTILITIES BUILDER GROWTH GROWTH GROWTH APPRECIATION EQUITY STRATEGIST
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 35,250 $ 24,982 $ 229,890 $ 45,335 $ 54,004 $ 17,785 $ 158,587 $ 73,880
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
For the period May 31, 1997 through December 31, 1997, the following Portfolios
incurred brokerage commisions with Morgan Stanley for portfolio transactions
executed on behalf of the Portfolio:
<TABLE>
<CAPTION>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY STRATEGIST
- --------- ------- -------- ------- -------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000 $710 $ 73,920 $10,305 $125,186 $4,655 $13,927 $69,900 $34,140
- --------- ------- -------- ------- -------- -------- ------- ------- ----------
- --------- ------- -------- ------- -------- -------- ------- ------- ----------
</TABLE>
For the year ended December 31, 1997, European Growth and Pacific Growth
incurred brokerage commissions of $4,473 and $10,285, respectively, with
affiliates of the Sub-Advisor for portfolio transactions executed on behalf of
the Portfolio.
Dean Witter Trust FSB, 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, 1997
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>
AGGREGATE PENSION COST
QUALITY GLOBAL
MONEY INCOME HIGH DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
MARKET PLUS YIELD UTILITIES GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY STRATEGIST
-------- -------- ------ --------- ---------- ------ -------- -------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 401 $ 712 $ 187 $ 671 $ 1,084 $ 83 $ 208 $ 155 $ 103 $ 441 $ 587
-------- -------- ------ --------- ---------- ------ -------- -------- ------ --------- ----------
-------- -------- ------ --------- ---------- ------ -------- -------- ------ --------- ----------
ACCRUED PENSION LIABILITY
$ 11,395 $ 7,626 $3,446 $ 5,085 $ 8,469 $ 346 $ 538 $ 725 $ 272 $ 5,226 $ 8,171
-------- -------- ------ --------- ---------- ------ -------- -------- ------ --------- ----------
-------- -------- ------ --------- ---------- ------ -------- -------- ------ --------- ----------
</TABLE>
127
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
4. FEDERAL INCOME TAX STATUS
At December 31, 1997, 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, 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL
- ---------------------------------------- ------- ------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality Income Plus..................... -- -- -- -- $20,752 -- $2,491 -- $23,243
High Yield.............................. $34,291 $7,336 $3,057 $4,736 3,256 $2,984 5,521 -- 61,181
Pacific Growth.......................... -- -- -- -- -- 1,939 4,124 $11,428 17,491
</TABLE>
During the year ended December 31, 1997, the following Portfolios utilized
approximate net capital loss carryovers: Quality Income Plus - $4,096,000 and
High Yield - $2,126,000.
Net capital and net foreign 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 1997: Capital
Growth - $389,000; Global Dividend Growth - $4,000; Pacific Growth - $8,545,000;
Capital Appreciation - $30,000.
At December 31, 1997, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
---------------------------- -------------------------------
LOSS DEFERRALS FOREIGN EXPIRED
POST-OCTOBER FROM WASH CURRENCY CAPITAL LOSS
LOSSES SALES GAINS/LOSSES CARRYFORWARD
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
High Yield.............................. - -
Utilities............................... -
Income Builder.......................... -
Dividend Growth......................... -
Capital Growth.......................... - -
Global Dividend Growth.................. - - -
European Growth......................... - -
Pacific Growth.......................... - - -
Capital Appreciation.................... -
Equity.................................. -
</TABLE>
Additionally, Global Dividend Growth and Pacific Growth had temporary
differences attributable to income from the mark-to-market of passive foreign
investment companies ("PFICs") and European Growth and Pacific Growth had
permanent differences attributable to tax adjustments on PFICs sold by the
Portfolios.
128
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME ACCUMULATED UNDISTRIBUTED
(LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL
------------------------- ------------------------- ---------------
<S> <C> <C> <C>
High Yield.............................. $8,568,648 $(8,568,648)
Global Dividend Growth.................. $ (74,473) 74,473
European Growth......................... 3,177,548 (3,170,048) (7,500)
Pacific Growth.......................... 978,904 (978,904)
</TABLE>
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Global Dividend Growth, European Growth and Pacific Growth 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 and write 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.
Forward contracts and over-the-counter 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 put options on
foreign currencies from the potential inability of the counterparties to meet
the terms of their contracts.
At December 31, 1997, Global Dividend Growth and European Growth had outstanding
forward contracts used to facilitate settlement of foreign currency denominated
portfolio transactions and to manage foreign currency exposure.
At December 31, 1997, European Growth's investments in securities of issuers in
the United Kingdom represented 33.7% of the Portfolio's net assets. Pacific
Growth's investments in securities of issuers in Hong Kong represented 33.8% of
the Portfolio's net assets. These investments, which involve risks and
considerations not present with respect to U.S. securities, may be affected by
economic or political developments in these regions.
At December 31, 1997, Global Dividend Growth's, European Growth's and Pacific
Growth's cash balances consisted principally of interest bearing deposits with
Chase Manhattan Bank N.A., the custodian of each Portfolio.
129
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
6. COMMITMENTS
As of December 31, 1997, Pacific Growth purchased shares which are subject to
installment payments. At December 31, 1997, the Fund had outstanding commitments
as follows:
<TABLE>
<CAPTION>
ISSUER OUTSTANDING COMMITMENT INSTALLMENT PAYMENT TERMS
- ------------------------- ------------------------- ----------------------------------------
<C> <C> <S>
Far East Bank & Trust Co. 7,500 Balance payable in one installment upon
notification by the issuer
</TABLE>
130
<PAGE>
(This page has been left blank intentionally.)
131
<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
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
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 1.00 0.050 -- 0.050 (0.050) -- (0.050)
1997 1.00 0.051 -- 0.051 (0.051) -- (0.051)
QUALITY INCOME PLUS
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 10.96 0.71 (0.58) 0.13 (0.72) -- (0.72)
1997 10.37 0.70 0.40 1.10 (0.70) -- (0.70)
HIGH YIELD
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 6.26 0.77 (0.06) 0.71 (0.79) -- (0.79)
1997 6.18 0.75 (0.06) 0.69 (0.75) -- (0.75)
UTILITIES
1990(a) 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 14.68 0.55 0.70 1.25 (0.55) (0.04) (0.59)
1997 15.34 0.57 3.46 4.03 (0.57) (0.21) (0.78)
INCOME BUILDER
1997(d) 10.00 0.44 1.76 2.20 (0.44) -- (0.44)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
132
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
------------------
NET
NET ASSET TOTAL NET ASSETS INVESTMENT PORTFOLIO AVERAGE
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER COMMISSION
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE RATE PAID
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1988 $ 1.00 7.23% $ 77,304 0.62% 7.04% N/A N/A
1989 1.00 9.05 76,701 0.58 8.67 N/A N/A
1990 1.00 7.89 118,058 0.57 7.60 N/A N/A
1991 1.00 5.75 104,277 0.57 5.62 N/A N/A
1992 1.00 3.43 96,151 0.59 3.38 N/A N/A
1993 1.00 2.75 129,925 0.57 2.71 N/A N/A
1994 1.00 3.81 268,624 0.55 3.93 N/A N/A
1995 1.00 5.66 249,787 0.53 5.52 N/A N/A
1996 1.00 5.11 340,238 0.52 4.97 N/A N/A
1997 1.00 5.23 335,578 0.52 5.10 N/A N/A
QUALITY INCOME PLUS
1988 9.45 7.32 28,037 0.73 8.87 277% N/A
1989 9.73 12.78 48,784 0.70 9.09 242 N/A
1990 9.49 6.84 57,407 0.66 9.09 166 N/A
1991 10.34 18.75 81,918 0.60 8.39 105 N/A
1992 10.39 8.26 163,368 0.58 7.41 148 N/A
1993 11.03 12.99 487,647 0.56 6.17 219 N/A
1994 9.45 (6.63) 414,905 0.54 6.88 254 N/A
1995 10.96 24.30 520,579 0.54 7.07 162 N/A
1996 10.37 1.56 474,660 0.53 6.84 182 N/A
1997 10.77 11.09 474,990 0.53 6.71 171 N/A
HIGH YIELD
1988 9.92 10.83 192,290 0.56 11.06 140 N/A
1989 7.52 (12.44) 96,359 0.55 13.94 54 N/A
1990 4.55 (25.54) 27,078 0.69 17.98 42 N/A
1991 6.25 58.14 34,603 1.01 12.29 300 N/A
1992 6.43 18.35 40,042 0.74 14.05 204 N/A
1993 7.11 24.08 90,200 0.60 11.80 177 N/A
1994 6.16 (2.47) 111,934 0.59 11.71 105 N/A
1995 6.26 14.93 154,310 0.54 12.67 58 N/A
1996 6.18 11.98 259,549 0.51 12.59 57 N/A
1997 6.12 11.87 368,061 0.53 12.44 95 N/A
UTILITIES
1990(a) 10.02 4.52(1) 37,597 0.40(2)(3) 6.38(2) 46(1) --
1991 11.47 20.56 68,449 0.80 5.23 25 --
1992 12.34 12.64 153,748 0.73 4.63 26 --
1993 13.74 15.69 490,934 0.71 3.75 11 --
1994 11.92 (9.02) 382,412 0.68 4.21 15 --
1995 14.68 28.65 479,070 0.68 4.00 13 --
1996 15.34 8.68 440,662 0.67 3.61 9 $ 0.0543
1997 18.59 27.15 458,134 0.67 3.48 13 0.0555
INCOME BUILDER
1997(d) 11.76 22.38(1) 55,423 0.15(2)(6) 5.73(2)(6) 41(1) 0.0529
</TABLE>
<TABLE>
<C> <S>
- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
133
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990(a) $ 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 15.59 0.41 3.22 3.63 (0.41) (0.41) (0.82)
1997 18.40 0.41 4.20 4.61 (0.41) (1.00) (1.41)
CAPITAL GROWTH
1991(b) 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 15.22 0.08 1.65 1.73 (0.03) (0.27) (0.30)
1997 16.65 0.01 3.90 3.91 (0.08) (2.19) (2.27)
GLOBAL DIVIDEND GROWTH
1994(c) 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 11.69 0.24 1.75 1.99 (0.24) (0.31) (0.55)
1997 13.13 0.22 1.37 1.59 (0.23) (0.60) (0.83)
EUROPEAN GROWTH
1991(b) 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 17.53 0.17 4.91 5.08 (0.04) (1.01) (1.05)
1997 21.56 0.21 3.19 3.40 (0.24) (1.18) (1.42)
PACIFIC GROWTH
1994(c) 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 9.70 0.05 0.32 0.37 (0.11) -- (0.11)
1997 9.96 0.12 (3.82) (3.70) (0.14) -- (0.14)
CAPITAL APPRECIATION
1997(d) 10.00 0.07 1.25 1.32 -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
134
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
------------------
NET
NET ASSET TOTAL NET ASSETS INVESTMENT PORTFOLIO AVERAGE
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER COMMISSION
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE RATE PAID
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND GROWTH
1990(a) $ 8.93 (7.81)%(1) $ 57,282 0.54%(2)(3) 4.50%(2) 19%(1) --
1991 11.00 27.76 98,023 0.73 3.61 6 --
1992 11.51 8.16 192,551 0.69 3.42 4 --
1993 12.78 14.34 483,145 0.68 3.01 6 --
1994 11.99 (3.27) 572,952 0.64 3.13 20 --
1995 15.59 36.38 865,417 0.61 2.75 24 --
1996 18.40 23.96 1,288,404 0.57 2.46 23 $ 0.0553
1997 21.60 25.61 1,905,906 0.54 2.06 28 0.0552
CAPITAL GROWTH
1991(b) 12.69 28.41(1) 18,400 -- (2)(4) 1.82(2) 32(1) --
1992 12.79 1.64 45,105 0.86 0.62 22 --
1993 11.81 (6.99) 50,309 0.74 0.78 36 --
1994 11.52 (1.28) 45,715 0.77 0.90 37 --
1995 15.22 32.92 66,995 0.74 0.70 34 --
1996 16.65 11.55 86,862 0.73 0.52 98 0.0570
1997 18.29 24.54 127,100 0.71 0.01 139 0.0571
GLOBAL DIVIDEND GROWTH
1994(c) 9.82 0.27(1) 138,486 0.87(2)(5) 2.62(2) 20(1) --
1995 11.69 22.14 205,739 0.88 2.23 55 --
1996 13.13 17.49 334,821 0.85 1.94 39 0.0360
1997 13.89 12.04 481,613 0.84 1.61 48 0.0283
EUROPEAN GROWTH
1991(b) 9.89 1.34(1) 3.653 -- (2)(4) 3.18(2) 77(1) --
1992 10.18 3.99 10,686 1.73 0.74 97 --
1993 14.03 40.88 79,052 1.28 0.97 77 --
1994 14.56 8.36 152,021 1.16 1.49 58 --
1995 17.53 25.89 188,119 1.17 1.25 69 --
1996 21.56 29.99 302,422 1.11 0.97 43 0.0453
1997 23.54 16.07 391,441 1.12 1.04 45 0.0530
PACIFIC GROWTH
1994(c) 9.26 (6.73) (1) 75,425 1.00(2)(5) 0.56(2) 22(1) --
1995 9.70 5.74 98,330 1.44 1.23 53 --
1996 9.96 3.89 144,536 1.37 1.01 50 0.0108
1997 6.12 (37.70) 68,904 1.44 1.09 58 0.0077
CAPITAL APPRECIATION
1997(d) 11.32 13.20(1) 32,306 -- (6) 1.30(2)(6) 25(1) 0.0490
</TABLE>
<TABLE>
<C> <S>
- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
135
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY
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 27.14 0.16 2.70 2.86 (0.16) (3.45) (3.61)
1997 26.39 0.18 9.27 9.45 (0.18) (2.08) (2.26)
STRATEGIST
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 12.45 0.43 1.39 1.82 (0.43) (0.12) (0.55)
1997 13.72 0.45 1.40 1.85 (0.45) (0.32) (0.77)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
Commencement of operations:
(a) March 1, 1990.
(b) March 1, 1991.
(c) February 23, 1994.
(d) January 21, 1997.
+ Calculated based on the net asset value as of the last business day of the
period.
* Distributions from capital.
** Includes dividends 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, 1990 through August 31, 1990, the
ratio of expenses to average net assets would have been 0.75%.
(4) If the Investment Manager had not assumed all expenses and waived the
management fee for the period March 1, 1991 through December 31, 1991, the
ratio of expenses to average net assets would have been 1.60% for Capital
Growth and 4.12% for European Growth.
(5) If the Investment Manager had not assumed all expenses and waived its
management fee for the period February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through August 2, 1994 for
Pacific Growth, the ratio of expenses to average net assets would have been
0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
(6) If the Investment Manager had not assumed all expenses and waived its
management fee for the period January 21, 1997 through December 3, 1997 for
Income Builder and January 21, 1997 through December 31, 1997 for Capital
Appreciation, the ratios of expenses and net investment income to average
net assets would have been 0.99% and 4.89%, respectively, for Income
Builder and 0.97% and 0.33%, respectively, for Capital Appreciation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
136
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
------------------
NET
NET ASSET TOTAL NET ASSETS INVESTMENT PORTFOLIO AVERAGE
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER COMMISSION
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE RATE PAID
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY
1988 $ 13.36 9.84% $ 39,857 0.65% 2.77% 162% --
1989 15.14 18.83 58,316 0.60 4.85 81 --
1990 14.10 (3.62) 41,234 0.62 3.38 130 --
1991 22.14 59.05 63,524 0.64 1.09 214 --
1992 19.80 0.05 77,527 0.62 1.22 286 --
1993 22.15 19.72 182,828 0.58 0.69 265 --
1994 19.25 (4.91) 225,289 0.57 1.19 299 --
1995 27.14 42.53 359,779 0.54 0.97 269 --
1996 26.39 12.36 521,908 0.54 0.58 279 $ 0.0587
1997 33.58 37.43 823,090 0.52 0.61 145 0.0578
STRATEGIST
1988 10.22 12.79 61,947 0.66 7.29 310 --
1989 10.41 10.67 88,712 0.57 8.38 282 --
1990 9.81 1.56 68,447 0.58 6.10 163 --
1991 12.02 28.26 87,779 0.60 4.34 86 --
1992 12.29 7.24 136,741 0.58 3.74 87 --
1993 12.68 10.38 287,502 0.57 3.11 57 --
1994 12.45 3.94 392,760 0.54 3.93 125 --
1995 12.45 9.48 388,579 0.52 5.03 329 --
1996 13.72 15.02 423,768 0.52 3.30 153 0.0591
1997 14.80 13.71 497,028 0.52 3.09 159 0.0565
</TABLE>
137
<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 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 (constituting Dean
Witter Variable Investment Series, hereafter referred to as the "Fund") at
December 31, 1997, 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 presented, 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 audit 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, 1997 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 13, 1998
138
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (80.9%)
AUTOMOTIVE - FINANCE (13.9%)
$ 13,310 American Honda Finance Corp............................... 5.55-5.58 % 07/16/98-07/30/98 $ 13,267,846
5,100 Chrysler Financial Corp................................... 5.59 07/01/98 5,100,000
9,950 Daimler-Benz North America Corp........................... 5.60-5.61 07/23/98-08/11/98 9,900,988
6,000 Ford Motor Credit Co...................................... 5.56 07/21/98 5,981,633
14,600 General Motors Acceptance Corp............................ 5.58-5.63 08/21/98-11/19/98 14,413,995
------------
48,664,462
------------
BANK HOLDING COMPANIES (12.6%)
11,500 Bankers Trust Corp........................................ 5.56-5.76 08/24/98-01/11/99 11,287,111
14,000 Morgan (J.P.) & Co. Inc................................... 5.57-5.63 07/10/98-12/16/98 13,753,563
5,000 Mellon Financial Co....................................... 5.60 07/27/98 4,980,067
5,000 NationsBank Corp.......................................... 5.61 08/13/98 4,967,033
4,130 Norwest Corp.............................................. 5.60 07/31/98 4,110,830
5,000 PNC Funding Corp.......................................... 5.62 08/26/98 4,957,067
------------
44,055,671
------------
BANKS - COMMERCIAL (13.7%)
10,000 Abbey National North America Corp......................... 5.65-5.67 10/29/98-11/04/98 9,812,091
5,000 Barclays U.S. Funding Corp................................ 5.56 07/07/98 4,995,492
4,000 Rabobank USA Financial Corp............................... 5.62 10/23/98 3,930,840
16,000 Societe Generale N.A., Inc................................ 5.57-5.58 07/09/98-10/09/98 15,865,997
5,000 Toronto-Dominion Holdings USA Inc......................... 5.63 11/10/98 4,899,717
8,650 UBS Finance (DE) Inc...................................... 5.58-5.66 08/10/98-11/20/98 8,549,078
------------
48,053,215
------------
BROKERAGE (2.8%)
10,045 Goldman Sachs Group L.P................................... 5.59 08/18/98-09/03/98 9,958,938
------------
ENERGY (1.4%)
4,900 Texaco Inc................................................ 5.55 07/23/98 4,883,650
------------
FINANCE - COMMERCIAL (6.4%)
7,240 CIT Group Holdings, Inc................................... 5.60-5.61 09/24/98-10/09/98 7,138,847
15,745 International Lease Finance Corp.......................... 5.61-5.67 09/15/98-01/13/99 15,413,084
------------
22,551,931
------------
FINANCE - CONSUMER (13.3%)
10,475 American General Finance Corp............................. 5.59-5.60 08/07/98-08/31/98 10,399,440
10,840 Avco Financial Services Inc............................... 5.57-5.62 08/04/98-09/17/98 10,751,366
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
139
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 11,000 Beneficial Corp........................................... 5.58-5.59 % 09/01/98-09/10/98 $ 10,887,306
9,700 Commercial Credit Co...................................... 5.58 07/08/98-09/02/98 9,649,314
4,725 Household Finance Corp.................................... 5.58 08/14/98 4,693,353
------------
46,380,779
------------
FINANCE - CORPORATE (1.3%)
4,575 Ciesco, L.P............................................... 5.60 09/25/98 4,514,890
------------
FINANCE - DIVERSIFIED (5.5%)
4,970 Associates Corp. of North America......................... 5.59 09/11/98 4,915,231
14,430 General Electric Capital Corp............................. 5.59-5.68 08/20/98-02/19/99 14,204,588
------------
19,119,819
------------
FINANCE - EQUIPMENT (3.1%)
10,780 Deere (John) Capital Corp................................. 5.56-5.60 07/02/98-12/08/98 10,692,870
------------
INDUSTRIALS (0.6%)
2,140 Deere & Co................................................ 5.58 09/04/98 2,118,671
------------
INSURANCE (0.8%)
3,010 American General Corp..................................... 5.60 10/02/98 2,967,233
------------
OFFICE EQUIPMENT (1.1%)
3,920 IBM Credit Corp........................................... 5.61 10/21/98 3,853,412
------------
RETAIL (4.4%)
15,540 Sears Roebuck Acceptance Corp............................. 5.56-5.57 07/15/98-07/28/98 15,494,702
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $283,310,243)........................................................... 283,310,243
------------
SHORT-TERM BANK NOTES (9.0%)
10,500 First Union National Bank................................. 5.65-5.66 10/28/98-01/20/99 10,500,000
14,900 La Salle National Bank.................................... 5.57-5.58 07/13/98-10/05/98 14,900,000
6,000 NationsBank, N.A.......................................... 5.58 08/27/98 6,000,000
------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $31,400,000)............................................................ 31,400,000
------------
CERTIFICATES OF DEPOSIT (8.0%)
5,000 Chase Manhattan Bank (USA)................................ 5.62 07/06/98 5,000,000
9,500 Fleet National Bank....................................... 5.58-5.61 08/19/98-09/28/98 9,500,000
5,000 Mellon Bank, N.A.......................................... 5.68 01/04/99 5,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
140
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,500 U.S. Bank N.A............................................. 5.60 % 10/19/98-10/26/98 $ 8,500,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $28,000,000)............................................................ 28,000,000
------------
BANKERS' ACCEPTANCES (1.4%)
5,000 Corestates Bank, N.A. (AMORTIZED COST $4,972,500)......... 5.58 08/06/98 4,972,500
------------
U.S. GOVERNMENT AGENCY (1.3%)
4,600 Federal National Mortgage Assoc. (AMORTIZED COST
$4,542,309)............................................. 5.47-5.61 07/14/98-03/05/99 4,542,309
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $352,225,052) (a)......................................................... 100.6 % 352,225,052
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.6) (2,154,598)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 350,070,454
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
141
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (66.3%)
BANKS AND BANK HOLDING COMPANIES (10.2%)
$ 5,000 Banc One Corp.................................... 8.00 % 04/29/27 $ 5,823,450
5,000 Banco Central Hispanoamericano (Cayman
Islands)....................................... 7.50 06/15/05 5,288,350
5,000 First Bank N.A................................... 8.35 11/01/04 5,567,500
5,000 First Bank System................................ 7.625 05/01/05 5,366,200
5,000 Fleet Financial Group, Inc....................... 6.875 01/15/28 5,111,100
3,000 Mellon Bank N.A.................................. 7.625 09/15/07 3,272,970
5,000 NationsBank Corp................................. 7.80 09/15/16 5,640,350
3,000 Old Kent Financial Corp.......................... 6.625 11/15/05 3,044,580
2,000 Santander Financial Issuances (Cayman Islands)... 7.75 05/15/05 2,134,480
5,000 State Street Boston Corp......................... 5.95 09/15/03 4,993,400
2,000 Swiss Bank Corp.................................. 7.375 07/15/15 2,176,200
2,000 Wachovia Corp.................................... 6.375 04/15/03 2,025,940
------------
50,444,520
------------
BEVERAGES (1.5%)
2,000 Coca-Cola Enterprises Inc........................ 8.50 02/01/22 2,445,200
5,000 Coca-Cola Enterprises Inc........................ 6.75 01/15/38 5,054,550
------------
7,499,750
------------
BROKERAGE (3.2%)
2,000 Bear Stearns Companies, Inc...................... 8.75 03/15/04 2,237,600
5,000 Donaldson Lufkin & Jenrette, Inc................. 6.875 11/01/05 5,131,250
2,000 Lehman Brothers Holdings, Inc.................... 8.75 03/15/05 2,250,960
5,000 Lehman Brothers Holdings, Inc.................... 8.50 08/01/15 5,861,150
------------
15,480,960
------------
CONSUMER PRODUCTS (4.1%)
4,000 Becton Dickinson & Co.+.......................... 8.70 01/15/25 4,571,080
3,000 Carnival Corp.................................... 6.65 01/15/28 2,968,890
5,000 CPC International, Inc........................... 7.25 12/15/26 5,461,700
1,000 Maytag Corp...................................... 9.75 05/15/02 1,122,510
5,000 Philip Morris Companies, Inc..................... 7.125 10/01/04 5,154,350
1,000 Sony Corp. (Japan)............................... 6.125 03/04/03 1,005,030
------------
20,283,560
------------
DEFENSE (1.8%)
3,000 Lockheed Martin Corp.+........................... 7.70 06/15/08 3,317,520
5,000 Lockheed Martin Corp............................. 7.20 05/01/36 5,419,000
------------
8,736,520
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.0%)
5,000 Applied Materials, Inc........................... 7.125 10/15/17 5,074,900
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
142
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY (3.6%)
$ 2,000 Anadarko Petroleum Corp.......................... 7.73 % 09/15/96 $ 2,212,500
5,000 Dresser Industries, Inc.......................... 7.60 08/15/96 5,703,100
320 Mobil Corp....................................... 9.17 02/29/00 330,876
2,000 Petroliam Nasional Berhad - 144A* (Malaysia)..... 7.75 08/15/15 1,616,320
3,000 Phillips Petroleum Co............................ 7.125 03/15/28 3,034,530
1,000 Texaco Capital, Inc.............................. 9.75 03/15/20 1,380,770
3,000 Transocean Offshore Inc.......................... 8.00 04/15/27 3,463,920
------------
17,742,016
------------
FINANCIAL SERVICES (2.7%)
3,000 Ford Capital BV.................................. 9.50 06/01/10 3,794,310
5,000 Ford Motor Credit Corp........................... 7.75 03/15/05 5,409,400
4,000 Norwest Financial Inc............................ 7.875 02/15/02 4,228,600
------------
13,432,310
------------
HEALTHCARE - DIVERSIFIED (0.2%)
1,000 Kaiser Foundation Health Plan, Inc............... 9.55 07/15/05 1,193,990
------------
INDUSTRIALS (9.8%)
5,000 Aluminum Co. of America.......................... 6.75 01/15/28 5,109,250
5,000 Barrick Gold Corp.+.............................. 7.50 05/01/07 5,312,400
5,000 Boeing Co........................................ 7.95 08/15/24 5,932,750
4,644 Burlington Northern Santa Fe Corp................ 7.33 06/23/10 4,869,145
4,731 Burlington Northern Santa Fe Corp................ 7.97 01/01/15 5,318,929
3,000 Caterpillar, Inc................................. 9.375 08/15/11 3,813,450
5,000 Honeywell, Inc................................... 6.625 06/15/28 5,061,200
5,000 Kerr McGee Corp.................................. 7.125 10/15/27 5,120,150
5,000 PanAmSat Corp. - 144A*........................... 6.00 01/15/03 4,956,500
3,000 Tyco International Group S.A. (Luxembourg)....... 7.00 06/15/28 3,025,710
------------
48,519,484
------------
INSURANCE (5.0%)
2,000 CNA Financial Corp............................... 6.50 04/15/05 2,005,680
2,000 Equitable Companies, Inc......................... 7.00 04/01/28 2,055,420
3,000 Jackson National Life Insurance Co. - 144A*...... 8.15 03/15/27 3,452,460
5,000 Liberty Mutual Insurance Co. - 144A*............. 7.875 10/15/26 5,608,050
5,000 Lumbermens Mutual Casualty - 144A*............... 9.15 07/01/26 6,047,400
5,000 Nationwide Financial Services, Inc............... 8.00 03/01/27 5,474,450
------------
24,643,460
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
143
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PHARMACEUTICALS (1.3%)
$ 5,000 Johnson & Johnson................................ 8.72 % 11/01/24 $ 5,768,950
665 Marion Merrell Corp.............................. 9.11 08/01/05 732,806
------------
6,501,756
------------
PUBLISHING (0.6%)
3,000 Times Mirror Co.................................. 6.61 09/15/27 3,100,830
------------
RESTAURANTS (0.3%)
1,000 McDonald's Corp.................................. 8.875 04/01/11 1,232,690
------------
RETAIL (3.0%)
5,000 May Department Stores Co......................... 6.875 11/01/05 5,178,500
5,000 May Department Stores Co......................... 7.625 08/15/13 5,545,500
1,000 Penney (J.C.) Co., Inc........................... 9.75 06/15/21 1,118,080
2,932 Wal-Mart Stores, Inc............................. 7.49 06/21/07 3,148,796
------------
14,990,876
------------
TELECOMMUNICATIONS (6.7%)
3,500 Aliant Communications, Inc....................... 6.75 04/01/28 3,576,265
5,000 AT&T Corp........................................ 8.35 01/15/25 5,546,000
2,000 Cable & Wireless PLC (United Kingdom)............ 6.625 03/06/05 2,017,660
2,000 Frontier Corp.................................... 7.25 05/15/04 2,092,420
2,000 GTE Corp......................................... 6.84 04/15/18 2,008,120
5,000 GTE Corp......................................... 7.90 02/01/27 5,427,000
2,000 GTE Corp......................................... 6.94 04/15/28 2,014,560
2,000 Illinois Bell Telephone Co....................... 7.25 03/15/24 2,058,680
5,000 Lucent Technologies Inc.......................... 7.25 07/15/06 5,351,150
3,000 U.S. West Cap Funding, Inc....................... 6.875 07/15/28 3,008,910
------------
33,100,765
------------
TRANSPORTATION (1.0%)
4,952 America West Airlines............................ 6.85 07/02/09 5,020,751
------------
UTILITIES - ELECTRIC (10.3%)
1,000 Chugach Electric Co.............................. 9.14 03/15/22 1,126,680
5,000 Florida Power & Light Co......................... 7.05 12/01/26 5,066,450
2,000 Northern States Power Co......................... 6.50 03/01/28 2,004,740
3,000 Oglethorpe Power Co.............................. 6.974 06/30/11 3,082,170
3,500 Oklahoma Gas & Electric Co....................... 6.50 07/15/17 3,596,740
5,000 Pennsylvania Power & Light Co.................... 7.70 10/01/09 5,576,700
5,000 Potomac Electric Power Co........................ 7.25 07/01/23 5,230,900
4,000 Public Service Electric & Gas.................... 7.375 03/01/14 4,167,520
4,000 Puget Sound Energy Co............................ 7.02 12/01/27 4,146,560
5,000 South Carolina Electric & Gas Co................. 7.625 06/01/23 5,285,400
3,000 Southern California Edison Co.................... 7.25 03/01/26 3,060,720
1,000 Tampa Electric Co................................ 7.75 11/01/22 1,110,680
2,000 United Utilities PLC (United Kingdom)............ 6.45 04/01/08 1,991,940
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
144
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Virginia Electric Power Co....................... 7.25 % 02/01/23 $ 5,204,700
------------
50,651,900
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $308,616,421)................................................... 327,651,038
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (29.9%)
15 Federal Home Loan Mortgage Corp.................. 11.50 06/01/11-05/01/19 17,426
4,842 Federal Home Loan Mortgage Corp. PC Gold......... 6.00 10/01/23-11/01/27 4,719,396
2,103 Federal Home Loan Mortgage Corp. PC Gold......... 8.50 01/01/22-12/01/24 2,196,509
25,000 Federal National Mortgage Assoc.................. 0.00 10/09/19 7,166,000
20,772 Federal National Mortgage Assoc.................. 6.00 10/01/27-04/01/28 20,220,521
828 Federal National Mortgage Assoc.................. 6.50 02/01/26-04/01/28 880,397
191 Federal National Mortgage Assoc.................. 7.00 10/01/27 193,415
355 Federal National Mortgage Assoc.................. 7.50 05/01/27 364,055
985 Federal National Mortgage Assoc.................. 9.00 06/01/21-02/01/25 1,040,246
9,030 Government National Mortgage Assoc............... 6.00 03/15/28-07/21/28 4,917,335
4,000 Government National Mortgage Assoc. (a).......... 6.00 07/15/28-07/21/28 3,907,500
22,868 Government National Mortgage Assoc............... 6.50 04/15/26-07/01/28 13,842,278
9,000 Government National Mortgage Assoc. (a).......... 6.50 07/01/28 8,977,500
13,013 Government National Mortgage Assoc............... 7.00 09/15/27-04/15/28 13,216,303
17,898 Government National Mortgage Assoc............... 7.50 04/15/24-09/15/27 18,389,849
14,784 Government National Mortgage Assoc............... 8.00 10/15/24-09/15/26 15,315,364
3,656 Government National Mortgage Assoc............... 8.50 01/15/17-03/01/28 3,854,886
2,346 Government National Mortgage Assoc............... 9.00 07/15/24-12/15/24 2,510,188
168 Government National Mortgage Assoc............... 10.00 05/15/16-04/15/19 183,434
5,000 Tennessee Valley Authority....................... 7.85 06/15/44 5,370,650
8,000 U.S. Treasury Bond............................... 6.375 08/15/27 8,777,600
3,000 U.S. Treasury Note............................... 6.50 05/31/02 3,098,370
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
145
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,000 U.S. Treasury Note............................... 7.00 % 07/15/06 $ 8,733,280
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $145,148,832)................................................... 147,892,502
------------
CANADIAN GOVERNMENT OBLIGATIONS (2.5%)
5,000 Hydro-Quebec..................................... 9.50 11/15/30 6,988,250
5,000 Province of New Brunswick........................ 7.625 06/29/04 5,404,600
------------
TOTAL CANADIAN GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $10,380,050).................................................... 12,392,850
------------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
2,951 The Bank of New York
(dated 06/30/98; proceeds $2,951,814) (b)
(IDENTIFIED COST $2,951,363)................... 5.50 07/01/98 2,951,363
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $467,096,666) (c)........................................................ 99.3 % 490,887,753
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.7 3,249,967
------ -------------
NET ASSETS................................................................................ 100.0 % $ 494,137,720
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Securities segregated as collateral for securities purchased on a forward
commitment basis.
PC Participation Certificate.
(a) Securities purchased on a forward commitment basis with an approximate
principal amount. The actual principal amount will be determined upon
settlement.
(b) Collateralized by $1,347,609 U.S. Treasury Note 5.875% due 09/30/02 valued
at $1,382,875 and $1,584,568 U.S. Treasury Note 6.125% due 09/30/00 valued
at $1,627,516.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $24,582,079 and the
aggregate gross unrealized depreciation is $790,992, resulting in net
unrealized appreciation of $23,791,087.
SEE NOTES TO FINANCIAL STATEMENTS
146
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (97.0%)
AUTOMOTIVE (3.0%)
$ 4,874 Speedy Muffler King, Inc..................................................... 10.875% 10/01/06 $ 4,362,230
8,000 Toyota Motor Credit Corp..................................................... 15.00 09/25/98 8,169,760
------------
12,531,990
------------
BROADCAST MEDIA (5.4%)
257 Brill Media Co., LLC......................................................... 7.50 12/15/07 --
9,000 Brill Media Co., LLC (Series B).............................................. 7.50 12/15/07 8,460,026
4,500 Mentus Media Corp. - 144A* (Units)++......................................... 12.00+ 02/01/03 4,747,500
4,000 Source Media, Inc............................................................ 12.00 11/01/04 4,090,000
2,005 Spanish Broadcasting System, Inc............................................. 12.50 06/15/02 2,285,700
3,000 Tri-State Outdoor Media Group, Inc. - 144A*.................................. 11.00 05/15/08 3,045,000
------------
22,628,226
------------
BUSINESS SERVICES (4.0%)
4,500 Anacomp, Inc. (Series B)..................................................... 10.875 04/01/04 4,736,250
5,385 Comforce Corp................................................................ 15.00+ 12/01/09 5,654,686
3,250 Comforce Operating, Inc. (Series B).......................................... 12.00 12/01/07 3,510,000
3,000 Xerox Credit Corp............................................................ 15.00 10/07/98 3,072,600
------------
16,973,536
------------
CABLE/CELLULAR (11.4%)
2,000 American Cellular Corp. - 144A*.............................................. 10.50 05/15/08 1,995,000
3,750 Australis Holdings Ltd. (Australia).......................................... 15.00++ 11/01/02 637,500
9,000 Clearnet Communications Inc. (Canada)........................................ 14.75++ 12/15/05 7,560,000
5,000 CTI Holdings S.A. - 144A* (Argentina)........................................ 11.50++ 04/15/08 2,775,000
3,000 FrontierVision Operating Partners, L.P....................................... 11.00 10/15/06 3,330,000
2,000 James Cable Partners L.P. (Series B)......................................... 10.75 08/15/04 2,130,000
10,000 McCaw International Ltd...................................................... 13.00++ 04/15/07 6,550,000
7,000 Nextel Communications, Inc................................................... 10.65++ 09/15/07 4,742,500
15,340 Price Communications Cellular Holdings (Series B)............................ 13.50++ 08/01/07 10,738,000
4,500 Price Communications Wireless, Inc. - 144A*.................................. 9.125 12/15/06 4,500,000
5,000 Triton Communications LLC - 144A*............................................ 11.00++ 05/01/08 2,812,500
------------
47,770,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
147
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMPUTER EQUIPMENT (1.0%)
$ 4,000 IBM Credit Corp.............................................................. 15.00 % 02/02/99 $ 4,212,400
------------
CONSUMER PRODUCTS (1.6%)
4,500 IHF Holdings Inc. (Series B)................................................. 15.00 11/15/04 3,555,000
3,000 J.B. Williams Holdings, Inc.................................................. 12.00 03/01/04 3,150,000
------------
6,705,000
------------
ELECTRICAL & ALARM SYSTEMS (1.0%)
4,500 Mosler, Inc.................................................................. 11.00 04/15/03 4,140,000
------------
ENTERTAINMENT/GAMING & LODGING (13.0%)
10,000 Aladdin Gaming/Capital Corp. - 144A* (Units)++............................... 13.50++ 03/01/10 4,700,000
2,000 Argosy Gaming Co............................................................. 13.25 06/01/04 2,240,000
4,500 Bluegreen Corp. - 144A*...................................................... 10.50 04/01/08 4,455,000
3,500 El Comandante................................................................ 11.75 12/15/03 3,535,000
9,000 Epic Resorts LLC - 144A* (Units)++........................................... 13.00 06/15/05 9,090,000
4,000 Fitzgerald Gaming Corp. - 144A*.............................................. 12.25 12/15/04 3,940,000
5,325 Lady Luck Gaming Finance Corp................................................ 11.875 03/01/01 5,431,500
7,500 Motels of America, Inc. (Series B)........................................... 12.00 04/15/04 7,312,500
3,000 Players International, Inc................................................... 10.875 04/15/05 3,262,500
6,000 Premier Cruises Ltd. - 144A*................................................. 11.00 03/15/08 4,080,000
6,357 Resort At Summerlin - 144A*.................................................. 13.00+ 12/15/07 6,643,585
------------
54,690,085
------------
FINANCE (4.1%)
5,000 Commercial Credit Co......................................................... 15.00 07/10/98 5,005,050
4,000 General Electric Capital Corp................................................ 15.00 01/21/99 4,203,800
8,000 Household Finance Corp....................................................... 15.00 09/25/98 8,164,960
------------
17,373,810
------------
FOODS & BEVERAGES (7.6%)
5,330 Envirodyne Industries, Inc................................................... 10.25 12/01/01 5,343,325
2,500 Fleming Companies, Inc....................................................... 10.625 12/15/01 2,662,500
2,000 General Mills, Inc........................................................... 15.00 01/29/99 2,108,180
4,000 Iowa Select Farm L.P. - 144A*................................................ 10.75 12/01/05 4,020,000
10,250 PepsiCo, Inc................................................................. 15.00 08/06/98 10,339,483
17,750 Specialty Foods Acquisition Corp. (Series B)................................. 13.00++ 08/15/05 7,588,125
------------
32,061,613
------------
HEALTHCARE (1.6%)
3,000 Unilab Corp.................................................................. 11.00 04/01/06 3,232,500
6,000 Unison Healthcare Corp. - 144A* (a).......................................... 12.25 11/01/06 3,315,000
------------
6,547,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
148
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MANUFACTURING (2.1%)
$ 2,000 Berry Plastics Corp.......................................................... 12.25 % 04/15/04 $ 2,175,000
5,000 International Semi-Tech Microelectronics, Inc. (Canada)...................... 11.50++ 08/15/03 1,550,000
2,000 International Wire Group, Inc................................................ 11.75 06/01/05 2,200,000
3,000 Outsourcing Services Group, Inc. - 144A*..................................... 10.875 03/01/06 3,075,000
------------
9,000,000
------------
MANUFACTURING - DIVERSIFIED (3.8%)
3,000 Interlake Corp............................................................... 12.00 11/15/01 3,270,000
3,000 J.B. Poindexter & Co., Inc................................................... 12.50 05/15/04 2,985,000
5,000 Jordan Industries, Inc. (Series B)........................................... 10.375 08/01/07 5,125,000
7,200 Jordan Industries, Inc. (Series B)........................................... 11.75++ 04/01/09 4,644,000
------------
16,024,000
------------
METALS & MINING (2.3%)
4,500 Centaur Mining & Exploration Ltd. - 144A* (Australia)........................ 11.00 12/01/07 4,590,000
5,000 Murrin Murrin Holdings Property Ltd. (Australia)............................. 9.375 08/31/07 4,950,000
------------
9,540,000
------------
OIL & GAS (2.2%)
5,000 Gothic Energy Corp. - 144A* (Units)++........................................ 14.125++ 05/01/06 2,850,000
4,000 Key Energy Group, Inc. (Conv.)............................................... 5.00 09/15/04 3,160,000
3,000 Transamerican Refining Corp. - 144A*......................................... 16.00 06/30/03 3,195,000
------------
9,205,000
------------
PUBLISHING (0.7%)
2,975 United States Banknote Corp.................................................. 10.375 06/01/02 3,004,750
------------
RESTAURANTS (3.5%)
20,351 American Restaurant Group Holdings, Inc. - 144A*............................. 0.00 12/15/05 4,935,190
4,000 Carrols Corp................................................................. 11.50 08/15/03 4,230,000
5,000 FRD Acquisition Corp. (Series B)............................................. 12.50 07/15/04 5,487,500
------------
14,652,690
------------
RETAIL (0.7%)
3,000 Hills Stores Co. (Series B).................................................. 12.50 07/01/03 2,992,500
------------
RETAIL - FOOD CHAINS (0.7%)
2,875 Pantry, Inc.................................................................. 10.25 10/15/07 2,961,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
149
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATION EQUIPMENT (3.4%)
$ 6,000 FWT, Inc..................................................................... 9.875% 11/15/07 $ 5,580,000
7,000 SBA Communications Corp. - 144A*............................................. 12.00++ 03/01/08 4,410,000
8,000 Spectrasite Holdings, Inc. - 144A*........................................... 12.00++ 07/15/08 4,470,000
------------
14,460,000
------------
TELECOMMUNICATIONS (16.4%)
7,000 21st Century Telecom Group, Inc.............................................. 12.25++ 02/15/08 3,955,000
2,500 Advanced Radio Telecommunication (Units)++................................... 14.00 02/15/07 2,662,500
6,000 Birch Telecom Inc. - 144A* (Units)++......................................... 14.00 06/15/08 6,007,500
4,000 Covad Communication Group, Inc. - 144A*...................................... 13.50++ 03/15/08 2,075,000
5,000 e. Spire Communications, Inc................................................. 13.75 07/15/07 5,712,500
2,000 Esprit Telecom Group PLC (United Kingdom).................................... 11.50 12/15/07 2,057,500
5,000 Facilicom International, Inc................................................. 10.50 01/15/08 4,900,000
10,000 Firstworld Communications, Inc. - 144A* (Units)++............................ 13.00++ 04/15/08 4,400,000
3,000 GST Equipment Funding, Inc................................................... 13.25 05/01/07 3,450,000
4,000 Hyperion Telecommunication, Inc. (Series B).................................. 13.00++ 04/15/03 2,980,000
2,000 Hyperion Telecommunication, Inc. (Series B).................................. 12.25 09/01/04 2,155,000
28,500 In-Flight Phone Corp. (Series B) (b)......................................... 14.00++ 05/15/02 3,990,000
4,000 Onepoint Communications Corp. - 144A* (Units)++.............................. 14.50 06/01/08 3,760,000
4,000 Optel, Inc. -144A*........................................................... 11.50 07/01/08 4,000,000
2,000 Peoples Telephone Co., Inc................................................... 12.25 07/15/02 2,110,000
2,500 Primus Telecommunications Group, Inc. - 144A*................................ 9.875 05/15/08 2,450,000
4,000 Startec Global Communications Corp. - 144A* (Units)++........................ 12.00 05/15/08 3,890,000
4,000 Transtel Pass-Thru Trust - 144A*............................................. 12.50 11/01/07 3,770,000
2,500 USA Mobile Communications Holdings, Inc...................................... 14.00 11/01/04 2,762,500
2,250 Winstar Communications, Inc.................................................. 14.00++ 10/15/05 1,884,375
------------
68,971,875
------------
TEXTILES (0.4%)
4,000 U.S. Leather, Inc. (a)....................................................... 10.25 07/31/03 1,780,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
150
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION (1.1%)
$ 5,000 Alpha Shipping PLC - 144A* (United Kingdom).................................. 9.50 % 02/15/08 $ 4,712,500
------------
WIRELESS COMMUNICATION (6.0%)
4,500 American Mobile Satellite Corp. - 144A* (Units)++............................ 12.25 04/01/08 4,230,000
4,000 Echostar DBS Corp............................................................ 12.50 07/01/02 4,490,000
5,000 Globalstar L.P./Capital Corp................................................. 10.75 11/01/04 4,775,000
3,659 Orbcomm Global LP/Capital Corp. (Series B)................................... 14.00 08/15/04 4,134,670
4,000 Star Choice Communications, Inc. (Canada).................................... 13.00 12/15/05 4,080,000
5,000 TCI Satellite Entertainment, Inc............................................. 12.25 02/15/07 3,387,500
------------
25,097,170
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $426,335,795).................................................................... 408,036,395
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
COMMON STOCKS (c) (1.9%)
AUTOMOTIVE (0.0%)
87 Norther Holdings Industrial Corp. * (d)........................................................... --
------------
CABLE/CELLULAR (0.3%)
67,187 Price Communications Corp......................................................................... 1,028,878
------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
2,000 Motels of America, Inc. - 144A*................................................................... 110,072
71,890 Vagabond Inns, Inc. (Class D) (b)................................................................. --
------------
110,072
------------
FOODS & BEVERAGES (0.0%)
120,000 Specialty Foods Acquisition Corp. - 144A*......................................................... 120,000
------------
RESTAURANTS (0.0%)
7,750 American Restaurant Group Holdings, Inc. - 144A*.................................................. --
------------
RETAIL (1.6%)
1,389,850 County Seat Store Corp. (d) (e)................................................................... 6,489,210
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $14,930,288)..................................................................... 7,748,160
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
151
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCK (0.4%)
RESTAURANTS
1,500 American Restaurant Group Holdings, Inc. - 144A* (Units)++ (IDENTIFIED COST $1,500,000)........... $ 1,530,000
------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE
----------
<C> <S> <C> <C>
WARRANTS (c) (0.2%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. - 144A*.............................................................. 04/15/03 75,000
------------
BUSINESS SERVICES (0.1%)
42,250 Comforce Corp. - 144A*................................................................ 01/00/00 295,750
------------
CABLE/CELLULAR (0.0%)
3,750 Australis Holdings Ltd. - 144A* (Australia)........................................... 10/30/01 --
------------
CONTAINERS (0.0%)
2,000 Crown Packaging Holdings, Ltd. - 144A*................................................ 11/01/03 --
------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
1,000 Boomtown, Inc. - 144A*................................................................ 11/01/98 --
2,000 Fitzgeralds Gaming Corp............................................................... 12/19/98 9,105
3,500 Fitzgeralds South Inc. - 144A*........................................................ 03/15/99 --
6,000 Resort At Summerlin................................................................... 01/00/00 --
------------
9,105
------------
RETAIL (0.0%)
2,000 County Seat Holdings Co............................................................... 10/15/98 --
------------
WIRELESS COMMUNICATION (0.1%)
92,640 Star Choice Communications, Inc. - 144A* (Canada)..................................... 01/00/00 464,186
------------
TOTAL WARRANTS
(IDENTIFIED COST $371,333)........................................................................ 844,041
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.5%)
REPURCHASE AGREEMENT
$ 2,259 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $2,259,138) (f) (IDENTIFIED
COST $2,258,792)............................................................................... 2,258,792
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
152
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $445,396,208) (g).................................................................... 100.0 % $ 420,417,388
OTHER ASSETS IN EXCESS OF LIABILITIES................................................................. 0.0 147,732
------ -------------
NET ASSETS............................................................................................ 100.0 % $ 420,565,120
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
bonds or preferred stocks with attached 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; bond in default.
(b) Non-income producing security; issuer in bankruptcy.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Includes 498,645 shares which are due from the issuer pursuant to a
reorganization.
(f) Collateralized by $1,838,561 U.S. Treasury Note 5.25% due 01/31/01 valued
at $1,865,918 and $362,822 U.S. Treasury Bond 10.75% due 02/15/03 valued at
$438,051.
(g) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $14,246,277 and the
aggregate gross unrealized depreciation is $39,225,097, resulting in net
unrealized depreciation of $24,978,820.
SEE NOTES TO FINANCIAL STATEMENTS
153
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (89.0%)
NATURAL GAS (9.4%)
153,625 Burlington Resources, Inc........................................................ $ 6,615,477
184,930 EEX Corp.*....................................................................... 1,733,719
220,460 El Paso Natural Gas Co........................................................... 8,432,595
198,250 Enron Corp....................................................................... 10,717,891
250,000 Questar Corp..................................................................... 4,906,250
140,000 Seagull Energy Corp.*............................................................ 2,318,750
325,000 Williams Companies, Inc.......................................................... 10,968,750
--------------------
45,693,432
--------------------
TELECOMMUNICATIONS (33.8%)
56,666 360 DEG. Communications Co.*..................................................... 1,813,312
115,000 Airtouch Communications, Inc.*................................................... 6,720,312
195,000 ALLTEL Corp...................................................................... 9,067,500
120,000 AT&T Corp........................................................................ 6,855,000
200,000 BCE, Inc. (Canada)............................................................... 8,537,500
164,320 Bell Atlantic Corp............................................................... 7,497,100
195,000 Cable & Wireless PLC (ADR) (United Kingdom)...................................... 7,190,625
207,500 Century Telephone Enterprises, Inc............................................... 9,519,062
270,000 Ericsson (L.M.) Telephone Co. (Class B) (ADR) (Sweden)........................... 7,728,750
91,100 Esat Telecom Group PLC (ADR) (Ireland)*.......................................... 3,439,025
150,000 Frontier Corp.................................................................... 4,725,000
140,000 GTE Corp......................................................................... 7,787,500
33,984 Lucent Technologies, Inc......................................................... 2,827,044
105,000 MCI Communications Corp.......................................................... 6,096,562
105,000 MediaOne Group Inc.*............................................................. 4,613,438
163,254 Qwest Communications International, Inc.*........................................ 5,683,280
249,346 SBC Communications, Inc.......................................................... 9,973,840
135,000 Southern New England Telecommunications Corp..................................... 8,842,500
120,000 Sprint Corp...................................................................... 8,460,000
65,000 Tele Danmark AS (ADR) (Denmark).................................................. 3,063,125
120,000 Telecom Corp. of New Zealand Ltd. (ADR) (New Zealand)............................ 3,930,000
80,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)............................... 3,845,000
130,000 Telephone & Data Systems, Inc.................................................... 5,118,750
51,500 Telstra Corp. Ltd. (ADR) (Australia)............................................. 2,613,625
112,868 U.S. West, Inc................................................................... 5,304,775
273,500 WorldCom, Inc.*.................................................................. 13,213,469
--------------------
164,466,094
--------------------
<CAPTION>
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC (45.8%)
60,000 AES Corp.*....................................................................... $ 3,153,750
210,000 Baltimore Gas & Electric Co...................................................... 6,523,125
135,000 Carolina Power & Light Co........................................................ 5,855,625
130,000 Central & South West Corp........................................................ 3,493,750
215,865 CINergy Corp..................................................................... 7,555,275
225,000 CMS Energy Corp.................................................................. 9,900,000
130,000 Consolidated Edison Co. of New York, Inc......................................... 5,988,125
337,500 DPL, Inc......................................................................... 6,117,187
212,500 DQE, Inc......................................................................... 7,650,000
130,000 DTE Energy Co.................................................................... 5,248,750
141,216 Duke Energy Corp................................................................. 8,367,048
130,000 Edison International............................................................. 3,843,125
110,000 Energy East Corp................................................................. 4,578,750
175,000 Entergy Corp..................................................................... 5,031,250
140,000 FPL Group, Inc................................................................... 8,820,000
150,000 GPU, Inc......................................................................... 5,671,875
125,000 Hawaiian Electric Industries, Inc................................................ 4,960,937
200,000 Houston Industries, Inc.......................................................... 6,175,000
215,000 Illinova Corp.................................................................... 6,450,000
225,000 IPALCO Enterprises, Inc.......................................................... 9,998,437
120,000 Kansas City Power & Light Co..................................................... 3,480,000
100,000 Montana Power Co................................................................. 3,475,000
200,000 New Century Energies, Inc........................................................ 9,087,500
115,000 New England Electric System...................................................... 4,973,750
320,000 NIPSCO Industries, Inc........................................................... 8,960,000
100,000 OGE Energy Corp.................................................................. 2,700,000
280,000 PacifiCorp....................................................................... 6,335,000
220,000 Pinnacle West Capital Corp....................................................... 9,900,000
55,000 Potomac Electric Power Co........................................................ 1,378,437
210,000 Public Service Company of New Mexico............................................. 4,764,375
115,000 Public Service Enterprise Group, Inc............................................. 3,960,312
215,000 SCANA Corp....................................................................... 6,409,688
140,000 Sempra Energy.................................................................... 3,885,000
275,000 Southern Co...................................................................... 7,614,063
161,500 Texas Utilities Co............................................................... 6,722,438
190,000 Western Resources, Inc........................................................... 7,374,375
200,000 Wisconsin Energy Corp............................................................ 6,075,000
--------------------
222,476,947
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $262,923,439)................................................... 432,636,473
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
154
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (8.6%)
NATURAL GAS (1.1%)
$ 3,000 Coastal Corp.
% due 7.75 10/15/35........................................................... $ 3,308,670
2,000 Panhandle Eastern Corp.
% due 8.62504/15/25........................................................... 2,250,020
--------------------
5,558,690
--------------------
TELECOMMUNICATIONS (1.5%)
2,000 360 DEG. Communications Co.
% due 6.6501/15/08............................................................ 2,021,780
2,000 GTE Corp.
% due 7.9002/01/27............................................................ 2,170,800
500 LCI International, Inc.
% due 7.2506/15/07............................................................ 509,695
2,000 Sprint Corp.
% due 9.2504/15/22............................................................ 2,550,380
--------------------
7,252,655
--------------------
UTILITIES - ELECTRIC (6.0%)
2,250 Consumers Energy Co.
% due 6.87503/01/18........................................................... 2,297,115
2,000 Empresa Nacional de Electricidad Chile
% due 8.12502/01/97........................................................... 1,962,100
2,250 Florida Power & Light Co.
% due 7.0512/01/26............................................................ 2,279,903
3,000 Illinois Power Co.
% due 8.7507/01/21............................................................ 3,187,830
3,000 Indianapolis Power Co.
% due 7.0502/01/24............................................................ 3,078,660
2,500 Niagara Mohawk Power Corp.
% due 8.0006/01/04............................................................ 2,675,775
3,000 Public Service Electric
& Gas Co.
% due 7.0009/01/24............................................................ 3,024,420
2,000 South Carolina Electric
& Gas Co.
% due 7.62506/01/23........................................................... 2,114,160
1,000 Southern California Edison Co.
% due 7.2503/01/26............................................................ 1,020,240
2,000 Southwestern Public Service
% due 8.5002/15/25............................................................ 2,251,220
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 5,000 Wisconsin Electric Power Co.
% due 7.12503/15/16........................................................... $ 5,148,900
--------------------
29,040,323
--------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $39,321,785)................................................... 41,851,668
--------------------
U.S. GOVERNMENT AGENCY (0.3%)
1,250 Tennessee Valley Authority 8.00% due 03/31/45
(IDENTIFIED COST $1,250,000).................................................. 1,296,875
--------------------
SHORT-TERM INVESTMENT (1.7%)
REPURCHASE AGREEMENT
8,337 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $8,338,750)
(a) (IDENTIFIED COST $8,337,476).............................................. 8,337,476
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $311,832,700) (b)........................................................ 99.6 % 484,122,492
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ 0.4 1,750,495
------ -------------
NET ASSETS................................................................................ 100.0 % $ 485,872,987
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $8,403,750 U.S. Treasury Note 5.50% due 03/31/03 valued
at $8,504,225.
(b) The aggregate cost for federal income tax purposes approximates identified
cost.The aggregate gross unrealized appreciation is $173,793,996 and the
aggregate gross unrealized depreciation is $1,504,204, resulting in net
unrealized appreciation of $172,289,792.
SEE NOTES TO FINANCIAL STATEMENTS
155
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (43.4%)
APPAREL (0.9%)
21,600 Kellwood Co..................................................................... $ 772,200
--------------------
AUTO PARTS (0.8%)
13,700 Dana Corp....................................................................... 732,950
--------------------
AUTOMOTIVE (2.5%)
13,100 Chrysler Corp................................................................... 738,512
12,600 Ford Motor Co................................................................... 743,400
10,900 General Motors Corp............................................................. 728,256
--------------------
2,210,168
--------------------
BANKS (4.1%)
33,000 First Security Corp............................................................. 705,375
23,300 First Tennessee National Corp................................................... 733,950
20,200 KeyCorp......................................................................... 719,625
26,500 Washington Federal, Inc......................................................... 732,062
12,400 Wilmington Trust Corp........................................................... 754,850
--------------------
3,645,862
--------------------
BANKS - THRIFT INSTITUTIONS (0.8%)
17,000 Washington Mutual, Inc.......................................................... 737,375
--------------------
BUILDING MATERIALS (0.8%)
6,700 Vulcan Materials Co............................................................. 714,806
--------------------
CHEMICALS (3.3%)
7,500 Dow Chemical Co................................................................. 725,156
17,300 Hercules, Inc................................................................... 711,462
11,000 PPG Industries, Inc............................................................. 765,187
7,200 Rohm & Haas Co.................................................................. 748,350
--------------------
2,950,155
--------------------
CONGLOMERATES (0.8%)
18,700 Tenneco, Inc.................................................................... 711,769
--------------------
CONTAINERS - METAL & GLASS (0.8%)
15,500 Crown Cork & Seal Co., Inc...................................................... 736,250
--------------------
FINANCIAL (1.0%)
2,400 Providian Financial Corp........................................................ 188,550
24,000 TCF Financial Corp.............................................................. 708,000
--------------------
896,550
--------------------
FINANCIAL - MISCELLANEOUS (1.6%)
11,500 Fannie Mae...................................................................... 698,625
15,500 SLM Holding Corp................................................................ 759,500
--------------------
1,458,125
--------------------
FINANCIAL SERVICES (0.8%)
9,500 Associates First Capital Corp. (Class A)........................................ 730,312
--------------------
FOOD PROCESSING (0.8%)
21,000 Hormel Foods Corp............................................................... 725,812
--------------------
HEALTHCARE - DRUGS (0.8%)
7,900 Schering-Plough Corp............................................................ 723,837
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE (2.5%)
12,500 Jefferson-Pilot Corp............................................................ $ 724,219
8,000 Lincoln National Corp........................................................... 731,000
16,200 Torchmark Corp.................................................................. 741,150
--------------------
2,196,369
--------------------
LIFE INSURANCE (0.2%)
2,084 Aegon N.V. (ARS) (Netherlands).................................................. 180,266
--------------------
MACHINERY - DIVERSIFIED (0.9%)
13,100 Johnson Controls, Inc........................................................... 749,156
--------------------
MANUFACTURING - CONSUMER & INDUSTRIAL PRODUCTS (0.9%)
11,100 Whirlpool Corp.................................................................. 763,125
--------------------
METALS & MINING (0.8%)
53,000 Cyprus Amax Minerals Co......................................................... 702,250
--------------------
MISCELLANEOUS (0.8%)
14,700 American Greetings Corp. (Class A).............................................. 748,781
--------------------
MOBILE HOME & RECREATION (0.8%)
18,000 Fleetwood Enterprises, Inc...................................................... 720,000
--------------------
OIL & GAS (0.9%)
14,700 Ashland, Inc.................................................................... 758,887
--------------------
REAL ESTATE (0.1%)
9,800 Excel Legacy Corp.*............................................................. 42,875
6,000 Reckson Services Industries, Inc.*.............................................. 19,875
--------------------
62,750
--------------------
REAL ESTATE INVESTMENT TRUST (4.2%)
8,000 American General Hospitality Corp............................................... 170,000
12,700 Boston Properties, Inc.......................................................... 438,150
30,000 Equity One, Inc................................................................. 307,500
19,800 Excel Realty Trust, Inc......................................................... 570,488
3,750 Healthcare Realty Trust, Inc.................................................... 102,188
27,500 LTC Properties, Inc............................................................. 512,188
16,600 Meditrust Co.................................................................... 463,763
15,000 Reckson Associates Realty Corp.................................................. 354,375
34,200 Sunstone Hotel Investors, Inc................................................... 455,288
12,500 Tanger Factory Outlet Centers, Inc.............................................. 396,094
--------------------
3,770,034
--------------------
RETAIL - SPECIALTY APPAREL (0.9%)
292 Abercrombie & Fitch Co. (Class A)*.............................................. 12,848
22,500 Limited (The), Inc.............................................................. 745,313
--------------------
758,161
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
156
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL (0.8%)
22,000 USX-U.S. Steel Group, Inc....................................................... $ 726,000
--------------------
TELECOMMUNICATIONS (2.4%)
15,400 Bell Atlantic Corp.............................................................. 702,625
12,500 GTE Corp........................................................................ 695,313
15,500 U.S. West, Inc.................................................................. 728,500
--------------------
2,126,438
--------------------
TELEPHONES (0.8%)
12,800 AT&T Corp....................................................................... 731,200
--------------------
TOBACCO (1.6%)
18,000 Philip Morris Companies, Inc.................................................... 708,750
27,000 UST, Inc........................................................................ 729,000
--------------------
1,437,750
--------------------
UTILITIES - ELECTRIC (3.3%)
15,400 Consolidated Edison, Inc........................................................ 709,363
24,000 Houston Industries, Inc......................................................... 741,000
16,600 New England Electric System..................................................... 717,950
21,300 Public Service Enterprise Group, Inc............................................ 733,519
--------------------
2,901,832
--------------------
UTILITIES - GAS (0.8%)
12,300 Consolidated Natural Gas Co..................................................... 724,163
--------------------
WHOLESALE DISTRIBUTOR (0.9%)
17,000 Supervalu, Inc.................................................................. 754,375
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $34,611,749)................................................... 38,557,708
--------------------
CONVERTIBLE PREFERRED STOCKS (21.7%)
APPAREL (0.5%)
10,000 Warnaco Group, Inc. $3.00....................................................... 460,000
--------------------
AUTO PARTS (0.7%)
12,000 BTI Capital Trust $3.25 - 144A**................................................ 519,000
3,700 Walbro Capital Trust $2.00...................................................... 81,400
--------------------
600,400
--------------------
BANKS - INTERNATIONAL (1.4%)
22,000 National Australia Bank, Ltd. $1.969 (Australia) (Units)++...................... 631,125
19,500 Westpac Banking Corp. (STRYPES) $3.135.......................................... 588,656
--------------------
1,219,781
--------------------
BANKS - REGIONAL (0.9%)
30,000 CNB Capital Trust I $1.50....................................................... 787,500
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BROADCAST MEDIA (1.2%)
19,400 Metromedia International Group, Inc. $3.625..................................... $ 999,100
4,000 Triathlon Broadcasting Co. $0.945............................................... 39,000
--------------------
1,038,100
--------------------
BUSINESS SERVICES (0.7%)
12,500 Unisys Corp. (Series A) $3.75................................................... 653,125
--------------------
CABLE & TELECOMMUNICATIONS (0.6%)
8,550 EchoStar Communications Corp. (Series C) $3.375................................. 500,175
--------------------
COMMERCIAL SERVICES (0.8%)
20,000 Cendant Corp. $3.75............................................................. 748,750
--------------------
COSMETICS (1.0%)
13,000 Estee Lauder Co. $3.80.......................................................... 871,000
--------------------
ENTERTAINMENT (1.0%)
14,000 Premier Parks, Inc. $4.05....................................................... 889,000
--------------------
FINANCE (1.6%)
3,290 Insignia Financing, Inc. $3.25.................................................. 165,322
15,940 Merrill Lynch & Co., Inc. (STRYPES) $2.39 (1)................................... 502,110
10,000 Merrill Lynch & Co., Inc. (STRYPES) $4.087 (2).................................. 725,000
--------------------
1,392,432
--------------------
INSURANCE (0.6%)
2,500 American Heritage Life Investment Corp. $4.25................................... 162,500
40,000 Philadelphia Consolidated Holding Corp. $0.70................................... 410,000
--------------------
572,500
--------------------
MACHINERY (0.8%)
28,000 Ingersoll-Rand Co. $1.688....................................................... 672,000
--------------------
OIL & GAS (0.9%)
50,000 Tesoro Petroleum Corp. $1.16.................................................... 768,750
--------------------
PACKAGING & BOTTLING (0.9%)
20,000 Sealed Air Corp. (Series A) $2.00............................................... 840,000
--------------------
PUBLISHING (1.3%)
34,090 Hollinger International, Inc. $0.95............................................. 536,918
25,000 Reader's Digest Association, Inc $1.93.......................................... 643,750
--------------------
1,180,668
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
157
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUST (2.9%)
13,700 Camden Property Trust (Series A) $2.25.......................................... $ 363,050
9,000 Equity Residential Properties Trust (Series E) $1.75............................ 232,875
22,560 FelCor Suite Hotels, Inc. (Series A) $1.95...................................... 547,080
1,085 Merry Land & Investment Co., Inc. (Series C) $2.15.............................. 28,413
7,000 Rouse Co. (Series B) $3.00...................................................... 348,250
40,000 SL Green Realty Corp. $2.00..................................................... 1,020,000
--------------------
2,539,668
--------------------
STEEL (0.8%)
35,000 USX Corp. $1.44................................................................. 756,875
--------------------
TELECOMMUNICATIONS (1.3%)
12,330 Loral Space & Communications Ltd. $3.00 (Bermuda)............................... 946,328
4,500 Qualcomm Financial Trust $2.875................................................. 217,688
--------------------
1,164,016
--------------------
TRANSPORTATION (0.8%)
15,000 Union Pacific Capital Trust $3.125 - 144A**..................................... 701,250
--------------------
UTILITIES (1.0%)
19,000 CalEnergy Capital Trust III $3.25............................................... 869,250
--------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $19,040,925)................................................... 19,225,240
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (26.2%)
CONVERTIBLE BONDS (10.4%)
AUTO PARTS (1.4%)
$ 650 Mark IV Industries, Inc. - 144A** 4.75% due 11/01/04............................ 595,159
350 MascoTech, Inc.
4.50% due 12/15/03............................................................ 333,921
300 Tower Automotive, Inc. - 144A** 5.00% due 08/01/04.............................. 310,518
--------------------
1,239,598
--------------------
CABLE/CELLULAR (0.2%)
400 U.S. Cellular Corp.
0.00% due 06/15/15............................................................ 150,184
--------------------
FINANCE (1.2%)
1,000 Financial Federal Corp. - 144A** 4.50% due 05/01/05............................. 1,053,750
--------------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE (1.6%)
$ 800 Concentra Managed Care, Inc. - 144A**
4.50% due 03/15/03............................................................ $ 717,000
280 Emeritus Corp. - 144A** 6.25% due 01/01/06...................................... 221,449
650 Phymatrix Corp.
6.75% due 06/15/03............................................................ 468,000
--------------------
1,406,449
--------------------
HEALTHCARE - MISCELLANEOUS (0.3%)
225 Pharmaceutical Marketing Services, Inc. (Eurobond) 6.25% due 02/01/03........... 217,125
--------------------
HOTELS/MOTELS (0.5%)
560 Capstar Hotel Corp.
4.75% due 10/15/04............................................................ 459,200
--------------------
MACHINERY (0.2%)
200 Thermo Fibertek, Inc. - 144A** 4.50% due 07/15/04............................... 199,562
--------------------
MEDICAL EQUIPMENT (0.4%)
400 ThermoTrex Corp.
3.25% due 11/01/07............................................................ 353,040
--------------------
OFFICE EQUIPMENT & SUPPLIES (0.6%)
550 Danka Business Systems PLC (United Kingdom)
6.75% due 04/01/02............................................................ 476,514
--------------------
PUBLISHING (0.1%)
100 Nelson (Thomas), Inc.
5.75% due 11/30/99............................................................ 99,938
--------------------
REAL ESTATE INVESTMENT TRUST (0.6%)
575 Capstone Capital Corp.
6.55% due 03/14/02............................................................ 550,080
--------------------
RESTAURANTS (0.0%)
300 Boston Chicken, Inc.
0.00% due 06/01/15............................................................ 15,000
50 Boston Chicken, Inc.
4.50% due 02/01/04............................................................ 7,868
--------------------
22,868
--------------------
RETAIL (0.4%)
70 Petsmart, Inc. - 144A**
6.75% due 11/01/04............................................................ 93,625
300 Saks Holdings, Inc.
5.50% due 09/15/06............................................................ 281,757
--------------------
375,382
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
158
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (0.7%)
$ 700 National Semiconductor Corp. - 144A** 6.50% due 10/01/02........................ $ 639,401
--------------------
SHOES (2.2%)
1,000 Genesco, Inc. - 144A**
5.50% due 04/15/05............................................................ 1,015,000
350 Nine West Group, Inc. - 144A** 5.50% due 07/15/03............................... 293,262
805 Nine West Group, Inc.
5.50% due 07/15/03............................................................ 674,501
--------------------
1,982,763
--------------------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $9,546,904).................................................... 9,225,854
--------------------
NON-CONVERTIBLE BONDS (15.8%)
BROADCAST MEDIA (1.5%)
195 Outlet Broadcasting, Inc. 10.875% due 07/15/03.................................. 203,073
1,000 Young Broadcasting Corp. 11.75% due 11/15/04.................................... 1,100,000
--------------------
1,303,073
--------------------
BUILDING MATERIALS (0.6%)
500 USG Corp. (Series B)
9.25% due 09/15/01............................................................ 537,660
--------------------
CABLE/CELLULAR (2.9%)
2,400 Continental Cablevision, Inc. 11.00% due 06/01/07............................... 2,616,960
--------------------
CHEMICALS (2.5%)
2,130 Harris Chemical North America, Inc.
10.75% due 10/15/03........................................................... 2,239,162
--------------------
ENTERTAINMENT/GAMING (0.8%)
700 Casino Magic Finance Corp. 11.50% due 10/15/01.................................. 728,000
--------------------
FINANCIAL SERVICES (0.8%)
600 Videotron Group Ltd. (Canada) 10.625% due 02/15/05.............................. 663,000
--------------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGING & BOTTLING (2.3%)
$ 1,875 Huntsman Polymers Corp. 11.75% due 12/01/04..................................... $ 2,043,750
--------------------
PUBLISHING (1.7%)
800 Big Flower Press, Inc.
8.875% due 07/01/07........................................................... 812,000
600 Garden State Newspapers, Inc. 12.00% due 07/01/04............................... 666,000
--------------------
1,478,000
--------------------
STEEL (1.9%)
1,000 AK Steel Corp.
10.75% due 04/01/04........................................................... 1,065,000
600 Ivaco, Inc. (Canada)
11.50% due 09/15/05........................................................... 657,000
--------------------
1,722,000
--------------------
TEXTILES (0.8%)
700 Dan River, Inc.
10.125% due 12/15/03.......................................................... 742,000
--------------------
TOTAL NON-CONVERTIBLE BONDS
(IDENTIFIED COST $14,251,127)................................................... 14,073,605
--------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $23,798,031)................................................... 23,299,459
--------------------
SHORT-TERM INVESTMENTS (9.0%)
U.S. GOVERNMENT AGENCIES (a) (4.5%)
1,000 Federal Home Loan Mortgage Corp. 5.48% due 07/07/98............................. 999,087
3,000 Federal National Mortgage Assoc. 5.58% due 07/07/98............................. 2,997,210
--------------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $3,996,297)..................................................... 3,996,297
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
159
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (4.5%)
$ 4,024 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $4,024,566)
(b)
(IDENTIFIED COST $4,023,951).................................................. $ 4,023,951
--------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $8,020,248).................................................... 8,020,248
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $85,470,953) (c).......................................................... 100.3 % 89,102,655
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (0.3) (229,173)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 88,873,482
------ ------------
------ ------------
</TABLE>
- ---------------------
ARS American Regulatory Share.
STRYPES Structured yield product exchangeable for stock.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
stocks with attached warrants.
(1) Convertible into IMC Global, Inc. common stock.
(2) Convertible into SunAmerica, Inc. common stock.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $1,925,351 U.S. Treasury Bond 6.625% due 02/15/27
valued at $2,212,685 and $1,885,884 U.S. Treasury Note 5.50% due
05/31/03 valued at $1,891,745.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$6,169,481 and the aggregate gross unrealized depreciation is
$2,537,779, resulting in net unrealized appreciation of $3,631,702.
SEE NOTES TO FINANCIAL STATEMENTS
160
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.5%)
AEROSPACE (4.0%)
746,000 Raytheon Co. (Class B).......................................... $ 44,107,250
465,000 United Technologies Corp........................................ 43,012,500
--------------------
87,119,750
--------------------
ALUMINUM (1.9%)
624,000 Aluminum Co. of America......................................... 41,145,000
--------------------
AUTO PARTS (1.9%)
752,000 TRW, Inc........................................................ 41,078,000
--------------------
AUTOMOTIVE (3.8%)
725,000 Ford Motor Co................................................... 42,775,000
583,000 General Motors Corp............................................. 38,951,687
--------------------
81,726,687
--------------------
BANKS (5.5%)
716,400 Banc One Corp................................................... 39,984,075
467,000 BankAmerica Corp................................................ 40,366,312
1,115,000 KeyCorp......................................................... 39,721,875
--------------------
120,072,262
--------------------
BEVERAGES - SOFT DRINKS (1.9%)
1,010,000 PepsiCo, Inc.................................................... 41,599,375
--------------------
CHEMICALS (5.6%)
415,000 Dow Chemical Co................................................. 40,125,312
634,000 Eastman Chemical Co............................................. 39,466,500
603,000 PPG Industries, Inc............................................. 41,946,187
--------------------
121,537,999
--------------------
COMPUTERS (2.0%)
372,000 International Business Machines Corp............................ 42,710,250
--------------------
CONGLOMERATES (3.7%)
500,000 Minnesota Mining & Manufacturing Co............................. 41,093,750
1,055,000 Tenneco, Inc.................................................... 40,155,937
--------------------
81,249,687
--------------------
COSMETICS (1.9%)
718,000 Gillette Co..................................................... 40,701,625
--------------------
DRUGS (5.6%)
1,011,000 Abbott Laboratories............................................. 41,324,625
776,000 American Home Products Corp..................................... 40,158,000
351,000 Bristol-Myers Squibb Co......................................... 40,343,063
--------------------
121,825,688
--------------------
ELECTRIC - MAJOR (1.9%)
454,000 General Electric Co............................................. 41,314,000
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL - MISCELLANEOUS (1.9%)
826,000 Household International, Inc.................................... $ 41,093,500
--------------------
FINANCIAL SERVICES (2.0%)
552,676 Associates First Capital Corp. (Class A)........................ 42,486,968
--------------------
FOODS (3.7%)
746,000 Quaker Oats Company (The)....................................... 40,983,375
698,000 Sara Lee Corp................................................... 39,044,375
--------------------
80,027,750
--------------------
HOUSEHOLD PRODUCTS (1.9%)
453,000 Procter & Gamble Co............................................. 41,251,313
--------------------
INSURANCE (1.9%)
543,000 Aetna Inc....................................................... 41,335,875
--------------------
MACHINERY - CONSTRUCTION & MATERIALS (1.9%)
770,000 Caterpillar, Inc................................................ 40,713,750
--------------------
METALS & MINING (1.8%)
703,000 Phelps Dodge Corp............................................... 40,202,813
--------------------
NATURAL GAS (3.9%)
1,000,000 Burlington Resources, Inc....................................... 43,062,500
1,113,000 El Paso Natural Gas Co.......................................... 42,572,250
--------------------
85,634,750
--------------------
OFFICE EQUIPMENT (1.8%)
820,000 Pitney Bowes, Inc............................................... 39,462,500
--------------------
OIL - DOMESTIC (3.7%)
814,000 Ashland, Inc.................................................... 42,022,750
505,000 Atlantic Richfield Co........................................... 39,453,125
--------------------
81,475,875
--------------------
OIL INTEGRATED - INTERNATIONAL (5.5%)
576,000 Exxon Corp...................................................... 41,076,000
515,000 Mobil Corp...................................................... 39,461,875
730,000 Royal Dutch Petroleum Co.
(ADR) (Netherlands)........................................... 40,013,125
--------------------
120,551,000
--------------------
PAPER & FOREST PRODUCTS (3.6%)
918,000 International Paper Co.......................................... 39,474,000
856,000 Weyerhaeuser Co................................................. 39,536,500
--------------------
79,010,500
--------------------
PHOTOGRAPHY (2.0%)
595,000 Eastman Kodak Co................................................ 43,472,188
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
161
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RAILROADS (1.9%)
420,000 Burlington Northern Santa Fe Corp............................... $ 41,238,750
--------------------
RETAIL - DEPARTMENT STORES (1.9%)
625,000 May Department Stores Co........................................ 40,937,500
--------------------
RETAIL - FOOD CHAINS (1.9%)
1,690,000 American Stores Co.............................................. 40,876,875
--------------------
STEEL (1.8%)
1,250,000 Timken Co....................................................... 38,515,625
--------------------
TELECOMMUNICATIONS (5.4%)
872,000 Bell Atlantic Corp.............................................. 39,785,000
550,000 Sprint Corp..................................................... 38,775,000
844,000 U.S. West, Inc.................................................. 39,668,000
--------------------
118,228,000
--------------------
TOBACCO (1.9%)
1,028,000 Philip Morris Companies, Inc.................................... 40,477,500
--------------------
TRANSPORTATION (1.8%)
1,266,000 Ryder System, Inc............................................... 39,958,125
--------------------
UTILITIES - ELECTRIC (3.7%)
628,000 FPL Group, Inc.................................................. 39,564,000
1,144,000 Unicom Corp..................................................... 40,111,500
--------------------
79,675,500
--------------------
UTILITIES - GAS (1.9%)
709,000 Consolidated Natural Gas Co..................................... 41,742,375
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $1,638,829,585)................................ 2,120,449,355
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (1.9%)
$ 35,000 U.S. Treasury Note 5.625% due 04/30/00.......................... $ 35,052,850
5,000 U.S. Treasury Note 6.375% due 01/15/99.......................... 5,026,100
--------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $39,894,843)................................... 40,078,950
--------------------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
7,390 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98;
proceeds $7,391,288) (a) (IDENTIFIED COST $7,390,159)......... 7,390,159
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,686,114,587) (b).................................................... 99.7 % 2,167,918,464
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 0.3 6,267,478
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 2,174,185,942
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
(a) Collateralized by $1,193,969 U.S. Treasury Note 6.25% due 06/30/02 valued
at $1,222,513, and $6,240,900 U.S. Treasury Note 5.50% due 03/31/03 valued
at $6,315,449.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $504,656,259 and the
aggregate gross unrealized depreciation is $22,852,382, resulting in net
unrealized appreciation of $481,803,877.
SEE NOTES TO FINANCIAL STATEMENTS
162
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.3%)
ADVERTISING (4.2%)
40,000 HA-LO Industries, Inc.*................................................................ $ 1,245,000
110,000 Snyder Communications, Inc.*........................................................... 4,840,000
------------
6,085,000
------------
APPAREL & FOOTWEAR (2.6%)
60,000 Tommy Hilfiger Corp.*.................................................................. 3,750,000
------------
BANKS - REGIONAL (1.0%)
20,000 State Street Corp...................................................................... 1,390,000
------------
BUILDING MATERIALS (2.7%)
55,000 Southdown, Inc......................................................................... 3,925,625
------------
COMPUTER EQUIPMENT (3.1%)
100,000 EMC Corp.*............................................................................. 4,481,250
------------
COMPUTER SOFTWARE (7.2%)
80,000 Cadence Design Systems, Inc.*.......................................................... 2,500,000
40,000 Microsoft Corp.*....................................................................... 4,335,000
75,000 Network Associates, Inc.*.............................................................. 3,585,937
------------
10,420,937
------------
COMPUTER SOFTWARE & SERVICES (3.1%)
70,000 Legato Systems, Inc.*.................................................................. 2,730,000
38,000 Visio Corp.*........................................................................... 1,814,500
------------
4,544,500
------------
COMPUTERS (2.3%)
55,000 Lexmark International Group, Inc. (Class A)*........................................... 3,355,000
------------
CONSUMER BUSINESS SERVICES (2.4%)
110,000 AccuStaff, Inc.*....................................................................... 3,437,500
------------
CONTAINERS - PAPER (2.7%)
60,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 3,858,750
------------
DRUGS (2.2%)
70,000 ICN Pharmaceuticals, Inc............................................................... 3,198,125
------------
ELECTRONIC COMPONENTS (1.2%)
47,000 ADC Telecommunications, Inc.*.......................................................... 1,715,500
------------
ELECTRONICS (0.9%)
30,000 Sanmina Corp.*......................................................................... 1,295,625
------------
ENVIRONMENTAL CONTROL (4.0%)
75,000 Newpark Resources, Inc.*............................................................... 834,375
100,000 U.S.A. Waste Services, Inc.*........................................................... 4,937,500
------------
5,771,875
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL - MISCELLANEOUS (3.2%)
60,000 Providian Financial Corp............................................................... $ 4,713,750
------------
FINANCIAL SERVICES (5.1%)
60,000 SunAmerica Inc......................................................................... 3,446,250
65,000 Travelers Group, Inc................................................................... 3,940,625
------------
7,386,875
------------
HEALTHCARE - DIVERSIFIED (1.4%)
35,000 Universal Health Services, Inc. (Class B)*............................................. 2,043,125
------------
HOSPITAL MANAGEMENT (5.2%)
39,000 Express Scripts, Inc. (Class A)*....................................................... 3,120,000
45,000 Quorum Health Group, Inc.*............................................................. 1,186,875
95,000 Total Renal Care Holdings, Inc.*....................................................... 3,277,500
------------
7,584,375
------------
INSURANCE (3.2%)
100,000 Conseco, Inc........................................................................... 4,675,000
------------
MANUFACTURING - CONSUMER & INDUSTRIAL PRODUCTS (3.3%)
75,000 Tyco International Ltd................................................................. 4,725,000
------------
MEDIA GROUP (2.6%)
35,000 Clear Channel Communications, Inc.*.................................................... 3,819,375
------------
OIL DRILLING & SERVICES (1.2%)
100,000 Global Industries Ltd.*................................................................ 1,681,250
------------
OIL EQUIPMENT & SERVICES (1.0%)
70,000 Varco International, Inc.*............................................................. 1,386,875
------------
PHARMACEUTICALS (4.7%)
90,000 Medicis Pharmaceutical Corp. (Class A)*................................................ 3,262,500
75,000 Watson Pharmaceuticals, Inc.*.......................................................... 3,501,562
------------
6,764,062
------------
POLLUTION CONTROL (1.4%)
70,000 U.S. Filter Corp.*..................................................................... 1,964,375
------------
PRECISION INSTRUMENTS (0.0%)
3,200 Mettler-Toledo International Inc.*..................................................... 64,200
------------
RESTAURANTS (2.0%)
55,000 Starbucks Corp.*....................................................................... 2,935,625
------------
RETAIL (1.8%)
60,000 Abercrombie & Fitch Co. (Class A)*..................................................... 2,640,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
163
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES (4.5%)
75,000 Dollar General Corp.................................................................... $ 2,967,188
90,000 Proffitt's, Inc.*...................................................................... 3,633,750
------------
6,600,938
------------
RETAIL - FOOD CHAINS (1.1%)
40,000 Safeway, Inc.*......................................................................... 1,627,500
------------
RETAIL - GENERAL MERCHANDISE (1.2%)
40,000 Fred Meyer, Inc.*...................................................................... 1,700,000
------------
RETAIL - SPECIALTY (5.3%)
45,000 Consolidated Stores Corp.*............................................................. 1,631,250
68,000 Finish Line, Inc. (Class A)*........................................................... 1,904,000
145,000 Staples, Inc.*......................................................................... 4,195,938
------------
7,731,188
------------
RETAIL - SPECIALTY APPAREL (2.3%)
75,000 Stage Stores, Inc.*.................................................................... 3,393,750
------------
TELECOMMUNICATIONS (4.7%)
50,000 AirTouch Communications, Inc.*......................................................... 2,921,875
55,000 Tellabs, Inc.*......................................................................... 3,935,938
------------
6,857,813
------------
UTILITIES - ELECTRIC (2.5%)
70,000 AES Corp. (The)*....................................................................... 3,679,374
------------
UTILITIES - TELECOMMUNICATIONS (2.0%)
60,000 WorldCom, Inc.*........................................................................ 2,898,750
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $115,654,044)......................................................... 144,102,887
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
$ 673 The Bank of New York 5.50% due 07/01/98 (dated 06/30/97; proceeds $673,363) (a)
(IDENTIFIED COST $673,260)........................................................... $ 673,260
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $116,327,304) (a)........................................................ 99.7 % 144,776,147
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.3 377,982
------ -------------
NET ASSETS................................................................................ 100.0 % $ 145,154,129
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $124,073 U.S. Treasury Bond 6.00% due 02/15/26 valued at
$131,269 and $532,763 U.S. Treasury Note 6.25% due 02/28/02 valued at
$555,456.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $30,815,986 and the
aggregate gross unrealized depreciation is $2,367,143, resulting in net
unrealized appreciation of $28,448,843.
SEE NOTES TO FINANCIAL STATEMENTS
164
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (96.1%)
AUSTRALIA (1.9%)
BANKING
300,000 Australia & New Zealand Banking Group Ltd............................................. $ 2,068,030
------------
BUILDING & CONSTRUCTION
788,000 Pioneer International Ltd............................................................. 1,877,315
------------
GOLD
2,350,000 Normandy Mining Ltd................................................................... 1,919,518
------------
OIL RELATED
650,000 Santos Ltd............................................................................ 2,011,100
------------
PAPER & FOREST PRODUCTS
465,000 Amcor Ltd............................................................................. 2,034,336
------------
TOTAL AUSTRALIA....................................................................... 9,910,299
------------
CANADA (2.4%)
BANKING
73,000 Toronto Dominion Bank................................................................. 3,305,979
------------
NATURAL GAS
76,800 IPL Energy, Inc....................................................................... 3,464,996
140,000 TransCanada Pipelines Ltd............................................................. 3,108,145
------------
6,573,141
------------
OIL RELATED
168,000 Imperial Oil Ltd...................................................................... 2,940,343
------------
TOTAL CANADA.......................................................................... 12,819,463
------------
FRANCE (6.7%)
BANKING
15,500 Societe Generale...................................................................... 3,215,364
------------
BUILDING & CONSTRUCTION
30,000 Lafarge S.A........................................................................... 3,094,315
------------
FINANCIAL SERVICES
31,000 Compagnie Financiere de Paribas....................................................... 3,310,009
5,150 Societe Eurafrance S.A................................................................ 3,229,639
------------
6,539,648
------------
FOODS & BEVERAGES
14,500 Eridania Beghin-Say S.A............................................................... 3,194,571
------------
MISCELLANEOUS MATERIALS & COMMODITIES
16,500 Compagnie de Saint-Gobain............................................................. 3,052,480
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-INDUSTRY
6,000 Compagnie Generale d'Industrie et de Participations................................... $ 3,163,627
------------
OIL INTEGRATED - INTERNATIONAL
22,700 Elf Aquitaine S.A..................................................................... 3,184,256
25,000 Total S.A. (B Shares)................................................................. 3,242,842
------------
6,427,098
------------
TELECOMMUNICATIONS
16,000 Alcatel Alsthom....................................................................... 3,250,433
------------
TELEVISION
20,200 Societe Television
Francaise 1......................................................................... 3,123,591
------------
TOTAL FRANCE.......................................................................... 35,061,127
------------
GERMANY (6.1%)
BANKING
65,000 Commerzbank AG........................................................................ 2,469,446
------------
BUILDING & CONSTRUCTION
73,000 Bilfinger & Berger Bau AG............................................................. 2,496,848
------------
CHEMICALS
60,000 BASF AG............................................................................... 2,845,214
56,000 Bayer AG.............................................................................. 2,892,440
------------
5,737,654
------------
ELECTRICAL EQUIPMENT
42,000 Siemens AG............................................................................ 2,558,370
------------
MACHINERY - DIVERSIFIED
6,700 MAN AG................................................................................ 2,608,417
------------
MULTI-INDUSTRY
48,500 RWE AG................................................................................ 2,864,458
4,000 Viag AG............................................................................... 2,747,332
------------
5,611,790
------------
RETAIL - DEPARTMENT STORES
5,000 Karstadt AG........................................................................... 2,426,312
------------
STEEL & IRON
11,200 Thyssen AG............................................................................ 2,842,891
------------
TEXTILES & APPAREL
1,150 Hugo Boss AG (Pref.).................................................................. 2,531,107
------------
UTILITIES - ELECTRIC
37,800 VEBA AG............................................................................... 2,536,653
------------
TOTAL GERMANY......................................................................... 31,819,488
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
165
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HONG KONG (4.4%)
CONGLOMERATES
1,241,000 Swire Pacific Ltd. (Class A).......................................................... $ 4,685,890
------------
REAL ESTATE
970,000 Cheung Kong (Holdings) Ltd............................................................ 4,770,800
1,381,000 Henderson Land Development Co., Ltd................................................... 4,554,902
------------
9,325,702
------------
TELECOMMUNICATIONS
2,339,800 Hong Kong Telecommunications Ltd...................................................... 4,394,771
------------
UTILITIES - ELECTRIC
1,485,000 Hong Kong Electric Holdings Ltd....................................................... 4,600,787
------------
TOTAL HONG KONG....................................................................... 23,007,150
------------
ITALY (3.0%)
ELECTRIC POWER
468,000 Edison SpA............................................................................ 3,749,309
------------
FINANCIAL SERVICES
258,000 Istituto Mobiliare Italiano SpA....................................................... 4,057,059
------------
OIL & GAS PRODUCTS
610,000 Ente Nazionale Idrocarburi SpA........................................................ 3,991,071
------------
TELECOMMUNICATIONS
810,000 Telecom Italia SpA.................................................................... 3,914,439
------------
TOTAL ITALY........................................................................... 15,711,878
------------
JAPAN (19.7%)
AUTOMOTIVE
154,000 Honda Motor Co........................................................................ 5,473,094
211,000 Toyota Motor Corp..................................................................... 5,449,568
------------
10,922,662
------------
BREWERS
620,000 Kirin Brewery Co., Ltd................................................................ 5,843,165
------------
BUILDING & CONSTRUCTION
731,000 Sekisui House Ltd..................................................................... 5,653,417
------------
ELECTRONICS & ELECTRICAL
857,000 Hitachi, Ltd.......................................................................... 5,579,748
119,500 Kyocera Corp.......................................................................... 5,828,849
320,000 Matsushita Electric Industrial Co., Ltd............................................... 5,133,813
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
662,000 Matsushita Electric Works, Ltd........................................................ $ 5,334,101
1,376,000 Mitsubishi Electric Corp.............................................................. 3,157,871
600,000 NEC Corp.............................................................................. 5,581,295
704,000 Sharp Corp............................................................................ 5,692,777
65,000 Sony Corp............................................................................. 5,588,129
70,000 TDK Corp.............................................................................. 5,161,871
------------
47,058,454
------------
ENTERTAINMENT & LEISURE TIME
56,300 Nintendo Co., Ltd..................................................................... 5,204,712
------------
MACHINERY - DIVERSIFIED
1,500,000 Mitsubishi Heavy Industries Ltd....................................................... 5,654,676
------------
PHARMACEUTICALS
297,000 Taisho Pharmaceutical Co., Ltd........................................................ 5,534,029
221,000 Takeda Chemical Industries............................................................ 5,866,835
------------
11,400,864
------------
POSTAL DELIVERY
503,000 Yamato Transport Co., Ltd............................................................. 5,627,086
------------
TOBACCO
805 Japan Tobacco, Inc.................................................................... 5,438,094
------------
TOTAL JAPAN........................................................................... 102,803,130
------------
MALAYSIA (0.4%)
BANKING
1,351,000 AMMB Holdings Berhad.................................................................. 713,119
------------
BUILDING & CONSTRUCTION
1,185,000 United Engineers (Malaysia) Berhad.................................................... 484,903
------------
CONGLOMERATES
1,595,000 Sime Darby Berhad..................................................................... 1,104,528
------------
TOTAL MALAYSIA........................................................................ 2,302,550
------------
NETHERLANDS (2.7%)
APPLIANCES & HOUSEHOLD DURABLES
27,000 Philips Electronics NV................................................................ 2,264,789
------------
BANKING
101,800 ABN-AMRO Holding NV................................................................... 2,376,965
------------
CHEMICALS
23,000 DSM NV................................................................................ 2,355,734
------------
POSTAL DELIVERY
41,400 TNT Post Group NV*.................................................................... 1,056,019
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
166
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL & IRON
47,000 Koninklijke Hoogovens NV.............................................................. $ 2,028,843
------------
TELECOMMUNICATIONS
41,400 Koninklijke KPN NV.................................................................... 1,590,121
------------
TRANSPORTATION
58,000 KLM Royal Dutch Air Lines NV.......................................................... 2,350,044
------------
TOTAL NETHERLANDS..................................................................... 14,022,515
------------
SPAIN (1.5%)
BANKING
32,000 Banco Popular Espanol S.A............................................................. 2,727,842
------------
ELECTRIC
109,000 Endesa S.A............................................................................ 2,383,309
------------
OIL RELATED
50,000 Repsol S.A............................................................................ 2,753,519
------------
TOTAL SPAIN........................................................................... 7,864,670
------------
SWEDEN (1.5%)
AUTOMOBILES
84,000 Volvo AB (B Shares)................................................................... 2,495,622
------------
BANKING
364,000 Nordbanken Holding AB................................................................. 2,663,748
------------
MACHINERY - DIVERSIFIED
90,600 Sandvik AB (B Shares)................................................................. 2,482,036
------------
TOTAL SWEDEN.......................................................................... 7,641,406
------------
SWITZERLAND (2.1%)
BANKING
10,123 UBS AG*............................................................................... 3,758,665
------------
FOODS & BEVERAGES
1,670 Nestle S.A............................................................................ 3,568,677
------------
PHARMACEUTICALS
2,140 Novartis AG - Bearer.................................................................. 3,558,683
------------
TOTAL SWITZERLAND..................................................................... 10,886,025
------------
UNITED KINGDOM (10.2%)
BANKING
190,000 National Westminster Bank PLC......................................................... 3,393,196
196,000 Royal Bank of Scotland Group PLC...................................................... 3,399,032
------------
6,792,228
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BREWERS
177,678 Bass PLC.............................................................................. $ 3,327,203
------------
FOODS & BEVERAGES
445,000 Hillsdown Holdings PLC................................................................ 1,209,521
------------
LEISURE
562,000 Rank Group PLC........................................................................ 3,083,174
------------
MERCHANDISING
190,000 Next PLC.............................................................................. 1,631,649
------------
METALS NON-FERROUS
285,000 Rio Tinto PLC......................................................................... 3,207,853
------------
MISCELLANEOUS MATERIALS & COMMODITIES
960,000 Cookson Group PLC..................................................................... 3,297,648
------------
MULTI-INDUSTRY
552,000 Hanson PLC............................................................................ 3,352,775
------------
PAPER PRODUCTS
955,000 Arjo Wiggins Appleton PLC............................................................. 3,200,849
------------
STEEL & IRON
1,530,000 British Steel PLC..................................................................... 3,361,305
------------
TOBACCO
353,000 B.A.T. Industries PLC................................................................. 3,531,765
------------
UTILITIES - ELECTRIC
522,500 National Grid Group PLC............................................................... 3,519,926
367,000 National Power PLC.................................................................... 3,451,525
380,000 Scottish Hydro-Electric PLC........................................................... 3,371,018
------------
10,342,469
------------
UTILITIES - WATER
210,000 Hyder PLC............................................................................. 3,288,143
121,500 Hyder PLC (Pref.)..................................................................... 243,628
201,000 Severn Trent PLC...................................................................... 3,517,583
------------
7,049,354
------------
TOTAL UNITED KINGDOM.................................................................. 53,387,793
------------
UNITED STATES (33.5%)
AEROSPACE & DEFENSE
70,000 Northrop Grumman Corp................................................................. 7,218,750
------------
ALUMINUM
105,000 Aluminum Co. of America............................................................... 6,923,437
------------
AUTOMOTIVE
124,000 Ford Motor Co......................................................................... 7,316,000
------------
BANKING
80,500 BankAmerica Corp...................................................................... 6,958,219
195,000 KeyCorp............................................................................... 6,946,875
------------
13,905,094
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
167
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS
71,000 Dow Chemical Co....................................................................... $ 6,864,812
------------
COMPUTERS - SYSTEMS
64,000 International Business Machines Corp.................................................. 7,348,000
------------
CONGLOMERATES
83,500 Minnesota Mining & Manufacturing Co................................................... 6,862,656
183,000 Tenneco, Inc.......................................................................... 6,965,437
------------
13,828,093
------------
CONTAINERS - METAL & GLASS
146,500 Crown Cork & Seal Co., Inc............................................................ 6,958,750
------------
ENGINEERING & CONSTRUCTION
139,000 Fluor Corp............................................................................ 7,089,000
------------
FINANCIAL SERVICES
92,050 Associates First Capital Corp. (Class A).............................................. 7,076,344
------------
MACHINERY - DIVERSIFIED
140,000 Deere & Co............................................................................ 7,402,500
------------
METALS & MINING
121,000 Phelps Dodge Corp..................................................................... 6,919,688
------------
OIL - DOMESTIC
139,500 Ashland, Inc.......................................................................... 7,201,688
------------
OIL INTEGRATED - INTERNATIONAL
84,000 Chevron Corp.......................................................................... 6,977,250
------------
PAPER & FOREST PRODUCTS
156,000 International Paper Co................................................................ 6,708,000
------------
PHARMACEUTICALS
60,000 Bristol-Myers Squibb Co............................................................... 6,896,250
------------
RETAIL
144,000 Dayton-Hudson Corp.................................................................... 6,984,000
------------
SUPERMARKETS
130,000 Albertson's, Inc...................................................................... 6,735,625
------------
TELECOMMUNICATIONS
95,000 Sprint Corp........................................................................... 6,697,500
------------
TIRE & RUBBER GOODS
107,500 Goodyear Tire & Rubber Co............................................................. 6,927,031
------------
TOBACCO
180,000 Philip Morris Companies, Inc.......................................................... 7,087,500
------------
UTILITIES - ELECTRIC
183,400 GPU, Inc.............................................................................. 6,934,813
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - GAS
120,000 Consolidated Natural Gas Co........................................................... $ 7,065,000
------------
TOTAL UNITED STATES................................................................... 175,065,125
------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $455,165,940)........................................................ 502,302,619
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.7%)
U.S. GOVERNMENT AGENCY
$ 19,500 Federal Home Loan Mortgage Corp. 5.85% due 07/01/98 (a) (AMORTIZED COST
$19,500,000)........................................................................ 19,500,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $474,665,940) (b)........................................................ 99.8 % 521,802,619
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 1,172,201
------ -------------
NET ASSETS................................................................................ 100.0 % $ 522,974,820
------ -------------
------ -------------
</TABLE>
- ---------------------
* 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 is $80,950,658 and the
aggregate gross unrealized depreciation is $33,813,979, resulting in net
unrealized appreciation of $47,136,679.
SEE NOTES TO FINANCIAL STATEMENTS
168
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 240,512 JPY 34,135,934 07/01/98 $(5,070)
ITL 348,967,125 $ 197,406 07/01/98 (1,423)
$ 73,803 JPY 10,258,585 07/02/98 --
$ 322,167 GBP 193,746 07/02/98 (905)
$ 224,025 JPY 31,123,763 07/03/98 113
$ 50,988 GBP 30,639 07/03/98 (104)
ITL 306,138,437 $ 172,283 07/06/98 (353)
GBP 468,870 $ 781,907 07/06/98 (66)
GBP 338,328 $ 564,298 07/07/98 (135)
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 158,129 FRF 957,600 07/31/98 97
$ 62,452 FRF 378,810 07/31/98 (63)
-------
Net unrealized depreciation.......... $(7,909)
-------
-------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
FRF French Franc.
GBP British Pound.
ITL Italian Lira.
JPY Japanese Yen.
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace & Defense......................................... $ 7,218,750 1.4%
Aluminum.................................................... 6,923,437 1.3
Appliances & Household Durables............................. 2,264,789 0.4
Automobiles................................................. 2,495,622 0.5
Automotive.................................................. 18,238,662 3.5
Banking..................................................... 43,996,480 8.4
Brewers..................................................... 9,170,368 1.7
Building & Construction..................................... 13,606,798 2.6
Chemicals................................................... 14,958,200 2.9
Computers - Systems......................................... 7,348,000 1.4
Conglomerates............................................... 19,618,511 3.7
Containers - Metal & Glass.................................. 6,958,750 1.3
Electric.................................................... 2,383,309 0.4
Electric Power.............................................. 3,749,309 0.7
Electrical Equipment........................................ 2,558,370 0.5
Electronics & Electrical.................................... 47,058,454 9.0
Engineering & Construction.................................. 7,089,000 1.4
Entertainment & Leisure Time................................ 5,204,712 1.0
Financial Services.......................................... 17,673,051 3.4
Foods & Beverages........................................... 7,972,769 1.5
Gold........................................................ 1,919,518 0.4
Leisure..................................................... 3,083,174 0.6
Machinery - Diversified..................................... 18,147,629 3.5
Merchandising............................................... 1,631,649 0.3
Metals & Mining............................................. 6,919,688 1.3
Metals Non-Ferrous.......................................... 3,207,853 0.6
Miscellaneous Materials & Commodities....................... 6,350,128 1.2
Multi-Industry.............................................. 12,128,192 2.3
Natural Gas................................................. 6,573,141 1.3
Oil & Gas Products.......................................... 3,991,071 0.8
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Oil - Domestic.............................................. $ 7,201,688 1.4%
Oil Integrated - International.............................. 13,404,348 2.6
Oil Related................................................. 7,704,962 1.5
Paper & Forest Products..................................... 8,742,336 1.7
Paper Products.............................................. 3,200,849 0.6
Pharmaceuticals............................................. 21,855,797 4.2
Postal Delivery............................................. 6,683,105 1.3
Real Estate................................................. 9,325,702 1.8
Retail...................................................... 6,984,000 1.3
Retail - Department Stores.................................. 2,426,312 0.5
Steel & Iron................................................ 8,233,039 1.6
Supermarkets................................................ 6,735,625 1.3
Telecommunications.......................................... 19,847,264 3.8
Television.................................................. 3,123,591 0.6
Textiles & Apparel.......................................... 2,531,107 0.5
Tire & Rubber Goods......................................... 6,927,031 1.3
Tobacco..................................................... 16,057,359 3.1
Transportation.............................................. 2,350,044 0.4
U.S. Government Agency...................................... 19,500,000 3.7
Utilities - Electric........................................ 24,414,722 4.7
Utilities - Gas............................................. 7,065,000 1.3
Utilities - Water........................................... 7,049,354 1.3
------------ ---
$521,802,619 99.8%
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks............................................... $499,527,884 95.5%
Preferred Stocks............................................ 2,774,735 0.6
Short-Term Investment....................................... 19,500,000 3.7
------------ ---
$521,802,619 99.8%
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
169
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND RIGHTS (97.9%)
DENMARK (0.9%)
PHARMACEUTICALS
33,950 Novo-Nordisk AS (Series B)...................................................... $ 4,675,616
--------------------
FINLAND (1.8%)
INSURANCE
887 Pohjola Insurance Co. "B"....................................................... 44,085
--------------------
TELECOMMUNICATION EQUIPMENT
124,400 Nokia Oyj (A Shares)............................................................ 9,138,400
--------------------
TOTAL FINLAND................................................................... 9,182,485
--------------------
FRANCE (16.4%)
BANKING
87,467 Banque Nationale de Paris....................................................... 7,130,737
1,138 Banque Nationale de Paris (New)*................................................ 92,775
59,560 Credit Commercial de France..................................................... 5,003,060
--------------------
12,226,572
--------------------
CONGLOMERATES
63,790 Lagardere S.C.A................................................................. 2,649,714
--------------------
ELECTRICAL EQUIPMENT
55,480 Alcatel Alsthom................................................................. 11,270,877
--------------------
ELECTRONICS - SEMICONDUCTORS
83,900 SGS-Thomson Microelectronics N.V.*.............................................. 5,933,022
--------------------
HOTELS/MOTELS
41,330 Accor S.A....................................................................... 11,540,616
--------------------
HOUSEHOLD PRODUCTS
50,940 Societe BIC S.A................................................................. 3,614,853
--------------------
INSURANCE
99,400 AXA-UAP......................................................................... 11,154,716
--------------------
MERCHANDISING
7,800 Carrefour S.A................................................................... 4,923,674
--------------------
MISCELLANEOUS MATERIALS & COMMODITIES
28,800 Compagnie de Saint-Gobain....................................................... 5,327,964
--------------------
OIL RELATED
24,040 Elf Aquitaine S.A............................................................... 3,372,225
42,000 Total S.A. (B Shares)........................................................... 5,447,974
--------------------
8,820,199
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS
50,150 Sanofi S.A...................................................................... $ 5,884,421
--------------------
RETAIL
23,250 Etablissements Economiques du Casino Guichard-Perrachon ET CIE*................. 1,852,480
--------------------
TOTAL FRANCE.................................................................... 85,199,108
--------------------
GERMANY (11.8%)
AIRLINES
240,000 Deutsche Lufthansa AG........................................................... 6,032,185
--------------------
APPAREL MANUFACTURER
1,490 Hugo Boss AG (Pref.)............................................................ 3,279,434
--------------------
AUTOMOTIVE
6,744 Bayerische Motoren Werke (BMW) AG............................................... 6,806,282
1,348 Bayerische Motoren Werke (BMW) AG (New)*........................................ 1,341,813
674 Bayerische Motoren Werke (BMW) AG (Rights)*..................................... 680,224
6,430 Volkswagen AG................................................................... 6,197,805
--------------------
15,026,124
--------------------
BANKING
95,200 Bayerische Vereinsbank AG....................................................... 8,054,858
47,500 Dresdner Bank AG................................................................ 2,561,107
--------------------
10,615,965
--------------------
CHEMICALS
108,400 BASF AG......................................................................... 5,140,353
--------------------
HEALTH & PERSONAL CARE
81 Rhoen-Klinikum AG............................................................... 7,996
103 Rhoen-Klinikum AG (Pref.)....................................................... 9,911
--------------------
17,907
--------------------
MACHINERY - DIVERSIFIED
95,000 Mannesmann AG................................................................... 9,745,341
--------------------
MULTI-LINE INSURANCE
23,450 Allianz AG...................................................................... 7,800,240
--------------------
UTILITIES
59,000 VEBA AG......................................................................... 3,959,326
--------------------
TOTAL GERMANY................................................................... 61,616,875
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
170
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ITALY (4.1%)
BANKING
2,100,000 Banca di Roma*.................................................................. $ 4,363,697
--------------------
HOUSEHOLD FURNISHINGS & APPLIANCES
112,650 Industrie Natuzzi SpA (ADR)..................................................... 2,928,900
--------------------
TELECOMMUNICATIONS
1,203,500 Telecom Italia SpA.............................................................. 8,844,096
--------------------
TELEVISION
830,000 Mediaset SpA.................................................................... 5,288,302
--------------------
TOTAL ITALY..................................................................... 21,424,995
--------------------
NETHERLANDS (11.1%)
ELECTRICAL EQUIPMENT
149,235 Philips Electronics NV.......................................................... 12,517,995
--------------------
ELECTRONICS - SEMICONDUCTORS
81,000 ASM Lithography Holding NV*..................................................... 2,391,936
--------------------
INSURANCE
109,444 Aegon NV........................................................................ 9,502,398
604 Aegon NV (Stock Dividend)*...................................................... 52,442
153,584 ING Groep NV.................................................................... 10,035,018
--------------------
19,589,858
--------------------
OIL INTEGRATED - INTERNATIONAL
105,440 Royal Dutch Petroleum Co........................................................ 5,834,216
--------------------
PUBLISHING
272,000 Ver Ned Uitgev Ver Bezit NV..................................................... 9,860,100
--------------------
RETAIL
233,137 Koninklijke Ahold NV............................................................ 7,467,794
4,662 Koninklijke Ahold NV (Stock Dividend)*.......................................... 149,332
--------------------
7,617,126
--------------------
TOTAL NETHERLANDS............................................................... 57,811,231
--------------------
SPAIN (4.5%)
BANKING
166,283 Banco Bilbao Vizcaya S.A........................................................ 8,528,723
81,842 Banco Popular Espanol S.A....................................................... 6,976,625
--------------------
15,505,348
--------------------
TELECOMMUNICATIONS
165,494 Telefonica S.A.................................................................. 7,646,979
--------------------
TOTAL SPAIN..................................................................... 23,152,327
--------------------
SWEDEN (9.8%)
AUTOMOBILES
208,750 Volvo AB (B Shares)............................................................. 6,201,917
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKING
367,000 Nordbanken Holding AB*.......................................................... $ 2,685,702
--------------------
BUSINESS SERVICES
110,000 Assa Abloy AB (Series B)........................................................ 4,313,860
169,000 Securitas AB (Series "B" Free).................................................. 8,255,504
--------------------
12,569,364
--------------------
INSURANCE
548,405 Skandia Forsakrings AB.......................................................... 7,820,637
--------------------
PHARMACEUTICALS
260,167 Astra AB (B Shares)............................................................. 5,174,700
105,600 Astra AB (Series "A" Free)...................................................... 2,153,215
--------------------
7,327,915
--------------------
RETAIL
62,080 Hennes & Mauritz AB (B Shares).................................................. 3,952,805
--------------------
TELECOMMUNICATION EQUIPMENT
364,540 Ericsson (L.M.) Telephone Co. AB (Series "B" Free).............................. 10,625,196
--------------------
TOTAL SWEDEN.................................................................... 51,183,536
--------------------
SWITZERLAND (8.6%)
BANKING
43,565 Credit Suisse Group............................................................. 9,679,518
24,175 UBS AG.......................................................................... 8,976,103
--------------------
18,655,621
--------------------
FINANCIAL SERVICES
2,470 Compagnie Financiere Richemont AG (Series "A").................................. 3,227,748
--------------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
5,082 Nestle S.A...................................................................... 10,859,889
--------------------
PHARMACEUTICALS
4,720 Novartis AG..................................................................... 7,842,844
1,000 Novartis AG - Bearer............................................................ 1,662,936
281 Roche Holdings AG............................................................... 2,755,428
--------------------
12,261,208
--------------------
TOTAL SWITZERLAND............................................................... 45,004,466
--------------------
UNITED KINGDOM (28.9%)
AEROSPACE & DEFENSE
405,492 British Aerospace PLC........................................................... 3,103,565
810,000 Rolls-Royce PLC*................................................................ 3,342,921
114,707 Smiths Industries PLC........................................................... 1,587,573
--------------------
8,034,059
--------------------
AIR TRANSPORT
154,350 British Airways PLC............................................................. 1,669,100
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
171
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE
414,838 BBA Group PLC................................................................... $ 3,119,758
--------------------
BANKING
339,000 Abbey National PLC.............................................................. 6,020,259
159,000 Barclays Bank PLC............................................................... 4,581,490
158,394 HSBC Holdings PLC............................................................... 4,017,295
290,000 Lloyds TSB Group PLC............................................................ 4,054,776
154,000 Standard Chartered PLC.......................................................... 1,748,774
--------------------
20,422,594
--------------------
BEVERAGES - ALCOHOLIC
311,297 Diageo PLC...................................................................... 3,685,523
--------------------
BROADCAST MEDIA
160,000 Flextech PLC*................................................................... 1,478,072
--------------------
BUILDING & CONSTRUCTION
313,000 Blue Circle Industries PLC...................................................... 1,766,724
--------------------
BUSINESS SERVICES
169,866 Reuters Holdings PLC............................................................ 1,940,273
--------------------
COMPUTER SOFTWARE & SERVICES
150,000 Sage Group (The) PLC............................................................ 4,235,567
385,816 SEMA Group PLC.................................................................. 4,535,605
--------------------
8,771,172
--------------------
CONGLOMERATES
608,562 BTR PLC......................................................................... 1,725,121
415,000 Tomkins PLC..................................................................... 2,250,771
--------------------
3,975,892
--------------------
ELECTRICAL EQUIPMENT
306,363 BICC Group (The) PLC............................................................ 653,901
210,000 General Electric Co. PLC........................................................ 1,808,654
--------------------
2,462,555
--------------------
FOOD PROCESSING
262,000 Associated British Foods PLC.................................................... 2,470,585
312,000 Unilever PLC.................................................................... 3,319,259
--------------------
5,789,844
--------------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
266,420 B.A.T. Industries PLC........................................................... 2,665,532
177,500 Tate & Lyle PLC................................................................. 1,406,651
--------------------
4,072,183
--------------------
HEALTH & PERSONAL CARE
880,000 London International Group PLC.................................................. 3,088,877
--------------------
INSURANCE
40,000 Britannic Assurance PLC......................................................... 757,045
289,200 Prudential Corp. PLC............................................................ 3,807,293
327,271 Royal & Sun Alliance Insurance Group PLC........................................ 3,380,763
--------------------
7,945,101
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LEISURE
216,000 Granada Group PLC............................................................... $ 3,969,184
314,000 Rank Group PLC.................................................................. 1,722,627
--------------------
5,691,811
--------------------
NATURAL GAS
601,541 BG PLC*......................................................................... 3,475,636
--------------------
OIL RELATED
440,000 British Petroleum Co. PLC....................................................... 6,412,538
794,000 Lasmo PLC....................................................................... 3,177,588
329,000 Shell Transport & Trading Co. PLC............................................... 2,315,124
--------------------
11,905,250
--------------------
PHARMACEUTICALS
319,100 Glaxo Wellcome PLC.............................................................. 9,572,465
473,344 SmithKline Beecham PLC.......................................................... 5,773,738
--------------------
15,346,203
--------------------
PUBLISHING - NEWSPAPER
198,000 United News & Media PLC......................................................... 2,766,783
--------------------
RAILROAD EQUIPMENT
90,000 Railtrack Group PLC............................................................. 2,204,602
--------------------
REAL ESTATE
203,200 Hammerson PLC................................................................... 1,650,131
--------------------
RETAIL
209,200 Great Universal Stores PLC...................................................... 2,755,844
247,000 Morrison (W.M.) Supermarkets PLC................................................ 1,243,855
164,000 Next PLC........................................................................ 1,408,370
--------------------
5,408,069
--------------------
RETAIL - DEPARTMENT STORES
162,000 Kingfisher PLC.................................................................. 2,606,803
--------------------
RETAIL - MERCHANDISING
177,820 Tesco PLC....................................................................... 1,734,612
--------------------
TELECOMMUNICATIONS
829,000 British Telecommunications PLC.................................................. 10,229,445
474,000 General Cable PLC*.............................................................. 1,881,140
425,635 Securicor PLC................................................................... 3,463,562
180,000 Vodafone Group PLC.............................................................. 2,282,641
--------------------
17,856,788
--------------------
UTILITIES - ELECTRIC
168,524 National Power PLC.............................................................. 1,584,918
--------------------
TOTAL UNITED KINGDOM............................................................ 150,453,333
--------------------
TOTAL COMMON AND PREFERRED STOCKS AND RIGHTS
(IDENTIFIED COST $349,451,800).................................................. 509,703,972
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
172
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (1.5%)
U.S. GOVERNMENT AGENCY
$ 8,000 Federal Home Loan Mortgage Corp. 5.85% due 07/01/98
(AMORTIZED COST $8,000,000)................................................... $ 8,000,000
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $357,451,800) (b)........................................................ 99.4 % 517,703,972
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.6 3,227,573
------ -------------
NET ASSETS................................................................................ 100.0 % $ 520,931,545
------ -------------
------ -------------
</TABLE>
- ---------------------
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 is $165,154,546 and the
aggregate gross unrealized depreciation is $4,902,374, resulting in net
unrealized appreciation of $160,252,172.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION/
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- --------------------------------------------------
<S> <C> <C> <C>
$ 95,931 FIM 526,423 07/01/98 $ 92
$ 806,477 GBP 483,500 07/01/98 242
$ 208,685 GBP 125,374 07/02/98 (376)
-----
Net unrealized depreciation......... $ (42)
-----
-----
</TABLE>
<TABLE>
<CAPTION>
CURRENCY ABBREVIATIONS:
- -------------------------------------------------------
<S> <C>
GBP British Pound.
FIM Finnish Markka.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
173
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
SUMMARY OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
NET
INDUSTRY VALUE ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------
Aerospace & Defense......................................... $ 8,034,059 1.5 %
Air Transport............................................... 1,669,100 0.3
Airlines.................................................... 6,032,185 1.2
Apparel Manufacturer........................................ 3,279,434 0.6
Automobiles................................................. 6,201,917 1.2
Automotive.................................................. 18,145,882 3.5
Banking..................................................... 84,475,499 16.2
Beverages - Alcoholic....................................... 3,685,523 0.7
Broadcast Media............................................. 1,478,072 0.3
Building & Construction..................................... 1,766,724 0.3
Business Services........................................... 14,509,637 2.8
Chemicals................................................... 5,140,353 1.0
Computer Software & Services................................ 8,771,172 1.7
Conglomerates............................................... 6,625,606 1.3
Electrical Equipment........................................ 26,251,427 5.1
Electronics - Semiconductors................................ 8,324,958 1.6
Financial Services.......................................... 3,227,748 0.6
Food Processing............................................. 5,789,844 1.1
Food, Beverage, Tobacco, & Household Products............... 14,932,072 2.9
Health & Personal Care...................................... 3,106,784 0.6
Hotels/Motels............................................... 11,540,616 2.2
Household Furnishings & Appliances.......................... 2,928,900 0.6
Household Products.......................................... 3,614,853 0.7
Insurance................................................... 46,554,397 8.9
Leisure..................................................... 5,691,811 1.1
Machinery - Diversified..................................... 9,745,341 1.9
Merchandising............................................... 4,923,674 0.9
Miscellaneous Materials & Commodities....................... 5,327,964 1.0
<CAPTION>
PERCENT
OF
NET
INDUSTRY VALUE ASSETS
- -----------------------------------------------------------------------------------
<S> <C> <C>
Multi-Line Insurance........................................ $ 7,800,240 1.5 %
Natural Gas................................................. 3,475,636 0.7
Oil Integrated - International.............................. 5,834,216 1.1
Oil Related................................................. 20,725,449 4.0
Pharmaceuticals............................................. 45,495,363 8.7
Publishing.................................................. 9,860,100 1.9
Publishing - Newspaper...................................... 2,766,783 0.5
Railroad Equipment.......................................... 2,204,602 0.4
Real Estate................................................. 1,650,131 0.3
Retail...................................................... 18,830,480 3.6
Retail - Department Stores.................................. 2,606,803 0.5
Retail - Merchandising...................................... 1,734,612 0.3
Telecommunication Equipment................................. 19,763,596 3.8
Telecommunications.......................................... 34,347,863 6.6
Television.................................................. 5,288,302 1.0
U.S. Government Agency...................................... 8,000,000 1.6
Utilities................................................... 3,959,326 0.8
Utilities - Electric........................................ 1,584,918 0.3
------------ -------
$517,703,972 99.4 %
------------ -------
------------ -------
</TABLE>
<TABLE>
<CAPTION>
PERCENT
OF
NET
TYPE OF INVESTMENT VALUE ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------
Common Stocks............................................... $505,734,403 97.2 %
Preferred Stocks............................................ 3,289,345 0.6
Rights...................................................... 680,224 0.1
Short-Term Investment....................................... 8,000,000 1.5
------------ -------
$517,703,972 99.4 %
------------ -------
------------ -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
174
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, WARRANTS AND BONDS (86.2%)
AUSTRALIA (5.3%)
BANKING
125,000 Westpac Banking Corp., Ltd............................................... $ 761,898
--------------------
COMMERCIAL SERVICES
60,500 Mayne Nickless Ltd....................................................... 320,090
--------------------
FOOD WHOLESALERS
295,000 Goodman Fielder Ltd...................................................... 428,983
--------------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
257,000 Fosters Brewing Group Ltd................................................ 604,320
--------------------
MANUFACTURING - DIVERSIFIED
230,000 Pacific Dunlop Ltd....................................................... 371,466
--------------------
OIL - EXPLORATION & PRODUCTION
90,000 Oil Search Ltd........................................................... 135,888
--------------------
RETAIL STORES
38,400 Coles Myer Ltd........................................................... 149,700
--------------------
TOTAL AUSTRALIA.......................................................... 2,772,345
--------------------
CHINA (1.0%)
METALS & MINING
795,000 Yanzhou Coal Mining Co., Ltd............................................. 151,888
--------------------
REAL ESTATE
382,000 China Resources Beijing Land............................................. 123,281
--------------------
UTILITIES - ELECTRIC
331,000 Huaneng Power International, Inc. (Class H).............................. 110,027
476,000 Zhejiang Southeast Electric Power Co., Ltd. (B Shares)................... 133,280
--------------------
243,307
--------------------
TOTAL CHINA.............................................................. 518,476
--------------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HONG KONG (27.4%)
BANKING
219,000 Dao Heng Bank Group Ltd.................................................. $ 310,979
131,500 Hang Seng Bank Ltd....................................................... 743,523
27,000 HSBC Holdings PLC........................................................ 660,492
--------------------
1,714,994
--------------------
BANKS
28,600 Dah Sing Financial Group................................................. 33,228
--------------------
BUILDING & CONSTRUCTION
74,000 New World Infrastructure Ltd.*........................................... 85,019
--------------------
CONGLOMERATES
118,000 Citic Pacific Ltd........................................................ 208,688
496,000 Hutchison Whampoa Ltd.................................................... 2,618,783
92,000 Swire Pacific Ltd. (Class A)............................................. 347,383
--------------------
3,174,854
--------------------
ELECTRONIC & ELECTRICAL EQUIPMENT
191,000 ASM Pacific Technology Ltd............................................... 81,366
125,000 Johnson Electric Holdings, Ltd........................................... 463,112
--------------------
544,478
--------------------
ENGINEERING & CONSTRUCTION
150,000 Road King Infrastructure Ltd.*........................................... 118,118
--------------------
REAL ESTATE
358,000 Cheung Kong (Holdings) Ltd............................................... 1,760,769
398,000 New World Development Co., Ltd........................................... 770,671
283,000 Sun Hung Kai Properties Ltd.............................................. 1,201,923
--------------------
3,733,363
--------------------
RETAIL - FOOD CHAINS
258,000 Dairy Farm International Holdings Ltd.................................... 276,060
--------------------
RETAIL - SPECIALTY APPAREL
60 Dickson Concepts International Ltd. (New)................................ 84
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
175
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
299,000 China Telecom Ltd........................................................ $ 519,144
1,000,000 Hong Kong Telecommunications Ltd......................................... 1,878,267
--------------------
2,397,411
--------------------
UTILITIES
276,500 CLP Holdings Ltd......................................................... 1,259,982
431,892 Hong Kong & China Gas Co., Ltd........................................... 490,628
19,676 Hong Kong & China Gas Co., Ltd. (Warrants due 09/30/99).................. 1,346
195,000 Hong Kong Electric Holdings Ltd.......................................... 604,144
--------------------
2,356,100
--------------------
TOTAL HONG KONG.......................................................... 14,433,709
--------------------
INDIA (1.1%)
ALUMINUM
9,000 Hindalco Industries Ltd. (GDR)*.......................................... 126,000
--------------------
BANKING
16,000 State Bank of India (GDR)................................................ 189,600
--------------------
TELEPHONES
13,500 Mahanagar Telephone Nigam Ltd. (GDR)*.................................... 141,412
--------------------
TEXTILES
18,000 Reliance Industries Ltd. (GDR)........................................... 117,450
--------------------
TOTAL INDIA.............................................................. 574,462
--------------------
INDONESIA (0.4%)
INVESTMENT COMPANIES
500,000 Peregrine Indonesia Fund Ltd.**.......................................... --
--------------------
OIL & GAS EXPLORATION
16,500 Gulf Indonesia Resources Ltd.*........................................... 189,750
--------------------
TOTAL INDONESIA.......................................................... 189,750
--------------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN (19.3%)
AUTO TRUCKS & PARTS
1,000 Yasunaga Corp............................................................ $ 6,043
--------------------
AUTOMOTIVE
7,000 Honda Motor Co........................................................... 248,777
8,000 Toyota Motor Corp........................................................ 206,619
--------------------
455,396
--------------------
BANKING
26,000 Asahi Bank Ltd........................................................... 114,101
18,000 Bank of Tokyo-Mitsubishi Ltd............................................. 190,230
30,000 Mitsui Trust & Banking Co., Ltd.......................................... 70,576
15,000 Sanwa Bank Ltd........................................................... 133,921
15,000 Sumitomo Bank Ltd........................................................ 145,683
12,000 Sumitomo Trust & Banking Co.............................................. 53,525
--------------------
708,036
--------------------
BEVERAGES
3,000 Itoen Ltd................................................................ 92,806
24,000 Kajima Corp.............................................................. 65,612
4,000 Mikuni Coca-Cola Bottling Co............................................. 68,489
--------------------
226,907
--------------------
BREWERY
17,000 Kirin Brewery Co., Ltd................................................... 160,216
--------------------
BUILDING & CONSTRUCTION
7,000 Kaneshita Construction................................................... 36,360
JPY 12,000 K Sanwa Shutter Corp. 0.90% due 03/31/06 (Conv.)........................... 79,338
--------------------
115,698
--------------------
BUILDING MATERIALS
3,700 Nichiha Corp............................................................. 21,801
14,000 Sanwa Shutter Corp....................................................... 61,439
--------------------
83,240
--------------------
BUSINESS SERVICES
2,000 Nichii Gakkan Co......................................................... 66,331
3,000 Secom Co................................................................. 172,878
--------------------
239,209
--------------------
CHEMICALS
6,000 Ibiden Co., Ltd.......................................................... 82,662
33,000 Mitsubishi Chemical Corp................................................. 59,590
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
176
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Sanyo Chemical Industries Ltd............................................ $ 84,892
7,000 Shin-Etsu Chemical Co.................................................... 120,863
14,000 Sumitomo Bakelite Co., Ltd............................................... 93,065
3,000 Tokyo Ohka Kogyo Co., Ltd................................................ 85,036
--------------------
526,108
--------------------
COMPUTER SOFTWARE & SERVICES
6,000 Hitachi Software Engineering Co., Ltd.................................... 158,849
3,000 Meitec Corp.............................................................. 103,597
5 NTT Data Communications Systems Corp..................................... 180,216
--------------------
442,662
--------------------
COSMETICS
9,000 Kao Corp................................................................. 138,561
--------------------
ELECTRIC
6,500 Tokyo Electric Power Co.................................................. 127,194
--------------------
ELECTRONIC & ELECTRICAL EQUIPMENT
2,000 Aiwa Co., Ltd............................................................ 62,590
5,000 Canon, Inc............................................................... 113,309
JPY 9,000 K Canon, Inc. 1.00% due 12/20/02 (Conv.)................................... 137,590
3,000 Mitsui High-Tec, Inc..................................................... 70,791
14,000 NGK Insulators, Ltd...................................................... 121,367
2,000 Shinko Electric Industries Co., Ltd...................................... 72,662
3,400 Sony Corp................................................................ 292,302
10,000 Sumitomo Electric Industries............................................. 100,935
3,000 TDK Corp................................................................. 221,223
--------------------
1,192,769
--------------------
ELECTRONICS
500 Nidec Corp............................................................... 34,101
2,000 Rohm Co., Ltd............................................................ 205,036
--------------------
239,137
--------------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
4,000 Tokyo Seimitsu Co., Ltd.................................................. 100,719
--------------------
ENGINEERING & CONSTRUCTION
8,000 Kurita Water Industries Ltd.............................................. 94,389
--------------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT
2,000 Nintendo Co., Ltd........................................................ $ 184,892
3,600 Sony Music Entertainment Inc............................................. 152,547
--------------------
337,439
--------------------
FINANCIAL SERVICES
2,000 Nichiei Co., Ltd. (Kyoto)................................................ 135,827
10,000 Nomura Securities Co., Ltd............................................... 116,187
2,700 Orix Corp................................................................ 182,007
--------------------
434,021
--------------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
10,000 Nippon Meat Packers, Inc................................................. 122,230
--------------------
HAND TOOLS
1,000 Disco Corp............................................................... 27,698
--------------------
INSURANCE
15,000 Tokio Marine & Fire Insurance Co......................................... 153,885
--------------------
MACHINERY
14,000 Daifuku Co., Ltd......................................................... 52,072
3,000 Fuji Machine Manufacturing Co., Ltd...................................... 79,425
1,300 Keyence Corp............................................................. 141,223
7,000 Minebea Co., Ltd......................................................... 69,547
JPY 19,000 K Minebea Co., Ltd. 0.80% due 03/31/03 (Conv.)............................. 220,482
16,000 OSG Corp................................................................. 95,540
2,700 Shima Seiki Manufacturing Ltd............................................ 91,101
--------------------
749,390
--------------------
MERCHANDISING
4,000 Misumi Corp.............................................................. 67,338
--------------------
METALS
100 Fujimi Inc............................................................... 3,655
--------------------
METALS & MINING
4,000 Sumitomo Special Metals Co., Ltd......................................... 84,892
--------------------
METALS NON-FERROUS
29,000 Mitsui Mining & Smelting Co., Ltd........................................ 120,173
--------------------
MULTI-INDUSTRY
10,000 Mitsui & Co.............................................................. 53,957
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
177
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NATURAL GAS
48,000 Tokyo Gas Co., Ltd....................................................... $ 106,705
--------------------
OFFICE EQUIPMENT
14,000 Ricoh Co., Ltd........................................................... 147,151
--------------------
PAPER PRODUCTS
23,000 Tomoegawa Paper Co., Ltd................................................. 56,424
--------------------
PHARMACEUTICALS
12,000 Sankyo Co., Ltd.......................................................... 272,806
7,000 Takeda Chemical Industries............................................... 185,827
--------------------
458,633
--------------------
PHOTOGRAPHY/IMAGING
7,000 Fuji Photo Film Co....................................................... 243,237
--------------------
REAL ESTATE
24,000 Heiwa Real Estate Co., Ltd............................................... 69,065
JPY 4,000 K Heiwa Real Estate Co., Ltd. 2.50% due 03/29/02 (Conv.)................... 29,151
10,000 Mitsubishi Estate Co., Ltd............................................... 87,770
11,000 Mitsui Fudosan Co........................................................ 86,734
--------------------
272,720
--------------------
RETAIL
4,000 Ito-Yokado Co., Ltd...................................................... 187,914
700 Otsuka Kagu Ltd.......................................................... 32,230
--------------------
220,144
--------------------
RETAIL - DEPARTMENT STORES
12,000 Hankyu Department Stores, Inc............................................ 62,331
--------------------
RETAIL - GENERAL MERCHANDISE
2,200 Circle K Japan Co., Ltd.................................................. 76,446
3,000 Seven - Eleven Japan Co., Ltd............................................ 178,273
3,500 Shimamura Co., Ltd....................................................... 94,424
--------------------
349,143
--------------------
STEEL
76,000 Nippon Steel Co.......................................................... 133,410
52,000 Sumitomo Metal Industries................................................ 83,424
10,000 Yamato Kogyo Co., Ltd.................................................... 73,381
--------------------
290,215
--------------------
TELECOMMUNICATIONS
21 DDI Corp................................................................. 72,971
11,000 Nippon Comsys Corp....................................................... 126,144
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
27 Nippon Telegraph & Telephone Corp........................................ $ 223,381
--------------------
422,496
--------------------
TEXTILES
32,000 Mitsubishi Rayon Co., Ltd................................................ 89,324
40,000 Nitto Boseki Co., Ltd.................................................... 89,784
--------------------
179,108
--------------------
TIRE & RUBBER GOODS
6,000 Bridgestone Corp......................................................... 141,583
--------------------
TRANSPORTATION
25 East Japan Railway Co.................................................... 117,266
25,000 Tokyu Corp............................................................... 75,719
--------------------
192,985
--------------------
TOTAL JAPAN.............................................................. 10,153,837
--------------------
MALAYSIA (5.0%)
AUTOMOTIVE
105,680 Oriental Holdings Berhad................................................. 176,560
--------------------
BANKING
117,600 Malayan Banking Berhad................................................... 119,024
283,999 Public Bank Berhad....................................................... 85,956
--------------------
204,980
--------------------
BUILDING & CONSTRUCTION
114,999 Gamuda Berhad............................................................ 87,433
16,666 Gamuda Berhad (Warrants due 12/29/01)*................................... 1,090
135,000 Lingkaran Trans Kota Holdings Berhad*.................................... 77,143
--------------------
165,666
--------------------
ELECTRONICS
45,000 Malaysian Pacific Industries Berhad...................................... 53,390
--------------------
INSURANCE
140,400 Malaysian Assurance Alliance Berhad...................................... 122,383
--------------------
LEISURE
123,000 Berjaya Sports Toto Berhad............................................... 183,160
371,000 Metroplex Berhad......................................................... 59,737
175,000 Resorts World Berhad..................................................... 193,220
--------------------
436,117
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
178
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-INDUSTRY
110,000 Hong Leong Industries Berhad............................................. $ 82,034
--------------------
PLANTATION
162,000 Highlands & Lowlands Berhad.............................................. 114,930
367,000 IOI Corporated Berhad.................................................... 183,944
95,500 Kuala Lumpur Kepong Berhad............................................... 154,927
--------------------
453,801
--------------------
TELECOMMUNICATIONS
184,000 Telekom Malaysia Berhad.................................................. 311,864
--------------------
TOBACCO
60,000 R.J. Reynolds Berhad..................................................... 83,535
--------------------
UTILITIES
248,000 Tenaga Nasional Berhad................................................... 300,242
--------------------
UTILITIES - ELECTRIC
105,000 Malakoff Berhad.......................................................... 194,491
--------------------
WATER
206,000 Puncak Niaga Holdings Berhad*............................................ 71,826
--------------------
TOTAL MALAYSIA........................................................... 2,656,889
--------------------
PHILIPPINES (2.0%)
CONGLOMERATES
315,000 First Philippine Holdings Corp. (B Shares)............................... 212,530
--------------------
REAL ESTATE
608,400 Ayala Land, Inc.......................................................... 175,923
--------------------
TELECOMMUNICATIONS
17,200 Philippine Long Distance Telephone Co. (ADR)............................. 389,150
--------------------
UTILITIES
112,900 Manila Electric Co. (B Shares)........................................... 299,253
--------------------
TOTAL PHILIPPINES........................................................ 1,076,856
--------------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (8.9%)
BANKING
66,400 Development Bank of Singapore, Ltd....................................... $ 368,451
162,520 Overseas Chinese Banking Corp., Ltd...................................... 554,593
136,000 Overseas Union Bank Ltd.................................................. 298,635
131,000 United Overseas Bank Ltd................................................. 408,160
--------------------
1,629,839
--------------------
CONGLOMERATES
85,500 Keppel Corp., Ltd........................................................ 128,884
195,000 Natsteel Ltd............................................................. 189,792
--------------------
318,676
--------------------
ELECTRONIC & ELECTRICAL EQUIPMENT
38,700 Elec & Eltek International Co., Ltd...................................... 130,806
179,000 Venture Manufacturing Ltd................................................ 339,941
--------------------
470,747
--------------------
ELECTRONICS
30,000 GP Batteries International Ltd........................................... 54,837
--------------------
ENGINEERING
401,471 Singapore Technologies Engineering Ltd................................... 283,531
--------------------
PUBLISHING
42,467 Singapore Press Holdings Ltd............................................. 284,794
--------------------
REAL ESTATE
121,000 City Developments Ltd.................................................... 338,944
116,000 Keppel Land Ltd.......................................................... 106,706
--------------------
445,650
--------------------
SHIPBUILDING
48,000 Jurong Shipyard Ltd...................................................... 232,166
78,000 Keppel Fels Ltd.......................................................... 233,769
--------------------
465,935
--------------------
TELECOMMUNICATIONS
210,000 Singapore Telecommunications Ltd......................................... 299,110
--------------------
TRANSPORTATION
100,000 Singapore Airlines Ltd................................................... 468,843
--------------------
TOTAL SINGAPORE.......................................................... 4,721,962
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
179
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (3.0%)
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
1 LG Information & Communication Ltd....................................... $ 15
--------------------
ELECTRONIC & ELECTRICAL EQUIPMENT
5,799 Samsung Display Devices Co............................................... 158,732
15,388 Samsung Electronics Co. (GDR)............................................ 477,365
80 Samsung Electronics Co................................................... 1,270
--------------------
637,367
--------------------
ENERGY
19,200 Korea Electric Power Corp................................................ 205,314
--------------------
INVESTMENT COMPANIES
25,000 Atlantis Korean Smaller Co's*............................................ 118,750
--------------------
MACHINERY
49,500 Daewoo Heavy Industries.................................................. 151,029
--------------------
STEEL & IRON
13,670 Pohang Iron & Steel Co., Ltd............................................. 456,837
--------------------
TOTAL SOUTH KOREA........................................................ 1,569,312
--------------------
TAIWAN (10.2%)
BUILDING MATERIALS
41,063 Asia Cement Corp. (GDR).................................................. 369,567
--------------------
CHEMICALS
$ 205 K Nan Ya Plastics Corp. 1.75% due 07/09/01 (Conv.)......................... 217,300
--------------------
COMPUTERS
33,000 Acer, Inc. (GDR)......................................................... 194,700
9,000 Asustek Computer Inc. (GDR).............................................. 71,100
$ 185 K Compal Electronics 1.00% due 11/21/03 (Conv.)............................ 397,750
--------------------
663,550
--------------------
ELECTRONIC COMPONENTS
26,000 Yageo Corp. (ADR)........................................................ 208,000
--------------------
INVESTMENT COMPANIES
163 Taipei Fund*............................................................. 1,428,369
--------------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL
$ 330 K Far Eastern Department Stores - 144A** 3.00% due 07/06/01 (Conv.)........ $ 280,500
--------------------
SEMICONDUCTOR EQUIPMENT
$ 210 K Siliconware Precision Industries Co. 0.50% due 07/21/04 (Conv.).......... 199,500
--------------------
SEMICONDUCTORS
50,750 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR)....................... 853,234
$ 180 K United Microelectronics Corp. 0.25% due 05/16/04 (Conv.)................. 181,800
--------------------
1,035,034
--------------------
STEEL & IRON
23,388 China Steel Corp. (GDR).................................................. 289,427
--------------------
TRANSPORTATION
$ 412 K U-Ming Marine Transport 1.50% due 02/07/01 (Conv.)....................... 341,960
$ 304 K Yang Ming Marine Transportation - 144A** 2.00% due 10/06/01 (Conv.)...... 348,080
--------------------
690,040
--------------------
TOTAL TAIWAN............................................................. 5,381,287
--------------------
THAILAND (2.6%)
BANKING
130,800 Bangkok Bank Public Co., Ltd............................................. 161,558
178,500 Thai Farmers Bank Public Co., Ltd. (Alien Market)........................ 157,937
--------------------
319,495
--------------------
ENERGY
10,100 Ban Pu Coal Co., Ltd..................................................... 16,553
--------------------
ENTERTAINMENT
15,000 Grammy Entertainment PLC................................................. 34,917
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
180
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL RELATED
41,800 PTT Exploration & Production Public Co., Ltd............................. $ 317,720
--------------------
TELECOMMUNICATIONS
43,000 Advanced Info Service Public Co., Ltd.................................... 171,591
--------------------
TELEVISION
47,000 BEC World Public Co., Ltd................................................ 181,972
--------------------
TRANSPORTATION
342,400 Bangkok Expressway Public Co., Ltd.*..................................... 138,261
--------------------
UTILITIES - ELECTRIC
194,200 Cogeneration Public Co.*................................................. 78,418
63,800 Electricity Generating Public Co., Ltd................................... 99,261
--------------------
177,679
--------------------
TOTAL THAILAND........................................................... 1,358,188
--------------------
TOTAL COMMON STOCKS, WARRANTS AND BONDS
(IDENTIFIED COST $65,083,370)............................................ 45,407,073
--------------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY DESCRIPTION,
AMOUNT IN EXPIRATION DATE
THOUSANDS AND STRIKE PRICE
- ---------------- --------------------------------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (1.2%)
JPY 778,491 August 11, 1998/JPY 123.57 (IDENTIFIED COST $170,415).................... 658,350
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------------
<C> <S> <C>
SHORT-TERM INVESTMENT (6.3%)
U.S. GOVERNMENT AGENCY
$ 3,300 Federal National Mortgage Assoc. 5.52% due 07/02/98 (a)
(IDENTIFIED COST $3,299,494)........................................... 3,299,494
--------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $68,553,279) (b).......................................................... 93.7 % $ 49,364,917
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 6.3 3,327,652
------ ------------
NET ASSETS................................................................................. 100.0 % $ 52,692,569
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
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 approximates identified
cost. The aggregate gross unrealized appreciation is $1,601,891 and the
aggregate gross unrealized depreciation is $20,790,253, resulting in net
unrealized depreciation of $19,188,362.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION/
DELIVER EXCHANGE FOR DATE (DEPRECIATION)
- ------------------------------------------------------
<S> <C> <C> <C>
MYR 850,021 $ 209,107 07/02/98 $ 3,291
SGD 1,611,220 $ 970,907 11/16/98 22,213
HKD 32,839,000 $ 4,157,625 12/01/98 (10,108)
HKD 9,914,000 $ 1,221,869 06/10/99 4,406
------------
Net unrealized appreciation............. $ 19,802
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY ABBREVIATIONS:
<S> <C>
HKD Hong Kong Dollar.
JPY Japanese Yen.
MYR Malaysian Ringgit.
SGD Singapore Dollar.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
181
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
SUMMARY OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
Aluminum.................................................... $ 126,000 0.2 %
Auto Trucks & Parts......................................... 6,043 0.0
Automotive.................................................. 631,956 1.2
Banking..................................................... 5,528,842 10.5
Banks....................................................... 33,228 0.1
Beverages................................................... 226,907 0.4
Brewery..................................................... 160,216 0.3
Building & Construction..................................... 366,383 0.7
Building Materials.......................................... 452,807 0.9
Business Services........................................... 239,209 0.4
Chemicals................................................... 743,408 1.4
Commercial Services......................................... 320,090 0.6
Communications - Equipment/Manufacturers.................... 15 0.0
Computer Software & Services................................ 442,662 0.8
Computers................................................... 663,550 1.3
Conglomerates............................................... 3,706,060 7.0
Cosmetics................................................... 138,561 0.3
Currency Options............................................ 658,350 1.2
Electric.................................................... 127,194 0.2
Electronic & Electrical Equipment........................... 2,845,361 5.4
Electronic Components....................................... 208,000 0.4
Electronics................................................. 347,364 0.7
Electronics - Semiconductors/
Components................................................ 100,719 0.2
Energy...................................................... 221,867 0.4
Engineering................................................. 283,531 0.5
Engineering & Construction.................................. 212,507 0.4
Entertainment............................................... 372,356 0.7
Financial Services.......................................... 434,021 0.8
Food Wholesalers............................................ 428,983 0.8
Food, Beverage, Tobacco, & Household Products............... 726,550 1.4
Hand Tools.................................................. 27,698 0.1
Insurance................................................... 276,268 0.5
Investment Companies........................................ 1,547,119 2.9
Leisure..................................................... 436,117 0.8
Machinery................................................... 900,419 1.7
Manufacturing - Diversified................................. 371,466 0.7
Merchandising............................................... 67,338 0.1
Metals...................................................... 3,655 0.0
Metals & Mining............................................. 236,780 0.4
Metals Non-Ferrous.......................................... 120,173 0.2
Multi-Industry.............................................. 135,991 0.3
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas................................................. $ 106,705 0.2 %
Office Equipment............................................ 147,151 0.3
Oil & Gas Exploration....................................... 189,750 0.4
Oil - Exploration & Production.............................. 135,888 0.3
Oil Related................................................. 317,720 0.6
Paper Products.............................................. 56,424 0.1
Pharmaceuticals............................................. 458,633 0.9
Photography/Imaging......................................... 243,237 0.5
Plantation.................................................. 453,801 0.9
Publishing.................................................. 284,794 0.5
Real Estate................................................. 4,750,937 9.0
Retail...................................................... 500,644 1.0
Retail - Department Stores.................................. 62,331 0.1
Retail - Food Chains........................................ 276,060 0.5
Retail - General Merchandise................................ 349,143 0.7
Retail - Specialty Apparel.................................. 84 0.0
Retail Stores............................................... 149,700 0.3
Semiconductor Equipment..................................... 199,500 0.4
Semiconductors.............................................. 1,035,034 2.0
Shipbuilding................................................ 465,935 0.9
Steel....................................................... 290,215 0.5
Steel & Iron................................................ 746,264 1.4
Telecommunications.......................................... 3,991,622 7.6
Telephones.................................................. 141,412 0.3
Television.................................................. 181,972 0.3
Textiles.................................................... 296,558 0.6
Tire & Rubber Goods......................................... 141,583 0.3
Tobacco..................................................... 83,535 0.2
Transportation.............................................. 1,490,129 2.8
U.S. Government Agency...................................... 3,299,494 6.3
Utilities................................................... 2,955,595 5.6
Utilities - Electric........................................ 615,477 1.2
Water....................................................... 71,826 0.1
------------ ---
$ 49,364,917 93.7 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
Common Stocks............................................... $ 42,971,186 81.6 %
Convertible Bonds........................................... 2,433,451 4.6
Foreign Currency Put Options................................ 658,350 1.2
Short-Term Investment....................................... 3,299,494 6.3
Warrants.................................................... 2,436 0.0
------------ ---
$ 49,364,917 93.7 %
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
182
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.2%)
ADVERTISING (2.4%)
20,000 Snyder Communications, Inc.*.................................................... $ 880,000
--------------------
ADVERTISING/MARKETING SERVICES (1.5%)
15,000 Boron, LePore & Associates, Inc................................................. 568,125
--------------------
AIR FREIGHT (1.2%)
10,000 Expeditors International of Washington, Inc..................................... 437,500
--------------------
BANKS (6.6%)
10,000 Bank of New York Co., Inc....................................................... 606,875
10,000 NationsBank Corp................................................................ 765,000
7,000 Pacific Bank, N.A............................................................... 378,875
8,000 Wachovia Corp................................................................... 676,000
--------------------
2,426,750
--------------------
BIOTECHNOLOGY (2.0%)
20,000 Centocor, Inc.*................................................................. 725,000
--------------------
BROADCAST MEDIA (7.4%)
15,000 Chancellor Media Corp.*......................................................... 744,375
5,000 Clear Channel Communications, Inc.*............................................. 545,625
15,000 Emmis Broadcasting Corp. (Class A)*............................................. 717,187
12,500 Jacor Communications, Inc.*..................................................... 737,500
--------------------
2,744,687
--------------------
BUSINESS SERVICES (1.4%)
17,000 AccuStaff, Inc.*................................................................ 531,250
--------------------
COMPUTER EQUIPMENT (1.2%)
10,600 Storage Technology Corp.*....................................................... 459,775
--------------------
COMPUTER SERVICES (0.1%)
3,000 American Business Information, Inc. (B Shares)*................................. 47,625
--------------------
COMPUTER SOFTWARE (2.9%)
10,400 Compuware Corp.*................................................................ 531,050
20,800 Systems & Computer Technology Corp.*............................................ 559,000
--------------------
1,090,050
--------------------
COMPUTER SOFTWARE & SERVICES (5.0%)
20,000 AXENT Technologies, Inc.*....................................................... 611,250
20,000 BroadVision, Inc.*.............................................................. 475,000
12,450 Harbinger Corp.*................................................................ 301,134
30,000 Segue Software, Inc.*........................................................... 468,750
--------------------
1,856,134
--------------------
COMPUTERS (1.0%)
8,200 Gulfstream Aerospace Corp.*..................................................... 381,300
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISTRIBUTORS - FOOD & HEALTH (1.9%)
7,500 Cardinal Health, Inc............................................................ $ 703,125
--------------------
DRUGS (4.0%)
12,000 Elan Corp. PLC (ADR) (Ireland)*................................................. 771,750
20,000 Forest Laboratories, Inc.*...................................................... 715,000
--------------------
1,486,750
--------------------
ELECTRICAL EQUIPMENT (0.6%)
6,000 AFC Cable Systems, Inc.*........................................................ 213,000
--------------------
ELECTRONICS (2.2%)
50,000 Aeroflex Inc.*.................................................................. 518,750
10,000 Vitesse Semiconductor Corp.*.................................................... 308,750
--------------------
827,500
--------------------
FINANCIAL SERVICES (2.4%)
7,000 Capital One Financial Corp...................................................... 869,312
--------------------
HEALTH EQUIPMENT & SERVICES (3.7%)
30,000 DVI, Inc........................................................................ 765,000
27,000 United Payors & United Providers, Inc.*......................................... 604,125
--------------------
1,369,125
--------------------
HEALTHCARE (4.0%)
15,000 Allegiance Corp................................................................. 768,750
10,000 Warner-Lambert Co............................................................... 693,750
--------------------
1,462,500
--------------------
HEALTHCARE - SPECIALIZED SERVICES (1.5%)
20,000 QuadraMed Corp.*................................................................ 546,250
--------------------
LEISURE TIME - PRODUCTS (0.7%)
20,000 Oakley, Inc.*................................................................... 260,000
--------------------
LIFE & HEALTH INSURANCE (1.3%)
10,000 Conseco, Inc.................................................................... 467,500
--------------------
MEDICAL PRODUCTS & SUPPLIES (3.2%)
20,000 Closure Medical Corp.*.......................................................... 497,500
16,000 Lincare Holdings, Inc.*......................................................... 672,000
--------------------
1,169,500
--------------------
MEDICAL SERVICES (0.8%)
50,000 Medaphis Corp.*................................................................. 300,000
--------------------
MISCELLANEOUS (2.2%)
5,000 Advance Paradigm, Inc.*......................................................... 180,625
30,000 Mail-Well, Inc.*................................................................ 650,625
--------------------
831,250
--------------------
NATURAL GAS (1.0%)
20,000 Basin Exploration, Inc.*........................................................ 352,500
--------------------
OIL EQUIPMENT & SERVICES (0.6%)
10,000 Core Laboratories N.V........................................................... 215,000
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
183
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS (6.4%)
20,000 Alkermes, Inc.*................................................................. $ 358,750
15,000 ALZA Corp. (Class A)*........................................................... 648,750
16,000 ICN Pharmaceuticals, Inc........................................................ 731,000
50,000 ImClone Systems, Inc.*.......................................................... 609,375
--------------------
2,347,875
--------------------
POLLUTION CONTROL (1.5%)
12,000 American Disposal Services, Inc.*............................................... 562,500
--------------------
PROPERTY - CASUALTY INSURANCE (1.5%)
15,000 Mutual Risk Management Ltd. (Bermuda)........................................... 546,562
--------------------
PUBLISHING (0.8%)
7,900 Valassis Communications, Inc.*.................................................. 304,644
--------------------
RETAIL (4.9%)
15,000 Abercrombie & Fitch Co. (Class A)*.............................................. 660,000
40,000 Baker (J.), Inc................................................................. 460,000
20,000 Sunglass Hut International, Inc.*............................................... 220,000
15,000 Zale Corp.*..................................................................... 477,188
--------------------
1,817,188
--------------------
SHOES (3.2%)
40,000 Genesco Inc.*................................................................... 652,500
25,000 Wolverine World Wide, Inc....................................................... 542,188
--------------------
1,194,688
--------------------
SPECIALIZED SERVICES (2.0%)
15,000 Party City Corp.*............................................................... 433,125
7,100 Service Corp. International..................................................... 304,413
--------------------
737,538
--------------------
TELECOMMUNICATIONS (7.8%)
10,000 Advanced Fibre Communications, Inc.*............................................ 400,625
15,000 ICG Communications, Inc.*....................................................... 547,500
20,000 Tele-Communications TCI Ventures Group (Class A)*............................... 400,000
20,000 WinStar Communications, Inc.*................................................... 858,750
50,000 WorldPort Communications, Inc.*................................................. 675,000
--------------------
2,881,875
--------------------
TRANSPORTATION - MISCELLANEOUS (0.3%)
2,000 Coach USA, Inc.*................................................................ 91,250
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $29,983,226)................................................... 33,705,628
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.5%)
U.S. GOVERNMENT AGENCY (a) (2.2%)
$ 800 Federal National Mortgage Association 5.52% due 07/02/98
(AMORTIZED COST $799,877)..................................... $ 799,877
--------------------
REPURCHASE AGREEMENT (4.3%)
1,610 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98;
proceeds $1,610,908) (b) (IDENTIFIED COST $1,610,662)......... 1,610,662
--------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $2,410,539).................................... 2,410,539
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $32,393,765) (c).......................................................... 97.7 % 36,116,167
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 2.3 847,686
------ ------------
NET ASSETS................................................................................. 100.0 % $ 36,963,853
------ ------------
------ ------------
</TABLE>
- ---------------------
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) Collateralized by $1,171,150 U.S. Treasury Bond 8.75% due 08/15/20 valued
at $1,642,875.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,235,990 and the
aggregate gross unrealized depreciation is $513,588, resulting in net
unrealized appreciation of $3,722,402.
SEE NOTES TO FINANCIAL STATEMENTS
184
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (83.5%)
AGRICULTURE RELATED (0.5%)
40,000 Delta & Pine Land Co............................................................ $ 1,780,000
75,000 Pioneer Hi-Bred International, Inc.............................................. 3,103,125
--------------------
4,883,125
--------------------
APPAREL (1.1%)
240,000 Warnaco Group, Inc. (Class A)................................................... 10,185,000
--------------------
BANKS (4.5%)
220,000 Argentaria (ADR) (Spain)........................................................ 9,927,500
65,000 Citicorp........................................................................ 9,701,250
80,000 First Union Corp................................................................ 4,660,000
65,000 Mellon Bank Corp................................................................ 4,525,625
70,000 National City Corp.............................................................. 4,970,000
34,000 State Street Corp............................................................... 2,363,000
222,000 U.S. Bancorp.................................................................... 9,546,000
--------------------
45,693,375
--------------------
BIOTECHNOLOGY (0.4%)
176,000 IDEC Pharmaceuticals Corp.*..................................................... 4,092,000
--------------------
CABLE & TELECOMMUNICATIONS (2.1%)
220,000 Cox Communications, Inc. (Class A)*............................................. 10,656,250
120,000 Time Warner, Inc................................................................ 10,252,500
--------------------
20,908,750
--------------------
CAPITAL GOODS (1.8%)
200,000 General Electric Co............................................................. 18,200,000
--------------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (2.0%)
225,000 Ascend Communications, Inc.*.................................................... 11,137,500
100,000 Cisco Systems, Inc.*............................................................ 9,206,250
--------------------
20,343,750
--------------------
COMMUNICATIONS EQUIPMENT (2.7%)
240,000 Alcatel Alsthom (ADR) (France).................................................. 9,765,000
130,000 Lucent Technologies, Inc........................................................ 10,814,375
90,000 Nokia Corp. (ADR) (Class A) (Finland)........................................... 6,530,625
--------------------
27,110,000
--------------------
COMPUTER HARDWARE (1.1%)
125,000 Dell Computer Corp.*............................................................ 11,593,750
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SERVICES (0.5%)
150,000 First Data Corp................................................................. $ 4,996,875
--------------------
COMPUTER SOFTWARE (6.1%)
50,000 BMC Software, Inc.*............................................................. 2,596,875
60,000 Citrix Systems, Inc.*........................................................... 4,102,500
150,000 Computer Associates International, Inc.......................................... 8,334,375
215,000 Compuware Corp.*................................................................ 10,978,437
95,900 Great Plains Software, Inc.*.................................................... 3,236,625
340,000 Legato Systems, Inc.*........................................................... 13,260,000
110,000 Manugistics Group, Inc.*........................................................ 2,722,500
50,000 Microsoft Corp.*................................................................ 5,418,750
35,000 Network Associates, Inc.*....................................................... 1,673,437
220,000 Veritas Software Corp.*......................................................... 9,088,750
--------------------
61,412,249
--------------------
CONSTRUCTION (0.4%)
120,000 Pulte Corp...................................................................... 3,585,000
--------------------
CONSUMER - NONCYCLICAL (5.0%)
60,000 Avon Products, Inc.............................................................. 4,650,000
43,000 Clorox Co....................................................................... 4,101,125
50,000 Colgate-Palmolive Co............................................................ 4,400,000
210,000 Groupe Danone (ADR) (France).................................................... 11,550,000
100,000 Kroger Co.*..................................................................... 4,287,500
300,000 Rubbermaid, Inc................................................................. 9,956,250
150,000 Unilever N.V. (Netherlands)..................................................... 11,840,625
--------------------
50,785,500
--------------------
CONSUMER BUSINESS SERVICES (1.1%)
240,310 Cendant Corp.*.................................................................. 5,016,471
100,000 Ceridian Corp.*................................................................. 5,875,000
--------------------
10,891,471
--------------------
CONSUMER PRODUCTS (3.6%)
220,000 CVS Corp........................................................................ 8,566,250
200,000 Dominick's Supermarkets, Inc.*.................................................. 8,912,500
290,000 Rite Aid Corp................................................................... 10,893,125
200,000 Safeway, Inc.*.................................................................. 8,137,500
--------------------
36,509,375
--------------------
DRUGS (7.2%)
75,000 ALZA Corp. (Class A)*........................................................... 3,243,750
100,000 American Home Products Corp..................................................... 5,175,000
80,000 Bristol-Myers Squibb Co......................................................... 9,195,000
59,000 Dura Pharmaceuticals, Inc.*..................................................... 1,320,125
210,000 Forest Laboratories, Inc.*...................................................... 7,507,500
110,000 Lilly (Eli) & Co................................................................ 7,266,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
185
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
80,000 Merck & Co., Inc................................................................ $ 10,700,000
300,000 Mylan Laboratories, Inc......................................................... 9,018,750
100,000 Schering-Plough Corp............................................................ 9,162,500
150,000 Warner-Lambert Co............................................................... 10,406,250
--------------------
72,995,750
--------------------
ENERGY (0.7%)
50,000 Coflexip, S.A. (ADR) (France)................................................... 3,050,000
165,000 Global Industries Ltd.*......................................................... 2,774,062
30,000 Transocean Offshore, Inc........................................................ 1,335,000
--------------------
7,159,062
--------------------
ENTERTAINMENT (0.5%)
100,000 Electronic Arts Inc.*........................................................... 5,400,000
--------------------
FINANCIAL - MISCELLANEOUS (5.4%)
43,700 Affiliated Managers Group, Inc.*................................................ 1,622,362
100,000 American Express Co............................................................. 11,400,000
75,000 Associates First Capital Corp. (Class A)........................................ 5,765,625
60,000 Edwards (A.G.), Inc............................................................. 2,561,250
100,000 Freddie Mac..................................................................... 4,706,250
127,900 Heller Financial, Inc.*......................................................... 3,837,000
63,000 Lehman Brothers Holdings, Inc................................................... 4,886,437
145,000 Merrill Lynch & Co., Inc........................................................ 13,376,250
140,000 Paine Webber Group, Inc......................................................... 6,002,500
--------------------
54,157,674
--------------------
HEALTHCARE PRODUCTS & SERVICES (1.4%)
150,000 Health Management Associates, Inc. (Class A)*................................... 5,015,625
267,000 Total Renal Care Holdings, Inc.*................................................ 9,211,500
--------------------
14,227,125
--------------------
INSURANCE (6.5%)
6,647 Aegon N.V. (Netherlands)........................................................ 574,978
150,000 Ambac Financial Group, Inc...................................................... 8,775,000
30,000 American International Group, Inc............................................... 4,380,000
260,000 Equitable Companies, Inc........................................................ 19,483,750
109,800 Hartford Life, Inc. (Class A)................................................... 6,251,737
63,000 Marsh & McLennan Companies, Inc................................................. 3,807,563
215,000 Nationwide Financial Services, Inc. (Class A)................................... 10,965,000
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
45,000 SunAmerica Inc.................................................................. $ 2,584,688
100,000 Torchmark Corp.................................................................. 4,575,000
100,000 Travelers Group, Inc............................................................ 6,062,500
--------------------
67,460,216
--------------------
INTERNET (3.7%)
60,000 Amazon.com, Inc.*............................................................... 5,981,250
140,000 America Online, Inc............................................................. 14,840,000
92,300 BroadVision, Inc.*.............................................................. 2,192,125
100,000 CheckFree Holdings Corp.*....................................................... 2,943,750
13,900 Inktomi Corp.*.................................................................. 550,788
170,000 Intuit Inc.*.................................................................... 10,412,500
10,000 SportsLine USA, Inc.*........................................................... 365,000
--------------------
37,285,413
--------------------
LIFE INSURANCE (1.2%)
150,000 Providian Financial Corp........................................................ 11,784,375
--------------------
MANUFACTURING - CONSUMER & INDUSTRIAL PRODUCTS (0.5%)
70,000 Whirlpool Corp.................................................................. 4,812,500
--------------------
MEDIA GROUP (6.7%)
121,410 CBS Corp........................................................................ 3,854,768
100,000 Clear Channel Communications, Inc.*............................................. 10,912,500
400,000 News Corp., Ltd. (ADR) (Australia).............................................. 12,850,000
112,500 Outdoor Systems, Inc.*.......................................................... 3,150,000
130,000 Tele-Communications Liberty Media Group (Class A)*.............................. 5,045,625
60,000 Tribune Co...................................................................... 4,128,750
139,000 True North Communications, Inc.................................................. 4,065,750
300,000 Viacom, Inc. (Class B)*......................................................... 17,475,000
200,000 Young & Rubicam, Inc.*.......................................................... 6,400,000
--------------------
67,882,393
--------------------
MEDICAL PRODUCTS & SUPPLIES (2.6%)
180,000 Bausch & Lomb, Inc.............................................................. 9,022,500
200,000 Becton, Dickinson & Co.......................................................... 15,525,000
30,000 Boston Scientific Corp.*........................................................ 2,148,750
--------------------
26,696,250
--------------------
RESTAURANTS (1.8%)
420,000 Brinker International, Inc.*.................................................... 8,085,000
150,000 McDonald's Corp................................................................. 10,350,000
--------------------
18,435,000
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
186
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL (10.6%)
131,324 Abercrombie & Fitch Co. (Class A)*.............................................. $ 5,778,256
200,000 AnnTaylor Stores Corp.*......................................................... 4,237,500
170,000 Costco Companies, Inc.*......................................................... 10,720,625
120,000 Dayton Hudson Corp.............................................................. 5,820,000
225,000 Dollar Tree Stores, Inc.*....................................................... 9,112,500
535,000 Family Dollar Stores, Inc....................................................... 9,897,500
115,000 Hasbro, Inc..................................................................... 4,520,938
112,500 Home Depot, Inc................................................................. 9,344,531
550,000 Kmart Corp.*.................................................................... 10,587,500
170,000 Limited (The), Inc.............................................................. 5,631,250
90,000 Lowe's Companies, Inc........................................................... 3,650,625
40,000 May Department Stores Co........................................................ 2,620,000
240,000 Proffitt's, Inc.*............................................................... 9,690,000
160,000 TJX Companies, Inc.............................................................. 3,860,000
200,000 Wal-Mart Stores, Inc............................................................ 12,150,000
--------------------
107,621,225
--------------------
TELECOMMUNICATION - UTILITIES (1.4%)
205,000 AirTouch Communications, Inc.*.................................................. 11,979,688
50,000 WorldCom, Inc.*................................................................. 2,415,662
--------------------
14,395,350
--------------------
TELECOMMUNICATIONS (0.4%)
90,000 Pacific Gateway Exchange, Inc.*................................................. 3,605,625
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $645,546,835).................................................. 845,108,178
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (9.6%)
$ 88,800 U.S. Treasury Note 0.00% due 05/15/19........................................... 26,886,864
89,000 U.S. Treasury Bond 0.00% due 05/15/20........................................... 25,436,200
38,000 U.S. Treasury Bond 0.00% due 05/15/21........................................... 10,256,960
32,500 U.S. Treasury Bond 6.125% due 11/15/27.......................................... 34,790,275
--------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $95,327,925)................................................... 97,370,299
--------------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.5%)
U.S. GOVERNMENT AGENCY (a) (6.4%)
$ 65,000 Federal Home Loan Mortgage Corp. 5.85% due 07/01/98 (AMORTIZED COST $65,000
000).......................................................................... $ 65,000,000
--------------------
REPURCHASE AGREEMENT (0.1%)
499 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $499,131) (b)
(IDENTIFIED COST $499,055).................................................... 499,055
--------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $65,499,055)................................................... 65,499,055
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $806,373,815) (c)...................................................... 99.6 % 1,007,977,532
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 0.4 3,578,862
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 1,011,556,394
------ ---------------
------ ---------------
</TABLE>
- ---------------------
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) Collateralized by $498,485 U.S. Treasury Note 6.25% due 03/31/99 valued at
$509,036.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $211,348,028 and the
aggregate gross unrealized depreciation is $9,744,311, resulting in net
unrealized appreciation of $201,603,717.
SEE NOTES TO FINANCIAL STATEMENTS
187
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.6%)
ADVERTISING/MARKETING SERVICES (0.2%)
106 Cognizant Corp.................................................................. $ 6,678
89 Interpublic Group of Companies, Inc............................................. 5,401
111 Omnicom Group, Inc.............................................................. 5,536
--------------------
17,615
--------------------
AEROSPACE & DEFENSE (0.8%)
758 Boeing Co....................................................................... 33,778
95 General Dynamics Corp........................................................... 4,417
147 Lockheed Martin Corp............................................................ 15,564
51 Northrop Grumman Corp........................................................... 5,259
--------------------
59,018
--------------------
AGRICULTURAL PRODUCTS (0.2%)
428 Archer-Daniels-Midland Co....................................................... 8,292
183 Pioneer Hi-Bred International, Inc.............................................. 7,572
--------------------
15,864
--------------------
AIR FREIGHT (0.1%)
110 FDX Corp.*...................................................................... 6,902
--------------------
AIRLINES (0.4%)
137 AMR Corp.*...................................................................... 11,405
57 Delta Air Lines, Inc............................................................ 7,367
167 Southwest Airlines Co........................................................... 4,947
66 US Airways Group Inc.*.......................................................... 5,230
--------------------
28,949
--------------------
ALUMINUM (0.2%)
171 Alcan Aluminium Ltd. (Canada)................................................... 4,724
126 Aluminum Co. of America......................................................... 8,308
54 Reynolds Metals Co.............................................................. 3,021
--------------------
16,053
--------------------
AUTO PARTS - AFTER MARKET (0.4%)
18 Cooper Tire & Rubber Co......................................................... 371
69 Dana Corp....................................................................... 3,691
29 Echlin, Inc..................................................................... 1,423
134 Genuine Parts Co................................................................ 4,631
118 Goodyear Tire & Rubber Co....................................................... 7,604
77 ITT Industries, Inc............................................................. 2,878
28 Snap-On, Inc.................................................................... 1,015
92 TRW, Inc........................................................................ 5,025
--------------------
26,638
--------------------
AUTOMOBILES (1.6%)
484 Chrysler Corp................................................................... 27,285
910 Ford Motor Co................................................................... 53,690
501 General Motors Corp............................................................. 33,473
--------------------
114,448
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKS - MONEY CENTER (3.9%)
512 BankAmerica Corp................................................................ $ 44,256
73 Bankers Trust New York Corp..................................................... 8,473
640 Chase Manhattan Corp............................................................ 48,320
339 Citicorp........................................................................ 50,596
215 First Chicago NBD Corp.......................................................... 19,054
727 First Union Corp................................................................ 42,348
134 Morgan (J.P.) & Co., Inc........................................................ 15,695
718 NationsBank Corp................................................................ 54,927
--------------------
283,669
--------------------
BANKS - REGIONAL (4.0%)
526 Banc One Corp................................................................... 29,357
282 Bank of New York Co., Inc....................................................... 17,114
220 BankBoston Corp................................................................. 12,237
92 BB&T Corporation................................................................ 6,221
117 Comerica, Inc................................................................... 7,751
197 Fifth Third Bancorp............................................................. 12,386
213 Fleet Financial Group, Inc...................................................... 17,785
144 Huntington Bancshares, Inc...................................................... 4,815
330 KeyCorp......................................................................... 11,756
195 Mellon Bank Corp................................................................ 13,577
87 Mercantile Bancorporation, Inc.................................................. 4,383
246 National City Corp.............................................................. 17,466
73 Northern Trust Corp............................................................. 5,562
568 Norwest Corp.................................................................... 21,229
226 PNC Bank Corp................................................................... 12,162
81 Republic New York Corp.......................................................... 5,098
121 State Street Corp............................................................... 8,409
116 Summit Bancorp.*................................................................ 5,510
158 SunTrust Banks, Inc............................................................. 12,847
172 Synovus Financial Corp.......................................................... 4,073
557 U.S. Bancorp.................................................................... 23,951
155 Wachovia Corp................................................................... 13,097
64 Wells Fargo & Co................................................................ 23,616
--------------------
290,402
--------------------
BEVERAGES - ALCOHOLIC (0.4%)
364 Anheuser-Busch Companies, Inc................................................... 17,176
52 Brown-Forman Corp. (Class B).................................................... 3,341
8 Coors (Adolph) Co. (Class B).................................................... 272
260 Seagram Co. Ltd. (Canada)....................................................... 10,644
--------------------
31,433
--------------------
BEVERAGES - SOFT DRINKS (2.8%)
1,852 Coca Cola Co.**................................................................. 158,346
1,118 PepsiCo, Inc.................................................................... 46,048
--------------------
204,394
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
188
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BIOTECHNOLOGY (0.2%)
191 Amgen Inc.*..................................................................... $ 12,487
--------------------
BROADCAST MEDIA (1.0%)
539 CBS Corp........................................................................ 17,113
93 Clear Channel Communications, Inc.*............................................. 10,149
277 Comcast Corp. (Class A Special)................................................. 11,236
457 MediaOne Group Inc.............................................................. 20,079
380 Tele-Communications, Inc. (Class A)*............................................ 14,582
--------------------
73,159
--------------------
BUILDING MATERIALS (0.1%)
19 Armstrong World Industries Inc.................................................. 1,280
127 Masco Corp...................................................................... 7,683
25 Owens Corning................................................................... 1,020
--------------------
9,983
--------------------
CHEMICALS (1.4%)
176 Air Products & Chemicals, Inc................................................... 7,040
169 Dow Chemical Co................................................................. 16,340
846 Du Pont (E.I.) De Nemours & Co., Inc............................................ 63,133
51 Eastman Chemical Co............................................................. 3,175
103 Praxair, Inc.................................................................... 4,822
45 Rohm & Haas Co.................................................................. 4,677
89 Union Carbide Corp.............................................................. 4,750
--------------------
103,937
--------------------
CHEMICALS - DIVERSIFIED (0.5%)
67 Engelhard Corp.................................................................. 1,357
16 FMC Corp.*...................................................................... 1,091
55 Goodrich (B.F.) Co.............................................................. 2,729
449 Monsanto Co..................................................................... 25,088
133 PPG Industries, Inc............................................................. 9,252
--------------------
39,517
--------------------
CHEMICALS - SPECIALTY (0.2%)
97 Ecolab, Inc..................................................................... 3,007
17 Grace (W. R.) & Co.............................................................. 290
28 Great Lakes Chemical Corp....................................................... 1,104
71 Hercules, Inc................................................................... 2,920
70 International Flavors & Fragrances Inc.......................................... 3,041
98 Morton International, Inc....................................................... 2,450
31 Nalco Chemical Co............................................................... 1,089
47 Sigma-Aldrich Corp.............................................................. 1,651
--------------------
15,552
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL & CONSUMER SERVICES (0.4%)
68 Block (H.&R.), Inc.............................................................. $ 2,864
638 Cendant Corp.*.................................................................. 13,318
129 Dun & Bradstreet Corp........................................................... 4,660
247 Laidlaw, Inc. (Canada).......................................................... 3,010
192 Service Corp. International..................................................... 8,232
--------------------
32,084
--------------------
COMMUNICATIONS EQUIPMENT (2.1%)
21 Andrew Corp.*................................................................... 378
89 DSC Communications Corp.*....................................................... 2,659
113 General Instrument Corp.*....................................................... 3,072
60 Harris Corp..................................................................... 2,681
984 Lucent Technologies Inc......................................................... 81,856
448 Motorola, Inc................................................................... 23,548
390 Northern Telecom Ltd. (Canada).................................................. 22,132
59 Scientific-Atlanta, Inc......................................................... 1,497
137 Tellabs, Inc.*.................................................................. 9,804
--------------------
147,627
--------------------
COMPUTER - NETWORKING (1.3%)
267 3Com Corp.*..................................................................... 8,194
126 Ascend Communications, Inc.*.................................................... 6,237
144 Bay Networks, Inc.*............................................................. 4,644
119 Cabletron Systems, Inc.*........................................................ 1,599
767 Cisco Systems, Inc.*............................................................ 70,612
--------------------
91,286
--------------------
COMPUTER HARDWARE (3.2%)
100 Apple Computer, Inc.*........................................................... 2,869
1,240 COMPAQ Computer Corp............................................................ 35,185
11 Data General Corp.*............................................................. 164
483 Dell Computer Corp.*............................................................ 44,798
101 Gateway 2000, Inc.*............................................................. 5,113
777 Hewlett-Packard Co.............................................................. 46,523
707 International Business Machines Corp............................................ 81,172
142 Silicon Graphics, Inc.*......................................................... 1,722
284 Sun Microsystems, Inc.*......................................................... 12,336
--------------------
229,882
--------------------
COMPUTER SOFTWARE & SERVICES (3.8%)
32 Adobe Systems, Inc.............................................................. 1,358
11 Autodesk, Inc................................................................... 423
410 Computer Associates International, Inc.......................................... 22,781
117 Computer Sciences Corp.*........................................................ 7,488
322 HBO & Co........................................................................ 11,350
1,848 Microsoft Corp.**............................................................... 200,277
264 Novell, Inc.*................................................................... 3,366
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
189
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
730 Oracle Corp.*................................................................... $ 17,885
176 Parametric Technology Corp.*.................................................... 4,763
164 Unisys Corp.*................................................................... 4,633
--------------------
274,324
--------------------
COMPUTERS - PERIPHERAL EQUIPMENT (0.3%)
373 EMC Corp.*...................................................................... 16,715
158 Seagate Technology, Inc.*....................................................... 3,762
--------------------
20,477
--------------------
COMPUTERS - SYSTEMS (0.1%)
6 Shared Medical Systems Corp..................................................... 441
--------------------
CONSUMER - NONCYCLICAL (0.0%)
55 American Greetings Corp. (Class A).............................................. 2,802
9 Jostens, Inc.................................................................... 217
--------------------
3,019
--------------------
CONTAINERS - METAL & GLASS (0.1%)
7 Ball Corp....................................................................... 281
93 Crown Cork & Seal Co., Inc...................................................... 4,417
100 Owens-Illinois, Inc.*........................................................... 4,475
--------------------
9,173
--------------------
CONTAINERS - PAPER (0.1%)
25 Bemis Company, Inc.............................................................. 1,022
24 Stone Container Corp............................................................ 375
26 Temple-Inland, Inc.............................................................. 1,401
52 Union Camp Corp................................................................. 2,580
--------------------
5,378
--------------------
DATA PROCESSING (0.5%)
226 Automatic Data Processing, Inc.................................................. 16,470
54 Ceridian Corp.*................................................................. 3,172
96 Equifax, Inc.................................................................... 3,486
335 First Data Corp................................................................. 11,160
--------------------
34,288
--------------------
DISTRIBUTORS - FOOD & HEALTH (0.2%)
83 Cardinal Health, Inc............................................................ 7,781
28 Supervalu, Inc.................................................................. 1,242
220 Sysco Corp...................................................................... 5,637
--------------------
14,660
--------------------
ELECTRICAL EQUIPMENT (3.7%)
143 AMP, Inc........................................................................ 4,916
332 Emerson Electric Co............................................................. 20,044
2,444 General Electric Co............................................................. 222,404
10 General Signal Corp............................................................. 360
95 Honeywell, Inc.................................................................. 7,938
39 Raychem Corp.................................................................... 1,153
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
147 Rockwell International Corp..................................................... $ 7,065
25 Thomas & Betts Corp............................................................. 1,231
--------------------
265,111
--------------------
ELECTRONIC COMPONENTS (0.1%)
64 Grainger (W.W.), Inc............................................................ 3,188
--------------------
ELECTRONICS - DEFENSE (0.2%)
254 Raytheon Co. (Class B).......................................................... 15,018
--------------------
ELECTRONICS - INSTRUMENTATION (0.0%)
10 EG & G, Inc..................................................................... 300
22 Perkin-Elmer Corp............................................................... 1,368
12 Tektronix, Inc.................................................................. 424
--------------------
2,092
--------------------
ELECTRONICS - SEMICONDUCTORS (1.6%)
66 Advanced Micro Devices, Inc.*................................................... 1,126
1,272 Intel Corp...................................................................... 94,207
66 LSI Logic Corp.*................................................................ 1,522
138 Micron Technology, Inc.*........................................................ 3,424
76 National Semiconductor Corp.*................................................... 1,002
293 Texas Instruments, Inc.......................................................... 17,086
--------------------
118,367
--------------------
ENGINEERING & CONSTRUCTION (0.1%)
62 Fluor Corp...................................................................... 3,162
9 Foster Wheeler Corp............................................................. 193
28 McDermott International, Inc.................................................... 964
--------------------
4,319
--------------------
ENTERTAINMENT (1.5%)
17 King World Productions Inc.*.................................................... 433
443 Time Warner, Inc................................................................ 37,849
267 Viacom, Inc. (Class B)*......................................................... 15,553
511 Walt Disney Co.................................................................. 53,687
--------------------
107,522
--------------------
FINANCE - CONSUMER (0.7%)
41 Beneficial Corp................................................................. 6,281
48 Capital One Financial Corp...................................................... 5,961
71 Countrywide Credit Industries, Inc.............................................. 3,603
87 Green Tree Financial Corp....................................................... 3,725
242 Household International, Inc.................................................... 12,039
376 MBNA Corp....................................................................... 12,408
71 Providian Financial Corp........................................................ 5,578
--------------------
49,595
--------------------
FINANCE - DIVERSIFIED (2.9%)
346 American Express Co............................................................. 39,444
190 American General Corp........................................................... 13,526
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
190
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
260 Associates First Capital Corp. (Class A)........................................ $ 19,987
778 Fannie Mae...................................................................... 47,263
509 Freddie Mac..................................................................... 23,955
64 MBIA Inc........................................................................ 4,792
86 MGIC Investment Corp............................................................ 4,907
450 Morgan Stanley Dean Witter & Co. (Note 4)....................................... 41,119
125 SLM Holding Corp................................................................ 6,125
147 SunAmerica Inc.................................................................. 8,443
--------------------
209,561
--------------------
FOODS (2.3%)
217 BestFoods....................................................................... 12,600
341 Campbell Soup Co................................................................ 18,116
360 ConAgra, Inc.................................................................... 11,407
119 General Mills, Inc.............................................................. 8,137
274 Heinz (H.J.) Co................................................................. 15,378
107 Hershey Foods Corp.............................................................. 7,383
307 Kellogg Co...................................................................... 11,532
90 Quaker Oats Company (The)....................................................... 4,944
79 Ralston-Ralston Purina Group.................................................... 9,228
350 Sara Lee Corp................................................................... 19,578
480 Unilever N.V. (Netherlands)..................................................... 37,890
87 Wrigley (Wm.) Jr. Co. (Class A)................................................. 8,526
--------------------
164,719
--------------------
FOOTWEAR (0.2%)
216 Nike, Inc. (Class B)............................................................ 10,516
13 Reebok International Ltd. (United Kingdom)*..................................... 360
--------------------
10,876
--------------------
GAMING, LOTTERY, & PARI-MUTUEL COMPANIES (0.1%)
47 Harrah's Entertainment, Inc.*................................................... 1,093
135 Mirage Resorts, Inc.*........................................................... 2,877
--------------------
3,970
--------------------
GOLD & PRECIOUS METALS MINING (0.1%)
243 Barrick Gold Corp. (Canada)..................................................... 4,663
56 Battle Mountain Gold Co......................................................... 332
98 Homestake Mining Co............................................................. 1,017
117 Newmont Mining Corp............................................................. 2,764
115 Placer Dome Inc. (Canada)....................................................... 1,351
--------------------
10,127
--------------------
HARDWARE & TOOLS (0.1%)
62 Black & Decker Corp............................................................. 3,782
67 Stanley Works................................................................... 2,785
--------------------
6,567
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE - DIVERSIFIED (4.2%)
1,158 Abbott Laboratories............................................................. $ 47,333
30 Allergan, Inc................................................................... 1,391
984 American Home Products Corp..................................................... 50,922
746 Bristol-Myers Squibb Co......................................................... 85,743
1,009 Johnson & Johnson............................................................... 74,414
34 Mallinckrodt Group, Inc......................................................... 1,009
615 Warner-Lambert Co............................................................... 42,666
--------------------
303,478
--------------------
HEALTHCARE - DRUGS (4.9%)
831 Lilly (Eli) & Co................................................................ 54,898
896 Merck & Co., Inc.**............................................................. 119,840
979 Pfizer, Inc.**.................................................................. 106,405
381 Pharmacia & Upjohn, Inc......................................................... 17,574
550 Schering-Plough Corp............................................................ 50,394
--------------------
349,111
--------------------
HEALTHCARE - HMOS (0.2%)
108 Humana, Inc.*................................................................... 3,368
145 United Healthcare Corp.......................................................... 9,207
--------------------
12,575
--------------------
HEALTHCARE - LONG TERM (0.1%)
300 Healthsouth Corp.*.............................................................. 8,006
41 Manor Care, Inc................................................................. 1,576
--------------------
9,582
--------------------
HEALTHCARE - SPECIALIZED SERVICES (0.1%)
65 ALZA Corp. (Class A)*........................................................... 2,811
--------------------
HEAVY DUTY TRUCKS & PARTS (0.1%)
52 Navistar International Corp.*................................................... 1,501
51 PACCAR, Inc..................................................................... 2,655
--------------------
4,156
--------------------
HOME BUILDING (0.1%)
45 Centex Corp..................................................................... 1,699
8 Fleetwood Enterprises, Inc...................................................... 320
9 Kaufman & Broad Home Corp....................................................... 286
10 Pulte Corp...................................................................... 299
--------------------
2,604
--------------------
HOSPITAL MANAGEMENT (0.3%)
483 Columbia/HCA Healthcare Corp.................................................... 14,067
231 Tenet Healthcare Corp.*......................................................... 7,219
--------------------
21,286
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
191
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOUSEHOLD FURNISHINGS & APPLIANCES (0.1%)
61 Maytag Corp..................................................................... $ 3,012
49 Whirlpool Corp.................................................................. 3,369
--------------------
6,381
--------------------
HOUSEHOLD PRODUCTS - NON-DURABLE (2.0%)
68 Clorox Co....................................................................... 6,485
222 Colgate-Palmolive Co............................................................ 19,536
165 Fort James Corp................................................................. 7,342
418 Kimberly-Clark Corp............................................................. 19,176
1,006 Procter & Gamble Co............................................................. 91,609
--------------------
144,148
--------------------
HOUSEWARES (0.2%)
130 Fortune Brands, Inc............................................................. 4,997
104 Newell Co....................................................................... 5,181
97 Rubbermaid, Inc................................................................. 3,219
14 Tupperware Corp................................................................. 394
--------------------
13,791
--------------------
INSURANCE BROKERS (0.3%)
126 Aon Corp........................................................................ 8,852
193 Marsh & McLennan Companies, Inc................................................. 11,634
--------------------
20,486
--------------------
INVESTMENT BANKING/BROKERAGE (0.6%)
84 Bear Stearns Companies, Inc..................................................... 4,778
77 Lehman Brothers Holdings, Inc................................................... 5,972
260 Merrill Lynch & Co., Inc........................................................ 23,985
174 Schwab (CHARLES) Corp........................................................... 5,655
--------------------
40,390
--------------------
INVESTMENT COMPANIES (0.1%)
190 Franklin Resources, Inc......................................................... 10,260
--------------------
LEISURE TIME - PRODUCTS (0.2%)
46 Brunswick Corp.................................................................. 1,139
86 Hasbro, Inc..................................................................... 3,381
220 Mattel, Inc..................................................................... 9,309
--------------------
13,829
--------------------
LIFE & HEALTH INSURANCE (0.5%)
109 Aetna Inc....................................................................... 8,298
122 Conseco, Inc.................................................................... 5,704
80 Jefferson-Pilot Corp............................................................ 4,635
105 Torchmark Corp.................................................................. 4,804
41 Transamerica Corp............................................................... 4,720
90 UNUM Corp....................................................................... 4,995
--------------------
33,156
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LODGING - HOTELS (0.1%)
161 Hilton Hotels Corp.............................................................. $ 4,589
166 Marriott International, Inc..................................................... 5,374
--------------------
9,963
--------------------
MACHINERY - DIVERSIFIED (0.6%)
56 Case Corp....................................................................... 2,702
275 Caterpillar, Inc................................................................ 14,541
9 Cincinnati Milacron, Inc........................................................ 219
91 Cooper Industries, Inc.......................................................... 4,999
186 Deere & Co...................................................................... 9,835
145 Dover Corp...................................................................... 4,966
11 Harnischfeger Industries, Inc................................................... 311
108 Ingersoll-Rand Co............................................................... 4,759
2 NACCO Industries, Inc. (Class A)................................................ 259
29 Timken Co....................................................................... 894
--------------------
43,485
--------------------
MANUFACTURING - DIVERSIFIED (1.8%)
7 Aeroquip-Vickers, Inc........................................................... 409
424 AlliedSignal, Inc............................................................... 18,815
151 Corning, Inc.................................................................... 5,247
21 Crane Co........................................................................ 1,020
54 Eaton Corp...................................................................... 4,199
187 Illinois Tool Works Inc......................................................... 12,471
55 Johnson Controls, Inc........................................................... 3,145
303 Minnesota Mining & Manufacturing Co............................................. 24,903
32 National Service Industries, Inc................................................ 1,628
127 Tenneco, Inc.................................................................... 4,834
123 Textron, Inc.................................................................... 8,818
104 Thermo Electron Corp.*.......................................................... 3,556
437 Tyco International Ltd.......................................................... 27,531
172 United Technologies Corp........................................................ 15,910
--------------------
132,486
--------------------
MANUFACTURING - SPECIALIZED (0.2%)
76 Avery Dennison Corp............................................................. 4,085
6 Briggs & Stratton Corp.......................................................... 225
10 Millipore Corp.................................................................. 273
58 Pall Corp....................................................................... 1,189
72 Parker-Hannifin Corp............................................................ 2,745
63 Sealed Air Corp.*............................................................... 2,315
--------------------
10,832
--------------------
MEDICAL PRODUCTS & SUPPLIES (0.9%)
43 Bard (C.R.), Inc................................................................ 1,637
26 Bausch & Lomb, Inc.............................................................. 1,303
211 Baxter International, Inc....................................................... 11,354
80 Becton, Dickinson & Co.......................................................... 6,210
84 Biomet, Inc..................................................................... 2,772
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
192
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
146 Boston Scientific Corp.*........................................................ $ 10,457
113 Guidant Corp.................................................................... 8,058
352 Medtronic, Inc.................................................................. 22,440
39 St. Jude Medical, Inc.*......................................................... 1,436
57 U.S. Surgical Corp.............................................................. 2,601
--------------------
68,268
--------------------
METALS & MINING (0.1%)
9 ASARCO, Inc..................................................................... 200
22 Cyprus Amax Minerals Co......................................................... 292
90 Freeport-McMoran Copper & Gold, Inc. (Class B).................................. 1,367
77 Inco Ltd. (Canada).............................................................. 1,049
27 Phelps Dodge Corp............................................................... 1,544
--------------------
4,452
--------------------
MULTI-LINE INSURANCE (2.3%)
525 American International Group, Inc............................................... 76,650
162 CIGNA Corp...................................................................... 11,178
88 Hartford Financial Services Group Inc........................................... 10,065
75 Lincoln National Corp........................................................... 6,853
86 Loews Corp...................................................................... 7,493
863 Travelers Group, Inc............................................................ 52,319
--------------------
164,558
--------------------
NATURAL GAS (0.6%)
69 Coastal Corp.................................................................... 4,817
54 Columbia Gas System, Inc........................................................ 3,004
62 Consolidated Natural Gas Co..................................................... 3,650
5 Eastern Enterprises............................................................. 214
246 Enron Corp...................................................................... 13,299
36 NICOR, Inc...................................................................... 1,445
7 ONEOK, Inc...................................................................... 279
8 Peoples Energy Corp............................................................. 309
180 Sempra Energy*.................................................................. 4,985
72 Sonat, Inc...................................................................... 2,781
318 Williams Companies, Inc......................................................... 10,733
--------------------
45,516
--------------------
OFFICE EQUIPMENT & SUPPLIES (0.1%)
21 Moore Corp. Ltd. (Canada)....................................................... 278
205 Pitney Bowes, Inc............................................................... 9,866
--------------------
10,144
--------------------
OIL & GAS - EXPLORATION & PRODUCTION (0.2%)
45 Anardarko Petroleum Corp........................................................ 3,023
44 Apache Corp..................................................................... 1,386
115 Burlington Resources, Inc....................................................... 4,952
22 Kerr-McGee Corp................................................................. 1,273
49 Oryx Energy Co.*................................................................ 1,084
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
163 Union Pacific Resources Group, Inc.............................................. $ 2,863
--------------------
14,581
--------------------
OIL & GAS - REFINING & MARKETING (0.1%)
57 Ashland, Inc.................................................................... 2,943
70 Sun Co., Inc.................................................................... 2,717
--------------------
5,660
--------------------
OIL & GAS DRILLING (0.7%)
127 Baker Hughes, Inc............................................................... 4,389
114 Dresser Industries, Inc......................................................... 5,023
197 Halliburton Co.................................................................. 8,779
12 Helmerich & Payne, Inc.......................................................... 267
20 Rowan Companies, Inc.*.......................................................... 389
374 Schlumberger Ltd................................................................ 25,549
36 Western Atlas, Inc.*............................................................ 3,056
--------------------
47,452
--------------------
OIL INTEGRATED - DOMESTIC (0.7%)
59 Amerada Hess Corp............................................................... 3,204
241 Atlantic Richfield Co........................................................... 18,828
276 Occidental Petroleum Corp....................................................... 7,452
22 Pennzoil Co..................................................................... 1,114
196 Phillips Petroleum Co........................................................... 9,445
157 Unocal Corp..................................................................... 5,613
217 USX-Marathon Group.............................................................. 7,446
--------------------
53,102
--------------------
OIL INTEGRATED - INTERNATIONAL (5.0%)
720 Amoco Corp...................................................................... 29,970
491 Chevron Corp.................................................................... 40,784
1,835 Exxon Corp.**................................................................... 130,858
586 Mobil Corp...................................................................... 44,902
1,608 Royal Dutch Petroleum Co. (ADR) (Netherlands)................................... 88,139
406 Texaco, Inc..................................................................... 24,233
--------------------
358,886
--------------------
PAPER & FOREST PRODUCTS (0.4%)
13 Boise Cascade Corp.............................................................. 426
63 Champion International Corp..................................................... 3,099
69 Georgia-Pacific Corp............................................................ 4,067
231 International Paper Co.......................................................... 9,933
51 Louisiana-Pacific Corp.......................................................... 931
49 Mead Corp....................................................................... 1,556
7 Potlatch Corp................................................................... 294
47 Westvaco Corp................................................................... 1,328
149 Weyerhaeuser Co................................................................. 6,882
84 Willamette Industries, Inc...................................................... 2,688
--------------------
31,204
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
193
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PERSONAL CARE (0.8%)
13 Alberto-Culver Co. (Class B).................................................... $ 377
99 Avon Products, Inc.............................................................. 7,673
843 Gillette Co..................................................................... 47,788
--------------------
55,838
--------------------
PHOTOGRAPHY/IMAGING (0.6%)
242 Eastman Kodak Co................................................................ 17,681
62 IKON Office Solutions, Inc...................................................... 903
10 Polaroid Corp................................................................... 356
246 Xerox Corp...................................................................... 25,000
--------------------
43,940
--------------------
PROPERTY - CASUALTY INSURANCE (1.1%)
315 Allstate Corp................................................................... 28,842
126 Chubb Corp...................................................................... 10,127
109 Cincinnati Financial Corp....................................................... 4,210
57 General Re Corp................................................................. 14,450
54 Progressive Corp................................................................ 7,614
106 SAFECO Corp..................................................................... 4,810
176 St. Paul Companies, Inc......................................................... 7,403
--------------------
77,456
--------------------
PUBLISHING (0.2%)
61 Dow Jones & Co., Inc............................................................ 3,401
65 McGraw-Hill, Inc................................................................ 5,302
24 Meredith Corp................................................................... 1,127
67 Times Mirror Co. (Class A)...................................................... 4,213
--------------------
14,043
--------------------
PUBLISHING - NEWSPAPER (0.4%)
213 Gannett Co., Inc................................................................ 15,136
51 Knight-Ridder, Inc.............................................................. 2,808
62 New York Times Co. (Class A).................................................... 4,914
79 Tribune Co...................................................................... 5,436
--------------------
28,294
--------------------
RAILROADS (0.5%)
118 Burlington Northern Santa Fe Corp............................................... 11,586
164 CSX Corp........................................................................ 7,462
284 Norfolk Southern Corp........................................................... 8,467
185 Union Pacific Corp.............................................................. 8,163
--------------------
35,678
--------------------
RESTAURANTS (0.6%)
69 Darden Restaurants, Inc......................................................... 1,095
516 McDonald's Corp................................................................. 35,604
99 TRICON Global Restaurants, Inc.*................................................ 3,137
61 Wendy's International, Inc...................................................... 1,434
--------------------
41,270
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL (0.0%)
1 Abercrombie & Fitch Co. (Class A)*.............................................. $ 44
--------------------
RETAIL - BUILDING SUPPLIES (0.8%)
551 Home Depot, Inc................................................................. 45,767
262 Lowe's Companies, Inc........................................................... 10,627
113 Sherwin-Williams Co............................................................. 3,743
--------------------
60,137
--------------------
RETAIL - COMPUTERS & ELECTRONICS (0.1%)
64 Circuit City Stores, Inc........................................................ 3,000
66 Tandy Corp...................................................................... 3,502
--------------------
6,502
--------------------
RETAIL - DEPARTMENT STORES (0.6%)
70 Dillard's, Inc. (Class A)....................................................... 2,901
158 Federated Department Stores, Inc.*.............................................. 8,502
46 Harcourt General, Inc........................................................... 2,737
173 May Department Stores Co........................................................ 11,332
22 Mercantile Stores Co., Inc...................................................... 1,737
50 Nordstrom, Inc.................................................................. 3,859
188 Penney (J.C.) Co., Inc.......................................................... 13,595
--------------------
44,663
--------------------
RETAIL - DRUG STORES (0.5%)
288 CVS Corp........................................................................ 11,214
9 Longs Drug Stores Corp.......................................................... 260
193 Rite Aid Corp................................................................... 7,250
373 Walgreen Co..................................................................... 15,410
--------------------
34,134
--------------------
RETAIL - FOOD CHAINS (0.4%)
184 Albertson's, Inc................................................................ 9,534
205 American Stores Co.............................................................. 4,958
28 Giant Food, Inc. (Class A)...................................................... 1,206
9 Great Atlantic & Pacific Tea Co., Inc........................................... 298
192 Kroger Co.*..................................................................... 8,232
97 Winn-Dixie Stores, Inc.......................................................... 4,965
--------------------
29,193
--------------------
RETAIL - GENERAL MERCHANDISE (2.1%)
162 Costco Companies, Inc.*......................................................... 10,216
328 Dayton Hudson Corp.............................................................. 15,908
366 Kmart Corp.*.................................................................... 7,046
293 Sears, Roebuck & Co............................................................. 17,891
1,684 Wal-Mart Stores, Inc.**......................................................... 102,303
--------------------
153,364
--------------------
RETAIL - SPECIALTY (0.2%)
99 AutoZone, Inc.*................................................................. 3,162
70 Consolidated Stores Corp.*...................................................... 2,538
14 Pep Boys-Manny, Moe & Jack...................................................... 265
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
194
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
209 Toys 'R' Us, Inc.*.............................................................. $ 4,925
63 Venator Group, Inc*............................................................. 1,205
--------------------
12,095
--------------------
RETAIL - SPECIALTY APPAREL (0.4%)
295 Gap, Inc........................................................................ 18,179
148 Limited (The), Inc.............................................................. 4,903
208 TJX Companies, Inc.............................................................. 5,018
--------------------
28,100
--------------------
SAVINGS & LOAN COMPANIES (0.3%)
71 Ahmanson (H.F.) & Co............................................................ 5,041
43 Golden West Financial Corp...................................................... 4,571
291 Washington Mutual, Inc.......................................................... 12,600
--------------------
22,212
--------------------
SEMICONDUCTOR EQUIPMENT (0.1%)
275 Applied Materials, Inc.*........................................................ 8,112
39 KLA-Tencor Corp.*............................................................... 1,080
--------------------
9,192
--------------------
SPECIALTY PRINTING (0.1%)
38 Deluxe Corp..................................................................... 1,361
106 Donnelley (R.R.) & Sons Co...................................................... 4,850
--------------------
6,211
--------------------
STEEL & IRON (0.1%)
128 Allegheny Teledyne Inc.......................................................... 2,928
25 Armco, Inc.*.................................................................... 159
27 Bethlehem Steel Corp.*.......................................................... 336
57 Nucor Corp...................................................................... 2,622
40 USX-U.S. Steel Group, Inc....................................................... 1,320
22 Worthington Industries, Inc..................................................... 330
--------------------
7,695
--------------------
TELECOMMUNICATIONS - CELLULAR/WIRELESS (0.4%)
429 AirTouch Communications, Inc.*.................................................. 25,070
178 Nextel Communications, Inc. (Class A)*.......................................... 4,417
--------------------
29,487
--------------------
TELECOMMUNICATIONS - LONG DISTANCE (2.2%)
1,218 AT&T Corp....................................................................... 69,578
543 MCI Communications Corp......................................................... 31,528
323 Sprint Corp..................................................................... 22,772
774 WorldCom, Inc.*................................................................. 37,394
--------------------
161,272
--------------------
TELEPHONES (3.6%)
120 ALLTEL Corp..................................................................... 5,580
825 Ameritech Corp.................................................................. 37,022
1,164 Bell Atlantic Corp.............................................................. 53,108
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
743 BellSouth Corp.................................................................. $ 49,874
111 Frontier Corp................................................................... 3,497
722 GTE Corp........................................................................ 40,161
1,379 SBC Communications, Inc......................................................... 55,160
376 U.S. West, Inc.................................................................. 17,687
--------------------
262,089
--------------------
TEXTILES & APPAREL (0.1%)
34 Fruit of the Loom, Inc. (Class A)*.............................................. 1,128
50 Liz Claiborne, Inc.............................................................. 2,613
8 Russell Corp.................................................................... 242
91 VF Corp......................................................................... 4,687
--------------------
8,670
--------------------
TEXTILES - HOME FURNISHINGS (0.0%)
5 Springs Industries, Inc. (Class A).............................................. 231
--------------------
TOBACCO (1.0%)
1,822 Philip Morris Companies, Inc.................................................... 71,741
121 UST, Inc........................................................................ 3,267
--------------------
75,008
--------------------
TRUCKERS (0.0%)
35 Ryder System, Inc............................................................... 1,105
--------------------
UTILITIES - ELECTRIC (2.1%)
89 Ameren Corp..................................................................... 3,538
124 American Electric Power Co...................................................... 5,626
96 Baltimore Gas & Electric Co..................................................... 2,982
114 Carolina Power & Light Co....................................................... 4,945
138 Central & South West Corp....................................................... 3,709
103 CINergy Corp.................................................................... 3,605
177 Consolidated Edison, Inc........................................................ 8,153
127 Dominion Resources, Inc......................................................... 5,175
109 DTE Energy Co................................................................... 4,401
270 Duke Power Co................................................................... 15,997
272 Edison International............................................................ 8,041
160 Entergy Corp.................................................................... 4,600
150 FirstEnergy Corp................................................................ 4,612
136 FPL Group, Inc.................................................................. 8,568
83 GPU, Inc........................................................................ 3,138
192 Houston Industries, Inc......................................................... 5,928
125 Niagara Mohawk Power Corp.*..................................................... 1,867
98 Northern States Power Co........................................................ 2,805
193 PacifiCorp...................................................................... 4,367
167 PECO Energy Co.................................................................. 4,874
286 PG & E Corp..................................................................... 9,027
126 PP&L Resources, Inc............................................................. 2,859
151 Public Service Enterprise Group, Inc............................................ 5,200
523 Southern Co..................................................................... 14,481
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
195
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
210 Texas Utilities Co.............................................................. $ 8,741
141 Unicom Corp..................................................................... 4,944
--------------------
152,183
--------------------
WASTE MANAGEMENT (0.2%)
138 Browning-Ferris Industries, Inc................................................. 4,796
357 Waste Management, Inc........................................................... 12,495
--------------------
17,291
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $6,444,947).................................................... 6,589,721
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (16.7%)
U.S. GOVERNMENT AGENCY (a)
$ 1,200 Federal Home Loan Mortgage Corp. 5.85% due 07/01/98 (AMORTIZED COST
$1,200,000)................................................................... 1,200,000
-----------
TOTAL INVESTMENTS............................................................... 7,789,721
-----------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF DELIVERY YEAR,
CONTRACTS AND MONTH VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL FUTURES (b) (0.0%)
SHORT POSITION
5 E-MINI S&P ES/September 1998.................................................... $ (665)
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $7,644,947) (c).......................................................... 108.3 % 7,789,721
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL FINANCIAL FUTURES................................................................... 0.0 (665)
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (8.3) (596,691)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 7,192,365
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Some or all of these securities are segregated in connection with open
futures contracts.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Value represents variation margin on open futures contracts at June 30,
1998. The market value of these futures contracts is $283,575 and the
unrealized appreciation is $2,110.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $240,102 and the
aggregate gross unrealized depreciation is $95,328, resulting in net
unrealized appreciation of $144,774.
SEE NOTES TO FINANCIAL STATEMENTS
196
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (85.2%)
AUSTRALIA (2.7%)
PUBLISHING & TELEVISION
70,000 News Corporation Ltd. (Pref.)................................................... $ 495,535
--------------------
FINLAND (2.4%)
PAPER PRODUCTS
16,200 UPM-Kymmene Oyj................................................................. 445,347
--------------------
FRANCE (9.7%)
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
7,000 ST Microelectronics NV*......................................................... 489,125
--------------------
INSURANCE
3,860 AXA-UAP......................................................................... 433,171
--------------------
OIL - INTEGRATED
3,370 Total S.A. (B Shares)........................................................... 437,135
--------------------
TIRE & RUBBER GOODS
7,200 Compagnie Generale des Etablissements Michelin (B Shares)....................... 414,688
--------------------
TOTAL FRANCE.................................................................... 1,774,119
--------------------
GERMANY (4.6%)
AUTOMOTIVE
430 Bayerische Motoren Werke (BMW) AG............................................... 433,971
--------------------
MACHINERY - DIVERSIFIED
1,070 MAN AG.......................................................................... 416,568
--------------------
TOTAL GERMANY................................................................... 850,539
--------------------
HONG KONG (2.4%)
BANKING
17,600 HSBC Holdings PLC............................................................... 430,543
--------------------
JAPAN (2.3%)
PHOTOGRAPHY/IMAGING
12,000 Fuji Photo Film Co.............................................................. 416,979
--------------------
SINGAPORE (2.5%)
PAPER PRODUCTS
40,000 Asia Pulp & Paper Co., Ltd. (ADR)............................................... 450,000
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWEDEN (2.3%)
MACHINERY - DIVERSIFIED
15,200 Sandvik AB (B Shares)........................................................... $ 416,412
--------------------
SWITZERLAND (4.7%)
BANKING
1,200 UBS AG.......................................................................... 445,556
--------------------
CEMENT
330 Holderbank Financiere Glarus AG (B Shares)...................................... 419,289
--------------------
TOTAL SWITZERLAND............................................................... 864,845
--------------------
UNITED KINGDOM (6.7%)
CONSUMER PRODUCTS
37,300 Unilever PLC.................................................................... 396,822
--------------------
ENGINEERING & CONSTRUCTION
21,300 Siebe PLC....................................................................... 425,147
--------------------
FOODS & BEVERAGES
35,000 Diageo PLC...................................................................... 414,374
--------------------
TOTAL UNITED KINGDOM............................................................ 1,236,343
--------------------
UNITED STATES (44.9%)
AIR FREIGHT
6,000 FDX Corp.*...................................................................... 376,500
--------------------
AIRCRAFT & AEROSPACE
8,000 Boeing Co....................................................................... 356,500
--------------------
BANKING
3,000 Citicorp........................................................................ 447,750
--------------------
BEVERAGES
9,000 Coca-Cola Enterprises Inc....................................................... 353,250
--------------------
CHEMICALS
5,000 Du Pont (E.I.) De Nemours & Co., Inc............................................ 373,125
--------------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE
4,000 Cisco Systems, Inc.*............................................................ 368,250
--------------------
COMPUTER SOFTWARE
4,000 Microsoft Corp.................................................................. 433,500
--------------------
CONSUMER PRODUCTS
5,000 Procter & Gamble Co............................................................. 455,312
--------------------
ELECTRICAL EQUIPMENT
6,000 Emerson Electric Co............................................................. 362,250
4,000 General Electric Co............................................................. 364,000
--------------------
726,250
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
197
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
5,000 Intel Corp...................................................................... $ 370,312
--------------------
FINANCIAL SERVICES
4,000 American Express Co............................................................. 456,000
--------------------
MEDICAL EQUIPMENT
6,000 Medtronic, Inc.................................................................. 382,500
--------------------
MEDICAL SERVICES
8,000 Quintiles Transnational Corp.*.................................................. 393,000
--------------------
OIL - INTERNATIONAL
5,000 Chevron Corp.................................................................... 415,312
--------------------
OIL DRILLING & SERVICES
8,000 Dresser Industries, Inc......................................................... 352,500
5,000 Schlumberger Ltd................................................................ 341,563
--------------------
694,063
--------------------
PHARMACEUTICALS
6,000 Lilly (Eli) & Co................................................................ 396,375
--------------------
PUBLISHING & TELEVISION
4,000 Time Warner, Inc................................................................ 341,750
--------------------
SPECIALTY PACKAGING
10 Sealed Air Corp.*............................................................... 368
--------------------
TELEPHONE - LONG DISTANCE
6,000 AT&T Corp....................................................................... 342,750
--------------------
TEMPORARY SERVICES
6,130 Manpower, Inc................................................................... 175,854
--------------------
UTILITIES - ELECTRIC
7,000 AES Corp. (The)*................................................................ 367,938
--------------------
TOTAL UNITED STATES............................................................. 8,226,659
--------------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $15,604,644)................................................... 15,607,321
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (18.6%)
U.S. GOVERNMENT AGENCY (a) (15.8%)
$ 2,900 Federal Home Loan Mortgage Corp. 5.85% due 07/01/98 (AMORTIZED COST
$2,900,000)................................................................... 2,900,000
--------------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (2.8%)
$ 518 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $518,020) (b)
(IDENTIFIED COST $517,941).................................................... $ 517,941
--------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST 3,417,941)..................................................... 3,417,941
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $19,022,585) (c).......................................................... 103.8 % 19,025,262
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (3.8) (707,790)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 18,317,472
------ ------------
------ ------------
</TABLE>
- ---------------------
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) Collateralized by $306,573 U.S. Treasury Bond 6.00% due 02/15/26 valued at
$324,355 and $199,718 U.S. Treasury Note 6.25% due 03/31/99 valued at
$203,945.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $488,593 and the
aggregate gross unrealized depreciation is $485,916, resulting in net
unrealized appreciation of $2,677.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JUNE 30, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION/
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- ------------------------------------------------------------
<S> <C> <C> <C>
AUD 104,038 $ 63,182 07/01/98 $ 1,196
FRF 1,719,149 $ 286,482 07/31/98 (2,770)
GBP 173,175 $ 289,566 07/01/98 (797)
-------
Net unrealized depreciation......... $(2,371)
-------
-------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD Australian Dollar.
GBP British Pound.
FRF French Franc.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
198
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
SUMMARY OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Air Freight................................................. $ 376,500 2.0%
Aircraft & Aerospace........................................ 356,500 1.9
Automotive.................................................. 433,971 2.4
Banking..................................................... 1,323,849 7.2
Beverages................................................... 353,250 1.9
Cement...................................................... 419,289 2.3
Chemicals................................................... 373,125 2.0
Communications - Equipment & Software....................... 368,250 2.0
Computer Software........................................... 433,500 2.3
Consumer Products........................................... 852,134 4.6
Electrical Equipment........................................ 726,250 4.0
Electronics - Semiconductors/
Components................................................ 859,437 4.7
Engineering & Construction.................................. 425,147 2.3
Financial Services.......................................... 456,000 2.5
Foods & Beverages........................................... 414,374 2.3
Insurance................................................... 433,171 2.4
Machinery - Diversified..................................... 832,980 4.5
Medical Equipment........................................... 382,500 2.1
Medical Services............................................ 393,000 2.1
Oil - Integrated............................................ 437,135 2.4
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Oil - International......................................... $ 415,312 2.3%
Oil Drilling & Services..................................... 694,063 3.8
Paper Products.............................................. 895,347 4.9
Pharmaceuticals............................................. 396,375 2.2
Photography/Imaging......................................... 416,979 2.3
Publishing & Television..................................... 837,285 4.6
Specialty Packaging......................................... 368 0.0
Telephone - Long Distance................................... 342,750 1.9
Temporary Services.......................................... 175,854 1.0
Tire & Rubber Goods......................................... 414,688 2.3
U.S. Government Agency...................................... 2,900,000 15.8
Utilities - Electric........................................ 367,938 2.0
Repurchase Agreement........................................ 517,941 2.8
-------------------- -----
$ 19,025,262 103.8%
-------------------- -----
-------------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Common Stocks............................................... $ 15,607,321 85.2%
Short-Term Investments...................................... 3,417,941 18.6
-------------------- -----
$ 19,025,262 103.8%
-------------------- -----
-------------------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
199
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (67.7%)
AEROSPACE & DEFENSE (2.4%)
96,000 Cordant Technologies Inc........................................................ $ 4,428,000
95,000 General Motors Corp. (Class H).................................................. 4,476,875
60,500 Honeywell, Inc.................................................................. 5,055,531
--------------------
13,960,406
--------------------
ALUMINUM (0.6%)
52,000 Aluminum Co. of America......................................................... 3,428,750
--------------------
APPLIANCES & HOUSEHOLD DURABLES (1.1%)
125,000 Maytag Corp..................................................................... 6,171,875
--------------------
AUTOMOTIVE (2.6%)
152,900 Chrysler Corp................................................................... 8,619,737
105,000 Ford Motor Co................................................................... 6,195,000
--------------------
14,814,737
--------------------
BANKS (1.7%)
64,000 NationsBank Corp................................................................ 4,896,000
14,050 Wells Fargo & Co................................................................ 5,184,450
--------------------
10,080,450
--------------------
BANKS - MONEY CENTER (1.8%)
66,600 Chase Manhattan Corp............................................................ 5,028,300
37,400 Citicorp........................................................................ 5,581,950
--------------------
10,610,250
--------------------
BEVERAGES - SOFT DRINKS (0.7%)
104,900 PepsiCo, Inc.................................................................... 4,320,569
--------------------
BIOTECHNOLOGY (1.1%)
236,000 BioChem Pharma Inc. (Canada)*................................................... 6,224,500
5,900 Clinichem Development Inc. (Canada)*............................................ 33,556
--------------------
6,258,056
--------------------
CHEMICALS (3.5%)
67,000 Dow Chemical Co. ............................................................... 6,478,062
60,000 Du Pont (E.I.) De Nemours & Co., Inc. .......................................... 4,477,500
147,300 Georgia Gulf Corp. ............................................................. 3,360,281
104,200 Monsanto Co. ................................................................... 5,822,175
--------------------
20,138,018
--------------------
COMMUNICATIONS EQUIPMENT (3.9%)
76,650 Cisco Systems, Inc.*............................................................ 7,056,591
92,800 Lucent Technologies Inc......................................................... 7,719,800
51,000 PMC - Sierra, Inc. (Canada)*.................................................... 2,384,250
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
72,100 Tellabs, Inc.*.................................................................. $ 5,159,656
--------------------
22,320,297
--------------------
COMPUTER SOFTWARE (1.7%)
60,600 Microsoft Corp.*................................................................ 6,567,525
70,500 Network Associates, Inc.*....................................................... 3,370,781
--------------------
9,938,306
--------------------
COMPUTER SOFTWARE & SERVICES (0.6%)
104,000 HBO & Co........................................................................ 3,666,000
--------------------
COMPUTERS (3.1%)
85,000 Dell Computer Corp.*............................................................ 7,883,750
114,000 Gateway 2000, Inc.*............................................................. 5,771,250
92,900 Sun Microsystems, Inc.*......................................................... 4,035,344
--------------------
17,690,344
--------------------
CONSUMER PRODUCTS (0.2%)
90,000 Oakley, Inc.*................................................................... 1,170,000
--------------------
ELECTRICAL EQUIPMENT (1.5%)
50,000 Emerson Electric Co............................................................. 3,018,750
59,200 General Electric Co............................................................. 5,387,200
--------------------
8,405,950
--------------------
ENTERTAINMENT (0.7%)
38,000 Walt Disney Co. ................................................................ 3,992,375
--------------------
FINANCIAL SERVICES (2.8%)
50,000 American Express Co............................................................. 5,700,000
87,300 Fannie Mae...................................................................... 5,303,475
83,850 Travelers Group, Inc............................................................ 5,083,406
--------------------
16,086,881
--------------------
FOODS (1.1%)
100,000 Aurora Foods, Inc.*............................................................. 2,112,500
60,300 General Mills, Inc. ............................................................ 4,123,012
--------------------
6,235,512
--------------------
HEALTHCARE - HMOS (0.9%)
50,000 United Healthcare Corp. ........................................................ 3,175,000
30,000 Wellpoint Health Networks, Inc.*................................................ 2,220,000
--------------------
5,395,000
--------------------
HOUSEHOLD PRODUCTS (1.5%)
57,800 Colgate-Palmolive Co............................................................ 5,086,400
112,500 Rubbermaid, Inc................................................................. 3,733,594
--------------------
8,819,994
--------------------
INSURANCE (3.9%)
124,500 Ace, Ltd. (Bermuda)............................................................. 4,855,500
38,500 American International Group, Inc............................................... 5,621,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
200
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
100,000 Conseco, Inc.................................................................... $ 4,675,000
96,000 Equitable Companies, Inc........................................................ 7,194,000
--------------------
22,345,500
--------------------
INTERNET (1.9%)
100,600 America Online, Inc.*........................................................... 10,663,600
--------------------
MEDIA GROUP (2.5%)
64,500 Clear Channel Communications, Inc.*............................................. 7,038,562
170,000 MediaOne Group Inc.*............................................................ 7,469,408
--------------------
14,507,970
--------------------
MEDICAL EQUIPMENT (0.5%)
45,000 Perkin-Elmer Corp............................................................... 2,798,437
--------------------
METALS - MISCELLANEOUS (0.7%)
75,000 Phelps Dodge Corp............................................................... 4,289,062
--------------------
OIL - DOMESTIC (1.9%)
85,000 Amerada Hess Corp............................................................... 4,616,562
80,600 Atlantic Richfield Co........................................................... 6,296,875
--------------------
10,913,437
--------------------
OIL INTEGRATED - INTERNATIONAL (3.5%)
65,000 Chevron Corp.................................................................... 5,399,063
79,700 Exxon Corp...................................................................... 5,683,606
70,200 Mobil Corp...................................................................... 5,379,075
65,700 Texaco, Inc..................................................................... 3,921,469
--------------------
20,383,213
--------------------
PAPER PRODUCTS (1.1%)
124,200 Champion International Corp..................................................... 6,109,088
--------------------
PHARMACEUTICALS (4.6%)
128,600 Abbott Laboratories............................................................. 5,256,525
112,600 American Home Products Corp..................................................... 5,827,050
68,400 Johnson & Johnson............................................................... 5,044,500
66,600 Lilly (Eli) & Co. .............................................................. 4,399,763
87,300 Warner-Lambert Co............................................................... 6,056,438
--------------------
26,584,276
--------------------
POLLUTION CONTROL (0.3%)
50,000 Waste Management, Inc........................................................... 1,750,000
--------------------
PROPERTY - CASUALTY INSURANCE (1.0%)
70,400 Chubb Corp...................................................................... 5,658,400
--------------------
RAILROAD EQUIPMENT (0.2%)
31,000 Trinity Industries, Inc......................................................... 1,286,500
--------------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES (1.8%)
265,000 Kmart Corp.*.................................................................... $ 5,101,250
77,300 May Department Stores Co........................................................ 5,063,150
--------------------
10,164,400
--------------------
RETAIL - SPECIALTY (4.9%)
122,400 Bed Bath & Beyond, Inc.*........................................................ 6,341,850
106,000 Costco Companies, Inc.*......................................................... 6,684,625
76,300 Home Depot, Inc................................................................. 6,337,669
68,300 Payless ShoeSource, Inc.*....................................................... 5,032,856
120,000 Pier 1 Imports, Inc. ........................................................... 2,865,000
30,000 Williams-Sonoma, Inc.*.......................................................... 954,375
--------------------
28,216,375
--------------------
RETAIL - SPECIALTY APPAREL (1.3%)
125,700 Gap, Inc........................................................................ 7,746,263
--------------------
SAVINGS & LOAN ASSOCIATIONS (1.5%)
46,000 Golden West Financial Corp...................................................... 4,890,375
90,450 Washington Mutual, Inc.......................................................... 3,923,269
--------------------
8,813,644
--------------------
SEMICONDUCTORS (0.6%)
45,000 Intel Corp...................................................................... 3,332,813
--------------------
STEEL & IRON (0.3%)
40,000 Nucor Corp...................................................................... 1,840,000
--------------------
TELECOMMUNICATIONS - LONG DISTANCE (0.4%)
60,000 Qwest Communications International, Inc.*....................................... 2,088,750
--------------------
TOBACCO (0.7%)
100,000 Philip Morris Companies, Inc.................................................... 3,937,500
--------------------
TRANSPORTATION - MISCELLANEOUS (0.6%)
101,000 Airborne Freight Corp........................................................... 3,528,688
--------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $276,051,607).................................................. 390,461,686
--------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (9.9%)
AEROSPACE & DEFENSE (0.6%)
$ 1,000 Honeywell, Inc.
6.625% due 06/15/28........................................................... 1,012,240
1,000 Northrop-Grumman Corp.
7.875% due 03/01/26........................................................... 1,139,810
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
201
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 1,000 Raytheon Co.
7.20% due 08/15/27............................................................ $ 1,067,450
--------------------
3,219,500
--------------------
AIRLINES (0.2%)
1,000 Continental Airlines, Inc. (Series 981A)
6.648% due 03/15/19........................................................... 1,020,100
--------------------
BANKS (1.7%)
1,000 Amsouth Bank of Alabama
6.45% due 02/01/18............................................................ 1,003,160
1,000 BB&T Corp.
6.375% due 06/30/05........................................................... 1,000,400
1,240 Compass Trust I (Series A)
8.23% due 01/15/27............................................................ 1,361,359
2,000 MBNA Capital I (Series A)
8.278% due 12/01/26........................................................... 2,149,140
1,000 Mercantile Bancorporation, Inc.
7.30% due 06/15/07............................................................ 1,062,340
2,000 St. Paul Bancorp, Inc.
7.125% due 02/15/04........................................................... 2,061,860
1,000 Wilmington Trust Corp.
6.625% due 05/01/08........................................................... 1,019,440
--------------------
9,657,699
--------------------
BANKS - THRIFT INSTITUTIONS (0.2%)
1,000 Long Island Savings Bank
6.20% due 04/02/01............................................................ 998,800
--------------------
BROKERAGE (0.5%)
1,000 Credit Suisse First Boston NY - 144A**
6.50% due 05/01/08............................................................ 1,017,730
2,000 Paine Webber Group, Inc.
6.55% due 04/15/08............................................................ 2,001,960
--------------------
3,019,690
--------------------
BUILDING MATERIALS (0.3%)
1,500 Masco Corp
7.125% due 08/15/13........................................................... 1,607,070
--------------------
CHEMICALS (0.3%)
1,900 Solutia, Inc.
7.375% due 10/15/27........................................................... 1,998,648
--------------------
COMPUTER SOFTWARE (0.2%)
1,000 Computer Associates International - 144A**
6.375% due 04/15/05........................................................... 992,170
--------------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCE (0.3%)
$ 2,000 Household Finance Corp.
6.40% due 06/17/08............................................................ $ 1,994,920
--------------------
FINANCIAL SERVICES (1.9%)
2,000 Arkwright CSN Trust - 144A**
9.625% due 08/15/26........................................................... 2,402,500
3,000 Centura Capital Trust I - 144A**
8.845% due 06/01/27........................................................... 3,401,250
3,000 Markel Capital Trust I (Series B)
8.71% due 01/01/46............................................................ 3,287,220
2,000 Orion Capital Trust I
8.73% due 01/01/37............................................................ 2,152,980
--------------------
11,243,950
--------------------
INDUSTRIALS (0.2%)
1,000 Lexmark International Inc.
6.75% due 05/15/08............................................................ 1,003,120
--------------------
INSURANCE (0.5%)
1,000 CNA Financial Corp.
6.50% due 04/15/05............................................................ 1,002,840
1,000 Conseco, Inc.
6.80% due 06/15/05............................................................ 999,040
1,000 Terra Nova Ins (United Kingdom) Holding - 144A**
7.00% due 05/15/08............................................................ 1,020,980
--------------------
3,022,860
--------------------
MANUFACTURING (0.3%)
2,000 Tyco International Group SA (Luxembourg)
6.375% due 06/15/05........................................................... 2,005,280
--------------------
MEDIA GROUP (0.4%)
2,000 News America Inc.- 144A**
7.30% due 04/30/28............................................................ 2,050,000
--------------------
RAILROADS (0.4%)
1,966 Southern Pacific Co. (Series B)
7.28% due 04/30/15............................................................ 2,081,664
--------------------
RETAIL (0.5%)
1,000 Neiman Marcus Group Inc.
7.125% due 06/01/28........................................................... 1,031,950
1,000 Penny (J.C.) Co., Inc.
7.625% due 03/01/97........................................................... 1,095,120
1,000 Tommy Hilfiger USA Inc.
6.50% due 06/01/03............................................................ 1,000,900
--------------------
3,127,970
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
202
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES (0.5%)
$ 2,500 Shopko Stores, Inc.
8.50% due 03/15/02............................................................ $ 2,664,825
--------------------
TELECOMMUNICATIONS (0.4%)
1,000 GTE Corp.
6.84% due 04/15/18............................................................ 1,004,060
1,000 GTE Corp.
8.75% due 11/01/21............................................................ 1,223,480
--------------------
2,227,540
--------------------
UTILITIES (0.3%)
1,000 Energen Corp.
7.125% due 02/15/28........................................................... 1,037,060
1,000 United Utilities Corp. (United Kingdom)
6.45% due 04/01/08............................................................ 995,970
--------------------
2,033,030
--------------------
UTILITIES - ELECTRIC (0.2%)
1,000 Western Resources, Inc.
6.875% due 08/01/04........................................................... 1,024,620
--------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $55,523,655)................................................... 56,993,456
--------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (9.7%)
Federal National Mortgage Assoc.
1,000 5.75% due 04/15/03............................................................ 999,640
2,000 5.75% due 06/15/05............................................................ 1,994,680
3,000 5.75% due 02/15/08............................................................ 2,985,630
U.S. Treasury Bond
1,800 6.125% due 11/15/27........................................................... 1,926,846
2,400 6.625% due 02/15/27........................................................... 2,709,024
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. Treasury Note
$ 2,000 5.625% due 11/30/00........................................................... $ 2,003,860
2,000 5.75% due 08/15/03............................................................ 2,021,000
2,000 5.875% due 02/28/99........................................................... 2,004,380
13,000 6.00% due 09/30/98............................................................ 13,021,320
1,000 6.25% due 02/28/02............................................................ 1,021,600
1,000 6.25% due 02/15/03............................................................ 1,028,540
2,000 6.375% due 05/15/99........................................................... 2,014,100
1,500 6.50% due 04/30/99............................................................ 1,511,700
2,000 6.50% due 08/15/05............................................................ 2,110,240
7,000 6.875% due 08/31/99........................................................... 7,104,160
5,000 6.875% due 03/31/00........................................................... 5,110,400
4,000 6.875% due 05/15/06........................................................... 4,330,160
2,000 7.25% due 05/15/04............................................................ 2,169,440
--------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $55,981,906)................................................... 56,066,720
--------------------
SHORT-TERM INVESTMENTS (13.4%)
U.S. GOVERNMENT AGENCIES (a) (12.7%)
16,000 Federal Farm Credit Bank 5.38% due 07/09/98..................................... 15,980,871
3,900 Federal Home Loan Banks 5.40% due 07/01/98...................................... 3,900,000
20,000 Federal Home Loan Mortgage Corp. 5.45% due 07/10/98............................. 19,972,750
33,223 Federal National Mortgage Assoc. 5.44-5.46% due 07/06/98-07/17/98............... 33,165,775
--------------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $73,019,396).................................................... 73,019,396
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
203
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.7%)
$ 4,266 The Bank of New York 5.50% due 07/01/98 (dated 06/30/98; proceeds $4,266,595)
(b)
(IDENTIFIED COST $4,265,943).................................................. $ 4,265,943
--------------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $77,285,339)................................................... 77,285,339
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $464,842,507) (c)........................................................ 100.7 % 580,807,201
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.7) (4,239,558)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 576,567,643
------ -------------
------ -------------
</TABLE>
- ---------------------
* 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) Collateralized by $1,975,771 U.S. Treasury Bond 7.125% due 02/15/23 valued
at $2,379,894 and by $1,940,655 U.S. Treasury Note 5.375% due 02/15/01
valued at $1,971,368.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $120,779,590 and the
aggregate gross unrealized depreciation is $4,814,896, resulting in net
unrealized appreciation of $115,964,694.
SEE NOTES TO FINANCIAL STATEMENTS
204
<PAGE>
(This page has been intentionally left blank.)
205
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY QUALITY HIGH INCOME DIVIDEND
MARKET INCOME PLUS YIELD UTILITIES BUILDER GROWTH
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value *..................... $352,225,052 $ 490,887,753 $ 420,417,388 $ 484,122,492 $89,102,655 $2,167,918,464
Cash.......................... 10,112 260,107 -- 25,001 -- --
Receivable for:
Investments sold.......... -- 8,993,000 5,283,071 -- 97,515 7,949,892
Shares of beneficial
interest sold........... 369,879 132,795 319,960 281,654 195,658 3,633,026
Dividends................. -- -- -- 1,044,847 144,542 3,204,121
Interest.................. 674,772 7,526,933 8,023,833 894,287 428,912 479,869
Foreign withholding taxes
reclaimed............... -- -- -- 8,731 -- --
Prepaid expenses and other
assets...................... 1,267 1,188 2,129 1,009 1,908 4,943
Unrealized appreciation on
open forward foreign
currency contracts.......... -- -- -- -- -- --
Receivable from affiliate..... -- -- -- -- -- --
------------ -------------- -------------- -------------- ----------- --------------
TOTAL ASSETS............. 353,281,082 507,801,776 434,046,381 486,378,021 89,971,190 2,183,190,315
------------ -------------- -------------- -------------- ----------- --------------
LIABILITIES:
Payable for:
Investments purchased..... -- 12,935,052 13,026,083 -- 992,660 6,546,984
Shares of beneficial
interest repurchased.... 3,022,140 460,536 239,615 202,734 33,897 1,390,750
Compensated foreign
currency contracts...... -- -- -- -- -- --
Variation margin on
futures contracts....... -- -- -- -- -- --
Investment management
fee..................... 155,107 216,328 182,970 274,247 57,058 977,447
Payable to bank............... -- -- -- -- -- --
Accrued expenses and other
payables.................... 33,381 52,140 32,593 28,053 14,093 89,192
------------ -------------- -------------- -------------- ----------- --------------
TOTAL LIABILITIES........ 3,210,628 13,664,056 13,481,261 505,034 1,097,708 9,004,373
------------ -------------- -------------- -------------- ----------- --------------
NET ASSETS:
Paid-in-capital............... 350,070,431 489,007,491 510,970,197 305,922,756 84,543,695 1,568,536,873
Accumulated undistributed net
investment income (loss).... 23 451 159,071 1,274 9,713 1,202
Accumulated undistributed net
realized gain (loss)........ -- (18,661,309) (65,585,328) 7,659,165 688,372 123,843,990
Net unrealized appreciation
(depreciation).............. -- 23,791,087 (24,978,820) 172,289,792 3,631,702 481,803,877
------------ -------------- -------------- -------------- ----------- --------------
NET ASSETS............... $350,070,454 $ 494,137,720 $ 420,565,120 $ 485,872,987 $88,873,482 $2,174,185,942
------------ -------------- -------------- -------------- ----------- --------------
------------ -------------- -------------- -------------- ----------- --------------
*IDENTIFIED COST......... $352,225,052 $ 467,096,666 $ 445,396,208 $ 311,832,700 $85,470,953 $1,686,114,587
------------ -------------- -------------- -------------- ----------- --------------
------------ -------------- -------------- -------------- ----------- --------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 350,070,431 45,339,654 70,013,076 25,304,237 7,424,325 100,927,668
------------ -------------- -------------- -------------- ----------- --------------
------------ -------------- -------------- -------------- ----------- --------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $1.00 $10.90 $6.01 $19.20 $11.97 $21.54
------------ -------------- -------------- -------------- ----------- --------------
------------ -------------- -------------- -------------- ----------- --------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
** Includes foreign cash of $1,539, $10,906 and $76,894, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
206
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1998 (UNAUDITED)
GLOBAL
CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL S&P 500
GROWTH GROWTH GROWTH GROWTH APPRECIATION EQUITY INDEX
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value *..................... $144,776,147 $521,802,619 $517,703,972 $49,364,917 $36,116,167 $1,007,977,532 $ 7,789,721
Cash.......................... -- 418,062 887,267** 2,223,547** -- -- 21,990
Receivable for:
Investments sold.......... 3,155,728 1,845,551 1,372,709 291,918 2,176,282 14,810,252 310
Shares of beneficial
interest sold........... 63,029 246,011 616,550 1,775,447 36,918 1,512,520 306,155
Dividends................. 20,725 1,375,624 797,185 114,169 2,413 462,369 4,569
Interest.................. 103 4,793 7,778 32,665 246 254,314 --
Foreign withholding taxes
reclaimed............... -- 473,532 835,353 -- -- 159,066 --
Prepaid expenses and other
assets...................... 44 1,112 915 533 12 1,842 --
Unrealized appreciation on
open forward foreign
currency contracts.......... -- -- -- 19,802 -- -- --
Receivable from affiliate..... -- -- -- -- 11,185 -- 3,991
------------ ------------ ------------ ----------- ----------- ------------ ------------
TOTAL ASSETS............. 148,015,776 526,167,304 522,221,729 53,822,998 38,343,223 1,025,177,895 8,126,736
------------ ------------ ------------ ----------- ----------- ------------ ------------
LIABILITIES:
Payable for:
Investments purchased..... 2,680,137 2,421,459 -- 703,196 1,339,188 12,772,126 929,519
Shares of beneficial
interest repurchased.... 83,882 305,236 771,181 60,753 28,991 392,244 196
Compensated foreign
currency contracts...... -- -- -- 267,337 -- -- --
Variation margin on
futures contracts....... -- -- -- -- -- -- 665
Investment management
fee..................... 80,599 342,177 447,430 45,554 -- 423,905 --
Payable to bank............... -- -- -- -- -- -- --
Accrued expenses and other
payables.................... 17,029 123,612 71,573 53,589 11,191 33,226 3,991
------------ ------------ ------------ ----------- ----------- ------------ ------------
TOTAL LIABILITIES........ 2,861,647 3,192,484 1,290,184 1,130,429 1,379,370 13,621,501 934,371
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSETS:
Paid-in-capital............... 105,657,905 458,285,689 328,684,704 116,790,606 34,427,009 734,776,774 7,030,770
Accumulated undistributed net
investment income (loss).... (220,715) -- 3,468,436 301,240 164,100 89 11,209
Accumulated undistributed net
realized gain (loss)........ 11,268,096 17,551,301 28,540,499 (45,214,368) (1,349,658) 75,175,814 3,502
Net unrealized appreciation
(depreciation).............. 28,448,843 47,137,830 160,237,906 (19,184,909) 3,722,402 201,603,717 146,884
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSETS............... $145,154,129 $522,974,820 $520,931,545 $52,692,569 $36,963,853 $1,011,556,394 $ 7,192,365
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
*IDENTIFIED COST......... $116,327,304 $474,665,940 $357,451,800 $68,553,279 $32,393,765 $806,373,815 $ 7,644,947
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 7,390,611 38,539,329 18,822,656 11,571,118 3,145,802 28,885,434 700,352
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $19.64 $13.57 $27.68 $4.55 $11.75 $35.02 $10.27
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
<CAPTION>
EDGE
"BEST IDEAS" STRATEGIST
<S> <C> <C>
- ------------------------------
ASSETS:
Investments in securities, at
value *..................... $ 19,025,262 $580,807,201
Cash.......................... 76,894** --
Receivable for:
Investments sold.......... -- 2,585,332
Shares of beneficial
interest sold........... 285,515 236,286
Dividends................. 5,766 265,423
Interest.................. 79 1,801,824
Foreign withholding taxes
reclaimed............... 2,996 --
Prepaid expenses and other
assets...................... -- 1,925
Unrealized appreciation on
open forward foreign
currency contracts.......... -- --
Receivable from affiliate..... 4,069 --
------------ ------------
TOTAL ASSETS............. 19,400,581 585,697,991
------------ ------------
LIABILITIES:
Payable for:
Investments purchased..... 716,503 8,687,509
Shares of beneficial
interest repurchased.... 24,277 157,407
Compensated foreign
currency contracts...... -- --
Variation margin on
futures contracts....... -- --
Investment management
fee..................... -- 246,361
Payable to bank............... 338,260 --
Accrued expenses and other
payables.................... 4,069 39,071
------------ ------------
TOTAL LIABILITIES........ 1,083,109 9,130,348
------------ ------------
NET ASSETS:
Paid-in-capital............... 18,270,082 464,966,819
Accumulated undistributed net
investment income (loss).... 40,983 13,016
Accumulated undistributed net
realized gain (loss)........ 4,271 (4,376,886)
Net unrealized appreciation
(depreciation).............. 2,136 115,964,694
------------ ------------
NET ASSETS............... $ 18,317,472 $576,567,643
------------ ------------
------------ ------------
*IDENTIFIED COST......... $ 19,022,585 $464,842,507
------------ ------------
------------ ------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 1,858,186 37,117,796
------------ ------------
------------ ------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $9.86 $15.53
------------ ------------
------------ ------------
</TABLE>
207
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
QUALITY
MONEY INCOME HIGH INCOME DIVIDEND
MARKET PLUS YIELD UTILITIES BUILDER GROWTH
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 9,532,905 $ 16,552,688 $ 24,518,945 $ 1,798,684 $ 1,196,954 $ 1,629,246
Dividends..................... -- -- -- 6,839,228** 897,862** 22,863,880**
------------- ------------- ------------- ------------- ----------- ------------
TOTAL INCOME............. 9,532,905 16,552,688 24,518,945 8,637,912 2,094,816 24,493,126
------------- ------------- ------------- ------------- ----------- ------------
EXPENSES
Investment management fee..... 844,095 1,201,645 987,907 1,528,136 275,688 5,370,256
Professional fees............. 12,908 13,231 17,349 14,749 9,234 12,182
Custodian fees................ 9,497 30,463 17,778 11,847 13,255 50,938
Shareholder reports and
notices..................... 12,227 19,495 11,096 13,239 1,147 69,437
Trustees' fees and expenses... 545 979 604 779 94 2,516
Transfer agent fees and
expenses.................... 250 248 326 240 249 248
Other......................... 1,216 4,907 4,766 2,672 986 7,630
------------- ------------- ------------- ------------- ----------- ------------
TOTAL EXPENSES........... 880,738 1,270,968 1,039,826 1,571,662 300,653 5,513,207
Less: amounts
waived/reimbursed........... -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET EXPENSES............. 880,738 1,270,968 1,039,826 1,571,662 300,653 5,513,207
------------- ------------- ------------- ------------- ----------- ------------
NET INVESTMENT INCOME
(LOSS)................... 8,652,167 15,281,720 23,479,119 7,066,250 1,794,163 18,979,919
------------- ------------- ------------- ------------- ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... -- 4,582,236 (2,239,863) 7,699,017 683,183 126,803,218
Futures contracts......... -- -- -- -- -- --
Foreign exchange
transactions............ -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET GAIN (LOSS).......... -- 4,582,236 (2,239,863) 7,699,017 683,183 126,803,218
------------- ------------- ------------- ------------- ----------- ------------
Net change in unrealized
appreciation/
depreciation on:
Investments............... -- 1,402,602 (5,652,680) 31,939,636 561,147 50,908,064
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET APPRECIATION
(DEPRECIATION)........... -- 1,402,602 (5,652,680) 31,939,636 561,147 50,908,064
------------- ------------- ------------- ------------- ----------- ------------
NET GAIN (LOSS).......... -- 5,984,838 (7,892,543) 39,638,653 1,244,330 177,711,282
------------- ------------- ------------- ------------- ----------- ------------
NET INCREASE (DECREASE)....... $ 8,652,167 $ 21,266,558 $ 15,586,576 $ 46,704,903 $ 3,038,493 $196,691,201
------------- ------------- ------------- ------------- ----------- ------------
------------- ------------- ------------- ------------- ----------- ------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period May 18, 1998 (commencement of operations) through June 30,
1998.
** Net of $56,339, $184, $98,277, $908, $765,312, $917,526, $52,229, $115,857,
$8, $1,478 and $9,723 foreign withholding tax, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
208
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
GLOBAL
CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
GROWTH GROWTH GROWTH GROWTH APPRECIATION
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 109,037 $ 408,185 $ 304,470 $ 101,660 $ 149,687
Dividends..................... 148,326** 7,053,602** 5,752,497** 755,797** 14,413
--------- ------------ ----------- ------------- -------------
TOTAL INCOME............. 257,363 7,461,787 6,056,967 857,457 164,100
--------- ------------ ----------- ------------- -------------
EXPENSES
Investment management fee..... 445,692 1,917,455 2,297,623 314,733 130,285
Professional fees............. 14,134 16,226 16,346 10,859 10,657
Custodian fees................ 12,586 175,950 175,115 86,200 5,261
Shareholder reports and
notices..................... 3,693 12,990 11,178 3,490 407
Trustees' fees and expenses... 165 808 760 28 17
Transfer agent fees and
expenses.................... 248 248 248 248 248
Other......................... 1,208 5,251 5,749 9,542 --
--------- ------------ ----------- ------------- -------------
TOTAL EXPENSES........... 477,726 2,128,928 2,507,019 425,100 146,875
Less: amounts
waived/reimbursed........... -- -- -- -- (146,875)
--------- ------------ ----------- ------------- -------------
NET EXPENSES............. 477,726 2,128,928 2,507,019 425,100 --
--------- ------------ ----------- ------------- -------------
NET INVESTMENT INCOME
(LOSS)................... (220,363) 5,332,859 3,549,948 432,357 164,100
--------- ------------ ----------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 12,505,633 22,467,696 28,565,859 (17,683,803) (1,091,794)
Futures contracts......... -- -- -- -- --
Foreign exchange
transactions............ -- (82,132) (5,810) (564,197) --
--------- ------------ ----------- ------------- -------------
NET GAIN (LOSS).......... 12,505,633 22,385,564 28,560,049 (18,248,000) (1,091,794)
--------- ------------ ----------- ------------- -------------
Net change in unrealized
appreciation/
depreciation on:
Investments............... 6,955,839 18,677,868 70,961,281 3,467,919 2,338,262
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- 18,256 8,303 4,636 --
--------- ------------ ----------- ------------- -------------
NET APPRECIATION
(DEPRECIATION)........... 6,955,839 18,696,124 70,969,584 3,472,555 2,338,262
--------- ------------ ----------- ------------- -------------
NET GAIN (LOSS).......... 19,461,472 41,081,688 99,529,633 (14,775,445) 1,246,468
--------- ------------ ----------- ------------- -------------
NET INCREASE (DECREASE)....... $19,241,109 $ 46,414,547 $103,079,581 $ (14,343,088) $ 1,410,568
--------- ------------ ----------- ------------- -------------
--------- ------------ ----------- ------------- -------------
<CAPTION>
S&P 500 "BEST
EQUITY INDEX* IDEAS"* STRATEGIST
<S> <C> <C> <C> <C>
- ------------------------------
INVESTMENT INCOME:
INCOME
Interest...................... $ 1,775,720 $ 4,872 $ 27,889 $ 5,768,848
Dividends..................... 3,148,542** 6,337** 13,094** 2,147,370**
------------- ------------ ------------ ------------
TOTAL INCOME............. 4,924,262 11,209 40,983 7,916,218
------------- ------------ ------------ ------------
EXPENSES
Investment management fee..... 2,272,304 2,073 7,978 1,340,136
Professional fees............. 14,298 3,520 3,520 14,322
Custodian fees................ 30,751 149 226 17,525
Shareholder reports and
notices..................... 18,840 243 243 16,774
Trustees' fees and expenses... 1,319 19 19 831
Transfer agent fees and
expenses.................... 248 60 60 248
Other......................... 2,586 -- -- 3,430
------------- ------------ ------------ ------------
TOTAL EXPENSES........... 2,340,346 6,064 12,046 1,393,266
Less: amounts
waived/reimbursed........... -- (6,064) (12,046) --
------------- ------------ ------------ ------------
NET EXPENSES............. 2,340,346 -- -- 1,393,266
------------- ------------ ------------ ------------
NET INVESTMENT INCOME
(LOSS)................... 2,583,916 11,209 40,983 6,522,952
------------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 76,298,726 14 3,788 (4,376,822)
Futures contracts......... -- 3,488 -- --
Foreign exchange
transactions............ -- -- 483 --
------------- ------------ ------------ ------------
NET GAIN (LOSS).......... 76,298,726 3,502 4,271 (4,376,822)
------------- ------------ ------------ ------------
Net change in unrealized
appreciation/
depreciation on:
Investments............... 70,953,343 144,774 2,677 81,487,452
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- 2,110 (541) --
------------- ------------ ------------ ------------
NET APPRECIATION
(DEPRECIATION)........... 70,953,343 146,884 2,136 81,487,452
------------- ------------ ------------ ------------
NET GAIN (LOSS).......... 147,252,069 150,386 6,407 77,110,630
------------- ------------ ------------ ------------
NET INCREASE (DECREASE)....... $ 149,835,985 $ 161,595 $ 47,390 $ 83,633,582
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
209
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET QUALITY INCOME PLUS
------------------------------- ------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED DECEMBER JUNE 30, 1998 ENDED DECEMBER
(UNAUDITED) 31, 1997 (UNAUDITED) 31, 1997
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 8,652,167 $ 18,013,271 $ 15,281,720 $ 30,890,531
Net realized gain (loss)...... -- -- 4,582,236 4,211,639
Net change in unrealized
appreciation/depreciation... -- -- 1,402,602 12,724,498
-------------- -------------- ------------- --------------
NET INCREASE............. 8,652,167 18,013,271 21,266,558 47,826,668
-------------- -------------- ------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (8,652,209) (18,013,450) (15,281,417) (30,957,912)
Net realized gain............. -- -- -- --
-------------- -------------- ------------- --------------
TOTAL.................... (8,652,209) (18,013,450) (15,281,417) (30,957,912)
-------------- -------------- ------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 165,527,676 186,625,741 51,242,002 20,704,612
Reinvestment of dividends and
distributions............... 8,652,209 18,013,450 15,281,451 30,957,912
Cost of shares repurchased.... (159,687,538) (209,298,904) (53,360,382) (68,201,984)
-------------- -------------- ------------- --------------
NET INCREASE
(DECREASE)............... 14,492,347 (4,659,713) 13,163,071 (16,539,460)
-------------- -------------- ------------- --------------
TOTAL INCREASE
(DECREASE)............... 14,492,305 (4,659,892) 19,148,212 329,296
NET ASSETS:
Beginning of period........... 335,578,149 340,238,041 474,989,508 474,660,212
-------------- -------------- ------------- --------------
END OF PERIOD............ $ 350,070,454 $ 335,578,149 $494,137,720 $ 474,989,508
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 23 $ 65 $ 451 $ 148
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 165,527,676 186,625,741 4,725,579 1,958,805
Issued in reinvestment of
dividends and
distributions............... 8,652,209 18,013,450 1,412,747 2,970,264
Repurchased................... (159,687,538) (209,298,904) (4,922,015) (6,558,494)
-------------- -------------- ------------- --------------
NET INCREASE (DECREASE)....... 14,492,347 (4,659,713) 1,216,311 (1,629,425)
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
210
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVIDEND
HIGH YIELD UTILITIES INCOME BUILDER GROWTH
--------------------------- --------------------------- ---------------------------- --------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE SIX
MONTHS ENDED ENDED MONTHS ENDED ENDED MONTHS ENDED FOR THE YEAR MONTHS ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 ENDED DECEMBER JUNE 30, 1998
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 31, 1997* (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 23,479,119 $ 38,277,750 $ 7,066,250 $ 14,516,395 $ 1,794,163 $ 1,300,879 $ 18,979,919
Net realized gain (loss)...... (2,239,863) 184,126 7,699,017 24,274,209 683,183 773,374 126,803,218
Net change in unrealized
appreciation/depreciation... (5,652,680) (2,939,937) 31,939,636 61,888,240 561,147 3,070,555 50,908,064
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE............. 15,586,576 35,521,939 46,704,903 100,678,844 3,038,493 5,144,808 196,691,201
------------- ------------- ------------- ------------- ------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (23,614,944) (37,998,064) (7,065,029) (14,516,342) (1,784,491) (1,300,838) (18,978,858)
Net realized gain............. -- -- (24,274,238) (5,380,346) (768,185) -- (187,973,609)
------------- ------------- ------------- ------------- ------------- -------------- --------------
TOTAL.................... (23,614,944) (37,998,064) (31,339,267) (19,896,688) (2,552,676) (1,300,838) (206,952,467)
------------- ------------- ------------- ------------- ------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 81,646,297 94,751,829 40,136,887 10,084,184 37,820,455 51,206,002 273,013,818
Reinvestment of dividends and
distributions............... 23,614,944 37,998,064 31,339,251 19,896,688 2,552,676 1,300,838 206,952,467
Cost of shares repurchased.... (44,729,024) (21,761,038) (59,103,043) (93,290,638) (7,408,299) (927,977) (201,424,835)
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE
(DECREASE)............... 60,532,217 110,988,855 12,373,095 (63,309,766) 32,964,832 51,578,863 278,541,450
------------- ------------- ------------- ------------- ------------- -------------- --------------
TOTAL INCREASE
(DECREASE)............... 52,503,849 108,512,730 27,738,731 17,472,390 33,450,649 55,422,833 268,280,184
NET ASSETS:
Beginning of period........... 368,061,271 259,548,541 458,134,256 440,661,866 55,422,833 -- 1,905,905,758
------------- ------------- ------------- ------------- ------------- -------------- --------------
END OF PERIOD............ $420,565,120 $368,061,271 $485,872,987 $458,134,256 $ 88,873,482 $ 55,422,833 $2,174,185,942
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 159,071 $ 294,896 $ 1,274 $ 53 $ 9,713 $ 41 $ 1,202
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 13,288,566 15,438,103 2,048,367 586,036 3,109,913 4,681,304 11,743,837
Issued in reinvestment of
dividends and
distributions............... 3,872,899 6,235,666 1,621,515 1,234,020 211,392 114,240 9,564,893
Repurchased................... (7,283,936) (3,542,834) (3,015,666) (5,905,011) (608,035) (84,489) (8,637,169)
------------- ------------- ------------- ------------- ------------- -------------- --------------
NET INCREASE (DECREASE)....... 9,877,529 18,130,935 654,216 (4,084,955) 2,713,270 4,711,055 12,671,561
------------- ------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- ------------- -------------- --------------
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1997
<S> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 33,294,853
Net realized gain (loss)...... 187,796,245
Net change in unrealized
appreciation/depreciation... 131,882,494
-------------
NET INCREASE............. 352,973,592
-------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (33,294,817)
Net realized gain............. (76,862,062)
-------------
TOTAL.................... (110,156,879)
-------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 315,154,387
Reinvestment of dividends and
distributions............... 110,156,879
Cost of shares repurchased.... (50,626,648)
-------------
NET INCREASE
(DECREASE)............... 374,684,618
-------------
TOTAL INCREASE
(DECREASE)............... 617,501,331
NET ASSETS:
Beginning of period........... 1,288,404,427
-------------
END OF PERIOD............ $1,905,905,758
-------------
-------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 141
-------------
-------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 15,299,661
Issued in reinvestment of
dividends and
distributions............... 5,383,295
Repurchased................... (2,443,929)
-------------
NET INCREASE (DECREASE)....... 18,239,027
-------------
-------------
</TABLE>
211
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
CAPITAL GROWTH GLOBAL DIVIDEND GROWTH
------------------------------ ----------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE YEAR MONTHS ENDED JUNE FOR THE YEAR
JUNE 30, 1998 ENDED DECEMBER 30, 1998 ENDED DECEMBER
(UNAUDITED) 31, 1997 (UNAUDITED) 31, 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ (220,363) $ 9,982 $ 5,332,859 $ 6,849,599
Net realized gain (loss)...... 12,505,633 9,166,337 22,385,564 48,844,173
Net change in unrealized
appreciation/depreciation... 6,955,839 11,601,734 18,696,124 (13,083,151)
------------- -------------- ----------------- --------------
NET INCREASE
(DECREASE)............... 19,241,109 20,778,053 46,414,547 42,610,621
------------- -------------- ----------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (10,014) (406,792) (5,258,423) (7,198,015)
Net realized gain............. (10,080,542) (11,642,832) (52,205,069) (17,705,621)
------------- -------------- ----------------- --------------
TOTAL.................... (10,090,556) (12,049,624) (57,463,492) (24,903,636)
------------- -------------- ----------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 17,697,443 33,654,933 52,135,051 124,800,012
Reinvestment of dividends and
distributions............... 10,090,556 12,049,624 57,463,465 24,903,636
Cost of shares repurchased.... (18,884,499) (14,195,060) (57,188,211) (20,618,115)
------------- -------------- ----------------- --------------
NET INCREASE
(DECREASE)............... 8,903,500 31,509,497 52,410,305 129,085,533
------------- -------------- ----------------- --------------
TOTAL INCREASE
(DECREASE)............... 18,054,053 40,237,926 41,361,360 146,792,518
NET ASSETS:
Beginning of period........... 127,100,076 86,862,150 481,613,460 334,820,942
------------- -------------- ----------------- --------------
END OF PERIOD............ $145,154,129 $ 127,100,076 $ 522,974,820 $ 481,613,460
------------- -------------- ----------------- --------------
------------- -------------- ----------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ (220,715) $ 9,662 $ -- $ (74,436)
------------- -------------- ----------------- --------------
------------- -------------- ----------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 876,156 1,796,050 3,491,623 8,901,084
Issued in reinvestment of
dividends and
distributions............... 513,266 710,054 4,219,083 1,756,694
Repurchased................... (946,229) (774,142) (3,851,985) (1,479,827)
------------- -------------- ----------------- --------------
NET INCREASE (DECREASE)....... 443,193 1,731,962 3,858,721 9,177,951
------------- -------------- ----------------- --------------
------------- -------------- ----------------- --------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
212
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EUROPEAN GROWTH PACIFIC GROWTH CAPITAL APPRECIATION EQUITY
-------------------------- -------------------------- -------------------------- ------------
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1998 DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997* (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 3,549,948 $ 3,717,809 $ 432,357 $ 1,303,162 $ 164,100 $ 209,858 $ 2,583,916
Net realized gain (loss)...... 28,560,049 33,715,966 (18,248,000) (18,390,247) (1,091,794) (257,864) 76,298,726
Net change in unrealized
appreciation/depreciation... 70,969,584 15,487,002 3,472,555 (29,854,161) 2,338,262 1,384,140 70,953,343
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 103,079,581 52,920,777 (14,343,088) (46,941,246) 1,410,568 1,336,134 149,835,985
------------ ------------ ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (5,476,236) (3,760,260) (2,185,913) (1,891,258) (209,858) -- (2,583,827)
Net realized gain............. (30,256,754) (18,466,454) -- -- -- -- (114,146,703)
------------ ------------ ------------ ------------ ------------ ------------ ------------
TOTAL.................... (35,732,990) (22,226,714) (2,185,913) (1,891,258) (209,858) -- (116,730,530)
------------ ------------ ------------ ------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 82,019,163 69,322,769 27,252,656 27,108,335 12,107,319 33,834,119 141,578,466
Reinvestment of dividends and
distributions............... 35,732,990 22,226,714 2,185,913 1,891,258 209,858 -- 116,730,530
Cost of shares repurchased.... (55,608,452) (33,224,347) (29,120,536) (55,800,009) (8,859,945) (2,864,342) (102,948,339)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 62,143,701 58,325,136 318,033 (26,800,416) 3,457,232 30,969,777 155,360,657
------------ ------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... 129,490,292 89,019,199 (16,210,968) (75,632,920) 4,657,942 32,305,911 188,466,112
NET ASSETS:
Beginning of period........... 391,441,253 302,422,054 68,903,537 144,536,457 32,305,911 -- 823,090,282
------------ ------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD............ $520,931,545 $391,441,253 $52,692,569 $68,903,537 $36,963,853 $32,305,911 $1,011,556,394
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 3,468,436 $ 5,394,724 $ 301,240 $ 2,054,796 $ 164,100 $ 209,858 $ 89
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 2,926,605 3,070,886 5,130,035 3,373,487 1,031,231 3,118,030 3,865,993
Issued in reinvestment of
dividends and
distributions............... 1,290,931 983,918 480,420 188,937 17,860 -- 3,330,575
Repurchased................... (2,023,712) (1,452,789) (5,303,636) (6,804,802) (757,974) (263,345) (2,822,934)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)....... 2,193,824 2,602,015 306,819 (3,242,378) 291,117 2,854,685 4,373,634
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1997
<S> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 4,000,633
Net realized gain (loss)...... 114,548,760
Net change in unrealized
appreciation/depreciation... 87,770,605
------------
NET INCREASE
(DECREASE)............... 206,319,998
------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (4,001,396)
Net realized gain............. (43,430,509)
------------
TOTAL.................... (47,431,905)
------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 150,537,439
Reinvestment of dividends and
distributions............... 47,431,905
Cost of shares repurchased.... (55,675,579)
------------
NET INCREASE
(DECREASE)............... 142,293,765
------------
TOTAL INCREASE
(DECREASE)............... 301,181,858
NET ASSETS:
Beginning of period........... 521,908,424
------------
END OF PERIOD............ $823,090,282
------------
------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ --
------------
------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 4,895,346
Issued in reinvestment of
dividends and
distributions............... 1,670,194
Repurchased................... (1,832,698)
------------
NET INCREASE (DECREASE)....... 4,732,842
------------
------------
</TABLE>
213
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
COMPETITIVE
S&P 500 EDGE "BEST
INDEX IDEAS" STRATEGIST
------------ ------------ --------------------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED FOR THE YEAR
JUNE 30, JUNE 30, JUNE 30, ENDED
1998* 1998* 1998 DECEMBER 31,
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 11,209 $ 40,983 $ 6,522,952 $14,575,529
Net realized gain (loss)...... 3,502 4,271 (4,376,822) 52,520,724
Net change in unrealized
appreciation/depreciation... 146,884 2,136 81,487,452 (8,667,550)
------------ ------------ ------------ ------------
NET INCREASE............. 161,595 47,390 83,633,582 58,428,703
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... -- -- (6,509,998) (14,592,034)
Net realized gain............. -- -- (52,303,444) (10,026,602)
------------ ------------ ------------ ------------
TOTAL.................... -- -- (58,813,442) (24,618,636)
------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 5,601,450 22,522,138 54,909,744 49,903,217
Reinvestment of dividends and
distributions............... -- -- 58,813,442 24,618,636
Cost of shares repurchased.... (570,680) (4,252,056) (59,003,828) (35,071,627)
------------ ------------ ------------ ------------
NET INCREASE............. 5,030,770 18,270,082 54,719,358 39,450,226
------------ ------------ ------------ ------------
TOTAL INCREASE........... 5,192,365 18,317,472 79,539,498 73,260,293
NET ASSETS:
Beginning of period........... 2,000,000 -- 497,028,145 423,767,852
------------ ------------ ------------ ------------
END OF PERIOD............ $ 7,192,365 $18,317,472 $576,567,643 $497,028,145
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 11,209 $ 40,983 $ 13,016 $ 62
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 757,897 2,293,505 3,415,832 3,393,163
Issued in reinvestment of
dividends and
distributions............... -- -- 3,777,711 1,704,636
Repurchased................... (57,545) (435,319) (3,665,142) (2,398,648)
------------ ------------ ------------ ------------
NET INCREASE.................. 700,352 1,858,186 3,528,401 2,699,151
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period May 18, 1998 (commencement of operations) through June 30,
1998.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
214
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Variable Investment Series (the "Fund"), formerly
Dean Witter Variable Investment Series, is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. Investments in the Fund may be made only by (1) Northbrook
Life Insurance Company to fund the benefits under variable annuity contracts and
variable life insurance contracts it issues; (2) Allstate Life Insurance Company
of New York to fund the benefits under variable annuity contracts it issues; (3)
Glenbrook Life and Annuity Company to fund the benefits under variable annuity
contracts and variable life insurance contracts it issues; and (4) Paragon Life
Insurance Company to fund the benefits under variable life insurance contracts
it issues to certain employees of Morgan Stanley Dean Witter & Co., the parent
company of Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager"),
formerly Dean Witter InterCapital Inc.
The Fund, organized on February 25, 1983 as a Massachusetts business trust,
consists of fifteen Portfolios ("Portfolios") which commenced operations as
follows:
<TABLE>
<CAPTION>
COMMENCEMENT OF COMMENCEMENT OF
PORTFOLIO OPERATIONS PORTFOLIO OPERATIONS
- ------------------------------ ----------------- ------------------------------ -----------------
<S> <C> <C> <C>
Money Market.................. March 9, 1984 European Growth............... March 1, 1991
Quality Income Plus........... March 1, 1987 Pacific Growth................ February 23, 1994
High Yield.................... March 9, 1984 Capital Appreciation.......... January 21, 1997
Utilities..................... March 1, 1990 Equity........................ March 9, 1984
Income Builder................ January 21, 1997 S&P 500 Index................. May 18, 1998
Competitive Edge "Best
Dividend Growth............... March 1, 1990 Ideas"........................ May 18, 1998
Capital Growth................ March 1, 1991 Strategist.................... March 1, 1987
Global Dividend Growth........ February 23, 1994
</TABLE>
<TABLE>
<CAPTION>
The investment objectives of each Portfolio are as follows:
<S> <C>
<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 Income Plus 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.
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.
Income Builder Seeks, as its primary objective, to earn reasonable income and,
as a secondary objective, growth of capital by investing
primarily in income-producing equity securities.
</TABLE>
215
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Dividend Growth Seeks to provide reasonable current income and long-term growth
of income and capital by investing primarily in common stocks of
companies with a record of paying dividends and the potential for
increasing dividends.
Capital Growth Seeks long-term capital growth by investing primarily in common
stocks.
Global Dividend Seeks to provide reasonable current income and long-term growth
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.
Capital Appreciation 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.
Equity Seeks, as its primary objective, capital growth and, as a
secondary objective, income, but only when consistent with its
primary objective, by investing primarily in common stocks.
S&P 500 Index Seeks to provide investment results that, before expenses,
correspond to the total return of the Standards & Poor's 500
Composite Stock Price Index (the "S&P 500 Index") by investing
primarily in common stocks included in the S&P 500 Index.
Competitive Edge Seeks long-term capital growth by investing primarily in the
"Best Ideas" common stock of U.S. and non - U.S. companies included in the
"Best Ideas" list, a research compilation assembled and
maintained by Morgan Stanley Dean Witter Equity Research.
Strategist Seeks a high total investment return through a fully managed
investment policy utilizing equity, investment grade fixed income
and money market securities and writing covered 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 pursuant to procedures adopted 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
216
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
listed unless no sales of such options have taken place that day, in which case
they are valued at the mean between their latest bid and asked price; (4) when
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager (or, in the case of European Growth
and Pacific Growth, by Morgan Grenfell Investment Services Limited (the "Sub-
Advisor")) 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
Trustees (valuation of debt 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); (5) certain of the Fund's portfolio securities may
be valued by an outside pricing service approved by the Trustees. The pricing
service may utilize a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research and evaluations by
its staff, including review of broker-dealer market price quotations in
determining what it believes is the fair valuation of the securities valued by
such pricing service; and (6) short-term debt securities having a maturity date
of more than sixty days at the time of purchase are valued on a mark-to-market
basis until sixty days prior to maturity and thereafter at amortized cost based
on their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined 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. Money Market 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
217
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
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 foreign currency contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Portfolios do not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
forward 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
218
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
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 "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 and Strategist -- 0.50%; High Yield
- -- 0.50% to the portion of daily net assets not exceeding $500 million and
effective May 1, 1998 the Agreement was amended to reduce the annual rate to
0.425% to the portion of daily net assets exceeding $500 million; Quality Income
Plus -- 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; 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 and
Competitive Edge "Best Ideas" -- 0.65%; Global Dividend Growth, Capital
Appreciation and Income Builder -- 0.75%; European Growth -- 1.0% to the portion
of daily net assets not exceeding $500 million and effective May 1, 1998 the
Agreement was amended to reduce the annual rate to 0.95% to the portion of daily
net assets exceeding $500 million; Pacific Growth -- 1.0%; 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, 0.475% to the portion of daily net assets exceeding $1 billion but not
exceeding $2 billion and effective May 1, 1998 the Agreement was amended to
reduce the annual rate to 0.45% to the portion of daily net assets exceeding $2
billion; 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; and
S&P 500 Index -- 0.40%.
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
219
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor provides European Growth and Pacific Growth 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.
The Investment Manager has undertaken to reimburse all operating expenses and
waive the compensation provided for in its Investment Management Agreement with
Capital Appreciation until such time as the Portfolio has $50 million of net
assets or until December 31, 1998, whichever occurs first and with S&P 500 Index
and Competitive Edge "Best Ideas" until such time as the respective Portfolio
has $50 million of net assets or until six months from the date of the
Portfolio's commencement of operations, whichever occurs first. At June 30,
1998, included in the Statements of Assets and Liabilities are receivables from
an affiliate which represent expense reimbursements due to the Portfolios.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities of portfolio securities, excluding short-term
investments (except Money Market), for the period ended June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Money Market............................ $12,881,229 $ 8,402,535 $ 714,564,221 $ 709,993,911
Quality Income Plus..................... 243,370,022 250,859,069 118,387,548 98,099,071
High Yield.............................. -- -- 279,623,392 214,804,796
Utilities............................... -- -- 17,358,593 26,500,041
Income Builder.......................... 650,650 288,018 49,817,639 22,672,291
Dividend Growth......................... 35,027,344 35,053,438 396,192,143 281,867,132
Capital Growth.......................... -- -- 106,186,760 107,635,600
Global Dividend Growth.................. -- -- 125,981,707 143,422,544
European Growth......................... -- -- 147,491,393 117,878,548
Pacific Growth.......................... -- -- 23,879,533 27,877,686
Capital Appreciation.................... -- -- 43,308,414 36,207,736
Equity.................................. 99,811,910 68,979,366 694,774,453 731,250,894
S&P 500 Index........................... 70,026 -- 6,376,958 --
Competitive Edge "Best Ideas"........... -- -- 15,604,644 3,788
Strategist.............................. 57,645,729 55,080,241 190,136,853 177,350,637
</TABLE>
220
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
Included in the payable for investments purchased at June 30, 1998 for Dividend
Growth and Income Builder, are $1,096,872 and $171,535, respectively, for
unsettled trades with Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager. Included in the receivable for investments sold at June 30,
1998 for Income Builder and Capital Appreciation are $92,715 and $660,794,
respectively, for unsettled trades with DWR.
For the six months ended June 30, 1998, the following Portfolios incurred
brokerage commissions with DWR for portfolio transactions executed on behalf of
the Portfolio:
<TABLE>
<CAPTION>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND CAPITAL
UTILITIES BUILDER GROWTH GROWTH GROWTH APPRECIATION EQUITY STRATEGIST
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,425 $ 13,379 $ 27,225 $ 11,080 $ 11,950 $ 15,014 $ 12,910 $ 18,566
----------- ------------ ------- ------------ ------------ ------------ ------------ ------------
----------- ------------ ------- ------------ ------------ ------------ ------------ ------------
</TABLE>
Included in the receivable for investments sold at June 30, 1998 for Global
Dividend Growth and Capital Growth are $158,129 and $390,005, respectively, for
unsettled trades with Morgan Stanley & Co., Inc. ("Morgan Stanley"), an
affiliate of the Investment Manager. Included in the payable for investments
purchased at June 30, 1998 for Global Dividend Growth and Competitive Edge "Best
Ideas" are $294,620 and $717,506, respectively, for unsettled trades with Morgan
Stanley.
For the six months ended June 30, 1998, the following Portfolios incurred
brokerage commissions with Morgan Stanley for portfolio transactions executed on
behalf of the Portfolio:
<TABLE>
<CAPTION>
COMPETITIVE
GLOBAL EDGE
INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC "BEST
BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY IDEAS" STRATEGIST
------- -------- ------- -------- -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$650 $ 63,730 $18,690 $141,013 $24,987 $4,181 $111,935 $ 8,175 $29,875
------- -------- ------- -------- -------- ------- ------- ---------- ----------
------- -------- ------- -------- -------- ------- ------- ---------- ----------
</TABLE>
For the six months ended June 30, 1998, European Growth incurred brokerage
commissions of $4,661 with affiliates of the Sub-Advisor for portfolio
transactions executed on behalf of the Portfolio.
Morgan Stanley Dean Witter Trust FSB, 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 six months ended June 30, 1998
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:
221
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
AGGREGATE PENSION COST
QUALITY GLOBAL
MONEY INCOME HIGH INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
MARKET PLUS YIELD UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH APPRECIATION EQUITY STRATEGIST
- ------- ------- ------ --------- ------- -------- ------ -------- -------- ------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 152 $ 230 $ 186 $ 217 $36 $ 988 $ 68 $240 $310 $ 28 $17 $ 410 $ 250
- ------- ------- ------ --------- ------- -------- ------ -------- -------- ------- --- ------ ----------
- ------- ------- ------ --------- ------- -------- ------ -------- -------- ------- --- ------ ----------
ACCRUED PENSION LIABILITY
$11,354 $7,555 $3,528 $4,976 $36 $8,388 $370 $662 $909 $ 239 $17 $5,413 $8,140
- ------- ------- ------ --------- ------- -------- ------ -------- -------- ------- --- ------ ----------
- ------- ------- ------ --------- ------- -------- ------ -------- -------- ------- --- ------ ----------
</TABLE>
4. FEDERAL INCOME TAX STATUS
At December 31, 1997, 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>
AMOUNT IN THOUSANDS
Available through -------------------------------------------------------------------------
December 31, 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL
- ---------------------------------------- ------- ------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality Income Plus..................... -- -- -- -- $20,752 -- $2,491 -- $23,243
High Yield.............................. $34,291 $7,336 $3,057 $4,736 3,256 $2,984 5,521 -- 61,181
Pacific Growth.......................... -- -- -- -- -- 1,939 4,124 $11,428 17,491
</TABLE>
Net capital and net foreign 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 1997: Capital
Growth -- $389,000; Global Dividend Growth -- $4,000; Pacific Growth --
$8,545,000; Capital Appreciation -- $30,000.
At December 31, 1997, the primary reason(s) for significant temporary book/tax
differences were as follows:
<TABLE>
<CAPTION>
LOSS DEFERRALS
POST-OCTOBER FROM WASH
LOSSES SALES
----------- --------------
<S> <C> <C>
High Yield.............................. -
Utilities............................... -
Income Builder.......................... -
Dividend Growth......................... -
Capital Growth.......................... - -
Global Dividend Growth.................. - -
European Growth......................... -
Pacific Growth.......................... - -
Capital Appreciation.................... -
Equity.................................. -
</TABLE>
Additionally, Global Dividend Growth and Pacific Growth had temporary
differences attributable to income from the mark-to-market of passive foreign
investment companies.
222
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) CONTINUED
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Global Dividend Growth, European Growth, Pacific Growth and Competitive Edge
"Best Ideas" 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 and write 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.
Forward contracts and over-the-counter 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 put options on
foreign currencies from the potential inability of the counterparties to meet
the terms of their contracts.
At June 30, 1998, Global Dividend Growth, European Growth and Pacific Growth had
outstanding forward contracts.
At June 30, 1998, European Growth's investments in securities of issuers in the
United Kingdom represented 28.9% of the Portfolio's net assets. Pacific Growth's
investments in securities of issuers in Hong Kong represented 27.4% of the
Portfolio's net assets. These investments, which involve risks and
considerations not present with respect to U.S. securities, may be affected by
economic or political developments in these regions.
At June 30, 1998, Global Dividend Growth's, European Growth's and Pacific
Growth's cash balance consisted principally of interest bearing deposits with
Chase Manhattan Bank N.A., the custodian of each Portfolio.
6. SUBSEQUENT EVENT
In May 1998, the sub-advisor advised the Fund's Board of Directors and the
Investment Manager of its resignation as sub-advisor to Pacific Growth and
European Growth, effective at the close of business on October 31, 1998 and
December 31, 1998, respectively. On June 2, 1998 the Board of Directors
unanimously recommended that a new sub-advisory agreement with Morgan Stanley
Asset Management Inc., an affiliate of the Investment Manager, be submitted to
shareholders for approval at a special meeting to be held on August 18, 1998.
223
<PAGE>
MORGAN STANLEY 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
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
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 1.00 0.050 -- 0.050 (0.050) -- (0.050)
1997 1.00 0.051 -- 0.051 (0.051) -- (0.051)
1998(a) 1.00 0.025 -- 0.025 (0.025) -- (0.025)
QUALITY INCOME PLUS
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 10.96 0.71 (0.58) 0.13 (0.72) -- (0.72)
1997 10.37 0.70 0.40 1.10 (0.70) -- (0.70)
1998(a) 10.77 0.34 0.13 0.47 (0.34) -- (0.34)
HIGH YIELD
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 6.26 0.77 (0.06) 0.71 (0.79) -- (0.79)
1997 6.18 0.75 (0.06) 0.69 (0.75) -- (0.75)
1998(a) 6.12 0.36 (0.11) 0.25 (0.36) -- (0.36)
UTILITIES
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 14.68 0.55 0.70 1.25 (0.55) (0.04) (0.59)
1997 15.34 0.57 3.46 4.03 (0.57) (0.21) (0.78)
1998(a) 18.59 0.29 1.63 1.92 (0.29) (1.02) (1.31)
INCOME BUILDER
1997(b) 10.00 0.44 1.76 2.20 (0.44) -- (0.44)
1998(a) 11.76 0.27 0.32 0.59 (0.27) (0.11) (0.38)
DIVIDEND GROWTH
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 15.59 0.41 3.22 3.63 (0.41) (0.41) (0.82)
1997 18.40 0.41 4.20 4.61 (0.41) (1.00) (1.41)
1998(a) 21.60 0.21 1.99 2.20 (0.21) (2.05) (2.26)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
224
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------
NET
NET ASSET TOTAL NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1993 $ 1.00 2.75% $ 129,925 0.57% 2.71% N/A
1994 1.00 3.81 268,624 0.55 3.93 N/A
1995 1.00 5.66 249,787 0.53 5.52 N/A
1996 1.00 5.11 340,238 0.52 4.97 N/A
1997 1.00 5.23 335,578 0.52 5.10 N/A
1998(a) 1.00 2.57(1) 350,070 0.52(2) 5.13(2) N/A
QUALITY INCOME PLUS
1993 11.03 12.99 487,647 0.56 6.17 219%
1994 9.45 (6.63) 414,905 0.54 6.88 254
1995 10.96 24.30 520,579 0.54 7.07 162
1996 10.37 1.56 474,660 0.53 6.84 182
1997 10.77 11.09 474,990 0.53 6.71 171
1998(a) 10.90 4.45(1) 494,138 0.53(2) 6.36(2) 73(1)
HIGH YIELD
1993 7.11 24.08 90,200 0.60 11.80 177
1994 6.16 (2.47) 111,934 0.59 11.71 105
1995 6.26 14.93 154,310 0.54 12.67 58
1996 6.18 11.98 259,549 0.51 12.59 57
1997 6.12 11.87 368,061 0.53 12.44 95
1998(a) 6.01 4.18(1) 420,565 0.53(2) 11.88(2) 55(1)
UTILITIES
1993 13.74 15.69 490,934 0.71 3.75 11
1994 11.92 (9.02) 382,412 0.68 4.21 15
1995 14.68 28.65 479,070 0.68 4.00 13
1996 15.34 8.68 440,662 0.67 3.61 9
1997 18.59 27.15 458,134 0.67 3.48 13
1998(a) 19.20 10.34(1) 485,873 0.67(2) 3.01(2) 4(1)
INCOME BUILDER
1997(b) 11.76 22.38(1) 55,423 0.15(2)(4) 5.73(2)(4) 41(1)
1998(a) 11.97 4.94(1) 88,873 0.82(2) 4.88(2) 34(1)
DIVIDEND GROWTH
1993 12.78 14.34 483,145 0.68 3.01 6
1994 11.99 (3.27) 572,952 0.64 3.13 20
1995 15.59 36.38 865,417 0.61 2.75 24
1996 18.40 23.96 1,288,404 0.57 2.46 23
1997 21.60 25.61 1,905,906 0.54 2.06 28
1998(a) 21.54 10.18(1) 2,174,186 0.53(2) 1.82(2) 15(1)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
225
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET NET
VALUE INVESTMENT NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
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 15.22 0.08 1.65 1.73 (0.03) (0.27) (0.30)
1997 16.65 0.01 3.90 3.91 (0.08) (2.19) (2.27)
1998(a) 18.29 (0.03) 2.85 2.82 -- (1.47) (1.47)
GLOBAL DIVIDEND GROWTH
1994(c) 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 11.69 0.24 1.75 1.99 (0.24) (0.31) (0.55)
1997 13.13 0.22 1.37 1.59 (0.23) (0.60) (0.83)
1998(a) 13.89 0.15 1.20 1.35 (0.15) (1.52) (1.67)
EUROPEAN GROWTH
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 17.53 0.17 4.91 5.08 (0.04) (1.01) (1.05)
1997 21.56 0.21 3.19 3.40 (0.24) (1.18) (1.42)
1998(a) 23.54 0.36 5.82 6.18 (0.31) (1.73) (2.04)
PACIFIC GROWTH
1994(c) 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 9.70 0.05 0.32 0.37 (0.11) -- (0.11)
1997 9.96 0.12 (3.82) (3.70) (0.14) -- (0.14)
1998(a) 6.12 0.04 (1.41) (1.37) (0.20) -- (0.20)
CAPITAL APPRECIATION
1997(b) 10.00 0.07 1.25 1.32 -- -- --
1998(a) 11.32 0.05 0.45 0.50 (0.07) -- (0.07)
EQUITY
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 27.14 0.16 2.70 2.86 (0.16) (3.45) (3.61)
1997 26.39 0.18 9.27 9.45 (0.18) (2.08) (2.26)
1998(a) 33.58 0.10 5.91 6.01 (0.10) (4.47) (4.57)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
226
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------
NET
NET ASSET TOTAL NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
1993 $ 11.81 (6.99)% $ 50,309 0.74% 0.78% 36%
1994 11.52 (1.28) 45,715 0.77 0.90 37
1995 15.22 32.92 66,995 0.74 0.70 34
1996 16.65 11.55 86,862 0.73 0.52 98
1997 18.29 24.54 127,100 0.71 0.01 139
1998(a) 19.64 15.40(1) 145,154 0.70(2) (0.32) (2) 79(1)
GLOBAL DIVIDEND GROWTH
1994(c) 9.82 0.27(1) 138,486 0.87(2)(3) 2.62(2) 20(1)
1995 11.69 22.14 205,739 0.88 2.23 55
1996 13.13 17.49 334,821 0.85 1.94 39
1997 13.89 12.04 481,613 0.84 1.61 48
1998(a) 13.57 9.70(1) 522,975 0.83(2) 2.09(2) 25(1)
EUROPEAN GROWTH
1993 14.03 40.88 79,052 1.28 0.97 77
1994 14.56 8.36 152,021 1.16 1.49 58
1995 17.53 25.89 188,119 1.17 1.25 69
1996 21.56 29.99 302,422 1.11 0.97 43
1997 23.54 16.07 391,441 1.12 1.04 45
1998(a) 27.68 26.24(1) 520,932 1.09(2) 1.54(2) 26(1)
PACIFIC GROWTH
1994(c) 9.26 (6.73) (1) 75,425 1.00(2)(3) 0.56(2) 22(1)
1995 9.70 5.74 98,330 1.44 1.23 53
1996 9.96 3.89 144,536 1.37 1.01 50
1997 6.12 (37.70) 68,904 1.44 1.09 58
1998(a) 4.55 (22.32)(1) 52,693 1.35(2) 1.38(2) 40(1)
CAPITAL APPRECIATION
1997(b) 11.32 13.20(1) 32,306 -- (4) 1.30(2)(4) 25(1)
1998(a) 11.75 4.39(1) 36,964 -- (2)(5) 0.94(2)(5) 125(1)
EQUITY
1993 22.15 19.72 182,828 0.58 0.69 265
1994 19.25 (4.91) 225,289 0.57 1.19 299
1995 27.14 42.53 359,779 0.54 0.97 269
1996 26.39 12.36 521,908 0.54 0.58 279
1997 33.58 37.43 823,090 0.52 0.61 145
1998(a) 35.02 17.90(1) 1,011,556 0.51(2) 0.57(2) 92(1)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
227
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
S & P 500 INDEX
1998(a)(d) $ 10.00 $ 0.02 $ 0.25 $ 0.27 -- -- --
COMPETITIVE EDGE "BEST IDEAS"
1998(a)(d) 10.00 0.02 (0.16) (0.14) -- -- --
STRATEGIST
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 12.45 0.43 1.39 1.82 (0.43) (0.12) (0.55)
1997 13.72 0.45 1.40 1.85 (0.45) (0.32) (0.77)
1998(a) 14.80 0.19 2.29 2.48 (0.19) (1.56) (1.75)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
(a) For the six months ended June 30, 1998 (unaudited).
Commencement of operations:
(b) January 21, 1997.
(c) February 23, 1994.
(d) May 18, 1998.
+ Calculated based on the net asset value as of the last business day of the
period.
* Includes dividends in excess of net investment income of $0.02.
** Less than 0.05%.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not assumed all expenses and waived its
management fee for the period February 23, 1994 through May 12, 1994 for
Global Dividend Growth and February 23, 1994 through August 2, 1994 for
Pacific Growth, the ratio of expenses to average net assets would have been
0.97% for Global Dividend Growth and 1.40% for Pacific Growth.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period January 21, 1997 through December 3, 1997 for
Income Builder and January 21, 1997 through December 31, 1997 for Capital
Appreciation, the ratios of expenses and net investment income to average
net assets would have been 0.99% and 4.89%, respectively, for Income
Builder and 0.97% and 0.33%, respectively, for Capital Appreciation.
(5) If the Investment Manager had not assumed all expenses and waived its
management fee for the six months ending June 30, 1998 for Capital
Appreciation, the ratio of expenses and net investment income to average
net assets would have been 0.84% and 0.10%, respectively.
(6) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 18, 1998 through June 30, 1998 for S&P
500 Index and Competitive Edge "Best Ideas", respectively, the ratios of
expenses and net investment income to average net assets would have been
1.17% and 0.99%, respectively, for S&P 500 Index and 0.98% and 2.36%,
respectively, for Competitive Edge "Best Ideas".
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
228
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------
NET
NET ASSET TOTAL NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END INVESTMENT END OF PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S & P 500 INDEX
1998(a)(d) $ 10.27 2.70% (1) $ 7,192 -- (2)(6) -- (2)(6) --
COMPETITIVE EDGE "BEST
IDEAS"
1998(a)(d) 9.86 (1.40)(1) 18,317 -- (2)(6) -- (2)(6) -- ** (1)
STRATEGIST
1993 12.68 10.38 287,502 0.57% 3.11% 57%
1994 12.45 3.94 392,760 0.54 3.93 125
1995 12.45 9.48 388,579 0.52 5.03 329
1996 13.72 15.02 423,768 0.52 3.30 153
1997 14.80 13.71 497,028 0.52 3.09 159
1998(a) 15.53 16.82(1) 576,568 0.52(2) 2.43(2) 52(1)
</TABLE>
229
<PAGE>
MORGAN STANLEY 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, 1988,
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 and
for the six months ended June 30, 1998 (unaudited). . . . . 8
(2) Financial statements included in the Statement of Additional
Information (Part B):
Page in SAI
-----------
Portfolio of Investments at December 31, 1997 . . . . . . . 59
Statements of Assets and Liabilities at
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 112
Statements of Operations for the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 114
Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . 116
Notes to Financial Statements at December 31, 1998. . . . . 121
Financial Highlights for the years ended December 31,
1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 132
Portfolio of Investments at June 30, 1998 (unauditied). . . 139
Statement of Assets and Liabilities at June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 206
Statement of Operations for the six months ended June 30,
1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . 208
Statement of Changes in Net Assets for the six months
ended June 30, 1998 (unaudited) and for the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 210
Notes to Financial Statements at June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 215
<PAGE>
Financial Highlights for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and for the six months ended
June 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . 224
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1. - Form of Amendment to the Declaration of Trust of the
Registrant
5(a). - Form of Amended Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
5(b). - Form of Sub-Advisory Agreement between the Registrant and
Morgan Stanley Asset Management Inc.
8. - Form of Amended and Restated Transfer Agency and Service
agreement between the Registrant and Dean Witter Trust FSB
10. - Form of Amended Services Agreement between Morgan Stanley
Dean Witter Advisors Inc. and Morgan Stanley Dean Witter
Services Company Inc.
11. - Consent of Independent Accountants
27. - Financial Data Schedules as of June 30, 1998
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at June 30, 1998
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest 3
</TABLE>
Item 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant.
2
<PAGE>
Trustees, officers, employees and agents will be indemnified for the expense of
litigation if it is determined that they are entitled to indemnification against
any liability established in such litigation. The Registrant may also advance
money for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, 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 ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal address of the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
3
<PAGE>
CLOSED-END INVESTMENT COMPANIES
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(7) InterCapital Income Securities Inc.
(8) InterCapital Insured California Municipal Securities
(9) InterCapital Insured Municipal Bond Trust
(10) InterCapital Insured Municipal Income Trust
(11) InterCapital Insured Municipal Securities
(12) InterCapital Insured Municipal Trust
(13) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Municipal Income Opportunities Trust
(18) Municipal Income Opportunities Trust II
(19) Municipal Income Opportunities Trust III
(20) Municipal Income Trust
(21) Municipal Income Trust II
(22) Municipal Income Trust III
(23) Municipal Premium Income Trust
(24) Morgan Stanley Dean Witter Prime Income Trust
OPEN-END INVESTMENT COMPANIES
(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 Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
4
<PAGE>
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter S&P 500 Select Fund
(50) Morgan Stanley Dean Witter Select Dimensions Investment Series
(51) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(52) Morgan Stanley Dean Witter Short-Term Bond Fund
(53) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(54) Morgan Stanley Dean Witter Special Value Fund
(55) Morgan Stanley Dean Witter Strategist Fund
(56) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(57) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(58) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(59) Morgan Stanley Dean Witter U.S. Government Securities Trust
(60) Morgan Stanley Dean Witter Utilities Fund
(61) Morgan Stanley Dean Witter Value-Added Market Series
(62) Morgan Stanley Dean Witter Variable Investment Series
(63) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment
companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
5
<PAGE>
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean
President, Chief Witter Distributors Inc. ("MSDW Distributors") and
Executive Officer and Morgan Stanley Dean Witter Trust FSB ("MSDW
Director Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services
Company Inc. ("MSDW Services"); Executive Vice
President and Director of Dean Witter Reynolds
Inc. ("DWR"); Director of SPS Transaction
Services, Inc. and various other Morgan Stanley
Dean Witter & Co. ("MSDW") subsidiaries.
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice Administrative Officer of MSDW; Executive Vice
President and Chief President and Chief Financial Officer of MSDW
Financial Officer Services and MSDW Distributors; Director of DWR,
MSDW Distributors and MSDW.
Robert M. Scanlan President, Chief Operating Officer and Director of
President, Chief MSDW Services, Executive Vice President of MSDW
Operating Officer Distributors; Executive Vice President and
and Director Director of MSDW Trust; Vice President of the
Morgan Stanley Dean Witter Funds and the TCW/DW
Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter
Executive Vice President Funds and Director of MSDW Trust.
and Chief Investment
Officer
Edward C. Oelsner, III
Executive Vice President
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant
Secretary and Counsel and Assistant General Counsel of MSDW Distributors;
Director Vice President, Secretary and General Counsel of
the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW
Trust; Vice President of the Morgan Stanley Dean
Witter Funds and the TCW/DW Funds.
Rajesh Gupta Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Jonathan R. Page Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Ronald J. Worobel Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial
Treasurer Officer of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of MSDW Services; and
Assistant Secretary Assistant Secretary of the Morgan Stanley Dean
Witter Funds and the TCW/DW Funds.
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW First
Vice President Services; Assistant Treasurer of MSDW and
Controller Distributors; First Vice President and Treasurer
of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Carsten Otto First Vice President and Assistant Secretary of
First Vice President MSDW Services; Assistant Secretary of the Morgan
and Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan
Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen Vice President of Dean Witter Global Asset Vice
President Allocation Fund.
Bruce Dunn
Vice President
Michael Durbin
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Michael Geringer
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Sandra Grossman
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Peter Hermann Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
James P. Kastberg
Vice President
Michelle Kaufman Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter
Vice President Natural Resource Development Securities Inc.
Albert McGarity
Vice President
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan
Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Vice
President Natural Resource Development Securities Inc.
Richard Norris
Vice President
George Paoletti
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan
Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN WITH OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL
WITTER ADVISORS INC. ADDRESS AND NATURE OF CONNECTION
- --------------------------------------------------------------------------------
<S> <C>
Deborah Santaniello
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
John Wong
Vice President
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(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 Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
13
<PAGE>
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter S&P 500 Select Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Special Value Fund
(54) Morgan Stanley Dean Witter Strategist Fund
(55) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(56) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(57) Morgan Stanley Dean Witter U.S. Government Money Market Trust
14
<PAGE>
(58) Morgan Stanley Dean Witter U.S. Government Securities Trust
(59) Morgan Stanley Dean Witter Utilities Fund
(60) Morgan Stanley Dean Witter Value-Added Market Series
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 28 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
<TABLE>
<CAPTION>
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
<S> <C>
Richard M. DeMartini Director
Christine Edwards Executive Vice President, Secretary, Director and Chief
Legal Officer.
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
15
<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 28th day of August, 1998.
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
By /s/ Barry Fink
--------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 24 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 08/28/98
-----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 08/28/98
-----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 08/28/98
-----------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/David M. Butowsky 08/28/98
-----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
EXHIBIT INDEX
1. - Form of Amendment to the Declaration of Trust of the Registrant
5(a). - Form of Amended Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
5(b). - Form of Sub-Advisory Agreement between the Registrant and Morgan
Stanley Asset Management Inc.
8. - Form of Amended and Restated Transfer Agency and Service
Agreement between the Registrant and Dean Witter Trust FSB
10. - Form of Amended Services Agreement between Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc.
11. - Consent of Independent Accountants
27. - Financial Data Schedules as of June 30, 1998
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Dean Witter
Variable Investment Series (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, that annexed
hereto is an Amendment to the Declaration of Trust of the Trust adopted by the
Trustees of the Trust on April 30, 1998 as provided in Section 9.3 of the said
Declaration, said Amendment to take effect on June 22, 1998, and I do hereby
further certify that such amendment has not been amended and is on the date
hereof in full force and effect.
Dated this 22nd day of June, 1998.
---------------------------------
Barry Fink
Secretary
<PAGE>
AMENDMENT
Dated: June 22, 1998
To be Effective: June 22, 1998
TO
DEAN WITTER VARIABLE INVESTMENT SERIES
DECLARATION OF TRUST
DATED
FEBRUARY 24, 1983
<PAGE>
Amendment dated June 22, 1998 to the Declaration of Trust (the"Declaration")
of Dean Witter Variable Investment Series (the "Trust")
dated February 24, 1983
WHEREAS, the Trust was established by the Declaration on the date
hereinabove set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to change the
name of the Trust to "Morgan Stanley Dean Witter Variable Investment Series,"
such change to be effective on June 22,1998;
NOW, THEREFORE:
1. Section 1.1 of Article I of the Declaration is hereby amended so that
that Section shall read in its entirety as follows:
"Section 1.1 NAME. The name of the Trust created hereby is the Morgan
Stanley Dean Witter Variable Investment Series and so far
as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" whenever herein used) shall refer to
the Trustees as Trustees, and not as individuals, or personally, and
shall not refer to the officers, agents, employees or Shareholders of
the Trust. Should the Trustees determine that the use of such name is
not advisable, they may use such other name for the Trust as they deem
proper and the Trust may hold its property and conduct its activities
under such other name."
2. Subsection (p) of Section 1.2 of Article I of the Declaration is hereby
amended so that that Subsection shall read in its entirety as follows:
"Section 1.2 DEFINITIONS
"(p) "TRUST" means the Morgan Stanley Dean Witter Variable Investment
Series."
3. Section 11.7 of Article XI of the Declaration is hereby amended so that
that Section shall read as follows:
"Section 11.7 USE OF THE NAME "MORGAN STANLEY DEAN WITTER." Morgan
Stanley Dean Witter & Co. ("MSDW") has consented to the use by the
Trust of the identifying name "Morgan Stanley Dean Witter," which is a
property right of MSDW. The Trust will only use
<PAGE>
the name "Morgan Stanley Dean Witter" as a component of its name and
for no other purpose, and will not purport to grant to any third party
the right to use the name "Morgan Stanley Dean Witter" for any
purpose. MSDW, or any corporate affiliate of MSDW, may use or grant
to others the right to use the name "Morgan Stanley Dean Witter," or
any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a
grant of such right to any other investment company. At the request
of MSDW or any corporate affiliate of MSDW, the Trust will take such
action as may be required to provide its consent to the use of the
name "Morgan Stanley Dean Witter," or any combination or abbreviation
thereof, by MSDW or any corporate affiliate of MSDW, or by any person
to whom MSDW or a corporate affiliate of MSDW shall have granted the
right to such use. Upon the termination of any investment advisory
agreement into which a corporate affiliate of MSDW and the Trust may
enter, the Trust shall, upon request of MSDW or any corporate
affiliate of MSDW, cease to use the name "Morgan Stanley Dean Witter"
as a component of its name, and shall not use the name, or any
combination or abbreviation thereof, as part of its name or for any
other commercial purpose, and shall cause its officers, Trustees and
Shareholders to take any and all actions which MSDW or any corporate
affiliate of MSDW may request to effect the foregoing and to reconvey
to MSDW any and all rights to such name."
4. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
5. This Amendment 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 22nd day of June, 1998.
/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 Corp. c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, NW 1133 Connecticut Avenue, NW
Boca Raton, FL 33487 Washington, D.C. 20036
/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, NY 10048 237 Park Avenue
New York, NY 10017
/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 Huntsman Corporation 1585 Broadway
500 Huntsman Way New York, NY 10036
Salt Lake City, UT 84111
/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 Weitzen
New York, NY 10048 Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
/s/ Wayne E. Hedien
- ---------------------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Gordon Altman Butowsky Weitzen
Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 22nd day of June, 1998, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, JOHN R. HAIRE, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL
E. NUGENT, PHILIP J. PURCELL and JOHN L. SCHROEDER, known to me to be the
individuals described in and who executed the foregoing instrument,
personally appeared before me and they severally acknowledged the foregoing
instrument to be their free act and deed.
/s/ Marilyn K. Cranney
----------------------
Notary Public
MARILYN K. CRANNEY
NOTARY PUBLIC, State of New York
No. 24-4795538
Qualified in Kings County
Commission Expires May 31, 1999
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of May 1,
1998 and November 1, 1998, by and between Morgan Stanley Dean Witter Variable
Investment Series, an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter called the "Fund"), and Morgan
Stanley Dean Witter Advisors Inc., a Delaware corporation (hereinafter called
the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund is authorized to issue shares of beneficial interest in
separate portfolios (the "Portfolios") with each Portfolio representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, The Fund presently offers shares in several Portfolios, such
Portfolios together with all other Portfolios subsequently established by the
Fund with respect to which the Fund desires to retain the Investment Manager to
render management and investment advisory services in the manner and on the
terms and conditions hereinafter set forth being collectively referred to as the
"Portfolios"; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Portfolios and, subject to the supervision of the Trustees, to
supervise the investment activities of the Portfolios as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; with respect to the
Portfolios other than the European Growth Portfolio and the Pacific Growth
Portfolio, shall continuously manage the assets of the Portfolios in a manner
consistent with the investment objectives and policies of the Portfolios and
shall determine the securities and commodities to be purchased, sold or
otherwise disposed of by the Portfolios and the timing of such purchases, sales
and dispositions; with respect to the European Growth Portfolio and the Pacific
Growth Portfolio, shall supervise the management of the assets of the Portfolio
in a manner consistent with the investment objectives and policies of the
Portfolio and subject to such other limitations and directions as the Trustees
of the Fund may from time to time prescribe; and shall take such further action,
including the placing of purchase and sale orders on behalf of the Portfolios
other than the European Growth Portfolio and the Pacific Growth Portfolio, as
the Investment Manager shall deem necessary or appropriate. The Investment
Manager shall also furnish to or place at the disposal of the Fund such of the
information, evaluations, analyses and opinions formulated or obtained by the
Investment Manager in the discharge of its duties as the Fund may, from time to
time, reasonably request.
In the event the Fund establishes another Portfolio other than the current
Portfolios with respect to which it desires to retain the Investment Manager to
render investment advisory services hereunder, it shall notify the Investment
Manager in writing. If the Investment Manager is willing to render such
services, it shall notify the Fund in writing, whereupon such other Portfolio
shall become a Portfolio hereunder.
<PAGE>
2. The Investment Manager shall, at its own expense, enter into
Sub-Advisory Agreements in respect of the European Growth Portfolio and the
Pacific Growth Portfolio with a Sub-Advisor or Sub-Advisors to make
determinations as to the securities and commodities to be purchased, sold or
otherwise disposed of by the European Growth Portfolio or the Pacific Growth
Portfolio and the timing of such purchases, sales and dispositions and to take
such further action, including the placing of purchase and sale orders on behalf
of the Portfolio, as the Sub-Advisor, in consultation with the Investment
Manager, shall deem necessary or appropriate; provided that the Investment
Manager shall be responsible for monitoring compliance by such Sub-Advisor with
the investment policies and restrictions of the Portfolio and with such other
limitations or directions as the Trustees of the Fund may from time to time
prescribe.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities or commodities and other property, and any
stock transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio transactions to
which the Fund is a party; all taxes, including securities or commodities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing (including typesetting) and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any
2
<PAGE>
matter relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the various Portfolios of the Fund
shall pay to the Investment Manager monthly compensation determined by applying
the following annual rates to the daily net assets of the respective Portfolios
determined as of the close of each business day: (a) the S&P 500 Index Portfolio
- -- 0.40%; (b) the High Yield Portfolio -- 0.50% of daily net assets up to $500
million and 0.425% of daily net assets over $500 million; (c) the Quality Income
Plus Portfolio -- 0.50% of daily net assets up to $500 million and 0.45% of
daily net assets over $500 million; (d) the Equity Portfolio -- 0.50% of daily
net assets up to $1 billion and 0.475% of daily net assets over $1 billion; (e)
each of the Money Market Portfolio and the Strategist Portfolio -- 0.50% of
daily net assets; (f) the Dividend Growth Portfolio -- 0.625% of daily net
assets up to $500 million, 0.50% of the next $500 million, 0.475% of the next $1
billion, and 0.45% of daily net assets over $2 billion; (g) each of the Capital
Growth Portfolio and the Competitive Edge "Best Ideas" Portfolio -- 0.65% of
daily net assets; (h) the Utilities Portfolio -- 0.65% of daily net assets up to
$500 and 0.55% of daily net assets over $500 million; (i) each of the Income
Builder Portfolio, the Global Dividend Growth Portfolio and the Capital
Appreciation Portfolio -- 0.75% of daily net assets; (j) the European Growth
Portfolio -- until January 1, 1999: 1.0% of daily net assets up to $500 million
and 0.95% of daily net assets over $500 million, and, effective January 1, 1999:
0.95% of daily net assets up to $500 million and 0.90% of daily net assets over
$500 million; and (k) the Pacific Growth Portfolio -- 0.95% of daily net assets.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. Such calculations shall be made by applying 1/365ths of the annual
rates to the net assets of the respective Portfolios each day determined as of
the close of business on that day or the last previous business day. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above.
Subject to the provisions of paragraph 8 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event that the operating expenses of any of the Money Market
Portfolio, the High Yield Portfolio, the Equity Portfolio, the Quality Income
Plus Portfolio, the Strategist Portfolio, the Utilities Portfolio or the
Dividend Growth Portfolio, including amounts payable to the Investment Manager
pursuant to paragraph 7 hereof, for any year ending on a date on which this
Agreement is in effect exceed 1.5% of the average daily net assets of such
Portfolio up to $30 million and 1.0% of the average daily net assets of such
Portfolio in excess of $30 million (the "expense limitation" of these
Portfolios), or in the event that the operating expenses of any of the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio, including amounts payable to the
Investment Manager pursuant to paragraph 7 hereof, for any year ending on a date
on which this Agreement is in effect exceed 2.5% of the average daily net assets
of such Portfolio up to $30 million, 2.0% of the next $70 million and 1.5% of
the average daily net assets of such Portfolio in excess of $100 million (the
"expense limitation" of these Portfolios), the Investment Manager shall reduce
its management fee in respect of such Portfolio to the extent of such excess and
will reimburse such Portfolio for annual operating expenses in excess of the
applicable expense limitation, up to the amount of the management fee for that
Portfolio which otherwise would be payable for that year; provided, however,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions and extraordinary expenses (including but not limited to
legal claims and liabilities and litigation costs and any indemnification
related thereto) paid or payable by such Portfolio. Such reduction, if any,
shall be computed and accrued daily,
3
<PAGE>
shall be settled on a monthly basis, and shall be based upon the expense
limitation applicable to such Portfolio as at the end of the last business day
of the month.
9. The Investment Manager will use its best efforts in the supervision
and management of the investment activities of the Fund, but in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations hereunder, the Investment Manager shall not be liable to the
Fund or any of its investors for any error of judgment or mistake of law or
for any act or omission by the Investment Manager or for any losses sustained
by the Fund or its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
advisor or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Trustee, officer or
employee of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 1999 and from year
to year thereafter with respect to each Portfolio provided such continuance with
respect to a Portfolio is approved at least annually by the vote of holders of a
majority (as defined in the Act) of the outstanding voting securities of such
Portfolio or by the Trustees of the Fund; provided that in either event such
continuance is also approved annually by the vote of a majority of the Trustees
of the Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon thirty days' written notice to the Investment
Manager, either by majority vote of the Trustees of the Fund or, with respect to
a Portfolio, by the vote of a majority of the outstanding voting securities of
such Portfolio; (b) this Agreement shall immediately terminate in the event of
its assignment (to the extent required by the Act and the rules thereunder)
unless such automatic terminations shall be prevented by an exemptive order of
the Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Portfolio shall be effective to continue
this Agreement with respect to such Portfolio notwithstanding (a) that this
Agreement has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio or (b) that this Agreement has not been
approved by the vote of a majority of the outstanding voting securities of the
Fund, unless such approval shall be required by any other applicable law or
otherwise.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
14. The Investment Manager and the Fund each agree that the name "Morgan
Stanley Dean Witter," which comprises a component of the Fund's name, is a
property right of Morgan Stanley Dean Witter & Co. ("MSDW"), the parent of the
Investment Manager. The Fund agrees and consents that (i) it will only use the
name "Morgan Stanley Dean Witter" as a component of its name and for no other
4
<PAGE>
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Morgan Stanley Dean Witter" for any purpose, (iii) MSDW, or any
corporate affiliate of MSDW, may use or grant to others the right to use the
name "Morgan Stanley Dean Witter," or any combination or abbreviation thereof,
as all or a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment company, (iv)
at the request of MSDW or any corporate affiliate of MSDW, the Fund will take
such action as may be required to provide its consent to the use of the name
"Morgan Stanley Dean Witter," or any combination or abbreviation thereof, by
MSDW or any corporate affiliate of MSDW, or by any person to whom MSDW or a
corporate affiliate of MSDW shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which a corporate
affiliate of MSDW and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request of MSDW or
any corporate affiliate of MSDW, cease to use the name "Morgan Stanley Dean
Witter" as a component of its name, and shall not use the name, or any
combination or abbreviation thereof, as a part of its name or for any other
commercial purpose, and shall cause its officers, trustees and shareholders to
take any and all actions which MSDW or any corporate affiliate of MSDW, may
request to effect the foregoing and to reconvey to MSDW any and all rights to
such name.
15. The Declaration of Trust establishing Morgan Stanley Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Morgan
Stanley Dean Witter Variable Investment Series refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Morgan Stanley Dean
Witter Variable Investment Series shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Morgan
Stanley Dean Witter Variable Investment Series, but the Trust Estate only shall
be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on November 1, 1998 in New York, New York.
MORGAN STANLEY DEAN WITTER VARIABLE
INVESTMENT SERIES
By:
......................................
Attest:
.....................................
MORGAN STANLEY DEAN WITTER ADVISORS
INC.
By:
......................................
Attest:
.....................................
5
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of November, 1998 by and between Morgan
Stanley Dean Witter Advisors Inc., a Delaware corporation (hereinafter called
the "Investment Manager"), and Morgan Stanley Asset Management Inc., a Delaware
corporation (hereinafter called the "Sub-Advisor").
WHEREAS, Morgan Stanley Dean Witter Variable Investment Series (hereinafter
called the "Fund") is engaged in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act"); and
WHEREAS, the Investment Manager has entered into an Investment Management
Agreement (hereinafter called the "Investment Management Agreement") with the
Fund wherein the Investment Manager has agreed to provide investment management
services to the fifteen current Portfolios of the Fund and may provide such
services to other Portfolios subsequently established by the Fund; and
WHEREAS, the Sub-Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940 and engages in the business of acting as an
investment adviser; and
WHEREAS, the Investment Manager desires to retain the services of the
Sub-Advisor to render investment advisory services for each of the Pacific
Growth Portfolio (effective November 1, 1998) and the European Growth Portfolio
(effective January 1, 1999) in the manner and on the terms and conditions
hereinafter set forth (these Portfolios together with all other Portfolios
subsequently established by the Fund with respect to which the Fund will have
retained the Investment Manager to render management and investment advisory
services under the Investment Management Agreement and with respect to which the
Investment Manager desires to retain the Sub-Advisor to render investment
advisory services in the manner and on the terms and conditions hereinafter set
forth being collectively referred to as the "Sub-Advisory Portfolios"); and
WHEREAS, the Sub-Advisor desires to be retained by the Investment Manager to
perform services on said terms and conditions:
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. Subject to the supervision of the Fund, its officers and Trustees, and
the Investment Manager, and in accordance with the investment objectives,
policies and restrictions set forth in the then current Registration
Statement relating to the Fund, and such investment objectives, policies and
restrictions from time to time prescribed by the Trustees of the Fund and
communicated by the Investment Manager to the Sub-Advisor, the Sub-Advisor
agrees to provide each Sub-Advisory Portfolio with investment advisory
services; to obtain and evaluate such information and advice relating to the
economy, securities markets and securities as it deems necessary or useful to
discharge its duties hereunder; to continuously manage the assets of each
Sub-Advisory Portfolio in a manner consistent with the investment objective
and policies of the Sub-Advisory Portfolio; to make decisions as to foreign
currency matters and make determinations as to forward foreign exchange
contracts and options and futures contracts in foreign currencies; shall
determine the securities to be purchased, sold or otherwise disposed of by
the Sub-Advisory Portfolio and the timing of such purchases, sales and
dispositions; to take such further action, including the placing of purchase
and sale orders on behalf of the Sub-Advisory Portfolio, as it shall deem
necessary or appropriate; to furnish to or place at the disposal of the
Sub-Advisory Portfolio and the Investment Manager such of the information,
evaluations, analyses and opinions formulated or obtained by it in the
discharge of its duties as the Fund and the Investment Manager may, from time
to time, reasonably request. The Investment Manager and the Sub-Advisor shall
each make its officers and employees available to the other from time to time
at reasonable times to review investment policies of the Sub-Advisory
Portfolios and to consult with each other.
In the event the Fund establishes another Portfolio other than the current
Sub-Advisory Portfolios with respect to which the Investment Manager desires to
retain the Sub-Advisor to render investment advisory services hereunder, the
Investment Manager shall notify the Sub-Advisor in writing, whereupon such
Portfolio shall become a Sub-Advisory Portfolio hereunder.
<PAGE>
2. The Sub-Advisor shall, at its own expense, maintain such staff and
employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Sub-Advisor shall
be deemed to include persons employed or otherwise retained by the
Sub-Advisor to furnish statistical and other factual data, advice regarding
economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Investment Manager may desire. The Sub-Advisor shall maintain whatever
records as may be required to be maintained by it under the Act. All such
records so maintained shall be made available to the Fund, upon the request
of the Investment Manager or the Fund.
3. The Fund will from time to time, furnish or otherwise make available
to the Sub-Advisor such financial reports, proxy statements and other
information relating to the business and affairs of the Sub-Advisory
Portfolios as the Sub-Advisor may reasonably require in order to discharge
its duties and obligations hereunder or to comply with any applicable law and
regulations and the investment objectives, policies and restrictions from
time to time prescribed by the Trustees of the Fund.
4. The Sub-Advisor shall bear the cost of rendering the investment
advisory 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 the Sub-Advisor, and such clerical help and
bookkeeping services as the Sub-Advisor shall reasonably require in
performing its duties hereunder.
5. The Fund, on behalf of each Sub-Advisory Portfolio, assumes and shall
pay or cause to be paid all other expenses of the Sub-Advisory Portfolio,
including, without limitation: any fees paid to the Investment Manager; the
charges and expenses of any registrar, any custodian, sub-custodian or
depository appointed by the Fund for the safekeeping of the Sub-Advisory
Portfolio's cash, portfolio securities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Sub-Advisory Portfolio in connection with
portfolio securities transactions to which the Sub-Advisory Portfolio is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Sub-Advisory Portfolio to federal, state or other governmental
agencies or pursuant to any foreign laws; the cost and expense of engraving
or printing certificates representing shares of the Sub-Advisory Portfolio;
all costs and expenses in connection with the registration and maintenance of
registration of the Sub-Advisory Portfolio and its shares with the Securities
and Exchange Commission and various states and other jurisdictions or pursuant
to any foreign laws (including filing fees and legal fees and disbursements of
(counsel); the cost and expense of printing (including typesetting) and
distributing prospectuses of the Fund and supplements thereto to the
Sub-Advisory Portfolio'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
Sub-Advisor; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption whether in shares or in cash; charges and
expenses of any outside service used for pricing of the Sub-Advisory Portfolio's
shares; charges and expenses of legal counsel, including counsel to the Trustees
of the Fund who are not interested persons (as defined in the Act) of the Fund,
the Investment Manager or the Sub-Advisor, and of independent accountants, in
connection with any matter relating to the Portfolio; membership dues of
industry associations; interest payable on Sub-Advisory Portfolio borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Sub-Advisory Portfolio which inure to its benefit;
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Sub-Advisory Portfolio's operation unless
otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Sub-Advisor, the Investment Manager shall pay to the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation
receivable pursuant to the Investment Management Agreement in respect of each
of the European Growth Portfolio and the Pacific Growth Portfolio. Any
subsequent change in the Investment Agreement which has the effect of raising
or lowering the compensation of the Investment Manager will have the
concomitant effect of raising or lowering the fee payable to the Sub-Advisor
under this Agreement. In addition, if the Investment Manager has undertaken
in the Fund's Registration Statement as filed under
2
<PAGE>
the Act or elsewhere to waive all or part of its fee under the Investment
Management Agreement, the Sub-Advisor's fee payable under this Agreement will be
proportionately waived in whole or in part. The calculation of the fee payable
to the Sub-Advisor pursuant to this Agreement will be made, each month, at the
time designated for the monthly calculation of the fee payable to the Investment
Manager pursuant to the Investment Manager Agreement. 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 the part of the month this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the fee
as set forth above. Subject to the provisions of paragraph 7 hereof, payment of
the Sub-Advisor's compensation for the preceding month shall be made as promptly
as possible after completion of the computations contemplated by paragraph 7
hereof.
7. In the event the operating expenses of the European Growth Portfolio
or the Pacific Growth Portfolio, including amounts payable to the Investment
Manager pursuant to the Investment Management Agreement in respect of either
of these Sub-Advisory Portfolios, for any fiscal year ending on a date on
which this Agreement is in effect, exceed, with respect to each of these
Sub-Advisory Portfolios, 2.5% of the average daily net assets of the
Sub-Advisory Portfolio up to $30 million, 2.0% of the next $70 million and
1.5% of the average daily net assets of the Sub-Advisory Portfolio in excess
of $100 million (the "expense limitation"), the Sub-Advisor shall reduce its
advisory fee in respect of the applicable Sub-Advisory Portfolio to the
extent of 40% of such excess and will reimburse the Investment Manager for
annual operating expenses in the amount of 40% of such excess of the expense
limitation, up to the amount of the Sub-Advisor's fee which would otherwise
be payable in respect of the applicable Sub-Advisory Portfolio under this
Agreement for that year, it being understood that the Investment Manager has
agreed to effect a reduction and reimbursement of 100% of such excess, up to
the amount of its management fee in respect of the Sub-Advisory Portfolio
which otherwise would be payable for that year, in accordance with the terms
of the Investment Management Agreement; provided, however, there shall be
excluded from such expenses the amount of any interest, taxes, brokerage
commissions, and extraordinary expenses (including but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Sub-Advisory Portfolio. Such reduction, if
any, shall be computed and accrued daily, shall be settled on a monthly
basis, and shall be based upon the expense limitation applicable to the
Sub-Advisory Portfolio as at the end of the last business day of the month.
8. The Sub-Advisor will use its best efforts in the performance of
investment activities on behalf of each Sub-Advisory Portfolio, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations hereunder, the Sub-Advisor shall not be liable
to the Investment Manager or the Fund or any of its investors for any error
of judgment or mistake of law or for any act or omission by the Sub-Advisor
or for any losses sustained by the Sub-Advisory Portfolio or its investors.
9. It is understood that any of the shareholders, Trustees, officers and
employees of the Fund may be a shareholder, director, officer or employee of,
or be otherwise interested in, the Sub-Advisor, and in any person controlled
by or under common control with the Sub-Advisor, and that the Sub-Advisor and
any person controlled by or under common control with the Sub-Advisor may
have an interest in the Fund. It is also understood that the Sub-Advisor and
any affiliated persons thereof or any persons controlled by or under common
control with the Sub-Advisor have and may have advisory, management 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.
10. This Agreement shall remain in effect until April 30, 1999 and from
year to year thereafter with respect to each Sub-Advisory Portfolio, provided
such continuance with respect to a Sub-Advisory Portfolio is approved at
least annually by the vote of holders of a majority, as defined in the Act,
of the outstanding voting securities of the Sub-Advisory Portfolio or by the
Trustees of the Fund; provided that in either event such continuance is also
approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at a meeting called
for the purpose of voting on such approval; provided, however, that (a) the
Fund may, at any time and without the payment of any penalty, terminate this
Agreement upon thirty
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<PAGE>
days' written notice to the Investment Manager and the Sub-Advisor, either by
majority vote of the Trustees of the Fund or, with respect to a Sub-Advisory
Portfolio, by the vote of a majority of the outstanding voting securities of
such Sub-Advisory Portfolio; (b) this Agreement shall immediately terminate in
the event of its assignment (within the meaning of the Act) unless such
automatic termination shall be prevented by an exemptive order of the Securities
and Exchange Commission; (c) this Agreement shall immediately terminate in the
event of the termination of the Investment Management Agreement; (d) the
Investment Manager may terminate this Agreement without payment of penalty on
thirty days' written notice to the Fund and the Sub-Advisor and; (e) the
Sub-Advisor may terminate this Agreement without the payment of penalty on
thirty days' written notice to the Fund and the Investment Manager. Any notice
under this Agreement shall be given in writing, addressed and delivered, or
mailed post-paid, to the other party at the principal office of such party.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Sub-Advisory Portfolio to supply any
omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Agreement to the requirements of applicable federal laws or regulations, but
neither the Fund, the Investment Manager nor the Sub-Advisor shall be liable
for failing to do so.
12. This Agreement shall be construed in accordance with the law of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
MORGAN STANLEY DEAN WITTER
ADVISORS INC.
By: ..................................
Attest: ..............................
MORGAN STANLEY
ASSET MANAGEMENT INC.
By: ..................................
Attest: ..............................
Accepted and agreed to as of
the day and year first above written:
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
By: ..................................
Attest: ..............................
4
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment. . . . . . . . . . . . . . . .1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . .5
Article 3 Representations and Warranties of MSDW TRUST. . . .6
Article 4 Representations and Warranties of the Fund. . . . .7
Article 5 Duty of Care and Indemnification. . . . . . . . . .7
Article 6 Documents and Covenants of the
Fund and MSDW TRUST . . . . . . . . . . . . . . . 10
Article 7 Duration and Termination of Agreement . . . . . . 13
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . 14
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . 14
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . 15
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . 15
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . 15
Article 13 Merger of Agreement . . . . . . . . . . . . . . . 17
Article 14 Personal Liability. . . . . . . . . . . . . . . . 17
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 22nd day of June,
1998 by and between each of the Funds listed on the signature pages hereof, each
of such Funds acting severally on its own behalf and not jointly with any of
such other Funds (each such Fund hereinafter referred to as the "Fund"), each
such Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB
("MSDW TRUST"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer
agent, dividend disbursing agent and shareholder servicing agent and MSDW TRUST
desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF MSDW TRUST
1.1 Subject to the terms and conditions set forth in
this Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and
MSDW TRUST agrees to act as, the transfer agent for each series and class of
shares of the Fund, whether now or hereafter authorized or issued ("Shares"),
dividend disbursing agent and shareholder servicing agent in
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connection with any accumulation, open-account or similar plans provided to the
holders of such Shares ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
1.2 MSDW TRUST agrees that it will perform the following
services:
(a) In accordance with procedures established from time
to time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate documentation therefor to
the custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and issue certificates therefor or hold such Shares in book
form in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
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<PAGE>
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder
on purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and
maintain pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934
("1934 Act") a record of the total number of Shares of the Fund which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. MSDW TRUST shall also provide to the Fund on a regular basis the
total number of Shares that are authorized, issued and outstanding and shall
notify the Fund in case any proposed issue of Shares by the Fund would result in
an overissue. In case any issue of Shares would result in an overissue, MSDW
TRUST shall refuse to issue such Shares and shall not countersign and issue any
certificates requested for such Shares. When recording the issuance of Shares,
MSDW TRUST shall have no obligation to take cognizance of any Blue Sky laws
relating to the issue of sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set
forth in the above paragraph (a), MSDW TRUST shall:
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<PAGE>
(i) perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, shareholder servicing agent
in connection with dividend reinvestment, accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information;
(ii) open any and all bank accounts which may be
necessary or appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to
monitor the total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those transactions
and assets to be treated as exempt from Blue Sky reporting for each State; and
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<PAGE>
(ii) verify the inclusion on the system prior to
activation of each State in which Fund shares may be sold and thereafter monitor
the daily purchases and sales for shareholders in each State. The
responsibility of MSDW TRUST for the Fund's status under the securities laws of
any State or other jurisdiction is limited to the inclusion on the system of
each State as to which the Fund has informed MSDW TRUST that shares may be sold
in compliance with state securities laws and the reporting of purchases and
sales in each such State to the Fund as provided above and as agreed from time
to time by the Fund and MSDW TRUST.
(d) MSDW TRUST shall provide such additional services
and functions not specifically described herein as may be mutually agreed
between MSDW TRUST and the Fund. Procedures applicable to such services may be
established from time to time by agreement between the Fund and MSDW TRUST.
Article 2 FEES AND EXPENSES
2.1 For performance by MSDW TRUST pursuant to this
Agreement, each Fund agrees to pay MSDW TRUST an annual maintenance fee for each
Shareholder account and certain transactional fees, if applicable, as set out in
the respective fee schedule attached hereto as Schedule A. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between the Fund
and MSDW TRUST.
2.2 In addition to the fees paid under Section 2.1
above, the Fund agrees to reimburse MSDW TRUST for out of pocket expenses in
connection with the services rendered
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<PAGE>
by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW TRUST
at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable
expenses within a reasonable period of time following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to MSDW
TRUST by the Fund upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose
principal office is in New Jersey.
3.2 It is and will remain registered with the U.S.
Securities and Exchange Commission ("SEC") as a Transfer Agent pursuant to the
requirements of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its
charter and By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
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<PAGE>
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSDW TRUST that:
4.1 It is a corporation duly organized and existing and
in good standing under the laws of Delaware or Maryland or a trust duly
organized and existing and in good standing under the laws of Massachusetts, as
the case may be.
4.2 It is empowered under applicable laws and by its
Articles of Incorporation or Declaration of Trust, as the case may be, and under
its By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it
to enter into and perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC
under the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of
1933 (the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 MSDW TRUST shall not be responsible for, and the
Fund shall indemnify and hold MSDW TRUST harmless from and against, any and all
losses, damages, costs,
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<PAGE>
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of MSDW TRUST or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Fund's lack of good faith,
negligence or willful misconduct or which arise out of breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MSDW TRUST or its agents
or subcontractors of information, records and documents which (i) are received
by MSDW TRUST or its agents or subcontractors and furnished to it by or on
behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or
any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSDW TRUST
or its agents or subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
or Blue Sky laws of any State or other jurisdiction that notice of offering of
such Shares in such State or other jurisdiction or in violation of any stop
order or other determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such Shares in such
State or other jurisdiction.
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<PAGE>
5.2 MSDW TRUST shall indemnify and hold the Fund
harmless from or against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by MSDW TRUST as a result of the lack of
good faith, negligence or willful misconduct of MSDW TRUST, its officers,
employees or agents.
5.3 At any time, MSDW TRUST may apply to any officer of
the Fund for instructions, and may consult with legal counsel to the Fund, with
respect to any matter arising in connection with the services to be performed by
MSDW TRUST under this Agreement, and MSDW TRUST and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. MSDW TRUST, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to MSDW TRUST or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Fund. MSDW TRUST, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
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<PAGE>
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of this Agreement
or for any act or failure to act hereunder.
5.6 In order that the indemnification provisions
contained in this Article 5 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST the
following, unless previously furnished to Dean Witter Trust Company, the prior
transfer agent of the Fund:
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<PAGE>
(a) If a corporation:
(i) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation
and By-Laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of
Directors designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the Fund or any
other person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund
in the form approved by the Board of Directors, with a certificate of the
Secretary of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of MSDW TRUST and the execution
and delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and
By-Laws of the Fund and all amendments thereto;
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<PAGE>
(iii) Certified copies of each vote of the Board of
Trustees designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the Fund or any
other person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund
in the form approved by the Board of Trustees, with a certificate of the
Secretary of the Fund as to such approval;
(c) The current registration statements and any
amendments and supplements thereto filed with the SEC pursuant to the
requirements of the 1933 Act or the 1940 Act;
(d) All account application forms or other documents
relating to Shareholder accounts and/or relating to any plan, program or service
offered or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as
MSDW TRUST deems to be appropriate or necessary for the proper performance of
its duties.
6.2 MSDW TRUST hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
Share certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
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<PAGE>
6.3 MSDW TRUST shall prepare and keep records relating
to the services to be performed hereunder, in the form and manner as it may deem
advisable and as required by applicable laws and regulations. To the extent
required by Section 31 of the 1940 Act, and the rules and regulations
thereunder, MSDW TRUST agrees that all such records prepared or maintained by
MSDW TRUST relating to the services performed by MSDW TRUST hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such Section 31 of the 1940 Act, and the rules and regulations
thereunder, and will be surrendered promptly to the Fund on and in accordance
with its request.
6.4 MSDW TRUST and the Fund agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential and shall not be voluntarily
disclosed to any other person except as may be required by law or with the prior
consent of MSDW TRUST and the Fund.
6.5 In case of any request or demands for the inspection
of the Shareholder records of the Fund, MSDW TRUST will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as to
such inspection. MSDW TRUST reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit the Shareholder records to such
person.
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect
until August 1,
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<PAGE>
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60
days written notice, and by MSDW TRUST on 90 days written notice, to the other
party without payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, MSDW TRUST reserves the
right to charge for any other reasonable fees and expenses associated with such
termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither
this Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
8.3 MSDW TRUST may, in its sole discretion and without
further consent by the Fund, subcontract, in whole or in part, for the
performance of its obligations and duties hereunder with any person or entity
including but not limited to companies which are affiliated with MSDW TRUST;
PROVIDED, HOWEVER, that such person or entity has and maintains the
qualifications, if any, required to perform such obligations and duties, and
that MSDW TRUST
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<PAGE>
shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts or omissions under this
Agreement.
Article 9 AFFILIATIONS
9.1 MSDW TRUST may now or hereafter, without the consent
of or notice to the Fund, function as transfer agent and/or shareholder
servicing agent for any other investment company registered with the SEC under
the 1940 Act and for any other issuer, including without limitation any
investment company whose adviser, administrator, sponsor or principal
underwriter is or may become affiliated with Morgan Stanley Dean Witter & Co. or
any of its direct or indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or
Trustees (as the case may be), officers, employees, agents and shareholders of
the Fund, and the directors, officers, employees, agents and shareholders of the
Fund's investment adviser and/or distributor, are or may be interested in MSDW
TRUST as directors, officers, employees, agents and shareholders or otherwise,
and that the directors, officers, employees, agents and shareholders of MSDW
TRUST may be interested in the Fund as Directors or Trustees (as the case may
be), officers, employees, agents and shareholders or otherwise, or in the
investment adviser and/or distributor as directors, officers, employees, agents,
shareholders or otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors or the Board of Trustees (as the case may
be) of the Fund.
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Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment
companies managed or administered by Morgan Stanley Dean Witter Advisors Inc. or
any of its affiliates ("Additional Funds") desires to retain MSDW TRUST to act
as transfer agent, dividend disbursing agent and/or shareholder servicing agent,
and MSDW TRUST desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between MSDW TRUST and each Additional Fund.
12.2 In the event of an alleged loss or destruction of
any Share certificate, no new certificate shall be issued in lieu thereof,
unless there shall first be furnished to MSDW TRUST an affidavit of loss or
non-receipt by the holder of Shares with respect to which a certificate has been
lost or destroyed, supported by an appropriate bond satisfactory to MSDW TRUST
and the Fund issued by a surety company satisfactory to MSDW TRUST, except that
MSDW TRUST may accept an affidavit of loss and indemnity agreement executed by
the registered holder (or legal representative) without surety in such form as
MSDW TRUST deems appropriate indemnifying MSDW TRUST and the Fund for the
issuance of a replacement certificate, in cases where the alleged loss is in the
amount of $1,000 or less.
12.3 In the event that any check or other order for payment of
money on the
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account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or to MSDW TRUST shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
-17-
<PAGE>
Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts
business trust, a copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Board of Trustees of the Fund
as Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended
and Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
MORGAN STANLEY DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
-18-
<PAGE>
EQUITY FUNDS
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
BALANCED FUNDS
38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund
-19-
<PAGE>
FIXED INCOME FUNDS
42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust
-20-
<PAGE>
69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
71. TCW/DW Emerging Markets Opportunities Trust
By:
--------------------------------------
Barry Fink
Vice President and General Counsel
ATTEST:
- -----------------------------
Assistant Secretary
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
--------------------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------------
Executive Vice President
-21-
<PAGE>
EXHIBIT A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (INSET NAME OF INVESTMENT COMPANY) a
(Massachusetts business trust/Maryland corporation) (the "Fund"), desires to
employ and appoint Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") to act as
transfer agent for each series and class of shares of the Fund, whether now or
hereafter authorized or issued ("Shares"), dividend disbursing agent and
shareholder servicing agent, registrar and agent in connection with any
accumulation, open-account or similar plan provided to the holders of Shares,
including without limitation any periodic investment plan or periodic withdrawal
plan.
The Fund hereby agrees that, in consideration for the payment by
the Fund to MSDW TRUST of fees as set out in the fee schedule attached hereto as
Schedule A, MSDW TRUST shall provide such services to the Fund pursuant to the
terms and conditions set forth in the Transfer Agency and Service Agreement
annexed hereto, as if the Fund was a signatory thereto.
-22-
<PAGE>
Please indicate MSDW TRUST's acceptance of employment and
appointment by the Fund in the capacities set forth above by so indicating in
the space provided below.
Very truly yours,
(NAME OF FUND)
By:
--------------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
-----------------------
Its:
----------------------
Date:
---------------------
-23-
<PAGE>
SCHEDULE A
Fund: Morgan Stanley Dean Witter Variable Investment Series
Fees: (1) Annual maintenance fee for each Portfolio of $500 per annum
per account.
(2) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(3) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
-24-
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors 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 MSDW Advisors 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, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors 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. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services 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 MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, 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 MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services 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 MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
<PAGE>
(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, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
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.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
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 MSDW Services' 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 MSDW Advisors 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 Morgan Stanley 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. MSDW Services 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 MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services 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, MSDW Services 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 MSDW Services 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 MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services 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, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services 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, 1999, 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 MSDW Advisors 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.
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 amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF JULY 22, 1998
OPEN-END FUNDS
<TABLE>
<C> <S>
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 Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Growth Fund
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value Fund
61. Morgan Stanley Dean Witter Value-Added Market Series
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
65. Dean Witter Global Asset Allocation Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter Balanced Income 0.060% of the daily net assets.
Fund
Morgan Stanley Dean Witter California 0.055% of the portion of the daily net assets not exceeding
Tax-Free Income Fund $500 million; 0.0525% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.050% of the portion of the daily net assets 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 the
daily net assets exceeding $1.25 billion.
Morgan Stanley Dean Witter Convertible 0.060% of the portion of the daily net assets not exceeding
Securities Trust $750 million; 0.055% 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.
Morgan Stanley Dean Witter Diversified Income 0.040% of the daily net assets.
Trust
Morgan Stanley Dean Witter Federal Securities 0.055% of the portion of the daily net assets not exceeding
Trust $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 the 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.
Morgan Stanley Dean Witter Global Short-Term 0.055% of the portion of the daily net assets not exceeding
Income Fund Inc. $500 million; and 0.050% of the portion of the daily net
assets exceeding $500 million.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Hawaii Municipal 0.035% of the daily net assets.
Trust
Morgan Stanley Dean Witter High Yield 0.050% of the portion of the daily net assets not exceeding
Securities Inc. $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.
Morgan Stanley Dean Witter Intermediate 0.060% of the portion of the daily net assets not exceeding
Income Securities $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.
Morgan Stanley Dean Witter Intermediate Term 0.035% of the daily net assets.
U.S. Treasury Trust
Morgan Stanley Dean Witter Limited Term 0.050% of the daily net assets.
Municipal Trust
Morgan Stanley Dean Witter Multi-State 0.035% of the daily net assets.
Municipal Series Trust (10 Series)
Morgan Stanley Dean Witter New York Tax-Free 0.055% of the portion of the daily net assets not exceeding
Income Fund $500 million; and 0.0525% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Retirement 0.065% of the daily net assets.
Series--Intermediate Income Securities
Series
U.S. Government Securities Series 0.065% of the daily net assets.
Morgan Stanley Dean Witter Select Dimensions 0.039% of the daily net assets.
Investment Series-- North American
Government Securities Portfolio
Morgan Stanley Dean Witter Select Municipal 0.050% of the daily net assets.
Reinvestment Fund
Morgan Stanley Dean Witter Short-Term Bond 0.070% of the daily net assets.
Fund
Morgan Stanley Dean Witter Short-Term U.S. 0.035% of the daily net assets.
Treasury Trust
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Tax-Exempt 0.050% of the portion of the daily net assets not exceeding
Securities Trust $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.
Morgan Stanley Dean Witter U.S. Government 0.050% of the portion of the daily net assets not exceeding
Securities Trust $1 billion; 0.0475% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.045%
of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.0425% of the portion
of the daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of the portion of the daily
net assets exceeding $2.5 billion but not exceeding $5
billion; 0.0375% of the portion of the daily net assets
exceeding $5 billion but not exceeding $7.5 billion; 0.035%
of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the
portion of the daily net assets exceeding $10 billion but
not exceeding $12.5 billion; and 0.030% of the portion of
the daily net assets exceeding $12.5 billion.
Morgan Stanley Dean Witter Variable 0.050% of the portion of the daily net assets not exceeding
Investment Series--High Yield Portfolio $500 million; and 0.0425% of the daily net assets exceeding
$500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Morgan Stanley Dean Witter World Wide Income 0.075% of the portion of the daily net assets up to $250
Trust 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 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.
Morgan Stanley Dean Witter Worldwide High 0.060% of the daily net assets.
Income Fund
EQUITY FUNDS
Morgan Stanley Dean Witter American Value 0.0625% of the portion of the daily net assets not exceeding
Fund $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $2.25 billion;
0.0475% of the portion of the daily net assets exceeding
$2.25 billion but not exceeding $3.5 billion; 0.0450% of the
portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.0425% of the portion of
the daily net assets exceeding $4.5 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Balanced Growth 0.060% of the daily net assets.
Fund
Morgan Stanley Dean Witter Capital 0.075% of the portion of the daily net assets not exceeding
Appreciation Fund $500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Capital Growth 0.065% of the portion of the daily net assets not exceeding
Securities $500 million; 0.055% of the portion 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.
Morgan Stanley Dean Witter Competitive Edge 0.065% of the portion of the daily net assets not exceeding
Fund, "BEST IDEAS" Portfolio $1.5 billion; and 0.0625% of the portion of the daily net
assets exceeding $1.5 billion.
Morgan Stanley Dean Witter Developing Growth 0.050% of the portion of the daily net assets not exceeding
Securities Trust $500 million; and 0.0475% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Dividend Growth 0.0625% of the portion of the daily net assets not exceeding
Securities Inc. $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $1 billion; 0.0475%
of the portion of the daily net assets exceeding $1 billion
but not exceeding $2 billion; 0.045% of the portion of the
daily net assets exceeding $2 billion but not exceeding $3
billion; 0.0425% of the portion of the daily net assets
exceeding $3 billion but not exceeding $4 billion; 0.040% of
the portion of the 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; 0.030% of the portion of the
daily net assets exceeding $10 billion but not exceeding $15
billion; and 0.0275% of the portion of the daily net assets
exceeding $15 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter European Growth 0.060% of the portion of the daily net assets not exceeding
Fund Inc. $500 million; 0.057% of the portion of the daily net assets
exceeding $500 million but not exceeding $2 billion; and
0.054% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter Financial Services 0.075% of the daily net assets.
Trust
Morgan Stanley Dean Witter Fund of Funds-
Domestic Portfolio None
International Portfolio None
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Dean Witter Global Asset Allocation Fund 0.070% of the daily net assets.
Morgan Stanley Dean Witter Global Dividend 0.075% of the portion of the daily net assets not exceeding
Growth Securities $1 billion; 0.0725% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.070%
of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2.5 billion; 0.0675% of the
portion of the daily net assets exceeding $2.5 billion but
not exceeding $3.5 billion; 0.0650% of the portion of the
daily net assets exceeding $3.5 billion but not exceeding
$4.5 billion; and 0.0625% of the portion of the daily net
assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global Utilities 0.065% of the portion of the daily net assets not exceeding
Fund $500 million; and 0.0625% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Growth Fund 0.048% of the portion of daily net assets not exceeding $750
million; 0.045% of the portion of daily net assets exceeding
$750 million but not exceeding $1.5 billion; and 0.042% of
the portion of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter Health Sciences 0.10% of the portion of daily net assets not exceeding $500
Trust million; and 0.095% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Income Builder 0.075% of the portion of the net assets not exceeding $500
Fund million; and 0.0725% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Information Fund 0.075% of the portion of the daily net assets not exceeding
$500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter International 0.075% of the daily net assets.
SmallCap Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Japan Fund
Morgan Stanley Dean Witter Market Leader 0.075% of the daily net assets.
Trust
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Securities
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Mid-Cap Growth Fund $500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter Natural Resource 0.0625% of the portion of the daily net assets not exceeding
Development Securities Inc. $250 million and 0.050% of the portion of the daily net
assets exceeding $250 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Pacific Growth 0.060% of the portion of the daily net assets not exceeding
Fund Inc. $1 billion; 0.057% of the portion of the daily net assets
exceeding $1 billion but not exceeding $2 billion; and
0.054% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter Precious Metals 0.080% of the daily net assets.
and Minerals Trust
Dean Witter Retirement Series--
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.
Morgan Stanley Dean Witter Select Dimensions
Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% 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.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter Special Value Fund 0.075% of the daily net assets.
Morgan Stanley Dean Witter Strategist Fund 0.060% of the portion of the 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; 0.0475% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2.0 billion; and 0.045% of the portion of the
daily net assets exceeding $2.0 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
S&P 500 Select Fund
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Utilities Fund 0.065% of the portion of the 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; 0.0525%
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
$2.5 billion; 0.0475% of the portion of the daily net assets
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 daily net
assets exceeding $5 billion.
Morgan Stanley Dean Witter Value Fund 0.10% of the daily net assets.
Morgan Stanley Dean Witter Value-Added Market 0.050% of the portion of the daily net assets not exceeding
Series $500 million; 0.45% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0425%
of the portion of the daily net assets exceeding $1.0
billion but not exceeding $2.0 billion; and 0.040% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Variable
Investment Series--
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" Portfolio 0.065% of the daily net assets.
Dividend Growth Portfolio 0.0625% 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 but not exceeding $1 billion;
0.0475% of the portion of the daily net assets exceeding
$1.0 billion but not exceeding $2.0 billion; and 0.045% of
the portion of the daily net assets exceeding $2 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not exceeding
$1 billion; and 0.0475% of the portion of the daily net
assets exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not exceeding
$500 million; and 0.057% of the portion of the daily net
assets exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding
$500 million and 0.055% of the portion of the daily net
assets exceeding $500 million.
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding
(1) Active Assets Money Trust $500 million; 0.0425% of the portion of the daily net assets
(2) Active Assets Tax-Free Trust exceeding $500 million but not exceeding $750 million;
(3) Active Assets California Tax-Free Trust 0.0375% of the portion of the daily net assets exceeding
(4) Active Assets Government Securities $750 million but not exceeding $1 billion; 0.035% of the
Trust 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.
Morgan Stanley Dean Witter California 0.050% of the portion of the daily net assets not exceeding
Tax-Free Daily $500 million; 0.0425% of the portion of the daily net assets
Income Trust 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.
Morgan Stanley Dean Witter Liquid Asset Fund 0.050% of the portion of the daily net assets not exceeding
Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.35 billion; 0.0325% of the portion of the daily
net assets exceeding $1.35 billion but not exceeding $1.75
billion; 0.030% of the portion of the daily net assets
exceeding $1.75 billion but not exceeding $2.15 billion;
0.0275% of the portion of the daily net assets exceeding
$2.15 billion but not exceeding $2.5 billion; 0.025% of the
portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the
daily net assets exceeding $15 billion but not exceeding
$17.5 billion; and 0.0248% of the portion of the daily net
assets exceeding $17.5 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
New York Municipal Money $500 million; 0.0425% of the portion of the daily net assets
Market Trust 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 daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series
Morgan Stanley Dean Witter Select Dimensions
Investment Series--
Money Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Free Daily Income Trust $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.
Morgan Stanley Dean Witter U.S. Government 0.050% of the portion of the daily net assets not exceeding
Money Market Trust $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.
Morgan Stanley Dean Witter Variable 0.050% of the daily net assets.
Investment Series-- Money Market Portfolio
</TABLE>
B-9
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
<TABLE>
<S> <C>
CLOSED-END FUNDS
Dean Witter Government 0.060% of the average weekly net assets.
Income Trust
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% of the average weekly net assets.
InterCapital Insured Municipal Bond Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal Income Trust 0.035% of the average weekly net assets.
InterCapital California Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital Quality Municipal Investment 0.035% of the average weekly net assets.
Trust
InterCapital New York Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Quality Municipal Income Trust 0.035% of the average weekly net assets.
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal Securities 0.035% of the average weekly net assets.
InterCapital California Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured Municipal Securities 0.035% of the average weekly net assets.
InterCapital Insured California Municipal 0.035% of the average weekly net assets.
Securities
</TABLE>
B-11
<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. 24 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1998, relating to the financial statements and financial highlights
of Morgan Stanley Dean Witter Variable Investment Series (comprised of 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),
formerly Dean Witter Variable Investment Series, which appears in such Statement
of Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the reference to us under the heading "Financial Highlights" in
such Prospectus and to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
August 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> VARIABLE MONEY MARKET
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 352,225,052
<INVESTMENTS-AT-VALUE> 352,225,052
<RECEIVABLES> 1,044,651
<ASSETS-OTHER> 11,379
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 353,281,082
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,210,628
<TOTAL-LIABILITIES> 3,210,628
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 350,070,431
<SHARES-COMMON-STOCK> 350,070,431
<SHARES-COMMON-PRIOR> 335,578,084
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 350,070,454
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,532,905
<OTHER-INCOME> 0
<EXPENSES-NET> 880,738
<NET-INVESTMENT-INCOME> 8,652,167
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,652,167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,652,209
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 165,527,676
<NUMBER-OF-SHARES-REDEEMED> (159,687,538)
<SHARES-REINVESTED> 8,652,209
<NET-CHANGE-IN-ASSETS> 14,492,305
<ACCUMULATED-NII-PRIOR> 65
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 844,095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 880,738
<AVERAGE-NET-ASSETS> 340,436,196
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.025
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.025)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> QUALITY INCOME PLUS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 467,096,666
<INVESTMENTS-AT-VALUE> 490,887,753
<RECEIVABLES> 16,652,728
<ASSETS-OTHER> 261,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 507,801,776
<PAYABLE-FOR-SECURITIES> 12,935,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 729,004
<TOTAL-LIABILITIES> 13,664,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 489,007,491
<SHARES-COMMON-STOCK> 45,339,654
<SHARES-COMMON-PRIOR> 44,123,343
<ACCUMULATED-NII-CURRENT> 451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,661,309)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,791,087
<NET-ASSETS> 494,137,720
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,552,688
<OTHER-INCOME> 0
<EXPENSES-NET> 1,270,968
<NET-INVESTMENT-INCOME> 15,281,720
<REALIZED-GAINS-CURRENT> 4,582,236
<APPREC-INCREASE-CURRENT> 1,402,602
<NET-CHANGE-FROM-OPS> 21,266,558
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,281,417)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,725,579
<NUMBER-OF-SHARES-REDEEMED> (4,922,015)
<SHARES-REINVESTED> 1,412,747
<NET-CHANGE-IN-ASSETS> 19,148,212
<ACCUMULATED-NII-PRIOR> 148
<ACCUMULATED-GAINS-PRIOR> (23,243,545)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,201,645
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,270,968
<AVERAGE-NET-ASSETS> 484,641,356
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> (.34)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.9
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> VARIABLE HIGH YIELD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 445,396,208
<INVESTMENTS-AT-VALUE> 420,417,388
<RECEIVABLES> 13,626,864
<ASSETS-OTHER> 2,129
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 434,046,381
<PAYABLE-FOR-SECURITIES> 13,026,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 455,178
<TOTAL-LIABILITIES> 13,481,261
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 510,970,197
<SHARES-COMMON-STOCK> 70,013,076
<SHARES-COMMON-PRIOR> 60,135,547
<ACCUMULATED-NII-CURRENT> 159,071
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (65,585,328)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (24,978,820)
<NET-ASSETS> 420,565,120
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24,518,945
<OTHER-INCOME> 0
<EXPENSES-NET> 1,039,826
<NET-INVESTMENT-INCOME> 23,479,119
<REALIZED-GAINS-CURRENT> (2,239,863)
<APPREC-INCREASE-CURRENT> (5,652,680)
<NET-CHANGE-FROM-OPS> 15,586,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,614,944)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,288,566
<NUMBER-OF-SHARES-REDEEMED> (7,283,936)
<SHARES-REINVESTED> 3,872,899
<NET-CHANGE-IN-ASSETS> 52,503,849
<ACCUMULATED-NII-PRIOR> 294,896
<ACCUMULATED-GAINS-PRIOR> (63,345,465)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 987,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,039,826
<AVERAGE-NET-ASSETS> 398,437,444
<PER-SHARE-NAV-BEGIN> 6.12
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> (.36)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.01
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> VARIABLE UTILITIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 311,832,700
<INVESTMENTS-AT-VALUE> 484,122,492
<RECEIVABLES> 2,229,519
<ASSETS-OTHER> 26,010
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 486,378,021
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 505,034
<TOTAL-LIABILITIES> 505,034
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305,922,756
<SHARES-COMMON-STOCK> 25,304,237
<SHARES-COMMON-PRIOR> 24,650,021
<ACCUMULATED-NII-CURRENT> 1,274
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,659,165
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 172,289,792
<NET-ASSETS> 485,872,987
<DIVIDEND-INCOME> 6,839,228
<INTEREST-INCOME> 1,798,684
<OTHER-INCOME> 0
<EXPENSES-NET> 1,571,662
<NET-INVESTMENT-INCOME> 7,066,250
<REALIZED-GAINS-CURRENT> 7,699,017
<APPREC-INCREASE-CURRENT> 31,939,636
<NET-CHANGE-FROM-OPS> 46,704,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,065,029)
<DISTRIBUTIONS-OF-GAINS> (24,274,238)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,048,367
<NUMBER-OF-SHARES-REDEEMED> (3,015,666)
<SHARES-REINVESTED> 1,621,515
<NET-CHANGE-IN-ASSETS> 27,738,731
<ACCUMULATED-NII-PRIOR> 53
<ACCUMULATED-GAINS-PRIOR> 24,234,386
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,528,136
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,571,662
<AVERAGE-NET-ASSETS> 474,099,788
<PER-SHARE-NAV-BEGIN> 18.59
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> 1.63
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> (1.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.20
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> VARIABLE INVESTMENT SERIES - INCOME BUILDER
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 85,470,953
<INVESTMENTS-AT-VALUE> 89,102,655
<RECEIVABLES> 866,627
<ASSETS-OTHER> 1,908
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,971,190
<PAYABLE-FOR-SECURITIES> 992,660
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,048
<TOTAL-LIABILITIES> 1,097,708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,543,695
<SHARES-COMMON-STOCK> 7,424,325
<SHARES-COMMON-PRIOR> 4,711,055
<ACCUMULATED-NII-CURRENT> 9,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 688,372
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,631,702
<NET-ASSETS> 88,873,482
<DIVIDEND-INCOME> 897,862
<INTEREST-INCOME> 1,196,954
<OTHER-INCOME> 0
<EXPENSES-NET> 300,653
<NET-INVESTMENT-INCOME> 1,794,163
<REALIZED-GAINS-CURRENT> 683,183
<APPREC-INCREASE-CURRENT> 561,147
<NET-CHANGE-FROM-OPS> 3,038,493
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,784,491)
<DISTRIBUTIONS-OF-GAINS> (768,185)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,109,913
<NUMBER-OF-SHARES-REDEEMED> (608,035)
<SHARES-REINVESTED> 211,392
<NET-CHANGE-IN-ASSETS> 33,450,649
<ACCUMULATED-NII-PRIOR> 41
<ACCUMULATED-GAINS-PRIOR> 773,374
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 275,688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 300,653
<AVERAGE-NET-ASSETS> 74,126,128
<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,686,114,587
<INVESTMENTS-AT-VALUE> 2,167,918,464
<RECEIVABLES> 15,266,908
<ASSETS-OTHER> 4,943
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,183,190,315
<PAYABLE-FOR-SECURITIES> 6,546,984
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,457,389
<TOTAL-LIABILITIES> 9,004,373
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,568,536,873
<SHARES-COMMON-STOCK> 100,927,668
<SHARES-COMMON-PRIOR> 88,256,107
<ACCUMULATED-NII-CURRENT> 1,202
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 123,843,990
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 481,803,877
<NET-ASSETS> 2,174,185,942
<DIVIDEND-INCOME> 22,863,880
<INTEREST-INCOME> 1,629,246
<OTHER-INCOME> 0
<EXPENSES-NET> 5,513,207
<NET-INVESTMENT-INCOME> 18,979,919
<REALIZED-GAINS-CURRENT> 126,803,218
<APPREC-INCREASE-CURRENT> 50,908,064
<NET-CHANGE-FROM-OPS> 196,691,201
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,978,858)
<DISTRIBUTIONS-OF-GAINS> (187,973,609)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,743,837
<NUMBER-OF-SHARES-REDEEMED> (8,637,169)
<SHARES-REINVESTED> 9,564,893
<NET-CHANGE-IN-ASSETS> 268,280,184
<ACCUMULATED-NII-PRIOR> 141
<ACCUMULATED-GAINS-PRIOR> 185,014,381
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,370,256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,513,207
<AVERAGE-NET-ASSETS> 2,098,995,550
<PER-SHARE-NAV-BEGIN> 21.60
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 1.99
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> (2.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.54
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> MORGAN STANLEY DEAN WITTER VARIABLE CAPITAL GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 116,327,304
<INVESTMENTS-AT-VALUE> 144,776,147
<RECEIVABLES> 3,239,585
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,015,776
<PAYABLE-FOR-SECURITIES> 2,680,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 181,510
<TOTAL-LIABILITIES> 2,861,647
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,657,905
<SHARES-COMMON-STOCK> 7,390,611
<SHARES-COMMON-PRIOR> 6,947,418
<ACCUMULATED-NII-CURRENT> (220,715)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,268,096
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,448,843
<NET-ASSETS> 145,154,129
<DIVIDEND-INCOME> 148,326
<INTEREST-INCOME> 109,037
<OTHER-INCOME> 0
<EXPENSES-NET> 477,726
<NET-INVESTMENT-INCOME> (220,363)
<REALIZED-GAINS-CURRENT> 12,505,633
<APPREC-INCREASE-CURRENT> 6,955,839
<NET-CHANGE-FROM-OPS> 19,241,109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,014)
<DISTRIBUTIONS-OF-GAINS> (10,080,542)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 876,157
<NUMBER-OF-SHARES-REDEEMED> (946,228)
<SHARES-REINVESTED> 513,266
<NET-CHANGE-IN-ASSETS> 18,054,053
<ACCUMULATED-NII-PRIOR> 9,662
<ACCUMULATED-GAINS-PRIOR> 8,843,005
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 445,692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 477,726
<AVERAGE-NET-ASSETS> 138,272,597
<PER-SHARE-NAV-BEGIN> 18.29
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.85
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.64
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> VARIABLE GLOBAL DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 474,665,940
<INVESTMENTS-AT-VALUE> 521,802,619
<RECEIVABLES> 3,945,511
<ASSETS-OTHER> 419,174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 526,167,304
<PAYABLE-FOR-SECURITIES> 2,421,459
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 771,025
<TOTAL-LIABILITIES> 3,192,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 458,285,689
<SHARES-COMMON-STOCK> 38,534,329
<SHARES-COMMON-PRIOR> 34,680,608
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,551,301
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,137,830
<NET-ASSETS> 522,974,820
<DIVIDEND-INCOME> 7,053,602
<INTEREST-INCOME> 408,185
<OTHER-INCOME> 0
<EXPENSES-NET> 2,128,928
<NET-INVESTMENT-INCOME> 5,332,859
<REALIZED-GAINS-CURRENT> 22,385,564
<APPREC-INCREASE-CURRENT> 18,696,124
<NET-CHANGE-FROM-OPS> 46,414,547
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,258,423
<DISTRIBUTIONS-OF-GAINS> 52,205,069
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,491,623
<NUMBER-OF-SHARES-REDEEMED> (3,851,985)
<SHARES-REINVESTED> 4,219,083
<NET-CHANGE-IN-ASSETS> 41,361,360
<ACCUMULATED-NII-PRIOR> (74,436)
<ACCUMULATED-GAINS-PRIOR> 47,370,806
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,917,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,128,928
<AVERAGE-NET-ASSETS> 515,558,860
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> 1.20
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (1.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.57
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> VARIABLE EUROPEAN GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 357,451,800
<INVESTMENTS-AT-VALUE> 517,703,972
<RECEIVABLES> 3,629,575
<ASSETS-OTHER> 888,182
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 522,221,729
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,290,184
<TOTAL-LIABILITIES> 1,290,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 328,684,704
<SHARES-COMMON-STOCK> 18,822,656
<SHARES-COMMON-PRIOR> 16,628,832
<ACCUMULATED-NII-CURRENT> 3,468,436
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,540,499
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 160,237,906
<NET-ASSETS> 520,931,545
<DIVIDEND-INCOME> 5,752,497
<INTEREST-INCOME> 304,470
<OTHER-INCOME> 0
<EXPENSES-NET> 2,507,019
<NET-INVESTMENT-INCOME> 3,549,948
<REALIZED-GAINS-CURRENT> 28,560,049
<APPREC-INCREASE-CURRENT> 70,969,584
<NET-CHANGE-FROM-OPS> 103,079,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,476,236
<DISTRIBUTIONS-OF-GAINS> 30,256,754
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,926,605
<NUMBER-OF-SHARES-REDEEMED> 2,023,712
<SHARES-REINVESTED> 1,290,931
<NET-CHANGE-IN-ASSETS> 129,490,292
<ACCUMULATED-NII-PRIOR> 5,394,724
<ACCUMULATED-GAINS-PRIOR> 30,237,204
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,297,623
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,507,019
<AVERAGE-NET-ASSETS> 463,485,135
<PER-SHARE-NAV-BEGIN> 23.54
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 5.82
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (1.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.68
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> VARIABLE PACIFIC GROWTH
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 68,553,279
<INVESTMENTS-AT-VALUE> 49,364,917
<RECEIVABLES> 2,214,199
<ASSETS-OTHER> 2,243,882
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,822,998
<PAYABLE-FOR-SECURITIES> 703,196
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 427,233
<TOTAL-LIABILITIES> 1,130,429
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,790,606
<SHARES-COMMON-STOCK> 11,571,118
<SHARES-COMMON-PRIOR> 11,264,299
<ACCUMULATED-NII-CURRENT> 301,240
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (45,214,368)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (19,184,909)
<NET-ASSETS> 52,692,569
<DIVIDEND-INCOME> 755,797
<INTEREST-INCOME> 101,660
<OTHER-INCOME> 0
<EXPENSES-NET> 425,100
<NET-INVESTMENT-INCOME> 432,357
<REALIZED-GAINS-CURRENT> (18,248,000)
<APPREC-INCREASE-CURRENT> 3,472,555
<NET-CHANGE-FROM-OPS> (14,343,088)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,185,913)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,130,035
<NUMBER-OF-SHARES-REDEEMED> 480,420
<SHARES-REINVESTED> 5,303,636
<NET-CHANGE-IN-ASSETS> (16,210,968)
<ACCUMULATED-NII-PRIOR> 2,054,796
<ACCUMULATED-GAINS-PRIOR> (26,966,368)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 314,733
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 425,100
<AVERAGE-NET-ASSETS> 63,468,233
<PER-SHARE-NAV-BEGIN> 6.12
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> (1.41)
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.55
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> VARIABLE CAPITAL APPRECIATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 32,393,765
<INVESTMENTS-AT-VALUE> 36,116,167
<RECEIVABLES> 2,227,044
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,343,223
<PAYABLE-FOR-SECURITIES> 1,339,188
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,182
<TOTAL-LIABILITIES> 1,379,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,427,009
<SHARES-COMMON-STOCK> 3,145,802
<SHARES-COMMON-PRIOR> 2,854,685
<ACCUMULATED-NII-CURRENT> 164,100
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,349,658)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,722,402
<NET-ASSETS> 36,963,853
<DIVIDEND-INCOME> 14,413
<INTEREST-INCOME> 149,687
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 164,100
<REALIZED-GAINS-CURRENT> (1,091,794)
<APPREC-INCREASE-CURRENT> 2,338,262
<NET-CHANGE-FROM-OPS> 1,410,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (209,858)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,031,231
<NUMBER-OF-SHARES-REDEEMED> 757,974
<SHARES-REINVESTED> 17,860
<NET-CHANGE-IN-ASSETS> 4,657,942
<ACCUMULATED-NII-PRIOR> 209,858
<ACCUMULATED-GAINS-PRIOR> (257,864)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130,285
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,875
<AVERAGE-NET-ASSETS> 35,030,474
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.75
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> VARIABLE INVESTMENT SERIES - EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 806,373,815
<INVESTMENTS-AT-VALUE> 1,007,977,532
<RECEIVABLES> 17,198,521
<ASSETS-OTHER> 1,842
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,025,177,895
<PAYABLE-FOR-SECURITIES> 12,772,126
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 849,375
<TOTAL-LIABILITIES> 13,621,501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 734,776,774
<SHARES-COMMON-STOCK> 28,885,434
<SHARES-COMMON-PRIOR> 24,511,800
<ACCUMULATED-NII-CURRENT> 89
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 75,175,814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 201,603,717
<NET-ASSETS> 1,011,556,394
<DIVIDEND-INCOME> 3,148,542
<INTEREST-INCOME> 1,775,720
<OTHER-INCOME> 0
<EXPENSES-NET> (2,340,346)
<NET-INVESTMENT-INCOME> 2,583,916
<REALIZED-GAINS-CURRENT> 76,298,726
<APPREC-INCREASE-CURRENT> 70,953,343
<NET-CHANGE-FROM-OPS> 149,835,985
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,583,827)
<DISTRIBUTIONS-OF-GAINS> (114,146,703)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,865,993
<NUMBER-OF-SHARES-REDEEMED> (2,822,934)
<SHARES-REINVESTED> 3,330,575
<NET-CHANGE-IN-ASSETS> 188,466,112
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 113,023,791
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,272,304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2,340,346)
<AVERAGE-NET-ASSETS> 916,462,740
<PER-SHARE-NAV-BEGIN> 33.58
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 5.91
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (4.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.02
<EXPENSE-RATIO> 0.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> VARIABLE S&P 500 INDEX
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 7,644,947
<INVESTMENTS-AT-VALUE> 7,789,721
<RECEIVABLES> 315,025
<ASSETS-OTHER> 21,990
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,126,736
<PAYABLE-FOR-SECURITIES> 929,519
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,852
<TOTAL-LIABILITIES> 934,371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,030,770
<SHARES-COMMON-STOCK> 700,352
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11,209
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,502
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 146,884
<NET-ASSETS> 7,192,365
<DIVIDEND-INCOME> 6,337
<INTEREST-INCOME> 4,872
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 11,209
<REALIZED-GAINS-CURRENT> 3,502
<APPREC-INCREASE-CURRENT> 146,884
<NET-CHANGE-FROM-OPS> 161,595
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 557,896
<NUMBER-OF-SHARES-REDEEMED> (57,545)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,192,355
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,073
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,064
<AVERAGE-NET-ASSETS> 4,298,847
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> VARIABLE COMPETITIVE EDGE BEST IDEAS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 19,022,585
<INVESTMENTS-AT-VALUE> 19,025,262
<RECEIVABLES> 298,425
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 76,894
<TOTAL-ASSETS> 19,400,581
<PAYABLE-FOR-SECURITIES> 716,503
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 366,606
<TOTAL-LIABILITIES> 1,083,109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,270,082
<SHARES-COMMON-STOCK> 1,858,186
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 40,983
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,271
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,136
<NET-ASSETS> 18,317,472
<DIVIDEND-INCOME> 13,094
<INTEREST-INCOME> 27,889
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 40,983
<REALIZED-GAINS-CURRENT> 4,271
<APPREC-INCREASE-CURRENT> 2,136
<NET-CHANGE-FROM-OPS> 47,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,293,504
<NUMBER-OF-SHARES-REDEEMED> (435,319)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,317,462
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,546
<AVERAGE-NET-ASSETS> 10,181,095
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.86
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> VARIABLE INVESTMENT SERIES - STRATEGIST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 464,842,507
<INVESTMENTS-AT-VALUE> 580,807,201
<RECEIVABLES> 4,888,865
<ASSETS-OTHER> 1,925
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 585,697,991
<PAYABLE-FOR-SECURITIES> 8,687,509
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 442,839
<TOTAL-LIABILITIES> 9,130,348
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 464,966,819
<SHARES-COMMON-STOCK> 37,117,796
<SHARES-COMMON-PRIOR> 33,589,395
<ACCUMULATED-NII-CURRENT> 13,016
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,376,886)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 115,964,694
<NET-ASSETS> 576,567,643
<DIVIDEND-INCOME> 2,147,370
<INTEREST-INCOME> 5,768,848
<OTHER-INCOME> 0
<EXPENSES-NET> 1,393,266
<NET-INVESTMENT-INCOME> 6,522,952
<REALIZED-GAINS-CURRENT> (4,376,822)
<APPREC-INCREASE-CURRENT> 81,487,452
<NET-CHANGE-FROM-OPS> 83,633,582
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,509,998)
<DISTRIBUTIONS-OF-GAINS> (52,303,444)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,415,832
<NUMBER-OF-SHARES-REDEEMED> (3,665,142)
<SHARES-REINVESTED> 3,777,711
<NET-CHANGE-IN-ASSETS> 79,539,498
<ACCUMULATED-NII-PRIOR> 62
<ACCUMULATED-GAINS-PRIOR> 52,303,380
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,340,136
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,393,266
<AVERAGE-NET-ASSETS> 540,496,863
<PER-SHARE-NAV-BEGIN> 14.80
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 2.29
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (1.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
