<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1998
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
------------------------
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
------------------------
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
------------------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON THE THIRTIETH DAY
AFTER THE DATE OF FILING, PURSUANT TO RULE 488.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Registration Nos.
32-82510; 811-3692).
The Exhibit Index is located on page [ ]
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- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ----------------------------- --------------------------------------------------
<C> <S> <C>
1(a) .................... Cross Reference Sheet
(b) .................... Front Cover Page
(c) .................... *
2(a) .................... *
(b) .................... Table of Contents
3(a) .................... Fee Table
(b) .................... Synopsis
(c) .................... Principal Risk Factors
4(a) .................... The Reorganization
(b) .................... The Reorganization -- Capitalization Table
(Unaudited)
5(a) .................... Registrant's Prospectus
(b) .................... *
(c) .................... *
(d) .................... *
(e) .................... Available Information
(f) .................... Available Information
6(a) .................... Prospectus of Registrant
(b) .................... Available Information
(c) .................... *
(d) .................... *
7(a) .................... Introduction -- Proxies
(b) .................... *
(c) .................... Introduction; The Reorganization -- Appraisal
Rights
8(a) .................... The Reorganization
(b) .................... *
9 .................... *
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------------- --------------------------------------------------
<C> <S> <C>
10(a) .................... Cover Page
(b) .................... *
11 .................... Table of Contents
12(a) .................... Additional Information about Morgan Stanley Dean
Witter Variable Investment Series/The Equity
Portfolio
(b) .................... *
(c) .................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------------- --------------------------------------------------
13(a) .................... Additional Information about Morgan Stanley Dean
Witter Variable Investment Series/The Capital
Appreciation Portfolio
<C> <S> <C>
(b) .................... *
(c) .................... *
14 .................... Annual Report for Registrant (relating to both the
Equity Portfolio and Capital Appreciation
Portfolio) for the fiscal year ended December
31, 1997; Semi-Annual Report for Registrant
(relating to both the Equity Portfolio and
Capital Appreciation Portfolio) for the six-
month period ended June 30, 1998.
<CAPTION>
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ----------------------------- --------------------------------------------------
<C> <S> <C>
15 .................... Indemnification
16 .................... Exhibits
17 .................... Undertakings
</TABLE>
- ------------------------
* Not Applicable or negative answer
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
CAPITAL APPRECIATION PORTFOLIO
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
TO SHAREHOLDERS OF THE CAPITAL APPRECIATION PORTFOLIO,
A PORTFOLIO OF MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES:
Notice is hereby given of a Special Meeting of the Shareholders of the
Capital Appreciation Portfolio, one of fifteen portfolios of Morgan Stanley Dean
Witter Variable Investment Series ("Variable Investment Series"), to be held at
the Conference Center, 44th Floor, Two World Trade Center, New York, New York
10048, at 10:30 A.M., New York time, on February 24, 1999, and any adjournments
thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
October 28, 1998 (the "Reorganization Agreement"), pursuant to which
substantially all of the assets of Capital Appreciation Portfolio would
be combined with those of Equity Portfolio, another Portfolio of Variable
Investment Series, and shareholders of Capital Appreciation Portfolio
would become shareholders of Equity Portfolio receiving shares of Equity
Portfolio with a value equal to the value of their holdings in Capital
Appreciation Portfolio (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as EXHIBIT A thereto. Shareholders of record at the close of business on
November 30, 1998 are entitled to notice of, and to vote at, the Meeting. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Board of
Trustees of Variable Investment Series recommends you vote in favor of the
Reorganization. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Barry Fink,
SECRETARY
December , 1998
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
EQUITY PORTFOLIO
TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
CAPITAL APPRECIATION PORTFOLIO,
A PORTFOLIO OF
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
BY AND IN EXCHANGE FOR SHARES OF
EQUITY PORTFOLIO, ALSO A PORTFOLIO OF
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
This Proxy Statement and Prospectus is being furnished to shareholders of
Capital Appreciation Portfolio, one of fifteen portfolios of Morgan Stanley Dean
Witter Variable Investment Series ("Variable Investment Series"), in connection
with an Agreement and Plan of Reorganization, dated October 28, 1998 (the
"Reorganization Agreement"), pursuant to which substantially all the assets of
Capital Appreciation Portfolio will be combined with those of Equity Portfolio,
another portfolio of Variable Investment Series, in exchange for shares of
Equity Portfolio (the "Reorganization"). As a result of this transaction,
shareholders of Capital Appreciation Portfolio will become shareholders of
Equity Portfolio and will receive shares of Equity Portfolio with a value equal
to the value of their holdings in Capital Appreciation Portfolio. The terms and
conditions of this transaction are more fully described in this Proxy Statement
and Prospectus and in the Reorganization Agreement attached hereto as EXHIBIT A.
The address of Capital Appreciation Portfolio is that of Equity Portfolio set
forth above. This Proxy Statement also constitutes a Prospectus of Variable
Investment Series, which is dated December , 1998, filed by Variable
Investment Series with the Securities and Exchange Commission (the "Commission")
as part of its Registration Statement on Form N-14 (the "Registration
Statement").
Equity Portfolio is one of fifteen portfolios of Variable Investment Series,
an open-end diversified management investment company. Equity Portfolio's
primary investment objective is capital growth through investments in common
stock and its secondary objective is income, but only when consistent with its
primary objective. Equity Portfolio invests, under normal circumstances, at
least 65% of its net assets in equity securities and/or securities convertible
into equity securities. Equity Portfolio may also invest, under normal
circumstances, up to 35% of its total assets in corporate debt securities rated
Aa or better by Moody's Investors Service, Inc. or AA or better by Standard &
Poor's Corporation (or if unrated, the securities are determined to be of
comparable quality) and U.S. government securities.
This Proxy Statement and Prospectus sets forth concisely information about
Equity Portfolio that shareholders of Capital Appreciation Portfolio should know
before voting on the Reorganization Agreement. A copy of the Prospectus for
Variable Investment Series (including information on both Equity Portfolio and
Capital Appreciation Portfolio), dated November 2, 1998, is attached as EXHIBIT
B and is incorporated herein by reference. Also enclosed and incorporated herein
by reference is Variable Investment Series' Annual Report (including information
on both Equity Portfolio and Capital Appreciation Portfolio) for the fiscal year
ended December 31, 1997 and its Semi-Annual Report for the six-month period
ended June 30, 1998. A Statement of Additional Information relating to the
Reorganization, described in this Proxy Statement and Prospectus, dated December
, 1998, has been filed with the Commission and is also incorporated herein by
reference. Such documents are available without charge by calling (212) 392-2550
or (800) 869-NEWS (TOLL FREE).
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT AND PROSPECTUS FOR
FUTURE 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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED DECEMBER , 1998.
i
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 1
General................................................................. 1
Record Date; Share Information.......................................... 1
Proxies................................................................. 2
Expenses of Solicitation................................................ 2
Vote Required........................................................... 2
SYNOPSIS.................................................................. 3
The Reorganization...................................................... 3
Fee Table............................................................... 3
Tax Consequences of the Reorganization.................................. 4
Comparison of Capital Appreciation Portfolio and Equity Portfolio....... 5
PRINCIPAL RISK FACTORS.................................................... 6
THE REORGANIZATION........................................................ 6
The Proposal............................................................ 6
The Board's Consideration............................................... 6
The Reorganization Agreement............................................ 7
Tax Aspects of the Reorganization....................................... 8
Description of Shares................................................... 10
Capitalization Table (unaudited)........................................ 10
Appraisal Rights........................................................ 10
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............ 10
Investment Objectives and Policies...................................... 10
Investment Restrictions................................................. 11
ADDITIONAL INFORMATION ABOUT CAPITAL APPRECIATION PORTFOLIO AND EQUITY
PORTFOLIO............................................................... 12
General................................................................. 12
Financial Information................................................... 12
Management.............................................................. 12
Description of Securities and Shareholder Inquiries..................... 12
Dividends, Distributions and Taxes...................................... 12
Purchases, Repurchases and Redemptions.................................. 12
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............................... 12
FINANCIAL STATEMENTS AND EXPERTS.......................................... 12
LEGAL MATTERS............................................................. 13
AVAILABLE INFORMATION..................................................... 13
OTHER BUSINESS............................................................ 13
EXHIBIT A -- Agreement and Plan of Reorganization, dated as of October 28,
1998, by and between Morgan Stanley Dean Witter Variable Investment
Series, on behalf of Capital Appreciation Portfolio, and Morgan Stanley
Dean Witter Variable Investment Series, on behalf of Equity Portfolio... A-1
EXHIBIT B -- Prospectus of Morgan Stanley Dean Witter Variable Investment
Series, dated November 2, 1998 B-1
</TABLE>
ii
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
CAPITAL APPRECIATION PORTFOLIO
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of the Capital Appreciation Portfolio, one of fifteen portfolios of Morgan
Stanley Dean Witter Variable Investment Series ("Variable Investment Series"),
an open-end diversified management investment company, in connection with the
solicitation by the Board of Trustees of Variable Investment Series (the
"Board") of proxies to be used at the Special Meeting of Shareholders of Capital
Appreciation Portfolio to be held at the Conference Center, 44th Floor, Two
World Trade Center, New York, New York 10048 at 10:30 A.M., New York time, on
February 24, 1999, and any adjournments thereof (the "Meeting"). It is expected
that the mailing of this Proxy Statement and Prospectus will be made on or about
December , 1998.
At the Meeting, Capital Appreciation Portfolio shareholders ("Shareholders")
will consider and vote upon an Agreement and Plan of Reorganization, dated
October 28, 1998 (the "Reorganization Agreement"), pursuant to which
substantially all of the assets of Capital Appreciation Portfolio will be
combined with those of Equity Portfolio, also a Portfolio of the Variable
Investment Series, in exchange for shares of Equity Portfolio. As a result of
this transaction, Shareholders will become shareholders of Equity Portfolio and
will receive shares of Equity Portfolio equal to the value of their holdings in
Capital Appreciation Portfolio on the date of such transaction (the
"Reorganization"). The shares to be issued by Equity Portfolio will be issued at
net asset value without any sales charge (the "Equity Portfolio Shares").
Further information relating to Equity Portfolio is set forth herein and in
Variable Investment Series' current Prospectus, dated November 2, 1998 (the
"Variable Investment Series Prospectus"), attached to this Proxy Statement and
Prospectus as EXHIBIT B and incorporated herein by reference. Equity Portfolio
and Capital Appreciation Portfolio are sometimes referred to herein
individually, as a "Portfolio," or together, as "Portfolios."
The information concerning Capital Appreciation Portfolio and Equity
Portfolio contained herein has been supplied by Variable Investment Series.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on November 30, 1998 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of Capital Appreciation Portfolio issued and outstanding.
Shareholders on the Record Date are entitled to one vote per share on each
matter submitted to a vote at the Meeting. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, will constitute a quorum at
the Meeting.
As of the Record Date, the trustees and officers of Variable Investment
Series, as a group, owned less than 1% of the outstanding shares of each of
Capital Appreciation Portfolio and Equity Portfolio.
The shares of both Portfolios are currently 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
<PAGE>
contracts issued by Northbrook; (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; (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
issued by Glenbrook; and (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. ("MSDW"), the parent company of the Fund's
investment manager, Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or
the "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."
PROXIES
In accordance with their view of currently applicable law, Northbrook,
Allstate New York and Paragon (which were the only shareholders of the Fund on
the Record Date) will vote the shares of Capital Appreciation held in the
applicable Account based on instructions received from the owners of Contracts
("Contract Owners") having the voting interest in the corresponding Sub-Accounts
of the Account. In connection with the solicitation of such instructions from
such Contract Owners, it is understood and expected that Northbrook, Allstate
New York and Paragon will furnish a copy of this Proxy Statement and Prospectus
to Contract Owners and that Northbrook, Allstate New York and Paragon will
furnish to Contract Owners one or more instruction cards by which the Contract
Owners may provide their instructions to Northbrook, Allstate New York and
Paragon. Shares for which no instructions are received in time to be voted will
be voted by Northbrook, Allstate New York and Paragon in the same proportion as
shares for which instructions have been received in time to be voted.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of Capital
Appreciation Portfolio's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies which they are entitled to vote in favor of the Reorganization Agreement
and will vote against any such adjournment those proxies required to be voted
against the Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by MSDW Advisors. In
addition to the solicitation of proxies by mail, proxies may be solicited by
officers of Variable Investment Series including officers and regular employees
of MSDW Advisors and/or Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"),
personally or by mail, telephone, telegraph or otherwise, without compensation
other than regular compensation.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (I.E., more than 50%) of the outstanding shares
of Capital Appreciation Portfolio represented in person or by proxy and entitled
to vote at the Meeting, provided a quorum is present at the Meeting. If the
2
<PAGE>
Reorganization Agreement is not approved by Shareholders, Capital Appreciation
Portfolio will continue in existence and the Board will consider alternative
actions.
Implementation of the Reorganization is subject to the Securities and
Exchange Commission (the "Commission") granting Variable Investment Series an
exemptive order pursuant to Section 17(b) of the Investment Company Act of 1940,
as amended (the "1940 Act"), permitting the Reorganization (the "Order").
Section 17(a) would prohibit a merger of funds that are affiliated with each
other, like the Portfolios. Rule 17a-8 under the 1940 Act, however, generally
exempts from the prohibitions of Section 17(a) a merger of affiliated funds, if
the affiliation is a result of the funds sharing common directors/ officers
and/or a common investment advisor. Because the Portfolios share a technical
affiliation not covered by Rule 17a-8 (resulting from Northbrook owning through
its Accounts more than five percent of each Portfolio), that exemption is
unavailable for this Reorganization. Accordingly, the parties have sought
exemptive relief pursuant to Section 17(b) which allows the filing of an
application for an order exempting a particular transaction from Section 17(a).
SYNOPSIS
THE FOLLOWING IS A SYNOPSIS OF CERTAIN INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS. THIS SYNOPSIS
IS ONLY A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND
PROSPECTUS AND THE REORGANIZATION AGREEMENT. SHAREHOLDERS SHOULD CAREFULLY
REVIEW THIS PROXY STATEMENT AND PROSPECTUS AND THE REORGANIZATION AGREEMENT IN
THEIR ENTIRETY AND, IN PARTICULAR, THE VARIABLE INVESTMENT SERIES PROSPECTUS,
WHICH IS INCORPORATED HEREIN BY REFERENCE.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially all
the assets of Capital Appreciation Portfolio, subject to stated liabilities, to
the Equity Portfolio in exchange for the Equity Portfolio Shares. The aggregate
net asset value of the Equity Portfolio Shares issued in the exchange will equal
the aggregate value of the net assets of Capital Appreciation Portfolio received
by Equity Portfolio. On or after the closing date scheduled for the
Reorganization (the "Closing Date"), Capital Appreciation Portfolio will
distribute the Equity Portfolio Shares received by Capital Appreciation
Portfolio to Shareholders as of the Valuation Date (as defined below under "The
Reorganization -- The Reorganization Agreement") in complete liquidation of
Capital Appreciation Portfolio. As a result of the Reorganization, each
Shareholder will receive that number of full and fractional Equity Portfolio
Shares equal in value to such Shareholder's pro rata interest in the net assets
transferred to Equity Portfolio. The Board has determined that the interests of
Shareholders will not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF VARIABLE INVESTMENT SERIES ("INDEPENDENT TRUSTEES"), AS THAT TERM IS
DEFINED IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST
INTERESTS OF CAPITAL APPRECIATION PORTFOLIO AND ITS SHAREHOLDERS AND RECOMMENDS
APPROVAL OF THE REORGANIZATION AGREEMENT.
FEE TABLE
Capital Appreciation Portfolio and Equity Portfolio each pay expenses for
management of their assets and other services. Neither Capital Appreciation
Portfolio nor Equity Portfolio pays distribution-related fees. The expenses paid
by Capital Appreciation Portfolio and Equity Portfolio are reflected in the net
asset value per share of each such Portfolio. The following table illustrates
expenses and fees incurred during Equity Portfolio's and Capital Appreciation
Portfolio's fiscal year ended December 31, 1997. The table below also sets forth
pro forma fees for the surviving combined Portfolio (Equity Portfolio)
reflecting
3
<PAGE>
what the fee schedule would have been at December 31, 1997, if the
Reorganization had been consummated twelve (12) months prior to that date.
Further information on the fees and expenses applicable to shares of Equity
Portfolio is set forth herein and in the Variable Investment Series Prospectus.
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CAPITAL PRO FORMA
APPRECIATION EQUITY COMBINED
PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- ----------- -----------------
<S> <C> <C> <C>
Management Fees(1).................................................... 0.75% 0.50% 0.50%
Other Expenses(1)..................................................... 0.22% 0.02% 0.02%
Total Portfolio Operating Expenses(2)................................. 0.97% 0.52% 0.52%
</TABLE>
- ------------------------
(1) The fees and expenses set forth in the table for Capital Appreciation
Portfolio do not reflect the fact that during the period January 21, 1997
(commencement of operations of Capital Appreciation Portfolio) through
December 31, 1997, the Investment Manager waived its management fee for
Capital Appreciation Portfolio and assumed all of that Portfolio's other
expenses. The Investment Manager has agreed to continue to waive its
management fee for Capital Appreciation Portfolio and assume that
Portfolio's other expenses until December 31, 1998. The Investment Manager
currently intends to cease waiving and assuming expenses after such date.
(2) The fees and expenses set forth in the table for both Portfolios do not
include separate charges and deductions imposed on the Contracts by the
applicable Account, which charges are indicated in your prospectus for the
Variable Annuity Contracts and/or Variable Life Contracts.
The purpose of this table is to assist the investor in understanding the
various costs and expenses than an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"Comparison of Capital Appreciation Portfolio and Equity Portfolio" below.
EXAMPLE
To attempt to show the effect of these expenses on an investment over time,
the hypotheticals shown below have been created. Assuming that an investor makes
a $1,000 investment in either Capital Appreciation Portfolio or Equity Portfolio
or the new combined Portfolio, that the annual return is 5% and that the
operating expenses for each Portfolio are the ones shown in the chart above; if
the investment was redeemed at the end of each period shown below, the investor
would incur the following expenses by the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio........................... $ 10 $ 31 $ 54 $ 119
Equity Portfolio......................................... $ 5 $ 17 $ 29 $ 65
Pro Forma Combined (Equity Portfolio).................... $ 5 $ 17 $ 29 $ 65
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Capital Appreciation Portfolio will
receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect
that the Reorganization will constitute a tax-free reorganization for federal
income tax purposes, and that no gain or loss will be recognized by Capital
Appreciation Portfolio or the shareholders of Capital Appreciation Portfolio for
Federal income tax purposes as a result of the transactions included in the
Reorganization. For further information about
4
<PAGE>
the tax consequences of the Reorganization, see "The Reorganization -- Tax
Aspects of the Reorganization" below.
COMPARISON OF CAPITAL APPRECIATION PORTFOLIO AND EQUITY PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES. Capital Appreciation Portfolio and
Equity Portfolio have similar investment objectives and policies. Capital
Appreciation Portfolio has an investment objective of long-term capital
appreciation. The Portfolio seeks to achieve its objective by investing
principally in the common stocks of U.S. companies that, in the opinion of MSDW
Advisors, offer the potential for either superior earnings growth and/or appear
to be undervalued. Equity Portfolio has a primary investment objective of
capital growth through investments, primarily, in the common stock of companies
believed by MSDW Advisors to have potential for superior growth. Equity
Portfolio has a secondary objective of income, but only when consistent with its
primary objective. Capital Appreciation Portfolio and Equity Portfolio seek to
achieve their respective investment objectives by investing, under normal
circumstances, at least 65% of their total assets in common stocks and, in the
case of Equity Portfolio, securities convertible into common stock.
The principal differences between the investment policies of the two
Portfolios are described under "Comparison of Investment Objectives, Policies
and Restrictions" below. Unless otherwise noted in that section, the investment
policies of both Capital Appreciation Portfolio and Equity Portfolio are not
fundamental and may be changed by the Board.
INVESTMENT MANAGEMENT FEES. Capital Appreciation Portfolio and Equity
Portfolio obtain investment management services from MSDW Advisors. With respect
to Capital Appreciation Portfolio, MSDW Advisors accrues monthly compensation
from the Portfolio calculated daily by applying the annual rate of 0.75% to the
Portfolio's net assets. During Capital Appreciation Portfolio's fiscal year
ended December 31, 1997, the Investment Manager waived its management fee for
Capital Appreciation Portfolio and assumed all of the Portfolio's other
expenses. The Investment Manager has agreed to continue to waive and/or assume
all of Capital Appreciation Portfolio's expenses until December 31, 1998. The
Investment Manager currently intends to cease waiving and assuming the
Portfolio's expenses after such date.
With respect to Equity Portfolio, the Portfolio pays MSDW Advisors monthly
compensation calculated daily by applying the annual rate of 0.50% to the
portion of daily net assets of the Portfolio up to $1 billion, and 0.475% to the
portion of daily net assets over $1 billion.
Neither Capital Appreciation Portfolio nor Equity Portfolio pays
distribution-related fees.
OTHER SIGNIFICANT FEES. Both Capital Appreciation Portfolio and Equity
Portfolio pay additional fees in connection with their operations, including
legal, auditing, transfer agent and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES AND REDEMPTIONS. Both Capital Appreciation Portfolio and Equity
Portfolio only offer their shares to Northbrook, Allstate New York, Glenbrook,
and Paragon (collectively, the "Companies") for allocation to those certain
Accounts described above under "Record Date; Share Information," and in the
Variable Investment Series Prospectus. Shares of each Portfolio are offered to
the Companies without a sales charge at their respective net asset values next
determined. Morgan Stanley Dean Witter Distributors Inc. acts without
remuneration from the Portfolios as the exclusive Distributor of their shares.
Shares of either Portfolio may be redeemed by the Companies at any time for
cash, without a sales charge, at the net asset value next determined.
DIVIDENDS. Capital Appreciation Portfolio declares and pays all dividends
from net investment income and net realized capital gains, if any, at least once
annually. Equity Portfolio declares and pays dividends quarterly and distributes
net realized capital gains, if any, at least once annually. Dividends and
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capital gains distributions of both Capital Appreciation Portfolio and Equity
Portfolio are automatically reinvested in additional shares at net asset value.
PRINCIPAL RISK FACTORS
The net asset value of shares of Capital Appreciation Portfolio and Equity
Portfolio will fluctuate with changes in the market value of each fund's
respective portfolio securities. Capital Appreciation Portfolio may invest in
foreign securities (up to 10% of its total assets), debt securities rated
investment grade (up to 35% of its total assets) and debt securities rated lower
than investment grade (up to 5% of its total assets), each of which presents
certain special risks and may be considered speculative investments. By
contrast, Equity Portfolio may not invest in foreign securities (other than
American Depository Receipts ("ADRs") and securities of Canadian issuers
registered under the Securities Exchange Act of 1934) and the Portfolio only
invests in higher rated (AA or better, by Standard & Poor's Corporation ("S&P"),
or Aa or better by Moody's Investors Service, Inc. ("Moody's")) debt securities
or U.S. government securities. In addition, Capital Appreciation Portfolio may
invest significantly in the securities of smaller, less established companies,
which securities may be considered more speculative for investment than
securities of more established, larger capitalized companies. In addition, both
Portfolios may enter into repurchase agreements and may purchase securities on a
when-issued, delayed delivery and "when, as and if issued" basis, each of which
presents other special risks.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each Portfolio, see "Investment
Objectives and Policies" and "General Portfolio Techniques" in the Variable
Investment Series Prospectus.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Variable Investment Series, including the
Independent Trustees, having determined that the Reorganization is in the best
interests of Capital Appreciation Portfolio and its Shareholders and that the
interests of Shareholders will not be diluted as a result thereof, recommends
approval of the Reorganization by Shareholders.
THE BOARD'S CONSIDERATION
At a meeting held on October 28, 1998, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders of Capital Appreciation Portfolio
approve the Reorganization Agreement. In reaching this decision, the Board made
an extensive inquiry into a number of factors, particularly the comparative
expenses to be incurred in the operations of Capital Appreciation Portfolio and
Equity Portfolio. The Board also considered other factors, including, but not
limited to: the compatibility of the investment objectives, policies,
restrictions and portfolios of Capital Appreciation Portfolio and Equity
Portfolio; the terms and conditions of the Reorganization which would affect the
price of shares to be issued in the Reorganization; the tax-free nature of the
Reorganization; and any direct or indirect costs to be incurred by Capital
Appreciation Portfolio and Equity Portfolio in connection with the
Reorganization.
In recommending the Reorganization to Shareholders, the Board considered
that the Reorganization would have the following benefits for Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of the "Combined Portfolio" should be substantially lower
on a percentage basis than the expenses per share of Capital Appreciation
Portfolio. This is primarily because the management fee rate for the surviving
Portfolio (Equity Portfolio) is 0.25% lower than the contractual management fee
rate for Capital Appreciation Portfolio. The Board noted that Capital
Appreciation Portfolio's expense ratio, for its fiscal year ended December 31,
1997, was 0.97% (absent any fee waivers or expense assumptions), whereas, the
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expense ratio for Equity Portfolio was 0.52% during the same period. The Board
noted that taking into account the fee waiver and expense assumptions described
above under "Comparison of Capital Appreciation Portfolio and Equity Portfolio,"
Capital Appreciation Portfolio paid no expenses for its fiscal year ended
December 31, 1997, and would likely pay no expenses for its fiscal year ending
December 31, 1998. The Board considered that the Investment Manager intends to
cease waiving and assuming expenses after December 31, 1998.
2. Shareholders would have a continued participation in a diversified
portfolio of common stocks through investment in Equity Portfolio.
3. The Reorganization will constitute a tax-free reorganization for
federal income tax purposes, and no gain or loss will be recognized by Capital
Appreciation Portfolio or its Shareholders for federal income tax purposes as a
result of transactions included in the Reorganization.
The Board, including a majority of the Independent Trustees, also determined
that the Reorganization is in the best interests of Equity Portfolio and its
shareholders and that the interests of existing shareholders of Equity Portfolio
will not be diluted as a result thereof. The transaction will enable Equity
Portfolio to acquire investment securities which are consistent with Equity
Portfolio's investment objective, without the brokerage costs attendant to the
purchase of such securities in the market.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization Agreement.
This summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as EXHIBIT A to this Proxy Statement and
Prospectus.
The Reorganization Agreement provides that (i) Capital Appreciation
Portfolio will transfer all of its assets, including portfolio securities, cash
(other than cash amounts retained by Capital Appreciation Portfolio as a "Cash
Reserve" in the amount sufficient to discharge its liabilities not discharged
prior to the Valuation Date (as defined below) and for expenses of the
liquidation), cash equivalents and receivables to Equity Portfolio on the
Closing Date in exchange for the assumption by Equity Portfolio of Capital
Appreciation Portfolio's stated liabilities, including all expenses, costs,
charges and reserves, as reflected on an unaudited statement of assets and
liabilities of Capital Appreciation Portfolio prepared by the Treasurer of
Variable Investment Series as of the Valuation Date (as defined below) in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and the delivery of the Equity Portfolio Shares,
(ii) such Equity Portfolio Shares would be distributed to the Shareholders of
Capital Appreciation Portfolio on the Closing Date or as soon as practicable
thereafter and (iii) Capital Appreciation Portfolio would be liquidated.
The number of Equity Portfolio Shares to be delivered to Capital
Appreciation Portfolio will be determined by dividing the value of Capital
Appreciation Portfolio assets acquired by Equity Portfolio (net of stated
liabilities assumed by Equity Portfolio) by the net asset value of an Equity
Portfolio Share; these values will be calculated as of 4:00 p.m. New York City
time on the third day that the New York Stock Exchange is open for business
following the receipt of the requisite approval by the Shareholders of the
Reorganization Agreement or at such other time as Capital Appreciation Portfolio
and Equity Portfolio may agree (the "Valuation Date"). As an illustration, if on
the Valuation Date, Capital Appreciation Portfolio were to have securities with
a market value of $95,000 and cash in the amount of $10,000 (of which $5,000 was
to be retained by it as the Cash Reserve), the value of the assets which would
be transferred to Equity Portfolio would be $100,000. If the net asset value per
share of Equity Portfolio were $10 per share at the close of business on the
Valuation Date, the number of shares to be issued would be 10,000 ($100,000
divided by $10). These 10,000 shares of Equity Portfolio would be distributed to
the former shareholders of Capital Appreciation Portfolio. This example is given
for illustration purposes only
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and does not bear any relationship to the dollar amounts or shares expected to
be involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, Capital
Appreciation Portfolio will distribute pro rata to its Shareholders of record as
of the close of business on the Valuation Date, the Equity Portfolio Shares it
receives. Equity Portfolio will cause its transfer agent to credit and confirm
an appropriate number of Equity Portfolio Shares to each Shareholder.
The Reorganization Agreement provides that any consents and orders of other
parties that are deemed necessary by the Portfolios to permit consummation of
the Reorganization, which would include the Order, are required to be obtained
as a condition precedent to implementation of the Reorganization.
The Closing Date will be the next business day following the Valuation Date.
The consummation of the Reorganization is contingent upon the approval of the
Reorganization by the Shareholders and the receipt of the other opinions and
certificates set forth in Sections 6, 7 and 8 of the Reorganization Agreement
and the occurrence of the events described in those Sections, certain of which
may be waived by Capital Appreciation Portfolio or Equity Portfolio. The
Reorganization Agreement may be amended in any mutually agreeable manner. MSDW
Advisors will bear all of the expenses associated with the Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders. In addition,
the Reorganization Agreement may be terminated on behalf of either Portfolio
upon the occurrence of a material breach of the Reorganization Agreement
relating to the other Portfolio or if, by June 30, 1999, any condition set forth
in the Reorganization Agreement has not been fulfilled or waived by the
Portfolio entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing Date,
Capital Appreciation Portfolio shall: either pay or make provision for all of
its liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of making
the distribution) to former Shareholders of Capital Appreciation Portfolio that
received Equity Portfolio Shares. Capital Appreciation Portfolio shall be
liquidated promptly following the distribution of shares of Equity Portfolio to
Shareholders.
The effect of the Reorganization is that Shareholders who vote their shares
in favor of the Reorganization Agreement are electing to sell their shares of
Capital Appreciation Portfolio (at net asset value on the Valuation Date
calculated after subtracting the Cash Reserve) and reinvest the proceeds in the
Equity Portfolio Shares at net asset value and without recognition of taxable
gain or loss for federal income tax purposes. See "Tax Aspects of the
Reorganization" below.
Shareholders will continue to be able to redeem their shares of Capital
Appreciation Portfolio at net asset value next determined after receipt of the
redemption request until the close of business on the business day next
preceding the Closing Date. Thereafter, redemption requests for shares of
Capital Appreciation Portfolio will be treated as requests for redemption of
shares of Equity Portfolio.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation Date,
Capital Appreciation Portfolio will declare and pay a dividend or dividends
which, together with all previous such dividends, will have the effect of
distributing to Shareholders all of Capital Appreciation Portfolio's investment
company taxable income for all periods since inception of Capital Appreciation
Portfolio through and including the Valuation Date (computed without regard to
any dividends paid deduction), and all of Capital Appreciation Portfolio's net
capital gain, if any, realized in such periods (after reduction for any capital
loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes as
a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Variable
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<PAGE>
Investment Series, on behalf of both Capital Appreciation Portfolio and Equity
Portfolio, has represented that, to its best knowledge, there is no plan or
intention by Shareholders to redeem, sell, exchange or otherwise dispose of a
number of the Equity Portfolio Shares received in the transaction that would
reduce Shareholders' ownership of the Equity Portfolio Shares to a number of
shares having a value, as of the Closing Date, of less than 50% of the value of
all of the formerly outstanding Capital Appreciation Portfolio shares as of the
same date. Variable Investment Series, on behalf of both Capital Appreciation
Portfolio and Equity Portfolio, has further represented that, as of the Closing
Date, Capital Appreciation Portfolio and Equity Portfolio will qualify as
regulated investment companies.
As a condition to the Reorganization, Variable Investment Series, on behalf
of both Capital Appreciation Portfolio and Equity Portfolio, will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that, based on certain
assumptions, facts, the terms of the Reorganization Agreement and additional
representations set forth in the Reorganization Agreement or provided by
Variable Investment Series, on behalf of Capital Appreciation Portfolio and
Equity Portfolio:
1. The transfer of substantially all of Capital Appreciation Portfolio's
assets in exchange for Equity Portfolio Shares and the assumption by Equity
Portfolio of certain stated liabilities of Capital Appreciation Portfolio
followed by the distribution by Capital Appreciation Portfolio of the Equity
Portfolio Shares to Shareholders in exchange for their Capital Appreciation
Portfolio shares will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code, and Capital Appreciation Portfolio and Equity
Portfolio will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
2. No gain or loss will be recognized by Equity Portfolio upon the receipt
of the assets of Capital Appreciation Portfolio solely in exchange for Equity
Portfolio Shares and the assumption by Equity Portfolio of the stated
liabilities of Capital Appreciation Portfolio;
3. No gain or loss will be recognized by Capital Appreciation Portfolio
upon the transfer of the assets of Capital Appreciation Portfolio to Equity
Portfolio in exchange for Equity Portfolio Shares and the assumption by Equity
Portfolio of the stated liabilities or upon the distribution of Equity Portfolio
Shares to Shareholders in exchange for their Capital Appreciation Portfolio
shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Capital Appreciation Portfolio for Equity Portfolio Shares;
5. The aggregate tax basis for the Equity Portfolio Shares received by
each of the Shareholders pursuant to the reorganization will be the same as the
aggregate tax basis of the shares in Capital Appreciation Portfolio held by each
such Shareholder immediately prior to the Reorganization;
6. The holding period of the Equity Portfolio Shares to be received by
each Shareholder will include the period during which the shares in Capital
Appreciation Portfolio surrendered in exchange therefor were held (provided such
shares in Capital Appreciation Portfolio were held as capital assets on the date
of the Reorganization);
7. The tax basis of the assets of Capital Appreciation Portfolio acquired
by Equity Portfolio will be the same as the tax basis of such assets to Capital
Appreciation Portfolio immediately prior to the Reorganization; and
8. The holding period of the assets of Capital Appreciation Portfolio in
the hands of Equity Portfolio will include the period during which those assets
were held by Capital Appreciation.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF ANY,
OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES. BECAUSE
THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT THEIR TAX ADVISORS AS
TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE PROPOSED TRANSACTION.
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DESCRIPTION OF SHARES
Shares of Equity Portfolio to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Equity
Portfolio and transferable without restrictions and will have no preemptive
rights.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Equity Portfolio and
Capital Appreciation Portfolio as of September 30, 1998 and on a pro forma
combined basis as if the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
SHARES NET ASSET VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------ ---------------
<S> <C> <C> <C>
Capital Appreciation Portfolio..................................... $ 29,770,221 3,116,321 $ 9.55
Equity Portfolio................................................... $ 937,302,670 28,835,647 $ 32.50
Combined Portfolio (pro forma)..................................... $ 967,072,891 29,751,654 $ 32.50
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Capital Appreciation Portfolio and Equity Portfolio have similar investment
objectives and policies. Capital Appreciation Portfolio has an investment
objective of long-term capital appreciation. The Portfolio seeks to achieve its
objective by investing principally in the common stocks of U.S. companies that,
in the opinion of MSDW Advisors, offer the potential for either superior
earnings growth and/or appear to be undervalued. Similarly, Equity Portfolio has
a primary objective of capital growth through investments, primarily, in the
common stock of companies believed by MSDW Advisors to have potential for
superior growth. Equity Portfolio has a secondary objective of income, but only
when consistent with its primary objective. Capital Appreciation Portfolio and
Equity Portfolio seek to achieve their respective investment objectives by
investing, under normal circumstances, at least 65% of their total assets in
common stocks and, in the case of Equity Portfolio, securities convertible into
common stock.
The Portfolios' investment policies are similar. The material differences
are as follows: (a) Capital Appreciation Portfolio invests significantly in
"lower priced stocks" which may include smaller capitalized companies, whereas,
Equity Portfolio does not have a stated policy of investing in "lower priced
stocks"; (b) Capital Appreciation Portfolio may invest up to 10% of its total
assets in foreign securities (although, there is no limit with respect to its
investments in ADRs), whereas, Equity Portfolio has a fundamental investment
restriction that it may not invest in foreign securities, except that Equity
Portfolio may invest in U.S. registered securities of Canadian issuers and in
ADRs; (c) Capital Appreciation Portfolio may invest up to 35% of its total
assets in debt securities rated Baa by Moody's or BBB by S&P (or if unrated, the
securities are determined to be of comparable quality), and the Portfolio may
invest up to 5% of its total assets in securities with ratings lower than
investment grade, whereas, Equity Portfolio only invests in corporate debt
securities rated as low as AA by S&P or Aa by Moody's (or if unrated, the
securities are determined to be of comparable quality); (d) Capital Appreciation
Portfolio may invest up to 10% of its total assets in securities of other
investment companies, whereas, Equity Portfolio may not invest in securities
issued by other investment companies; (e) Capital Appreciation Portfolio may
enter into options and futures transactions, whereas, Equity Portfolio is not
authorized to enter into such transactions; (f) Equity Portfolio may not invest
more than 10% of the Portfolio's total assets in "illiquid securities," whereas,
Capital Appreciation Portfolio has a 15% limitation (of its net assets)
respecting investments in such securities; and (g) Equity Portfolio has a
fundamental policy that it may invest up to 5% of its total
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assets in securities which are subject to restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended, or which
are otherwise not readily marketable, whereas, Capital Appreciation Portfolio
has the same limitation on a non-fundamental basis.
Unless otherwise indicated, the investment policies of both Capital
Appreciation Portfolio and Equity Portfolio are not fundamental and may be
changed by the Board. The foregoing discussion is a summary of the principal
differences between the investment policies of the Portfolios. For a more
complete discussion of each Portfolio's policies, see "Investment Objectives and
Policies" in the Variable Investment Series Prospectus and "Investment Practices
and Policies" in Variable Investment Series' Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Capital Appreciation Portfolio and
Equity Portfolio as fundamental are similar and are summarized under the caption
"Investment Restrictions" in the Variable Investment Series Prospectus and
Statement of Additional Information. A fundamental investment restriction cannot
be changed without the vote of a majority of the outstanding voting securities
of a Portfolio, as defined in the 1940 Act. The material differences are as
follows: (a) Equity Portfolio has a fundamental restriction that it may not, as
to 100% of its total assets, invest more than 5% of the value of its total
assets in the securities of any one issuer, whereas, Capital Appreciation
Portfolio is subject to a similar fundamental limitation with respect to 75% of
its total assets; (b) Equity Portfolio has a fundamental restriction that it may
not, as to 100% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer, whereas, Capital
Appreciation Portfolio is subject to a similar fundamental limitation with
respect to 75% of its total assets; (c) neither Portfolio may purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets; however, Capital
Appreciation Portfolio carves out an additional exception for purchases made in
accordance with Section 12(d) of the 1940 Act; and (d) each Portfolio may not
purchase or sell commodities or commodity futures contracts, or oil, gas or
mineral exploration or developmental programs, except that: (i) each Portfolio
may invest in securities of companies which operate, invest in, or sponsor such
programs; and (ii) in the case of the Capital Appreciation Portfolio, the
Portfolio may purchase or sell futures contracts (including currency futures)
and related options thereon.
In addition, Equity Portfolio has the following fundamental investment
restrictions:
Equity Portfolio may not:
1. Invest more than 5% of the value of its total assets in warrants,
including no 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; and
4. Invest in foreign securities, other than U.S. registered Canadian
securities and ADRs.
Capital Appreciation Portfolio does not have any of these four restrictions.
For a more complete discussion of each Portfolio's investment restrictions,
see "Investment Restrictions" in the Variable Investment Series Prospectus and
Statement of Additional Information.
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ADDITIONAL INFORMATION ABOUT CAPITAL APPRECIATION
PORTFOLIO AND EQUITY PORTFOLIO
GENERAL
For a discussion of the organization and operation of Equity Portfolio and
Capital Appreciation Portfolio, see "The Fund and its Management," "Investment
Objectives and Policies," "Investment Restrictions" and "Prospectus Summary" in
Variable Investment Series Prospectus.
FINANCIAL INFORMATION
For certain financial information about Equity Portfolio and Capital
Appreciation Portfolio, see "Financial Highlights" in the Variable Investment
Series Prospectus.
MANAGEMENT
For information about the Board, the Investment Manager and the Distributor,
see "The Fund and its Management" and "Investment Objectives and Policies" in
the Variable Investment Series Prospectus.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares of
Capital Appreciation Portfolio and Equity Portfolio, and information regarding
shareholder inquiries, see "Additional Information" in the Variable Investment
Series Prospectus.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Equity Portfolio's and Capital Appreciation Portfolio's
policies with respect to dividends, distributions and taxes, see "Dividends,
Distributions and Taxes" in the Variable Investment Series Prospectus as well as
the discussion herein under "Synopsis -- Dividends", "Synopsis -- Investment
Management Fees" and "Tax Aspects of the Reorganization."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Equity Portfolio's and Capital Appreciation
Portfolio's shares may be purchased and redeemed, see "Purchase of Fund Shares"
and "Redemption of Fund Shares" in the Variable Investment Series Prospectus.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Equity Portfolio's and Capital Appreciation Portfolio's
performance, see management's letter to shareholders in Variable Investment
Series' Annual Report for its fiscal year ended December 31, 1997 and its
unaudited Semi-Annual Report for the six-month period ended June 30, 1998, both
of which accompany this Proxy Statement and Prospectus.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Equity Portfolio and Capital Appreciation
Portfolio as of December 31, 1997, which are incorporated by reference in the
Statement of Additional Information relating to the Registration Statement on
Form N-14 of which this Proxy Statement and Prospectus forms a part, have been
audited by PricewaterhouseCoopers LLP, independent accountants, for the periods
indicated in its respective reports thereon. Such financial statements have been
incorporated by reference in reliance upon such reports given upon the authority
of PricewaterhouseCoopers LLP as experts in accounting and auditing.
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<PAGE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Equity Portfolio
will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York,
New York. Such firm will rely on Lane Altman & Owens LLP as to matters of
Massachusetts law.
AVAILABLE INFORMATION
Additional information about Equity Portfolio and Capital Appreciation
Portfolio is available in the following documents which are incorporated herein
by reference: (i) the Variable Investment Series Prospectus dated November 2,
1998, attached to this Proxy Statement and Prospectus, which Prospectus forms a
part of Post-Effective Amendment No. 24 to Variable Investment Series'
Registration Statement on Form N-1A (File Nos. 2-82510; 811-3692); and (ii)
Variable Investment Series' Annual Report for its fiscal year ended December 31,
1997 and its unaudited Semi-Annual Report for the six-month period ended June
30, 1998, both of which accompany this Proxy Statement and Prospectus. The
foregoing documents may be obtained without charge by calling (212) 392-2550 or
(800) 869-NEWS.
Capital Appreciation Portfolio and Equity Portfolio are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, file reports and other information with the
Commission. Proxy material, reports and other information about Capital
Appreciation Portfolio and Equity Portfolio which are of public record can be
inspected and copied at public reference facilities maintained by the Commission
at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and certain of its regional offices, and copies of such materials can be
obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549.
OTHER BUSINESS
Management of Capital Appreciation Portfolio knows of no business other than
the matters specified above which will be presented at the Meeting. Since
matters not known at the time of the solicitation may come before the Meeting,
the proxy as solicited confers discretionary authority with respect to such
matters as properly come before the Meeting, including any adjournment or
adjournments thereof, and it is the intention of the persons named as
attorneys-in-fact in the proxy to vote this proxy in accordance with their
judgment on such matters.
By Order of the Board of Trustees,
Barry Fink,
SECRETARY
December , 1998
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
28th day of October 1998, by and between MORGAN STANLEY DEAN WITTER VARIABLE
INVESTMENT SERIES, a Massachusetts business trust ("Variable"), on behalf of THE
EQUITY PORTFOLIO ("Equity Portfolio"), one of fifteen portfolios of Variable,
and Variable, on behalf of THE CAPITAL APPRECIATION PORTFOLIO ("Capital
Appreciation Portfolio"), also a separate portfolio of Variable. Variable is an
open-end diversified management investment company which is comprised of fifteen
separate portfolios, including both Equity Portfolio and Capital Appreciation
Portfolio. As used in this Agreement, the terms "Equity Portfolio" and "Capital
Appreciation Portfolio" shall be construed to mean, respectively, "Variable on
behalf of Equity Portfolio" and "Variable on behalf of Capital Appreciation
Portfolio", where necessary, to reflect the fact that a portfolio is generally
considered the beneficiary of trust level actions taken with respect to the
portfolio and the portfolio is not itself recognized as a person under law.
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a) (1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Equity Portfolio of substantially all of the assets of Capital
Appreciation Portfolio in exchange for the assumption by Equity Portfolio of all
stated liabilities of Capital Appreciation Portfolio and the issuance by Equity
Portfolio of its shares of beneficial interest (the "Equity Portfolio Shares"),
to be distributed, after the Closing Date hereinafter referred to, to the
shareholders of Capital Appreciation Portfolio in liquidation of Capital
Appreciation Portfolio as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF CAPITAL APPRECIATION PORTFOLIO
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Capital Appreciation
Portfolio agrees to assign, deliver and otherwise transfer the Capital
Appreciation Portfolio Assets (as defined in paragraph 1.2) to Equity Portfolio
and Equity Portfolio agrees in exchange therefor to assume all of Capital
Appreciation Portfolio's stated liabilities on the Closing Date as set forth in
paragraph 1.3(a) and to deliver to Capital Appreciation Portfolio the number of
Equity Portfolio Shares, including fractional Equity Portfolio Shares,
determined by dividing the value of the Capital Appreciation Portfolio Assets,
net of such stated liabilities, computed as of the Valuation Date (as defined in
paragraph 2.1) in the manner set forth in paragraph 2.1, by the net asset value
of an Equity Portfolio Share, computed at the time and date and in the manner
set forth in paragraph 2.2. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing").
1.2 (a) The "Capital Appreciation Portfolio Assets" shall consist of all
property, including without limitation, all cash (other than the "Cash Reserve"
(as defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Capital Appreciation Portfolio, and any deferred
or prepaid expenses shown as an asset on Capital Appreciation Portfolio's books
on the Valuation Date.
(b) On or prior to the Valuation Date, Capital Appreciation Portfolio
will provide Equity Portfolio with a list of all of Capital Appreciation
Portfolio's assets to be assigned, delivered and otherwise transferred to Equity
Portfolio and of the stated liabilities to be assumed by Equity Portfolio
pursuant to this Agreement. Capital Appreciation Portfolio reserves the right to
sell any of the securities on such list
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but will not, without the prior approval of Equity Portfolio, acquire any
additional securities other than securities of the type in which Equity
Portfolio is permitted to invest and in amounts agreed to in writing by Equity
Portfolio. Equity Portfolio will, within a reasonable time prior to the
Valuation Date, furnish Capital Appreciation Portfolio with a statement of
Equity Portfolio's investment objectives, policies and restrictions and a list
of the securities, if any, on the list referred to in the first sentence of this
paragraph that do not conform to Equity Portfolio's investment objectives,
policies and restrictions. In the event that Capital Appreciation Portfolio
holds any investments that Equity Portfolio is not permitted to hold, Capital
Appreciation Portfolio will dispose of such securities on or prior to the
Valuation Date. In addition, if it is determined that the portfolios of Capital
Appreciation Portfolio and Equity Portfolio, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon Equity
Portfolio with respect to such investments, Capital Appreciation Portfolio, if
requested by Equity Portfolio will, on or prior to the Valuation Date, dispose
of and/or reinvest a sufficient amount of such investments as may be necessary
to avoid violating such limitations as of the Closing Date (as defined in
paragraph 3.1).
1.3 (a) Capital Appreciation Portfolio will endeavor to discharge all of
its liabilities and obligations on or prior to the Valuation Date. Equity
Portfolio will assume all stated liabilities, which includes, without
limitation, all expenses, costs, charges and reserves reflected on an unaudited
Statement of Assets and Liabilities of Variable prepared by the Treasurer of
Capital Appreciation Portfolio as of the Valuation Date in accordance with
generally accepted accounting principles consistently applied from the prior
audited period.
(b) On the Valuation Date, Capital Appreciation Portfolio may establish
a cash reserve, which shall not exceed 5% of Capital Appreciation Portfolio's
net assets as of the close of business on the Valuation Date ("Cash Reserve") to
be retained by Capital Appreciation Portfolio and used for the payment of its
liabilities not discharged prior to the Valuation Date and for the expenses of
liquidation.
1.4 In order for Capital Appreciation Portfolio to comply with Section
852(a)(1) of the Code and to avoid having any investment company taxable income
or net capital gain (as defined in Sections 852(b)(2) and 1222(11) of the Code,
respectively) in the short taxable year ending with its liquidation, Capital
Appreciation Portfolio will on or before the Valuation Date (a) declare a
dividend in an amount large enough so that it will have declared dividends of
all of its investment company taxable income and net capital gain, if any, for
such taxable year (determined without regard to any deduction for dividends
paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Capital
Appreciation Portfolio will distribute Equity Portfolio Shares received by
Capital Appreciation Portfolio pursuant to paragraph 1.1 pro rata to its
shareholders of record determined as of the close of business on the Valuation
Date ("Capital Appreciation Portfolio Shareholders"). Such distribution will be
accomplished by an instruction, signed by the Secretary of Capital Appreciation
Portfolio, to transfer Equity Portfolio Shares then credited to Capital
Appreciation Portfolio's account on the books of Equity Portfolio to open
accounts on the books of Equity Portfolio in the names of the Capital
Appreciation Portfolio Shareholders and representing the respective pro rata
number of Equity Portfolio Shares due such Capital Appreciation Portfolio
Shareholders. All issued and outstanding shares of Capital Appreciation
Portfolio simultaneously will be canceled on Capital Appreciation Portfolio's
books.
1.6 Ownership of Equity Portfolio Shares will be shown on the books of
Equity Portfolio's transfer agent. Equity Portfolio Shares will be issued in the
manner described in Equity Portfolio's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of Equity Portfolio Shares in
a name other than the registered holder of Equity Portfolio Shares on Capital
Appreciation Portfolio's books as of the close of business on the Valuation Date
shall, as a condition of such issuance and transfer, be paid by the person to
whom Equity Portfolio Shares are to be issued and transferred.
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1.8 Any reporting responsibility of Capital Appreciation Portfolio is and
shall remain the responsibility of Capital Appreciation Portfolio up to and
including the date on which Capital Appreciation Portfolio is liquidated
pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, Capital Appreciation Portfolio
shall pay or make provision for the payment of all its liabilities and taxes,
and distribute to the shareholders of Capital Appreciation Portfolio as of the
close of business on the Valuation Date any remaining amount of the Cash Reserve
(as reduced by the estimated cost of distributing it to shareholders). Capital
Appreciation Portfolio shall be liquidated promptly following the making of all
distributions pursuant to paragraph 1.5 and the reorganization.
1.10 Copies of all books and records maintained on behalf of Capital
Appreciation Portfolio in connection with its obligations under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Code, state blue sky laws
or otherwise in connection with this Agreement will promptly after the Closing
be delivered to officers of Equity Portfolio or their designee and Equity
Portfolio or its designee shall comply with applicable record retention
requirements to which Capital Appreciation Portfolio is subject under the 1940
Act.
2. VALUATION
2.1 The value of the Capital Appreciation Portfolio Assets shall be the
value of such assets computed as of 4:00 p.m. New York City time on the third
day that the New York Stock Exchange is open for business following the receipt
of the requisite approval by shareholders of Capital Appreciation Portfolio of
this Agreement or at such time on such earlier or later date after such approval
as may be mutually agreed upon in writing (such time and date being hereinafter
called the "Valuation Date"), using the valuation procedures set forth in
Variable's then current Prospectus and Statement of Additional Information.
2.2 The net asset value of an Equity Portfolio Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in Variable's then current Prospectus and Statement of Additional
Information.
2.3 The number of Equity Portfolio Shares (including fractional shares, if
any) to be issued hereunder shall be determined by dividing the value of the
Capital Appreciation Portfolio Assets, net of the liabilities of Capital
Appreciation Portfolio assumed by Equity Portfolio pursuant to paragraph 1.1,
determined in accordance with paragraph 2.1, by the net asset value of an Equity
Portfolio Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("Services") in accordance with its regular practice in
pricing Equity Portfolio. Equity Portfolio shall cause Services to deliver a
copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by Capital Appreciation Portfolio shall be
presented by it or on its behalf to The Bank of New York (the "Custodian"), as
custodian for Equity Portfolio, for examination no later than five business days
preceding the Valuation Date. Such portfolio securities (together with any cash
or other assets) shall be delivered by Capital Appreciation Portfolio to the
Custodian for the account of Equity Portfolio on or before the Closing Date in
conformity with applicable custody provisions under
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the 1940 Act and duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The portfolio securities shall be accompanied by all necessary federal and state
stock transfer stamps or a check for the appropriate purchase price of such
stamps. Portfolio securities and instruments deposited with a securities
depository (as defined in Rule 17f-4 under the 1940 Act) shall be delivered on
or before the Closing Date by book-entry in accordance with customary practices
of such depository and the Custodian. The cash delivered shall be in the form of
a Federal Funds wire, payable to the order of "The Bank of New York, Custodian
for Morgan Stanley Dean Witter Variable Investment Series".
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Equity Portfolio and Capital
Appreciation Portfolio, accurate appraisal of the value of the net assets of
Equity Portfolio or the Capital Appreciation Portfolio Assets is impracticable,
the Valuation Date shall be postponed until the first business day after the day
when trading shall have been fully resumed without restriction or disruption and
reporting shall have been restored.
3.4 If requested, Capital Appreciation Portfolio shall deliver to Equity
Portfolio or its designee (a) at the Closing, a list, certified by its
Secretary, of the names, addresses and taxpayer identification numbers of the
Capital Appreciation Portfolio Shareholders and the number and percentage
ownership of outstanding Capital Appreciation Portfolio shares owned by each
such Capital Appreciation Portfolio Shareholder, all as of the Valuation Date,
and (b) as soon as practicable after the Closing, all original documentation
(including Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the Capital Appreciation Portfolio Shareholders'
taxpayer identification numbers and their liability for or exemption from
back-up withholding. Equity Portfolio shall issue and deliver to such Secretary
a confirmation evidencing delivery of Equity Portfolio Shares to be credited on
the Closing Date to Capital Appreciation Portfolio or provide evidence
satisfactory to Capital Appreciation Portfolio that such Equity Portfolio Shares
have been credited to Capital Appreciation Portfolio's account on the books of
Equity Portfolio. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4. COVENANTS OF EQUITY PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO
4.1 Except as otherwise expressly provided herein with respect to Capital
Appreciation Portfolio, Equity Portfolio and Capital Appreciation Portfolio each
will operate its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business will
include customary dividends and other distributions.
4.2 Equity Portfolio will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to the Equity
Portfolio Shares ("Registration Statement"). Capital Appreciation Portfolio will
provide Equity Portfolio with the Proxy Materials as described in paragraph 4.3
below, for inclusion in the Registration Statement. Capital Appreciation
Portfolio will further provide Equity Portfolio with such other information and
documents relating to Capital Appreciation Portfolio as are reasonably necessary
for the preparation of the Registration Statement.
4.3 Variable will call a meeting of the Capital Appreciation Portfolio
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
Capital Appreciation Portfolio will prepare the notice of meeting, form of proxy
and proxy statement (collectively, "Proxy Materials") to be used in connection
with such meeting; provided that Equity Portfolio will furnish Capital
Appreciation Portfolio with Variable's currently effective prospectus for
inclusion in the Proxy Materials and with such other information relating to
Equity Portfolio as is reasonably necessary for the preparation of the Proxy
Materials.
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4.4 Capital Appreciation Portfolio will assist Equity Portfolio in
obtaining such information as Equity Portfolio reasonably requests concerning
the beneficial ownership of Capital Appreciation Portfolio shares.
4.5 Subject to the provisions of this Agreement, Equity Portfolio and
Capital Appreciation Portfolio will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement.
4.6 Capital Appreciation Portfolio shall furnish or cause to be furnished
to Equity Portfolio within 30 days after the Closing Date a statement of Capital
Appreciation Portfolio's assets and liabilities as of the Closing Date, which
statement shall be certified by the Treasurer of Variable and shall be in
accordance with generally accepted accounting principles consistently applied.
As promptly as practicable, but in any case within 60 days after the Closing
Date, Capital Appreciation Portfolio shall furnish Equity Portfolio, in such
form as is reasonably satisfactory to Equity Portfolio, a statement certified by
the Treasurer of Capital Appreciation Portfolio's earnings and profits for
federal income tax purposes that will be carried over to Equity Portfolio
pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Capital
Appreciation Portfolio (a) shall prepare and file all federal and other tax
returns and reports on behalf of Capital Appreciation Portfolio required by law
to be filed with respect to all periods ending on or before the Closing Date but
not theretofore filed and (b) shall pay all federal and other taxes shown as due
thereon and/or all federal and other taxes that were unpaid as of the Closing
Date, including without limitation, all taxes for which the provision for
payment was made as of the Closing Date (as represented in paragraph 5.2(k)).
4.8 Equity Portfolio agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Equity Portfolio represents and warrants to Capital Appreciation
Portfolio as follows:
(a) Variable is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) Variable is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company under
the 1940 Act and the registration of its shares under the 1933 Act are in full
force and effect;
(c) All of the issued and outstanding shares of Equity Portfolio have
been offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares of
Equity Portfolio are registered in all jurisdictions in which they are required
to be registered under state securities laws and other laws, and said
registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and Variable
is not subject to any stop order and is fully qualified to sell its shares in
each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Variable, including disclosure pertaining to Equity Portfolio, conform in all
material respects to the applicable requirements of the 1933 Act and the 1940
Act and the regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(e) Equity Portfolio is not in, and the execution, delivery and
performance of this Agreement will not result in, a material violation of any
provision of Variable's Declaration of Trust or By-Laws or of
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any agreement, indenture, instrument, contract, lease or other undertaking to
which Variable is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against Equity Portfolio or any of the properties or assets which, if
adversely determined, would materially and adversely affect its financial
condition or the conduct of its business; and Equity Portfolio knows of no facts
that might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or its
ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of December 31,
1998, and for the year then ended, of Equity Portfolio certified by
PricewaterhouseCoopers LLP (copies of which will be furnished to Capital
Appreciation Portfolio), will fairly present, in all materials respects, Equity
Portfolio's financial condition as of such date in accordance with generally
accepted accounting principles, and its results of such operations, changes in
its net assets and financial highlights for such period, and as of such date
there would be no known liabilities of Equity Portfolio (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) All issued and outstanding Equity Portfolio Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in Variable's
current Prospectus incorporated by reference in the Registration Statement.
Equity Portfolio does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Equity Portfolio, and
this Agreement constitutes a valid and binding obligation of Equity Portfolio
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general Equity Portfolio principles. No other
consents, authorizations or approvals are necessary in connection with Equity
Portfolio's performance of this Agreement;
(j) Equity Portfolio Shares to be issued and delivered to Capital
Appreciation Portfolio, for the account of the Capital Appreciation Portfolio
Shareholders, pursuant to the terms of this Agreement will at the Closing Date
have been duly authorized and, when so issued and delivered, will be duly and
validly issued Equity Portfolio Shares, and will be fully paid and
non-assessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in Variable's
current Prospectus incorporated by reference in the Registration Statement;
(k) All material Federal and other tax returns and reports of Equity
Portfolio required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or required
to be shown as due on said returns and reports have been paid or provision has
been made for the payment thereof, and to the best of Equity Portfolio's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to any such return;
(l) For each taxable year since its inception, Equity Portfolio has met
the requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and neither the execution or delivery of nor
the performance of its obligations under this Agreement will adversely affect,
and no other events are reasonably likely to occur which will adversely affect
the ability of Equity Portfolio to continue to meet the requirements of
Subchapter M of the Code;
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(m) Since December 31, 1997, there has been no change by Equity
Portfolio in accounting methods, principles, or practices, including those
required by generally accepted accounting principles and no such change is
contemplated by Equity Portfolio;
(n) The information furnished or to be furnished by Equity Portfolio
for use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and regulations
applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Equity Portfolio) will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading.
5.2 Capital Appreciation Portfolio represents and warrants to Equity
Portfolio as follows:
(a) Variable is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) Variable is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company under
the 1940 Act and the registration of its shares under the 1933 Act are in full
force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Capital Appreciation Portfolio have been offered and sold in compliance in all
material respects with applicable requirements of the 1933 Act and state
securities laws. Shares of Capital Appreciation Portfolio are registered in all
jurisdictions in which they are required to be registered and said
registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and Variable
is not subject to any stop order and each is fully qualified to sell its shares
in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information,
including disclosure pertaining to Capital Appreciation Portfolio, conform in
all material respects to the applicable requirements of the 1933 Act and the
1940 Act and the regulations thereunder and do not include any untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(e) Capital Appreciation Portfolio is not, and the execution, delivery
and performance of this Agreement will not result, in a material violation of
any provision of Variable's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Capital
Appreciation Portfolio is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against either Variable or Capital Appreciation Portfolio or any of
the properties or assets of Capital Appreciation Portfolio which, if adversely
determined, would materially and adversely affect its financial condition or the
conduct of its business; and Capital Appreciation Portfolio knows of no facts
that might form the basis for the institution of such proceedings and Capital
Appreciation Portfolio is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects, or is reasonably likely to materially and adversely affect,
the business or ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Capital
Appreciation Portfolio as of December 31, 1998, and for the year then ended,
certified by PricewaterhouseCoopers LLP (copies of which will be furnished to
Equity
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Portfolio) will fairly present, in all material respects, Capital Appreciation
Portfolio's financial condition as of such date, and its results of operations,
changes in its net assets and financial highlights for such period in accordance
with generally accepted accounting principles, and as of such date there would
be no known liabilities of Capital Appreciation Portfolio (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) Capital Appreciation Portfolio has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date;
(i) All issued and outstanding Capital Appreciation Portfolio shares
are, and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof. Capital Appreciation Portfolio does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible to any of its shares.
All such shares will, at the time of Closing, be held by the persons and in the
amounts set forth in the list of shareholders submitted to Equity Portfolio
pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of Capital Appreciation Portfolio, and subject to the approval of Capital
Appreciation Portfolio Shareholders, this Agreement constitutes a valid and
binding obligation of Capital Appreciation Portfolio, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general Equity Portfolio principles. No other consents,
authorizations or approvals are necessary in connection with the performance of
this Agreement by Capital Appreciation Portfolio;
(k) All material federal and other tax returns and reports of Capital
Appreciation Portfolio required by law to be filed on or before the Closing Date
shall have been filed and are correct and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Capital
Appreciation Portfolio's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Capital Appreciation
Portfolio has met all the requirements of Subchapter M of the Code for
qualification and treatment as a "regulated investment company" and neither the
execution or delivery of nor the performance of its obligations under this
Agreement will adversely affect, and no other events are reasonably likely to
occur which will adversely affect the ability of Capital Appreciation Portfolio
to continue to meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Capital Appreciation Portfolio will have good
and valid title to the Capital Appreciation Portfolio Assets, subject to no
liens (other than the obligation, if any, to pay the purchase price of portfolio
securities purchased by Capital Appreciation Portfolio which have not settled
prior to the Closing Date), security interests or other encumbrances, and full
right, power and authority to assign, deliver and otherwise transfer such assets
hereunder, and upon delivery and payment for such assets, Equity Portfolio will
acquire good and marketable title thereto, subject to no restrictions on the
full transfer thereof, including any restrictions as might arise under the 1933
Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Capital Appreciation Portfolio's shareholders and on the Closing
Date, the Proxy Materials (exclusive of the currently effective Prospectus of
Variable contained therein) will (i) comply in all material respects with the
provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act") and the 1940 Act and the regulations thereunder and (ii) not contain
any untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
Any other information furnished by Capital Appreciation Portfolio for use in the
Registration Statement or in any other manner that may be necessary in
connection with the transactions contemplated
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hereby shall be accurate and complete and shall comply in all material respects
with applicable federal securities and other laws and regulations thereunder;
(o) Capital Appreciation Portfolio will, on or prior to the Valuation
Date, declare one or more dividends or other distributions to shareholders that,
together with all previous dividends and other distributions to shareholders,
shall have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation Date
(computed without regard to any deduction for dividends paid);
(p) Capital Appreciation Portfolio has maintained or has caused to be
maintained on its behalf all books and accounts as required of a registered
investment company in compliance with the requirements of Section 31 of the 1940
Act and the Rules thereunder; and
(q) Capital Appreciation Portfolio is not acquiring Equity Portfolio
Shares to be issued hereunder for the purpose of making any distribution thereof
other than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CAPITAL APPRECIATION PORTFOLIO
The obligations of Capital Appreciation Portfolio to consummate the
transactions provided for herein shall be subject, at its election, to the
performance by Equity Portfolio of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of Equity Portfolio contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
6.2 Equity Portfolio shall have delivered to Capital Appreciation Portfolio
a certificate of Variable's President and Treasurer, to the effect that the
representations and warranties of Equity Portfolio made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as Capital Appreciation Portfolio shall reasonably request;
6.3 Capital Appreciation Portfolio shall have received a favorable opinion
from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Equity Portfolio,
dated as of the Closing Date, to the effect that:
(a) Variable is a validly existing Massachusetts business trust, and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon in
delivering such opinion); (b) Variable is a duly registered, open-end,
management investment company, and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; (c) this
Agreement has been duly authorized, executed and delivered by Equity Portfolio
and, assuming that the Registration Statement complies with the 1933 Act, the
1934 Act and the 1940 Act and regulations thereunder and assuming due
authorization, execution and delivery of this Agreement by Capital Appreciation
Portfolio, is a valid and binding obligation of Equity Portfolio enforceable
against Equity Portfolio in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles; (d) Equity Portfolio Shares to be issued to Capital Appreciation
Portfolio Shareholders as provided by this Agreement are duly authorized and
upon such delivery will be validly issued and outstanding and fully paid and
nonassessable (except as set forth under the caption "Additional Information" in
Variable's Prospectus), and no shareholder of Equity Portfolio has any
preemptive rights to subscription or purchase in respect thereof (Massachusetts
counsel may be relied upon in delivering such opinion); (e) the execution and
delivery of this Agreement did not, and the consummation of the
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<PAGE>
transactions contemplated hereby will not, violate Variable's Declaration of
Trust or By-Laws; and (f) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of the
United States or any state is required for the consummation by Equity Portfolio
of the transactions contemplated herein, except such as have been obtained under
the 1993 Act, the 1934 Act and the 1940 Act and such as may be required under
state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
Equity Portfolio's investment objectives, policies and restrictions nor any
increase in the investment management fees from those described in Variable's
then current Prospectus and Statement of Additional Information.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY PORTFOLIO
The obligations of Equity Portfolio to complete the transactions provided
for herein shall be subject, at its election, to the performance by Capital
Appreciation Portfolio of all the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Capital Appreciation Portfolio
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 Capital Appreciation Portfolio shall have delivered to Equity Portfolio
at the Closing a certificate of Variable's President and Treasurer to the effect
that the representations and warranties of Capital Appreciation Portfolio made
in this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as Equity Portfolio shall reasonably request;
7.3 Capital Appreciation Portfolio shall have delivered to Equity Portfolio
a statement of the Capital Appreciation Portfolio Assets and its liabilities,
together with a list of Capital Appreciation Portfolio's portfolio securities
and other assets showing the respective adjusted bases and holding periods
thereof for income tax purposes, as of the Closing Date, certified by the
Treasurer of Variable;
7.4 Capital Appreciation Portfolio shall have delivered to Equity Portfolio
within three business days after the Closing a letter from
PricewaterhouseCoopers LLP dated as of the Closing Date stating that (a) such
firm has performed a limited review of the federal and state income tax returns
of Capital Appreciation Portfolio for each of the last three taxable years and,
based on such limited review, nothing came to their attention that caused them
to believe that such returns did not properly reflect, in all material respects,
the federal and state income tax liabilities of Capital Appreciation Portfolio
for the periods covered thereby, (b) for the period from December 31, 1998 to
and including the Closing Date, such firm has performed a limited review (based
on unaudited financial data) to ascertain the amount of applicable federal,
state and local taxes and has determined that same either have been paid or
reserves have been established for payment of such taxes, and, based on such
limited review, nothing came to their attention that caused them to believe that
the taxes paid or reserves set aside for payment of such taxes were not adequate
in all material respects for the satisfaction of all federal, state and local
tax liabilities for the period from December 31, 1998 to and including the
Closing Date and (c) based on such limited reviews, nothing came to their
attention that caused them to believe that Capital Appreciation Portfolio would
not qualify as a regulated investment company for federal income tax purposes
for any such year or period;
7.5 Equity Portfolio shall have received at the Closing a favorable opinion
from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Capital
Appreciation Portfolio, dated as of the Closing Date to the effect that:
(a) Variable is a validly existing Massachusetts business trust and has
the power to own all of its properties and assets and to carry on its business
as presently conducted (Massachusetts counsel may be
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<PAGE>
relied upon in delivering such opinion); (b) Variable is a duly registered,
open-end, management investment company under the 1940 Act, and its registration
with the Commission as an investment company under the 1940 Act is in full force
and effect; (c) this Agreement has been duly authorized, executed and delivered
by Capital Appreciation Portfolio and, assuming that the Registration Statement
complies with the 1933 Act, the 1934 Act and the 1940 Act and the regulations
thereunder and assuming due authorization, execution and delivery of this
Agreement by Equity Portfolio, is a valid and binding obligation of Capital
Appreciation Portfolio, enforceable against Capital Appreciation Portfolio in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles; (d) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated hereby
will not, violate the Declaration of Trust or By-Laws of Variable; and (e) to
the knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or any state is
required for the consummation by Capital Appreciation Portfolio of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
7.6 On the Closing Date, the Capital Appreciation Portfolio Assets shall
include no assets that Equity Portfolio, by reason of limitations of the
Variable's Declaration of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY PORTFOLIO AND CAPITAL
APPRECIATION PORTFOLIO
The obligations of Capital Appreciation Portfolio and Equity Portfolio
hereunder are each subject to the further conditions that on or before the
Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
Capital Appreciation Portfolio in accordance with the provisions of the
Declaration of Trust and By-Laws of Variable, and certified copies of the
resolutions evidencing such approval shall have been delivered to Equity
Portfolio;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by Equity Portfolio or Capital Appreciation
Portfolio to permit consummation, in all material respects, of the transactions
contemplated herein shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve risk of a material adverse
effect on the assets or properties of Equity Portfolio or Capital Appreciation
Portfolio;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 Capital Appreciation Portfolio shall have declared and paid a dividend
or dividends and/or other distribution or distributions that, together with all
previous such dividends or distributions, shall have the effect of distributing
to the Capital Appreciation Portfolio Shareholders all of Capital Appreciation
Portfolio's investment company taxable income (computed without regard to any
deduction for dividends paid) and all of its net capital gain (after reduction
for any capital loss carry-forward and computed without regard to any deduction
for dividends paid) for all taxable years ending on or before the Closing Date;
and
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8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to Equity Portfolio and
Capital Appreciation Portfolio, which opinion may be relied upon by the
shareholders of Capital Appreciation Portfolio, substantially to the effect
that, for federal income tax purposes:
(a) The transfer of substantially all of Capital Appreciation
Portfolio's assets in exchange for Equity Portfolio Shares and the assumption by
Equity Portfolio of certain stated liabilities of Capital Appreciation Portfolio
followed by the distribution by Capital Appreciation Portfolio of Equity
Portfolio Shares to the Capital Appreciation Portfolio Shareholders in exchange
for their Capital Appreciation Portfolio shares will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code, and
Capital Appreciation Portfolio and Equity Portfolio will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Equity Portfolio upon the
receipt of the assets of Capital Appreciation Portfolio solely in exchange for
Equity Portfolio Shares and the assumption by Equity Portfolio of the stated
liabilities of Capital Appreciation Portfolio;
(c) No gain or loss will be recognized by Capital Appreciation
Portfolio upon the transfer of the assets of Capital Appreciation Portfolio to
Equity Portfolio in exchange for Equity Portfolio Shares and the assumption by
Equity Portfolio of the stated liabilities or upon the distribution of Equity
Portfolio Shares to the Capital Appreciation Portfolio Shareholders in exchange
for their Capital Appreciation Portfolio shares;
(d) No gain or loss will be recognized by the Capital Appreciation
Portfolio Shareholders upon the exchange of the Capital Appreciation Portfolio
shares for Equity Portfolio Shares;
(e) The aggregate tax basis for Equity Portfolio Shares received by
each Capital Appreciation Portfolio Shareholder pursuant to the Reorganization
will be the same as the aggregate tax basis of the Capital Appreciation
Portfolio shares held by each such Capital Appreciation Portfolio Shareholder
immediately prior to the Reorganization;
(f) The holding period of Equity Portfolio Shares to be received by
each Capital Appreciation Portfolio Shareholder will include the period during
which the Capital Appreciation Portfolio shares surrendered in exchange therefor
were held (provided such Capital Appreciation Portfolio shares were held as
capital assets on the date of the Reorganization);
(g) The tax basis of the assets of Capital Appreciation Portfolio
acquired by Equity Portfolio will be the same as the tax basis of such assets to
Capital Appreciation Portfolio immediately prior to the Reorganization; and
(h) The holding period of the assets of Capital Appreciation Portfolio
in the hands of Equity Portfolio will include the period during which those
assets were held by Capital Appreciation Portfolio.
Notwithstanding anything herein to the contrary, neither Equity Portfolio
nor Capital Appreciation Portfolio may waive the conditions set forth in this
paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), the
investment manager to both Equity Portfolio and Capital Appreciation Portfolio,
shall bear all expenses incurred in connection with the carrying out of the
provisions of this Agreement, including legal, accounting, Commission
registration fees, printing, filing and proxy solicitation expenses and
portfolio transfer taxes (if any) incurred in connection with the consummation
of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not
consummated by reason of Equity Portfolio's or Capital Appreciation Portfolio's
being either unwilling or unable to go forward, the
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only respective obligations of Equity Portfolio and Capital Appreciation
Portfolio hereunder shall be to reimburse MSDW Advisors for all reasonable
out-of-pocket fees and expenses incurred by MSDW Advisors in connection with
those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein, except
that the representations, warranties and covenants of Capital Appreciation
Portfolio hereunder shall not survive the complete liquidation of Capital
Appreciation Portfolio in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Capital Appreciation Portfolio and
Equity Portfolio;
(b) by either Equity Portfolio or Capital Appreciation Portfolio by
notice to the other, without liability to the terminating party on account of
such termination (providing the terminating party is not otherwise in material
default or breach of this Agreement) if the Closing shall not have occurred on
or before June 30, 1999; or
(c) by either Equity Portfolio or Capital Appreciation Portfolio in
writing without liability to the terminating party on account of such
termination (provided the terminating party is not otherwise in material default
or breach of this Agreement), if (i) the other party shall fail to perform in
any material respect its agreements contained herein required to be performed on
or prior to the Closing Date, (ii) the other party materially breaches any of
its representations, warranties or covenants contained herein, (iii) the Capital
Appreciation Portfolio Shareholders fail to approve this Agreement at any
meeting called for such purpose at which a quorum was present or (iv) any other
condition herein expressed to be precedent to the obligations of the terminating
party has not been met and it reasonably appears that it will not or cannot be
met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Equity Portfolio or Capital Appreciation
Portfolio or the trustees or officers of Variable, to any other party or its
trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Equity Portfolio or Capital Appreciation
Portfolio or the trustees of Variable, except that any party in breach of this
Agreement shall, upon demand, reimburse MSDW Advisors for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by this Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
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<PAGE>
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Equity Portfolio hereunder are
solely those of Equity Portfolio. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Variable shall be personally
liable hereunder. The execution and delivery of this Agreement have been
authorized by the trustees of Variable and signed by authorized officers of
Variable acting as such, and neither such authorization by such trustees nor
such execution and delivery by such officers shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally.
13.6 The obligations and liabilities of Capital Appreciation Portfolio
hereunder are solely those of Capital Appreciation Portfolio. lt is expressly
agreed that no shareholder, nominee, trustee, officer, agent, or employee of
Variable shall be personally liable hereunder. The execution and delivery of
this Agreement have been authorized by the trustees of Variable and signed by
authorized officers of Variable acting as such, and neither such authorization
by such trustees nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally.
In Witness Whereof, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES,
ON BEHALF OF THE EQUITY PORTFOLIO
By: /s/ CHARLES A. FIUMEFREDDO
-------------------------------------
Name: Charles A. Fiumefreddo
Title: President
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES,
ON BEHALF OF THE CAPITAL APPRECIATION
PORTFOLIO
By: /s/ BARRY FINK
-------------------------------------
Name: Barry Fink
Title: Vice President
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EXHIBIT B
M O R G A N S T A N L E Y D E A N W I T T E R
V A R I A B L E I N V E S T M E N T S E R I E S
P R O S P E C T U S
D A T E D N O V E M B E R 2, 1 9 9 8
<PAGE>
PROSPECTUS DATED
NOVEMBER 2, 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 2, 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
<TABLE>
<S> <C>
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
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
- ----------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
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).
- ----------------------------------------------------------------------------------------------------------
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
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
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).
---------
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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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).
- ----------------------------------------------------------------------------------------------------------
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 100 investment companies and other portfolios with
assets of approximately $113.6 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 December 1, 1998, 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 December 1, 1998, 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 $156.3 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 December 1, 1998, 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 November
30, 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 $16 billion 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.
- ----------------------------------------------------------------------------------------------------------
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
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 100 investment companies,
28 of which are listed on the New York Stock Exchange, with combined total
assets of approximately $109.5 billion at September 30, 1998. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $4.1 billion at such date.
The Fund has retained the Investment Manager to provide administrative services,
manage its business affairs and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. 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 December 1, 1998, 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 $156.3 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 November 30, 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 $16 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
14
<PAGE>
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 December 1, 1998, 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 and the EUROPEAN GROWTH PORTFOLIO. 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 December 1, 1998. 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 December 1, 1998), in each case
determined as of the close of each business day.
The Trustees have recommended to shareholders a proposed Reorganization
involving the CAPITAL APPRECIATION PORTFOLIO. See "Additional Information" below
for further information concerning the Reorganization.
15
<PAGE>
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
16
<PAGE>
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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<PAGE>
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
18
<PAGE>
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).
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<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."
25
<PAGE>
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
26
<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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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 quarterly. From
the Competitive Edge List, MSDW Equity Research then assembles a subgroup of 40
companies which it considers 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 October 15, 1998 is
set forth in the Statement of Additional Information. In order to respond to
changing market conditions, MSDW Equity Research may update the Competitive Edge
"Best Ideas" List at any time.
In accordance with the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO's investment
restrictions described below, the Portfolio will not
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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 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. 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
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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 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
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purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of those investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
GENERAL PORTFOLIO TECHNIQUES
FOREIGN SECURITIES. The EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO will invest primarily in foreign securities. The GLOBAL DIVIDEND
GROWTH PORTFOLIO will invest a substantial portion of its assets in foreign
securities. The 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 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.
As a non-fundamental policy, which may be changed by the Trustees of the Fund,
each of the UTILITIES PORTFOLIO, the INCOME
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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 transactions
involving currencies futures contracts and options
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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 EDGE "BEST IDEAS" PORTFOLIO
anticipates purchasing is
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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 time during the term of the option. The QUALITY INCOME PLUS
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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.
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.
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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. Mr. Avelar has been a portfolio manager 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 December 1, 1998, Jeremy Lodwick, a
Principal of MSAM, will become the primary portfolio manager of the EUROPEAN
GROWTH PORTFOLIO. Prior to joining MSAM in July 1998, Mr. Lodwick was a
portfolio manager with MGIS for over five years, where he was the EUROPEAN
GROWTH PORTFOLIO's primary portfolio manager from April 1994 to April 1998.
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
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
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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 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.)
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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
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
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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").
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
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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.
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
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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 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
48
<PAGE>
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. 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
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<PAGE>
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.
CAPITAL APPRECIATION PORTFOLIO PROPOSED REORGANIZATION. On October 28, 1998,
the Trustees of the Fund approved an Agreement and Plan of Reorganization by and
between the CAPITAL APPRECIATION PORTFOLIO and the EQUITY PORTFOLIO, pursuant to
which substantially all of the assets of the CAPITAL APPRECIATION PORTFOLIO
would be combined with those of the EQUITY PORTFOLIO and shareholders of the
CAPITAL APPRECIATION PORTFOLIO would become shareholders of the EQUITY
PORTFOLIO. Shareholders of the CAPITAL APPRECIATION PORTFOLIO would receive
shares of the EQUITY PORTFOLIO with a value equal to the value of their holdings
in the CAPITAL APPRECIATION PORTFOLIO. The Reorganization is subject to the
approval of shareholders of the CAPITAL APPRECIATION PORTFOLIO at a special
meeting of shareholders scheduled to be held on February 24, 1999 and any
requisite regulatory approval. A proxy statement formally detailing the
proposal, the reasons for the Trustees' action, and an additional copy of this
Prospectus will be distributed to shareholders of the CAPITAL APPRECIATION
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.
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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>
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<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>
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<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.
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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>
DEAN WITTER VARIABLE INVESTMENT SERIES TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Dean Witter
Variable Investment Series for the fiscal year ended December 31, 1997.
Nineteen ninety-seven truly proved to be a tale of two markets worldwide. In the
United States the first half of the year was characterized by a strong equity
market versus fixed-income securities, while the second half saw bonds
powerfully outperform all other asset classes. Global markets were characterized
by robust growth during the first six months of the year, only to be rocked by a
currency crisis in Southeast Asia during the latter portion of the year.
GLOBAL ECONOMIC OVERVIEWS
UNITED STATES
Overall, the stock market was very generous to investors in 1997. However, in
August the Dow Jones Industrial Average appeared to have peaked at 8340.
Bellwether multinational corporations such as Coca Cola began to guide earnings
estimates downward for the first time in many years on the basis of slower
growth and the currency impact from the turmoil in Asia. The NASDAQ Composite
and Mid-Cap indexes peaked in early October, while the Standard & Poor's 500
Composite Stock Price Index (S&P 500) peaked in early December as uncertainty
grew regarding earnings outlooks. Despite a flat to down fourth quarter for the
various indexes, the stock market, as measured by the Dow Jones Industrial
Average, increased by more than 20 percent for the third year in a row for the
first time ever. As year-end approached, historically defensive sectors such as
consumer goods and utilities outperformed the overall market, while cyclical
stocks lagged.
Over the past year the U.S. economy exhibited healthy growth with declining
inflation and strong employment growth. In this environment the Federal Reserve
Board periodically expressed concern that inflationary pressures could be on the
rise, however, inflation remains in check. As a result, the Federal Reserve
Board has left interest rates unchanged since March.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
As the summer came to a close the situation in Asia induced an investor
"flight-to-quality." As a result, demand for U.S. Treasury securities and the
U.S. dollar increased. With many of the Southeast Asian economies in turmoil,
1998 may see the United States inherit the deflationary aspect of those markets.
According to many analysts, this would be likely to benefit the disinflationary
trend here.
Real interest rates (market interest rates less inflation) in the United States
remain above historical norms. A realization of this situation by investors,
combined with the probability of a surplus in the U.S. budget (leading to a
reduction in the issuance of U.S. Treasury securities in 1998), could cause
interest rates to continue to decline in the months to come.
EUROPE
Despite sharp falls in October following the currency crisis in Asia, the
European markets generally made a steady recovery during November and December.
Overall, 1997 was characterized by significant improvement in the economic
environment across Europe. In the United Kingdom low interest rates combined
with low inflation resulted in strong economic growth and falling unemployment.
Following the general election in May, the Bank of England tightened monetary
policy on concerns over the possibility of higher inflation, with little effect
on domestic consumer demand. However, the strength of the British pound relative
to the German mark and other European currencies had a negative impact on
British exporters.
Continental Europe experienced a year of economic convergence, partly engineered
in preparation for monetary union in 1999. In Germany the deutschemark's
weakness relative to the U.S. dollar resulted in strong export performance,
which offset relatively subdued domestic consumer demand. In Italy and Spain,
falling short-term interest rates stimulated domestic consumption and investment
demand. Inflation, long-term interest rates and budget deficit levels are now
broadly similar across the Continent. Further convergence of short-term interest
rates is likely during the first half of 1998 and expectations are high that the
unified currency will go ahead as planned in 1999.
ASIA (EXCLUDING JAPAN)
Nineteen ninety-seven was a uniquely difficult year for the markets of the
Pacific Basin. The only markets that were notably weak during the first half
were Japan, Korea and Thailand, all of which were addressing specific economic
difficulties. Performance during the first half of the year provided little hint
of the severe weakness that would overcome the region in the second half.
The economic problems of Thailand proved to be the catalyst for the currency
crisis that has plagued the region since July. By then the uncertain state of
Thailand's economy had been cause for concern for some time. The rigid pegging
of the Thai baht to the U.S. dollar had resulted in significant
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
overinvestment in the Thai economy, particularly in real estate. This
overinvestment was funded by access to cheap U.S.-dollar loans, at interest
rates well below those prevailing locally, without any apparent currency risk.
Thailand had also run a current-account deficit of about 8 percent of gross
domestic product (GDP) in 1997, which made the country's dependence on foreign
capital even more marked.
Although it did not come as a surprise when Thai authorities devalued the
currency on July 2, 1997, it was not initially anticipated that the Thai crisis
would trigger similar developments in the other countries of Southeast Asia,
particularly Indonesia, Malaysia, the Philippines and Singapore. The first three
of these countries have current-account deficits, although theirs are
considerably smaller than that of Thailand relative to their GDP. They had also
seen signs of excessive investment, again particularly in real estate. The
Philippines quickly followed Thailand in devaluation, and Malaysia and Indonesia
continued the trend in August. Even Singapore, which enjoys one of the world's
largest current-account surpluses, has seen its currency come under pressure
because of its role as the financial center of Southeast Asia.
For much of 1997 northeastern Asian markets stood apart from their southeastern
counterparts and produced considerably better performance. Hong Kong, the
largest market in the Pacific Basin outside Japan, performed well through
August, despite the death of Chinese leader Deng Xiaopeng in February and the
handover of Hong Kong to China in July. In August Hong Kong appeared to have
successfully defended its U.S.-dollar-pegged currency rate against speculative
attack. However, pressure reemerged much more severely in October, following a
move by Taiwan to permit a small further depreciation in its currency. The
result was a sharp upward movement in Hong Kong interest rates, which severely
affected the stock market there given its significant exposure to bank and real-
estate-related stocks.
Korea too succumbed to the currency assault during the fourth quarter. The
Korean economy has always been highly leveraged and dominated by a few large,
unfocused conglomerate companies. As a result this market traditionally has been
treated with caution. As 1997 drew to a close it became clear that an unhealthy
proportion of corporate debt was short term in nature and a classic crisis of
confidence ensued. However, new administration of Kim Dae Jung helped turn the
tide by taking a strong line on economic and financial reform. After a period of
great uncertainty over Christmas and New Year's, international banks have now
agreed to roll US$24 billion of short-term debt into longer maturities (1 to 3
years) at favorable interest rates, subject to a Korean sovereign guarantee.
This appears to remove the possibility of default and buys time for Korea to go
forward with reform.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The last weeks of 1997 also saw a mounting crisis in Indonesia, initially
triggered by concerns about the health of President Suharto and the political
situation in the run up to the Presidential election in March 1998. This
particularly undermined the confidence of the Indonesian Chinese community
(which largely makes up the business leadership) and the ensuing flight of
capital had a severe impact on the currency. The 1998 budget in early January
appeared to be based on unrealistic assumptions regarding growth, inflation and
the exchange rate and impacted confidence further. However, political concerns
remain despite a second International Monetary Fund (IMF) agreement, moves to
address financial system reform, and the temporary suspension of repayments on
corporate foreign currency debt.
JAPAN
The Japanese market peaked in June. Supportive factors included very strong
first-quarter GDP growth, strong corporate profits and a realization that U.S.
interest rates were on hold. As anticipated, fiscal tightening -- including an
increased consumption tax of an additional two percent, the withdrawal of income
tax rebates and the growth of medical costs -- produced a weak second quarter.
In the third quarter evidence emerged that the economic slowdown was worsening.
In fact, this proved to be the weakest quarter the Japanese economy had seen in
nearly 23 years. This recognition further depressed the market and made it
vulnerable to the crisis developing elsewhere in Asia. The dramatic fall of the
Hong Kong market in October triggered the Nikkei's downward trend. Reports that
currency devaluations and market falls throughout Southeast Asia were spreading
to the Northeast added to the overall concern, because Korean and Taiwanese
companies are viewed as more direct competitors to Japan.
These factors provided hedge funds with reasons to short Japan, which pushed the
market to a two-year low and to levels approaching the postcrash bottoms of 1992
and 1995. Subsequently, suggestions that public money would be used to support
Japan's financial infrastructure and reports that the "convoy system" -- whereby
the stronger institutions are expected to carry the weaker -- had been abandoned
resulted in a dramatic rebound of some 10 percent. However, later news that
Yamaichi, the fourth-largest brokerage house in Japan, was to be declared
insolvent reversed much of this move and again raised questions about the
stability of the financial sector. The government and the Bank of Japan moved
rapidly to reassure depositors in the wake of this development.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
LATIN AMERICA
The Latin American equity markets began 1997 on a strong note as robust
corporate earnings growth and attractive valuations prompted strong capital
inflows. The region's markets continued to rally during the second quarter as
macroeconomic and political fundamentals maintained their pace of improvement,
while corporate earnings were generally in line with expectations.
During the second half of the year, however, many Latin American markets,
particularly Brazil and Argentina, suffered under broadly emerging market
volatility. Generally healthy economies and continued privatization programs
nevertheless provided investors with a higher degree of confidence that these
markets would not be fundamentally disturbed by the situation in Asia.
CAPITAL APPRECIATION
From its inception on January 21, 1997, through December 31, 1997, the Capital
Appreciation Portfolio registered a total return of 13.20 percent, versus 26.20
percent for the Standard & Poor's 500
Composite Stock Price Index (S&P 500)
and 16.09 percent for the Lipper
Analytical Services Inc. Variable
Annuity Capital Appreciation Underlying
Funds Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio
from inception through the fiscal year
ended December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the S&P 500 and the funds that comprise
the Lipper Variable Annuity Capital
Appreciation Underlying Funds Average.
As was the case when we last reported
to shareholders six months ago, the
Portfolio's underperformance is
attributable to its focus on small-cap
stocks during a period when the stocks
of larger companies fared better. We
continue to believe that small-cap
stocks are undervalued and that, long
term, this sector may offer greater
growth potential than the broader
market.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
January-21-1997 $10,000 $10,000 $10,000
January-31-1997 $10,010 $10,059 $10,000
February-28-1997 $10,050 $10,134 $9,746
March-31-1997 $8,960 $9,718 $9,230
April-30-1997 $8,900 $10,302 $9,420
May-31-1997 $9,960 $10,922 $10,194
June-30-1997 $10,320 $11,413 $10,595
July-31-1997 $11,320 $12,322 $11,426
August-31-1997 $11,750 $11,632 $11,227
September-30-1997 $12,480 $12,268 $11,889
October-31-1997 $11,730 $11,862 $11,439
November-30-1997 $11,490 $12,408 $11,505
December-31-1997 $11,320(2) $12,820 $11,609
Cumulative Total Return
(Fund)
13.20%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on the net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing Value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Capital Appreciation Underlying Funds Average
tracks the performance of funds which aim at maximum capital appreciation,
frequently by means of 100% or more portfolio turnover, leveraging,
purchasing unregistered securities, purchasing option, etc. The fund may
take large cash positions, as reported by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
While the Portfolio continues to emphasize growth stocks with sound
fundamentals, solid earnings momentum, financial stability and management
strength, it maintains the flexibility to seek opportunities across the whole
market-capitalization spectrum. The Portfolio invests in a wide array of
industries but is most heavily weighted in computer software and services,
commercial services, telecommunications equipment and retailing.
CAPITAL GROWTH
For the fiscal year ended December 31, 1997, the Capital Growth Portfolio posted
a total return of 24.54 percent, versus 33.35 percent for the S&P 500 and 25.36
percent for the Lipper Analytical
Services Inc. Variable Annuity Growth
Underlying Funds Average. The
accompanying chart illustrates the
performance of a $10,000 investment in
the Portfolio from inception on March
1, 1991 through the fiscal year ended
December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the S&P 500 and the funds that comprise
the Lipper Variable Annuity Growth
Underlying Funds Average.
During the Fund's 1996 fiscal year the
Portfolio's screens were relaxed in an
effort to provide a larger universe
from which to pick stocks. The screens
now require that companies must have 1)
increasing revenues and earnings in
five out of the previous eight years;
2) increasing revenues and earnings in
the previous three years consecutively;
and 3) projected future short- and
long-term earnings growth of at least
12 percent. The Fund is actively
managed, more research-driven and is no
longer managed purely on a quantitative
basis.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
March-01-1991 $10,000 $10,000 $10,000
December-31-1991 $12,841 $11,563 $11,689
December-31-1992 $13,051 $12,443 $12,640
December-31-1993 $12,139 $13,696 $14,152
December-31-1994 $11,984 $13,876 $14,032
December-31-1995 $15,929 $19,086 $18,580
December-31-1996 $17,768 $23,466 $22,374
December-31-1997 $22,128(2) $31,293 $28,048
Average Annual Total Returns
(Fund)
Life of
1 Year 5 Years Fund
24.54%(1) 11.14%(1) 12.32%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on the net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing Value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which primarily invest their assets in companies with
long-term earnings expected to grow significantly faster than the earnings
of the stocks represented in the major stock indices, as reported by Lipper
Analytical Services.
Its diversification into mid- and small-capitalization stocks contributed
heavily to the Portfolio's strong performance during the second half of the
fiscal year. After lagging during the first half, these
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
stocks showed a marked improvement during the third and fourth quarters. At the
end of the fiscal year the Portfolio's capitalization breakdown was 48 percent
large capitalization stocks, 45 percent mid caps and 7 percent small-cap issues.
In addition, investments in the technology, financial and retail sectors paid
off handsomely during the second half of the year. The Portfolio maintained an
overweighted position in these sectors for much of its fiscal year. At year-end
the Portfolio held 34 percent of its net assets in the consumer/consumer-related
sector, 26 percent in technology/capital goods stocks, 18 percent in
financial/interest-rate-sensitive stocks and 17 percent in the basic
industry/economically sensitive sector. As of December 31, 1997, the Portfolio
owned 48 stocks and its net assets totaled slightly more than $127 million.
DIVIDEND GROWTH
For the fiscal year ended December 31, 1997, the Dividend Growth Portfolio
registered a total return of 25.61 percent versus 33.35 percent for the S&P 500
and 27.21 percent for the Lipper Analytical Services
Inc. Variable Annuity Growth and Income
Underlying Funds Average. The
accompanying chart illustrates the
performance of a $10,000 investment in
the Portfolio from inception on March
1, 1990 through the fiscal year ended
December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the S&P 500 and the funds that comprise
the Lipper Variable Annuity Growth and
Income Underlying Funds Average.
In our opinion the Portfolio's
underperformance relative to its
benchmarks is attributable to a lack of
exposure to small capitalization and
high technology stocks, neither of
which has very much, if any, current
yield and would not therefore be
portfolio candidates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
March-01-1990 $10,000 $10,000 $10,000
December-31-1990 $9,219 $10,235 $9,862
December-31-1991 $11,778 $13,347 $12,628
December-31-1992 $12,740 $14,363 $13,752
December-31-1993 $14,567 $15,808 $15,429
December-31-1994 $14,090 $16,017 $15,328
December-31-1995 $19,216 $22,030 $20,218
December-31-1996 $23,821 $27,086 $24,440
December-31-1997 $29,921(2) $36,120 $31,090
Average Annual Total Returns
(Fund)
Life of
1 Year 5 Years Fund
25.61%(1) 18.62%(1) 15.01%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on the net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing Value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Growth and Income Underlying Funds Average
tracks the performance of funds which combine a growth-of-earnings
orientation and an income requirement for level and/or rising dividends, as
reported by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The Portfolio's net assets totaled more than $1.9 billion on December 31, 1997,
an increase of more than $600 million from the end of 1996. The Portfolio
continued to maintain a relatively fully invested posture during the fiscal
year, with 98 percent of net assets committed to longer-term investments as of
the fiscal year-end. Three new common stock positions were added during the
fiscal year: Consolidated Natural Gas Co., Ryder System, Inc. and Caterpillar,
Inc. One portfolio position was eliminated with the sale of PanEnergy Corp. and
another (CBS Corp.) was substantially sold. The sale of the latter position was
completed shortly after the fiscal year-end. As of December 31 the Portfolio
held 54 equity issues spread among 35 industry groups, as well as five U.S.
Treasury bond and note issues.
EQUITY
For the fiscal year ended December 31, 1997, the Equity Portfolio posted a total
return of 37.43 percent versus 33.35 percent for the S&P 500 and 25.36 percent
for the Lipper Analytical Services Inc.
Variable Annuity Growth Underlying
Funds Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio for
the 10 years ended December 31, 1997,
versus the performance of similar
hypothetical investments in the issues
that comprise the S&P 500 and the funds
that comprise the Lipper Variable
Annuity Growth Underlying Funds
Average.
For the fiscal year ended December 31,
1997, the Portfolio ranked #2 out of
121 Variable Annuity Growth Funds (top
2 percent), according to Lipper. For
the five and 10 years ended December
31, the Portfolio ranked #7 out of 53
such funds (top 13 percent) and #10 out
of 34 such funds (top 29 percent),
respectively. (Lipper rankings are
based on total return and do not take
any sales charges into account.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
December-31-1987 $10,000 $10,000 $10,000
December-31-1988 $10,984 $11,655 $11,429
December-31-1989 $13,052 $15,343 $14,727
December-31-1990 $12,580 $14,869 $14,016
December-31-1991 $20,008 $19,390 $19,191
December-31-1992 $20,019 $20,866 $20,753
December-31-1993 $23,967 $22,965 $23,235
December-31-1994 $22,789 $23,268 $23,037
December-31-1995 $32,481 $32,003 $30,504
December-31-1996 $36,496 $39,347 $36,733
December-31-1997 $50,159(2) $52,469 $46,048
Average Annual Total Returns
(Fund)
1 Year 5 Years 10 Years
37.43%(1) 20.17%(1) 17.50%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing Value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which primarily invest their assets in companies with
long-term earnings expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indices, as reported
by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
During the first half of 1997, the Portfolio was slightly overweighted in
cyclical stocks, with a focus on industries that were benefiting from growth in
the emerging markets, such as energy and technology. The Portfolio's positioning
changed significantly during the second half of 1997. In response to the events
occurring in Asia, the Portfolio was tilted to an overweighting in defensive
growth stocks. In addition, nearly 9 percent of the Portfolio's net assets was
invested in bonds. Exposure to the energy and aerospace industries was
eliminated. Technology was reduced to a market weighting, with the focus on
software companies. This is because, during prior slowdowns in global economic
growth, software sales have typically held up better than hardware sales.
The Portfolio increased its exposure in electric utilities from zero to a market
weighting that more closely reflects that of the S&P 500. Exposure to telephone
companies also was added. The financial and health care sectors remained market
weighted. Exposure to media was also increased, particularly in names that have
lagged the overall market.
The Portfolio's focus on sector rotation served it well in 1997. As the global
economic outlook and the earnings outlook shifted, the Portfolio's positioning
changed dramatically in order to remain overweighted in those sectors expected
to have the best earnings growth relative to the overall market.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
INCOME BUILDER
From its inception on January 21, 1997, through December 31, 1997, the Income
Builder Portfolio registered a total return of 22.38 percent, versus 26.20
percent for the Standard & Poor's 500
Composite Stock Price Index (S&P 500)
and 24.81 percent for the Lipper
Analytical Services Inc. Variable
Annuity Equity Income Underlying Funds
Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio
from inception on January 21, 1997,
through the fiscal year ended December
31, 1997, versus the performance of
similar hypothetical investments in the
issues that comprise the S&P 500 and
the funds that comprise the Lipper
Variable Annuity Equity Income
Underlying Funds Average.
As of December 31, 1997, net assets had
grown to over $55.4 million. The
Portfolio's target asset mix is 40
percent large capitalization stocks, 30
percent convertible securities, 10
percent investment-grade fixed income,
10 percent high-yield bonds and 10
percent Real Estate Investment Trusts
(REITs).
The large-cap segment of the Portfolio
was approximately 99 percent invested
at the end of the fiscal year and has
been relatively fully invested since
inception. Portfolio transactions
completed during the second half of the fiscal year include the sale of
CoreStates Financial Corp., and the purchases of positions in Cyprus Amax
Minerals Co. and Crown Cork & Seal Co., Inc. At fiscal year end, the Portfolio
owned 58 common stocks spread among 32 industry groups.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
January-21-1997 $10,000 $10,000 $10,000
January-31-1997 $10,000 $10,059 $10,000
February-28-1997 $10,110 $10,134 $10,152
March-31-1997 $9,830 $9,718 $9,832
April-30-1997 $9,991 $10,302 $10,180
May-31-1997 $10,424 $10,922 $10,767
June-30-1997 $10,801 $11,413 $11,243
July-31-1997 $11,411 $12,322 $12,010
August-31-1997 $11,441 $11,632 $11,606
September-30-1997 $11,885 $12,268 $12,202
October-31-1997 $11,751 $11,862 $11,851
November-30-1997 $12,009 $12,408 $12,230
December-31-1997 $12,238(2) $12,620 $12,481
Cumulative Total Return
(Fund)
22.38%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Equity Income Underlying Funds Average tracks
the performance of funds that seek relatively high current income and growth
of income through investing 60% or more of their portfolio in equities, as
reported by Lipper Analytical Services.
The convertible portion of the Portfolio performed well during the fiscal year
although it lagged the broader market for much of that time period. This is
attributable to the fact that the convertible universe consists of many
small-cap companies that, as a group, underperformed large-caps for much of
1997. The Portfolio's tilt toward yield also dampened relative performance, but
provided significant
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
downside support in a volatile market environment. It is our expectation that
convertible securities can perform well in modestly increasing, stable or
declining equity markets, but will lag during very strong periods.
The REIT portion of the Portfolio also performed well during the period. Our
exposure to this sector is in line with the Portfolio's 10 percent target and is
split between REIT stocks and REIT convertibles.
The Portfolio's fixed-income holdings performed as expected, with fairly low
sensitivity to interest-rate fluctuations. This portion of the Portfolio seeks
to provide maximum current income with low exposure to interest rate movements.
This strategy helped reduce volatility during the fiscal year.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
EUROPEAN GROWTH
For the fiscal year ended December 31, 1997, the European Growth Portfolio
produced a total return of 16.07 percent, versus 14.17 percent for the Morgan
Stanley Capital International (MSCI) World
Index and 5.17 percent for the Lipper
Analytical Services Inc. Variable
Annuity International Underlying Funds
Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio
from inception on March 1, 1991,
through the fiscal year ended December
31, 1997, versus the performance of
similar hypothetical investments in the
issues that comprise the MSCI World
Index and the funds that comprise the
Lipper Variable Annuity International
Underlying Funds Average.
For the fiscal year ended December 31,
1997, the Portfolio ranked #7 out of 81
Variable Annuity International Funds
(top 9 percent), according to Lipper.
For the five years ended December 31,
1997, the Portfolio ranked #1 out of 25
such funds. (Lipper rankings are based
on total return and do not take any
sales charges into account.)
Financial stocks in continental Europe
were very strong during the year on
expectations of takeovers and mergers.
Although several large mergers have
materialized, the Portfolio's
sub-adviser, Morgan Grenfell Investment Services Limited, remains wary of the
sharp sector-wide share price rises that may well unwind in time. In the United
Kingdom, financial stocks also performed well. Morgan Grenfell believes that
this outperformance has led to excessive current valuations. As a result, the
Portfolio maintained an underweighted position in financials throughout the
year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund MSCI(3) Lipper(4)
<S> <C> <C> <C>
March 1991 $10,000 $10,000 $10,000
December 1991 $10,134 $10,399 $10,504
December 1992 $10,539 $9,656 $9,800
December 1993 $14,847 $11,625 $13,079
December 1994 $16,089 $12,016 $13,136
December 1995 $20,254 $14,263 $14,737
December 1996 $26,329 $15,935 $16,893
December 1997 $30,561(2) $18,193 $17,766
Average Annual Total Returns
(Fund)
Life of
1 Year 5 Years Fund
16.07%(1) 23.73%(1) 17.75%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing Value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International World Index (MSCI) measures
performance from a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand, and the Far East. The Index does not
include any expenses, fees, or charges, or reinvestment of dividends. The
Index is unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity International Underlying Funds Average tracks
the performance of the funds which invest their assets in securities with
primary trading markets outside of the United States, as reported by Lipper
Analytical Services.
In 1998, as the economic cycle extends, Morgan Grenfell believes that markets
will turn toward companies delivering high-quality earnings growth and has
positioned the Portfolio accordingly.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
Stocks such as Accor SA (France/hotels/motels), Assa Abloy AB (Series B)
(Sweden/business services), and Tesco PLC (U.K./retail-merchandising) are
examples of the types of growth companies forming the core of the Portfolio.
Although country weightings derive from and are driven by stock decisions, it is
worth noting that the Portfolio currently has an overweighted position in the
Dutch, Swedish and French markets relative to the MSCI World Index. The United
Kingdom remains the largest single country position. The Portfolio currently has
no currency hedges in place given the relatively stable outlook for the U.S.
dollar relative to the European currencies.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
GLOBAL DIVIDEND GROWTH
For the fiscal year ended December 31, 1997, the Global Dividend Growth
Portfolio provided a total return of 12.04 percent, versus 14.17 percent for the
Morgan Stanley Capital International (MSCI)
World Index and 13.24 percent for the
Lipper Analytical Services Inc.
Variable Annuity Global Underlying
Funds Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio
from inception on February 23, 1994,
through the fiscal year ended December
31, 1997, versus the performance of
similar hypothetical investments in the
issues that comprise the MSCI World
Index and the funds that comprise the
Lipper Variable Annuity Global
Underlying Funds Average.
The Fund remains fully invested and
well diversified, with 124 equity
issues spread across the world's
largest 14 markets, as defined by
market capitalization. As the world's
largest market, the United States
continues to be the Portfolio's largest
target weighting, with approximately 30
percent of the Portfolio's net assets
spread among 21 stocks. Recent U.S.
additions to the Portfolio include
Fluor Corp. and Crown Cork & Seal Co.,
Inc.
The Portfolio also remains exposed to
Japan, the world's second-largest
market, with a target allocation of
approximately 23 percent of net assets.
While there is still considerable pessimism surrounding Japanese stocks in
general, we are finding many excellent Japanese companies selling at very
attractive prices. We believe these investments may offer significant rewards
for patient and disciplined long-term investors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund MSCI World IX(3) Lipper(4)
<S> <C> <C> <C>
February-23-1994 $10,000 $10,000 $10,000
December-31-1994 $10,027 $9,925 $9,665
December-31-1995 $12,236 $11,781 $11,227
December-31-1996 $14,388 $13,162 $13,242
December-31-1997 $16,121(2) $15,027 $14,995
Average Annual Total Returns
(Fund)
Life of
1 Year Fund
12.04%(1) 13.20%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International World Index (MSCI) measures
performance for a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand, and the Far East. The Index does not
include any expenses, fees or charges, or reinvestment of dividends. The
Index is unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity Global Underlying Funds Average tracks the
performance of funds which invest at least 25% of their portfolio in
securities traded outside of the United States and that may own U.S.
securities as well, as reported by Lipper Analytical Services.
The Portfolio's target allocation of assets to Europe is 35.5 percent and is
represented by the United Kingdom (10 percent of net assets), France (6.5
percent), Germany (7 percent), Italy (4 percent),
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The Netherlands (3 percent), Switzerland (2 percent), Spain (1.5 percent) and
Sweden (1.5 percent). We are very optimistic about the long-term growth
potential of high-quality European common stocks, many of which are more
attractively valued than their U.S. counterparts.
In the Pacific Rim, the Portfolio has exposure to Hong Kong (5 percent of net
assets) and Malaysia (1 percent). The dramatic decline witnessed in many Asian
currencies and equity markets has surpassed even the most pessimistic
expectations. The effects from this crisis seem largely contained within the
region, but will have wide-reaching implications for global growth, inflation
and interest rates. As the Portfolio is exposed to only two southeast Asian
countries, it has fared better than many other global equity funds. Our exposure
to the resource-oriented markets of Australia (2.0 percent) and Canada (3
percent) offers risk reduction through diversification, as well as growth
potential in economically stable countries.
The Portfolio will remain sensitive to any factors that would necessitate
changes to its country allocation. We believe that the long-term outlook for the
economies and securities markets of most of the world's major countries is
favorable and that the stocks of well established, large-capitalization
international companies are poised to perform well over the long term.
Consequently, we remain confident, patient and fully invested.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
PACIFIC GROWTH
For the fiscal year ended December 31, 1997, under difficult investing
conditions, the Pacific Growth Portfolio registered a total return of -37.70
percent, versus 14.17 percent for the Morgan Stanley
Capital International (MSCI) World
Index and -31.92 percent for the Lipper
Analytical Services Inc. Variable
Annuity Pacific Region Underlying Funds
Average. Over the same period, the MSCI
Pacific Free Index posted a total
return of -26.67 percent, while the
MSCI All Country Far East (excluding
Japan) Free Index posted a total return
of -45.48 percent. The accompanying
chart illustrates the performance of a
$10,000 investment in the Portfolio
from inception on February 23, 1994,
through the fiscal year ended December
31, 1997, versus the performance of
similar hypothetical investments in the
issues that comprise the MSCI World
Index, the MSCI Pacific Free Index and
the MSCI All Country Far East
(excluding Japan) Free Index, and the
funds that comprise the Lipper Variable
Annuity Pacific Region Underlying Funds
Average.
It is important to note that the
Portfolio invests primarily in
securities of the markets of the
Pacific Rim, while the MSCI World Index
measures the performance of the
European, Asian and American markets.
The MSCI Pacific Free Index measures
the performance of the markets in
Australia, Hong Kong, Japan, Malaysia,
New Zealand and Singapore. Because of
the relative size of the Japanese
market, the MSCI Pacific Free Index is
dominated by the performance of
equities within that country (Japan
currently makes up more than 70 percent
of the Index). The MSCI All Country Far
East Free Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund MSCI World IX(3) MSCI PF(4) MSCI ACFEF(5) Lipper(6)
<S> <C> <C> <C> <C> <C>
February-23-1994 $10,000 $10,000 $10,000 $10,000 $10,000
December-31-1994 $9,327 $9,925 $9,606 $9,242 $9,269
December-31-1995 $9,862 $11,781 $9,995 $9,871 $9,856
December-31-1996 $10,246 $13,162 $9,081 $10,778 $10,977
December-31-1997 $6,383(2) $15,027 $6,659 $5,876 $7,473
Average Annual Total Returns
(Fund)
Life of
1 Year Fund
- -37.70%(1) -11.00%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International World Index (MCSI) measures
performance from a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand, and the Far East. The performance of
the Index does not include any expenses, fees, or charges, or reinvestment
of dividends. The Index is unmanaged and should not be considered an
investment.
(4) The Morgan Stanley Capital International Pacific Free Index (MSCI PF)
measures performance of stock markets in Australia, Hong Kong, Japan,
Malaysia, New Zealand and Singapore, and excludes shares that are not
readily purchased by non-local investors. The Index does not include any
expenses, fees, or charges, or reinvestment dividends. The Index is
unmanaged and should not be considered an investment.
(5) The Morgan Stanley Capital International All Country Far East Free
(excluding Japan) Index (MSCI ACFEF) measures performance of both the
developed and the emerging markets of the Far East (excluding Japan), and
excludes shares that are not readily purchased by non-local investors. The
Index does not include any expenses, fees or charges, or reinvestment
dividends. The Index is unmanaged and should not be considered an
investment.
(6) The Lipper Variable Annuity Pacific Region Underlying Funds Average tracks
the performance of funds which concentrate their investments in equity
securities with primary trading markets or operations concentrated in the
Western Pacific Basin region or a single country within this region, as
reported by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
measures the performance of both the developed and emerging markets of the Far
East excluding Japan; these markets are often referred to as the "Tiger"
markets.
The Portfolio underperformed its Lipper benchmark because other funds in the
category have significantly higher weightings in Japan and Australia, which have
performed better than other regional markets as a result of the events described
earlier. The Portfolio's long-term strategy has been to emphasize investment in
the growth economies of Asia. This has led the Portfolio's sub-adviser, Morgan
Grenfell Investment Services Limited, to focus on the equity markets of the
Tiger economies, as opposed to those of the more mature, developed economies of
the region, i.e., Japan and Australia. The sub-adviser continues to believe that
the strategy of emphasizing what are believed to be higher growth areas is an
appropriate long-term course.
At the end of the fiscal year, the Portfolio's largest single country position
continued to be Hong Kong (33.8 percent of net assets). The Portfolio's exposure
to greater China, including Taiwan and direct China exposure, was 7.1 percent.
As the current crisis subsides, we will look for opportunities to refocus the
Portfolio on the markets of Southeast Asia, which in many cases have fallen by
more than 60 percent from their highs in U.S. dollar terms.
Strenuous efforts have been made to obtain exposure to electronic and other
export-related U.S. dollar-earning stocks, which are expected to benefit from
the currency crisis. It is also believed that value is beginning to emerge in
some of the more cyclical areas. For example, some Singapore and Hong Kong banks
appear to have overdiscounted the prospects for rising nonperforming loans,
while some real estate stocks in those nations have fallen to levels that may be
overcompensating for any further declines in real estate prices. The Portfolio's
sub-adviser will continue to seek out well-managed companies with good earnings
visibility and strong balance sheets.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
UTILITIES
The Utilities Portfolio provided a total return of 27.15 percent for the fiscal
year ended December 31, 1997 compared to 33.35 percent for the S&P 500 and 26.13
percent for the Lipper Analytical
Services Inc. Variable Annuity Utility
Underlying Funds Average. The
accompanying chart illustrates the
performance of a $10,000 investment in
the Portfolio from inception on March
1, 1990, through the fiscal year ended
December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the S&P 500 and the funds that comprise
the Lipper Variable Annuity Utility
Underlying Funds Average.
For the fiscal year ended December 31,
1997, the Portfolio ranked #3 out of 16
Variable Annuity Utility Funds (top 19
percent), according to Lipper. For the
three and five years ended December 31,
1997 the Portfolio ranked #5 out of 14
such funds and #3 out of 5 such funds,
respectively. (Lipper rankings are
based on total return and do not take
any sales charges into account.)
During 1997, utilities benefited from a
blend of improving industry
fundamentals, a favorable interest rate
environment and ongoing industry-wide
merger and acquisition activity and
speculation. However, a significant
event underpinning the strong performance of the Utilities Portfolio,
particularly during the second-half of 1997, was the economic crisis in
Southeast Asia which prompted a highly defensive investment environment in the
U.S. market. The Portfolio remained fully invested throughout the year,
reflecting this underlying defensive theme. Additionally, investor confidence
continued to strengthen as regulatory concerns abated and more visible growth
fundamentals within these sectors became apparent.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lipper(4)
<S> <C> <C> <C>
March-01-1990 $10,000 $10,000 $10,000
December-31-1990 $10,452 $10,235 $10,340
December-31-1991 $12,601 $13,347 $12,924
December-31-1992 $14,194 $14,363 $14,029
December-31-1993 $16,422 $15,808 $15,936
December-31-1994 $14,940 $16,017 $14,704
December-31-1995 $19,220 $22,030 $18,734
December-31-1996 $20,889 $27,086 $20,752
December-31-1997 $26,561(2) $36,120 $26,174
Average Annual Total Returns
(Fund)
Life of
1 Year 5 Years Fund
27.15%(1) 13.35%(1) 13.28%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Composite Stock Price Index (S & P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lipper Variable Annuity Utility Underlying Funds Average tracks the
performance of funds which invest at least 65% of their equity portfolio in
utility shares, as reported by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
Given this utility-friendly investment environment, electric utilities were a
chief beneficiary of the cautious financial markets with much of the impetus
being a flight to quality and safety. Additionally, electric utilities continued
to witness fair and balanced deregulation initiatives by many state utility
commissions which tempered concerns and strengthened shareholder confidence in
this sector. Electric utility merger and acquisition activity was consistently
evident throughout the year as many companies enhanced their earnings outlook
and expanded their product offerings in preparation for the new competitive
environment. The telecommunications sector also showed very healthy performance
and benefited from numerous merger and acquisition announcements. Furthermore,
the telecom sector overall showed very strong earnings growth fueled by a strong
economy and high growth applications including wireless, data and selective
international investments. While natural gas pricing was adversely impacted by
mild weather patterns toward year-end, the gas pipeline companies showed strong
overall performance during the year, which was attributable to strong growth in
core earnings and anticipation of an acceleration in non-regulated earnings
going forward.
On December 31, 1997, 88 percent of the Portfolio's net assets was allocated to
utility and utility-related equities. Within the equity component, 54 percent
was allocated to electric utilities, 35 percent to telecommunications and 11
percent to natural gas. Enhancing the Portfolio's overall diversification are
selective foreign securities, which represent 9 percent of net assets and are
focused on the growth area of global telecommunications. The Portfolio's
high-quality fixed-income investments accounted for 9 percent of net assets.
Three percent was held in cash and cash equivalents.
The Portfolio will maintain its focus on a well-diversified allocation of
utility and utility-related investments, which is expected to help the Portfolio
meet its overall objectives of current income and long-term growth of income and
capital. Energy and telecommunications should remain the investments of choice
and appeal going forward. The Portfolio is poised to benefit from the resulting
worldwide growth coming from globalization, privatization and strong product
demand.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
STRATEGIST
For the fiscal year ended December 31, 1997, the Strategist Portfolio posted a
total return of 13.71 percent versus 33.35 percent for the S&P 500, 9.76 percent
for the Lehman Brothers Government/
Corporate Bond Index and 18.92 percent
for the Lipper Analytical Services Inc.
Variable Annuity Flexible Portfolio
Underlying Fund Average. The
accompanying chart illustrates the
performance of a $10,000 investment in
the Portfolio for the 10 years ended
December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the S&P 500 and the Lehman Brothers
Government/Corporate Bond Index and the
funds that comprise the Lipper Variable
Annuity Flexible Portfolio Underlying
Fund Average.
The Portfolio performed well in the
first half of the fiscal year ended
December 31, 1997, but limited exposure
to bonds held performance back in the
last few months of the year. Overall,
the Portfolio's total return for the
fiscal year exceeded its annualized
rate of return since inception (10.32
percent), but trailed its competitive
universe of variable annuity flexible
portfolios.
At the start of 1997 the Portfolio
featured a slightly overweighted
position in stocks (60 percent, versus
an average or neutrally balanced
weighting of 55 percent), an
underweighted position in bonds (20
percent, versus 35 percent) and a
larger-than-normal cash reserve of 20
percent (versus an average of 5 percent). Greater corporate profitability and a
firming economy led to an increased exposure to equities throughout the year.
The Portfolio entered 1998 with 63 percent of its net assets in stocks, 21
percent in bonds and 16 percent in cash.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund S&P 500(3) Lehman(4) Lipper(5)
<S> <C> <C> <C> <C>
December-31-1987 $10,000 $10,000 $10,000 $10,000
December-31-1988 $11,279 $11,655 $10,758 $11,023
December-31-1989 $12,483 $15,343 $12,289 $13,306
December-31-1990 $12,677 $14,869 $13,306 $13,447
December-31-1991 $16,260 $19,390 $15,453 $16,868
December-31-1992 $17,436 $20,866 $16,624 $18,133
December-31-1993 $19,246 $22,965 $18,458 $20,316
December-31-1994 $20,004 $23,268 $17,810 $19,920
December-31-1995 $21,884 $32,003 $21,236 $24,798
December-31-1996 $25,172 $39,347 $21,852 $28,260
December-31-1997 $28,624(2) $52,469 $23,985 $33,607
Average Annual Total Returns
(Fund)
1 Year 5 Years 10 Years
13.71%(1) 10.42%(1) 11.09%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(4) The Lehman Brothers Government/Corporate Bond Index tracks the performance
of government and corporate obligations, including U.S. government agency
and U.S. treasury securities and corporate and yankee bonds with maturities
of one to ten years. The performance of the Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Variable Annuity Flexible Portfolio Underlying Funds Average
tracks the performance of funds which allocate their investments across
various asset classes, including domestic common stocks, bonds, and money
market instruments with a focus on total return, as reported by Lipper
Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The Portfolio's industry emphasis remained relatively unchanged throughout the
fiscal year and featured heavy exposure to the technology, financial, consumer
goods and services, and energy sectors. Fixed-income investments reflected a
blend of corporate and government issues of various maturities and yields.
HIGH YIELD
For the fiscal year ended December 31, 1997, the High Yield Portfolio posted a
total return of 11.87 percent, versus 12.76 percent for the Lehman Brothers High
Yield Index and 13.41 percent for the
Lipper Analytical Services, Inc.
Variable Annuity High Current Yield
Underlying Funds Average. The
accompanying chart illustrates the
performance of a $10,000 investment in
the Portfolio for the 10 years ended
December 31, 1997, versus the
performance of similar hypothetical
investments in the issues that comprise
the Lehman Brothers High Yield Index
and the funds that comprise the Lipper
Variable Annuity High Current Yield
Underlying Funds Average.
As the economy has continued to expand
over the past few years, the Portfolio
has tended to concentrate on B-rated
issues. In a growing economy it is not
difficult to find undervalued
investments in this sector that provide
attractive yields as well as capital
appreciation potential. We continue to
feel that many of these issues are very
attractive long-term investments.
However, given the lower market yields
available today and the potential for a
modest tightening move by the Federal
Reserve Board down the road, we have
taken some defensive steps, including
an increase of the Portfolio's
allocation to the higher-quality end of the high-yield market (BB-rated issues
or higher). We feel that these issues will better protect shareholders during a
potentially volatile market environment, as well as provide the liquidity and
flexibility needed to take advantage of future opportunities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund Lehman(3) Lipper(4)
<S> <C> <C> <C>
December-31-1987 $10,000 $10,000 $10,000
December-31-1988 $11,084 $11,253 $11,300
December-31-1989 $9,705 $11,346 $11,508
December-31-1990 $7,226 $10,258 $10,820
December-31-1991 $11,427 $14,996 $14,567
December-31-1992 $13,524 $17,357 $16,910
December-31-1993 $16,787 $20,329 $20,041
December-31-1994 $16,372 $20,120 $19,429
December-31-1995 $18,817 $23,976 $23,020
December-31-1996 $21,071 $26,698 $26,137
December-31-1997 $23,571(2) $30,104 $29,642
Average Annual Total Returns
(Fund)
1 Year 5 Years 10 Years
11.87%(1) 11.75%(1) 8.95%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on the net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers High Yield Index tracks the performance of all below
investment grade securities which have at least $100 million in outstanding
issuance, are greater than one year to maturity and are issued in fixed rate
U.S. dollar denominations. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity High Current Yield Underlying Funds Average
tracks the performance of funds which aim at high (relative) current yield
from fixed income securities, has no quality or maturity restrictions, and
tends to invest in lower grade debt issues, as reported by Lipper Analytical
Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
In addition, the Portfolio continues to limit its exposure to cyclical
industries and remains focused on more-predictable, recession-resistant or
growth sectors of the economy, such as broadcasting, media, cable,
telecommunications and food and beverages. In some of these sectors, such as
media and telecommunications, we expect to see continued consolidation, which
may bode well for many of the Portfolio's individual holdings.
Over the near term, there could be continued volatility in the financial markets
as investors assess the economy's strength, possible Federal Reserve Board
actions and the ongoing budget debate. However, despite any potential short-term
weakness, we consider today's high-yield market to be an attractive long-term
opportunity for investors.
QUALITY INCOME PLUS
For the fiscal year ended December 31, 1997, the Quality Income Plus Portfolio
posted a total return of 11.09 percent versus 9.65 percent for the Lehman
Brothers Aggregate Bond Index and 9.24
percent for the Lipper Analytical
Services Inc. Variable Annuity
Corporate Debt A-Rated Underlying Funds
Average. The accompanying chart
illustrates the performance of a
$10,000 investment in the Portfolio for
the 10 years ended December 31, 1997,
versus the performance of similar
hypothetical investments in the issues
that comprise the Lehman Brothers
Aggregate Bond Index and the funds that
comprise the Lipper Variable Annuity
Corporate Debt A-Rated Underlying Funds
Average.
For the fiscal year ended December 31,
1997, the Portfolio ranked #2 out of 29
Variable Annuity Corporate Debt A-Rated
Funds, according to Lipper. For the
five and ten years ended December 31,
the Portfolio ranked #3 out of 25 such
funds (top 12%) and #4 out of 16 such
funds (top 25%), respectively. (Lipper
rankings are based on total return and
do not take any sales charges into
account.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund Lehman(3) Lipper(4)
<S> <C> <C> <C>
December-31-1987 $10,000 $10,000 $10,000
December-31-1988 $10,732 $10,789 $10,679
December-31-1989 $12,103 $12,357 $12,022
December-31-1990 $12,932 $13,464 $12,973
December-31-1991 $15,356 $15,618 $15,137
December-31-1992 $16,624 $16,774 $16,262
December-31-1993 $18,784 $18,409 $18,044
December-31-1994 $17,539 $17,872 $17,305
December-31-1995 $21,801 $21,173 $20,570
December-31-1996 $22,140 $21,941 $21,084
December-31-1997 $24,597(2) $24,058 $23,015
Average Annual Total Returns
(Fund)
1 Year 5 Years 10 Years
11.09%(1) 8.15%(1) 9.42%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS
(1) Figure assumes reinvestment of all distributions for the underlying fund
based on the net asset value (NAV). It does not reflect the deduction of
insurance expenses, an annual contract maintenance fee, or surrender
charges.
(2) Closing value on December 31, 1997 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Lehman Brothers Aggregate Bond Index tracks the performance of all US
Government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities and asset-backed securities.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(4) The Lipper Variable Annuity Corp Debt A Rated Underlying Funds Average
tracks the performance of funds which invest at least 65% of their assets in
corporate debt issues rated "A" or better or government issues, as reported
by Lipper Analytical Services.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
During 1997, the Portfolio's weighted average maturity ranged from 13.5 to 17.8
years. The portfolio manager's diversified asset allocation strategy, which
focuses principally on corporate bonds, is reviewed on an ongoing basis. The
asset allocation shifts between mortgage-backed securities, U.S. Treasury
instruments and corporate bonds also are reviewed on an ongoing basis to
capitalize on the ever changing investment horizon. In our opinion, the
Portfolio's competitive performance since its inception on March 1, 1987 is
attributable to dynamic asset allocation and sector shifts based on careful
credit reviews and yield curve assessments.
The overweighted sectors most responsible for the Portfolio's exceptional
returns were utilities (15 percent of net assets), long-term, high-quality
industrial bonds (9 percent), insurance (5 percent) and brokerage bonds (nearly
4 percent). Each of these sectors outperformed the corporate market as a whole.
MONEY MARKET
For the fiscal year ended December 31, 1997, the Money Market Portfolio posted a
total return of 5.23 percent; as of December 31, the Portfolio's 30-day
annualized yield was 5.24 percent. Average life was 67 days. At the end of the
fiscal year, the Portfolio had net assets in excess of $335 million, down
slightly from one year ago.
On December 31, 1997, approximately 79 percent of the Portfolio's assets were
invested in high-quality commercial paper, 18 percent in certificates of deposit
and short-term bank notes of major financially strong commercial banks, 2
percent in the bankers' acceptances of such institutions and 1 percent in a
federal agency obligation.
At the end of the fiscal year, approximately 87 percent of the Portfolio's
holdings were scheduled to mature in less than four months. Therefore, the
Portfolio is well positioned for stability of value with a high degree of
liquidity. We continue to manage the Portfolio in a straightforward,
conservative style without "structured" notes or derivatives that could
fluctuate excessively with changing interest rates. As always, the Portfolio
serves as a useful investment for liquidity, preservation of capital and a yield
that is reflective of prevailing money market conditions.
LOOKING AHEAD
We expect U.S. economic growth to remain healthy in early 1998, with the Federal
Reserve Board unlikely to raise interest rates. However, the central bank may
need to reassess its current complacent stance on monetary policy during the
year, should inordinately strong economic growth cause an unacceptable increase
in inflation.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The reestablishment of currency stability in Asia remains of paramount
importance to the ability of regional stock markets to make a sustainable
recovery. Actions taken in recent months across the region (particularly by
Korea) have reduced downside volatility, and most currencies have rallied to
some extent since about mid-January. Stock markets have bounced back also, but
appear to be somewhat skeptical about the commitment of regional authorities to
reform. The focus going forward will be on how the policy shift is implemented
in coming months. The markets will want to see proof that problems within the
regional banking industry are being addressed. Equally important will be a clear
breaking down of the link between business and politics. The "crony capitalist"
network has severely undermined rational economic judgements in a number of
these countries in recent years.
Morgan Grenfell believes that China will not resort to devaluation, but will
choose to boost its domestic economy via government expenditure on low-cost
housing and infrastructure. The resolution of the Chinese leadership on this
issue is increasingly impressive and may begin to convince the markets of their
commitment. If this occurs it would be a major contribution to regional
stability.
Morgan Grenfell believes the outlook for European equity markets in 1998 is
encouraging. Although the situation in Asia and its impact on European corporate
earnings will continue to be monitored carefully, the underlying fundamentals of
the European markets remain positive. The transition to monetary union and the
introduction of a unified currency, the Euro, begins with the transfer of
monetary policy powers to the European Central Bank on January 2, 1999. Morgan
Grenfell believes that the actual impact of monetary union on equity markets
will be limited. However, the prospect of a single currency has already begun to
stimulate cross-border merger and acquisition activity and should continue to
provide an important boost for the European equity markets. In addition, low and
stable interest rates are likely to increase inflows to equity-based mutual
funds, which should also provide support for markets over the coming year.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
We appreciate your ongoing support of Dean Witter Variable Investment Series and
look forward to continuing to serve your investment needs and objectives.
Sincerely,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
--------------------------
THE NET ASSET VALUES (THE "NAVS") PRESENTED IN THE FINANCIAL STATEMENTS OF DEAN
WITTER VARIABLE INVESTMENT SERIES (THE "FUND") REFLECT THE NAVS OF EACH OF THE
RESPECTIVE PORTFOLIOS. THE FUND IS THE UNDERLYING INVESTMENT FOR VARIOUS
VARIABLE ANNUITY CONTRACTS AND AS SUCH, THE NAVS OF EACH PORTFOLIO ARE NOT
INDICATIVE OF THE UNIT VALUES OF THE INSURANCE COMPANY SEPARATE ACCOUNTS.
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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
<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>
<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
<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>
<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
<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>
<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
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAPITAL
EUROPEAN GROWTH PACIFIC GROWTH APPRECIATION* EQUITY
---------------------------- -------------------------- ------------ --------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
FOR THE YEAR ENDED ENDED ENDED ENDED ENDED ENDED
ENDED DECEMBER DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
31, 1997 1996 1997 1996 1997 1997 1996
<S> <C> <C> <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 $ 4,000,633 $ 2,556,972
Net realized gain............. 33,715,966 19,547,703 (18,390,247) (2,475,077) (257,864) 114,548,760 42,116,968
Net change in unrealized
appreciation/depreciation... 15,487,002 41,074,663 (29,854,161) 3,540,345 1,384,140 87,770,605 5,775,201
-------------- ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 52,920,777 62,886,858 (46,941,246) 2,477,867 1,336,134 206,319,998 50,449,141
-------------- ------------ ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (3,760,260) (531,371) (1,891,258) (1,651,362) -- (4,001,396) (2,577,952)
Net realized gain............. (18,466,454) (11,996,632) -- -- -- (43,430,509) (54,814,557)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
TOTAL.................... (22,226,714) (12,528,003) (1,891,258) (1,651,362) -- (47,431,905) (57,392,509)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 69,322,769 60,993,831 27,108,335 66,862,929 33,834,119 150,537,439 132,116,853
Reinvestment of dividends and
distributions............... 22,226,714 12,528,003 1,891,258 1,651,362 -- 47,431,905 57,392,509
Cost of shares repurchased.... (33,224,347) (9,578,044) (55,800,009) (23,134,634) (2,864,342) (55,675,579) (20,436,940)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 58,325,136 63,943,790 (26,800,416) 45,379,657 30,969,777 142,293,765 169,072,422
-------------- ------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... 89,019,199 114,302,645 (75,632,920) 46,206,162 32,305,911 301,181,858 162,129,054
NET ASSETS:
Beginning of period........... 302,422,054 188,119,409 144,536,457 98,330,295 -- 521,908,424 359,779,370
-------------- ------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD............ $ 391,441,253 $302,422,054 $68,903,537 $144,536,457 $32,305,911 $823,090,282 $521,908,424
-------------- ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 5,394,724 $ 2,259,627 $ 2,054,796 $ 1,663,988 $ 209,858 $ -- $ 763
-------------- ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 3,070,886 3,131,701 3,373,487 6,522,537 3,118,030 4,895,346 4,838,072
Issued in reinvestment of
dividends and
distributions............... 983,918 677,922 188,937 173,462 -- 1,670,194 2,452,920
Repurchased................... (1,452,789) (514,185) (6,804,802) (2,326,246) (263,345) (1,832,698) (770,532)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)....... 2,602,015 3,295,438 (3,242,378) 4,369,753 2,854,685 4,732,842 6,520,460
-------------- ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<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
<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>
<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.
<PAGE>
</TABLE>
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
<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-Adviser")) that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the 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
<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
<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.
<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-Adviser, the Sub-Adviser 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-Adviser 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.
<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-Adviser 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>
<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.
<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 ACCUMULATED
NET UNDISTRIBUTED
INVESTMENT NET REALIZED
INCOME (LOSS) 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.
<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>
OUTSTANDING
ISSUER 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>
<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
<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
<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
<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
<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>
SEE NOTES TO FINANCIAL STATEMENTS
<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>
<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
<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
<PAGE>
Trustees
----------------------------------------
Michael Bozic Dr.
Manuel H. Johnson
Charles A. Fiumefreddo Michael
E. Nugent
Edwin J. Garn Philip
J. Purcell
John R. Haire John
L. Schroeder
Wayne E. Hedien
Officers
----------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL
Thomas F. Caloia
TREASURER
Transfer Agent Independent Accountants
- -------------------------------------- --------------------------------------
Dean Witter Trust FSB Price Waterhouse LLP
Harborside Financial Center--Plaza Two 1177 Avenue of the Americas
Jersey City, New Jersey 07311 New York, New York 10036
Investment Manager
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Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
Sub-Adviser
(European Growth and Pacific Growth
Portfolio)
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Morgan Grenfell Investment Services
Limited
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
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Northbrook Life Insurance Company
P.O. Box 94040
Palatine, IL 60094-4040 BULK RATE MAIL
U.S. POSTAGE
PAID
ROCKVILLE CENTER
NY 11570
PERMIT NO. 150
40113A
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D E A N W I T T E R
V A R I A B L E I N V E S T M E N T S E R I E S
ANNUAL REPORT
D E C E M B E R 3 1 , 1 9 9 7
[LOGO] DEAN WITTER
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT TWO WORLD TRADE CENTER NEW
SERIES YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS JUNE 30, 1998
DEAR SHAREHOLDER:
The equity markets across the globe were choppy during the first half of 1998.
Fears of the Asian meltdown spreading, coupled with Japan slipping into
recession, ignited fears of a worldwide slowdown. Equity market performance in
the United States, up 17.7 percent, and Europe, up 26.7 percent, faced periods
of volatility but surged ahead on the strength of firm economies, strong
consumer spending and low inflation. The real damage was in the emerging
markets. Hong Kong, whose currency had not devalued, shed 27.9 percent of its
value, while Indonesia, the hardest-hit Asian market, lost 58 percent of its
capitalization. The shockwaves were felt half a world away in eastern Europe and
Latin America. Russia and Brazil, for instance, were consistently rumored to be
on the brink of devaluation, with their markets down 59.7 percent and 17.6
percent, respectively.
THE UNITED STATES
Despite a vibrant consumer sector, the financial crisis in Asia appeared to be
having an increasing impact on U.S. economic growth during the period under
review. In April, the U.S. trade deficit widened to $14.5 billion, worse than
the consensus estimate. Falling exports and an inventory overhang slowed the
growth of the industrial sector from the beginning of the year. Nonetheless,
many sectors of the U.S. economy remain strong, and the trade deficit's drag on
U.S. economic growth appears to have been offset by strong domestic demand.
Consumer spending grew at the rapid rate of 6 percent in the first quarter and
remained high in the second quarter, due to strong labor and financial market
conditions.
Sound fundamentals played a positive role in the bond market's performance
during the first half of 1998. Inflationary pressures were minimal throughout
the period and the U.S. budget surplus continued to grow, diminishing the supply
of Treasury securities. Interest rates fell across the board, with short-term
rates falling less than long-term rates due in large part to the federal-funds
rate anchoring the short end at
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
5.50 percent. The federal-funds rate has now been within 50 basis points of the
current level for more than three and one-half years. Despite the strength of
the domestic economy and tightness of the labor market, the uncertainty
generated by Asia and the plunge in commodity prices have encouraged the Federal
Reserve to keep monetary policy on hold. Even though the Fed's governors voted
to adopt a bias toward tightening monetary conditions in March, few market
participants believe that such a move will take place as long as Asia remains
mired in financial turmoil and the dollar remains firm against that continent's
currencies.
While volatile, the U.S. stock market remained relatively resilient in the face
of global economic uncertainty, and domestic large-cap stocks benefited from a
perception that they could provide a safe haven from the disorder in Asia. This
positive investor psychology combined with strong fundamentals like low
inflation, high employment and rising consumer confidence in the U.S. economy to
support rising equity prices.
EUROPE
During the period under review, European stock markets delivered strong returns,
in both local currency and U.S.-dollar terms. After a setback during the fourth
quarter of 1997, due to the crisis in Asia, European markets recovered strongly
during the first half of 1998. Market performance was driven by several factors,
particularly the strength of the ongoing recovery in the European economies.
Continental Europe is now the only major region worldwide where analysts expect
stronger economic growth in 1998 versus 1997. In the core European markets,
economic activity has accelerated as a result of increased business and consumer
optimism. At the same time, interest-rate cuts in Spain and Italy as part of the
European Monetary Union (EMU) convergence process have stimulated real GDP
growth of better than 3 percent, with further strengthening likely this year.
Throughout Europe the inflationary outlook remains benign. Lower commodity
prices resulting from the slowdown in Asia imply interest-rate stability for the
rest of the year. In the United Kingdom, which is now in a different phase of
its economic cycle, high interest rates and a pronounced local currency have had
a strongly negative impact on economic activity, and GDP growth forecasts for
the U.K. have been reduced to around 2.5 percent for the full year.
At the corporate level, earnings results from Continental European corporations
have largely met analysts' expectations and these companies remain fairly
positive on the prospects for the second half of the year. This has been the
case particularly for sectors geared to the ongoing recovery in European
economies, with banking, consumer goods and telecom stocks showing the strongest
earnings growth. Where earnings have disappointed, this has been mainly due to
lower sales or
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
increased competition in Asian markets. However, the overall impact from Asia
has been less severe than expected, and Continental European corporate earnings,
supported by accelerating domestic economies, are expected to grow by 13 to 14
percent this year. In the United Kingdom, the strength of interest rates and the
British pound have continued to have a damaging effect on company profits,
particularly for manufacturers and exporters. Mainly because of this, corporate
earnings are expected to grow by a more moderate 5 to 7 percent in 1998.
In addition to positive economic fundamentals, the transition to the European
single currency (Euro) has also supported the region's performance over the last
six months. With the 11 "first-wave" EMU members now established, the two main
issues are the convergence of short-term interest rates and the formulation of a
monetary policy framework for the European Central Bank. Short-term interest
rates must converge further during the second half of 1998, implying sharp cuts
in the southern European economies. However, the risk that falling interest
rates could result in overheating in Spain and Italy has been reduced by the
disinflationary effect of the crisis in Asian markets. The majority of European
corporations will be fully prepared for the transition to the Euro before the
end of the third quarter, and markets appear to be discounting a generally
smooth transition throughout the rest of this year.
The imminence of the single currency has had a significant impact on the level
of European corporate activity. This has been especially true in the banking and
financial sectors, where the single currency creates scope for significant
operational synergies and cost savings. Most of the activity of the last six
months has taken place within national borders as companies attempt to
strengthen their domestic position. However, once the Euro is well established,
competitive pressures and pricing transparency should lead to cross-border
deals, creating larger companies with a pan-European presence. This is
particularly true for industries such as transport and automobiles, where the
disappearance of pricing differentials across Europe may create significant
margin pressure. The very positive market reactions to recent restructuring
announcements at Hoechst and Siemens give an indication of the growing pressure
on company management to take action to maximize shareholder value. Corporate
restructuring and reform may provide a significant boost to Continental European
earnings in the medium term.
ASIA AND THE PACIFIC
Asian markets experienced an extremely volatile and weak first half as the
economic downturn in the region intensified. A strong rally during January in
response to reform initiatives and debt rescheduling in a number of markets
proved to be short-lived as the difficulties of implementation
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
were gradually realized. Toward the end of the period, the release of
first-quarter economic data dealt a further blow to confidence by revealing the
contraction in growth to be far more severe than had initially been anticipated.
Particularly unsettling was the 2 percent contraction in Hong Kong's domestic
economy, which had been accorded a degree of insulation from the downturn in the
region.
Having rallied in the first quarter in line with the region's markets, its
currencies weakened later in the period, softening returns from markets on a
currency-adjusted basis during the second quarter. This occurred despite the
tight fiscal and monetary policies pursued throughout the region, which were
influenced by the International Monetary Fund (IMF) through its direct
involvement via IMF bail-out programs in three markets (Thailand, Korea and
Indonesia) and through the moral suasion it continued to exercise elsewhere.
Interest rates accordingly remained high, creating a negative operating
environment for companies by squeezing liquidity at a time when banks were
curtailing lending in response to a marked deterioration in asset quality.
The Hong Kong stock market's performance was punctuated by recurrent concerns
over a possible severance of the Hong Kong-U.S. dollar peg. These concerns
stemmed from a belief that China's ambitious growth target of 7 to 8 percent for
1998 could not be achieved without the external stimulus of a devaluation of its
currency. This conviction placed upward pressure on interest rates as the Hong
Kong Monetary Authority moved to squeeze speculators out of its inter-bank
market. The impact on stocks was unsurprisingly severe, given both the issues of
confidence that speculation involves and the dominance of
interest-rate-sensitive property and bank stocks in the Hong Kong market.
Politics dominated the Indonesian market as President Suharto was unseated after
more than 30 years in power in the most forceful display of social unrest seen
by the region for a generation. In a less spectacular fashion, politics remained
central to the Malaysian market as the ebb and flow of political influence
between Prime Minister Mahathir and his deputy affected sentiment, given the
latter's more pragmatic approach toward the role of foreign investment in
Malaysia's economic rehabilitation.
In Northeast Asia, the New Year rally in Korean stocks following the successful
rescheduling of its foreign debt proved short-lived as IMF requirements began to
manifest themselves in extremely high interest rates and as recession in the
manufacturing sector began in earnest. However, by regional comparison Korea
performed better than most markets over the six months, given the extreme
weakness in that market at the close of 1997. In Taiwan, financial and
electronics stocks led the
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
market lower, in spite of a relatively robust domestic economy. The contagion
effect of the regional slowdown was also an issue, as it was in Singapore, where
stock valuations corrected to reflect the earnings impact of the sharp
contraction in the neighboring economies of Indonesia and Malaysia.
The Japanese market moved lower during the first quarter, dogged by persistent
concerns over solvency and asset quality in the banking sector. The political
debate surrounding the appropriate stimuli for the recession-ridden economy did
little to lift sentiment, which was mirrored by a continued slide in the yen
before intervention by the U.S. and Japanese central banks forced a correction.
The regional downturn continued to put pressure on Australian stocks during the
first quarter of 1998 as commodity prices weakened in line with external demand.
The currency moved lower as the current account moved further into deficit,
thereby diluting currency-adjusted returns. By contrast, a relatively robust
Australian economy enabled domestic stocks to outperform during the second
quarter, helping the Australian market post a modest positive return for the
period as a whole.
CAPITAL APPRECIATION PORTFOLIO
For the six-month period ended June 30, 1998, the Capital Appreciation Portfolio
posted a total return of 4.39 percent versus 17.70 percent for the S&P 500 Index
and 15.63 percent for the Lipper Variable Annuity Capital Appreciation
Underlying Funds Average.
The Portfolio's underperformance relative to the S&P 500 and its Lipper universe
is a result of the Portfolio's overweighting relative to these benchmarks in
small-cap stocks while, during the period under review, large-cap stocks
significantly outperformed. However, we continue to believe that the small-cap
segment of the market remains undervalued and that this segment offers greater
growth potential over the long term, than the broader market. Accordingly, the
Portfolio continues to pursue small-cap stocks in the $5 to $25 price-range with
sound fundamentals, solid earnings momentum and financial stability while
maintaining broad diversification across industry groups. The top four
industries represented in the portfolio on June 30, 1998, were technology (22.4
percent of net assets), consumer cyclicals (22.1 percent), financials (10.5
percent), and health care (28.8 percent). While the technology industry has been
particularly affected by the Asian crisis, we remain heavily concentrated in
this sector because we are convinced there is good value among small- and
mid-cap software names that operate within niche markets.
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
We believe that small- and mid-cap stocks stand to benefit from the current
environment of stable interest rates, moderate economic growth and a strong U.S.
dollar. Although the Asian financial crisis initially caused investors to
gravitate toward the perceived safety of large caps, small- and mid-cap stocks
actually have less global exposure and may provide investors with a greater
defense against any continued turmoil around the Pacific Rim.
CAPITAL GROWTH PORTFOLIO
For the six-month period ended June 30, 1998, the Capital Growth Portfolio
posted a total return of 15.40 percent versus 17.70 percent for the S&P 500
Index and 16.23 percent for the Lipper Variable Annuity Growth Underlying Funds
Average.
The Portfolio's diversification into small- and mid-capitalization stocks
contributed heavily to its performance during the period under review. However,
the large-scale underperformance of these stocks relative to their
large-capitalization counterparts in the final weeks of the second quarter
caused the Portfolio to underperform the market. On June 30, 1998, the Portfolio
was approximately 53 percent invested in large-cap stocks and 47 percent in mid-
and small-cap companies. Going forward, we do not anticipate that there will be
any dramatic shift in the market-capitalization structure of the Portfolio. We
believe that portfolio diversification is important across both industry sectors
and capitalization ranges.
Investments in the technology, financial and retail sectors contributed to the
Portfolio's performance during the period. The Portfolio maintained overweighted
positions in each of these sectors for much of the period. At the end of June,
the Portfolio had approximately 17 percent of its assets invested in financial
and interest-rate-sensitive stocks, 25 percent in technology and capital goods
stocks, 12 percent in basic industry and economically sensitive stocks and 45
percent in consumer and consumer-related stocks. The remaining 1 percent was
invested in cash and cash equivalents.
Among the Portfolio's largest holdings were U.S.A. Waste Services, Snyder
Communications, Tyco International, Providian Financial and Conseco.
COMPETITIVE EDGE PORTFOLIO
The Competitive Edge Portfolio was introduced on May 18, 1998. This Portfolio
seeks long-term capital growth by investing at least 80 percent of its net
assets in the common stocks of U.S. and
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
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 supplemental securities chosen by the
investment manager.
The Global Investing study examines some 2,000 companies to uncover those that
have a long-term sustainable competitive advantage in the global arena. The team
then follows a rigorous process to identify whether the competitive advantage is
reflected in the current stock price. Finally, from that list the team produces
a shorter set of their most highly recommended stocks -- the Competitive Edge
"Best Ideas" list.
On June 30, 1998, the Portfolio's largest holdings were News Corporation, ST
Microelectronics NV, American Express, Procter & Gamble, Asia Pulp & Paper and
Citicorp.
DIVIDEND GROWTH PORTFOLIO
For the six-month period ended June 30, 1998, the Dividend Growth Portfolio
posted a total return of 10.18 percent, compared to 17.70 percent for the S&P
500 Index and 12.26 percent for the Lipper Variable Annuity Growth and Income
Underlying Funds Average.
The Portfolio's underperformance of its benchmark was accounted for by its
limited exposure to technology stocks, which have very little, if any, current
yield. Additionally, the Portfolio was underweighted in its exposure to
financial services stocks, which performed very well during the period.
The Dividend Growth Portfolio began operations on November 9, 1994. Since that
date, the Fund has maintained a fully invested posture. During the six-month
period under review, shares of Associates First Capital were received into the
portfolio as a spin-off from Ford Motor Company. Subsequently, this holding was
built into a full portfolio position. The Portfolio's holding in Tricon Global
Restaurants (a spin-off from Pepsico) was liquidated. At period-end, the
Portfolio owned 52 common stocks spread among 34 industries.
EQUITY PORTFOLIO
For the six-month period ended June 30, 1998, the Equity Portfolio posted a
total return of 17.90 percent, compared to 17.72 percent for the S&P 500 Index
and 16.15 percent for the Lipper Variable Annuity Growth Index.
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
The Portfolio has been defensively positioned for much of 1998. Given our
expectations that world economic growth would be slow, our emphasis has been on
growth stocks. During periods of economic slowdown, growth stocks tend to
outperform cyclical stocks, because they typically have more stable earnings.
Entertainment and media has been one area of greatest concentration, accounting
for 10 percent of net assets on June 30. Other growth sectors such as health
care, financial services and consumer staples have been market weighted. In
1998, the Portfolio has been overweighted in only one area of cyclicals, namely
consumer cyclicals or retailers. Given strong wage growth and low unemployment
in the United States, retail sales, were, as expected, strong. The Portfolio has
been market weighted in technology stocks all year, with an emphasis on the
steady growth sectors of technology such as software. Hardware stocks have been
avoided. Basic cyclicals, such as capital goods and transportation, have been
underweighted throughout the year. Currently, 9.6 percent of the Portfolio is
invested in U.S. Treasury bonds.
Among the Portfolio's largest holdings are Equitable Companies, General
Electric, Viacom, Becton Dickinson & Co. and America Online.
Looking ahead, we are currently expecting the world economy to slow further as
1998 progresses. We also anticipate that unemployment in the United States is
likely to increase. Therefore, it is probable that we will increase our emphasis
on defensive growth stocks and reduce our exposure to consumer cyclicals.
INCOME BUILDER PORTFOLIO
For the six-month period ended June 30, 1998, the Income Builder Portfolio
posted a total return of 4.94 percent, compared to 17.70 percent for the S&P 500
Index and 10.64 percent for the Lipper Variable Annuity Equity Income Underlying
Funds Average.
The Income Builder Portfolio commenced operations on January 21, 1997. By June
30, 1998, assets had grown to more than $88.8 million. The target asset mix of
the Portfolio is 40 percent large-capitalization common stocks, 30 percent
convertible securities, 10 percent investment-grade fixed-income securities, 10
percent high-yield bonds and 10 percent Real Estate Investment Trusts (REITs).
On June 30, the large-capitalization segment was relatively fully invested, as
it has been since the Portfolio's inception. Portfolio transactions completed
during the first six months of 1998 included the sale of Sbarro and Peco Energy,
and the purchases of Consolidated Natural Gas and Houston
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
Industries. Additionally, shares of Associates First Capital were received as a
spin-off from Ford Motor Co. and subsequently built into a full portfolio
position. At period-end, the Portfolio owned 62 common stocks throughout 32
industry groups.
The convertible portion of the Portfolio performed well during the first half of
1998, providing high current income with a reasonable level of equity
participation. The Portfolio's tilt toward yield did cause it to lag its peers
as the equity markets rallied, but it also provided significant downside support
in weaker periods. It is our experience that convertibles can perform well in
modestly increasing, stable or declining markets, but will lag during strong
periods.
The Portfolio's exposure to small-cap issues also negatively affected its
relative performance during the period. The convertible market is dominated by
small-cap companies, which trailed large caps for much of the first half of the
fiscal year. Going forward, we continue to focus on the convertibles of
small-and mid-cap companies, and the Portfolio should benefit meaningfully when
small caps resume their historical leadership role.
The REIT portion of the Portfolio posted negative returns during the period
under review. More recently, however, attractive dividend yields and compelling
valuations have generated significant interest in the group. Our exposure to
this sector is slightly below the 10 percent target, in expectation of two of
the Portfolio's real-estate-related investments converting to REIT status in the
near future. The Portfolio's REIT investments are split between REIT stocks and
REIT convertible securities.
The fixed-income portion of the Portfolio performed as expected, with fairly low
sensitivity to interest-rate fluctuations. This portion of the Portfolio is
structured to provide maximum current income with low exposure to
interest-rate-movements. This strategy helped reduce volatility in the Portfolio
during the fiscal year.
EUROPEAN GROWTH PORTFOLIO
For the six-month period ended June 30, 1998, the European Growth Portfolio
posted a total return of 26.24 percent versus 15.92 percent for the Morgan
Stanley Capital International World Index and 16.25 percent for the Lipper
Variable Annuity International Underlying Funds Average.
The Portfolio's largest single exposure is the United Kingdom (29 percent),
followed by France (16 percent), Germany (12 percent) and the Netherlands (11
percent). The Portfolio remains overweighted in Sweden, where stocks continue to
offer an attractive balance of growth and value,
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
and underweighted in Switzerland. Holdings remain concentrated in blue-chip
stocks with exposure to the ongoing recovery in European economies. Among the
Portfolio's largest holdings are Philips Electronics NV, Accor SA, Alcatel
Alstholm, AXA -- UAP and Nestle SA.
The outlook for the European stock markets during the second half of 1998
remains broadly positive. Equity market valuations look expensive at current
levels, with the MSCI Europe Index trading on a price/earnings multiple of
around 26x 1998 and 25x 1999. However, on interest-rate-based valuation measures
the markets look more attractive and mutual fund liquidity should continue to
provide technical support. Growth in corporate earnings is underpinned by the
strength of the European domestic economies and by the benign (and improving)
inflationary outlook.
GLOBAL DIVIDEND GROWTH PORTFOLIO
For the six-month period ended June 30, 1998, the Global Dividend Growth
Portfolio posted a total return of 9.70 percent, compared to 15.92 percent for
the Morgan Stanley Capital International World Index (MSCI World Index) and
15.44 percent for the Lipper Variable Annuity Global Underlying Funds Average.
The Portfolio's underperformance relative to its benchmark index was due
primarily to its underweighting in the United States and an overweighting in
Japan. Additionally, the Portfolio's focus on value-oriented stocks, which
underperformed growth stocks during the period, also negatively impacted its
performance.
The Portfolio remains fully invested and well diversified, with 122 equity
issues spread across the world's 14 largest markets, as defined by market
capitalization. The United States, as the world's largest market, continues to
be the Portfolio's biggest target weighting, at approximately 34 percent of the
total net assets spread among 25 stocks. Recent U.S. additions to the Portfolio
include Albertson's, Aluminum Company of America, and Consolidated Natural Gas.
The Portfolio also remains exposed to Japan, the world's third largest market,
with a target allocation of approximately 18 percent of total net assets. In
conjunction with the recent reduction in assets from 23 percent, shares of
Mitsubishi Electric were liquidated. While there remains plenty of pessimism
surrounding Japanese stocks in general, there are still many world class
Japanese companies selling at very attractive prices, which we believe may offer
significant rewards for patient, disciplined long-term investors.
10
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
The Portfolio's target allocation to Europe is 36.5 percent: the United Kingdom
(11 percent), France (6.5 percent), Germany (7 percent), Italy (4 percent), the
Netherlands (3 percent), Switzerland (2 percent), Spain (1.5 percent), and
Sweden (1.5 percent). We are very optimistic about the long-term growth
potential of high-quality European common stocks, many of which are more
attractively valued than their U.S. counterparts.
In the Pacific Rim, the Portfolio has exposure to Hong Kong (5 percent) and
Malaysia (1 percent). The dramatic decline recently witnessed in many Asian
currencies and equity markets has surpassed even the most pessimistic
expectations. The effects from this crisis seem largely contained within the
region but may eventually have wide-reaching implications for global growth,
inflation and interest rates. Because the Portfolio is exposed to only two
Southeast Asian countries, it has fared better than many other global equity
funds. Our exposure to the resource-oriented markets of Australia (2 percent)
and Canada (2.5 percent) offers risk reduction through diversification, as well
as growth potential in economically stable countries.
Looking ahead, we will remain sensitive to any factors that would necessitate
changes to the Portfolio's country allocation. We believe that the long-term
outlook for the economies and well-established large-capitalization
international companies is positive. Consequently, we remain confident, patient,
and fully invested.
PACIFIC GROWTH PORTFOLIO
For the six-month period ended June 30, 1998, the Pacific Growth Portfolio
posted a total return of -22.32 percent, compared to -6.60 percent for the MSCI
Pacific Free Index, -26.85 percent for the MSCI All Country Far East Free Index
excluding Japan and -18.81 percent for the Lipper Variable Annuity Pacific
Region Underlying Funds Average. The MSCI Pacific Free Index measures the
performance of markets in the Pacific Rim and is dominated by the performance of
Japanese equities because of the relative size of the Japanese market, which
currently makes up more than 70 percent to the Index. It is important to note
that the Fund's exposure to Japan is modest relative to this Index. The MSCI All
Country Far East Free Index excluding Japan measures the performance of the
smaller stock markets of the Pacific Basin, commonly referred to as the Tiger
economies, and contains no exposure to the markets of Japan and Australia. The
Lipper Pacific Region Funds Average tracks the performance of funds that invest
in equity securities whose primary trading markets or operations are
concentrated in the Pacific Basin or a single country within this region.
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
The period under review was a difficult one for the Pacific region in general
and for the Portfolio in particular. The overall contribution to the Portfolio's
performance from stock selection was negative, inhibited by weak relative
returns from Indonesia, given the extremely difficult stock-picking environment
there, and from Japanese stocks. Stock selection in Hong Kong, Singapore, Korea
and Taiwan contributed positively to the Portfolio's relative performance,
despite general weakness in these markets. The Portfolio's geographical
allocation contributed positively to performance, particularly an overweightings
in Japan and Australia. However, performance was further hindered by the
Portfolio's underweighting of Korea, which outperformed the rest of the region
during the period. In the case of Korea, the Portfolio is still unable to meet
that country's Qualified Foreign Investor requirements and accordingly remains
limited in its local market exposure.
The Portfolio's large cash position made a positive contribution to its overall
performance, particularly in an environment of falling markets. Similarly
beneficial was our decision to hedge a portion of our Hong Kong dollar and
Singapore dollar exposures given the weakness experienced by these currencies
during the first half.
The outlook for the markets of the Tiger economies of Asia continues to be weak.
The economic environment is clearly suppressed by the inability of most
countries in the region to generate significant export recovery despite the
major boost to competitiveness given by the currency declines of the last twelve
months. The failure of Japanese authorities to stimulate a recovery, together
with the weakness of the yen, is clearly not contributing toward an upturn in
exports. Indeed, with trade within the Asian region typically accounting for
approximately half of exports, the very factor that insulated Asia from the
global recession of the early 1990s is now working to the detriment of the
region. Domestic demand remains weak across the area, with the only positive
factor being the decline in demand for imported goods now generating trade
account surpluses.
The euphoria that surrounded policy announcements in the early part of the year
has now dissipated with most investors recognizing the enormity of the
challenges that the region faces in implementing reforms. There is growing
evidence of a shift away from the IMF's approach to dealing with the region's
economic crisis. Faced with extremely tight liquidity and falling output, many
authorities are leaning toward monetary and fiscal stimuli in an attempt to ease
the corporate sector's financial burdens to stimulate growth. Whatever the
long-term success of the IMF program, the short-run consequences are likely to
include weaker currencies and upward pressure on inflation, which
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
continues to be underreported by official CPI data. Confidence will also be
affected should there be an abandonment of IMF discipline in the economies
(Korea, Thailand and Indonesia) currently subject to the targets and conditions
of a IMF Portfolio Program.
Currency volatility is likely to remain high, particularly in the wake of
China's warnings last month of possible devaluation should downward pressure on
the yen continue. Timed to coincide with President Clinton's visit to Beijing,
China's comments appear to have represented an opportunistic political move.
However, growth in China, which is dominated by a strong disinflationary pulse
that resulted from an overaccumulation of inventories in the latter half of
1997, is clearly under pressure. Inflation data have turned negative, mirrored
by a sharp slowing in retail activity and manufacturing output. At the same
time, an ambitious program of state-sector reform currently under way in China
demands strong growth to absorb the inevitable job losses that will result. The
suspicion therefore remains that the authorities will consider employing the
external stimulus which devaluation invites.
The risk of such a devaluation, which would put immense pressure on the Hong
Kong dollar, accordingly remains, although the abandonment of the Hong Kong
dollar peg is not our central assumption. This notwithstanding, with policy
slippage increasingly apparent in the region as authorities lessen their resolve
to tackle the crisis with tight monetary and fiscal measures, the region's
currencies generally are forecast to remain soft. The portfolio's currency
hedges will therefore remain in place. Against this background, we continue to
overweight Australia and Japan at the expense of the Tiger markets.
Within the Tiger region, we continue to prefer Hong Kong to Southeast Asia.
Despite declines in residential property prices of 40 to 50 percent from the
peak of the cycle and a very weak retail sector, the corporate sector continues
to be in better health there than in much of the rest of the region. This is
primarily due to lower corporate debt, greater corporate transparency and
stronger company management. These factors, together with a price earnings ratio
close to single figures, lead us to be relatively more-positive. The portfolio
also has a relative preference for Singapore, again due to the strengths of the
corporate sector and to the resolve of that government in responding to economic
difficulties. Conversely, the underweighting of Malaysia remains intact, in the
face of concerns exacerbated by recent policy shifts. The sidelining of Deputy
Prime Minister Anwar in favor of Daim Zainuddin has coincided with looser
monetary conditions. It is still not clear that the Malaysian authorities have
the political resolve to tackle the problems of heavily leveraged, well-
connected corporate entrepreneurs without disadvantaging minority shareholders.
13
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
Elsewhere in the region, in Indonesia the uncertainties created by a new
President and the almost unprecedented severity of the economic downturn there
lead us to continue to have minimal exposure to this market. In Korea, the
response to President Kim Dae Jung's initiatives has been disappointing on the
part of the labor unions, and clearly the reform process is going to be slow and
painful. As elsewhere in the region, the Korean portfolio is focused on
exporting companies, including Samsung Electronics and POSCO. The Portfolio has
a modest exposure to the Philippines, with an emphasis on utility companies. We
intend to increase the weighting in Taiwan while reducing slightly our relative
weighting on electronics given that sector's uncertain earnings outlook.
Recapitalization efforts in Thailand have been frustrated by the poor
performance of its bank stocks and a further escalation in nonperforming loans.
This will probably hinder the progress of the equity market, so we intend to
lighten our exposure there slightly.
With little improvement expected in Japan's domestic economy, politics and
policy choices there will be central to the performance of the market in the
coming months. Clear, decisive action to clear out bad banks, reform the tax
structure and accelerate the restructuring process would be taken quite
positively and enable the market to rally. This process has been complicated by
the shocking resignation of Prime Minister Hashimoto after a heavy protest vote
against his party in the recent Upper House Election. The new prime minister,
Mr. Obuchi, is very much old-style Japan, and his appointment has so far been
taken negatively by the market. It is still unclear how he plans to stabilize
the economy and the financial system. However, the opportunity to reform them
has clearly been given greater potency by this political moment. The Portfolio
therefore remains overweighted in Japan, given its potential to outperform the
Tiger markets over the next six months.
Economic activity in Australia is expected to slow further, in line with that of
its major trading partners. However, relative to the contraction currently being
experienced elsewhere in Asia, the Australian economy remains comparatively
robust. In addition, the prospect of further efforts by U.S. authorities to
stabilize the yen, and hence the intraregional currencies, may result in a
short-term reversal of capital flows into the region. In such circumstances
Australia would benefit, given its safe-haven status, and could cause the market
to trade higher in the short term. Although we feel that earnings expectations
are too optimistic in certain sectors, we nevertheless acknowledge that value is
emerging, particularly in cyclical stocks. Accordingly, as indicated, we remain
overweighted in the Australian portion of the Portfolio.
In view of our cautious approach to the equity markets in both the Pacific Basin
and Australia, we expect to operate cash levels in the Portfolios at higher
levels than usual in anticipation of buying
14
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
opportunities to come. We believe that the equity markets have already
discounted much of the negative economic outlook for the region and are
convinced that longer-term investors should look to further weakness as an
opportunity to build exposure to the region. It is interesting that there has
recently been a significant increase in the number of corporate purchases of
assets in the region as multinational companies have looked for opportunities.
Such deals are typically taking place at prices above those indicated by current
stock market valuations and may be a guide to longer-term values once the
current economic slowdown, and attendant weak sentiment, bottom out.
S&P 500 INDEX PORTFOLIO
The S&P 500 Index Portfolio was introduced on May 18, 1998. This portfolio seeks
to provide investment results that correspond to the total returns of the S&P
500 Composite Stock Price Index (S&P 500).
Diversifying a portfolio among a variety of securities and industries has proven
to be an effective investment approach. The Portfolio mimics the holdings of the
S&P 500 Index and therefore is diversified among 500 stocks in America's leading
industries. In addition, since many of the stocks that make up the S&P 500 Index
pay dividends, the Portfolio will be well represented in dividend-paying
securities. Such securities can become an important capital-building component
of a diversified portfolio.
UTILITIES PORTFOLIO
For the six-month period ended June 30, 1998, the Utilities Portfolio posted a
total return of 10.34 percent, compared to 17.72 for the broad-based S&P 500
Index and 9.30 percent for the Lipper Variable Annuity Utilities Underlying
Funds Average.
During the first six months of 1998, Asian economic fears and uncertainties
resurfaced and contributed to extreme volatility in U.S. financial markets. The
primary beneficiaries of the turmoil in the Pacific region included Treasury
bonds, electric utilities and selective telecommunications equities as investors
sought these vehicles for their relative safety and quality. Investors
especially favored electric utility equities, due to their attractive
valuations, defensive characteristics, strengthening fundamentals and minimal
Asian exposure. This positive utility backdrop provided the underpinnings for
the favorable investment performance of the Portfolio during the first half of
1998.
15
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
The resumption of Asian economic concerns enabled the Portfolio to close the
performance gap with the overall market during the second quarter, when
safe-haven investments became increasingly appealing.
With respect to electric utilities, performance was robust and the fundamentals
continue to prove positive as the industry progresses from a monopoly
environment to a competitive marketplace and investor concerns regarding
regulatory treatment ease further. The Portfolio continues to emphasize
companies characterized by low unit costs and good earnings growth opportunities
through sound diversification strategies. Within this sector, the trend of
mergers and acquisitions continued during the period, and providing additional
price appreciation for the group was the suggestion of foreign utility company
interest in selective U.S. electric assets.
Turning to the telecom sector, merger and acquisition fever was also evident
throughout the first six months of 1998 as investors propelled stock prices
upward in anticipation of further industry consolidation. Notably, SBC
Communications announced its acquisition of Ameritech in a $62 billion merger
proposal, thus creating a local carrier with a significant customer reach from
Ohio to California. Also, AT&T announced a groundbreaking merger with the cable
company Telecommunications Inc., which should provide a powerful foray into the
local telecom market. Both proposed mergers follow the convergence path that
many telecom companies have been taking since the passage of the
Telecommunication Act of 1996. The outlook for earnings growth within this
sector remains favorable especially given the high-growth prospects for such
newer industry applications as data/Internet. Telecom companies are capitalizing
on the strong growth of data by incorporating Internet access into their
existing suites of telecom services.
Foreign telecom companies within the Portfolio also performed strongly. This
segment of the Portfolio enhances its overall investment appeal and includes
very minimal Asian exposure, with a primary emphasis on Europe, as well as
Canada and Latin America. The foreign component, which remains geographically
dispersed, benefited from the strong revenue growth characteristics of
broadening worldwide telecom infrastructure as well as the potential
consolidation among telecom companies globally.
Performance of the natural gas sector, in contrast, lagged within the utility
sectors as natural gas prices weakened considerably, due to a drop in oil prices
and warm temperatures. However, given the fact that gas prices are extremely
sensitive to weather changes, a turn toward warmer-than-normal weather during
June increased demand for natural gas resulting in a modest rebound in gas
16
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
commodity prices and stocks. The Portfolio continues to focus on high-quality
well-diversified companies within all areas of the natural gas sector. This is
due to the favorable long-term outlook of the natural gas sector, given the
increasing appeal worldwide as a clean-burning, environmentally friendly energy
source.
The Portfolio remained fully invested during the first half of 1998, reflecting
improved investor confidence, particularly within the electric sector, given its
appeal in a volatile financial marketplace. Widespread diversification remains a
key characteristic and strength of the Portfolio. To place this in perspective,
on June 30, 1998, 89 percent of the Portfolio's net assets was allocated to
utility and utility-related equities. Within the equity component, 51 percent
was allocated to electric utilities, 38 percent to telecommunications and 11
percent to natural gas. Enhancing overall diversification are foreign
securities, accounting for 8 percent of net assets, that are focused on the
growth area of global telecommunications. The Portfolio's high-quality
fixed-income portfolio accounted for 9 percent of net assets, with 2 percent
held in cash and cash equivalents.
During the second half of 1998, the Portfolio anticipates a modest decrease in
the electric utility component, in favor of selective telecommunication
opportunities, while keeping the Portfolio well positioned to benefit from the
current environment of low inflation and low interest rates. The Portfolio
remains uniquely balanced to capitalize on the expansive growth occurring across
all utility sectors and remains structured to meet its long-term objectives.
STRATEGIST PORTFOLIO
For the six-month period ended June 30, 1998, the Strategist Portfolio posted a
total return of 16.82 percent versus 17.70 percent for the S&P 500 Index, 4.17
percent for the Lehman Brothers Government/Corporate Bond Index and 9.73 for the
Lipper Variable Annuity Flexible Portfolio Underlying Funds Average.
The Portfolio's outperformance of its Lipper peer group and the Lehman Index was
a direct result of a decision to maintain its equity overweighting during last
year's disruptive currency devaluations. The Portfolio maintained a positive
stance on the equity market, because our analysis had indicated that valuations
could continue to climb as long as the Federal Reserve Board maintained a stable
monetary policy and inflation continued to be relatively subdued. While
ancillary events such as currency upheavals, financial risks in Japan and
Russia, and political risks in the United States cropped up to cause minor
corrections, our views focused on the underlying attractiveness of U.S.
valuations, with inflation at 1.3 percent and earnings growing between 6 and 8
percent. Therefore,
17
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
we held our asset allocation target to 70 percent in equities, 20 percent in
bonds and 10 percent in cash. A secondary source of the Portfolio's
outperformance is its equity sector overweightings and an emphasis on the longer
end of the yield curve in the bond component.
The equity portfolio had been tilted toward large-capitalization consumer issues
since the fourth quarter of 1997 and thus benefited tremendously when retailers,
entertainment, and auto and personal computer stocks rallied in 1998. By
focusing on fewer names with greater earnings visibility, the Portfolio was
better able to take advantage of these trends. On June 30, 1998, the Portfolio's
largest equity holdings were America Online (internet), Gap (retail-specialty
apparel), Mediaone (media group), Dell Computer (computers), Chrysler (autos)
and Lucent Technologies (communications equipment).
The fixed-income component, while only 20 percent of the Portfolio, helped it
outperform the Lehman Index by maintaining a slightly longer maturity and
greater weighting in the corporate sector. The fixed-income component's average
maturity at midyear stood at 10 years, the average yield at 6.14 percent and the
duration at 5 1/2 years.
HIGH YIELD PORTFOLIO
For the six-month period ended June 30, 1998, the High Yield Portfolio posted a
total return of 4.18 percent, compared to 4.50 for the Lehman High Yield Index
and 4.58 percent for the Lipper Variable Annuity High Yield Underlying Funds
Average.
Following some market weakness in 1997's fourth quarter as a result of the
crisis in the emerging markets, the high-yield bond sector proceeded to
stabilize and recover during the first half of 1998, given the continued
strength in the U.S. economy. This strength has resulted in solid earnings
improvements on the part of many high-yield companies and has thus provided fuel
for the sharp equity market advance experienced during the period. Many
high-yield companies have taken advantage of higher equity valuations to raise
equity and strengthen their own balance sheets. The resulting credit quality
improvement has helped keep the high-yield market's performance strong relative
to that of many of the other fixed-income markets.
As the economy has continued to expand over the past few years, the Portfolio
has tended to concentrate on B-rated issues. In a growing economy one can
generally find undervalued upgrade candidates in this sector of the market that
provide attractive yields as well as appreciation potential. Given our
expectation for ongoing growth in the economy this year, we continue to feel
that many of
18
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
these issues could be very attractive investments. However, in light of the
lower market yields available today and the potential for a modest correction in
the market, we have taken some defensive steps for the Portfolio over the past
year. These include increasing its allocation to the higher-quality end of the
market (BB-rated issues or higher). We feel that these holdings will better
protect shareholders during a potentially nervous market environment as well as
provide the liquidity and portfolio flexibility needed to take advantage of
higher, more attractive market yields in the future.
In addition, the Portfolio has sold many of its heavily cyclical positions and
is now focused mainly on more predictable, recession-resistant and growth
sectors of the economy such as food and beverages, health care,
telecommunications, and media and cable. In some of these sectors, such as media
and telecommunications, we expect to see continued consolidation, which should
bode well for many of the Portfolio's individual holdings. Finally, in keeping
with our present more defensive posture, we will continue to limit our exposure
to foreign emerging high-yield markets, particularly given the risk associated
with the ongoing crisis in many emerging markets.
The one- to two-year outlook for the high-yield market remains positive, with
our expectations for continued economic growth and a relatively favorable
interest-rate environment. We caution, however, that during this period the
possibility exists for another round of investor nervousness in reaction to
potential Federal Reserve Board moves or another disruption in emerging markets.
QUALITY INCOME PLUS PORTFOLIO
For the six-month period ended June 30, 1998, the Quality Income Plus Portfolio
posted a total return of 4.45 percent, compared to 3.93 percent for the Lehman
Aggregate Bond Index and 3.97 percent for the Lipper Variable Annuity Corporate
Debt A-Rated Underlying Funds Average.
Given the expectation that interest rates would eventually trend lower as fewer
U.S. Treasury instruments would be issued, and that the U.S. dollar would
continue to strengthen, thus dampening potential inflationary pressures from
above-target economic growth, the Portfolio pursued the following strategies.
First, it focused on providing a consistent return over time by increasing its
amount of long-duration, high-quality instruments and zero-coupon bonds issued
by the Federal National Mortgage Association (FNMA). This goal was accomplished
by selling short-maturity corporate notes and premium mortgage-backed
securities. Second, the Portfolio's allocation to U.S. government instruments
was increased to approximately 10 percent of assets, whereas yankee
19
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
corporate notes and bonds were sold. By doing so, the Portfolio sought to
participate in any price appreciation afforded by such instruments as both
domestic and international investors sought refuge in the safety of U.S.
Treasury instruments.
Looking ahead, we believe that the strong technical underpinnings of the U.S.
government market, with its burgeoning surplus coupled with low inflation
expectations, should continue to make fixed-income investments particularly
attractive in the months ahead.
MONEY MARKET PORTFOLIO
As of June 30, 1998, the Money Market Portfolio had assets in excess of $350
million with an average life of 73 days. The Portfolio's annualized net
investment income for the most recent six-month fiscal period was 5.13 percent,
while its 30-day annualized yield for June was 5.13 percent.
On June 30, 1998, approximately 81 percent of the Portfolio was invested in
high-quality commercial paper, 10 percent in short-term bank notes and bankers'
acceptances issued by major and financially strong commercial banks, 8 percent
in certificates of deposit issued by such institutions and the remainder in
federal agency obligations.
At the end of this fiscal period, approximately 81 percent of the Portfolio's
assets were due to mature in less than four months. Therefore, the Portfolio is
well positioned for stability of value with a high degree of liquidity. We
continue to operate the Portfolio in a straightforward, conservative style
without structured notes or derivative products, which could fluctuate
excessively when interest rates change. In addition, the Portfolio has avoided
making any direct investments in Asian financial institutions, because of their
relatively slim levels of capital strength. As a result, the Portfolio's
exposure to credit-rating downgrades, which some money market funds have
experienced recently, has been limited.
At this time we anticipate a slight moderation in the pace of economic activity
during the remainder of 1998, with no major adverse surprises in the rate of
inflation. In view of the benign inflationary environment, along with the
uncertainty of international economic events, we anticipate that the Fed will
maintain the current federal funds target rate for the near term. As a result,
we do not expect the investment yields available to the Portfolio during the
months immediately ahead to differ dramatically from those that were available
during the fiscal period just ended.
As always, the Money Market Portfolio serves as a useful investment for
liquidity, preservation of capital and a yield that reflects prevailing money
market conditions.
20
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS JUNE 30, 1998, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Variable Series
and look forward to continuing to serve your investment objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
21
<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
22
<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
23
<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
24
<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
25
<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
26
<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
27
<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
28
<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
29
<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
30
<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>
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
31
<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
32
<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
33
<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
34
<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
35
<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
36
<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
37
<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.
7.75% due 10/15/35............................................................... $ 3,308,670
2,000 Panhandle Eastern Corp.
8.625% due 04/15/25.............................................................. 2,250,020
------------
5,558,690
------------
TELECOMMUNICATIONS (1.5%)
2,000 360 DEG. Communications Co.
6.65% due 01/15/08............................................................... 2,021,780
2,000 GTE Corp.
7.90% due 02/01/27............................................................... 2,170,800
500 LCI International, Inc.
7.25% due 06/15/07............................................................... 509,695
2,000 Sprint Corp.
9.25% due 04/15/22............................................................... 2,550,380
------------
7,252,655
------------
UTILITIES - ELECTRIC (6.0%)
2,250 Consumers Energy Co.
6.875% due 03/01/18.............................................................. 2,297,115
2,000 Empresa Nacional de Electricidad Chile
8.125% due 02/01/97.............................................................. 1,962,100
2,250 Florida Power & Light Co.
7.05% due 12/01/26............................................................... 2,279,903
3,000 Illinois Power Co.
8.75% due 07/01/21............................................................... 3,187,830
3,000 Indianapolis Power Co.
7.05% due 02/01/24............................................................... 3,078,660
2,500 Niagara Mohawk Power Corp.
8.00% due 06/01/04............................................................... 2,675,775
3,000 Public Service Electric
& Gas Co.
7.00% due 09/01/24............................................................... 3,024,420
2,000 South Carolina Electric
& Gas Co.
7.625% due 06/01/23.............................................................. 2,114,160
1,000 Southern California Edison Co.
7.25% due 03/01/26............................................................... 1,020,240
2,000 Southwestern Public Service
8.50% due 02/15/25............................................................... 2,251,220
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 5,000 Wisconsin Electric Power Co.
7.125% due 03/15/16.............................................................. $ 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
38
<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
39
<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
40
<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
41
<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
42
<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
43
<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
44
<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
45
<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
46
<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
47
<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
48
<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
49
<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
50
<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
51
<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
NET
INDUSTRY VALUE 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
NET
INDUSTRY VALUE 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
NET
TYPE OF INVESTMENT VALUE 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
52
<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
53
<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
54
<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
55
<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
56
<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
57
<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
58
<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
59
<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
60
<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
61
<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
62
<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
63
<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
64
<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
65
<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
66
<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
67
<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
68
<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
69
<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
70
<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
71
<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
72
<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
73
<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
74
<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
75
<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
76
<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
77
<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
78
<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>
NUMBER DESCRIPTION,
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
79
<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
80
<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>
IN UNREALIZED
CONTRACTS TO EXCHANGE DELIVERY APPRECIATION/
RECEIVE 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
81
<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
82
<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
83
<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
84
<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
85
<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
86
<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
87
<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
88
<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>
COMPETITIVE 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>
89
<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
90
<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 COMPETITIVE EDGE
EQUITY INDEX* "BEST 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>
91
<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
92
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES INCOME BUILDER
----------------------------- ----------------------------- ------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR FOR THE SIX
MONTHS ENDED ENDED MONTHS ENDED ENDED MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 ENDED DECEMBER
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 31, 1997*
<S> <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
Net realized gain (loss)...... (2,239,863) 184,126 7,699,017 24,274,209 683,183 773,374
Net change in unrealized
appreciation/depreciation... (5,652,680) (2,939,937) 31,939,636 61,888,240 561,147 3,070,555
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE............. 15,586,576 35,521,939 46,704,903 100,678,844 3,038,493 5,144,808
------------- ------------- ------------- ------------- ------------- --------------
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)
Net realized gain............. -- -- (24,274,238) (5,380,346) (768,185) --
------------- ------------- ------------- ------------- ------------- --------------
TOTAL.................... (23,614,944) (37,998,064) (31,339,267) (19,896,688) (2,552,676) (1,300,838)
------------- ------------- ------------- ------------- ------------- --------------
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
Reinvestment of dividends and
distributions............... 23,614,944 37,998,064 31,339,251 19,896,688 2,552,676 1,300,838
Cost of shares repurchased.... (44,729,024) (21,761,038) (59,103,043) (93,290,638) (7,408,299) (927,977)
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE
(DECREASE)............... 60,532,217 110,988,855 12,373,095 (63,309,766) 32,964,832 51,578,863
------------- ------------- ------------- ------------- ------------- --------------
TOTAL INCREASE
(DECREASE)............... 52,503,849 108,512,730 27,738,731 17,472,390 33,450,649 55,422,833
NET ASSETS:
Beginning of period........... 368,061,271 259,548,541 458,134,256 440,661,866 55,422,833 --
------------- ------------- ------------- ------------- ------------- --------------
END OF PERIOD............ $420,565,120 $368,061,271 $485,872,987 $458,134,256 $ 88,873,482 $ 55,422,833
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 159,071 $ 294,896 $ 1,274 $ 53 $ 9,713 $ 41
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 13,288,566 15,438,103 2,048,367 586,036 3,109,913 4,681,304
Issued in reinvestment of
dividends and
distributions............... 3,872,899 6,235,666 1,621,515 1,234,020 211,392 114,240
Repurchased................... (7,283,936) (3,542,834) (3,015,666) (5,905,011) (608,035) (84,489)
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE (DECREASE)....... 9,877,529 18,130,935 654,216 (4,084,955) 2,713,270 4,711,055
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
<CAPTION>
DIVIDEND GROWTH
-------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1998 ENDED DECEMBER
(UNAUDITED) 31, 1997
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 18,979,919 $ 33,294,853
Net realized gain (loss)...... 126,803,218 187,796,245
Net change in unrealized
appreciation/depreciation... 50,908,064 131,882,494
-------------- --------------
NET INCREASE............. 196,691,201 352,973,592
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (18,978,858) (33,294,817)
Net realized gain............. (187,973,609) (76,862,062)
-------------- --------------
TOTAL.................... (206,952,467) (110,156,879)
-------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 273,013,818 315,154,387
Reinvestment of dividends and
distributions............... 206,952,467 110,156,879
Cost of shares repurchased.... (201,424,835) (50,626,648)
-------------- --------------
NET INCREASE
(DECREASE)............... 278,541,450 374,684,618
-------------- --------------
TOTAL INCREASE
(DECREASE)............... 268,280,184 617,501,331
NET ASSETS:
Beginning of period........... 1,905,905,758 1,288,404,427
-------------- --------------
END OF PERIOD............ $2,174,185,942 $1,905,905,758
-------------- --------------
-------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 1,202 $ 141
-------------- --------------
-------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 11,743,837 15,299,661
Issued in reinvestment of
dividends and
distributions............... 9,564,893 5,383,295
Repurchased................... (8,637,169) (2,443,929)
-------------- --------------
NET INCREASE (DECREASE)....... 12,671,561 18,239,027
-------------- --------------
-------------- --------------
</TABLE>
93
<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
94
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PACIFIC GROWTH CAPITAL APPRECIATION
EUROPEAN GROWTH --------------------------- ---------------------------
-----------------------------
FOR THE SIX FOR THE SIX
FOR THE SIX FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR
MONTHS ENDED ENDED JUNE 30, ENDED JUNE 30, ENDED
JUNE 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997 (UNAUDITED) 1997*
<S> <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
Net realized gain (loss)...... 28,560,049 33,715,966 (18,248,000) (18,390,247) (1,091,794) (257,864)
Net change in unrealized
appreciation/depreciation... 70,969,584 15,487,002 3,472,555 (29,854,161) 2,338,262 1,384,140
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 103,079,581 52,920,777 (14,343,088) (46,941,246) 1,410,568 1,336,134
------------- ------------- ------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (5,476,236) (3,760,260) (2,185,913) (1,891,258) (209,858) --
Net realized gain............. (30,256,754) (18,466,454) -- -- -- --
------------- ------------- ------------ ------------ ------------ ------------
TOTAL.................... (35,732,990) (22,226,714) (2,185,913) (1,891,258) (209,858) --
------------- ------------- ------------ ------------ ------------ ------------
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
Reinvestment of dividends and
distributions............... 35,732,990 22,226,714 2,185,913 1,891,258 209,858 --
Cost of shares repurchased.... (55,608,452) (33,224,347) (29,120,536) (55,800,009) (8,859,945) (2,864,342)
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 62,143,701 58,325,136 318,033 (26,800,416) 3,457,232 30,969,777
------------- ------------- ------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... 129,490,292 89,019,199 (16,210,968) (75,632,920) 4,657,942 32,305,911
NET ASSETS:
Beginning of period........... 391,441,253 302,422,054 68,903,537 144,536,457 32,305,911 --
------------- ------------- ------------ ------------ ------------ ------------
END OF PERIOD............ $520,931,545 $391,441,253 $52,692,569 $68,903,537 $36,963,853 $32,305,911
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 3,468,436 $ 5,394,724 $ 301,240 $ 2,054,796 $ 164,100 $ 209,858
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 2,926,605 3,070,886 5,130,035 3,373,487 1,031,231 3,118,030
Issued in reinvestment of
dividends and
distributions............... 1,290,931 983,918 480,420 188,937 17,860 --
Repurchased................... (2,023,712) (1,452,789) (5,303,636) (6,804,802) (757,974) (263,345)
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)....... 2,193,824 2,602,015 306,819 (3,242,378) 291,117 2,854,685
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
<CAPTION>
EQUITY
------------------------------
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 2,583,916 $ 4,000,633
Net realized gain (loss)...... 76,298,726 114,548,760
Net change in unrealized
appreciation/depreciation... 70,953,343 87,770,605
-------------- -------------
NET INCREASE
(DECREASE)............... 149,835,985 206,319,998
-------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (2,583,827) (4,001,396)
Net realized gain............. (114,146,703) (43,430,509)
-------------- -------------
TOTAL.................... (116,730,530) (47,431,905)
-------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 141,578,466 150,537,439
Reinvestment of dividends and
distributions............... 116,730,530 47,431,905
Cost of shares repurchased.... (102,948,339) (55,675,579)
-------------- -------------
NET INCREASE
(DECREASE)............... 155,360,657 142,293,765
-------------- -------------
TOTAL INCREASE
(DECREASE)............... 188,466,112 301,181,858
NET ASSETS:
Beginning of period........... 823,090,282 521,908,424
-------------- -------------
END OF PERIOD............ $1,011,556,394 $823,090,282
-------------- -------------
-------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 89 $ --
-------------- -------------
-------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 3,865,993 4,895,346
Issued in reinvestment of
dividends and
distributions............... 3,330,575 1,670,194
Repurchased................... (2,822,934) (1,832,698)
-------------- -------------
NET INCREASE (DECREASE)....... 4,373,634 4,732,842
-------------- -------------
-------------- -------------
</TABLE>
95
<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
MONTHS ENDED MONTHS ENDED FOR THE SIX
JUNE 30, JUNE 30, MONTHS ENDED FOR THE YEAR
1998* 1998* JUNE 30, 1998 ENDED DECEMBER
(UNAUDITED) (UNAUDITED) (UNAUDITED) 31, 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
96
<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
Dividend Growth............... March 1, 1990 Competitive Edge "Best 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>
97
<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
98
<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
99
<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
100
<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
101
<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>
102
<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:
103
<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.
104
<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.
105
<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
106
<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>
107
<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
108
<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>
109
<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
110
<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>
111
<PAGE>
Trustees
------------------------------------------------------------------------------
Michael Bozic Dr. Manuel H. Johnson
Charles A. Fiumefreddo Michael E. Nugent
Edwin J. Garn Philip J. Purcell
John R. Haire John L. Schroeder
Wayne E. Hedien
Officers
------------------------------------------------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Thomas F. Caloia
TREASURER
Transfer Agent Independent Accountants
- -------------------------------------- --------------------------------------
Morgan Stanley Dean Witter Trust FSB PricewaterhouseCoopers LLP
Harborside Financial Center--Plaza Two 1177 Avenue of the Americas
Jersey City, New Jersey 07311 New York, New York 10036
Investment Manager
----------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
Sub-Advisor
(European Growth and Pacific Growth
Portfolio)
----------------------------------------
Morgan Grenfell Investment Services
Limited
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they do
not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
<PAGE>
Northbrook Life Insurance Company
P.O. Box 94040
Palatine, IL 60094-4040 BULK RATE MAIL
U.S. POSTAGE
PAID
ROCKVILLE CENTER
NY 11570
PERMIT NO. 150
40113A
- -------------------------------------------------------------------------------
M O R G A N S T A N L E Y D E A N W I T T E R
V A R I A B L E I N V E S T M E N T S E R I E S
SEMI-ANNUAL REPORT
J U N E 3 0 , 1 9 9 8
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of the Equity
Portfolio ("Equity Portfolio") of Morgan Stanley Dean Witter Variable Investment
Series ("Variable") to be issued pursuant to an Agreement and Plan of
Reorganization, dated October 28, 1998, between Equity Portfolio and the Capital
Appreciation Portfolio ("Capital Appreciation Portfolio"), also a portfolio of
Variable, in connection with the acquisition by Equity Portfolio of
substantially all of the assets, subject to stated liabilities, of Capital
Appreciation Portfolio. This Statement of Additional Information does not
constitute a prospectus. This Statement of Additional Information does not
include all information that a shareholder should consider before voting on the
proposals contained in the Proxy Statement and Prospectus, and, therefore,
should be read in conjunction with the related Proxy Statement and Prospectus,
dated December , 1998. A copy of the Proxy Statement and Prospectus may be
obtained without charge by mailing a written request to Variable at Two World
Trade Center, New York, New York 10048 or by calling Morgan Stanley Dean Witter
Trust FSB at (800) 869-NEWS (TOLL FREE). Please retain this document for future
reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS DECEMBER , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. B-3
ADDITIONAL INFORMATION ABOUT EQUITY PORTFOLIO............................. B-3
FINANCIAL STATEMENTS...................................................... B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated December ,
1998 (the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus
has been sent to Capital Appreciation Portfolio shareholders in connection with
the solicitation of proxies by the Board of Trustees of Variable to be voted at
the Special Meeting of Shareholders of Capital Appreciation Portfolio to be held
on February 24, 1999. This Statement of Additional Information incorporates by
reference the Statement of Additional Information of Variable dated November 2,
1998.
ADDITIONAL INFORMATION ABOUT EQUITY PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Equity Portfolio's investment objectives
and policies, see "Investment Practices and Policies" and "Investment
Restrictions" in Variable's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Variable, see "The Fund and its Management" and
"Trustees and Officers" in Variable's Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Equity Portfolio's investment manager, see
"The Fund and its Management" in Variable's Statement of Additional Information.
For additional information about Variable's independent auditors, see
"Independent Accountants" in Variable's Statement of Additional Information. For
additional information about other services provided to Equity Portfolio, see
"Custodians and Transfer Agent" in Variable's Statement of Additional
Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Variable's Statement of Additional
Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other characteristics
of the shares of Equity Portfolio, see "Description of Shares of the Fund" in
Variable's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Equity
Portfolio's shares and the determination of net asset value, see "Purchase and
Redemption of Fund Shares" and "Financial Statements -- December 31, 1997" in
Variable's Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Variable's policies regarding dividends and
distributions and tax matters affecting Equity Portfolio and its shareholders,
see "Dividends, Distributions and Taxes" in Variable's Statement of Additional
Information.
DISTRIBUTION OF SHARES
For additional information about Equity Portfolio's Distributor and the
distribution agreement between Variable and the Distributor, see "Purchase and
Redemption of Fund Shares" in Variable's Statement of Additional Information.
B-3
<PAGE>
PERFORMANCE DATA
For additional information about Equity Portfolio's performance data, see
"Performance Information" in Variable's Statement of Additional Information.
FINANCIAL STATEMENTS
Equity Portfolio's and Capital Appreciation's most recent audited financial
statements are set forth in Variable's Annual Report for the fiscal year ended
December 31, 1997, a copy of which is incorporated by reference in the Proxy
Statement and Prospectus.
B-4
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
NOVEMBER 2, 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 2, 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 Value Fund
60 Morgan Stanley Dean Witter Variable Investment Series
61 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
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
10 InterCapital Insured Municipal Income Trust
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
5
<PAGE>
Management Inc. ("MSAM") as Sub-Advisor to the PACIFIC GROWTH PORTFOLIO and,
effective December 1, 1998, 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 November 30,
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.
6
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of (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 December 1,
1998, 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>
7
<PAGE>
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 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 $156.3 billion in assets under management as an investment manager
or as a fiduciary advisor.
Until November 30, 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 $16 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,
8
<PAGE>
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 investment advisor under the Investment Advisers
Act of 1940. In 1838 Morgan Grenfell was founded to provide merchant banking
services, primarily trade financing between Great Britain and the United States.
In 1958, its investment management arm began operations. In recent years, Morgan
Grenfell Group plc has achieved a prominent position in the securities industry
by providing investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive experience
in global investment management, is currently managing in excess of $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 November 30, 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 and the EUROPEAN GROWTH PORTFOLIO. 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 November
1, 1998, and will become effective with respect to the EUROPEAN GROWTH PORTFOLIO
on December 1, 1998.
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 December 1, 1998, 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.
9
<PAGE>
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 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
10
<PAGE>
effective only if approved by a majority vote of the outstanding voting
securities of that Portfolio. If the shareholders of any one or more of the
Portfolios should fail to approve the Management Agreement, the Investment
Manager may nonetheless serve as Investment Manager with respect to any
Portfolio whose shareholders approved the Management Agreement.
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 85 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
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 various 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,
Ronald E. Robison, Executive Vice President and Chief Administrative Officer of
MSDW Advisors and MSDW Services, 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, and Kevin Hurley and
Jayne Stevlingson, Senior Vice Presidents 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 85 Morgan Stanley Dean
Witter Funds, comprised of 121 portfolios. As of September 30, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $105 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
15
<PAGE>
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.
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 October 15, 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, Coca-Cola Enterprises, Computer Associates,
Diageo, DuPont, Eli Lilly, Emerson Electric, Federal Express, Fuji Photo Film,
General Electric, Halliburton, Heineken, Holderbank, HSBC Holdings, Intel, MAN,
Medtronic, Microsoft, Nestle, News Corp., Quintiles Transnational, Schlumberger,
Siebe, Skandia International, Sony, Southern Company, Time Warner, Total,
Unilever plc, UPM-Kymmene, Wal-Mart and Wolters Kluwer.
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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 will place cash, U.S. Government securities or other liquid portfolio
securities in a segregated account 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 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 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 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.
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OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Portfolio,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Portfolio will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Portfolio to cover an option position in any but the nearest expiration
month may cease to represent cover for the option in the event of a decline in
the GNMA coupon rate at which new pools are originated under the FHA/VA loan
ceiling in effect at any given time, as such decline may increase the
prepayments made on other mortgage pools. If this should occur, the Portfolio
will no longer be covered, and the Portfolio will either enter into a closing
purchase transaction or replace such Certificate with a Certificate which
represents cover. When the Portfolio closes out its position or replaces such
Certificate, it may realize an unanticipated loss and incur transaction costs.
OPTIONS ON FOREIGN CURRENCIES. The GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, 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 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
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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 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.
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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, 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. 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. 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 Investment-Grade Corporate Bond Index. These Portfolios may also
purchase and sell stock index
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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
denominated for the purposes of hedging against anticipated changes in currency
exchange rates.
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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, 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 time. An index
futures contract purchase would create an obligation by the Portfolio, as
purchaser, to
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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 an exchange and enter into closing transactions
with respect to such options to terminate an existing
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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 contract to protect against the decline in the
value of securities (or, in the case of the GLOBAL DIVIDEND
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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. Alternatively, the
Portfolio could cover its long position by purchasing a put option on the same
futures contract with an exercise price as high or higher than the price of the
contract held by the Portfolio.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on open
futures positions. In such situations, if the Portfolio has insufficient cash,
it may have to sell portfolio securities to
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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
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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
<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>
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.
7.75% due 10/15/35............................................................ $ 3,308,670
2,000 Panhandle Eastern Corp.
8.625% due 04/15/25........................................................... 2,250,020
--------------------
5,558,690
--------------------
TELECOMMUNICATIONS (1.5%)
2,000 360 DEG. Communications Co.
6.65% due 01/15/08............................................................ 2,021,780
2,000 GTE Corp.
7.90% due 02/01/27............................................................ 2,170,800
500 LCI International, Inc.
7.25% due 06/15/07............................................................ 509,695
2,000 Sprint Corp.
9.25% due 04/15/22............................................................ 2,550,380
--------------------
7,252,655
--------------------
UTILITIES - ELECTRIC (6.0%)
2,250 Consumers Energy Co.
6.875% due 03/01/18........................................................... 2,297,115
2,000 Empresa Nacional de Electricidad Chile
8.125% due 02/01/97........................................................... 1,962,100
2,250 Florida Power & Light Co.
7.05% due 12/01/26............................................................ 2,279,903
3,000 Illinois Power Co.
8.75% due 07/01/21............................................................ 3,187,830
3,000 Indianapolis Power Co.
7.05% due 02/01/24............................................................ 3,078,660
2,500 Niagara Mohawk Power Corp.
8.00% due 06/01/04............................................................ 2,675,775
3,000 Public Service Electric
& Gas Co.
7.00% due 09/01/24............................................................ 3,024,420
2,000 South Carolina Electric
& Gas Co.
7.625% due 06/01/23........................................................... 2,114,160
1,000 Southern California Edison Co.
7.25% due 03/01/26............................................................ 1,020,240
2,000 Southwestern Public Service
8.50% due 02/15/25............................................................ 2,251,220
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 5,000 Wisconsin Electric Power Co.
7.125% due 03/15/16........................................................... $ 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 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Item 27 of,
and Exhibit 1, to Post-Effective Amendment No. 24 to Registrant's Registration
Statement on Form N-1A, dated November 2, 1998, which was filed electronically
pursuant to Regulation S-T on August 31, 1998 ("Post-Effective Amendment No.
24") as an amendment to Registrant's Registration Statement on Form N-1A (File
Nos. 811-3692 and 2-82510) filed on March 18, 1983 (the "Registration
Statement").
ITEM 16. EXHIBITS
<TABLE>
<C> <S> <C>
(1) Declaration of Trust dated February 24, 1983, as amended ("Declaration of
Trust") (incorporated herein by reference to Post-Effective Amendment No.
24)
(2) Amended and Restated By-Laws of Registrant (incorporated herein by
reference to Exhibit 2 to Post-Effective Amendment No. 22)
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to
Exhibit 5(a) to Post-Effective Amendment No. 24)
(7) Distribution Agreement between Registrant and Morgan Stanley Dean Witter
Distributors Inc. (incorporated herein by reference to Exhibit 6a to
Post-Effective Amendment No. 22)
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991
(b) Amendment to the Custodian Agreement dated April 17, 1996
(incorporated herein by reference to Exhibit 8 to Post-Effective
Amendment No. 19)
(c) Amended and Restated Transfer Agency and Services Agreement
(incorporated herein by reference to Exhibit 8 to Post-Effective
Amendment No. 24)
(10) Not Applicable
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Form of Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc. (incorporated
herein by reference to Exhibit 10 to Post-Effective Amendment No. 24)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended December
31, 1997 (incorporated herein by reference to Form 24f-2 filed with
the Securities and Exchange Commission on April 9, 1998)
(b) Form of Proxy
</TABLE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial BONA FIDE offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 5th day of November, 1998.
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
By: /s/ BARRY FINK
--------------------------------------
Barry Fink
VICE PRESIDENT AND SECRETARY
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ----------------------------------- --------------------
<C> <C> <S> <C>
1. Principal Executive Officer
/s/ CHARLES A. FIUMEFREDDO Chairman, President, Chief
--------------------------------- Executive Officer and Trustee October 28, 1998
Charles A. Fiumefreddo
2. Principal Financial Officer
/s/ THOMAS F. CALOIA
--------------------------------- Treasurer October 28, 1998
Thomas F. Caloia
3. Majority of Trustees
/s/ MICHAEL BOZIC
--------------------------------- Trustee October 28, 1998
Michael Bozic
/s/ EDWIN J. GARN
--------------------------------- Trustee October 28, 1998
Edwin J. Garn
/s/ JOHN R. HAIRE
--------------------------------- Trustee October 28, 1998
John R. Haire
/s/ WAYNE E. HEDIEN
--------------------------------- Trustee October 28, 1998
Wayne E. Hedien
/s/ DR. MANUEL H. JOHNSON
--------------------------------- Trustee October 28, 1998
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
--------------------------------- Trustee October 28, 1998
Michael E. Nugent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ----------------------------------- --------------------
<C> <C> <S> <C>
/s/ PHILIP J. PURCELL
--------------------------------- Trustee October 28, 1998
Philip J. Purcell
/s/ JOHN L. SCHROEDER
--------------------------------- Trustee October 28, 1998
John L. Schroeder
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ---- --------------------------------------------------- ---
<C> <S> <C> <C>
(9 ) (a) Custody Agreement
(11 ) (a) Opinion and consent of Gordon Altman Butowsky
Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12 ) Opinion and consent of Gordon Altman Butowsky
Weitzen Shalov & Wein regarding tax matters
(14 ) Consent of Independent Accountants
(16 ) Powers of Attorney
(17 ) (b) Form of Proxy
</TABLE>
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this 20th day of September, 1991, between DEAN WITTER
VARIABLE INVESTMENT SERIES, a Massachusetts business trust organized and
existing under the laws of the Commonwealth of Massachusetts, having its
principal office and place of business at 2 World Trade Center, New York, New
York 10048 (hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office and
place of business at 48 Wall Street, New York, New York 10286 (hereinafter
called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, shall have
the following meanings:
1. "Agreement" shall mean this Custody Agreement and all Appendices and
Certifications described in the Exhibits delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether or not such person is
an Officer or employee of the Fund, duly authorized by the Board of Trustees of
the Fund to give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, provided that
each person who is designated in any such Certificate as an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles XII and XIII hereof.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
4. "Call Option" shall mean an exchange traded option with respect to
Securities other than Index, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received (irrespective of constructive receipt) by the
Custodian and signed on behalf of the Fund by any two Officers. The term
Certificate shall also include instructions by the Fund to the Custodian
communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein.
8. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the
98NYC11549
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specified underlying instruments, currency, or Securities (excluding Futures
Contracts) which are owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy or
sell financial instruments on a U.S. commodities exchange or board of trade at a
specified future time at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or Index
Futures Contracts.
12. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
13. "Investment Company Act of 1940" shall mean the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
index at the close of the last business day of the contract and the price at
which the futures contract is originally struck.
15. "Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
16. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or a Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's effecting an
appropriate entry in its books and records.
17. "Money Market Security" shall mean all instruments and obligations
commonly known as a money market instruments, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale, including, without limitation, certain Reverse Repurchase
Agreements, debt obligations issued or guaranteed as to interest and/or
principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency
registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
19. "Officers" shall mean the President, any Vice President, the Secretary,
the Clerk, the Treasurer, the Controller, any Assistant Secretary, any Assistant
Clerk, any Assistant Treasurer, and any other person or persons, whether or not
any such other person is an officer or employee of the Fund, but in each case
only if duly authorized by the Board of Trustees of the Fund to execute any
Certificate, instruction, notice
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or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix B or such other Certificate as may be received by the
Custodian from time to time; provided that each person who is designated in any
such Certificate as holding the position of "Officer of DWTC" shall be an
Officer only for purposes of Articles XII and XIII hereof.
20. "Option" shall mean a Call Option, Covered Call Option, Index Option
and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions actually received
(irrespective of constructive receipt) by the Custodian from an Authorized
Person or from a person reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option with respect to
instruments, currency, or Securities other than Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon timely
exercise and tender of the specified underlying instruments, currency, or
Securities, to sell such instruments, currency, or Securities to the writer
thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which
the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
24. "Security" shall be deemed to include, without limitation, Money Market
Securities, Call Options, Put Options, Index Options, Index Futures Contracts,
Index Futures Contract Options, Financial Futures Contracts, Financial Futures
Contract Options, Reverse Repurchase Agreements, over the counter options on
Securities, common stocks and other securities having characteristics similar to
common stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
26. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund, except that if the Fund does not have more than one portfolio, "Series"
shall mean the Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only one portfolio.
27. "Shares" shall mean the shares of beneficial interest of the Fund and
its Series.
28. "Terminal Link" shall mean an electronic data transmission link between
the Fund and the Custodian requiring in connection with each use of the Terminal
Link the use of an authorization code provided by the Custodian and at least two
access codes established by the Fund, provided, that the Fund shall have
delivered to the Custodian a Certificate substantially in the form of Appendix
C.
29. "Transfer Agent" shall mean Dean Witter Trust Company, a New Jersey
limited purpose trust company, its successors and assigns.
30. "Transfer Agent Account" shall mean any account in the name of the
Transfer Agent maintained with The Bank of New York pursuant to a Cash
Management and Related Services Agreement between The Bank of New York and the
Transfer Agent.
31. "Written Instructions" shall mean written communications actually
received (irrespective of constructive receipt) by the Custodian from an
Authorized Person or from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the receiver of such
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<PAGE>
communications is able to verify by codes or otherwise with a reasonable degree
of certainty the identity of the sender of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of
the Securities and moneys at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated, and the Custodian shall not
be responsible for any Securities or money not so delivered. The Custodian shall
physically segregate, keep and maintain the Securities of the Series separate
and apart from each other Series and from other assets held by the Custodian.
Except as otherwise expressly provided in this Agreement, the Custodian will not
be responsible for any Securities and moneys not actually received by it, unless
the Custodian has been negligent or has engaged in willful misconduct with
respect thereto. The Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The Fund shall deliver to
the Custodian a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in any Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund, substantially in
the form of Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to the contrary by
a Certificate to deposit in such Depository all Securities specifically
allocated to such Series eligible for deposit therein, and to utilize such
Depository to the extent possible with respect to such Securities in connection
with its performance hereunder, including, without limitation, in connection
with settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or a Depository will be represented in accounts
which include only assets held by the Custodian for customers, including, but
not limited to, accounts in which the Custodian acts in a fiduciary or
representative capacity and will be specifically allocated on the Custodian's
books to the separate account for the applicable Series. Prior to the
Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate, to accept,
utilize and act in accordance with such confirmations as provided in this
Agreement with respect to such Series. All securities are to be held or disposed
of by the Custodian for, and subject at all times to the instructions of, the
Fund pursuant to the terms of this Agreement. The Custodian shall have no power
or
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<PAGE>
authority to assign, hypothecate, pledge or otherwise dispose of any Securities
except as provided by the terms of this Agreement, and shall have the sole power
to release and deliver Securities held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Such moneys will be held in such manner and account as the Fund and the
Custodian shall agree upon in writing from time to time. Money credited to a
separate account for a Series shall be subject only to drafts, orders, or
charges of the Custodian pursuant to this Agreement and shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of Trustees certified by
an Officer and by the Secretary or Assistant Secretary of the Fund setting
forth the name and address of the person to whom the payment is to be made,
the Series account from which payment is to be made, the purpose for which
payment is to be made, and declaring such purpose to be a proper corporate
purpose; provided, however, that amounts representing dividends,
distributions, or redemptions proceeds with respect to Shares shall be paid
only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series and authorized by
this Agreement; or
(d) Pursuant to Certificates to pay interest, taxes, management fees or
operating expenses (including, without limitation thereto, Board of
Trustees' fees and expenses, and fees for legal accounting and auditing
services), which Certificates set forth the name and address of the person
to whom payment is to be made, state the purpose of such payment and
designate the Series for whose account the payment is to be made.
3. Promptly after the close of business on each day, the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series but held in a Depository, the Custodian shall upon such
transfer also by book-entry or otherwise identify such Securities as belonging
to such Series in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or a
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or a
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in a Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or a Depository with
5
<PAGE>
respect to Securities held hereunder and therein deposited, shall with respect
to all Securities held for the Fund hereunder in accordance with preceding
paragraph 4:
(a) Promptly collect all income and dividends due or payable;
(b) Promptly give notice to the Fund and promptly present for payment
and collect the amount of money or other consideration payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix D annexed hereto, which may be
amended at any time by the Custodian without the prior consent of the Fund,
provided the Custodian gives prior notice of such amendment to the Fund;
(c) Promptly present for payment and collect for the Fund's account the
amount payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form in exchange for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series,
all rights and similar securities issued with respect to any Securities held
by the Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy soliciting
materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities
held pursuant to this Agreement which are actually received by the
Custodian, such proxies and other similar materials to be executed by the
registered holder (if Securities are registered otherwise than in the name
of the Fund), but without indicating the manner in which proxies or consents
are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly
or through the use of the Book-Entry System or the Depository, shall:
(a) Promptly execute and deliver to such persons as may be designated in
such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities
held hereunder for the Series specified in such Certificate may be
exercised;
(b) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate in exchange for other Securities or cash
issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation,
or the exercise of any right, warrant or conversion privilege and receive
and hold hereunder specifically allocated to such Series any cash or other
Securities received in exchange;
(c) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of
any corporation, and receive and hold hereunder specifically allocated to
such Series in exchange therefor such certificates of deposit, interim
receipts or other instruments or documents as may be issued to it to
evidence such delivery or such Securities as may be issued upon such
delivery; and
(d) Promptly present for payment and collect the amount payable upon
Securities which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian
shall not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any
6
<PAGE>
Futures Contract Option until after it shall have determined, or shall have
received a Certificate from the Fund stating, that any such instruments or
certificates are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the availability of any
such instrument or certificate. Prior to such availability, the Custodian shall
comply with Section 17(f) of the Investment Company Act of 1940 in connection
with the purchase, sale, settlement, closing out or writing of Futures
Contracts, Options, or Futures Contract Options by making payments or deliveries
specified in Certificates in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer, or futures
commission merchant of a statement or confirmation reasonably believed by the
Custodian to be in the form customarily used by brokers, dealers, or future
commission merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a Futures Contract
Option, the Fund shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each purchase of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit; (f)
the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities purchased by or for
the Fund, pay to the broker specified in the Certificate out of the moneys held
for the account of such Series the total amount payable upon such purchase,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
2. Promptly after each execution of a sale of Securities by the Fund, other
than a sale of any Option, Futures Contract, Futures Contract Option, or any
Reverse Repurchase Agreement, the Fund shall deliver such to the Custodian (i)
with respect to each sale of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying with respect
to each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued interest, if any; (d) the
date of sale and settlement; (e) the sale price per unit; (f) the total amount
payable to the Fund upon such sale; (g) the name of the broker through
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<PAGE>
whom or the person to whom the sale was made, and the name of the clearing
broker, if any; and (h) the name of the broker to whom the Securities are to be
delivered. On the settlement date, the Custodian shall deliver the Securities
specifically allocated to such Series to the broker in accordance with generally
accepted street practices and as specified in the Certificate upon receipt of
the total amount payable to the Fund upon such sale, provided that the same
conforms to the total amount payable as set forth in such Certificate, Oral
Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any Option by the Fund
other than a closing purchase transaction the Fund shall deliver to the
Custodian a Certificate specifying with respect to each Option purchased: (a)
the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or Security underlying such
Option and the number of Options, or the name of the in the case of an Index
Option, the index to which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; and (h) the name of the Clearing Member through whom such
Option was purchased. The Custodian shall pay, upon receipt of a Clearing
Member's statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and registered
nominee of the Custodian) as custodian for the Fund, out of moneys held for the
account of the Series to which such Option is to be specifically allocated, the
total amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the execution of a sale of any Option purchased by the
Fund, other than a closing sale transaction, pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) the Series to which such Option was specifically allocated;
(b) the type of Option (put or call); (c) the instrument, currency, or Security
underlying such Option and the number of Options, or the name of the issuer and
the title and number of shares subject to such Option or, in the case of a Index
Option, the index to which such Option relates and the number of Index Options
sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously supplied
the confirmation described in preceding paragraph 1 of this Article with respect
to such Option against payment to the Custodian of the total amount payable to
the Fund, provided that the same conforms to the total amount payable as set
forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Call Option: (a) the Series to
which such Call Option was specifically allocated; (b) the name of the issuer
and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer
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<PAGE>
and the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise and settlement; (e) the exercise price per share;
(f) the total amount to be paid to the Fund upon such exercise; and (g) the name
of the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of the Put Option,
deliver or direct a Depository to deliver the Securities specifically allocated
to such Series, provided the same conforms to the amount payable to the Fund as
set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Index Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Index Option: (a) the Series to
which such Index Option was specifically allocated; (b) the type of Index Option
(put or call); (c) the number of Options being exercised; (d) the index to which
such Option relates; (e) the expiration date; (f) the exercise price; (g) the
total amount to be received by the Fund in connection with such exercise; and
(h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or cause
to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct a Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with a
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct a Depository to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
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9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to the Put Option;
(c) the Clearing Member from whom the underlying Securities are to be received;
(d) the total amount payable by the Fund upon such delivery; (e) the amount of
cash and/or the amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such Series and (f) the
amount of cash and/or the amount and kind of Securities, specifically allocated
to such Series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate,
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes an Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) whether such
Index Option is a put or a call; (c) the number of options written; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever an Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option being exercised;
(c) the Clearing Member through whom such Index Option is being exercised; (d)
the total amount payable upon such exercise, and whether such amount is to be
paid by or to the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account; and (f) the amount
of cash and/or amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Promptly after the execution of a purchase or sale by the Fund of any
Option identical to a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction or a
Closing Sale Transaction; (b) the Series for which the Option was written; (c)
the instrument, currency, or Security subject to the Option, or, in the case of
an Index Option, the index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g) the
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type of Option (put or call); (h) the date of such purchase or sale; (i) the
name of the Clearing Member to whom the premium is to be paid or from whom the
amount is to be received; and (j) the amount of cash and/or the amount and kind
of Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium or receipt of the amount, as the case may be,
specified in the Certificate and the return and/or cancellation of any receipt
issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the
Option being liquidated through the Closing Purchase Transaction or the Closing
Sale Transaction, the Custodian shall remove, or direct a Depository to remove,
the previously imposed restrictions on the Securities underlying the Call
Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
14. Securities acquired by the Fund through the exercise of an Option
described in this Article shall be subject to Article IV hereof.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract, (or with respect to any number of identical Futures Contract(s)): (a)
the Series for which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) such Futures Contract(s); (g) the amount
of cash and/or the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract was entered into;
and (i) the amount of fee or commission, if any, to be paid and the name of the
broker, dealer, or futures commission merchant to whom such amount is to be
paid. The Custodian shall make the deposits, if any, to the Margin Account in
accordance with the terms and conditions of the Margin Account Agreement. The
Custodian shall make payment out of the moneys specifically allocated to such
Series of the fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the amount of cash and/or
the amount and kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be made
by the Fund to a broker, dealer, or futures commission merchant with respect to
an outstanding Futures Contract shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer,
or futures commission merchant to the Fund with respect to an outstanding
Futures Contract shall be received and dealt with by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained
by the Fund until delivery or settlement is made on such Futures Contract, the
Fund shall deliver to the Custodian prior to the delivery or settlement date a
Certificate specifying: (a) the Futures Contract and the Series to which the
same relates; (b) with respect to an Index Futures Contract, the total cash
settlement amount to be paid or received, and with respect to a Financial
Futures Contract, the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission merchant to or from whom
payment
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or delivery is to be made or received; and (d) the amount of cash and/or
Securities to be withdrawn from the Senior Security Account for such Series. The
Custodian shall make the payment or delivery specified in the Certificate, and
delete such Futures Contract from the statements delivered to the Fund pursuant
to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any Futures Contract
Option by the Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to which
such Option is specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or futures commission
merchant through whom such option was purchased; and (i) the name of the broker,
or futures commission merchant, to whom payment is to be made. The Custodian
shall pay out of the moneys specifically allocated to such Series the total
amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the execution of a sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments of money, if any,
and the deposits of Securities, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
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4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Promptly after the execution by the Fund of a purchase of any Futures
Contract Option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the Custodian a Certificate
specifying with respect to the Futures Contract Option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Future Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Option Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
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8. Upon the expiration, exercise, or consummation of a closing transaction
with respect to, any Futures Contract Option written or purchased by the Fund
and described in this Article, the Custodian shall (a) delete such Futures
Contract Option from the statements delivered to the Fund pursuant to paragraph
3 of Article III herein and, (b) make such withdrawals from and/or in the case
of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of Securities by any
Series of the Fund, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale price per unit; (f) the total amount credited
to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and
kind of Securities, if any, which are to be deposited in a Margin Account and
the name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in a Senior Security Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of a statement from
such broker confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by such broker
for the account of the Custodian (or any nominee of the Custodian) as custodian
of the Fund, issue a receipt or make the deposits into the Margin Account and
the Senior Security Account specified in the Certificate.
2. Promptly after the execution of a purchase to close-out any short sale
of Securities, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to be delivered to the
broker; (d) the dates of closing-out and settlement; (e) the purchase price per
unit; (f) the net total amount payable to the Fund upon such closing-out; (g)
the net total amount payable to the broker upon such closing-out; (h) the amount
of cash and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and
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specifically allocated to such Series; (c) the broker, dealer, or financial
institution with whom the Reverse Repurchase Agreement is entered; (d) the
amount and kind of Securities to be delivered by the Fund to such broker,
dealer, or financial institution; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate, Oral Instructions, or Written Instructions
make the delivery to the broker, dealer, or financial institution and the
deposits, if any, to the Senior Security Account, specified in such Certificate,
Oral Instructions, or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and
the Series for which same was entered; (b) the total amount payable by the Fund
in connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker,
dealer, or financial institution with whom the Reverse Repurchase Agreement is
to be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker, dealer, or financial institution
and the withdrawals, if any, from the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
3. The Certificates, Oral Instructions, or Written Instructions described
in paragraphs 1 and 2 of this Article may with respect to any particular Reverse
Repurchase Agreement be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated
to a Series held by the Custodian hereunder, the Fund shall deliver or cause to
be delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated in the
Certificate as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the
Book-Entry System or a Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds.
2. In connection with each termination of a loan of Securities by the Fund,
the Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are specifically allocated; (b)
the name of the issuer and the title of the Securities to be returned, (c) the
number of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will
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<PAGE>
be returned. The Custodian shall receive all Securities returned from the
broker, dealer, or financial institution to which such Securities were loaned
and upon receipt thereof shall pay, out of the moneys held for the account of
the Fund, the total amount payable upon such return of Securities as set forth
in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Account and from time to
time make such deposits thereto, or withdrawals therefrom, as specified in a
Certificate. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly notify the Fund that no such deposit
has been made.
2. The Custodian shall make deliveries or payments from a Margin Account to
the broker, dealer, futures commission merchant or Clearing Member in whose
name, or for whose benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and
to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. The Custodian shall establish a Collateral Account and from time to time
shall make such deposits thereto as may be specified in a Certificate. Promptly
after the close of business on each business day in which cash and/or Securities
are maintained in a Collateral Account for any Series, the Custodian shall
furnish the Fund with a statement with respect to such Collateral Account
specifying the amount of cash and/or the amount and kind of Securities held
therein. No later than the close of business next succeeding the delivery to the
Fund of such statement, the Fund shall furnish to the Custodian a Certificate or
Written Instructions specifying the then market value of the Securities
described in such statement. In the event such then market value is indicated to
be less than the Custodian's obligation with respect to any outstanding Put
Option guarantee letter or similar document, the Fund shall promptly specify in
a
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Certificate the additional cash and/or Securities to be deposited in such
Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of the
Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein and the declaration of dividends and
distributions thereon the Custodian to rely on Oral Instructions, Written
Instructions, or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral Instructions,
Written Instructions, or Certificate, as the case may be, the Custodian shall
pay to the Transfer Agent Account out of the moneys held for the account of the
Series specified therein the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or cause to be
delivered, to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale of
such Shares and specifically allocated to the separate account in the name
of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account in the name of the Series for which
such money was received.
3. Upon issuance of any Shares of any Series the Custodian shall pay, out
of the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the Custodian
to make payment out of the money held by the Custodian hereunder in connection
with a redemption of any Shares, it shall furnish, or cause to be furnished, to
the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent Account out of the moneys held in the separate
account in the name of the Series the total amount specified in the Certificate
issued pursuant to the foregoing paragraph 4 of this Article.
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ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on behalf
of any Series which results in an overdraft because the moneys held by the
Custodian in the separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate, Oral Instructions, or Written
Instructions or which results in an overdraft in the separate account of such
Series for some other reason, or if the Fund is for any other reason indebted to
the Custodian with respect to a Series, (except a borrowing for investment or
for temporary or emergency purposes using Securities as collateral pursuant to a
separate agreement and subject to the provisions of paragraph 2 of this
Article), such overdraft or indebtedness shall be deemed to be a loan made by
the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the Federal Funds Rate plus 1/2%,
such rate to be adjusted on the effective date of any change in such Federal
Funds Rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in the aggregate amount of such overdrafts and indebtedness as may from
time to time exist in and to any property specifically allocated to such Series
at any time held by it for the benefit of such Series or in which the Fund may
have an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting in the Custodian's behalf. The
Fund authorizes the Custodian, in its sole discretion, at any time to charge any
such overdraft or indebtedness together with interest due thereon against any
money balance of account standing to such Series' credit on the Custodian's
books. In addition, the Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Fund had outstanding a Reverse Repurchase Agreement or
such a borrowing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify the Series to which
the same relates, and shall not incur any indebtedness, including pursuant to
any Reverse Repurchase Agreement, not so specified other than from the
Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and
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the Custodian shall receive from time to time such return of collateral as may
be tendered to it. In the event that the Fund fails to specify in a Certificate
the Series, the name of the issuer, the title and number of shares or the
principal amount of any particular Securities to be delivered as collateral by
the Custodian, to any such bank, the Custodian shall not be under any obligation
to deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its duties
hereunder, and, except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence, bad faith, or willful misconduct or that of its
officers, employees, or agents. The Custodian may, with respect to questions of
law arising hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund, at the expense of the
Fund, or of its own counsel, at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Notwithstanding the foregoing, the Custodian shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity (but not the authenticity) of the issue of any
Securities purchased, sold, or written by or for the Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the amount paid
or received therefor, as specified in a Certificate, Oral Instructions, or
Written Instructions;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor, as specified in a
Certificate;
(c) The legality of the declaration or payment of any dividend by the
Fund, as specified in a resolution, Certificate, Oral Instructions, or
Written Instructions;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that the cash
collateral delivered to it by a broker, dealer, or financial institution or
held by it at any time as a result of such loan of portfolio Securities of
the Fund is adequate collateral for the Fund against any loss it might
sustain as a result of such loan, except that this subparagraph shall not
excuse any liability the Custodian may have for failing to act in accordance
with Article X hereof or any Certificate, Oral Instructions, or Written
Instructions given in accordance with this Agreement. The Custodian
specifically, but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the amount of such
cash collateral held by it for the Fund is sufficient collateral for the
Fund, but such duty or obligation shall be the sole responsibility of the
Fund. In addition, the Custodian shall be under no duty or obligation to see
that any broker, dealer or financial institution to which portfolio
Securities of the Fund are lent pursuant to Article X of this Agreement
makes payment to it of any dividends or interest which are payable to or for
the account of the Fund during the period of such loan or at the termination
of such loan, provided, however, that the Custodian shall promptly notify
the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Senior Security Account or Collateral Account in
connection with transactions by the Fund,
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except that this sub-paragraph shall not excuse any liability the Custodian
may have for failing to establish, maintain, make deposits to or withdrawals
from such accounts in accordance with this Agreement. In addition, the
Custodian shall be under no duty or obligation to see that any broker,
dealer, futures commission merchant or Clearing Member makes payment to the
Fund of any variation margin payment or similar payment which the Fund may
be entitled to receive from such broker, dealer, futures commission merchant
or Clearing Member, to see that any payment received by the Custodian from
any broker, dealer, futures commission merchant or Clearing Member is the
amount the Fund is entitled to receive, or to notify the Fund of the
Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian
of, any money, whether or not represented by any check, draft, or other
instrument for the payment of money, received by it on behalf of the Fund until
the Custodian actually receives such money directly or by the final crediting of
the account representing the Fund's interest at the Book-Entry System or the
Depository.
4. With respect to Securities held in a Depository, except as otherwise
provided in paragraph 5(b) of Article III hereof, the Custodian shall have no
responsibility and shall not be liable for ascertaining or acting upon any
calls, conversions, exchange offers, tenders, interest rate changes or similar
matters relating to such Securities, unless the Custodian shall have actually
received timely notice from the Depository in which such Securities are held. In
no event shall the Custodian have any responsibility or liability for the
failure of a Depository to collect, or for the late collection or late crediting
by a Depository of any amount payable upon Securities deposited in a Depository
which may mature or be redeemed, retired, called or otherwise become payable.
However, upon receipt of a Certificate from the Fund of an overdue amount on
Securities held in a Depository the Custodian shall make a claim against the
Depository on behalf of the Fund, except that the Custodian shall not be under
any obligation to appear in, prosecute or defend any action suit or proceeding
in respect to any Securities held by a Depository which in its opinion may
involve it in expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be required, or
alternatively, the Fund shall be subrogated to the rights of the Custodian with
respect to such claim against the Depository should it so request in a
Certificate. This paragraph shall not, however, excuse any failure by the
Custodian to act in accordance with a Certificate, Oral Instructions, or Written
Instructions given in accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after the Custodian has timely
and properly, in accordance with this Agreement, made due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action, but the Custodian
shall have such a duty if the Securities were not in default on the payable date
and the Custodian failed to timely and properly make such demand for payment and
such failure is the reason for the non-receipt of payment.
7. The Custodian may appoint one or more banking institutions as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians including,
but not limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an agreement
executed by the Custodian, the Fund and the appointed institution.
8. The Custodian agrees to indemnify the Fund against and save the Fund
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred
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because of the negligence, bad faith or willful misconduct of any Sub-Custodian
of the Securities and moneys owned by the Fund, provided such Sub-Custodian is a
banking institution located in a foreign country and appointed by the Custodian
pursuant to paragraph 7 of this Article.
9. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it, for the account
of the Fund and specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its then current
prospectus, or (b) to ascertain whether any transactions by the Fund, whether or
not involving the Custodian, are such transactions as may properly be engaged in
by the Fund.
10. The Custodian shall be entitled to receive and the Fund agrees to pay to
the Custodian all reasonable out-of-pocket expenses and such compensation as may
be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation, and any such expenses with respect to a
Series incurred by the Custodian in the performance of its duties under this
Agreement against any money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it for the account of
a Series the amount of any loss, damage, liability or expense, including counsel
fees, for which it shall be entitled to reimbursement under the provisions of
this Agreement attributable to, or arising out of, its serving as Custodian for
such Series. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund. Notwithstanding the foregoing or anything else contained
in this Agreement to the contrary, the Custodian shall, prior to effecting any
charge for compensation, expenses, or any overdraft or indebtedness or interest
thereon, submit an invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing, Oral Instructions, or Written Instructions received
by the Custodian and reasonably believed by the Custodian to be genuine. The
Fund agrees to forward to the Custodian a Certificate or facsimile thereof
confirming Oral Instructions or Written Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions or Written Instructions are
given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions thereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions or Written Instructions
given to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any instrument, instruction
or notice received by the Custodian and reasonably believed by the Custodian to
be given in accordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing, the Custodian shall
be under no duty to inquire into, and shall not be liable for, the accuracy of
any statements or representations contained in any such instrument or other
notice including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member. This
paragraph shall not excuse any failure by the Custodian to have acted in
accordance with any Margin Agreement it has executed or any Certificate, Oral
Instructions, or Written Instructions given in accordance with this Agreement.
13. The books and records pertaining to the Fund, as described in Appendix E
hereto, which are in the possession of the Custodian shall be the property of
the Fund. Such books and records shall be prepared and maintained by the
Custodian as required by the Investment Company Act of 1940, as amended, and
other applicable securities laws and rules and regulations. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
during the Custodian's normal
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business hours. Upon the reasonable request of the Fund, copies of any such
books and records shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of the Fund, the
Custodian shall provide in hard copy or on micro-film, whichever the Custodian
elects, any records included in any such delivery which are maintained by the
Custodian on a computer disc, or are similarly maintained, and the Fund shall
reimburse the Custodian for its expenses of providing such hard copy or
micro-film.
14. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
each Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
15. The Custodian shall furnish upon request annually to the Fund a letter
prepared by the Custodian's accountants with respect to the Custodian's internal
systems and controls in the form generally provided by the Custodian to other
investment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising out of, or related to, the
Custodian's performance of its obligations under this Agreement, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence, bad faith, or willful misconduct or that of its officers, employees,
or agents.
17. Subject to the foregoing provisions of this Agreement, the Custodian
shall deliver and receive Securities, and receipts with respect to such
Securities, and shall make and receive payments only in accordance with the
customs prevailing from time to time among brokers or dealers in such Securities
and, except as may otherwise be provided by this Agreement or as may be in
accordance with such customs, shall make payment for Securities only against
delivery thereof and deliveries of Securities only against payment therefor.
18. The Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article, this Agreement shall
continue until terminated by either the Custodian giving to the Fund, or the
Fund giving to the Custodian, a notice in writing specifying the date of such
termination, which date shall be not less than 60 days after the date of the
giving of such notice. In the event such notice or a notice pursuant to
paragraph 3 of this Article is given by the Fund, it shall be accompanied by a
copy of a resolution of the Board of Trustees of the Fund, certified by an
Officer and the Secretary or an Assistant Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be eligible to serve as a custodian for the securities of a
management investment company under the Investment Company Act of 1940. In the
event such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian, after
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deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian
in accordance with the preceding paragraph, the Fund shall upon the date
specified in the notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held in the Book-Entry
System which cannot be delivered to the Fund) and moneys then owned by the Fund
be deemed to be its own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which cannot be
delivered to the Fund to hold such Securities hereunder in accordance with this
Agreement.
3. Notwithstanding the foregoing, the Fund may terminate this Agreement
upon the date specified in a written notice in the event of the "Bankruptcy" of
The Bank of New York. As used in this sub-paragraph, the term "Bankruptcy" shall
mean The Bank of New York's making a general assignment, arrangement or
composition with or for the benefit of its creditors, or instituting or having
instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or the entry of a order for relief under any applicable bankruptcy
law or any other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or if a petition is presented for the winding
up or liquidation of the party or a resolution is passed for its winding up or
liquidation, or it seeks, or becomes subject to, the appointment of an
administrator, receiver, trustee, custodian or other similar official for it or
for all or substantially all of its assets or its taking any action in
furtherance or, or indicating its consent to approval of, or acquiescence in,
any of the foregoing.
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to and to receive notices
from the Custodian.
2. The parties hereto shall utilize the Terminal Link only for the purpose
of the Fund providing Certificates to the Custodian and the Custodian providing
notices to the Fund and only after the Fund and the Custodian shall have
established access codes and internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes. Each use of
the Terminal Link by the Fund shall constitute a representation and warranty
that at least two such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such equipment or
services, except that the Custodian shall not pay any communications costs of
any line leased by the Fund, even if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made available as part of, or
through the Terminal and any proprietary data, software, processes, information
and documentation (other than any such which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
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5. Upon termination of this Agreement for any reason, each Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from time
to time without notice to the Fund, except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees not to
modify or attempt to modify the Terminal Link without the Bank's prior written
consent. The Fund acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it utilizes or
the Fund utilizes in connection with the Terminal Link makes any warranties or
representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
8. Each party will, and will cause its officers and employees to, treat the
user and authorization codes, passwords and authentication keys applicable to
Terminal Link with extreme care. Each party hereby irrevocably authorizes the
other to act in accordance with and rely on Certificates and notices received by
it through the Terminal Link. Each party acknowledges that it is its
responsibility to assure that only its authorized persons use the Terminal Link
on its behalf, and that a party shall not be responsible nor liable for use of
the Terminal Link on its behalf of the other party by unauthorized persons
except that the other party shall be liable for such use thereof by unauthorized
persons who have obtained access thereto as a result of the bad faith or willful
misconduct of such party or any of its officers or employees.
9. Notwithstanding anything else in this Agreement to the contrary, neither
party shall have any liability to the other for any losses, damages, injuries,
claims, costs or expenses arising as a result of a delay, omission or error in
the transmission of a Certificate or notice by use of the Terminal Link except
for money damages for those suffered as the result of the negligence, bad faith
or willful misconduct of such party or its officers, employees or agents in an
amount not exceeding for any incident $100,000, provided, however, that a party
shall have no liability under this Section 9 if the other party fails to comply
with the provisions of Section 11.
10. Without limiting the generality of the foregoing, it is hereby agreed
that in no event shall either party or any manufacturer or supplier of its
computer equipment, software or services relating to the Terminal Link be
responsible for any special, indirect, incidental or consequential damages which
the other party may incur or experience by reason of its use of the Terminal
Link even if such party, manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall either party or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
24
<PAGE>
12. Each party shall, as soon as practicable after its receipt of a
Certificate or of any notice transmitted by the Terminal Link, verify to the
other party by use of the Terminal Link its receipt of such Certificate or
notice, and in the absence of such verification a party to whom a Certificate or
notice is sent shall not be liable for any failure to act in accordance with
such Certificate or notice, and the sending party may not claim that such
Certificate or notice was received by the other.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event that other
or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be entitled to rely and to
act upon Oral Instructions, Written Instructions, or signatures of the present
Authorized Persons as set forth in the last delivered Certificate to the extent
provided by this Agreement.
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered Certificate to the
extent provided by this Agreement.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, other than any Certificate or
Written Instructions, shall be sufficiently given if addressed to the Custodian
and mailed or delivered to it at its offices at 90 Washington Street, New York,
New York 10286, or at such other place as the Custodian may from time to time
designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
5. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund,
except that Appendices A and B may be amended unilaterally by the Fund without
such an approving resolution.
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian or The Bank of New York without the
written consent of the Fund, authorized or approved by a resolution of the
Fund's Board of Trustees. For purposes of this paragraph, no merger,
consolidation, or amalgamation of the Custodian, The Bank of New York, or the
Fund shall be deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
25
<PAGE>
9. 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 Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
<TABLE>
<S> <C> <C>
DEAN WITTER VARIABLE INVESTMENT SERIES
[SEAL] By:
-----------------------------------------
Attest:
- ------------------------------
THE BANK OF NEW YORK
[SEAL] By:
-----------------------------------------
Attest:
- ------------------------------
</TABLE>
26
<PAGE>
APPENDIX A
I, , President and I, , of ,
a Massachusetts business trust (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of Trustees
of the Fund in conformity with the Fund's Declaration of Trust and By-Laws to
give Oral Instructions and Written Instructions on behalf of the Fund, except
that those persons designated as being an "Officer of DWTC" shall be an
Authorized Person only for purposes of Articles XII and XIII. The signatures set
forth opposite their respective names are their true and correct signatures:
<TABLE>
<CAPTION>
NAME POSITION SIGNATURE
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
</TABLE>
<PAGE>
APPENDIX B
I, , President and I, , of ,
a, Massachusetts business trust (the "Fund"), do hereby certify that:
The following individuals for whom a position other than "Officer of DWTC"
is specified serve in the following positions with the Fund and each has been
duly elected or appointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's Declaration of
Trust and By-Laws. With respect to the following individuals for whom a position
of "Officer of DWTC" is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an Officer for purposes of
the Fund's Custody Agreement with The Bank of New York, but only for purposes of
Articles XII and XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set forth opposite
their respective names are their true and correct signatures:
<TABLE>
<CAPTION>
NAME POSITION SIGNATURE
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
</TABLE>
<PAGE>
APPENDIX C
The undersigned, hereby certifies that he or she is the
duly elected and acting of (the "Fund"), further certifies
that the following resolutions were adopted by the Board of Trustees of the Fund
at a meeting duly held on , 1991, at which a quorum at all times
present and that such resolutions have not been modified or rescinded and are in
full force an effect as of the date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991 (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to act in accordance with, and to rely on instructions by the Fund
to the Custodian communicated by a Terminal Link as defined in the Custody
Agreement.
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to officers of the Fund as defined in the Custody Agreement,
and shall establish internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the Custody Agreement
shall, following the establishment of such access codes and such internal
safekeeping procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of
, as of the day of , 1991.
--------------------------------------
<PAGE>
APPENDIX D
I, Richard P. Lando, an Assistant Vice President with THE BANK
OF NEW YORK do hereby designate the following publications:
THE BOND BUYER
DEPOSITORY TRUST COMPANY NOTICES
FINANCIAL DAILY CARD SERVICE
JJ KENNEY MUNICIPAL BOND SERVICE
LONDON FINANCIAL TIMES
NEW YORK TIMES
STANDARD & POOR'S CALLED BOND RECORD
WALL STREET JOURNAL
<PAGE>
APPENDIX E
The following books and records pertaining to Fund shall be prepared and
maintained by the Custodian and shall be the property of the Fund:
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of , a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1991, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis to deposit in the Book-Entry System, as defined in the
Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize
the Book-Entry System to the extent possible in connection with its
performance thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 1991.
--------------------------------------
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of , a Massachusetts
business Trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1991, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined
in the Custody Agreement, to the contrary to deposit in The Depository Trust
Company ("DTC"), as a "Depository" as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize DTC to the extent
possible in connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 1991.
--------------------------------------
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of , a Massachusetts
business Trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1991, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined
in the Custody Agreement, to the contrary to deposit in the Participants
Trust Company as a Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the Participants Trust
Company to the extent possible in connection with its performance
thereunder, including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 1991.
--------------------------------------
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of , a Massachusetts
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1991, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined
in the Custody Agreement, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and transaction in
Options, regardless of the Series to which the same are specifically
allocated, as such terms are defined in the Custody Agreement, as provided
in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 1991.
--------------------------------------
[SEAL]
<PAGE>
November 3, 1998
Morgan Stanley Dean Witter Variable Investment Series
The Equity Portfolio
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter Variable
Investment Series, a Massachusetts business trust (the "Trust"), in connection
with the Registration Statement on Form N-14 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "1933 Act"), to be filed by
the Trust in connection with the acquisition by The Equity Portfolio ("Equity"),
one of fifteen portfolios of the Trust, of substantially all the assets of The
Capital Appreciation Portfolio ("Capital Appreciation"), another of the Trust's
fifteen portfolios, in exchange for shares of beneficial interest of Equity
("Shares") and the assumption by Equity of certain stated liabilities of Capital
Appreciation pursuant to an Agreement and Plan of Reorganization dated as of
October 28, 1998 (the "Reorganization Agreement"). We have examined such
statutes, regulations, corporate records and other documents and reviewed such
questions of law as we deemed necessary or appropriate for the purposes of this
opinion.
As to matters of Massachusetts law contained in this opinion, we have relied
upon the opinion of Lane Altman & Owens LLP, dated November 3, 1998.
Based upon the foregoing, we are of the opinion that the Shares when issued,
as described in the Reorganization Agreement, will be duly authorized and,
assuming receipt of the consideration to be paid therefor, upon delivery as
provided in the Reorganization Agreement, will be legally issued, fully paid and
non-assessable (except for the potential liability of shareholders described in
the Trust's Prospectus dated November 2, 1998 under the caption "Additional
Information").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
<TABLE>
<S> <C>
Very truly yours,
/s/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
</TABLE>
<PAGE>
LANE ALTMAN & OWENS LLP 101 Federal Street Telephone
COUNSELLORS AT LAW Boston, (617) 345-9800
Massachusetts Telefax
02110 (617) 345-0400
November 3, 1998
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter Variable
Investment Series, a Massachusetts business trust (the "Trust"), intend, on or
about November 3, 1998, to cause to be filed on behalf of the Trust a
Registration Statement on Form N-14 (the "Registration Statement") in connection
with the acquisition (the "Acquisition") by The Equity Portfolio of the Trust
("Equity Portfolio") of substantially all the assets of The Capital Appreciation
Portfolio of the Trust ("Capital Appreciation Portfolio"), in exchange for
shares of beneficial interest of Equity Portfolio (the "Shares"), and the
assumption by Equity Portfolio of certain stated liabilities of Capital
Appreciation Portfolio pursuant to an Agreement and Plan of Reorganization dated
as of October 28, 1998 (the "Agreement"). We further understand that the Shares
will be issued pursuant to the Agreement.
You have requested that we act as special counsel to the Trust with respect
to the laws of the Commonwealth of Massachusetts on certain specified matters,
and in such capacity we are furnishing you with this opinion. You have not asked
for, and we do not offer, an opinion on any other matter or transaction related
to the Trust, Equity Portfolio, Capital Appreciation Portfolio, the Acquisition,
the Agreement or any matter related thereto, except as specifically set forth
below.
The Trust, originally organized as Dean Witter Variable Annuity Investment
Series, is a business trust created under an Agreement and Declaration of Trust
finally executed, delivered and filed in Boston, Massachusetts on February 25,
1983 (as amended, the "Trust Agreement"). The Trustees of the Trust (as defined
in the Trust Agreement) (the "Trustees") have the powers set forth in the Trust
Agreement, subject to the terms, provisions and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of, you:
(i) a copy of the Agreement in the form to be executed by the Trust on behalf of
each of Equity Portfolio and Capital Appreciation Portfolio; (ii) a copy of the
Trust Agreement; (iii) a copy of the Amended and Restated By-laws of the Trust
effective as of October 23, 1997; (iv) a Certificate of Legal Existence for the
Trust provided by the Secretary of State of the Commonwealth of Massachusetts
dated October 28, 1998; and (v) copies of the Registration Statement on Form
N-14 to be filed by the Trust and the Trust's current Prospectus and Statement
of Additional Information.
In rendering this opinion we have assumed, without independent verification,
(i) the due authority of all individuals signing in representative capacities
and the genuineness of signatures, (ii) the authenticity, completeness and
continued effectiveness of all documents or copies furnished to us, (iii) that
resolutions approving the Registration Statement, the Acquisition and the
Agreement have been duly adopted by the Trustees, (iv) that no amendments,
agreements, resolutions or actions have been approved, executed or adopted which
would limit, supersede or modify the items described above, and (v) that the
by-laws filed as an exhibit to the Registration Statement have been duly adopted
by the Trustees. We have also examined such questions of law as we have
concluded necessary or appropriate for purposes of the opinions
<PAGE>
Gordon Altman Butowsky
November 3, 1998
Page 2
expressed below. Where documents are referred to in resolutions approved by the
Trustees, or in the Registration Statement, we assume such documents are the
same as in the most recent form provided to us, whether as an exhibit to the
Registration Statement, or otherwise. When any opinion set forth below relates
to the existence or standing of the Trust, such opinion is based entirely upon
and is limited by the items referred to above, and we understand that the
foregoing assumptions, limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only (except
that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Prospectus
under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LANE ALTMAN & OWENS LLP
<PAGE>
November 3, 1998
Morgan Stanley Dean Witter Variable Investment Series
The Equity Portfolio
Two World Trade Center
New York, New York 10048
Morgan Stanley Dean Witter Variable Investment Series
The Capital Appreciation Portfolio
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax consequences of
the transaction (the "Reorganization") described below pursuant to which (i)
substantially all assets of The Capital Appreciation Portfolio ("Capital
Appreciation Portfolio"), one of fifteen portfolios of Morgan Stanley Dean
Witter Variable Investment Series, a Massachusetts business trust ("Variable
Investment Series"), will be combined with those of The Equity Portfolio
("Equity Portfolio"), also one of fifteen portfolios of Variable Investment
Series, in exchange for shares of Equity Portfolio ("Equity Portfolio Shares"),
and the assumption by Equity Portfolio of certain liabilities of Capital
Appreciation Portfolio (the "Liabilities"); (ii) Capital Appreciation Portfolio
will be liquidated; and (iii) Equity Portfolio Shares will be distributed to the
holders ("Capital Appreciation Portfolio Shareholders") of shares in Capital
Appreciation Portfolio ("Capital Appreciation Portfolio Shares").
We have examined and are familiar with such documents, records and other
instruments as we have deemed appropriate for purposes of this opinion letter,
including the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 on Form N-14, relating to Equity
Portfolio Shares of Variable Investment Series (the "Registration Statement")
which includes, as a part thereof, the proxy statement of Variable Investment
Series, on behalf of Capital Appreciation Portfolio (the "Capital Appreciation
Portfolio Proxy"), which will be used to solicit proxies of Capital Appreciation
Portfolio Shareholders in connection with the Special Meeting of Capital
Appreciation Portfolio Shareholders and the Agreement and Plan of Reorganization
by and between Variable Investment Series, on behalf of Equity Portfolio, and
Variable Investment Series, on behalf of Capital Appreciation Portfolio (the
"Plan").
In rendering this opinion, we have assumed that the Reorganization will be
carried out pursuant to the terms of the Plan, that factual statements and
information contained in the Registration Statement, the Capital Appreciation
Portfolio Proxy and other documents, records and instruments supplied to us are
correct and that there will be no material change with respect to such facts or
information prior to the time of the Reorganization. In rendering our opinion,
we have also relied on the representations and facts discussed below which have
been provided to us by Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors") and Variable Investment Series, and we have assumed that such
representations and facts will remain correct at the time of the Reorganization.
FACTS
Variable Investment Series is an open-end diversified management investment
company. Equity Portfolio is one of fifteen portfolios of Variable Investment
Series. Since its inception, Equity Portfolio has conducted its affairs so as to
qualify, and has elected to be taxed, as a regulated investment company under
Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").
Capital Appreciation Portfolio is also one of fifteen portfolios of Variable
Investment Series. Since its inception, Capital Appreciation Portfolio has
conducted its affairs so as to qualify, and has elected to be taxed, as a
regulated investment company under Section 851 of the Code.
<PAGE>
The Board of Trustees of Variable Investment Series, on behalf of each of
Equity Portfolio and Capital Appreciation Portfolio, has determined, for valid
business reasons, that it is advisable to combine the assets of Equity Portfolio
and Capital Appreciation Portfolio into one portfolio.
In view of the above, the Board of Trustees of Variable Investment Series
adopted the Plan, subject to, among other things, approval by Capital
Appreciation Portfolio Shareholders.
Pursuant to the Plan, Capital Appreciation Portfolio will transfer all of
its assets to Equity Portfolio in exchange for Equity Portfolio Shares
(including fractional Equity Portfolio Shares) and the assumption by Equity
Portfolio of the Liabilities. Immediately thereafter, Capital Appreciation
Portfolio will distribute the Equity Portfolio Shares to Capital Appreciation
Portfolio Shareholders in exchange for and in cancellation of their Capital
Appreciation Portfolio Shares and in complete liquidation of Capital
Appreciation Portfolio.
Each of the following representations, among other representations, has been
made to us in connection with the Reorganization by MSDW Advisors and by
Variable Investment Series.
(1) To the best of the knowledge of the management of MSDW Advisors,
Variable Investment Series, and their affiliates, there is no plan or intention
on the part of Capital Appreciation Portfolio Shareholders to redeem, sell,
exchange or otherwise dispose of a number of Equity Portfolio Shares that would
reduce Capital Appreciation Portfolio Shareholders' ownership of Equity
Portfolio Shares to a number of Equity Portfolio Shares having a value, as of
the date of the Reorganization, of less than fifty percent of the value of all
of the formerly outstanding Capital Appreciation Portfolio Shares as of such
date;
(2) Equity Portfolio has no plan or intention to reacquire any of the Equity
Portfolio Shares to be issued pursuant to the Reorganization except to the
extent necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to Equity Portfolio were
incurred by Capital Appreciation Portfolio in the ordinary course of business
and are associated with the assets being transferred to Equity Portfolio;
(4) The amount of the Liabilities will not exceed the aggregate adjusted
basis of Capital Appreciation Portfolio for its assets transferred to Equity
Portfolio;
(5) Equity Portfolio has no plan or intention to sell or otherwise dispose
of more than fifty percent of the assets of Capital Appreciation Portfolio
acquired in the Reorganization, except for dispositions made in the ordinary
course of business;
(6) There is no indebtedness between Capital Appreciation Portfolio and
Equity Portfolio that was issued, acquired or will be settled at a discount;
(7) Capital Appreciation Portfolio has been a regulated investment company
within the meaning of Section 851 of the Code since the date of its organization
through the end of its last complete taxable year and will qualify as a
regulated investment company for its taxable year ending on the date of the
Reorganization;
(8) Equity Portfolio has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the date hereof and will qualify as a regulated investment company for its
taxable year ending on December 31, 1999;
(9) Capital Appreciation Portfolio will have no accumulated earnings and
profits as of the close of its taxable year ending on the date of the
Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal Revenue
Service Rulings and the relevant case law, as of the date hereof, and on the
facts, representations and assumptions set forth above, and the documents,
records and other instruments we have reviewed, it is our opinion that the
<PAGE>
Federal income tax consequences of the Reorganization to Equity Portfolio,
Capital Appreciation Portfolio and the Capital Appreciation Portfolio
Shareholders will be as follows:
(1) The transfer of substantially all of Capital Appreciation Portfolio's
assets in exchange for Equity Portfolio Shares and the assumption by Equity
Portfolio of Liabilities of Capital Appreciation Portfolio, followed by the
distribution by Capital Appreciation Portfolio of Equity Portfolio Shares to the
Capital Appreciation Portfolio Shareholders in exchange for their Capital
Appreciation Portfolio Shares, will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and Capital Appreciation Portfolio
and Equity Portfolio will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Equity Portfolio upon the receipt
of the assets of Capital Appreciation Portfolio solely in exchange for Equity
Portfolio Shares and the assumption of the Liabilities by Equity Portfolio;
(3) No gain or loss will be recognized by Capital Appreciation Portfolio
upon the transfer of the assets of Capital Appreciation Portfolio to Equity
Portfolio in exchange for Equity Portfolio Shares and the assumption of the
Liabilities by Equity Portfolio, or upon the distribution of Equity Portfolio
Shares to Capital Appreciation Portfolio Shareholders in exchange for their
Capital Appreciation Portfolio Shares as provided in the Plan;
(4) No gain or loss will be recognized by Capital Appreciation Portfolio
Shareholders upon the exchange of their Capital Appreciation Portfolio Shares
for Equity Portfolio Shares;
(5) The aggregate tax basis for Equity Portfolio Shares received by each
Capital Appreciation Portfolio Shareholder pursuant to the Reorganization will
be the same as the aggregate tax basis of the Capital Appreciation Portfolio
Shares held by each such Capital Appreciation Portfolio Shareholder immediately
prior to the Reorganization;
(6) The holding period of Equity Portfolio Shares to be received by each
Capital Appreciation Portfolio Shareholder will include the period during which
the Capital Appreciation Portfolio Shares surrendered in exchange therefor were
held (provided such Capital Appreciation Portfolio Shares were held as capital
assets on the date of the Reorganization);
(7) The tax basis of the assets of Capital Appreciation Portfolio acquired
by Equity Portfolio will be the same as the tax basis of such assets to Capital
Appreciation Portfolio immediately prior to the Reorganization; and
(8) The holding period of the assets of Capital Appreciation Portfolio in
the hands of Equity Portfolio will include the period during which those assets
were held by Capital Appreciation Portfolio.
We are not expressing an opinion as to any aspect of the Reorganization
other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not be a change in the existing law or that the Internal
Revenue Service will not alter its present views, either prospectively or
retroactively, or adopt new views with regard to any of the matters upon which
we are rendering this opinion, nor can any assurances be given that the Internal
Revenue Service will not audit or question the treatment accorded to the
Reorganization on the Federal income tax returns of Variable Investment Series
or the Capital Appreciation Portfolio Shareholders.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the Capital Appreciation Portfolio Proxy
constituting a part thereof.
<TABLE>
<S> <C>
Very truly yours,
/s/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated February 13, 1998 relating to the December 31, 1997 financial
statements and financial highlights of Morgan Stanley Dean Witter Variable
Investment Series (the "Fund") and to the reference to us under the heading
"Financial Statements and Experts" in such Proxy Statement and Prospectus. We
also consent to the references to us under the headings "Independent
Accountants" and "Experts" in the Fund's Statement of Additional Information
dated November 2, 1998 and to the reference to us under the heading "Financial
Highlights" in the Fund's Prospectus dated November 2, 1998 which Statement of
Additional Information and Prospectus have been incorporated by reference into
this Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 2, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter Variable Investment Series, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ MICHAEL BOZIC
- ------------------------------ Trustee October 28, 1998
Michael Bozic
/s/ EDWIN J. GARN
- ------------------------------ Trustee October 28, 1998
Edwin J. Garn
/s/ WAYNE E. HEDIEN
- ------------------------------ Trustee October 28, 1998
Wayne E. Hedien
/s/ DR. MANUEL H. JOHNSON
- ------------------------------ Trustee October 28, 1998
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
- ------------------------------ Trustee October 28, 1998
Michael E. Nugent
/s/ JOHN L. SCHROEDER
- ------------------------------ Trustee October 28, 1998
John L. Schroeder
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanley Dean Witter Variable Investment Series, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ CHARLES A. FIUMEFREDDO
- ------------------------------ Trustee October 28, 1998
Charles A. Fiumefreddo
/s/ PHILIP J. PURCELL
- ------------------------------ Trustee October 28, 1998
Philip J. Purcell
</TABLE>
<PAGE>
VOTING INSTRUCTIONS FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
MORGAN STANLEY DEAN WITTER VARIABLE
INVESTMENT SERIES-CAPITAL APPRECIATION PORTFOLIO
TO BE HELD ON FEBRUARY 24, 1999
This Instruction Card is solicited by ________________ from owners of
variable annuity contracts and/or variable life insurance policies issued by
________________ who have specified that a portion of their investment be
allocated to this Portfolio of Morgan Stanley Dean Witter Variable Investment
Series.
The undersigned contract/policy owner hereby instructs that the votes
attributable to the undersigned's interest with respect to the
above-referenced Portfolio be cast as directed on the reverse side at the
Special Meeting of Shareholders of Morgan Stanley Dean Witter Variable
Investment Series-Capital Appreciation Portfolio on February 24, 1999 at
10:30 a.m., New York City time. The undersigned, by completing this form,
does hereby authorize ________________ to exercise its discretion in voting
upon such other business as may properly come before the Meeting.
This Instruction Card, when properly executed, will be voted by
________________ in the manner directed herein by the undersigned. If no
direction is made, the votes attributable to this Instruction Card will be
voted FOR the proposal listed on the reverse side. Interests in the
Portfolio for which no instructions are received will be voted by
________________ in the same proportion as votes for which Instructions are
received for the Portfolio.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS VOTING INSTRUCTIONS
CARD. PLEASE MARK, SIGN, DATE AND MAIL
YOUR VOTING INSTRUCTIONS CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. If
joint owners, each should sign. When
signing as executor, trustee, etc.,
give full title as such.
_____________________________
Signature
_____________________________
Signature (if held jointly)
______________________, 199_
Date
<PAGE>
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE FOR THE FOLLOWING PROPOSAL.
Please mark your choices below in blue or black ink. Example /X/ Sign the
Voting Instructions Card on the reverse side and return as soon as possible
in the enclosed envelope.
- --------------------------------------------------------------------------------
1. Approval of an Agreement and Plan of Reorganization, dated October 28, 1998
(the "Reorganization Agreement"), pursuant to which all of the assets of
Capital Appreciation Portfolio would be combined with those of Equity
Portfolio, another Portfolio of Morgan Stanley Dean Witter Variable
Investment Series, and shareholders of Capital Appreciation Portfolio would
become shareholders of Equity Portfolio receiving shares of Equity
Portfolio with a value equal to the value of their holdings in Capital
Appreciation Portfolio.
FOR AGAINST ABSTAIN
/ / / / / /
- --------------------------------------------------------------------------------
