<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT TWO WORLD TRADE CENTER,
SERIES NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998
DEAR SHAREHOLDER:
The first half of 1998 saw a great deal of volatility and uncertainty as
financial turmoil in Asia spread across the globe. However, the U.S. stock
market recovered quickly, with the stocks of large American companies benefiting
from the notion that they could provide a safe haven. This positive investor
psychology was coupled with strong fundamental data, such as low inflation,
strong employment figures and rising consumer confidence, which supported higher
equity prices.
In October, an unprecedented number of central banks around the world responded
to a global contraction in the availability of credit by lowering interest rates
in a series of impressive moves, indicating this action could continue into the
first quarter of 1999. Countries as diverse as the United States and China, as
well as all of the countries comprising the European Monetary Union, lowered
rates across the board. More than 60 separate easing moves were recorded.
U.S. EQUITY MARKET
After soaring to a record high of 9,338 in July, the Dow Jones Industrial
Average plunged nearly 1,800 points by the end of August. Several factors
combined to drag down the price of stocks, including slowing profits, the
persistent Asian contagion, Russia's debt default and devaluation of the ruble,
the ongoing White House scandal, and the near-collapse of a major hedge fund,
Long-Term Capital Management. The steadying influence of the "Goldilocks"
economy -- an environment that is considered neither too hot nor too cold,
allowing for economic expansion with low inflation -- pulled the market out of
its summer slump. During the fourth quarter of 1998, the stock market regained
much of the ground that it had lost during the difficult summer months. For the
full year, the Dow was up 18.16 percent and the S&P 500 was up 28.58 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
U.S. BOND MARKET
The U.S. economy continued to expand throughout 1998, as employment grew,
personal income climbed and consumers remained resilient. Despite strong
economic growth, inflation did not materialize in large part because of
continued turmoil in the Asian and emerging market economies. As a result, the
Federal Reserve Board left interest rates unchanged until late September when,
in an effort to bolster economic growth, the central bank initiated the first of
three interest rate cuts. While interest rates were left unchanged at the Fed's
December meeting, it is possible that the policy of monetary easing may resume
if and when the economy begins to show signs of weakening.
Against this backdrop, the yield on the five-year U.S. Treasury note declined
117 basis points during 1998 to 4.54 percent, while the yield on the 30-year
U.S. Treasury bond declined 82 basis points, to 5.10 percent.
HIGH-YIELD MARKET
Without question, 1998 was very difficult for high-yield bonds as a result of
the financial market's dramatic "flight-to-quality" in the second half of the
year. Reacting to concerns over sharply declining overseas markets investors
began exiting riskier investments, such as equities and high yield bonds,
seeking the relative safety of U.S. government securities. While equities
rebounded late in the year, at year end the high-yield market still remained
near its lows, as high-yield investors continued to be very risk averse,
awaiting further evidence of continued economic growth into 1999.
Midway through the year, serious concerns over the rapidly escalating foreign
market crisis emerged, raising questions as to the extent of the impact on both
the U.S. economy and corporate earnings. These concerns resulted in a sharp
correction in the high-yield bond market during the second half, causing
high-yield bond prices to decline as much as 15 percent in many cases, and
driving market yields from their first-half rate of 9 percent, all the way up to
the 12 percent range. The high-yield market itself experienced a
"flight-to-quality" as well, with the middle tier of the market (B-rated issues)
significantly underperforming the upper tier (BB-rated issues), again because of
investors' severe risk aversion. As a result of this volatility and the sharp
decline in interest rates during the year to the 5 percent level, yields in the
high-yield market are near their highest levels in relation to U.S. Treasuries
in nearly 10 years.
MONEY MARKET
Rates available from money market securities were generally stable through the
first three quarters of 1998. With three 25 basis point (quarter of a percentage
point) cuts in the Federal Reserve
2
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Board's target rate for Federal funds coming in late September, mid-October and
mid-November, money market yields generally declined by 75 basis points during
the final three months of 1998. The central bank's actions were taken in an
effort to stabilize the financial markets following a series of major shocks to
the global system, most recently Russia's currency and debt crisis and Long-Term
Capital Management's near-collapse.
ASIA AND JAPAN
Early in 1998, the International Monetary Fund (IMF), with its prescription of
currency stability through a tight monetary policy and its provision of
emergency financing to cover short-term needs, was considered the solution to
the Asian crisis. At the same time, a number of policy initiatives designed to
complement the IMF's actions strengthened investor conviction that Asia was on
the road to recovery.
By the second quarter of 1998, however, this conviction began to wane, as
economic data suggested that the downturn was far more severe than originally
anticipated. Of particular significance was the release of a negative GDP figure
for Hong Kong, which had been viewed as largely insulated from the Asian crisis.
As the year progessed data began to hint that IMF-style policies were failing to
effect a turnaround in Asia's economies and were in some instances actually
aggravating the crisis. A growing disillusionment with the IMF strategy resulted
in a steady abandonment of its doctrine around the region and its replacement
with looser monetary conditions and expansionary fiscal policies.
In Japan, 1998 saw authorities finally begin to address the financial crisis
looming in that country's banking industry, as some institutions were allowed to
fail while others were taken over by the government. Still a problem of enormous
proportions, it now appears that Japan is on the offensive in dealing with
non-performing loans and shaky consumer lenders.
Despite a great deal of discussion among Western economists as to China's
intentions, no currency devaluation materialized. Furthermore, the
China-controlled dollar remained pegged to the U.S. dollar, even though
currencies of surrounding nations were being rapidly devalued. China may have
held firm in anticipation of what now appears to be a solid recovery to growth
rates not seen in several years.
Toward the end of the year, positive external developments lent greater support
to Asia's markets. The cuts in U.S. interest rates and a strengthening Japanese
yen during October enabled Asian currencies to stabilize and local interest
rates to fall. These conditions, which have been the goal of
3
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
the region's policymakers since the currency crisis began, are widely believed
to be preconditions for the resumption of economic growth. In addition, Russia's
default resulted in a reduction in the appetite for risk worldwide, and a
reduction in much of the speculative activity in Asia's currency and equity
markets. Along with a bias toward lower interest rates, this shift has enabled
the risk premium attracted by Asian assets to subside. The result has been a
sharp rebound in the region's markets as liquidity has returned in anticipation
of the beginning of the end of the Asian crisis.
Several themes that are expected to drive equity performance in the region in
1999 include modest improvements in domestic consumption in most economies,
disinflation in some countries and deflation in others and the ability of
companies to enhance their own performance through corporate restructuring. The
markets have clearly rewarded companies that adopt Western-style restructuring
with a focus on enhancing shareholder value.
EUROPE
Nineteen ninety-eight was a volatile year for European equities, although strong
positive returns were the ultimate outcome in most markets. The markets were
affected by financial turmoil elsewhere in the world despite the fact that
developments in Europe itself were relatively positive. The first half of the
year saw strongly rising equity markets supported by a variety of benign
influences including falling interest rates, extensive merger and acquisition
activity and generally strong corporate profitability. The smooth progression
toward the launch of the Euro on January 1, 1999 also helped support the stock
markets. Politics generally exerted little influence, despite a continued shift
to left-of-center governments in most European countries (notably Germany and
Italy, both of which joined the United Kingdom and France in electing socialist
administrations). Whatever their political orientation, most European Union
governments were focused on fine tuning economic policy for the launch of the
Euro.
The turmoil in world financial markets in the late third quarter and early in
the fourth quarter of 1998 eroded most of the equity market gains of the year.
Certain European companies were clearly impacted by the deteriorating economic
conditions in Russia, Latin America and other emerging markets but, for the most
part, European businesses were relatively unscathed. The markets' recovery in
the latter part of the fourth quarter reflected a return to confidence by
investors and the realization that, although economic growth in Europe would
likely be affected by the crisis, it would not turn negative. The stock market
recovery was impressive and was given impetus by the prospect of a continuing
easy monetary policy on the part of European central banks.
4
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The outlook for the European stock market remains positive for 1999 although
many issues are being carefully monitored. The actual impact of monetary union
and the launch of the Euro will continue to have a limited impact on equity
markets in 1999 but the policies and responses of the European central banks to
any further financial crises will be closely scrutinized. Similarly the actions
of the mainly socialist European governments will be important in their effects
upon corporate profitability and investment. European merger and acquisition
activity should continue to accelerate, which is generally supportive of equity
prices, inflation and interest rates should stay low, and economic growth will
likely remain positive albeit at lower levels than in 1998.
LATIN AMERICA AND CANADA
For Latin America and Canada, which derive a great portion of their wealth from
high natural resource prices, the greatest surprise of the fourth quarter was
the sustained collapse of oil and industrial commodity values. After a five-year
period of falling copper, nickel, natural gas and crude oil prices, an
acceleration in plummeting prices during the fourth quarter led to record lows
in the value of the Canadian dollar, a potential recession in Mexico in 1999,
and rumors of a Brazilian currency devaluation.
GLOBAL BOND MARKET
Calendar year 1998 began with a crescendo of concern that the Asian financial
crisis would slow world growth and restrain inflation pressures. This backdrop
had been favorable for bond markets into the start of the year. However, bond
markets spent most of the first half of 1998 consolidating as it began to appear
that the global economy might suffer no more than a glancing blow from the Asian
crisis. Throughout this period, the U.S. dollar remained firm as the United
States remains the world's strongest major economy and is considered by
investors to be the port of choice should instability mount.
Indeed, by late summer instability, particularly in Russia, and the residual
effects on poorly positioned hedge funds caused a fresh wave of concern about
the global outlook. The highest quality bonds, U.S. Treasuries and German
government bonds, rose sharply. Lesser-quality bonds lagged or even fell. As the
fourth quarter of 1998 progressed, lesser credits performed better as the flight
to quality abated. What was clearly different during this latter episode was
that the U.S. dollar weakened primarily on perceptions that the U.S. economy
would be more vulnerable to problems in Latin America. By the end of the year
most investors had grown cautiously optimistic, but remain wary of the
uncertainty surrounding the intermediate-term outlook.
5
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
CAPITAL APPRECIATION PORTFOLIO
For the fiscal year ended December 31, 1998, the Capital Appreciation Portfolio
posted a total return of -7.96 percent versus 28.58 percent for the Standard &
Poor's Composite Stock Price Index of 500 stocks (S&P 500) and 22.85 percent of
the Lipper Variable Annuity Capital Appreciation Underlying Funds Average. For
the fiscal year, the Russell 2000 Index, a popular measure of the performance of
small-company stocks, posted a total return of -2.55 percent. The accompanying
chart illustrates the performance of a $10,000 investment in the Portfolio from
inception through the fiscal year ended December 31, 1998, versus the
performance of similar hypothetical investments in the S&P 500 and the Lipper
Variable Annuity Capital Appreciation Underlying Funds Average.
The Portfolio's underperformance relative to the S&P 500 and the Lipper Variable
Annuity Capital Appreciation Underlying Funds Average Index is attributable to
the fact that the Portfolio has been overweighted, on a relative basis, in
small-cap stocks while, during the period under review, the stocks of larger
companies were much stronger performers.
Over the past fiscal year, the Portfolio continued to focus on small-cap stocks
that are considered to have sound fundamentals, solid earnings momentum and
strong management. The Portfolio is diversified across many different
industries. As of December 31, 1998 the five largest industries represented in
the portfolio were semiconductors (7.9 percent of net assets), telecommunication
equipment (7.7 percent), retail (7.0 percent), banking (6.4 percent) and
financial services (6.3 percent). Within these sectors, representative holdings
include Intel, Comverse Technology, The Gap, Bank of New York and Newcourt
Credit Group.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: CAPITAL APPRECIATION PORTFOLIO
($ in Thousands)
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
January 21, 1997 $10,000 $10,000 $10,000
December 31, 1997 $11,320 $12,620 $11,611
December 31,1998 $10,419(2) $16,226 $14,020
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
- -7.96(1) 2.14(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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 options, etc. The fund may
take large cash positions, as reported by Lipper Analytical Services.
6
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
On October 28, 1998, the Board of Trustees voted to recommend a reorganization
plan whereby the Portfolio would be merged into the Equity Portfolio. This plan
is subject to the consent of Capital Appreciation Portfolio shareholders at a
special meeting scheduled for February 24, 1999.
CAPITAL GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Capital Growth Portfolio
produced a total return of 19.63 percent versus 28.58 percent for the Standard &
Poor's Composite Index of 500 stocks (S&P 500) and 24.94 percent of the Lipper
Variable Annuity Growth 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, 1998, versus the
performance of similar hypothetical investments in the S&P 500 and the Lipper
Variable Annuity Growth Underlying Funds Average.
After turning in a respectable first half of the fiscal year, the Portfolio
underperformed noticeably during the last two quarters of fiscal 1998, which
pulled down the overall returns for the recently concluded fiscal year. The
Portfolio's diversification into mid- and small-capitalization stocks, which
worked so admirably during the Portfolio's previous fiscal year, failed to
produce returns commensurate with large-capitalization stocks in fiscal 1998.
Much of the Portfolio's underperformance is attributable to the overall
performance of the stock market during this time. It was a period during which
only the largest stocks outperformed the S&P 500. These "Nifty Fifty" names
carried the S&P 500 Index higher to the noticeable detriment of almost all other
stocks.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: CAPITAL GROWTH PORTFOLIO
($ in Thousands)
<S> <C> <C> <C> <C>
FUND S&P 500(3) Lipper(4)
March 1, 1991 $10,000 $10,000 $10,000
December 31, 1991 $12,814 $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 $31,292 $28,048
December 31, 1998 $26,473(2) $40,234 $33,943
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS SINCE INCEPTION
19.63(1) 16.88(1) 13.23(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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.
An additional reason for the Portfolio's recent underperformance pertains to the
sectors and industries in which it has traditionally invested. Investments in
the technology, financial, and retail sectors paid off handsomely during fiscal
1997 as well as in the first half of fiscal 1998. The Portfolio
7
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
maintained an overweighted position in these sectors for much of both fiscal
years. However, these three sectors in particular witnessed disparate price
declines over the summer and fall of 1998. On December 31, 1998, the Portfolio
had 33 percent of its assets invested in the consumer and consumer-related
sectors, 40 percent in technology/capital goods, 17 percent in
financial/interest rate sensitive stocks, and 4 percent in the basic
industry/economically sensitive sector.
Going forward we are optimistic about the Portfolio's prospects. We believe that
many of the mid and small issues in which the Portfolio invests are attractive
on a valuation and fundamental basis and should exhibit better performance in
fiscal 1999.
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
Since its inception on May 18, 1998, through December 31, 1998, the Competitive
Edge "Best Ideas" Portfolio produced a total return of -1.90 percent versus 8.10
percent for the Morgan Stanley Capital International (MSCI) World Index and 1.86
percent of the Lipper Variable Annuity Global 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, 1998, versus
the performance of similar hypothetical investments in the MSCI World Index and
the Lipper Variable Annuity Global Underlying Funds Average.
The early part of 1998 proved to be quite profitable for global equity
investors. However, since the Portfolio was only introduced in May, it was not
able to benefit from this strong period. By July, volatility and extreme
performance concentration among very few companies made profit gains in stocks
difficult to generate. With impeachment proceedings, earnings disappointments
and Brazilian currency concerns looming, global equity markets suffered a severe
correction during August and September. By year end, stocks had roared back,
closing the gap created by the earlier pullback.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
($ in Thousands)
FUND MSCI World(3) LIPPER(4)
<S> <C> <C> <C>
May 18, 1998 $10,000 $10,000 $10,000
May 31, 1998 $9,830 $9,982 $10,000
June 30, 1998 $9,860 $10,207 $10,087
July 31, 1998 $9,480 $10,179 $10,032
August 31, 1998 $8,010 $8,809 $8,534
September 30, 1998 $8,290 $8,953 $8,569
October 31, 1998 $8,940 $9,751 $9,138
November 30, 1998 $9,370 $10,318 $9,639
December 31, 1998 $9,810(2) $10,810 $10,186
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
- -1.90(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, 1998 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.,
Europe, Australia, New Zealand, and the Far East. The Index does not include
any expenses, fees or charges, or reinvestment of dividends.
(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.
8
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
At year end, the Portfolio held 40 positions distributed throughout the U.S.
equity market, as well as 10 separate markets around the globe. On December 31,
1998, the Portfolio's five largest holdings were FDX Corp., Quintiles
Transnational Corp., Chubb Corp., Microsoft Corp. and Time Warner Inc.
DIVIDEND GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Dividend Growth Portfolio
posted a total return of 14.28 percent versus 28.58 percent for the Standard &
Poor's Composite Index of 500 stocks (S&P 500) and 16.37 percent for the Lipper
Variable Annuity Growth and Income 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, 1998, versus the
performance of similar hypothetical investments in the S&P 500 and the Lipper
Variable Annuity Growth and Income Underlying Funds Average.
We believe that the Portfolio's relative underperformance is attributable to a
lack of exposure to high-technology stocks, which have very little, if any,
current yield.
During the fiscal year, the Portfolio initiated positions in Anheuser Busch Co.
Inc, Associates First Capital, AT&T, Deere, Goodyear Tire and Rubber, Kimberly
Clark and Sears Roebuck. During the same period, the Portfolio liquidated
positions in Sprint and Tricon Global Restaurants (a spin-off from PepsiCo).
Additionally, price strength in the bond markets in the middle of the fiscal
year provided an opportunity to sell all of the Portfolio's long-term U.S.
Treasury bond holdings at significant profits. As of December 31, the Portfolio
consisted of 57 issues spread among 39 different industry groups.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: DIVIDEND GROWTH PORTFOLIO
($ in Thousands)
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
March 1, 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 $36,120 $31,090
December 31, 1998 $34,192(2) $46,441 $33,966
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS SINCE INCEPTION
14.28(1) 18.61(1) 14.93(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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.
9
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
EQUITY PORTFOLIO
For the fiscal year ended December 31, 1998, the Equity Portfolio posted a total
return of 30.45 percent versus 28.58 percent for the Standard & Poor's Composite
Index of 500 stocks (S&P 500) and 24.94 percent for the Lipper Variable Annuity
Growth Underlying Funds Average. For the fiscal year, the Portfolio ranked #43
out of 147 Variable Annuity Growth Funds (top 29 percent), according to Lipper.
For the five and 10 years ended December 31, the Portfolio ranked #21 out of 73
such funds (top 29 percent) and #5 out of 38 such funds (top 13 percent). The
accompanying chart illustrates the performance of a $10,000 investment in the
Portfolio for the 10 years ended December 31, 1998, versus the performance of
similar hypothetical investments in the S&P 500 and the Lipper Variable Annuity
Growth Underlying Funds Average.
The Portfolio's positioning changed significantly during the second half of the
fiscal year. A defensive stance was taken in August. The weighting in bonds
increased materially due to earnings risk concerns. This position was reversed
in the fall, as it became clear that central banks around the world would
continue to cut interest rates aggressively. The technology weighting was
increased significantly to about one-third of the Portfolio. Computer hardware
stocks (PCs, semiconductors, semiconductor capital equipment) were added, after
having been avoided during the first half of the fiscal year. Hardware sales are
expected to accelerate and remain strong through the first half of 1999, as
corporations accelerate their replacement of non-Y2K compliant hardware. The
focus on telephone utility stocks was also increased, as these companies are
enjoying strong earnings growth because of the growth in data traffic and
value-added services. The Portfolio continues to overweight consumer cyclicals
and retailers. Retail sales have benefited from
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: EQUITY PORTFOLIO
($ IN THOUSANDS)
FUND S&P 500 (3) LIPPER (4)
<S> <C> <C> <C>
December 30, 1988 $10,000 $10,000 $10,000
December 31, 1989 $11,883 $13,164 $12,886
December 31, 1990 $11,453 $12,756 $12,264
December 31, 1991 $18,216 $16,635 $16,791
December 31, 1992 $18,226 $17,901 $18,158
December 31, 1993 $21,820 $19,703 $20,330
December 31, 1994 $20,748 $19,962 $20,157
December 31, 1995 $29,573 $27,457 $26,690
December 31, 1996 $33,229 $33,759 $32,140
December 31, 1997 $45,667 $45,017 $40,291
December 31, 1998 $59,572(2) $57,881 $47,868
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
30.45(1) 22.25(1) 19.54(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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.
10
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
strong wage growth, low unemployment and low interest rates in the United
States. Basic cyclical stocks, capital goods and transportation have been
underweighted throughout the year because of slow worldwide growth.
As always, we will monitor global economic news carefully in an effort to keep
the Portfolio properly positioned. We will continue to utilize our
sector-rotation strategy to focus the Portfolio's holdings on those industries
that are expected to achieve the most attractive relative earnings growth.
EUROPEAN GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the European Growth Portfolio
posted a total return of 23.96 percent versus 22.78 percent for the Morgan
Stanley Capital International (MSCI) World Index and 13.26 percent for the
Lipper Variable Annuity International Underlying Funds Average. For the fiscal
year, the Portfolio ranked #4 out of 108 Variable Annuity International Funds
(top 4 percent), according to Lipper. For the five years ended December 31, 1998
the Portfolio ranked #1 out of 36 such funds. The accompanying chart illustrates
the performance of a $10,000 investment in the Portfolio from inception through
the fiscal year ended December 31, 1998, versus the performance of similar
hypothetical investments in the MSCI World Index and the Lipper Variable Annuity
International Underlying Funds Average.
The Portfolio's emphasis remains on blue-chip growth stocks with a mid- to
large-capitalization bias. Sectors emphasized during the fiscal year included
pharmaceuticals (Glaxo Wellcome, Roche, Novartis), telecommunications equipment
suppliers (Nokia, Alcatel, Ericsson) and telecommunications operators (British
Telecom, Telecom Italia, Telefonica). Despite good fundamentals, many stocks had
risen during the first half of 1998 to levels where valuations appeared
stretched and ripe for profit
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000:EUROPEAN GROWTH PORTFOLIO
($ in Thousands)
FUND MSCI WORLD(3) LIPPER(4)
<S> <C> <C> <C>
March 1, 1991 $10,000 $10,000 $10,000
December 31, 1991 $10,134 $10,399 $10,504
December 31, 1992 $10,539 $9,656 $9,800
December 31, 1993 $14,847 $11,625 $13,079
December 31, 1994 $16,089 $12,016 $13,136
December 31, 1995 $20,254 $14,263 $14,737
December 31, 1996 $26,329 $15,935 $16,893
December 31, 1997 $30,561 $18,193 $17,766
December 31, 1998 $37,884(2) $22,337 $19,195
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS SINCE INCEPTION
23.96(1) 20.60(1) 18.53(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International (MSCI) World Index 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 International Underlying Funds Average tracks
the performance of funds which invest their assets in securities with
primary trading markets outside of the United States, as reported by Lipper
Analytical Services.
11
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
taking. The Portfolio's country weightings normally derive from and are driven
by stock decisions and it should be noted that the largest country positions are
in the United Kingdom, France, Netherlands and Germany. There are no currency
hedges in place given the relatively stable outlook for the U.S. dollar versus
the Euro and pound.
Given the volatility in 1998, investors are expected to be more discerning about
the quality and sustainability of earnings, which should favor the Portfolio's
growth-oriented strategy.
During the fiscal year, the Trustees approved the selection of Morgan Stanley
Dean Witter Investment Management Inc. (at that time, named Morgan Stanley Asset
Management Inc.), an affiliate of Morgan Stanley Dean Witter Advisors Inc., to
act as sub-advisor to the Portfolio. The new sub-advisory agreement was approved
by shareholders at a special meeting held on August 18, 1998, and took effect on
December 1, 1998. The results of the vote were as follows:
<TABLE>
<S> <C>
For............................ 15,782,892.417
Against........................ 384,125.254
Abstain........................ 1,277,880.481
</TABLE>
GLOBAL DIVIDEND GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Global Dividend Growth
Portfolio provided a total return of 12.53 percent versus 22.78 percent for the
Morgan Stanley Capital International (MSCI) World Index and 16.19 percent for
the Lipper Variable Annuity Global 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, 1998, versus the
performance of similar hypothetical investments in the MSCI World Index and the
Lipper Variable Annuity Global Underlying Funds Average.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: GLOBAL DIVIDEND GROWTH PORTFOLIO
($ in Thousands)
FUND MSCI WORLD(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 $15,027 $14,995
December 31, 1998 $18,141(2) $18,450 $17,063
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
12.53(1) 13.06(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, 1998 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The Portfolio's underperformance relative to its benchmarks is attributable
primarily to two factors. First, the Portfolio is managed with a strong value
orientation. The value style relative to growth and momentum investing has been
out-of favor for the past 12 to 18 months, which not surprisingly has had a
negative effect on the Portfolio's overall performance. The other factor is
country allocation. During the fiscal year the Portfolio was underweighted in
the United States relative to the World Index, overweighted in Japan and
neutrally weighted in Europe (the Index and the Lipper Variable Annuity Global
Underlying Funds Average are overweighted in Europe). The strength of the U.S.
market, continued weakness in Japan and the late-year rally in Europe combined
to curtail the Portfolio's performance relative to its benchmarks.
The Portfolio remains fully invested and well diversified, with 122 equity
issues spread across the world's 13 largest markets, as defined by market
capitalization. The United States, as the world's largest market continues to be
the Portfolio's largest target weighting, at approximately 34 percent of the
total net assets spread among 25 stocks. Following a tumultuous period in the
third quarter, the Portfolio participated in the rebound that the world markets
enjoyed. During the fiscal year, Albertson's, Aluminum Company of America,
Consolidated Natural Gas, and Eastman Kodak were added, while shares of Sprint
were liquidated.
The Portfolio also remains exposed to Japan, the world's third-largest market.
During the fiscal year the Portfolio's weighting in Japan was reduced from 23
percent to 19 percent. To facilitate this reduction, shares of Mitsubishi
Electric Company were liquidated. While there is still much pessimism
surrounding Japanese stocks in general, there are many world-class Japanese
companies selling at very attractive valuations, which we believe may offer
significant rewards for patient and disciplined long-term investors.
The European Union's new single currency, the Euro, replaced 11 national
currencies on January 1, 1999. Germany, France, Italy, Netherlands, Luxembourg,
Austria, Belgium, Finland, Ireland, Portugal and Spain will be linked by this
new currency. The alliance will become the world's top trading economy, with 19
percent of all world trade, exceeding the United States (17 percent) and Japan
(8 percent). Target allocation for the EMU is 20 percent, which currently
comprises investments in Germany, France, Italy, Spain and the Netherlands. The
Portfolio also invests in the United Kingdom (11 percent of net assets),
Switzerland (5 percent) and Sweden (3 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.
13
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
In the Pacific Rim, the Portfolio has exposure to Hong Kong. During the fiscal
year, exposure to Hong Kong was reduced from 5 percent of net assets to 2.5
percent. To facilitate this reduction, shares of Sun Hung Kai were liquidated. A
very small allocation to Malaysia (0.5 percent of net assets) was eliminated in
July. 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 are expected to have
wide-reaching implications for global growth, inflation and interest rates. As
the Portfolio maintains exposure to only one Southeast Asian country, it has
fared better than many other global equity funds. The Portfolio's exposure to
the resource-oriented markets of Australia and Canada offers risk reduction
through diversification, as well as growth potential in economically stable
countries. During the fiscal year, the weighting in Australia was increased by
0.5 percent to 2.5 percent.
Looking ahead we will remain sensitive to any factors that would necessitate
changes to the Portfolio's country allocation. We believe the long-term outlook
for the global economies remains positive. Well-established large-capitalization
international companies are expected to perform well over the long term.
HIGH YIELD PORTFOLIO
For the fiscal year ended December 31, 1998, the High Yield Portfolio posted a
total return of -6.20 percent versus 1.60 percent for the Lehman Brothers High
Yield Index and 0.10 percent for the Lipper 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, 1998,
versus the performance of similar hypothetical investments in the Lehman
Brothers High Yield Index and the Lipper Variable Annuity High Current Yield
Underlying Funds Average.
Although the Portfolio maintained a significant position in the more defensive,
investment-grade end of
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: HIGH YEILD PORTFOLIO
($ in Thousands)
FUND LEHMAN(3) LIPPER(4)
<S> <C> <C> <C>
December 31, 1988 $10,000 $10,000 $10,000
December 31, 1989 $8,756 $10,083 $10,184
December 31, 1990 $6,519 $9,116 $9,575
December 31, 1991 $10,309 $13,327 $12,891
December 31, 1992 $12,201 $15,426 $14,965
December 31, 1993 $15,145 $18,066 $17,735
December 31, 1994 $14,771 $17,880 $17,194
December 31, 1995 $16,976 $21,309 $20,372
December 31, 1996 $19,010 $23,728 $23,130
December 31, 1997 $21,266 $26,756 $26,232
December 31, 1998 $19,948(2) $27,185 $26,258
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
- -6.20(1) 5.66(1) 7.15(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, 1998 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.
14
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
the fixed-income markets, our long-term core position in the B-rated sector of
the market was sharply impacted by the market's second half correction. Although
not a good investment performer in 1998, over the years the attractive yield and
appreciation potential of the B-rated segment of the market has proven to be
rewarding, as evidenced by the Portfolio's 9.06 percent average annual total
return since inception.
We view today's substantially higher, more attractive yields and significantly
discounted bond prices as an investment opportunity, especially in light of the
current low interest rate environment. Given a "soft landing" in the economy
with economic growth continuing into 1999, we expect the high-yield market to
follow the lead of the equity market and rebound to more normal levels relative
to U.S. Treasury securities. Should this scenario materialize, and high-yield
bond prices recover from their present depressed levels, the Portfolio would
participate not only in today's high income levels, but would potentially
provide a degree of capital appreciation, as well.
INCOME BUILDER PORTFOLIO
For the fiscal year ended December 31, 1998, the Income Builder Portfolio posted
a total return of 3.21 percent versus 28.58 percent for the Standard & Poor's
Composite Index of 500 stocks (S&P 500) and 16.75 percent for the Lipper
Variable Annuity Equity Income Underlying Funds Average. The Portfolio's
relative underperformance is attributable to the convertible and Real Estate
Investment Trust (REIT) segments of the portfolio. The accompanying chart
illustrates the performance of a $10,000 investment in the Portfolio from
inception through the fiscal year ended December 31, 1998, versus the
performance of similar hypothetical investments in the S&P 500 and the Lipper
Variable Annuity Equity Income Underlying Funds Average.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: INCOME BUILDER PROTFOLIO
($ in Thousands)
FUND S&P 500 (3) LIPPER (4)
<S> <C> <C> <C>
January 21,1997 $10,000 $10,000 $10,000
December 31,1997 $12,238 $12,620 $12,309
December 31,1998 $12,632(2) $16,226 $13,688
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
3.21(1) 12.79(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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.
15
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
On December 31, the Portfolio's large-cap stock segment was relatively fully
invested as it has been since inception. Transactions during the fiscal year
included sales of Consolidated Edison, New England Electric Systems, Peco Energy
and Sbarro, and purchases of Armstrong World, Consolidated Natural Gas, Houston
Industries and TECO Energy. At the end of the fiscal year, the Portfolio was
invested in 65 common stocks spread among 37 industry groups.
The convertible portion of the Portfolio underperformed the broader equity
market during the fiscal year. This is attributable primarily to a heavy bias
toward the issues of small- and mid-cap companies, which lagged large-caps for
most of the year. The Portfolio's focus on income also negatively impacted
relative performance. While this tilt toward yield did provide meaningful
downside support relative to equities in the first and third fiscal quarters,
illiquidity in the convertible market and widening credit spreads among
lower-quality issues hurt performance during the summer and fall. It is our
expectation that as debt markets stabilize and credit concerns abate,
convertible securities can perform well relative to equities in modestly
increasing, stable and declining markets.
REITs performed poorly during most of calendar 1998, as concerns over property
acquisition pricing, overbuilding and access to capital markets caused many
investors to avoid this sector. Dividend yields, however, are relatively high,
and many stocks are trading below real estate value, making this asset class
extremely attractive from a risk/reward perspective. The assets the Portfolio
dedicates to REITs are split between common stocks and convertible securities.
The fixed-income portion of the Portfolio is structured to provide maximum
current income while minimizing exposure to interest-rate movements. This
segment of the Portfolio performed as expected and helped reduce volatility
during the fiscal year.
The Portfolio's target asset mix 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 REITs.
MONEY MARKET PORTFOLIO
For the fiscal year ended December 31, 1998, the Money Market Portfolio's yield
(net investment income) for the fiscal year ended December 31, 1998 was 5.04
percent and its 30-day annualized yield for December was 4.77 percent. The
Portfolio's average life was 65 days.
16
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
On December 31, 1998, approximately 68 percent of the Portfolio was invested in
high-quality commercial paper, 21 percent in Federal agency obligations, with
the remaining 11 percent in short-term bank notes and certificates of deposit of
major, financially strong commercial banks. At the end of the fiscal year,
approximately 90 percent of the Portfolio's holdings was due to mature in less
than four months. Consequently, the Portfolio is well positioned for stability
of value with a very high degree of liquidity. Investment yields available to
the Portfolio in early 1999 are expected to be somewhat lower than the averages
achieved during the second half of 1998.
The Portfolio continues to be operated conservatively, without the use of
derivatives or "structured notes," which may fluctuate excessively with changing
interest rates. As always, the Portfolio serves as a useful investment for
liquidity, preservation of capital and a yield which reflects prevailing money
market conditions.
PACIFIC GROWTH PORTFOLIO
For the fiscal year ended December 31, 1998, the Pacific Growth Portfolio
provided a total return of -10.40 percent versus 22.78 percent for the Morgan
Stanley Capital International (MSCI) World Index, 1.43 percent for the MSCI
Pacific Free Index, -7.39 percent for the MSCI All Country Far East Free
(excluding Japan) Index and -6.46 percent for the Lipper Variable Annuity
Pacific Region 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, 1998, versus the performance
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: PACIFIC GROWTH PORTFOLIO
($ in Thousands)
FUND MSCI WORLD(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 $9,806 $9,242 $9,269
December 31, 1995 $9,862 $11,781 $9,995 $9,871 $9,856
December 31, 1996 $10,246 $13,162 $9,080 $10,778 $10,977
December 31, 1997 $6,383 $15,027 $6,658 $5,876 $7,473
December 31, 1998 $5,720(2) $18,450 $6,754 $5,442 $6,946
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION
- -10.40(1) -10.88(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Morgan Stanley Capital International (MSCI) World Index 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 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 of 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 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 of
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.
17
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
of similar hypothetical investments in the MSCI World Index, the Pacific Free
Index, the All Country Far East Free (excluding Japan) Index and the Lipper
Variable Annuity Pacific Region Underlying Funds Average.
During the fiscal year, the Trustees approved the selection of Morgan Stanley
Dean Witter Investment Management Inc. (at that time, named Morgan Stanley Asset
Management Inc.), an affiliate of Morgan Stanley Dean Witter Advisors Inc., to
act as sub-advisor to the Portfolio. The new sub-advisory agreement was approved
by shareholders at a special meeting held on August 18, 1998, and took effect on
November 1, 1998. The results of the vote were as follows:
<TABLE>
<S> <C>
For....................................................................... 9,908,546.460
Against................................................................... 347,594.349
Abstain................................................................... 838,006.684
</TABLE>
On December 31, 1998, 92.1 percent of the Portfolio's net assets was allocated
to common stocks, with the remaining 7.3 percent spread among various U.S.
government securities and convertible corporate bonds. At fiscal year-end, the
Portfolio's single largest country position was Japan, representing 27.2 percent
of net assets. In November, the sub-advisor increased the Portfolio's exposure
to Japan based on its analysis of improving fundamentals. This is a significant
factor in the Portfolio's underperformance relative to its benchmarks.
The Japanese economy and equity markets faced a severely challenging environment
during 1998 with the mounting uncertainty of the financial system tested
throughout the year. The tip of this economic iceberg for 1998 was the collapse
of Hokkaido Takushoku Bank, Yamaichi and Sanyo Securities in late 1997. In early
1998 the Japanese government did little to address ballooning non-performing
loans, the credit crunch and the deflationary spiral that escalated as the
economy continuously failed to recover after numerous stimulus packages over the
last several years.
The sub-advisor believes that investment in Japanese equities should remain
highly selective. Particular focus is on such sectors as personal computers,
semiconductors, services, pharmaceuticals and select domestic groups, such as
housing and housing-related securities. Going forward, the sub-advisor is
cautiously optimistic that 1999 will see the private sector finally foster real
structural changes in such areas as wage adjustment, employment efficiencies,
and focus on return on equity. After 10 years of sharp contraction, the
sub-advisor believes that Japan has entered a period that will be marked by real
change, which would be an important milestone for long-term investors.
18
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The Portfolio also maintained a significant position in Australia (15.9
percent), which delivered solid performance in 1998. The sub-advisor added to
the Portfolio's Australian position in November, with key positions such as
National Australia Bank, Telstra and Rio Tinto Ltd.
The Portfolio maintains a significant position in the technology sector,
particularly in the electronics area in Taiwan, Korea and Singapore. Companies
in these sectors were more influenced by the dynamics of their local market than
by individual company fundamentals. Given the quality of management, market
positions, financial condition and growth prospects of the portfolio of
electronics stocks we hold, we believe they should perform well in 1999.
Shifting securities regulations have severely limited the ability of investors
to participate in Malaysia over the past few months. The sub-advisor inherited a
number of Malaysian stocks from the previous advisor and has not been able to
trade these positions. The stocks are currently considered fairly valued at a
significant discount to reflect the uncertainties in this market. The
Portfolio's weighting in Malaysia and the composition of this exposure will be
reexamined when the Malaysian authorities finalize their securities regulations.
China was the region's worst-performing market in 1998. This underperformance
reflects the weakness of most of the listed Chinese companies, as well as the
country's challenging economic conditions. While the sub-advisor sees some
interesting values beginning to emerge in China, earnings prospects remain poor.
Thus, the Portfolio has limited exposure to this market.
On December 31, 1998, the Portfolio's cash position was 4.1 percent of net
assets. The Portfolio continues to emphasize well-managed companies with strong
balance sheets and good earnings visibility.
QUALITY INCOME PLUS PORTFOLIO
For the fiscal year ended December 31, 1998, the Quality Income Plus Portfolio
posted a total return of 8.67 percent versus 8.69 percent for the Lehman
Brothers Aggregate Bond Index and 8.07 percent for the Lipper Variable Annuity
Corporate Debt A-Rated Underlying Funds Average. For the fiscal year, the
Portfolio ranked #10 out of 30 Variable Annuity Corporate Debt A-Rated Funds
(top 33 percent), according to Lipper. For the five and 10 years ended December
31, the Portfolio ranked #4 out of 25 such funds (top 16 percent) and #3 out of
16 such funds (top 19 percent). The accompanying chart illustrates the
performance of a $10,000 investment in the Portfolio for the 10 years ended
December 31, 1998, versus the performance of similar hypothetical investments in
the Lehman Brothers Aggregate Bond Index and the Lipper Variable Annuity
Corporate Debt A-Rated Underlying Funds Average.
19
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
While the first half of 1998 provided strong economic growth, the lower
inflation environment coupled with investor concerns about the impact of a
worsening economic picture in Asia prompted a flight to quality. This was
reflected in a strong U.S. dollar and increased demand for U.S. Treasury notes
and bonds, which brought long term interest rates from 5.92 percent on December
31, 1997 to 5.63 percent by June 30, 1998.
As the third quarter progressed, continued global disinflation and external
shocks, such as the August default of Russian bonds prompted renewed investor
concern about all asset classes except for U.S. Treasury notes and bonds.
Against this backdrop, the Portfolio's diversified strategy, which blended U.S.
Treasury instruments with U.S. government guaranteed mortgages, as well
high-grade corporate notes and bonds, continued to provide a high level of
current income and strong total return. By September 30, 1998, the 30-year U.S.
government bond closed at 4.96 percent. During this quarter, the Portfolio's
duration (a gauge of a bond fund's sensitivity to interest rate moves) was
reduced from 7.25 years to 6.55 years in an effort to capture profits and to
better position the Portfolio in the event of an upward drift in rates. As rates
trended back to 5.4 percent, the Portfolio's duration was lengthened.
However, by November 30, rates again were below 5.1 percent as the markets grew
confident that three Federal Reserve Board easings within a six-week period were
enough to maintain a reasonable level of economic growth without inflationary
pressure. Within this context, assets were shifted into high-grade corporate
notes and bonds. An increased weighting in long-term U.S. Treasury bonds at this
time brought the Portfolio's effective duration to approximately 7.1 years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: QUALITY INCOME PLUS PORTFOLIO
($ in Thousands)
FUND LEHMAN(3) LIPPER(4)
<S> <C> <C> <C>
December 31, 1988 $10,000 $10,000 $10,000
December 31, 1989 $11,278 $11,453 $11,258
December 31, 1990 $12,049 $12,479 $12,149
December 31, 1991 $14,308 $14,476 $14,175
December 31, 1992 $15,490 $15,548 $15,228
December 31, 1993 $17,502 $17,064 $16,897
December 31, 1994 $16,342 $16,566 $16,204
December 31, 1995 $20,313 $19,626 $19,262
December 31, 1996 $20,630 $20,339 $19,744
December 31, 1997 $22,918 $22,302 $21,552
December 31, 1998 $24,905 $24,240 $21,875
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
8.67(1) 7.31(1) 9.55(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, 1998 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 performance of 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.
20
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Going forward, the Portfolio will employ a strategy emphasizing high-grade
corporate bonds blended with AAA-rated mortgage-backed securities and U.S.
government securities. This structure will be monitored to allow for sector
shifts from each asset class in an effort to capitalize on the constantly
changing investment horizon.
S&P 500 INDEX PORTFOLIO
Since its inception on May 18, 1998, through December 31, 1998, the S&P 500
Index Portfolio produced a total return of 12.20 percent, versus 12.18 percent
for the Standard & Poor's Composite Index of 500 stocks (S&P 500) and 13.59
percent of the Lipper Variable Annuity S&P 500 Index Objective Underlying Funds
Average. Nineteen ninety-eight represented the fifth straight year that the
large-cap S&P 500 outperformed both the S&P 400 Mid-Cap and S&P 600 Small-Cap
indices. The accompanying chart illustrates the performance of a $10,000
investment in the Portfolio from inception through the fiscal year ended
December 31, 1998, versus the performance of similar hypothetical investments in
the S&P 500 and the Lipper Variable Annuity S&P 500 Index Objective Underlying
Funds Average.
The Fund seeks to provide investment results that, before expenses, correspond
to the total return of the S&P 500 by investing in substantially all of the
stocks that comprise the Index in approximately the same weightings as they are
represented in the Index itself. The S&P 500 Index Portfolio has performed well
despite extremely high levels of market volatility. After a fast start that was
aided by an early summer rally, the Portfolio experienced a sharp decline in
value in sympathy with a sell off in the overall U.S. market. As fears of an
international economic slowdown and its potential impact on the U.S. corporate
profit outlook increased, the Portfolio fell nearly 19 percent from the
record-high levels it set in July. Despite a larger exposure to these
international economies, the S&P 500 was still able to outperform both the mid-
and smaller-cap segments of the market during this period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: S&P 500 INDEX PORTFOLIO
($ in Thousands)
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
May 18, 1998 $10,000 $10,000 $10,000
May 31, 1998 $9,880 $9,869 $10,000
June 30, 1998 $10,270 $10,270 $10,405
July 31, 1998 $10,170 $10,160 $10,293
August 31, 1998 $8,700 $8,693 $8,803
September 30, 1998 $9,250 $9,250 $9,365
October 31, 1998 $10,000 $10,002 $10,125
November 30, 1998 $10,590 $10,608 $10,736
December 31, 1998 $11,220(2) $11,218 $11,309
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
12.20 (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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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 S&P 500 Index Objective Underlying Funds Average
tracks the performance of funds which passively managed, limited-expense
fund designed to replicate the performance of the Standard & Poor's 500
Index on a reinvested basis, as reported by Lipper Analytical Services.
21
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
Concerns over the international economic turmoil, however, were short lived. By
late November, the S&P 500 had recouped all that it had given up in the previous
two months. By year end, the S&P 500 was reaching new record levels before
finishing the year near its all time high.
Although the S&P 500 may not generate the double-digit returns to which some
investors have become accustomed, we believe the current environment of low
interest rates coupled with low inflation and moderate economic growth bode well
for large-cap U.S. equities. As such, the Portfolio is well positioned to
participate in future U.S. market appreciation.
STRATEGIST PORTFOLIO
For the fiscal year ended December 31, 1998, the Strategist Portfolio posted a
total return of 26.55 percent, versus 28.58 percent for the Standard & Poor's
Composite Index of 500 stocks (S&P 500), 9.47 percent for the Lehman Brothers
Government/Corporate Bond Index and 13.50 percent for the average Lipper
Variable Annuity Flexible Portfolio Underlying Funds Average. The Portfolio's
performance was impressive, particularly considering that it held only 70
percent of its assets in equities during the fiscal year and maintained a beta
well below that of the average stock mutual fund. The accompanying chart
illustrates the performance of a $10,000 investment in the Portfolio for the 10
years ended December 31, 1998, versus the performance of similar hypothetical
investments in the S&P 500, the Lehman Brothers Government/Corporate Bond Index
and the Lipper Variable Annuity Flexible Portfolio Underlying Funds Average.
The asset allocation remained unchanged throughout the fiscal year as low
inflation, an accommodative monetary policy and healthy profit growth for
corporate America bolstered our view that stocks would continue to outperform
both bonds and cash. At year end, the Portfolio's allocation stood at 70 percent
stocks, 20 percent bonds and 10 percent cash equivalents. The average balanced
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: STRATEGIST PORTFOLIO
($ in Thousands)
FUND S&P 500(3) LEHMAN(4) LIPPER(5)
<S> <C> <C> <C> <C>
December 31, 1988 $10,000 $10,000 $10,000 $10,000
December 31, 1989 $11,067 $13,164 $11,423 $12,046
December 31, 1990 $11,240 $12,756 $12,370 $12,158
December 31, 1991 $14,416 $16,635 $14,364 $15,211
December 31, 1992 $15,459 $17,901 $15,453 $16,298
December 31, 1993 $17,064 $19,703 $17,158 $18,323
December 31, 1994 $17,736 $19,962 $16,556 $17,713
December 31, 1995 $19,403 $27,457 $19,742 $21,606
December 31, 1996 $22,318 $33,759 $20,315 $24,387
December 31, 1997 $25,378 $45,017 $22,297 $28,874
December 31, 1998 $32,115(2) $57,881 $24,410 $32,642
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
26.55(1) 13.48(1) 12.38(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, 1998 for the underlying fund. This figure does
not reflect the deduction of any account fees or sales charges.
(3) The Standard & Poor's Composite Index of 500 stocks (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.
22
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
fund maintaining neutral exposure to these three asset classes would maintain 55
percent in stocks, 35 percent in bonds and 10 percent in cash, indicating that
the Portfolio is indeed overweighted in stocks and underweighted in bonds.
The equity component of the Portfolio benefited from exposure to a number of
industries which posted profits well above the average U.S. corporation.
Technology-related companies, from telecommunications and health care to
Internet service providers and financial services corporations were two of the
Portfolio's most overweighted sectors. Energy, basic raw materials and consumer
staples were also heavily represented.
The Portfolio's bond segment is well diversified. At year-end, the Portfolio
held 62 long-term issues, including 22 government bonds and 40 corporate bonds.
The Portfolio also held 2 commercial paper issues and 3 U.S. Government Agency
discount notes. The Portfolio's average maturity (11.5 years) and average yield
(5.7 percent) remained relatively unchanged from mid-year levels.
UTILITIES PORTFOLIO
For the fiscal year ended December 31, 1998 the Utilities Portfolio provided a
total return of 23.76 percent versus 28.58 percent for the Standard & Poor's
Composite Index of 500 stocks (S&P 500) and 18.61 for the Lipper Variable
Annuity Utility Underlying Funds Average. For the fiscal year, the Portfolio
ranked #4 out of 15 Variable Annuity Utility Funds (top 27 percent), according
to Lipper. For the five years ended December 31, the Portfolio ranked #4 out of
7 such funds (top 57 percent). The accompanying chart illustrates the
performance of a $10,000 investment in the Portfolio from inception through the
fiscal year ended December 31, 1998, versus the performance of similar
hypothetical investments in the S&P 500 and the Lipper Variable Annuity Utility
Underlying Funds Average.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000: UTILITIES PORTFOLIO
($ IN THOUSANDS)
FUND S&P 500(3) LIPPER(4)
<S> <C> <C> <C>
March 1, 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 $36,120 $26,174
December 31, 1998 $32,872(2) $46,441 $29,569
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS SINCE INCEPTION
23.76(1) 14.89(1) 14.42(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, 1998 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 Stock 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.
23
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
The past year proved to be positive for utility investors, as they benefited
from mergers and acquisitions, as well as joint ventures and alliances. In
addition to the attractive fundamentals evident across all utility segments,
investors also participated in the powerful "defensive" appeal and relative
stability of this sector as the broad market experienced waves of high
volatility. Consequently, utilities in general and the Portfolio in particular
acted as safe havens, offering a solid total return during a year of persistent
global market uncertainty. While the Portfolio outperformed many of its peers,
it was surpassed by the broad market, which benefited from a late-year burst of
mergers and acquisitions within a wide array of industries, coupled with a
buying frenzy within the dominant technology-affiliated sectors.
The Portfolio remained fully invested during 1998 in order to take advantage of
positive industry sentiment and strong overall fundamentals. In terms of asset
allocation, diversification remains a key characteristic and strength of the
Portfolio. At year-end, 87 percent of the Portfolio's net assets was allocated
to utility and utility-related equities. Within the equity component, 49 percent
was allocated to electric utilities, 42 percent to telecommunications and 9
percent to natural gas. Enhancing the Portfolio's overall diversification are
select foreign securities focusing on the growth sector of telecommunications,
which accounted for 8 percent of net assets. The Portfolio's high-quality fixed-
income holdings represented 8 percent of net assets, while 5 percent was held in
cash and cash equivalents. The fixed-income portion of the Portfolio remained
well-diversified, with a weighted average credit rating of Baa1 and BBB+, as
measured by Moody's Investors Service, Inc. and Standard & Poor's Corp.,
respectively.
In terms of sector performance within the Portfolio, market turbulence was
tempered substantially by strong electric utility returns. The Portfolio's
high-quality electric holdings realized healthy gains as investors sought this
group for its relatively low volatility and improving fundamentals.
Turning to the increasingly dynamic telecommunications sector, performance in
this sector was truly a high point for the Portfolio as the group was able to
deliver strong earnings gains despite an uneasy global economic environment.
Telecommunications companies capitalized on strong core business growth and
immense demand for the rapidly emerging "new wave" of broadband (Internet) and
other advanced information/telecom services. Moreover, this sector also
experienced a multitude of merger and acquisition announcements. The Portfolio's
well-diversified international telecommunications position highlighted
well-established companies that were operating in strong economies and
24
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
were focused on the swiftly expanding European telecom market. This foreign
segment contributed meaningfully to the Portfolio's overall performance, as many
overseas companies are capitalizing on the brisk growth and globalization of
worldwide telecommunications infrastructure.
The Portfolio's natural gas segment turned in a mixed performance during the
year. Gas commodity prices and stocks came under pressure from low demand
brought on by unseasonably mild weather and adequate supply of gas. However,
certain companies, Enron for example, provided excellent returns given their
highly successful diversified business performance. As of this update, the
outlook for this group is more positive, since seasonal temperatures have
accelerated demand and stabilized natural gas prices.
During calendar year 1999, the Portfolio anticipates a modest decrease in its
electric utility holdings in favor of select telecommunications opportunities,
including a modest increase in global exposure. The Portfolio is expected to
remain strategically positioned to benefit from the current environment of
steady growth, temperate inflation and low interest rates. The Portfolio is
uniquely positioned to capitalize on the expansive growth occurring across all
utility sectors.
OUTLOOK
Many observers anticipate a slight moderation in the pace of economic activity
during the first half of 1999, with no major adverse surprises in the rate of
inflation. Further, the current relatively low interest rates may support a
small-cap rally. What's more, the small-cap segment of the market appears to be
undervalued and, over the long term, may offer greater growth potential than the
broader market.
We currently expect real world GDP growth of approximately two percent in 1999,
similar to that of 1998. In 1998, much of Asia experienced a well-publicized
severe recession, while the Americas and Europe enjoyed healthy growth. Much of
Latin America is now experiencing a recession and Europe is slowing. However,
Asia is starting to rebound and its efforts to restructure are progressing.
Further monetary easing is likely to be necessary worldwide, given the ongoing
fragile state of the global economy and signs of price deflation in a number of
countries.
Notwithstanding the market's stunning fourth quarter recovery, the question
remains whether the summer market decline represented the beginning of a classic
bear market and thus heralded a
25
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
recession for 1999. We do not think so. While a capital markets credit crunch
remains a threat, it does not appear serious enough to trigger a recession. The
economy has sufficient momentum for growth to continue, albeit at a slower pace.
We appreciate your support of Morgan Stanley Dean Witter Variable Investment
Series and look forward to continuing to serve your investment needs and
objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
26
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (68.4%)
ALUMINUM (0.9%)
$ 4,080 Aluminum Co. of America........................... 5.15 % 02/22/99 $ 4,049,944
------------
BANKING (2.5%)
11,000 Bankers Trust Corp................................ 5.69-5.76 01/11/99-03/08/99 10,936,279
------------
CONSTRUCTION/AGRICULTURAL
EQUIPMENT/TRUCKS (2.2%)
9,750 Caterpillar Financial Services Corp............... 5.50-5.59 02/10/99-02/24/99 9,681,089
------------
DIVERSIFIED FINANCIAL SERVICES (10.5%)
9,450 Associates Corp. of North America................. 5.15-5.19 03/17/99-04/26/99 9,318,883
20,530 General Electric Capital Corp..................... 5.11-5.68 01/22/99-04/27/99 20,381,474
16,700 New Center Asset Trust............................ 5.13-5.27 01/19/99-02/10/99 16,635,989
------------
46,336,346
------------
FINANCE - AUTOMOTIVE (17.2%)
20,460 American Honda Finance Corp....................... 5.13-5.42 01/12/99-02/11/99 20,367,585
6,150 Chrysler Financial Corp........................... 5.18 03/03/99 6,096,750
15,800 Daimler-Benz North America Corp................... 5.10-5.13 03/24/99-04/28/99 15,592,938
15,640 Ford Motor Credit Co.............................. 4.89-5.61 02/03/99-05/14/99 15,442,280
13,070 General Motors Acceptance Corp.................... 5.26-5.52 01/14/99-01/26/99 13,034,291
5,410 Toyota Motor Credit Corp.......................... 5.27 01/15/99 5,399,060
------------
75,932,904
------------
FINANCE - CONSUMER (2.5%)
6,000 Avco Financial Services, Inc...................... 5.20 02/16/99 5,960,517
5,000 Household Finance Corp............................ 5.50 02/04/99 4,974,594
------------
10,935,111
------------
FINANCE - CORPORATE (3.1%)
8,070 Ciesco, L.P....................................... 5.11-5.16 01/20/99-02/12/99 8,034,108
5,950 CIT Group Holdings, Inc........................... 5.11-5.24 03/09/99-04/06/99 5,881,141
------------
13,915,249
------------
INSURANCE (3.9%)
17,190 American General Finance Corp..................... 5.11-5.22 02/09/99-03/12/99 17,043,227
------------
INTERNATIONAL BANKS (16.0%)
4,460 Canadian Imperial Holdings Inc.................... 5.25 02/02/99 4,439,464
6,030 CommerzBank U.S. Finance Inc...................... 5.45 01/06/99 6,025,461
5,000 Dresdner U.S. Finance Inc......................... 5.52 01/08/99 4,994,740
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 11,590 Internationale Nederlanden (U.S.) Funding Corp.... 5.13-5.16 % 02/23/99-03/19/99 $ 11,481,370
13,130 KFW International Finance Inc..................... 5.09-5.14 03/22/99-03/31/99 12,973,919
5,000 Societe Generale N.A., Inc........................ 5.40 01/21/99 4,985,278
7,000 Toronto-Dominion Holdings USA Inc................. 5.13 03/10/99 6,933,029
19,140 UBS Finance (DEL) Inc............................. 5.07-5.24 01/05/99-03/23/99 18,992,734
------------
70,825,995
------------
RENTAL/LEASING (1.1%)
4,825 International Lease Finance Corp.................. 5.67 01/13/99 4,816,219
------------
RETAIL (4.5%)
20,260 Sears Roebuck Acceptance Corp..................... 5.13-5.34 02/03/99-03/01/99 20,126,483
------------
UTILITIES (4.0%)
17,760 National Rural Utilities Cooperative Finance
Corp............................................ 5.08-5.43 01/28/99-03/30/99 17,599,706
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $302,198,552)................................................... 302,198,552
------------
U.S. GOVERNMENT AGENCIES (21.1%)
4,210 Federal Home Loan Banks........................... 4.94 04/05/99 4,157,015
43,720 Federal Home Loan Mortgage Corp................... 4.86-5.14 02/08/99-08/30/99 43,092,534
46,685 Federal National Mortgage Assoc................... 4.85-5.61 01/15/99-06/30/99 45,953,769
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $93,203,318).................................................... 93,203,318
------------
SHORT-TERM BANK NOTES (7.2%)
MAJOR BANKS
3,300 BankBoston N.A.................................... 5.64 01/12/99 3,300,000
5,600 FCC National Bank................................. 5.07 04/13/99 5,600,000
4,500 First Union National Bank......................... 5.65 01/20/99 4,500,000
6,000 LaSalle National Bank............................. 5.19 01/07/99 6,000,000
4,160 Mellon Bank, N.A.................................. 5.18 03/09/99 4,160,000
8,390 NationsBank, N.A.................................. 5.05-5.12 02/18/99-03/11/99 8,390,000
------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $31,950,000).................................................... 31,950,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (3.4%)
MAJOR BANKS
$ 5,000 Chase Manhattan Bank.............................. 5.12 % 02/25/99 $ 5,000,000
10,000 Mellon Bank, N.A.................................. 5.13-5.68 01/04/99-02/01/99 10,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $15,000,000).................................................... 15,000,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $442,351,870) (a)................................................. 100.1 % 442,351,870
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.................................... (0.1) (317,386)
------ -------------
NET ASSETS........................................................................ 100.0 % $ 442,034,484
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (64.6%)
ACCIDENT & HEALTH INSURANCE (3.0%)
$ 5,000 Liberty Mutual Insurance Co. - 144A*................... 7.875% 10/15/26 $ 5,440,900
5,000 Lumbermens Mutual Casualty - 144A*..................... 9.15 07/01/26 5,895,200
5,000 Nationwide Financial Services, Inc..................... 8.00 03/01/27 5,390,100
------------
16,726,200
------------
AEROSPACE (2.7%)
5,000 Boeing Co.............................................. 7.95 08/15/24 5,969,400
3,000 Lockheed Martin Corp................................... 7.70 06/15/08 3,383,820
5,000 United Technologies Corp............................... 6.70 08/01/28 5,329,950
------------
14,683,170
------------
AIRLINES (0.9%)
4,855 America West Airlines.................................. 6.85 07/02/09 5,031,520
------------
ALUMINUM (0.9%)
5,000 Aluminum Co. of America................................ 6.75 01/15/28 5,182,000
------------
BOOKS/MAGAZINES (0.6%)
3,000 Times Mirror Co........................................ 6.61 09/15/27 3,173,160
------------
BUILDING MATERIALS/DIY CHAINS (1.3%)
7,000 Home Depot Real Estate Funding Corp. II - 144A*........ 5.95 10/15/08 6,963,530
------------
CONSTRUCTION/AGRICULTURAL
EQUIPMENT/TRUCKS (0.7%)
3,000 Caterpillar, Inc....................................... 9.375 08/15/11 3,851,670
------------
CONSUMER ELECTRONICS/APPLIANCES (0.4%)
1,000 Maytag Corp............................................ 9.75 05/15/02 1,126,180
1,000 Sony Corp. (Japan)..................................... 6.125 03/04/03 1,026,770
------------
2,152,950
------------
CONSUMER SUNDRIES (1.0%)
5,000 CPC International, Inc................................. 7.25 12/15/26 5,628,000
------------
CONTRACT DRILLING (0.6%)
3,000 Transocean Offshore Inc................................ 8.00 04/15/27 3,291,810
------------
DISCOUNT CHAINS (0.6%)
2,932 Wal-Mart Stores, Inc................................... 7.49 06/21/07 3,200,436
------------
DIVERSIFIED FINANCIAL SERVICES (3.4%)
3,000 Ford Capital BV........................................ 9.50 06/01/10 3,825,720
5,000 Ford Motor Credit Corp................................. 7.75 03/15/05 5,518,900
5,000 Household Finance Corp................................. 6.875 03/01/07 5,291,000
4,000 Norwest Financial Inc.................................. 7.875 02/15/02 4,266,480
------------
18,902,100
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DIVERSIFIED MANUFACTURING (2.0%)
$ 5,000 Dresser Industries, Inc................................ 7.60 % 08/15/96 $ 5,808,850
5,000 Tyco International Group S.A. (Luxembourg)............. 7.00 06/15/28 5,024,950
------------
10,833,800
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.9%)
5,000 Applied Materials, Inc................................. 7.125 10/15/17 5,043,450
------------
FOOD DISTRIBUTORS (0.6%)
3,000 Sysco Corp............................................. 6.50 08/01/28 3,104,730
------------
INDUSTRIAL SPECIALTIES (0.9%)
5,000 Monsanto Co. - 144A*................................... 6.50 12/01/18 5,022,350
------------
INTEGRATED OIL COMPANIES (0.6%)
2,000 Enron Oil & Gas Co..................................... 6.00 12/15/08 1,973,220
245 Mobil Corp............................................. 9.17 02/29/00 252,539
1,000 Texaco Capital, Inc.................................... 9.75 03/15/20 1,394,470
------------
3,620,229
------------
INVESTMENT BANKERS/BROKERS/SERVICES (2.8%)
2,000 Bear Stearns Companies, Inc............................ 8.75 03/15/04 2,228,580
5,000 Donaldson Lufkin & Jenrette, Inc....................... 6.90 10/01/07 5,160,750
2,000 Lehman Brothers Holdings, Inc.......................... 8.75 03/15/05 2,201,220
5,000 Lehman Brothers Holdings, Inc.......................... 8.50 08/01/15 5,499,850
------------
15,090,400
------------
LIFE INSURANCE (2.1%)
5,000 American General Finance Corp.......................... 5.875 12/15/05 4,995,900
3,000 Hartford Financial Services Group Inc.................. 6.375 11/01/08 3,057,390
3,000 Jackson National Life Insurance Co. - 144A*............ 8.15 03/15/27 3,405,480
------------
11,458,770
------------
MAJOR BANKS (6.7%)
5,000 BankBoston N.A......................................... 6.50 12/19/07 5,063,500
2,000 Chase Manhattan Corp................................... 6.50 01/15/09 2,080,360
5,000 First Bank N.A......................................... 8.35 11/01/04 5,623,400
5,000 First Bank System...................................... 7.625 05/01/05 5,481,250
3,000 Mellon Bank N.A........................................ 7.625 09/15/07 3,377,670
5,000 NationsBank Corp....................................... 7.80 09/15/16 5,740,300
5,000 State Street Boston Corp............................... 5.95 09/15/03 5,075,550
2,000 Swiss Bank Corp........................................ 7.375 07/15/15 2,135,820
2,000 Wachovia Corp.......................................... 6.375 04/15/03 2,058,820
------------
36,636,670
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAJOR PHARMACEUTICALS (1.2%)
$ 5,000 Johnson & Johnson...................................... 8.72 % 11/01/24 $ 5,963,950
593 Marion Merrell Corp.................................... 9.11 08/01/05 665,246
------------
6,629,196
------------
MAJOR U.S. TELECOMMUNICATIONS (10.3%)
5,000 360 DEG. Communications Co............................. 7.60 04/01/09 5,669,600
3,500 Aliant Communications, Inc............................. 6.75 04/01/28 3,713,920
5,000 AT&T Corp.............................................. 8.35 01/15/25 5,730,900
5,000 Frontier Corp.......................................... 7.25 05/15/04 5,339,200
5,000 GTE Corp............................................... 7.90 02/01/27 5,556,300
5,000 GTE Corp............................................... 6.94 04/15/28 5,403,850
2,000 GTE North, Inc. (Series H)............................. 5.65 11/15/08 2,025,240
2,000 Illinois Bell Telephone Co............................. 7.25 03/15/24 2,122,700
5,000 Lucent Technologies Inc................................ 7.25 07/15/06 5,553,300
4,750 Sprint Capital Corp.................................... 6.125 11/15/08 4,849,417
5,000 Sprint Capital Corp.................................... 6.875 11/15/28 5,198,300
5,000 U.S. West Cap Funding, Inc............................. 6.875 07/15/28 5,334,400
------------
56,497,127
------------
MANAGED HEALTH CARE (0.2%)
1,000 Kaiser Foundation Health Plan, Inc..................... 9.55 07/15/05 1,184,290
------------
MEDICAL SPECIALTIES (0.9%)
4,000 Becton Dickinson & Co.................................. 8.70 01/15/25 4,706,600
------------
MID - SIZED BANKS (0.6%)
3,000 Old Kent Financial Corp................................ 6.625 11/15/05 3,101,220
------------
NATURAL GAS (0.9%)
5,000 ONEOK Inc.............................................. 6.875 10/01/28 4,958,950
------------
OIL & GAS PRODUCTION (1.3%)
2,000 Anadarko Petroleum Corp................................ 7.73 09/15/96 2,091,640
5,000 Kerr McGee Corp........................................ 7.125 10/15/27 4,871,500
------------
6,963,140
------------
PACKAGED FOODS (0.3%)
1,500 Kellogg Co............................................. 4.875 10/15/05 1,481,535
------------
PRECIOUS METALS (1.0%)
5,000 Barrick Gold Corp...................................... 7.50 05/01/07 5,441,900
------------
RAILROADS (1.9%)
4,496 Burlington Northern Santa Fe Corp...................... 7.33 06/23/10 4,888,341
4,593 Burlington Northern Santa Fe Corp...................... 7.97 01/01/15 5,304,785
------------
10,193,126
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RESTAURANTS (0.2%)
$ 1,000 McDonald's Corp........................................ 8.875% 04/01/11 $ 1,280,780
------------
RETAIL (1.2%)
5,000 May Department Stores Co............................... 7.625 08/15/13 5,671,700
1,000 Penney (J.C.) Co., Inc................................. 9.75 06/15/21 1,128,860
------------
6,800,560
------------
SOFT DRINKS (1.4%)
2,000 Coca-Cola Enterprises Inc.............................. 8.50 02/01/22 2,491,520
5,000 Coca-Cola Enterprises Inc.............................. 6.75 01/15/38 5,133,450
------------
7,624,970
------------
TOBACCO (1.0%)
5,000 Philip Morris Companies, Inc........................... 7.125 10/01/04 5,327,050
------------
UTILITIES - ELECTRIC (9.5%)
1,000 Chugach Electric Co.................................... 9.14 03/15/22 1,169,890
5,000 Florida Power & Light Co............................... 7.05 12/01/26 5,117,850
3,000 National Rural Utilities Cooperative Finance Corp...... 5.75 11/01/08 3,048,900
2,903 Oglethorpe Power Co.................................... 6.974 06/30/11 3,023,707
3,500 Oklahoma Gas & Electric Co............................. 6.50 07/15/17 3,722,565
5,000 Pennsylvania Power & Light Co.......................... 7.70 10/01/09 5,702,700
5,000 Potomac Electric Power Co.............................. 7.25 07/01/23 5,122,000
4,000 Public Service Electric & Gas.......................... 7.375 03/01/14 4,104,520
4,000 Puget Sound Energy Co.................................. 7.02 12/01/27 4,220,800
5,000 South Carolina Electric & Gas Co....................... 7.625 06/01/23 5,431,100
3,000 Southern California Edison Co.......................... 7.25 03/01/26 3,131,670
1,000 Tampa Electric Co...................................... 7.75 11/01/22 1,083,140
2,000 United Utilities Corp. (United Kingdom)................ 6.45 04/01/08 2,039,940
5,000 Virginia Electric Power................................ 7.25 02/01/23 5,150,350
------------
52,069,132
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $331,766,722)......................................................... 353,856,521
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (30.4%)
5 Federal Home Loan Mortgage Corp........................ 11.50 05/01/19 5,455
4,763 Federal Home Loan Mortgage Corp. PC Gold............... 6.00 10/01/23-11/01/27 4,704,480
1,569 Federal Home Loan Mortgage Corp. PC Gold............... 8.50 01/01/22-12/01/24 1,641,792
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 18,359 Federal National Mortgage Assoc........................ 6.00 % 02/01/27-12/01/28 $ 18,124,208
779 Federal National Mortgage Assoc........................ 6.50 03/01/26-09/01/27 784,288
170 Federal National Mortgage Assoc........................ 7.00 10/01/27 173,776
276 Federal National Mortgage Assoc........................ 7.50 05/01/27 283,428
762 Federal National Mortgage Assoc........................ 9.00 06/01/21-02/01/25 805,706
32,160 Government National Mortgage Assoc..................... 6.00 03/15/28-12/15/28 31,878,417
22,438 Government National Mortgage Assoc..................... 6.50 08/15/27-09/15/28 22,654,969
7,428 Government National Mortgage Assoc..................... 7.00 10/15/27-04/15/28 7,597,394
14,694 Government National Mortgage Assoc..................... 7.50 04/15/24-09/15/27 15,148,289
12,005 Government National Mortgage Assoc..................... 8.00 10/15/24-09/15/26 12,469,840
3,104 Government National Mortgage Assoc..................... 8.50 01/15/17-03/01/28 3,290,332
1,918 Government National Mortgage Assoc..................... 9.00 07/15/24-12/15/24 2,046,377
160 Government National Mortgage Assoc..................... 10.00 05/15/16-04/15/19 174,866
5,000 Tennessee Valley Authority............................. 7.85 06/15/44 5,345,500
31,000 U.S. Treasury Bond..................................... 5.25 11/15/28 31,724,160
7,000 U.S. Treasury Note..................................... 5.625 05/15/08 7,461,510
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $164,778,031)......................................................... 166,314,787
------------
CANADIAN GOVERNMENT OBLIGATIONS (3.2%)
5,000 Hydro-Quebec........................................... 9.50 11/15/30 6,971,450
5,000 Ontario Hydro.......................................... 6.10 01/30/08 5,214,150
5,000 Province of New Brunswick.............................. 7.625 06/29/04 5,531,350
------------
TOTAL CANADIAN GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $15,584,920).......................................................... 17,716,950
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
$ 2,220 The Bank of New York (dated 12/31/98; proceeds
$2,221,323) (a) (IDENTIFIED COST $2,220,336)......... 4.00 % 01/04/99 $ 2,220,336
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $514,350,009) (b)........................................................... 98.6 % $ 540,108,594
OTHER ASSETS IN EXCESS OF LIABILITIES........................................................ 1.4 7,474,187
------ -------------
NET ASSETS................................................................................... 100.0 % $ 547,582,781
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
PC Participation Certificate.
(a) Collateralized by $2,241,280 U.S. Treasury Note 6.75% due 06/30/99 valued at
$2,264,743.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $26,857,410 and the
aggregate gross unrealized depreciation is $1,098,825, resulting in net
unrealized appreciation of $25,758,585.
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (94.4%)
BROADCASTING (2.4%)
$ 5,000 Jones International Networks Ltd............................................. 11.75 % 07/01/05 $ 4,000,000
4,744 Mentus Media Corp. (Series B)................................................ 12.00+ 02/01/03 4,601,680
------------
8,601,680
------------
BROADCAST/MEDIA (4.1%)
229 Brill Media Co., LLC (Series B).............................................. 7.50 12/15/07 6,859
8,000 Brill Media Co., LLC (Series B).............................................. 7.50 12/15/07 7,120,000
2,005 Spanish Broadcasting System, Inc............................................. 12.50 06/15/02 2,225,550
5,790 Tri-State Outdoor Media Group................................................ 11.00 05/15/08 5,761,050
------------
15,113,459
------------
CABLE TELEVISION (0.1%)
3,750 Australis Holdings Ltd. (Australia) (a)...................................... 15.00++ 11/01/02 187,500
------------
CASINO/GAMBLING (2.5%)
10,000 Aladdin Gaming Holding (Series B)............................................ 13.50++ 03/01/10 2,900,000
7,000 Fitzgeralds Gaming Corp. (Series B).......................................... 12.25 12/15/04 3,780,000
2,500 Lady Luck Gaming Finance Corp................................................ 11.875 03/01/01 2,556,250
------------
9,236,250
------------
CELLULAR TELEPHONE (8.5%)
4,500 American Cellular Corp. - 144A*.............................................. 10.50 05/15/08 4,455,000
7,000 Clearnet Communications Inc. (Canada)........................................ 14.75++ 12/15/05 6,020,000
5,000 CTI Holdings S.A. (Argentina)................................................ 11.50++ 04/15/08 2,150,000
1,800 Dobson/Sygnet Communications - 144A*......................................... 12.25 12/15/08 1,800,000
2,000 James Cable Partners L.P. (Series B)......................................... 10.75 08/15/04 2,080,000
7,920 McCaw International Ltd...................................................... 13.00++ 04/15/07 4,415,400
8,000 Price Communication Cellular Holdings........................................ 11.25+ 08/15/08 7,600,000
5,000 Triton PCS Inc............................................................... 11.00++ 05/01/08 2,337,500
------------
30,857,900
------------
COMPUTERS (1.1%)
2,000 CHS Electronics, Inc......................................................... 9.875 04/15/05 1,930,000
1,800 Unisys Corp.................................................................. 11.75 10/15/04 2,088,000
------------
4,018,000
------------
CONSUMER SPECIALTIES (0.6%)
2,500 Samsonite Corp............................................................... 10.75 06/15/08 2,175,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SUNDRIES (1.5%)
$ 3,000 J.B. Williams Holdings, Inc.................................................. 12.00 % 03/01/04 $ 3,105,000
2,500 Windmere-Durable Holdings, Inc............................................... 10.00 07/31/08 2,337,500
------------
5,442,500
------------
CONSUMER/BUSINESS SERVICES (5.4%)
4,500 Anacomp, Inc. (Series B)..................................................... 10.875 04/01/04 4,680,000
2,500 CEX Holdings Inc. (Series B)................................................. 9.625 06/01/08 2,300,000
7,172 Comforce Corp. (Series B).................................................... 15.00+ 12/01/09 7,243,489
3,250 Comforce Operating, Inc...................................................... 12.00 12/01/07 3,250,000
3,000 Entex Information Services, Inc. - 144A*..................................... 12.50 08/01/06 2,100,000
------------
19,573,489
------------
CONTAINERS/PACKAGING (1.3%)
2,000 Berry Plastics Corp.......................................................... 12.25 04/15/04 2,100,000
2,500 Premier Graphics Inc. - 144A*................................................ 11.50 12/01/05 2,500,000
------------
4,600,000
------------
DIVERSIFIED MANUFACTURING (4.0%)
3,000 High Voltage Engineering Corp................................................ 10.50 08/15/04 2,835,000
3,000 Interlake Corp............................................................... 12.00 11/15/01 3,240,000
1,000 Interlake Corp............................................................... 12.125 03/01/02 1,020,000
3,000 J.B. Poindexter & Co., Inc................................................... 12.50 05/15/04 2,880,000
7,200 Jordan Industries, Inc. (Series B)........................................... 11.75++ 04/01/09 4,572,000
------------
14,547,000
------------
ENERGY (1.3%)
3,000 Transamerican Refining Corp. (Units)(++) - 144A*............................. 16.00 06/30/03 2,655,000
2,100 Transamerican Refining Corp. - 144A*......................................... 15.00 12/01/03 2,027,655
------------
4,682,655
------------
FINANCE COMPANIES (2.2%)
4,000 General Electric Capital Corp................................................ 15.00 01/21/99 4,016,120
4,000 IBM Credit Corp.............................................................. 15.00 02/02/99 4,027,680
------------
8,043,800
------------
FOOD CHAINS (1.1%)
500 Big V Supermarkets, Inc. (Series B).......................................... 11.00 02/15/04 505,000
2,875 Pantry, Inc.................................................................. 10.25 10/15/07 3,004,375
515 Pueblo Xtra International, Inc. (Series C)................................... 9.50 08/01/03 491,825
------------
4,001,200
------------
FOOD DISTRIBUTORS (0.7%)
2,500 Fleming Companies, Inc....................................................... 10.625 12/15/01 2,525,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOODS & BEVERAGES (5.9%)
$ 2,000 General Mills, Inc........................................................... 15.00 % 01/29/99 $ 2,012,360
12,400 Pepsico, Inc................................................................. 15.00 08/06/99 13,140,156
2,500 Sparkling Spring Water (Canada).............................................. 11.50 11/15/07 2,425,000
17,750 Specialty Foods Acquisition Corp. (Series B)................................. 13.00++ 08/15/05 3,727,500
------------
21,305,016
------------
HEALTHCARE (3.3%)
2,500 Pediatric Services of America, Inc. (Series A)............................... 10.00 04/15/08 1,775,000
2,500 Unilab Corp.................................................................. 11.00 04/01/06 2,593,750
6,000 Unison Healthcare Corp. - 144A* (b).......................................... 12.25 11/01/06 2,790,000
3,000 Universal Hospital Services, Inc............................................. 10.25 03/01/08 2,670,000
2,500 Vencor Operating, Inc........................................................ 9.875 05/01/05 2,075,000
------------
11,903,750
------------
HOTELS/RESORTS (7.8%)
4,500 Bluegreen Corp. (Series B)................................................... 10.50 04/01/08 4,050,000
9,000 Epic Resorts LLC (Series B).................................................. 13.00 06/15/05 8,820,000
7,500 Motels of America, Inc. (Series B)........................................... 12.00 04/15/04 6,300,000
6,000 Premier Cruises Ltd. - 144A*................................................. 11.00 03/15/08 2,700,000
6,770 Resort At Summerlin (Series B)............................................... 13.00+ 12/15/07 6,567,100
------------
28,437,100
------------
INDUSTRIAL SPECIALTIES (1.7%)
12,000 International Semi-Tech Microelectronics, Inc. (Canada)...................... 11.50++ 08/15/03 1,320,000
2,000 International Wire Group, Inc................................................ 11.75 06/01/05 2,105,000
3,000 Outsourcing Services Group, Inc. - 144A*..................................... 10.875 03/01/06 2,850,000
------------
6,275,000
------------
MAJOR U.S. TELECOMMUNICATIONS (4.1%)
4,000 Caprock Communications Corp. (Series B)...................................... 12.00 07/15/08 3,800,000
4,000 Covad Communications Group (Series B)........................................ 13.50++ 03/15/08 2,400,000
2,000 GST Telecommunications, Inc. - 144A*......................................... 10.50++ 05/01/08 960,000
2,500 NEXTLINK Communications, Inc................................................. 9.00 03/15/08 2,318,750
4,000 Onepoint Communications Corp. - 144A*........................................ 14.50 06/01/08 2,160,000
4,000 Startec Global Communications Corp........................................... 12.00 05/15/08 3,480,000
------------
15,118,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OFFICE EQUIPMENT/SUPPLIES (1.1%)
$ 4,500 Mosler, Inc.................................................................. 11.00 % 04/15/03 $ 4,005,000
------------
OIL/GAS TRANSMISSION (0.3%)
2,500 Northern Offshore ASA - 144A* (Norway)....................................... 10.00 05/15/05 1,300,000
------------
OTHER CONSUMER SERVICES (1.0%)
5,000 Source Media, Inc............................................................ 12.00 11/01/04 3,750,000
------------
OTHER TELECOMMUNICATIONS (1.8%)
2,000 Esprit Telecom Group PLC (United Kingdom).................................... 11.50 12/15/07 2,070,000
500 Esprit Telecom Group PLC (United Kingdom).................................... 10.875 06/15/08 505,000
4,000 Transtel Pass-Thru Trust - 144A*............................................. 12.50 11/01/07 1,760,000
2,500 Versatel Telecom BV - 144A* (Netherlands) (Units)(++)........................ 13.25 05/15/08 2,500,000
------------
6,835,000
------------
PACKAGED FOODS (1.4%)
6,330 Envirodyne Industries, Inc................................................... 10.25 12/01/01 5,253,900
------------
PRINTING/PUBLISHING (0.3%)
1,032 United States Banknote Corp.................................................. 10.375 06/01/02 1,042,320
------------
RESTAURANTS (3.8%)
20,351 American Restaurant Group Holdings, Inc. - 144A* (c)......................... 0.00 12/15/05 6,003,633
5,000 FRD Acquisition Corp. (Series B)............................................. 12.50 07/15/04 5,350,000
6,000 Planet Hollywood International, Inc.......................................... 12.00 04/01/05 2,340,000
------------
13,693,633
------------
TELECOMMUNICATION EQUIPMENT (3.7%)
9,000 FWT, Inc..................................................................... 9.875 11/15/07 5,400,000
7,000 SBA Communications Corp...................................................... 12.00++ 03/01/08 4,060,000
8,000 Spectrasite Holdings, Inc. - 144A*........................................... 12.00++ 07/15/08 4,080,000
------------
13,540,000
------------
TELECOMMUNICATIONS (12.4%)
7,000 21st Century Telecom Group, Inc.............................................. 12.25++ 02/15/08 2,940,000
6,500 Birch Telecom Inc. - 144A* (Units)(++)....................................... 14.00 06/15/08 5,980,000
5,000 e. Spire Communications, Inc................................................. 13.75 07/15/07 4,900,000
5,000 Facilicom International (Series B)........................................... 10.50` 01/15/08 4,050,000
10,500 Firstworld Communications, Inc............................................... 13.00++ 04/15/08 3,360,000
3,000 GST Equipment Funding, Inc................................................... 13.25 05/01/07 3,150,000
4,000 Hyperion Telecommunication, Inc. (Series B).................................. 13.00++ 04/15/03 2,860,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Hyperion Telecommunication, Inc. (Series B).................................. 12.25 % 09/01/04 $ 2,030,000
28,500 In-Flight Phone Corp. (Series B) (d)......................................... 14.00 05/15/02 3,420,000
2,500 Level 3 Communications, Inc.................................................. 9.125 05/01/08 2,481,250
4,000 Optel Inc. (Series B)........................................................ 11.50 07/01/08 3,920,000
2,500 Primus Telecommunication Group, Inc. (Series B).............................. 9.875 05/15/08 2,387,500
5,000 Winstar Communications, Inc.................................................. 14.00++ 10/15/05 3,612,500
------------
45,091,250
------------
TRANSPORTATION (0.5%)
6,000 Alpha Shipping PLC (Series A) (United Kingdom)............................... 9.50 02/15/08 1,740,000
------------
WIRELESS COMMUNICATIONS (8.5%)
7,000 Advanced Radio Telecom Corp. (Units)(++)..................................... 14.00 02/15/07 5,460,000
4,500 AMSC Acquisition Co., Inc. (Series B)........................................ 12.25 04/01/08 2,790,000
11,000 CellNet Data Systems Inc..................................................... 14.00++ 10/01/07 3,080,000
2,000 Echostar DBS Corp............................................................ 12.50 07/01/02 2,310,000
5,000 Globalstar LP/Capital Corp................................................... 10.75 11/01/04 3,600,000
3,659 Orbcomm Global LP/Capital Corp. (Series B)................................... 14.00 08/15/04 3,768,770
4,000 Star Choice Communications, Inc. (Canada).................................... 13.00 12/15/05 4,020,000
5,000 TCI Satellite Entertainment Corp............................................. 12.25++ 02/15/07 1,150,000
4,500 USA Mobile Communications Holdings, Inc...................................... 14.00 11/01/04 4,635,000
------------
30,813,770
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $410,285,354).................................................................... 343,709,922
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
COMMON STOCKS (e) (0.9%)
BROADCASTING (0.5%)
134,374 Price Communications Corp............................................................ 1,738,464
------------
CASINO/GAMBLING (0.0%)
2,000 Fitzgerald Gaming Corp............................................................... 4,000
------------
FOODS & BEVERAGES (0.0%)
120,000 Specialty Foods Acquisition Corp. - 144A*............................................ 120,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOTELS/RESORTS (0.0%)
2,000 Motels of America, Inc. - 144A*...................................................... $ 2,149
71,890 Vagabond Inns, Inc. (Class D) (a).................................................... --
------------
2,149
------------
MOTOR VEHICLES (0.0%)
87 Northern Holdings Industrial Corp. * (c)............................................. --
------------
RESTAURANTS (0.0%)
7,750 American Restaurant Group Holdings, Inc. - 144A*..................................... --
------------
RETAIL - MERCHANDISING (0.3%)
1,229,412 County Seat Store Corp. (c).......................................................... 1,037,624
------------
TEXTILES (0.1%)
298,461 U.S. Leather, Inc. (c)............................................................... 447,691
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $18,427,800)........................................................ 3,349,928
------------
PREFERRED STOCKS (0.4%)
ENERGY (0.0%)
47,266 Transcontinental Refining Corp.* (Conv.) (Class B)................................... 2,836
25,996 Transcontinental Refining Corp.* (Conv.) (Class C)................................... 1,560
68,535 Transcontinental Refining Corp.* (Conv.) (Class D)................................... 4,112
141,797 Transcontinental Refining Corp.* (Conv.) (Class E)................................... 8,508
84,000 Transcontinental Refining Corp.* (Conv.)............................................. 57,120
------------
74,136
------------
RESTAURANTS (0.4%)
1,500 American Restaurant Group Holdings, Inc. (Series B).................................. 1,500,000
------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $1,574,214)......................................................... 1,574,136
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ----------- ----------
<C> <S> <C> <C>
WARRANTS (e) (0.1%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. - 144A*................................................. 04/15/03 15,000
------------
BROADCASTING (0.0%)
12,523 Mentus Media Corp. - 144A*............................................... 02/01/08 295
------------
CASINO/GAMBLING (0.0%)
100,000 Aladdin Gaming Enterprises - 144A*....................................... 03/01/10 1,035
3,500 Fitzgeralds South Inc. - 144A*........................................... 03/15/99 --
------------
1,035
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONSUMER/BUSINESS SERVICES (0.0%)
42,250 Comforce Corp. - 144A*................................................... 12/01/09 $ 422
------------
ENERGY (0.0%)
39,665 Gothic Energy Corp. - 144A*.............................................. 05/01/05 397
------------
HOTELS/RESORTS (0.0%)
9,000 Epic Resorts LLC - 144A*................................................. 06/15/05 --
6,000 Resort At Summerlin - 144A*.............................................. 12/15/07 --
------------
--
------------
MAJOR U.S. TELECOMMUNICATIONS (0.0%)
4,000 Covad Communications Group - 144A*....................................... 03/15/08 --
4,000 Onepoint Communications Corp. - 144A*.................................... 06/01/08 --
4,000 Startec Global Communications Corp. - 144A*.............................. 05/15/08 --
------------
--
------------
RESTAURANTS (0.0%)
1,500 American Restaurant Group Holdings, Inc. - 144A*......................... 08/15/00 --
------------
TELECOMMUNICATIONS (0.0%)
10,500 Firstworld Communications, Inc. - 144A*.................................. 04/15/08 105
------------
WIRELESS COMMUNICATIONS (0.1%)
4,500 American Mobile Satellite Corp. - 144A*.................................. 04/01/08 --
92,640 Star Choice Communications, Inc. - 144A* (Canada)........................ 12/15/05 157,648
------------
157,648
------------
TOTAL WARRANTS
(IDENTIFIED COST $198,593)........................................................... 174,902
------------
</TABLE>
<TABLE>
<C> <S> <C>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.2%)
U.S. GOVERNMENT AGENCY (f) (2.1%)
$ 7,700 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $7,697,112)...... 7,697,112
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 183 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $182,710) (g)
(IDENTIFIED COST $182,690)......................................................... $ 182,690
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $7,879,802)......................................................... 7,879,802
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $438,365,763) (h)........................................................ 98.0 % 356,688,690
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 2.0 7,390,214
------ -------------
NET ASSETS................................................................................ 100.0 % $ 364,078,904
------ -------------
------ -------------
</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) Issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Acquired through exchange offer.
(d) Non-income producing security; issuer in bankruptcy.
(e) Non-income producing securities.
(f) Security was purchased on a discount basis. The interst rate shown has been
adjusted to reflect a money market equivalent yield.
(g) Collateralized by $180,042 U.S. Treasury Note 5.875% due 02/15/00 valued at
$186,344.
(h) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $6,224,932 and the
aggregate gross unrealized depreciation is $87,902,005, resulting in net
unrealized depreciation of $81,677,073.
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (86.6%)
ELECTRIC UTILITIES (42.4%)
85,000 AES Corp.*............................................................................. $ 4,026,875
210,000 Baltimore Gas & Electric Co............................................................ 6,483,750
135,000 Carolina Power & Light Co.............................................................. 6,353,437
130,000 Central & South West Corp.............................................................. 3,566,875
215,865 CINergy Corp........................................................................... 7,420,359
215,000 CMS Energy Corp........................................................................ 10,414,062
130,000 Consolidated Edison, Inc............................................................... 6,873,750
337,500 DPL, Inc............................................................................... 7,298,437
212,500 DQE, Inc............................................................................... 9,336,719
130,000 DTE Energy Co.......................................................................... 5,573,750
141,216 Duke Energy Corp....................................................................... 9,046,650
130,000 Edison International................................................................... 3,623,750
110,000 Energy East Corp....................................................................... 6,215,000
175,000 Entergy Corp........................................................................... 5,446,875
130,000 FPL Group, Inc......................................................................... 8,011,250
150,000 GPU, Inc............................................................................... 6,628,125
125,000 Hawaiian Electric Industries, Inc...................................................... 5,031,250
200,000 Houston Industries Inc................................................................. 6,425,000
215,000 Illinova Corp.......................................................................... 5,375,000
225,000 IPALCO Enterprises, Inc................................................................ 12,445,312
120,000 Kansas City Power & Light Co........................................................... 3,555,000
39,200 Metzler Group, Inc. (The)*............................................................. 1,906,100
125,000 Montana Power Co....................................................................... 7,070,312
195,000 New Century Energies, Inc.............................................................. 9,506,250
115,000 New England Electric System............................................................ 5,534,375
320,000 NIPSCO Industries, Inc................................................................. 9,740,000
100,000 OGE Energy Corp........................................................................ 2,893,750
280,000 PacifiCorp............................................................................. 5,897,500
220,000 Pinnacle West Capital Corp............................................................. 9,322,500
55,000 Potomac Electric Power Co.............................................................. 1,447,188
210,000 Public Service Company of New Mexico................................................... 4,291,875
115,000 Public Service Enterprise Group, Inc................................................... 4,600,000
215,000 SCANA Corp............................................................................. 6,933,750
275,000 Southern Co............................................................................ 7,992,188
161,500 Texas Utilities Co..................................................................... 7,540,031
110,000 USEC Inc............................................................................... 1,526,250
190,000 Western Resources, Inc................................................................. 6,317,500
200,000 Wisconsin Energy Corp.................................................................. 6,287,500
------------
237,958,295
------------
NATURAL GAS (7.7%)
153,625 Burlington Resources, Inc.............................................................. 5,501,695
220,460 El Paso Energy Corp.................................................................... 7,674,764
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
198,250 Enron Corp............................................................................. $ 11,312,641
250,000 Questar Corp........................................................................... 4,843,750
140,000 Sempra Energy.......................................................................... 3,552,500
325,000 Williams Companies, Inc................................................................ 10,135,938
------------
43,021,288
------------
TELECOMMUNICATIONS (36.5%)
115,000 AirTouch Communications, Inc.*......................................................... 8,294,375
221,932 ALLTEL Corp............................................................................ 13,274,308
130,000 AT&T Corp.............................................................................. 9,782,500
200,000 BCE, Inc. (Canada)..................................................................... 7,587,500
154,320 Bell Atlantic Corp..................................................................... 8,767,305
190,000 Cable & Wireless PLC (ADR) (United Kingdom)............................................ 6,982,500
202,500 Century Telephone Enterprises, Inc..................................................... 13,668,750
260,000 Ericsson (L.M.) Telephone Co. (Class B) (ADR) (Sweden)................................. 6,207,500
91,100 Esat Telecom Group PLC (ADR) (Ireland)*................................................ 3,427,638
160,000 Frontier Corp.......................................................................... 5,440,000
140,000 GTE Corp............................................................................... 9,441,250
33,984 Lucent Technologies Inc................................................................ 3,738,240
384,109 MCI WorldCom, Inc.*.................................................................... 27,559,821
105,000 MediaOne Group, Inc.*.................................................................. 4,935,000
173,254 Qwest Communications International, Inc.*.............................................. 8,651,872
408,946 SBC Communications, Inc................................................................ 21,929,729
120,000 Sprint Corp. (FON Group)............................................................... 10,095,000
60,000 Sprint Corp. (PCS Group)*.............................................................. 1,387,500
65,000 Tele Danmark AS (ADR) (Denmark)........................................................ 4,411,875
50,000 Tele-Communications, Inc. (Class A)*................................................... 2,765,625
120,000 Telecom Corp. of New Zealand Ltd. (ADR) (New Zealand).................................. 4,282,500
80,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)..................................... 3,895,000
130,000 Telephone & Data Systems, Inc.......................................................... 5,841,875
51,500 Telstra Corp. Ltd. (ADR) (Australia)*.................................................. 4,776,625
112,867 U.S. West, Inc......................................................................... 7,294,030
------------
204,438,318
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $265,936,016)......................................................... 485,417,901
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (8.3%)
ELECTRIC UTILITIES (5.6%)
$ 2,250 Consumers Energy Co.
6.875% due 03/01/18.......................................................... $ 2,275,020
2,000 Empresa Nacional de Electricidad Chile
8.125% due 02/01/97.......................................................... 1,594,580
2,250 Florida Power & Light Co.
7.05% due 12/01/26........................................................... 2,303,033
3,000 Illinois Power Co.
8.75% due 07/01/21........................................................... 3,187,890
3,000 Indianapolis Power Co.
7.05% due 02/01/24........................................................... 3,075,030
2,000 National Rural Utilities Cooperative Finance Corp.
5.75% due 11/01/08........................................................... 2,032,600
2,500 Niagara Mohawk Power Corp.
8.00% due 06/01/04........................................................... 2,750,650
1,500 Northern States Power Co.
6.50% due 03/01/28........................................................... 1,583,385
3,000 Public Service Electric & Gas Co.
7.00% due 09/01/24........................................................... 3,057,510
2,000 South Carolina Electric & Gas Co.
7.625% due 06/01/23.......................................................... 2,172,440
2,000 Southwestern Public Service
8.50% due 02/15/25........................................................... 2,338,500
5,000 Wisconsin Electric Power Co.
7.125% due 03/15/16.......................................................... 5,168,000
------------
31,538,638
------------
NATURAL GAS (1.0%)
3,000 Coastal Corp.
7.75% due 10/15/35........................................................... 3,216,000
2,000 Panhandle Eastern Corp.
8.625% due 04/15/25.......................................................... 2,310,220
------------
5,526,220
------------
TELECOMMUNICATIONS (1.7%)
2,000 360 DEG. Communications Co.
6.65% due 01/15/08........................................................... 2,119,320
2,000 GTE Corp.
7.90% due 02/01/27........................................................... 2,222,520
2,000 GTE North Inc.
5.65% due 11/15/08........................................................... 2,025,240
500 LCI International, Inc.
7.25% due 06/15/07........................................................... 509,060
2,000 Sprint Corp.
9.25% due 04/15/22........................................................... 2,599,660
------------
9,475,800
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $43,862,125).................................................. 46,540,658
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY (0.2%)
$ 1,250 Tennessee Valley Authority (Series 95-A) 8.00% due 03/31/45
(IDENTIFIED COST $1,250,000)................................................. $ 1,309,375
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.5%)
U.S. GOVERNMENT AGENCY (a) (4.5%)
25,300 Student Loan Marketing Assoc. 4.28% due 01/04/99 (AMORTIZED COST $25,290,976).......... 25,290,976
------------
REPURCHASE AGREEMENT (0.0%)
121 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $120,919) (b)
(IDENTIFIED COST $120,865)........................................................... 120,865
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $25,411,841).......................................................... 25,411,841
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $336,459,982) (c)........................................................ 99.6 % 558,679,775
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.4 2,123,058
------ -------------
NET ASSETS................................................................................ 100.0 % $ 560,802,833
------ -------------
------ -------------
</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 $119,113 U.S. Treasury Note 5.875% due 02/15/00 valued at
$123,282.
(c) The aggregate cost for federal income tax purposes aproximates identified
cost. The aggregate gross unrealized appreciation is $223,778,243 and the
aggregate gross unrealized depreciation is $1,558,450, resulting in net
unrealized appreciation of $222,219,793.
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (46.2%)
ACCIDENT & HEALTH INSURANCE (0.8%)
20,000 Torchmark Corp.......................................................................... $ 706,250
-----------
APPAREL (0.8%)
28,500 Kellwood Co............................................................................. 712,500
-----------
AUTO PARTS: O.E.M. (1.7%)
18,000 Dana Corp............................................................................... 735,750
12,700 Johnson Controls, Inc................................................................... 749,300
-----------
1,485,050
-----------
BUILDING MATERIALS (1.6%)
11,000 Armstrong World Industries, Inc......................................................... 663,437
5,500 Vulcan Materials Co..................................................................... 723,594
-----------
1,387,031
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.8%)
13,000 Whirlpool Corp.......................................................................... 719,875
-----------
CONSUMER SUNDRIES (0.8%)
17,000 American Greetings Corp. (Class A)...................................................... 698,062
-----------
CONTAINERS/PACKAGING (0.8%)
23,000 Crown Cork & Seal Co., Inc.............................................................. 708,687
-----------
DIVERSIFIED FINANCIAL SERVICES (0.3%)
3,600 Providian Financial Corp................................................................ 270,000
-----------
ELECTRIC UTILITIES: EAST (0.8%)
17,000 Public Service Enterprise Group, Inc.................................................... 680,000
-----------
ELECTRIC UTILITIES: SOUTH (0.8%)
21,500 Houston Industries Inc.................................................................. 690,687
-----------
FINANCE COMPANIES (2.6%)
18,000 Associates First Capital Corp. (Class A)................................................ 762,750
10,000 Fannie Mae.............................................................................. 740,000
16,000 SLM Holding Corp........................................................................ 768,000
-----------
2,270,750
-----------
FINANCIAL SERVICES (0.1%)
967 Waddell & Reed Financial, Inc. (Class A)................................................ 22,906
4,163 Waddell & Reed Financial, Inc. (Class B)................................................ 96,790
-----------
119,696
-----------
FOOD DISTRIBUTORS (0.9%)
27,000 Supervalu, Inc.......................................................................... 756,000
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOME BUILDING (0.8%)
21,000 Fleetwood Enterprises, Inc.............................................................. $ 729,750
-----------
HOSPITAL/NURSING MANAGEMENT (0.4%)
22,600 LTC Properties, Inc..................................................................... 375,725
-----------
LIFE INSURANCE (1.2%)
2,084 Aegon N.V. (ARS) (Netherlands).......................................................... 254,769
10,000 Jefferson-Pilot Corp.................................................................... 750,000
-----------
1,004,769
-----------
MAJOR BANKS (0.8%)
23,000 KeyCorp................................................................................. 736,000
-----------
MAJOR CHEMICALS (2.4%)
7,500 Dow Chemical Co......................................................................... 682,031
26,500 Hercules, Inc........................................................................... 725,437
22,500 Rohm & Haas Co.......................................................................... 677,812
-----------
2,085,280
-----------
MAJOR PHARMACEUTICALS (0.8%)
13,000 Schering-Plough Corp.................................................................... 718,250
-----------
MAJOR U.S. TELECOMMUNICATIONS (3.3%)
10,000 AT&T Corp............................................................................... 752,500
12,300 Bell Atlantic Corp...................................................................... 698,794
10,500 GTE Corp................................................................................ 708,094
11,500 U.S. West, Inc.......................................................................... 743,187
-----------
2,902,575
-----------
MEAT/POULTRY/FISH (0.8%)
22,000 Hormel Foods Corp....................................................................... 720,500
-----------
MID - SIZED BANKS (1.8%)
34,000 First Security Corp..................................................................... 792,625
20,500 First Tennessee National Corp........................................................... 779,000
-----------
1,571,625
-----------
MOTOR VEHICLES (2.5%)
7,829 DaimlerChrysler AG (Germany)*........................................................... 752,073
12,700 Ford Motor Co........................................................................... 745,331
10,100 General Motors Corp..................................................................... 722,781
-----------
2,220,185
-----------
MULTI-LINE INSURANCE (0.8%)
8,800 Lincoln National Corp................................................................... 719,950
-----------
MULTI-SECTOR COMPANIES (0.8%)
21,000 Tenneco, Inc............................................................................ 715,313
-----------
NATURAL GAS DISTRIBUTION (0.8%)
13,000 Consolidated Natural Gas Co............................................................. 702,000
-----------
NEWSPAPERS (0.4%)
24,002 Hollinger International, Inc............................................................ 334,528
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL REFINERIES/MARKETING (0.8%)
14,500 Ashland, Inc............................................................................ $ 701,438
-----------
OTHER METALS/MINERALS (0.8%)
72,000 Cyprus Amax Minerals Co................................................................. 720,000
-----------
PAINTS/COATINGS (0.8%)
12,000 PPG Industries, Inc..................................................................... 699,000
-----------
REAL ESTATE INVESTMENT TRUST (5.9%)
12,700 Boston Properties, Inc.................................................................. 387,350
30,000 Equity One, Inc......................................................................... 271,875
23,750 Healthcare Realty Trust, Inc............................................................ 529,922
2,260 LTC Healthcare, Inc.*................................................................... 5,933
16,600 Meditrust Corp.......................................................................... 251,075
26,780 MeriStar Hospitality Corp............................................................... 497,104
79,047 Mid-Atlantic Realty Trust............................................................... 973,266
23,760 New Plan Excel Realty Trust............................................................. 527,175
15,000 Reckson Associates Realty Corp.......................................................... 332,813
74,200 Sunstone Hotel Investors, Inc........................................................... 700,263
19,500 Tanger Factory Outlet Centers, Inc...................................................... 413,156
12,000 TriNet Corporate Realty Trust, Inc...................................................... 321,000
-----------
5,210,932
-----------
RETAIL - SPECIALTY (0.8%)
24,500 Limited (The), Inc...................................................................... 713,563
-----------
SAVINGS & LOAN ASSOCIATIONS (2.6%)
29,500 TCF Financial Corp...................................................................... 713,531
27,500 Washington Federal, Inc................................................................. 735,625
20,500 Washington Mutual, Inc.................................................................. 782,844
-----------
2,232,000
-----------
SMALLER BANKS (0.9%)
12,000 Wilmington Trust Corp................................................................... 738,750
-----------
STEEL/IRON ORE (0.8%)
30,000 USX-U.S. Steel Group, Inc............................................................... 690,000
-----------
TOBACCO (1.6%)
12,500 Philip Morris Companies, Inc............................................................ 668,750
20,500 UST, Inc................................................................................ 714,938
-----------
1,383,688
-----------
UTILITIES - ELECTRIC (0.8%)
25,200 TECO Energy, Inc........................................................................ 710,325
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $38,442,308)........................................................... 40,540,734
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS (21.1%)
ACCIDENT & HEALTH INSURANCE (0.4%)
15,000 AmerUs Life Holdings, Inc. $2.21........................................................ $ 360,000
-----------
APPAREL (0.4%)
10,000 Warnaco Group, Inc. $3.00............................................................... 360,000
-----------
AUTO PARTS: O.E.M. (0.4%)
12,000 BTI Capital Trust $3.25 - 144A**........................................................ 270,756
3,700 Walbro Capital Trust $2.00.............................................................. 49,025
-----------
319,781
-----------
BANKING (0.7%)
19,500 WBK Strypes Trust $3.14................................................................. 615,469
-----------
BOOKS/MAGAZINES (0.7%)
25,000 Reader's Digest Association, Inc $1.93.................................................. 650,000
-----------
BROADCASTING (0.0%)
4,000 Triathlon Broadcasting Co. $0.95........................................................ 37,000
-----------
CELLULAR TELEPHONE (0.2%)
4,500 Qualcomm Financial Trust $2.88.......................................................... 193,783
-----------
COMPUTER SOFTWARE (0.9%)
8,000 Microsoft Corp. (Series A) $2.196....................................................... 782,000
-----------
CONSUMER SUNDRIES (0.7%)
12,000 Newell Financial Trust I $2.63.......................................................... 638,628
-----------
CONTAINERS/PACKAGING (1.2%)
20,000 Sealed Air Corp. (Series A) $2.00....................................................... 1,037,500
-----------
E.D.P. SERVICES (0.8%)
12,500 Unisys Corp. (Series A) $3.75........................................................... 734,375
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.8%)
28,000 Ingersoll-Rand Co. $1.69................................................................ 665,000
-----------
INVESTMENT BANKERS/
BROKERS/SERVICES (1.3%)
15,940 Merrill Lynch & Co., Inc. $2.39 (exchangeable into IMC Global, Inc. common stock)....... 378,575
10,000 Merrill Lynch & Co., Inc. $4.09 (exchangeable into SunAmerica, Inc. common stock)....... 745,000
-----------
1,123,575
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE (0.2%)
2,500 American Heritage Life Investment Corp. $4.25........................................... $ 166,562
-----------
MAJOR U.S. TELECOMMUNICATIONS (0.7%)
12,330 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda)............................ 645,784
-----------
MOVIES/ENTERTAINMENT (0.9%)
14,000 Premier Parks, Inc. $4.05............................................................... 829,500
-----------
NON - U.S. BANKS (0.8%)
25,200 National Australia Bank, Ltd. $1.97 (Australia) (Units)(++)............................. 702,450
-----------
OIL REFINERIES/MARKETING (0.8%)
50,000 Tesoro Petroleum Corp. $1.16............................................................ 675,000
-----------
OTHER CONSUMER SERVICES (0.8%)
20,000 Cendant Corp. $3.75..................................................................... 667,500
-----------
OTHER TELECOMMUNICATIONS (0.6%)
19,400 Metromedia International Group, Inc. $3.63.............................................. 514,100
-----------
PACKAGE GOODS/COSMETICS (1.2%)
13,000 Estee Lauder Co. $3.80.................................................................. 1,007,500
-----------
PROPERTY - CASUALTY INSURANCE (0.5%)
40,000 Philadelphia Consolidated Holding Co. $0.70............................................. 395,000
-----------
RAILROADS (0.8%)
15,000 Union Pacific Capital Trust $3.13 - 144A**.............................................. 692,340
-----------
REAL ESTATE INVESTMENT TRUST (2.0%)
13,700 Camden Property Trust (Series A) $2.25.................................................. 324,519
9,000 Equity Residential Properties Trust (Series E) $1.75.................................... 210,937
1,085 Equity Residential Properties Trust (Series J) $2.15.................................... 28,753
14,130 FelCor Lodging Trust, Inc. (Series A) $1.95............................................. 268,470
40,000 SL Green Realty Corp. $2.00............................................................. 930,000
-----------
1,762,679
-----------
SMALLER BANKS (1.0%)
30,000 CNB Capital Trust I $1.50............................................................... 841,875
-----------
SPECIALTY STEEL (0.5%)
35,000 USX Corp. $1.44 (exchangeable into RTI International Metals, Inc. common stock)......... 479,080
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (0.8%)
7,150 EchoStar Communications Corp. (Series C) $3.38.......................................... $ 664,950
-----------
UTILITIES (1.0%)
19,000 CalEnergy Capital Trust III $3.25....................................................... 917,947
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $19,801,870)........................................................... 18,479,378
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (27.5%)
CONVERTIBLE BONDS (9.0%)
ASSISTED LIVING SERVICES (0.9%)
$ 680 American Retirement Corp.
5.75% due 10/01/02............................................................ 571,200
280 Emeritus Corp. - 144A**
6.25% due 01/01/06............................................................ 185,105
-----------
756,305
-----------
AUTO PARTS: O.E.M. (0.3%)
350 MascoTech, Inc.
4.50% due 12/15/03............................................................ 286,562
-----------
BOOKS/MAGAZINES (0.1%)
70 Nelson (Thomas), Inc.
5.75% due 11/30/99............................................................ 69,912
-----------
CELLULAR TELEPHONE (0.2%)
400 U.S. Cellular Corp.
0.00% due 06/15/15............................................................ 164,180
-----------
DIVERSIFIED MANUFACTURING (0.2%)
175 Mark IV Industries, Inc.
4.75% due 11/01/04............................................................ 139,946
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.2%)
200 Thermo Fibertek, Inc. - 144A**
4.50% due 07/15/04............................................................ 170,688
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR U.S. TELECOMMUNICATIONS (2.5%)
$ 800 Bell Atlantic Financial Service - 144A** (exchangeable into Cable & Wireless
Communications common stock)
4.25% due 09/15/05............................................................ $ 834,632
1,300 Bell Atlantic Financial Service - 144A** (exchangeable into Telecom Corporation
of New Zealand common stock)
5.75% due 04/01/03............................................................ 1,341,912
-----------
2,176,544
-----------
MANAGED HEALTH CARE (0.7%)
800 Concentra Managed Care, Inc. - 144A**
4.50% due 03/15/03............................................................ 603,000
-----------
MEDICAL EQUIPMENT & SUPPLIES (0.2%)
300 ThermoTrex Corp.
3.25% due 11/01/07............................................................ 213,000
-----------
REAL ESTATE INVESTMENT TRUST (1.0%)
560 Capstar Hotel Corp.
4.75% due 10/15/04............................................................ 401,990
575 Healthcare Realty Trust
6.55% due 03/14/02............................................................ 517,141
-----------
919,131
-----------
RENTAL/LEASING COMPANIES (1.1%)
1,000 Financial Federal Corp. - 144A**
4.50% due 05/01/05............................................................ 998,750
-----------
SERVICES TO THE HEALTH INDUSTRY (0.2%)
150 Pharmaceutical Marketing Services, Inc. (Eurobond)
6.25% due 02/01/03............................................................ 146,345
-----------
SHOE MANUFACTURING (1.4%)
1,000 Genesco, Inc. - 144A**
5.50% due 04/15/05............................................................ 677,500
765 Nine West Group, Inc.
5.50% due 07/15/03............................................................ 600,464
-----------
1,277,964
-----------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $8,799,970).................................................... 7,922,327
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
NON-CONVERTIBLE BONDS (18.5%)
BOOKS/MAGAZINES (1.7%)
$ 800 Big Flower Press, Inc.
8.875% due 07/01/07........................................................... $ 816,000
600 Garden State Newspapers, Inc.
12.00% due 07/01/04........................................................... 654,000
-----------
1,470,000
-----------
BROADCASTING (1.2%)
1,000 Young Broadcasting Corp.
11.75% due 11/15/04........................................................... 1,070,000
-----------
BUILDING MATERIALS (0.6%)
500 USG Corp. (Series B)
9.25% due 09/15/01............................................................ 536,975
-----------
CABLE TELEVISION (2.9%)
2,400 Continental Cablevision, Inc.
11.00% due 06/01/07........................................................... 2,575,680
-----------
CELLULAR TELEPHONE (0.9%)
700 Sprint Spectrum L.P.
11.00% due 08/15/06........................................................... 808,500
-----------
CONTAINERS/PACKAGING (2.3%)
1,875 Huntsman Polymers Corp.
11.75% due 12/01/04........................................................... 1,971,094
-----------
DIVERSIFIED FINANCIAL SERVICES (3.2%)
2,600 Videotron Group Ltd. (Canada)
10.625% due 02/15/05.......................................................... 2,790,684
-----------
FOREST PRODUCTS (1.0%)
800 SD Warren Co. (Series B)
12.00% due 12/15/04........................................................... 872,000
-----------
MANAGED HEALTH CARE (0.8%)
700 Healthsouth Corp.
9.50% due 04/01/01............................................................ 717,500
-----------
SPECIALTY STEEL (2.9%)
1,900 AK Steel Corp.
10.75% due 04/01/04........................................................... 1,985,500
600 Ivaco, Inc. (Canada)
11.50% due 09/15/05........................................................... 582,000
-----------
2,567,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
TEXTILES (1.0%)
$ 862 Dan River, Inc.
10.125% due 12/15/03.......................................................... $ 892,170
-----------
TOTAL NON-CONVERTIBLE BONDS
(IDENTIFIED COST $16,762,378)................................................... 16,272,103
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $25,562,348)................................................... 24,194,430
-----------
SHORT-TERM INVESTMENTS (4.3%)
U.S. GOVERNMENT AGENCY (a) (1.7%)
1,500 Federal National Mortgage Assoc. 5.12% due 01/07/99 (AMORTIZED COST
$1,498,720)................................................................... 1,498,720
-----------
REPURCHASE AGREEMENT (2.6%)
$ 2,302 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,303,402)
(b) (IDENTIFIED COST $2,302,379).............................................. $ 2,302,379
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,801,099).................................................... 3,801,099
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $87,607,625) (c)................................................. 99.1 % 87,015,641
OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.9 753,493
------ ------------
NET ASSETS........................................................................ 100.0 % $ 87,769,134
------ ------------
------ ------------
</TABLE>
- ---------------------
ARS American Regulatory Share.
* 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.
(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 $2,324,090 U.S. Treasury Note 6.75% due 06/30/99 valued
at $2,348,427.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $5,865,468 and the
aggregate gross unrealized depreciation is $6,457,452, resulting in net
unrealized depreciation of $591,984.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.3%)
AEROSPACE (1.8%)
365,000 United Technologies Corp............................................................ $ 39,693,750
--------------
ALCOHOLIC BEVERAGES (1.8%)
615,000 Anheuser-Busch Companies, Inc....................................................... 40,359,375
--------------
ALUMINUM (1.7%)
510,000 Aluminum Co. of America............................................................. 38,026,875
--------------
AUTO PARTS: O.E.M. (1.7%)
675,000 TRW, Inc............................................................................ 37,926,562
--------------
AUTOMOTIVE AFTERMARKET (1.6%)
720,000 Goodyear Tire & Rubber Co........................................................... 36,315,000
--------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (3.5%)
850,000 Caterpillar, Inc.................................................................... 39,100,000
1,220,000 Deere & Co.......................................................................... 40,412,500
--------------
79,512,500
--------------
DEPARTMENT STORES (3.5%)
650,000 May Department Stores Co............................................................ 39,243,750
910,000 Sears, Roebuck & Co................................................................. 38,675,000
--------------
77,918,750
--------------
DIVERSIFIED MANUFACTURING (3.5%)
405,000 General Electric Co................................................................. 41,335,312
515,000 Minnesota Mining & Manufacturing Co................................................. 36,629,375
--------------
77,964,687
--------------
ELECTRONIC DATA PROCESSING (1.9%)
227,000 International Business Machines Corp................................................ 41,938,250
--------------
FINANCE COMPANIES (3.7%)
930,000 Associates First Capital Corp. (Class A)............................................ 39,408,750
1,090,000 Household International, Inc........................................................ 43,191,250
--------------
82,600,000
--------------
FOOD CHAINS (1.7%)
1,050,000 American Stores Co.................................................................. 38,784,375
--------------
FOREST PRODUCTS (1.7%)
768,000 Weyerhaeuser Co..................................................................... 39,024,000
--------------
INTEGRATED OIL COMPANIES (6.8%)
558,000 Atlantic Richfield Co............................................................... 36,409,500
530,000 Exxon Corp.......................................................................... 38,756,250
450,000 Mobil Corp.......................................................................... 39,206,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
820,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)....................................... $ 39,257,500
--------------
153,629,500
--------------
MAJOR BANKS (5.1%)
768,000 Bank One Corp....................................................................... 39,216,000
630,000 BankAmerica Corp.................................................................... 37,878,750
1,210,000 KeyCorp............................................................................. 38,720,000
--------------
115,814,750
--------------
MAJOR CHEMICALS (3.3%)
420,000 Dow Chemical Co..................................................................... 38,193,750
830,000 Eastman Chemical Co................................................................. 37,142,500
--------------
75,336,250
--------------
MAJOR PHARMACEUTICALS (5.7%)
820,000 Abbott Laboratories................................................................. 40,180,000
760,000 American Home Products Corp......................................................... 42,797,500
330,000 Bristol-Myers Squibb Co............................................................. 44,158,125
--------------
127,135,625
--------------
MAJOR U.S. TELECOMMUNICATIONS (3.6%)
695,000 Bell Atlantic Corp.................................................................. 39,484,687
638,000 U.S. West, Inc...................................................................... 41,230,750
--------------
80,715,437
--------------
MANAGED HEALTH CARE (1.7%)
485,000 Aetna Inc........................................................................... 38,133,125
--------------
METALS FABRICATIONS (1.7%)
2,050,000 Timken Co........................................................................... 38,693,750
--------------
MILITARY/GOV'T/TECHNICAL (1.7%)
730,000 Raytheon Co. (Class B).............................................................. 38,872,500
--------------
MOTOR VEHICLES (3.6%)
692,000 Ford Motor Co....................................................................... 40,611,750
550,000 General Motors Corp................................................................. 39,359,375
--------------
79,971,125
--------------
MULTI-SECTOR COMPANIES (1.8%)
1,165,000 Tenneco, Inc........................................................................ 39,682,813
--------------
NATURAL GAS (1.6%)
686,000 Consolidated Natural Gas Co......................................................... 37,044,000
--------------
OFFICE EQUIPMENT/SUPPLIES (1.8%)
630,000 Pitney Bowes, Inc................................................................... 41,619,375
--------------
OIL & GAS PRODUCTION (1.7%)
1,090,000 Burlington Resources, Inc........................................................... 39,035,625
--------------
OIL REFINERIES/MARKETING (1.6%)
750,000 Ashland, Inc........................................................................ 36,281,250
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL/GAS TRANSMISSION (1.8%)
1,185,000 El Paso Energy Corp................................................................. $ 41,252,813
--------------
OTHER METALS/MINERALS (1.6%)
700,000 Phelps Dodge Corp................................................................... 35,612,500
--------------
PACKAGE GOODS/COSMETICS (5.6%)
900,000 Gillette Co......................................................................... 43,481,250
780,000 Kimberly-Clark Corp................................................................. 42,510,000
445,000 Procter & Gamble Co................................................................. 40,634,063
--------------
126,625,313
--------------
PACKAGED FOODS (3.3%)
605,000 Quaker Oats Company (The)........................................................... 35,997,500
1,400,000 Sara Lee Corp....................................................................... 39,462,500
--------------
75,460,000
--------------
PAINTS/COATINGS (1.7%)
638,000 PPG Industries, Inc................................................................. 37,163,500
--------------
PAPER (1.8%)
890,000 International Paper Co.............................................................. 39,883,125
--------------
PHOTOGRAPHIC PRODUCTS (1.7%)
516,000 Eastman Kodak Co.................................................................... 37,152,000
--------------
RAILROADS (1.8%)
1,200,000 Burlington Northern Santa Fe Corp................................................... 40,500,000
--------------
RENTAL/LEASING COMPANIES (1.7%)
1,482,000 Ryder System, Inc................................................................... 38,532,000
--------------
SOFT DRINKS (1.8%)
1,000,000 PepsiCo, Inc........................................................................ 40,937,500
--------------
TELECOMMUNICATIONS (1.6%)
490,000 AT&T Corp........................................................................... 36,872,500
--------------
TOBACCO (1.7%)
700,000 Philip Morris Companies, Inc........................................................ 37,450,000
--------------
UTILITIES - ELECTRIC (3.4%)
625,000 FPL Group, Inc...................................................................... 38,515,625
960,000 Unicom Corp......................................................................... 37,020,000
--------------
75,535,625
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $1,893,499,775).................................................... 2,235,006,125
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.8%)
U.S. GOVERNMENT AGENCY
$ 18,200 Student Loan Marketing Assoc. 4.28% due 01/04/99 (AMORTIZED COST $18,193,509)....... $ 18,193,509
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,911,693,284) (a).................................................... 100.1 % 2,253,199,634
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......................................... (0.1) (3,272,855)
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 2,249,926,779
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $417,648,140 and the
aggregate gross unrealized depreciation is $76,141,790, resulting in net
unrealized appreciation of $341,506,350.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.7%)
ACCIDENT & HEALTH INSURANCE (2.6%)
60,000 AFLAC, Inc............................................................................. $ 2,640,000
18,000 UNUM Corp.............................................................................. 1,050,750
------------
3,690,750
------------
AEROSPACE (1.2%)
15,000 United Technologies Corp............................................................... 1,631,250
------------
BIOTECHNOLOGY (3.4%)
24,000 Amgen Inc.*............................................................................ 2,508,000
83,000 Chiron Corp.*.......................................................................... 2,168,375
------------
4,676,375
------------
BUILDING MATERIALS (2.1%)
48,500 Southdown, Inc......................................................................... 2,870,594
------------
CLOTHING/SHOE/ACCESSORY STORES (2.8%)
55,000 Abercrombie & Fitch Co. (Class A)*..................................................... 3,891,250
------------
COMPUTER COMMUNICATIONS (6.2%)
60,000 Ascend Communications, Inc.*........................................................... 3,945,000
50,000 Cisco Systems, Inc.*................................................................... 4,640,625
------------
8,585,625
------------
COMPUTER SOFTWARE (11.7%)
25,000 Citrix Systems, Inc.*.................................................................. 2,425,000
49,500 Compuware Corp.*....................................................................... 3,864,094
22,000 Legato Systems, Inc.*.................................................................. 1,449,250
16,000 Microsoft Corp.*....................................................................... 2,217,000
70,000 Network Associates, Inc.*.............................................................. 4,641,875
30,000 Synopsys, Inc.*........................................................................ 1,623,750
------------
16,220,969
------------
COMPUTER SOFTWARE & SERVICES (3.0%)
42,000 Check Point Software Technologies Ltd. (Israel)*....................................... 1,916,250
28,000 CSG Systems International, Inc.*....................................................... 2,205,000
------------
4,121,250
------------
CONTRACT DRILLING (1.0%)
220,000 Global Industries, Ltd.*............................................................... 1,347,500
------------
DIVERSIFIED COMMERCIAL SERVICES (0.7%)
25,000 HA-LO Industries, Inc.*................................................................ 940,625
------------
DIVERSIFIED FINANCIAL SERVICES (4.0%)
33,000 FINOVA Group, Inc...................................................................... 1,779,937
50,000 Providian Financial Corp............................................................... 3,750,000
------------
5,529,937
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED MANUFACTURING (5.0%)
35,000 General Electric Co.................................................................... $ 3,572,187
45,000 Tyco International Ltd................................................................. 3,394,687
------------
6,966,874
------------
DRUG STORE CHAINS (2.1%)
45,000 Express Scripts, Inc. (Class A)*....................................................... 2,975,625
------------
E.D.P. PERIPHERALS (0.9%)
15,000 EMC Corp.*............................................................................. 1,275,000
------------
ELECTRIC - UTILITIES (3.8%)
110,000 AES Corp. (The)*....................................................................... 5,211,250
------------
ELECTRICAL PRODUCTS (0.7%)
20,000 American Power Conversion Corp.*....................................................... 967,500
------------
ELECTRONIC DATA PROCESSING (6.3%)
70,000 Dell Computer Corp.*................................................................... 5,123,125
45,000 Gemstar International Group Ltd. (Virgin Islands)*..................................... 2,573,437
28,000 Microchip Technology, Inc.*............................................................ 1,032,500
------------
8,729,062
------------
ELECTRONIC PRODUCTION EQUIPMENT (2.5%)
16,000 Jabil Circuit, Inc.*................................................................... 1,194,000
25,000 Solectron Corp.*....................................................................... 2,323,437
------------
3,517,437
------------
FINANCE COMPANIES (2.5%)
30,000 Capital One Financial Corp............................................................. 3,450,000
------------
FOOD CHAINS (5.2%)
60,000 Fred Meyer, Inc.*...................................................................... 3,615,000
59,300 Safeway Inc.*.......................................................................... 3,613,594
------------
7,228,594
------------
GENERIC DRUGS (2.5%)
55,000 Watson Pharmaceuticals, Inc.*.......................................................... 3,458,125
------------
HOME BUILDING (0.7%)
35,000 Kaufman & Broad Home Corp.............................................................. 1,006,250
------------
LIFE INSURANCE (1.2%)
20,000 SunAmerica Inc......................................................................... 1,622,500
------------
MAJOR PHARMACEUTICALS (1.3%)
25,000 Warner-Lambert Co...................................................................... 1,879,688
------------
MAJOR U.S. TELECOMMUNICATIONS (2.1%)
40,500 MCI WorldCom, Inc.*.................................................................... 2,905,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDIA CONGLOMERATES (3.1%)
80,000 Clear Channel Communications, Inc.*.................................................... $ 4,360,000
------------
MEDICAL/NURSING SERVICES (2.9%)
135,000 Total Renal Care Holdings, Inc.*....................................................... 3,990,938
------------
MID-SIZED BANKS (1.7%)
25,000 Firstar Corp........................................................................... 2,331,250
------------
MULTI-LINE INSURANCE (2.6%)
75,000 American Bankers Insurance Group, Inc.................................................. 3,611,836
------------
OFFICE EQUIPMENT/SUPPLIES (2.6%)
35,500 Lexmark International Group, Inc. (Class A)*........................................... 3,567,750
------------
OTHER PHARMACEUTICALS (3.0%)
70,000 Medicis Pharmaceutical Corp. (Class A)*................................................ 4,173,750
------------
OTHER SPECIALTY STORES (1.6%)
50,000 Staples, Inc.*......................................................................... 2,184,375
------------
RESTAURANTS (3.2%)
33,000 CKE Restaurants, Inc................................................................... 971,438
50,000 Foodmaker, Inc.*....................................................................... 1,103,125
27,500 Outback Steakhouse, Inc.*.............................................................. 1,093,125
28,000 Papa John's International, Inc......................................................... 1,232,000
------------
4,399,688
------------
TOBACCO (1.5%)
38,000 Philip Morris Companies, Inc........................................................... 2,033,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $106,861,589)......................................................... 135,352,492
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.6%)
REPURCHASE AGREEMENT
$ 2,279 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,280,145) (a)
(IDENTIFIED COST $2,279,132)......................................................... $ 2,279,132
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $109,140,721) (b)........................................................ 99.3 % 137,631,624
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.7 971,486
------ -------------
NET ASSETS................................................................................ 100.0 % $ 138,603,110
------ -------------
------ -------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) Collateralized by $2,300,630 U.S. Treasury Note 6.75% due 06/30/99 valued
at $2,324,715.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $29,231,279 and the
aggregate gross unrealized depreciation is $740,376, resulting in net
unrealized appreciation of $28,490,903.
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (97.5%)
AUSTRALIA (2.5%)
BANKING
410,000 Australia & New Zealand Banking Group Ltd............................................. $ 2,677,636
------------
BUILDING MATERIALS
1,150,000 Pioneer International Ltd............................................................. 2,426,126
------------
CONTAINERS/PACKAGING
600,000 Amcor Ltd............................................................................. 2,558,394
------------
OIL & GAS PRODUCTION
820,000 Santos Ltd............................................................................ 2,196,263
------------
PRECIOUS METALS
2,640,000 Normandy Mining Ltd................................................................... 2,437,684
------------
TOTAL AUSTRALIA....................................................................... 12,296,103
------------
CANADA (2.5%)
ALUMINUM
90,000 Alcan Aluminium Ltd................................................................... 2,440,379
------------
BANKING
80,000 Toronto-Dominion Bank................................................................. 2,812,153
------------
CANADIAN OIL & GAS
149,000 Imperial Oil Ltd...................................................................... 2,390,036
------------
MULTI-SECTOR COMPANIES
143,600 EdperBrascan Corp. (Class A).......................................................... 1,998,484
------------
OIL/GAS TRANSMISSION
57,700 Enbridge Inc.......................................................................... 2,657,857
------------
TOTAL CANADA.......................................................................... 12,298,909
------------
FRANCE (6.1%)
AUTO PARTS: O.E.M.
65,000 Compagnie Generale des Etablissements Michelin (B Shares)............................. 2,599,442
------------
BANKING
18,000 Societe Generale (Series A)........................................................... 2,914,810
------------
BUILDING MATERIALS
28,000 Lafarge S.A........................................................................... 2,660,368
------------
CONTAINERS/PACKAGING
55,000 Compagnie Generale d'Industrie et de Participations................................... 3,031,116
------------
DIVERSIFIED MANUFACTURING
18,500 Compagnie de Saint-Gobain............................................................. 2,611,788
------------
ELECTRICAL PRODUCTS
22,000 Alcatel............................................................................... 2,692,576
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FARMING/SEEDS/MILLING
15,000 Eridania Beghin-Say S.A............................................................... $ 2,595,416
------------
INTEGRATED OIL COMPANIES
19,500 Elf Aquitaine S.A..................................................................... 2,254,013
------------
MULTI-SECTOR COMPANIES
33,000 Compagnie Financiere de Paribas....................................................... 2,867,948
4,725 Societe Eurafrance S.A................................................................ 3,128,187
------------
5,996,135
------------
OIL REFINERIES/MARKETING
22,000 Total S.A. (B Shares)................................................................. 2,228,067
------------
TOTAL FRANCE.......................................................................... 29,583,731
------------
GERMANY (5.5%)
APPAREL
1,400 Hugo Boss AG (Pref.).................................................................. 2,691,014
------------
BANKING
80,000 Commerzbank AG........................................................................ 2,532,436
------------
DIVERSIFIED MANUFACTURING
9,000 MAN AG................................................................................ 2,648,967
------------
ELECTRICAL PRODUCTS
37,000 Siemens AG............................................................................ 2,389,176
------------
ENGINEERING & CONSTRUCTION
110,000 Bilfinger & Berger Bau AG............................................................. 2,808,145
------------
MAJOR CHEMICALS
65,000 BASF AG............................................................................... 2,483,181
65,000 Bayer AG.............................................................................. 2,715,492
------------
5,198,673
------------
MULTI-SECTOR COMPANIES
50,000 RWE AG................................................................................ 2,740,570
15,000 Thyssen AG............................................................................ 2,785,019
45,000 VEBA AG............................................................................... 2,694,918
------------
8,220,507
------------
TOTAL GERMANY......................................................................... 26,488,918
------------
HONG KONG (2.4%)
AIRLINES
500,000 Swire Pacific Ltd. (Class A).......................................................... 2,239,692
------------
REAL ESTATE
350,000 Cheung Kong (Holdings) Ltd............................................................ 2,518,847
500,000 Henderson Land Development Co., Ltd................................................... 2,588,232
------------
5,107,079
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
1,200,000 Hong Kong Telecommunications Ltd...................................................... $ 2,098,986
------------
UTILITIES
650,000 Hong Kong Electric Holdings Ltd....................................................... 1,971,833
------------
TOTAL HONG KONG....................................................................... 11,417,590
------------
ITALY (2.4%)
BANKING
175,000 Istituto Bancario San Paolo di Torino SpA............................................. 3,094,344
------------
MULTI-SECTOR COMPANIES
2,000,000 Montedison SpA........................................................................ 2,658,351
------------
OIL & GAS PRODUCTION
475,000 Ente Nazionale Idrocarburi SpA........................................................ 3,106,455
------------
TELECOMMUNICATIONS
450,000 Telecom Italia SpA.................................................................... 2,833,959
------------
TOTAL ITALY........................................................................... 11,693,109
------------
JAPAN (18.8%)
AIR FREIGHT/DELIVERY SERVICES
380,000 Yamato Transport Co., Ltd............................................................. 5,303,887
------------
ALCOHOLIC BEVERAGES
425,000 Kirin Brewery Co., Ltd................................................................ 5,406,360
------------
CONSUMER ELECTRONICS/APPLIANCES
563,000 Sharp Corp............................................................................ 5,067,995
65,000 Sony Corp............................................................................. 4,725,707
------------
9,793,702
------------
DIVERSIFIED ELECTRONIC PRODUCTS
804,000 Hitachi, Ltd.......................................................................... 4,971,731
100,000 Kyocera Corp.......................................................................... 5,273,852
280,000 Matsushita Electric Industrial Co., Ltd............................................... 4,944,523
575,000 NEC Corp.............................................................................. 5,282,685
------------
20,472,791
------------
ELECTRICAL PRODUCTS
519,000 Matsushita Electric Works, Ltd........................................................ 5,295,451
------------
ELECTRONIC COMPONENTS
60,000 TDK Corp.............................................................................. 5,475,265
------------
HOME BUILDING
470,000 Sekisui House Ltd..................................................................... 4,961,572
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL MACHINERY/COMPONENTS
1,150,000 Mitsubishi Heavy Industries Ltd....................................................... $ 4,469,965
------------
MAJOR PHARMACEUTICALS
137,000 Takeda Chemical Industries............................................................ 5,264,576
------------
MOTOR VEHICLES
135,000 Honda Motor Co........................................................................ 4,424,470
187,000 Toyota Motor Corp..................................................................... 5,071,466
------------
9,495,936
------------
OTHER PHARMACEUTICALS
180,000 Taisho Pharmaceutical Co., Ltd........................................................ 4,945,230
------------
RECREATIONAL PRODUCTS/TOYS
50,300 Nintendo Co., Ltd..................................................................... 4,865,592
------------
TOBACCO
510 Japan Tobacco, Inc.................................................................... 5,090,989
------------
TOTAL JAPAN........................................................................... 90,841,316
------------
NETHERLANDS (3.3%)
AIRLINES
85,000 KLM Royal Dutch Air Lines NV.......................................................... 2,568,768
------------
BANKING
130,000 ABN-AMRO Holding NV................................................................... 2,732,110
------------
DIVERSIFIED ELECTRONIC PRODUCTS
40,000 Koninklijke (Royal) Philips Electronics NV............................................ 2,681,564
------------
SPECIALTY CHEMICALS
25,000 DSM NV................................................................................ 2,374,302
------------
STEEL/IRON ORE
90,000 Koninklijke Hoogovens NV.............................................................. 2,490,024
------------
TELECOMMUNICATIONS
60,000 KPN NV................................................................................ 3,000,798
------------
TOTAL NETHERLANDS..................................................................... 15,847,566
------------
SPAIN (1.7%)
BANKING
35,000 Banco Popular Espanol S.A............................................................. 2,638,997
------------
OIL REFINERIES/MARKETING
50,000 Repsol S.A............................................................................ 2,667,183
------------
UTILITIES
100,000 Endesa S.A............................................................................ 2,649,567
------------
TOTAL SPAIN........................................................................... 7,955,747
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWEDEN (3.0%)
BANKING
414,000 Nordbanken Holding AB................................................................. $ 2,656,302
------------
BUILDING MATERIALS
80,800 Skanska AB (B Shares)................................................................. 2,243,198
------------
CONSUMER ELECTRONICS/APPLIANCES
155,000 Electrolux AB (Series B).............................................................. 2,667,962
------------
MOTOR VEHICLES
97,000 Volvo AB (B Shares)................................................................... 2,226,171
------------
PAPER
107,000 Svenska Cellulosa AB.................................................................. 2,336,850
------------
REAL ESTATE
52,700 Drott AB (B Shares)*.................................................................. 484,441
------------
TOOLS/HARDWARE
120,000 Sandvik AB (B Shares)................................................................. 2,072,922
------------
TOTAL SWEDEN.......................................................................... 14,687,846
------------
SWITZERLAND (5.0%)
BANKING
13,000 UBS AG (Registered)................................................................... 3,994,175
------------
INSURANCE
1,500 Schweizerische Rueckversicherungs-Gesellschaft........................................ 3,910,812
------------
MAJOR PHARMACEUTICALS
2,100 Novartis AG - Bearer.................................................................. 4,128,140
------------
PACKAGED FOODS
1,900 Nestle S.A............................................................................ 4,136,149
------------
TELECOMMUNICATIONS
9,500 Swisscom AG*.......................................................................... 3,977,066
------------
TOBACCO
2,850 Compagnie Financiere Richemont AG (Series A).......................................... 4,029,632
------------
TOTAL SWITZERLAND..................................................................... 24,175,974
------------
UNITED KINGDOM (10.7%)
AIRLINES
500,000 British Airways PLC................................................................... 3,355,267
------------
ALCOHOLIC BEVERAGES
241,615 Bass PLC.............................................................................. 3,500,790
------------
BANKING
175,000 National Westminster Bank PLC......................................................... 3,358,579
220,000 Royal Bank of Scotland Group PLC...................................................... 3,497,261
------------
6,855,840
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CLOTHING/SHOE/ACCESSORY STORES
425,000 Next PLC.............................................................................. $ 3,476,562
------------
ENVIRONMENTAL SERVICES
1,475,000 Cookson Group PLC..................................................................... 3,199,613
------------
MEDIA CONGLOMERATES
850,000 Rank Group PLC........................................................................ 3,258,397
------------
MULTI-SECTOR COMPANIES
435,000 Hanson PLC............................................................................ 3,437,711
------------
OTHER METALS/MINERALS
260,000 Rio Tinto PLC......................................................................... 3,009,433
------------
PAPER
1,750,000 Arjo Wiggins Appleton PLC............................................................. 3,274,542
------------
STEEL/IRON ORE
1,950,000 British Steel PLC..................................................................... 2,873,814
------------
TOBACCO
350,000 British American Tobacco PLC.......................................................... 3,063,001
------------
UTILITIES
400,000 National Grid Group PLC............................................................... 3,177,672
375,000 National Power PLC.................................................................... 3,216,586
------------
6,394,258
------------
WATER SUPPLY
230,000 Hyder PLC............................................................................. 2,875,470
121,500 Hyder PLC (Pref.)*.................................................................... 238,915
185,000 Severn Trent PLC...................................................................... 3,133,874
------------
6,248,259
------------
TOTAL UNITED KINGDOM.................................................................. 51,947,487
------------
UNITED STATES (33.6%)
AEROSPACE
84,000 Northrop Grumman Corp................................................................. 6,142,500
------------
ALUMINUM
89,000 Aluminum Co. of America............................................................... 6,636,062
------------
AUTOMOTIVE AFTERMARKET
124,000 Goodyear Tire & Rubber Co............................................................. 6,254,250
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS
205,000 Deere & Co............................................................................ 6,790,625
------------
CONTAINERS/PACKAGING
215,000 Crown Cork & Seal Co., Inc............................................................ 6,624,687
------------
DISCOUNT CHAINS
130,000 Dayton-Hudson Corp.................................................................... 7,052,500
------------
DIVERSIFIED MANUFACTURING
87,000 Minnesota Mining & Manufacturing Co................................................... 6,187,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC UTILITIES: EAST
141,000 GPU, Inc.............................................................................. $ 6,230,437
------------
ELECTRONIC DATA PROCESSING
37,000 International Business Machines Corp.................................................. 6,835,750
------------
ENGINEERING & CONSTRUCTION
152,000 Fluor Corp............................................................................ 6,469,500
------------
FINANCE COMPANIES
162,000 Associates First Capital Corp. (Class A).............................................. 6,864,750
------------
FOOD CHAINS
104,000 Albertson's, Inc...................................................................... 6,623,500
------------
INTEGRATED OIL COMPANIES
78,000 Chevron Corp.......................................................................... 6,469,125
------------
MAJOR BANKS
110,000 BankAmerica Corp...................................................................... 6,613,750
205,000 KeyCorp............................................................................... 6,560,000
------------
13,173,750
------------
MAJOR CHEMICALS
71,000 Dow Chemical Co....................................................................... 6,456,563
------------
MAJOR PHARMACEUTICALS
51,000 Bristol-Myers Squibb Co............................................................... 6,824,438
------------
MOTOR VEHICLES
115,000 Ford Motor Co......................................................................... 6,749,063
------------
MULTI-SECTOR COMPANIES
188,900 Tenneco, Inc.......................................................................... 6,434,406
------------
NATURAL GAS
120,000 Consolidated Natural Gas Co........................................................... 6,480,000
------------
OIL REFINERIES/MARKETING
130,000 Ashland, Inc.......................................................................... 6,288,750
------------
OTHER METALS/MINERALS
115,000 Phelps Dodge Corp..................................................................... 5,850,625
------------
PAPER
150,000 International Paper Co................................................................ 6,721,875
------------
PHOTOGRAPHIC PRODUCTS
87,000 Eastman Kodak Co...................................................................... 6,264,000
------------
TOBACCO
120,000 Philip Morris Companies, Inc.......................................................... 6,420,000
------------
TOTAL UNITED STATES................................................................... 162,845,031
------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $427,460,315)........................................................ 472,079,327
------------
</TABLE>
<TABLE>
<C> <S> <C>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.1%)
U.S. GOVERNMENT AGENCY
$ 10,000 Student Loan Marketing Assoc. 4.28% due 01/04/99 (AMORTIZED COST $9,996,433)... $ 9,996,433
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $437,456,748) (b)........................................................ 99.6 % 482,075,760
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.4 2,151,804
------ -------------
NET ASSETS................................................................................ 100.0 % $ 484,227,564
------ -------------
------ -------------
</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 $72,418,201 and the
aggregate gross unrealized depreciation is $27,799,189, resulting in net
unrealized appreciation of $44,619,012.
FORWARD FOREIGN CURRENCY CONTRACT OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
CONTRACT TO IN DELIVERY UNREALIZED
RECEIVE EXCHANGE FOR DATE APPRECIATION
- ------------------------------------------------------------
<S> <C> <C> <C>
$ 494,797 GBP 295,348 01/04/99 $ 5,730
------
------
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT
OF
NET
INDUSTRY VALUE ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace................................................... $ 6,142,500 1.3%
Air Freight/Delivery Services............................... 5,303,887 1.1
Airlines.................................................... 8,163,727 1.7
Alcoholic Beverages......................................... 8,907,150 1.8
Aluminum.................................................... 9,076,441 1.9
Apparel..................................................... 2,691,014 0.6
Auto Parts: O.E.M........................................... 2,599,442 0.5
Automotive Aftermarket...................................... 6,254,250 1.3
Banking..................................................... 32,908,803 6.8
Building Materials.......................................... 7,329,692 1.5
Canadian Oil & Gas.......................................... 2,390,036 0.5
Clothing/Shoe/Accessory Stores.............................. 3,476,562 0.7
Construction/Agricultural Equipment/Trucks.................. 6,790,625 1.4
Consumer Electronics/Appliances............................. 12,461,664 2.6
Containers/Packaging........................................ 12,214,197 2.5
Discount Chains............................................. 7,052,500 1.5
Diversified Electronic Products............................. 23,154,355 4.8
Diversified Manufacturing................................... 11,448,630 2.4
Electric Utilities: East.................................... 6,230,437 1.3
Electrical Products......................................... 10,377,203 2.1
Electronic Components....................................... 5,475,265 1.1
Electronic Data Processing.................................. 6,835,750 1.4
Engineering & Construction.................................. 9,277,645 1.9
Environmental Services...................................... 3,199,613 0.7
Farming/Seeds/Milling....................................... 2,595,416 0.5
Finance Companies........................................... 6,864,750 1.4
Food Chains................................................. 6,623,500 1.4
Home Building............................................... 4,961,572 1.0
Industrial Machinery/Components............................. 4,469,965 0.9
Insurance................................................... 3,910,812 0.8
Integrated Oil Companies.................................... 8,723,138 1.8
<CAPTION>
PERCENT
OF
NET
INDUSTRY VALUE ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Major Banks................................................. $ 13,173,750 2.7%
Major Chemicals............................................. 11,655,236 2.4
Major Pharmaceuticals....................................... 16,217,154 3.4
Media Conglomerates......................................... 3,258,397 0.7
Motor Vehicles.............................................. 18,471,170 3.8
Multi-Sector Companies...................................... 28,745,594 5.9
Natural Gas................................................. 6,480,000 1.3
Oil & Gas Production........................................ 5,302,718 1.1
Oil Refineries/Marketing.................................... 11,184,000 2.3
Oil/Gas Transmission........................................ 2,657,857 0.6
Other Metals/Minerals....................................... 8,860,058 1.8
Other Pharmaceuticals....................................... 4,945,230 1.0
Packaged Foods.............................................. 4,136,149 0.9
Paper....................................................... 12,333,267 2.5
Photographic Products....................................... 6,264,000 1.3
Precious Metals............................................. 2,437,684 0.5
Real Estate................................................. 5,591,520 1.2
Recreational Products/Toys.................................. 4,865,592 1.0
Specialty Chemicals......................................... 2,374,302 0.5
Steel/Iron Ore.............................................. 5,363,838 1.1
Telecommunications.......................................... 11,910,809 2.5
Tobacco..................................................... 18,603,622 3.8
Tools/Hardware.............................................. 2,072,922 0.4
U.S. Government Agency...................................... 9,996,433 2.1
Utilities................................................... 11,015,658 2.3
Water Supply................................................ 6,248,259 1.3
------------- ---
$ 482,075,760 99.6%
------------- ---
------------- ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT
OF
NET
TYPE OF INVESTMENT VALUE ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks............................................... $ 469,149,398 96.9%
Preferred Stocks............................................ 2,929,929 0.6
Short-Term Investment....................................... 9,996,433 2.1
------------- ---
$ 482,075,760 99.6%
------------- ---
------------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED
STOCKS AND RIGHTS (92.3%)
DENMARK (1.5%)
MAJOR PHARMACEUTICALS
33,950 Novo-Nordisk AS (Series B)............................................................ $ 4,464,308
------------
TELECOMMUNICATIONS
25,600 Tele Danmark AS....................................................................... 3,442,455
------------
TOTAL DENMARK......................................................................... 7,906,763
------------
FINLAND (2.6%)
ELECTRONICS
108,000 Nokia Oyj (A Shares).................................................................. 13,138,428
------------
FRANCE (12.3%)
BANKING
88,605 Banque Nationale de Paris............................................................. 7,296,155
------------
BROADCASTING
38,000 Societe Television Francaise 1........................................................ 6,765,437
------------
CONSUMER SPECIALTIES
50,940 Societe BIC S.A....................................................................... 2,825,594
------------
ELECTRICAL PRODUCTS
55,480 Alcatel............................................................................... 6,790,187
------------
FOOD CHAINS
12,000 Carrefour S.A......................................................................... 9,058,994
45,250 Etablissements Economiques du Casino Guichard-Perrachon S.A........................... 4,712,277
------------
13,771,271
------------
HOTELS/RESORTS
22,930 Accor S.A............................................................................. 4,964,536
------------
INTEGRATED OIL COMPANIES
49,440 Elf Aquitaine S.A..................................................................... 5,714,789
------------
MULTI-LINE INSURANCE
71,500 AXA................................................................................... 10,362,875
------------
OTHER PHARMACEUTICALS
26,550 Sanofi S.A............................................................................ 4,370,605
------------
TOTAL FRANCE.......................................................................... 62,861,449
------------
GERMANY (10.6%)
APPAREL
1,490 Hugo Boss AG (Pref.).................................................................. 2,864,008
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKING
95,200 Bayerische Vereinsbank AG............................................................. $ 7,462,518
------------
DIVERSIFIED MANUFACTURING
81,000 Mannesmann AG......................................................................... 9,293,008
------------
MAJOR CHEMICALS
120,130 Hoechst AG............................................................................ 4,986,174
------------
MOTOR VEHICLES
5,100 Bayerische Motoren Werke (BMW) AG..................................................... 3,961,016
137,541 Volkswagen AG......................................................................... 10,988,079
------------
14,949,095
------------
MULTI-LINE INSURANCE
23,450 Allianz AG............................................................................ 8,606,409
------------
UTILITIES
97,000 VEBA AG............................................................................... 5,809,046
------------
TOTAL GERMANY......................................................................... 53,970,258
------------
ITALY (5.6%)
BANKING
2,100,000 Banca di Roma*........................................................................ 3,560,615
1,367,700 Unicredito Italiano SpA............................................................... 8,112,281
------------
11,672,896
------------
BROADCASTING
830,000 Mediaset SpA.......................................................................... 6,734,892
------------
TELECOMMUNICATIONS
1,203,500 Telecom Italia SpA.................................................................... 10,275,736
------------
TOTAL ITALY........................................................................... 28,683,524
------------
NETHERLANDS (11.8%)
BOOKS/MAGAZINES
200,000 VNU NV................................................................................ 7,533,919
------------
CONSUMER ELECTRONICS/APPLIANCES
115,235 Koninklijke (Royal) Philips Electronics NV............................................ 7,725,251
------------
DIVERSIFIED FINANCIAL SERVICES
155,089 ING Groep NV.......................................................................... 9,448,093
------------
E.D.P. SERVICES
100,000 Getronics NV.......................................................................... 4,948,125
------------
FOOD CHAINS
240,176 Koninklijke Ahold NV.................................................................. 8,868,430
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTEGRATED OIL COMPANIES
105,440 Royal Dutch Petroleum Co.............................................................. $ 5,245,352
------------
LIFE INSURANCE
89,537 Aegon NV.............................................................................. 10,985,492
------------
TELECOMMUNICATIONS
107,000 KPN NV................................................................................ 5,351,423
------------
TOTAL NETHERLANDS..................................................................... 60,106,085
------------
SPAIN (3.9%)
BANKING
418,849 Banco Bilbao Vizcaya S.A.............................................................. 6,567,113
61,842 Banco Popular Espanol S.A............................................................. 4,662,881
------------
11,229,994
------------
TELECOMMUNICATIONS
189,094 Telefonica S.A........................................................................ 8,408,027
189,094 Telefonica S.A (Rights)*.............................................................. 167,894
------------
8,575,921
------------
TOTAL SPAIN........................................................................... 19,805,915
------------
SWEDEN (9.2%)
BANKING
367,000 Nordbanken Holding AB................................................................. 2,354,741
------------
CLOTHING/SHOE/ACCESSORY STORES
62,080 Hennes & Mauritz AB (B Shares)........................................................ 5,070,882
------------
CONSUMER/BUSINESS SERVICES
624,000 Securitas AB (Series "B" Free)........................................................ 9,701,277
624,000 Securitas AB (Rights)*................................................................ --
------------
9,701,277
------------
ELECTRONICS
326,300 Ericsson (L.M.) Telephone Co. AB (Series "B" Free).................................... 7,770,485
------------
INDUSTRIAL MACHINERY/COMPONENTS
99,000 Assa Abloy AB (Series B).............................................................. 3,786,785
------------
LIFE INSURANCE
400,000 Skandia Forsakrings AB................................................................ 6,120,057
------------
MAJOR PHARMACEUTICALS
105,600 Astra AB (A Shares)................................................................... 2,156,432
260,167 Astra AB (B Shares)................................................................... 5,296,755
------------
7,453,187
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MOTOR VEHICLES
208,750 Volvo AB (B Shares)................................................................... $ 4,790,857
------------
TOTAL SWEDEN.......................................................................... 47,048,271
------------
SWITZERLAND (8.5%)
BANKING
20,130 UBS AG (Registered)................................................................... 6,184,827
------------
MAJOR PHARMACEUTICALS
4,720 Novartis AG (Registered).............................................................. 9,278,485
1,000 Novartis AG - Bearer.................................................................. 1,965,781
896 Roche Holdings AG..................................................................... 10,933,353
------------
22,177,619
------------
PACKAGED FOODS
4,882 Nestle S.A............................................................................ 10,627,725
------------
TOBACCO
3,300 Compagnie Financiere Richemont AG (Series A).......................................... 4,665,890
------------
TOTAL SWITZERLAND..................................................................... 43,656,061
------------
UNITED KINGDOM (26.3%)
AEROSPACE
405,492 British Aerospace PLC................................................................. 3,421,059
------------
ALCOHOLIC BEVERAGES
204,297 Diageo PLC............................................................................ 2,313,941
------------
AUTO PARTS: O.E.M.
414,838 BBA Group PLC......................................................................... 2,562,250
------------
BANKING
301,000 Abbey National PLC.................................................................... 6,414,741
287,900 Barclays PLC.......................................................................... 6,178,468
108,994 HSBC Holdings PLC..................................................................... 2,941,876
------------
15,535,085
------------
BOOKS/MAGAZINES
146,100 EMAP PLC.............................................................................. 2,782,160
195,000 Reed International PLC................................................................ 1,517,632
------------
4,299,792
------------
BUILDING MATERIALS
313,000 Blue Circle Industries PLC............................................................ 1,606,720
------------
CATALOG/SPECIALTY DISTRIBUTION
490,500 Great Universal Stores PLC............................................................ 5,145,407
------------
CELLULAR TELEPHONE
180,000 Vodafone Group PLC.................................................................... 2,909,085
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER ELECTRONICS/APPLIANCES
547,900 Kingfisher PLC........................................................................ $ 5,901,776
------------
DIVERSIFIED ELECTRONIC PRODUCTS
334,000 General Electric Co. PLC.............................................................. 3,000,408
------------
DIVERSIFIED FINANCIAL SERVICES
190,000 Lloyds TSB Group PLC.................................................................. 2,690,010
------------
E.D.P. SERVICES
385,816 SEMA Group PLC........................................................................ 3,775,738
------------
ENTERTAINMENT & LEISURE
442,000 Granada Group PLC..................................................................... 7,776,520
------------
FOOD CHAINS
247,000 Morrison (W.M.) Supermarkets PLC...................................................... 1,132,950
------------
INDUSTRIAL MACHINERY/COMPONENTS
340,607 Smiths Industries PLC................................................................. 4,836,395
------------
INTEGRATED OIL COMPANIES
619,253 British Petroleum Co. PLC............................................................. 9,203,154
------------
LIFE INSURANCE
245,200 Prudential Corp. PLC.................................................................. 3,684,692
------------
MAJOR PHARMACEUTICALS
319,100 Glaxo Wellcome PLC.................................................................... 10,927,264
647,644 SmithKline Beecham PLC................................................................ 9,008,443
------------
19,935,707
------------
MOVIES/ENTERTAINMENT
160,000 Flextech PLC*......................................................................... 1,616,158
------------
MULTI-LINE INSURANCE
327,271 Royal & Sun Alliance Insurance Group PLC.............................................. 2,659,512
------------
MULTI-SECTOR COMPANIES
379,635 Securicor PLC......................................................................... 3,168,334
415,000 Tomkins PLC........................................................................... 1,948,208
------------
5,116,542
------------
NATURAL GAS
885,941 BG PLC................................................................................ 5,563,710
------------
PACKAGE GOODS/COSMETICS
880,000 London International Group PLC........................................................ 1,806,918
------------
PACKAGED FOODS
277,000 Unilever PLC.......................................................................... 3,091,532
------------
TELECOMMUNICATIONS
720,000 British Telecommunications
PLC................................................................................. 10,795,807
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
167,000 Cable & Wireless PLC.................................................................. $ 2,043,596
589,182 TeleWest Communications PLC*.......................................................... 1,692,712
------------
14,532,115
------------
TOTAL UNITED KINGDOM.................................................................. 134,117,176
------------
TOTAL COMMON AND PREFERRED STOCKS AND RIGHTS
(IDENTIFIED COST $338,011,679)........................................................ 471,293,930
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (7.6%)
U.S. GOVERNMENT AGENCY
$ 38,600 Federal Home Loan Banks 4.30% due 01/04/99
(AMORTIZED COST $38,586,168)............... 38,586,168
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $376,597,847) (b)........................................................ 99.9 % 509,880,098
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 757,499
------ -------------
NET ASSETS................................................................................ 100.0 % $ 510,637,597
------ -------------
------ -------------
</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 $140,375,567 and the
aggregate gross unrealized depreciation is $7,093,316, resulting in net
unrealized appreciation of $133,282,251.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Aerospace......................................................................... $ 3,421,059 0.7 %
Alcoholic Beverages............................................................... 2,313,941 0.4
Apparel........................................................................... 2,864,008 0.6
Auto Parts: O.E.M................................................................. 2,562,250 0.5
Banking........................................................................... 61,736,216 12.1
Books/Magazines................................................................... 11,833,711 2.3
Broadcasting...................................................................... 13,500,329 2.6
Building Materials................................................................ 1,606,720 0.3
Catalog/Specialty Distribution.................................................... 5,145,407 1.0
Cellular Telephone................................................................ 2,909,085 0.6
Clothing/Shoe/Accessory Stores.................................................... 5,070,882 1.0
Consumer Electronics/Appliances................................................... 13,627,027 2.7
Consumer Specialties.............................................................. 2,825,595 0.6
Consumer/Business Services........................................................ 9,701,277 1.9
Diversified Electronic Products................................................... 3,000,408 0.6
Diversified Financial Services.................................................... 12,138,102 2.4
Diversified Manufacturing......................................................... 9,293,008 1.8
E.D.P. Services................................................................... 8,723,862 1.7
Electrical Products............................................................... 6,790,187 1.3
Electronics....................................................................... 20,908,914 4.1
Entertainment & Leisure........................................................... 7,776,520 1.5
Food Chains....................................................................... 23,772,651 4.6
Hotels/Resorts.................................................................... 4,964,536 1.0
Industrial Machinery/Components................................................... 8,623,181 1.7
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Integrated Oil Companies.......................................................... $ 20,163,295 3.9 %
Life Insurance.................................................................... 20,790,241 4.1
Major Chemicals................................................................... 4,986,174 1.0
Major Pharmaceuticals............................................................. 54,030,822 10.6
Motor Vehicles.................................................................... 19,739,952 3.9
Movies/Entertainment.............................................................. 1,616,159 0.3
Multi-Line Insurance.............................................................. 21,628,796 4.2
Multi-Sector Companies............................................................ 5,116,541 1.0
Natural Gas....................................................................... 5,563,710 1.1
Other Pharmaceuticals............................................................. 4,370,605 0.8
Package Goods/Cosmetics........................................................... 1,806,918 0.4
Packaged Foods.................................................................... 13,719,257 2.7
Telecommunications................................................................ 42,177,648 8.3
Tobacco........................................................................... 4,665,890 0.9
U.S. Government Agency............................................................ 38,586,168 7.6
Utilities......................................................................... 5,809,046 1.1
------------ ---
$509,880,098 99.9 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks..................................................................... $468,262,028 91.7 %
Preferred Stocks.................................................................. 2,864,008 0.6
Rights............................................................................ 167,894 --
Short-Term Investment............................................................. 38,586,168 7.6
------------ ---
$509,880,098 99.9 %
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, WARRANTS AND BONDS (95.3%)
AUSTRALIA (15.9%)
ALCOHOLIC BEVERAGES
269,500 Fosters Brewing Group Ltd........................................................ $ 728,413
-----------
BANKING
73,350 National Australia Bank Ltd...................................................... 1,103,397
147,800 Westpac Banking Corp., Ltd....................................................... 986,946
-----------
2,090,343
-----------
BOOKS/MAGAZINES
108,550 News Corp., Ltd. (The)........................................................... 715,558
-----------
CONSUMER/BUSINESS SERVICES
30,400 Brambles Industries, Ltd......................................................... 738,936
-----------
DIVERSIFIED FINANCIAL SERVICES
153,150 Colonial Ltd..................................................................... 524,447
-----------
ENERGY
339,400 Oil Search Ltd................................................................... 342,446
-----------
OTHER METALS/MINERALS
77,500 Rio Tinto Ltd.................................................................... 917,258
96,600 WMC Ltd.......................................................................... 290,629
-----------
1,207,887
-----------
REAL ESTATE INVESTMENT TRUST
44,100 Lend Lease Corp., Ltd............................................................ 593,277
-----------
RETAIL
107,850 Woolworth's Ltd.................................................................. 366,420
-----------
TELECOMMUNICATIONS
124,960 Cable & Wireless Optus Ltd.*..................................................... 262,097
175,200 Telstra Corp. Ltd................................................................ 817,438
-----------
1,079,535
-----------
TOTAL AUSTRALIA.................................................................. 8,387,262
-----------
CHINA (0.6%)
ENERGY
1,251,000 Yanzhou Coal Mining Co., Ltd..................................................... 209,938
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - ELECTRIC
331,000 Huaneng Power International, Inc. (Class H)*..................................... $ 117,503
-----------
TOTAL CHINA...................................................................... 327,441
-----------
HONG KONG (21.1%)
BROADCASTING
218,000 Television Broadcasts Ltd.++..................................................... 562,828
-----------
DIVERSIFIED ELECTRONIC PRODUCTS
195,600 Johnson Electric Holdings, Ltd................................................... 502,471
39,000 VTech Holdings Ltd.++............................................................ 170,165
-----------
672,636
-----------
DIVERSIFIED FINANCIAL SERVICES
63,400 HSBC Holdings PLC++.............................................................. 1,579,557
-----------
FINANCIAL SERVICES
133,100 Li & Fung Ltd.++................................................................. 275,767
-----------
FOOD CHAINS
289,000 Dairy Farm International Holdings Ltd............................................ 332,350
-----------
MULTI-SECTOR COMPANIES
306,100 Hutchison Whampoa, Ltd........................................................... 2,163,397
169,500 Swire Pacific Ltd. (Class A)++................................................... 759,256
-----------
2,922,653
-----------
REAL ESTATE
81,900 Cheung Kong (Holdings) Ltd....................................................... 589,410
128,000 New World Development Co., Ltd................................................... 322,206
218,000 Sun Hung Kai Properties Ltd.++................................................... 1,589,988
-----------
2,501,604
-----------
TELECOMMUNICATIONS
230,200 China Telecom Ltd.*.............................................................. 398,198
443,700 Hong Kong Telecommunications Ltd.++.............................................. 776,100
77,500 SmarTone Telecommunications Holdings Ltd.++...................................... 215,094
-----------
1,389,392
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES
148,500 CLP Holdings Ltd................................................................. $ 739,950
19,676 Hong Kong & China Gas Co., Ltd. (Warrants due 09/30/99)*......................... 1,295
50,100 Hong Kong Electric Holdings Ltd.................................................. 151,983
-----------
893,228
-----------
TOTAL HONG KONG.................................................................. 11,130,015
-----------
INDONESIA (0.0%)
MUTUAL FUNDS
500,000 Batavia Investment Fund Ltd.*.................................................... --
-----------
JAPAN (27.2%)
BUILDING PRODUCTS
27,000 Sanwa Shutter Corp............................................................... 117,827
JPY 10,000 K Sanwa Shutter Corp. 0.90% due 03/31/06 (Conv.)................................... 76,413
-----------
194,240
-----------
CONSUMER ELECTRONICS/APPLIANCES
5,000 Aiwa Co., Ltd.................................................................... 131,625
7,100 Sony Corp........................................................................ 516,193
-----------
647,818
-----------
CONSUMER SPECIALTIES
25,000 Casio Computers Co., Ltd......................................................... 184,187
-----------
DIVERSIFIED ELECTRONIC PRODUCTS
4,000 Kyocera Corp..................................................................... 210,954
26,000 Matsushita Electric Industrial Co., Ltd.......................................... 459,134
81,000 Toshiba Corp..................................................................... 481,564
-----------
1,151,652
-----------
E.D.P. PERIPHERALS
18,000 Mitsumi Electric Co., Ltd........................................................ 380,035
-----------
ELECTRICAL PRODUCTS
60,000 Furukawa Electric Co., Ltd. (The)................................................ 204,064
-----------
ELECTRONIC COMPONENTS
6,000 Murata Manufacturing Co., Ltd.................................................... 248,587
5,000 TDK Corp......................................................................... 456,272
-----------
704,859
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC DATA PROCESSING
37,000 Fujitsu Ltd...................................................................... $ 491,917
78,000 Hitachi Ltd...................................................................... 482,332
3,000 Rohm Co., Ltd.................................................................... 272,703
-----------
1,246,952
-----------
ELECTRONIC DISTRIBUTORS
4,000 Ryosan Co., Ltd.................................................................. 63,781
-----------
ELECTRONIC PRODUCTION EQUIPMENT
53,000 NEC Corp......................................................................... 486,926
3,000 Tokyo Electron Ltd............................................................... 113,693
-----------
600,619
-----------
ENGINEERING & CONSTRUCTION
10,000 Kyudenko Corp.................................................................... 67,491
-----------
FINANCE COMPANIES
14,000 Hitachi Credit Corp.............................................................. 310,424
-----------
HOME BUILDING
16,000 Sekisui House Ltd................................................................ 168,905
-----------
INDUSTRIAL MACHINERY/COMPONENTS
29,000 Amada Co., Ltd................................................................... 140,133
25,000 Daifuku Co., Ltd................................................................. 133,392
28,000 Daikin Industries, Ltd........................................................... 277,032
11,000 Fuji Machine Manufacturing Co., Ltd.............................................. 346,908
13,000 Minebea Co., Ltd................................................................. 148,604
JPY 17,000 K Minebea Co., Ltd. 0.80% due 03/31/03 (Conv.)..................................... 229,770
65,000 Mitsubishi Heavy Industries Ltd.................................................. 252,650
-----------
1,528,489
-----------
INDUSTRIAL SPECIALTIES
15,000 Fujitec Co., Ltd................................................................. 96,466
-----------
MOTOR VEHICLES
95,000 Nissan Motor Co., Ltd............................................................ 290,371
20,000 Suzuki Motor Corp................................................................ 236,749
14,000 Toyota Motor Corp................................................................ 379,682
-----------
906,802
-----------
OFFICE EQUIPMENT/SUPPLIES
21,000 Canon, Inc....................................................................... 448,012
JPY 8,000 K Canon, Inc. 1.00% due 12/20/02 (Conv.)........................................... 113,357
51,000 Ricoh Co., Ltd................................................................... 469,452
-----------
1,030,821
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS
6,000 Ono Pharmaceutical Co., Ltd...................................................... $ 187,103
20,000 Sankyo Co., Ltd.................................................................. 436,396
13,000 Yamanouchi Pharmaceutical Co., Ltd............................................... 418,021
-----------
1,041,520
-----------
PHOTOGRAPHIC PRODUCTS
13,000 Fuji Photo Film Co............................................................... 482,332
-----------
POLLUTION CONTROL EQUIPMENT
11,000 Kurita Water Industries Ltd...................................................... 161,113
-----------
PRINTING/FORMS
18,000 Dai Nippon Printing Co., Ltd..................................................... 286,537
-----------
REAL ESTATE
27,000 Mitsubishi Estate Co., Ltd....................................................... 241,617
-----------
RECREATIONAL PRODUCTS/TOYS
6,000 Nintendo Co., Ltd................................................................ 580,389
20,000 Yamaha Corp...................................................................... 206,714
-----------
787,103
-----------
SPECIALTY CHEMICALS
55,000 Daicel Chemical Industries, Ltd.................................................. 163,251
43,000 Kaneka Corp...................................................................... 321,740
76,000 Mitsubishi Chemical Corp......................................................... 159,788
16,000 NIFCO Inc........................................................................ 128,763
20,000 Sekisui Chemical Co., Ltd........................................................ 134,276
16,000 Shin-Etsu Polymer Co., Ltd....................................................... 83,392
-----------
991,210
-----------
TELECOMMUNICATIONS
72 Nippon Telegraph & Telephone Corp................................................ 554,629
70 NTT Data Corp.................................................................... 346,908
-----------
901,537
-----------
TOTAL JAPAN...................................................................... 14,380,574
-----------
MALAYSIA+ (3.5%)
BUILDING MATERIALS/DIY CHAINS
135,000 Lingkaran Trans Kota Holdings Berhad*............................................ 79,061
-----------
CASINO/GAMBLING
153,000 Berjaya Sports Toto Berhad....................................................... 133,558
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC COMPONENTS
45,000 Malaysian Pacific Industries Berhad.............................................. $ 43,094
-----------
ENGINEERING & CONSTRUCTION
114,999 Gamuda Berhad.................................................................... 90,644
16,666 Gamuda Berhad (Warrants due 12/29/01)*........................................... 2,424
-----------
93,068
-----------
FARMING/SEEDS/MILLING
367,000 IOI Corporated Berhad............................................................ 147,341
-----------
HOTELS/RESORTS
225,000 Resorts World Berhad............................................................. 181,492
-----------
MOTOR VEHICLES
105,680 Oriental Holdings Berhad......................................................... 113,854
-----------
MULTI-SECTOR COMPANIES
80,000 Malakoff Berhad.................................................................. 131,123
-----------
PROPERTY - CASUALTY INSURANCE
140,400 Malaysian Assurance Alliance Berhad.............................................. 100,840
-----------
SPECIALTY FOODS/CANDY
86,500 Kuala Lumpur Kepong Berhad....................................................... 103,545
-----------
TELECOMMUNICATIONS
194,000 Telekom Malaysia Berhad.......................................................... 357,274
-----------
TOBACCO
60,000 R.J. Reynolds Berhad............................................................. 47,514
-----------
UTILITIES
228,000 Tenaga Nasional Berhad........................................................... 327,514
-----------
TOTAL MALAYSIA................................................................... 1,859,278
-----------
SINGAPORE (8.1%)
AIRLINES
126,000 Singapore Airlines Ltd........................................................... 924,280
-----------
BANKING
52,520 Overseas Chinese Banking Corp., Ltd.............................................. 356,607
167,000 United Overseas Bank Ltd......................................................... 1,073,174
-----------
1,429,781
-----------
ELECTRONIC COMPONENTS
140,000 Venture Manufacturing Singapore Ltd.............................................. 534,708
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENGINEERING & CONSTRUCTION
452,471 Singapore Technologies Engineering Ltd........................................... $ 422,434
-----------
NEWSPAPERS
33,219 Singapore Press Holdings Ltd..................................................... 353,945
-----------
REAL ESTATE
147,000 City Developments Ltd............................................................ 637,193
-----------
TOTAL SINGAPORE.................................................................. 4,302,341
-----------
SOUTH KOREA (8.9%)
DIVERSIFIED ELECTRONIC PRODUCTS
1 LG Information & Communication Ltd............................................... 27
24,117 Samsung Electronics Co........................................................... 1,621,868
-----------
1,621,895
-----------
STEEL/IRON ORE
20,240 Pohang Iron & Steel Co., Ltd..................................................... 1,283,722
14,900 Pohang Iron & Steel Co., Ltd. (ADR).............................................. 251,438
-----------
1,535,160
-----------
UTILITIES
62,800 Korea Electric Power Corp........................................................ 1,559,533
-----------
TOTAL SOUTH KOREA................................................................ 4,716,588
-----------
TAIWAN (8.2%)
CLOTHING/SHOE/ACCESSORY STORES
$ 330 K Far Eastern Department Stores - 144A** 3.00% due 07/06/01 (Conv.)................ 298,650
-----------
COMPUTER/VIDEO CHAINS
$ 185 K Compal Electronics 1.00% due 11/21/03 (Conv.).................................... 438,135
-----------
COMPUTERS
9,000 Asustek Computer Inc.* (GDR)..................................................... 78,975
-----------
ELECTRONIC COMPONENTS
36,400 Yageo Corp. - 144A* ** (GDR)..................................................... 239,425
-----------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC DATA PROCESSING
41,250 Acer, Inc. (GDR)................................................................. $ 236,156
-----------
MAJOR CHEMICALS
$ 205 K Nan Ya Plastics Corp. 1.75% due 07/09/01 (Conv.)................................. 218,708
-----------
MARINE TRANSPORTATION
$ 304 K YangMing Marine Transportation - 144A** 2.00% due 10/06/01 (Conv.)............... 356,367
-----------
MUTUAL FUNDS
163 Taipei Fund*..................................................................... 1,445,321
-----------
SEMICONDUCTORS
50,750 Taiwan Semiconductor Manufacturing Co., Ltd.* (ADR).............................. 720,016
-----------
STEEL/IRON ORE
23,388 China Steel Corp. (GDR).......................................................... 285,334
-----------
TOTAL TAIWAN..................................................................... 4,317,087
-----------
THAILAND (1.8%)
BANKING
78,700 Bangkok Bank PCL................................................................. 163,053
-----------
MOVIES/ENTERTAINMENT
55,100 BEC World PCL.................................................................... 304,420
-----------
OIL & GAS PRODUCTION
25,500 PTT Exploration & Production Public Co., Ltd..................................... 180,331
-----------
TELECOMMUNICATIONS
27,000 Advanced Info Service PCL........................................................ 161,105
-----------
UTILITIES
58,700 Electricity Generating PCL....................................................... 159,722
-----------
TOTAL THAILAND................................................................... 968,631
-----------
TOTAL COMMON STOCKS, WARRANTS AND BONDS
(IDENTIFIED COST $48,457,776).................................................... 50,389,217
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (4.1%)
U.S. GOVERNMENT AGENCY
$ 2,150 Federal Farm Credit Bank 4.50% due 01/04/99
(AMORTIZED COST $2,149,194)....................................................... $ 2,149,194
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $50,606,970) (b).......................................................... 99.4 % 52,538,411
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.6 303,126
------ ------------
NET ASSETS................................................................................. 100.0 % $ 52,841,537
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Securities deemed illiquid. As of December 31, 1998, the Malaysian
Government prohibited the repatriation of proceeds on sales of securities
denominated in Malaysian ringgits for a one year period from the date of
sale. Effective February 15, 1999, the Malaysian Government replaced the
holding period with a graduated exit tax.
++ Some or all of these securities are segregated in connection with the open
forward foreign currency contract.
(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 $5,908,055 and the
aggregate gross unrealized depreciation is $3,976,614, resulting in net
unrealized appreciation of $1,931,441.
FORWARD FOREIGN CURRENCY CONTRACT OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
CONTRACT TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- ------------------------------------------------------------
<S> <C> <C> <C>
HKD 9,914,000 $ 1,221,869 06/10/1999 $ (54,154)
---------------
---------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
HKD Hong Kong Dollar.
JPY Japanese Yen.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Airlines........................................................................... $ 924,280 1.7 %
Alcoholic Beverages................................................................ 728,413 1.4
Banking............................................................................ 3,683,177 7.0
Books/Magazines.................................................................... 715,558 1.4
Broadcasting....................................................................... 562,828 1.1
Building Materials/Diy Chains...................................................... 79,061 0.1
Building Products.................................................................. 194,240 0.4
Casino/Gambling.................................................................... 133,558 0.3
Clothing/Shoe/Accessory Stores..................................................... 298,650 0.6
Computer/Video Chains.............................................................. 438,135 0.8
Computers.......................................................................... 78,975 0.1
Consumer Electronics/Appliances.................................................... 647,818 1.2
Consumer Specialties............................................................... 184,187 0.3
Consumer/Business Services......................................................... 738,936 1.4
Diversified Electronic Products.................................................... 3,446,183 6.5
Diversified Financial Services..................................................... 2,104,004 4.0
E.D.P. Peripherals................................................................. 380,035 0.7
Electrical Products................................................................ 204,064 0.4
Electronic Components.............................................................. 1,522,086 2.9
Electronic Data Processing......................................................... 1,483,108 2.8
Electronic Distributors............................................................ 63,781 0.1
Electronic Production Equipment.................................................... 600,619 1.1
Energy............................................................................. 552,384 1.0
Engineering & Construction......................................................... 582,993 1.1
Farming/Seeds/Milling.............................................................. 147,341 0.3
Finance Companies.................................................................. 310,424 0.6
Financial Services................................................................. 275,767 0.5
Food Chains........................................................................ 332,350 0.6
Home Building...................................................................... 168,905 0.3
Hotels/Resorts..................................................................... 181,492 0.3
Industrial Machinery/Components.................................................... 1,528,489 2.9
Industrial Specialties............................................................. 96,466 0.2
Major Chemicals.................................................................... 218,708 0.4
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marine Transportation.............................................................. $ 356,367 0.7 %
Motor Vehicles..................................................................... 1,020,656 1.9
Movies/Entertainment............................................................... 304,420 0.6
Multi-Sector Companies............................................................. 3,053,776 5.8
Mutual Funds....................................................................... 1,445,321 2.7
Newspapers......................................................................... 353,945 0.7
Office Equipment/Supplies.......................................................... 1,030,821 2.0
Oil & Gas Production............................................................... 180,331 0.3
Other Metals/Minerals.............................................................. 1,207,887 2.3
Pharmaceuticals.................................................................... 1,041,520 2.0
Photographic Products.............................................................. 482,332 0.9
Pollution Control Equipment........................................................ 161,113 0.3
Printing/Forms..................................................................... 286,537 0.5
Property - Casualty Insurance...................................................... 100,840 0.2
Real Estate........................................................................ 3,380,414 6.4
Real Estate Investment Trust....................................................... 593,277 1.1
Recreational Products/Toys......................................................... 787,103 1.5
Retail............................................................................. 366,420 0.7
Semiconductors..................................................................... 720,016 1.4
Specialty Chemicals................................................................ 991,210 1.9
Specialty Foods/Candy.............................................................. 103,545 0.2
Steel/Iron Ore..................................................................... 1,820,494 3.4
Telecommunications................................................................. 3,888,843 7.4
Tobacco............................................................................ 47,514 0.1
U.S. Government Agency............................................................. 2,149,194 4.1
Utilities.......................................................................... 2,939,997 5.6
Utilities - Electric............................................................... 117,503 0.2
----------- ---
$52,538,411 99.4 %
----------- ---
----------- ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks...................................................................... $48,654,098 92.1 %
Convertible Bonds.................................................................. 1,731,400 3.3
Short-Term Investment.............................................................. 2,149,194 4.0
Warrants........................................................................... 3,719 --
----------- ---
$52,538,411 99.4 %
----------- ---
----------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (92.9%)
ADVERTISING (1.2%)
7,900 Valassis Communications, Inc.*.......................................................... $ 407,837
-----------
BANKING (6.4%)
20,000 Bank of New York Co., Inc............................................................... 805,000
10,000 Chase Manhattan Corp. (The)............................................................. 680,625
10,000 First Union Corp........................................................................ 608,125
-----------
2,093,750
-----------
BIOTECHNOLOGY (4.4%)
10,000 Genset (ADR) (France)*.................................................................. 267,500
2,000 IDEC Pharmaceuticals Corp.*............................................................. 94,000
2,500 Immunex Corp.*.......................................................................... 313,125
2,000 MedImmune, Inc.*........................................................................ 198,750
10,000 PathoGenesis Corp.*..................................................................... 570,000
-----------
1,443,375
-----------
BROADCASTING (0.7%)
4,000 Clear Channel Communications, Inc.*..................................................... 218,000
-----------
CABLE TELEVISION (2.6%)
20,000 Tele-Communications TCI Ventures Group (Class A)*....................................... 471,250
6,000 Time Warner, Inc........................................................................ 372,375
-----------
843,625
-----------
COMPUTER HARDWARE (5.3%)
3,500 American Power Conversion Corp.*........................................................ 169,312
5,000 Dell Computer Corp.*.................................................................... 365,937
4,000 Flextronics International, Ltd.*........................................................ 342,000
3,000 International Business Machines Corp.................................................... 554,250
4,000 SCI Systems, Inc.*...................................................................... 231,000
1,000 Sun Microsystems, Inc.*................................................................. 85,562
-----------
1,748,061
-----------
COMPUTER SOFTWARE (2.8%)
3,000 Microsoft Corp.*........................................................................ 415,687
8,000 New Era of Networks, Inc.*.............................................................. 350,000
3,000 Wind River Systems, Inc.*............................................................... 140,625
-----------
906,312
-----------
COMPUTERS, SOFTWARE & SERVICES (0.9%)
3,000 Citrix Systems, Inc.*................................................................... 291,000
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.6%)
3,000 Maytag Corp............................................................................. 186,750
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SUNDRIES (4.0%)
15,000 Aurora Foods, Inc.*..................................................................... $ 297,187
5,000 Campbell Soup Co........................................................................ 275,000
15,000 ConAgra, Inc............................................................................ 472,500
5,000 Philip Morris Companies, Inc............................................................ 267,500
-----------
1,312,187
-----------
CONSUMER/BUSINESS SERVICES (1.3%)
2,500 Computer Sciences Corp.*................................................................ 161,094
7,100 Service Corp. International............................................................. 270,244
-----------
431,338
-----------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
3,500 General Electric Co..................................................................... 357,219
-----------
DIVERSIFIED MANUFACTURING (0.5%)
1,500 United Technologies Corp................................................................ 163,125
-----------
E.D.P. PERIPHERALS (1.5%)
9,000 Seagate Technology, Inc.*............................................................... 272,250
14,000 Western Digital Corp.*.................................................................. 210,875
-----------
483,125
-----------
ELECTRONIC COMPONENTS (0.8%)
4,000 Xilinx, Inc.*........................................................................... 260,250
-----------
ELECTRONIC PRODUCTION EQUIPMENT (4.0%)
10,000 Applied Materials, Inc.*................................................................ 426,875
6,000 ASM Lithography Holding NV* (Netherlands)............................................... 183,000
4,000 KLA-Tencor Corp.*....................................................................... 173,500
6,000 Novellus Systems, Inc.*................................................................. 296,250
5,000 Teradyne, Inc.*......................................................................... 211,875
-----------
1,291,500
-----------
ENERGY (2.4%)
8,000 Coflexip, S.A. (ADR) (France)........................................................... 258,000
10,000 Cooper Cameron Corp.*................................................................... 245,000
10,000 Halliburton Co.......................................................................... 296,250
-----------
799,250
-----------
FINANCIAL SERVICES (6.3%)
1,000 Capital One Financial Corp.............................................................. 115,000
4,000 Franklin Resources, Inc................................................................. 128,000
6,000 Lehman Brothers Holdings, Inc........................................................... 264,375
6,000 Merrill Lynch & Co., Inc................................................................ 400,500
1,000 Nationwide Financial Services, Inc. (Class A)........................................... 51,687
25,000 Newcourt Credit Group, Inc. (Canada).................................................... 873,437
3,000 Providian Financial Corp................................................................ 225,000
-----------
2,057,999
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD CHAINS (1.1%)
6,000 Safeway Inc.*........................................................................... $ 365,625
-----------
HEALTHCARE (3.8%)
11,250 Cardinal Health, Inc.................................................................... 853,594
10,000 MedQuist Inc.*.......................................................................... 395,000
-----------
1,248,594
-----------
INSURANCE (3.0%)
4,000 American General Corp................................................................... 312,000
2,000 American International Group, Inc....................................................... 193,250
8,000 Equitable Companies, Inc................................................................ 463,000
-----------
968,250
-----------
INTERNET SERVICES (4.5%)
4,000 At Home Corp. (Series A)*............................................................... 294,500
2,000 Inktomi Corp.*.......................................................................... 259,875
5,000 Intuit Inc.*............................................................................ 362,500
3,000 MindSpring Enterprises, Inc.*........................................................... 183,187
1,500 Yahoo! Inc.*............................................................................ 355,312
-----------
1,455,374
-----------
MAJOR PHARMACEUTICALS (5.4%)
6,000 Elan Corp. PLC (ADR)* (Ireland)......................................................... 417,375
2,000 Lilly (Eli) & Co........................................................................ 177,750
5,000 Pharmacia & Upjohn, Inc................................................................. 283,125
6,000 Schering-Plough Corp.................................................................... 331,500
3,000 Warner-Lambert Co....................................................................... 225,563
5,000 Watson Pharmaceuticals, Inc.*........................................................... 314,375
-----------
1,749,688
-----------
MEDIA CONGLOMERATES (1.1%)
5,000 Viacom Inc. (Class A)*.................................................................. 367,813
-----------
MEDICAL EQUIPMENT & SUPPLIES (1.9%)
5,000 Sofamor Danek Group, Inc.*.............................................................. 608,750
-----------
RETAIL (7.0%)
1,000 Abercrombie & Fitch Co. (Class A)*...................................................... 70,750
3,000 Ann Taylor Stores Corp.*................................................................ 118,313
5,000 Bed Bath & Beyond Inc.*................................................................. 170,313
9,000 Children's Place Retail Stores, Inc. (The)*............................................. 226,125
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,500 Gap, Inc. (The)......................................................................... $ 421,875
6,000 Home Depot, Inc. (The).................................................................. 367,125
7,000 Lowe's Companies, Inc................................................................... 358,313
4,500 TJX Companies, Inc...................................................................... 130,500
5,000 Wal-Mart Stores, Inc.................................................................... 407,188
-----------
2,270,502
-----------
SEMICONDUCTORS (7.9%)
3,000 Altera Corp.*........................................................................... 182,250
3,000 Applied Micro Circuits Corp.*........................................................... 101,625
5,000 Intel Corp.............................................................................. 592,500
2,000 Linear Technology Corp.................................................................. 179,000
4,000 Maxim Integrated Products, Inc.*........................................................ 174,500
2,000 Micrel, Inc.*........................................................................... 110,000
8,000 Micron Technology, Inc.*................................................................ 404,500
2,500 Motorola, Inc........................................................................... 152,656
7,000 Semtech Corp.*.......................................................................... 248,500
5,000 Texas Instruments, Inc.................................................................. 427,813
-----------
2,573,344
-----------
TELECOMMUNICATION EQUIPMENT (7.7%)
1,500 Broadcom Corp. (Class A)*............................................................... 180,563
10,000 Comverse Technology, Inc.*.............................................................. 709,375
10,000 Gemstar International Group Ltd.* (Virgin Islands)...................................... 571,875
5,000 Newbridge Networks Corp.* (Canada)...................................................... 151,875
3,000 PMC - Sierra, Inc.*..................................................................... 189,000
8,000 RF Micro Devices, Inc.*................................................................. 367,500
3,500 Vitesse Semiconductor Corp.*............................................................ 159,250
5,000 Xircom, Inc.*........................................................................... 170,000
-----------
2,499,438
-----------
TELECOMMUNICATIONS (2.7%)
5,000 MCI WorldCom, Inc.*..................................................................... 358,750
2,500 Sprint Corp. (FON Group)................................................................ 210,313
2,000 Teligent, Inc. (Class A)*............................................................... 57,500
4,000 U.S. West, Inc.......................................................................... 258,500
-----------
885,063
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $26,046,190)........................................................... 30,287,144
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (6.9%)
U.S. GOVERNMENT AGENCY
$ 2,250 Federal Farm Credit Bank 4.50% due 01/04/99 (AMORTIZED COST $2,249,156)................. $ 2,249,156
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $28,295,346) (b).......................................................... 99.8 % 32,536,300
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.2 68,517
------ ------------
NET ASSETS................................................................................. 100.0 % $ 32,604,817
------ ------------
------ ------------
</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 $4,931,435 and the
aggregate gross unrealized depreciation is $690,481, resulting in net
unrealized appreciation of $4,240,954.
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.4%)
ADVERTISING (0.5%)
50,000 Omnicom Group, Inc................................................................... $ 2,900,000
100,000 Young & Rubicam, Inc.*............................................................... 3,237,500
--------------
6,137,500
--------------
AEROSPACE (0.4%)
50,000 General Dynamics Corp................................................................ 2,931,250
--------------
AIRLINES (0.0%)
13,500 Southwest Airlines Co................................................................ 302,906
--------------
BANKING (1.3%)
110,000 Argentaria (ADR) (Spain)............................................................. 5,665,000
19,400 Bank of New York Co., Inc............................................................ 780,850
75,000 Chase Manhattan Corp. (The).......................................................... 5,104,687
59,000 First Union Corp..................................................................... 3,587,937
--------------
15,138,474
--------------
BIOTECHNOLOGY (3.2%)
81,000 Amgen Inc.*.......................................................................... 8,464,500
5,200 Genentech, Inc. (Special)*........................................................... 414,375
100,000 Genzyme Corp. (General Division)*.................................................... 4,968,750
61,000 IDEC Pharmaceuticals Corp.*.......................................................... 2,867,000
55,000 Immunex Corp.*....................................................................... 6,888,750
25,000 MedImmune, Inc.*..................................................................... 2,484,375
175,000 PathoGenesis Corp.*.................................................................. 9,975,000
--------------
36,062,750
--------------
BROADCASTING (2.6%)
110,000 Chancellor Media Corp.*.............................................................. 5,259,375
201,000 Clear Channel Communications, Inc.*.................................................. 10,954,500
133,000 Infinity Broadcasting Corp. (Series A)*.............................................. 3,640,875
140,000 Tele-Communications Liberty Media Group (Class A)*................................... 6,448,750
100,000 USA Networks, Inc.*.................................................................. 3,306,250
--------------
29,609,750
--------------
CABLE TELEVISION (4.0%)
215,000 Comcast Corp. (Class A Special)...................................................... 12,617,812
207,200 Cox Communications, Inc. (Class A)*.................................................. 14,322,700
300,000 Time Warner, Inc..................................................................... 18,618,750
--------------
45,559,262
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER HARDWARE (6.8%)
335,000 Compaq Computer Corp................................................................. $ 14,049,062
70,000 Dell Computer Corp.*................................................................. 5,123,125
200,000 Flextronics International, Ltd.*..................................................... 17,100,000
33,000 Hewlett-Packard Co................................................................... 2,254,312
80,000 International Business Machines Corp................................................. 14,780,000
137,000 SCI Systems, Inc.*................................................................... 7,911,750
70,000 Solectron Corp.*..................................................................... 6,505,625
115,000 Sun Microsystems, Inc.*.............................................................. 9,839,687
--------------
77,563,561
--------------
COMPUTER SOFTWARE (4.0%)
122,000 Citrix Systems, Inc.*................................................................ 11,834,000
140,000 Compuware Corp.*..................................................................... 10,928,750
95,900 Great Plains Software, Inc.*......................................................... 4,627,175
132,000 Microsoft Corp.*..................................................................... 18,290,250
--------------
45,680,175
--------------
CONSUMER ELECTRONICS/APPLIANCES (0.8%)
50,000 Electronic Arts Inc.*................................................................ 2,800,000
100,000 Maytag Corp.......................................................................... 6,225,000
--------------
9,025,000
--------------
CONSUMER SUNDRIES (2.5%)
170,000 Anheuser-Busch Companies, Inc........................................................ 11,156,250
46,000 Clorox Co............................................................................ 5,373,375
52,000 Estee Lauder Companies, Inc. (Class A)............................................... 4,446,000
73,000 Groupe Danone (ADR) (France)......................................................... 4,106,250
35,000 Procter & Gamble Co.................................................................. 3,195,937
--------------
28,277,812
--------------
CONSUMER/BUSINESS SERVICES (1.4%)
33,000 Automatic Data Processing, Inc....................................................... 2,646,187
76,000 Ceridian Corp.*...................................................................... 5,305,750
85,000 Computer Sciences Corp.*............................................................. 5,477,187
80,000 Outdoor Systems, Inc.*............................................................... 2,400,000
--------------
15,829,124
--------------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
120,000 General Electric Co.................................................................. 12,247,500
--------------
DIVERSIFIED MANUFACTURING (0.7%)
70,000 United Technologies Corp............................................................. 7,612,500
--------------
DRUG STORE CHAIN (2.7%)
163,000 CVS Corp............................................................................. 8,965,000
53,000 Duane Reade, Inc.*................................................................... 2,040,500
238,600 Rite Aid Corp........................................................................ 11,825,612
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
130,000 Walgreen Co.......................................................................... $ 7,613,125
--------------
30,444,237
--------------
E.D.P. PERIPHERALS (2.3%)
145,000 EMC Corp.*........................................................................... 12,325,000
315,000 Seagate Technology, Inc.*............................................................ 9,528,750
250,000 Western Digital Corp.*............................................................... 3,765,625
--------------
25,619,375
--------------
ELECTRONIC PRODUCTION EQUIPMENT (4.8%)
516,000 Applied Materials, Inc.*............................................................. 22,026,750
225,000 ASM Lithography Holding NV (Netherlands)*............................................ 6,862,500
125,000 KLA-Tencor Corp.*.................................................................... 5,421,875
127,000 Novellus Systems, Inc.*.............................................................. 6,270,625
180,000 Teradyne, Inc.*...................................................................... 7,627,500
120,000 Veeco Instruments, Inc.*............................................................. 6,330,000
--------------
54,539,250
--------------
ENERGY (1.5%)
43,000 Chevron Corp......................................................................... 3,566,312
85,000 Exxon Corp........................................................................... 6,215,625
50,000 Mobil Corp........................................................................... 4,356,250
60,000 Texaco, Inc.......................................................................... 3,172,500
--------------
17,310,687
--------------
FARMING/SEEDS/MILLING (0.1%)
40,000 Delta & Pine Land Co................................................................. 1,480,000
--------------
FINANCIAL SERVICES (8.2%)
190,000 Associates First Capital Corp. (Class A)............................................. 8,051,250
30,000 Capital One Financial Corp........................................................... 3,450,000
55,000 CIT Group, Inc. (The) (Series A)..................................................... 1,749,687
92,500 E*TRADE Group, Inc.*................................................................. 4,324,375
75,000 Franklin Resources, Inc.............................................................. 2,400,000
200,000 Freddie Mac.......................................................................... 12,887,500
152,000 Lehman Brothers Holdings, Inc........................................................ 6,697,500
157,000 Merrill Lynch & Co., Inc............................................................. 10,479,750
157,000 Paine Webber Group, Inc.............................................................. 6,064,125
165,000 Providian Financial Corp............................................................. 12,375,000
450,000 Schwab (CHARLES) Corp................................................................ 25,284,375
--------------
93,763,562
--------------
FOOD CHAINS (1.5%)
70,000 Fred Meyer, Inc.*.................................................................... 4,217,500
220,000 Safeway Inc.*........................................................................ 13,406,250
--------------
17,623,750
--------------
FOREST PRODUCTS (0.4%)
73,700 Georgia-Pacific Corp................................................................. 4,316,056
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE (0.5%)
90,000 Health Management Associates, Inc. (Class A)*........................................ $ 1,946,250
47,000 Wellpoint Health Networks, Inc.*..................................................... 4,089,000
--------------
6,035,250
--------------
INSURANCE (1.8%)
19,000 Aegon N.V. (ARS) (Netherlands)....................................................... 2,322,750
110,000 American International Group, Inc.................................................... 10,628,750
91,800 Equitable Companies, Inc............................................................. 5,312,925
36,000 Nationwide Financial Services, Inc. (Class A)........................................ 1,860,750
--------------
20,125,175
--------------
INTERNET SERVICES (6.0%)
158,000 America Online, Inc.*................................................................ 22,870,500
64,000 At Home Corp. (Series A)*............................................................ 4,712,000
8,100 Concur Technologies, Inc.*........................................................... 240,975
26,400 E-Tek Dynamics, Inc.*................................................................ 693,000
132,600 Inktomi Corp.*....................................................................... 17,229,713
170,000 Intuit Inc.*......................................................................... 12,325,000
9,100 Ticketmaster Online-CitySearch, Inc. (Series B)*..................................... 518,700
37,000 Yahoo! Inc.*......................................................................... 8,764,375
--------------
67,354,263
--------------
MAJOR PHARMACEUTICALS (5.3%)
76,000 American Home Products Corp.......................................................... 4,279,750
56,000 Elan Corp. PLC (ADR) (Ireland)*...................................................... 3,895,500
185,000 Forest Laboratories, Inc.*........................................................... 9,839,688
82,000 Glaxo Wellcome PLC (ADR) (United Kingdom)............................................ 5,699,000
59,000 Lilly (Eli) & Co..................................................................... 5,243,625
92,000 Pfizer, Inc.......................................................................... 11,540,250
59,000 Pharmacia & Upjohn, Inc.............................................................. 3,340,875
140,000 Schering-Plough Corp................................................................. 7,735,000
64,000 Smithkline Beecham PLC (ADR) (United Kingdom)........................................ 4,448,000
60,000 Warner-Lambert Co.................................................................... 4,511,250
--------------
60,532,938
--------------
MEDIA CONGLOMERATES (0.8%)
121,000 Viacom, Inc. (Class B)*.............................................................. 8,954,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL EQUIPMENT & SUPPLIES (1.9%)
70,000 Bausch & Lomb, Inc................................................................... $ 4,200,000
71,000 Guidant Corp......................................................................... 7,827,750
135,000 Medtronic, Inc....................................................................... 10,023,750
--------------
22,051,500
--------------
MOTOR VEHICLES (1.8%)
183,000 Ford Motor Co........................................................................ 10,739,813
135,000 General Motors Corp.................................................................. 9,660,938
--------------
20,400,751
--------------
NEWSPAPERS (0.5%)
150,000 New York Times Co. (The) (Class A)................................................... 5,203,125
--------------
RESTAURANTS (0.7%)
45,000 McDonald's Corp...................................................................... 3,448,125
55,000 Outback Steakhouse, Inc.*............................................................ 2,186,250
42,000 Tricon Global Restaurants, Inc.*..................................................... 2,105,250
--------------
7,739,625
--------------
RETAIL (8.0%)
101,000 Abercrombie & Fitch Co. (Class A)*................................................... 7,145,750
26,000 Amazon.com, Inc.*.................................................................... 8,350,875
275,000 Ann Taylor Stores Corp.*............................................................. 10,845,313
93,000 Bed Bath & Beyond Inc.*.............................................................. 3,167,813
115,000 Costco Companies, Inc.*.............................................................. 8,301,563
195,000 Gap, Inc. (The)...................................................................... 10,968,750
200,000 Home Depot, Inc. (The)............................................................... 12,237,500
22,900 Linens 'N Things, Inc.*.............................................................. 907,413
290,000 Lowe's Companies, Inc................................................................ 14,844,375
165,000 Wal-Mart Stores, Inc................................................................. 13,437,188
42,300 Williams-Sonoma, Inc.*............................................................... 1,705,219
--------------
91,911,759
--------------
SEMICONDUCTORS (6.0%)
190,000 Altera Corp.*........................................................................ 11,542,500
64,000 Analog Devices, Inc.*................................................................ 2,008,000
44,000 Applied Micro Circuits Corp.*........................................................ 1,490,500
116,000 Intel Corp........................................................................... 13,746,000
40,000 Linear Technology Corp............................................................... 3,580,000
73,000 Maxim Integrated Products, Inc.*..................................................... 3,184,625
210,000 Micron Technology, Inc.*............................................................. 10,618,125
152,000 Texas Instruments, Inc............................................................... 13,005,500
145,000 Xilinx, Inc.*........................................................................ 9,434,063
--------------
68,609,313
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (5.4%)
119,000 Ascend Communications, Inc.*......................................................... $ 7,824,250
56,000 Broadcom Corp. (Class A)*............................................................ 6,741,000
230,000 Cisco Systems, Inc.*................................................................. 21,346,875
170,000 Newbridge Networks Corp. (Canada)*................................................... 5,163,750
46,000 Nokia Corp. (ADR) (Class A) (Finland)................................................ 5,540,125
92,000 PMC - Sierra, Inc. (Canada)*......................................................... 5,796,000
120,000 RF Micro Devices, Inc.*.............................................................. 5,512,500
120,000 Xircom, Inc.*........................................................................ 4,080,000
--------------
62,004,500
--------------
TELECOMMUNICATIONS (7.9%)
135,000 Ameritech Corp....................................................................... 8,555,625
216,000 AT&T Corp............................................................................ 16,254,000
244,000 BellSouth Corp....................................................................... 12,169,500
57,000 Lucent Technologies Inc.............................................................. 6,270,000
185,000 MCI WorldCom, Inc.*.................................................................. 13,273,750
200,000 SBC Communications, Inc.............................................................. 10,725,000
115,200 Sprint Corp. (FON Group)............................................................. 9,691,200
47,300 Sprint Corp. (PCS Group)*............................................................ 1,093,813
33,000 Teligent, Inc. (Class A)*............................................................ 948,750
155,000 U.S. West, Inc....................................................................... 10,016,875
33,000 Winstar Communications, Inc.*........................................................ 1,284,938
--------------
90,283,451
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $888,047,495)....................................................... 1,108,280,131
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (8.0%)
U.S. GOVERNMENT AGENCY (a) (8.0%)
$ 91,100 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $91,065,838)..... 91,065,838
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.0%)
$ 213 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $212,826) (b)
(IDENTIFIED COST $212,732)......................................................... $ 212,732
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $91,278,570)........................................................ 91,278,570
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $979,326,065) (c)...................................................... 105.4 % 1,199,558,701
LIABILITIES IN EXCESS OF OTHER ASSETS................................................... (5.4) (61,145,978)
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 1,138,412,723
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ARS American Regulatory Share
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 $209,649 U.S. Treasury Note 5.875% due 02/15/00 valued at
$216,987.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $228,202,836 and the
aggregate gross unrealized depreciation is $7,970,200, resulting in net
unrealized appreciation of $220,232,636.
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.4%)
ACCIDENT & HEALTH INSURANCE (0.2%)
603 Provident Companies, Inc................................................................ $ 25,024
625 Torchmark Corp.......................................................................... 22,070
617 UNUM Corp............................................................................... 36,017
-----------
83,111
-----------
ADVERTISING (0.2%)
619 Interpublic Group of Companies, Inc..................................................... 49,365
695 Omnicom Group, Inc...................................................................... 40,310
-----------
89,675
-----------
AEROSPACE (0.7%)
4,452 Boeing Co............................................................................... 145,246
303 Goodrich (B.F.) Co...................................................................... 10,870
875 Lockheed Martin Corp.................................................................... 74,156
307 Northrop Grumman Corp................................................................... 22,449
1,006 United Technologies Corp................................................................ 109,402
-----------
362,123
-----------
AIR FREIGHT/DELIVERY SERVICES (0.1%)
658 FDX Corp.*.............................................................................. 58,562
-----------
AIRLINES (0.3%)
813 AMR Corp.*.............................................................................. 48,272
620 Delta Air Lines, Inc.................................................................... 32,240
1,499 Southwest Airlines Co................................................................... 33,634
384 US Airways Group Inc.*.................................................................. 19,968
-----------
134,114
-----------
ALCOHOLIC BEVERAGES (0.4%)
2,130 Anheuser-Busch Companies, Inc........................................................... 139,781
306 Brown-Forman Corp. (Class B)............................................................ 23,160
163 Coors (Adolph) Co. (Class B)............................................................ 9,199
762 Fortune Brands, Inc..................................................................... 24,098
-----------
196,238
-----------
ALUMINUM (0.2%)
1,014 Alcan Aluminium Ltd. (Canada)........................................................... 27,441
818 Aluminum Co. of America................................................................. 60,992
295 Reynolds Metals Co...................................................................... 15,543
-----------
103,976
-----------
APPAREL (0.1%)
262 Fruit of the Loom, Inc. (Class A)*...................................................... 3,619
288 Liz Claiborne, Inc...................................................................... 9,090
148 Russell Corp............................................................................ 3,006
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
534 VF Corp................................................................................. $ 25,031
-----------
40,746
-----------
AUTO PARTS: O.E.M. (0.2%)
737 Dana Corp............................................................................... 30,125
318 Eaton Corp.............................................................................. 22,479
377 Johnson Controls, Inc................................................................... 22,243
534 TRW, Inc................................................................................ 30,004
-----------
104,851
-----------
AUTOMOTIVE AFTERMARKET (0.1%)
282 Cooper Tire & Rubber Co................................................................. 5,763
802 Genuine Parts Co........................................................................ 26,817
695 Goodyear Tire & Rubber Co............................................................... 35,054
-----------
67,634
-----------
BIOTECHNOLOGY (0.2%)
1,134 Amgen Inc.*............................................................................. 118,503
-----------
BOOKS/MAGAZINES (0.1%)
316 Harcourt General, Inc................................................................... 16,807
216 Meredith Corp........................................................................... 8,181
-----------
24,988
-----------
BROADCASTING (0.3%)
3,147 CBS Corp................................................................................ 103,064
1,107 Clear Channel Communications, Inc.*..................................................... 60,331
-----------
163,395
-----------
BUILDING MATERIALS (0.0%)
221 Owens Corning........................................................................... 7,832
-----------
BUILDING MATERIALS/DIY CHAINS (1.0%)
6,966 Home Depot, Inc. (The).................................................................. 426,232
1,571 Lowe's Companies, Inc................................................................... 80,416
-----------
506,648
-----------
BUILDING PRODUCTS (0.1%)
178 Armstrong World Industries, Inc......................................................... 10,736
1,512 Masco Corp.............................................................................. 43,470
-----------
54,206
-----------
CABLE TELEVISION (0.7%)
1,645 Comcast Corp. (Class A Special)......................................................... 96,541
2,704 MediaOne Group Inc.*.................................................................... 127,088
2,397 Tele-Communications, Inc. (Class A)*.................................................... 132,584
-----------
356,213
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CASINO/GAMBLING (0.0%)
415 Harrah's Entertainment, Inc.*........................................................... $ 6,510
736 Mirage Resorts, Inc.*................................................................... 10,994
-----------
17,504
-----------
CELLULAR TELEPHONE (0.5%)
2,549 AirTouch Communications, Inc.*.......................................................... 183,847
1,281 Nextel Communications, Inc. (Class A)*.................................................. 30,264
1,850 Sprint Corp. (PCS Group)*............................................................... 42,781
-----------
256,892
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.5%)
1 Abercrombie & Fitch Co. (Class A)*...................................................... 71
2,582 Gap, Inc. (The)......................................................................... 145,237
1,015 Limited (The), Inc...................................................................... 29,562
664 Nordstrom, Inc.......................................................................... 23,032
1,436 TJX Companies, Inc...................................................................... 41,644
-----------
239,546
-----------
COMPUTER COMMUNICATIONS (1.6%)
1,598 3Com Corp.*............................................................................. 71,610
967 Ascend Communications, Inc.*............................................................ 63,580
673 Cabletron Systems, Inc.*................................................................ 5,636
7,037 Cisco Systems, Inc.*.................................................................... 653,122
-----------
793,948
-----------
COMPUTER SOFTWARE (4.2%)
293 Adobe Systems, Inc...................................................................... 13,698
193 Autodesk, Inc........................................................................... 8,227
960 BMC Software, Inc.*..................................................................... 42,780
2,399 Computer Associates International, Inc.................................................. 102,257
816 Compuware Corp.*........................................................................ 63,699
11,112 Microsoft Corp.* **..................................................................... 1,539,706
1,569 Novell, Inc.*........................................................................... 28,438
4,331 Oracle Corp.*........................................................................... 186,774
1,213 Parametric Technology Corp.*............................................................ 19,711
1,038 PeopleSoft, Inc.*....................................................................... 19,592
-----------
2,024,882
-----------
COMPUTER/VIDEO CHAINS (0.1%)
447 Circuit City Stores, Inc................................................................ 22,322
411 Tandy Corp.............................................................................. 16,928
-----------
39,250
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.3%)
325 Case Corp............................................................................... $ 7,089
1,598 Caterpillar, Inc........................................................................ 73,508
187 Cummins Engine Co., Inc................................................................. 6,638
1,063 Deere & Co.............................................................................. 35,212
36 NACCO Industries, Inc. (Class A)........................................................ 3,312
299 Navistar International Corp.*........................................................... 8,521
320 PACCAR, Inc............................................................................. 13,080
-----------
147,360
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.1%)
401 Maytag Corp............................................................................. 24,962
339 Whirlpool Corp.......................................................................... 18,772
-----------
43,734
-----------
CONSUMER SPECIALTIES (0.0%)
107 Jostens, Inc............................................................................ 2,802
-----------
CONSUMER SUNDRIES (0.0%)
289 American Greetings Corp. (Class A)...................................................... 11,867
-----------
CONTAINERS/PACKAGING (0.2%)
125 Ball Corp............................................................................... 5,719
219 Bemis Company, Inc...................................................................... 8,308
509 Crown Cork & Seal Co., Inc.............................................................. 15,684
692 Owens-Illinois, Inc.*................................................................... 21,192
372 Sealed Air Corp.*....................................................................... 18,995
228 Temple-Inland, Inc...................................................................... 13,523
-----------
83,421
-----------
CONTRACT DRILLING (0.0%)
206 Helmerich & Payne, Inc.................................................................. 3,991
374 Rowan Companies, Inc.*.................................................................. 3,740
-----------
7,731
-----------
DEPARTMENT STORES (0.6%)
454 Dillard's, Inc. (Class A)............................................................... 12,882
913 Federated Department Stores, Inc.*...................................................... 39,773
705 Kohl's Corp.*........................................................................... 43,313
1,041 May Department Stores Co................................................................ 62,850
1,132 Penney (J.C.) Co., Inc.................................................................. 53,062
1,707 Sears, Roebuck & Co..................................................................... 72,547
-----------
284,427
-----------
DISCOUNT CHAINS (2.2%)
488 Consolidated Stores Corp.*.............................................................. 9,851
965 Costco Companies, Inc.*................................................................. 69,661
1,960 Dayton Hudson Corp...................................................................... 106,330
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
824 Dollar General Corp..................................................................... $ 19,467
2,197 Kmart Corp.*............................................................................ 33,642
10,039 Wal-Mart Stores, Inc.**................................................................. 817,551
-----------
1,056,502
-----------
DIVERSIFIED COMMERCIAL SERVICES (0.1%)
729 Paychex, Inc............................................................................ 37,498
-----------
DIVERSIFIED ELECTRONIC PRODUCTS (0.1%)
328 Harris Corp............................................................................. 12,013
852 Rockwell International Corp............................................................. 41,375
-----------
53,388
-----------
DIVERSIFIED FINANCIAL SERVICES (1.6%)
2,015 American Express Co..................................................................... 206,034
10,124 Citigroup, Inc.......................................................................... 501,138
631 Providian Financial Corp................................................................ 47,287
278 Transamerica Corp....................................................................... 32,109
-----------
786,568
-----------
DIVERSIFIED MANUFACTURING (1.2%)
82 Aeroquip-Vickers, Inc................................................................... 2,455
874 Allegheny Teledyne Inc.................................................................. 17,862
2,496 AlliedSignal, Inc....................................................................... 110,604
477 Cooper Industries, Inc.................................................................. 22,747
596 Danaher Corp............................................................................ 32,370
994 Dover Corp.............................................................................. 36,405
485 ITT Industries, Inc..................................................................... 19,279
1,788 Minnesota Mining & Manufacturing Co..................................................... 127,171
680 Thermo Electron Corp.*.................................................................. 11,517
2,871 Tyco International Ltd.................................................................. 216,581
-----------
596,991
-----------
DRUG STORE CHAIN (0.6%)
1,738 CVS Corp................................................................................ 95,590
159 Longs Drug Stores Corp.................................................................. 5,962
1,152 Rite Aid Corp........................................................................... 57,096
2,222 Walgreen Co............................................................................. 130,126
-----------
288,774
-----------
E.D.P. PERIPHERALS (0.5%)
2,236 EMC Corp.*.............................................................................. 190,060
1,093 Seagate Technology, Inc.*............................................................... 33,063
-----------
223,123
-----------
E.D.P. SERVICES (0.7%)
1,346 Automatic Data Processing, Inc.......................................................... 107,932
319 Ceridian Corp.*......................................................................... 22,270
706 Computer Sciences Corp.*................................................................ 45,493
2,196 Electronic Data Systems Corp............................................................ 110,349
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,973 First Data Corp......................................................................... $ 62,519
-----------
348,563
-----------
ELECTRIC UTILITIES (2.3%)
804 AES Corp. (The)*........................................................................ 38,089
611 Ameren Corp............................................................................. 26,082
853 American Electric Power Co.............................................................. 40,144
665 Baltimore Gas & Electric Co............................................................. 20,532
674 Carolina Power & Light Co............................................................... 31,720
947 Central & South West Corp............................................................... 25,983
707 CINergy Corp............................................................................ 24,303
1,039 Consolidated Edison, Inc................................................................ 54,937
871 Dominion Resources, Inc................................................................. 40,719
646 DTE Energy Co........................................................................... 27,697
1,613 Duke Power Co........................................................................... 103,333
1,572 Edison International.................................................................... 43,819
1,099 Entergy Corp............................................................................ 34,206
1,056 FirstEnergy Corp........................................................................ 34,386
806 FPL Group, Inc.......................................................................... 49,670
570 GPU, Inc................................................................................ 25,187
1,268 Houston Industries, Inc................................................................. 40,735
509 New Century Energies, Inc............................................................... 24,814
835 Niagara Mohawk Power Corp.*............................................................. 13,464
680 Northern States Power Co................................................................ 18,870
1,325 PacifiCorp.............................................................................. 27,908
998 PECO Energy Co.......................................................................... 41,542
1,705 PG & E Corp............................................................................. 53,708
674 PP&L Resources, Inc..................................................................... 18,788
1,017 Public Service Enterprise Group, Inc.................................................... 40,680
3,107 Southern Co............................................................................. 90,297
1,258 Texas Utilities Co...................................................................... 58,733
968 Unicom Corp............................................................................. 37,329
-----------
1,087,675
-----------
ELECTRICAL PRODUCTS (0.3%)
1,963 Emerson Electric Co..................................................................... 122,810
353 Raychem Corp............................................................................ 11,406
253 Thomas & Betts Corp..................................................................... 10,958
-----------
145,174
-----------
ELECTRONIC COMPONENTS (0.1%)
975 AMP, Inc................................................................................ 50,761
353 Andrew Corp.*........................................................................... 5,825
-----------
56,586
-----------
ELECTRONIC DATA PROCESSING (4.3%)
600 Apple Computer, Inc.*................................................................... 24,563
7,576 Compaq Computer Corp.................................................................... 317,719
180 Data General Corp.*..................................................................... 2,959
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
5,675 Dell Computer Corp.*.................................................................... $ 415,339
696 Gateway 2000, Inc.*..................................................................... 35,627
4,622 Hewlett-Packard Co...................................................................... 315,740
4,158 International Business Machines Corp.**................................................. 768,191
773 Silicon Graphics, Inc.*................................................................. 9,952
1,696 Sun Microsystems, Inc.*................................................................. 145,114
1,137 Unisys Corp.*........................................................................... 39,155
-----------
2,074,359
-----------
ELECTRONIC PRODUCTION EQUIPMENT (0.2%)
1,647 Applied Materials, Inc.*................................................................ 70,306
390 KLA-Tencor Corp.*....................................................................... 16,916
-----------
87,222
-----------
ENGINEERING & CONSTRUCTION (0.0%)
323 Fluor Corp.............................................................................. 13,748
167 Foster Wheeler Corp..................................................................... 2,202
-----------
15,950
-----------
ENVIRONMENTAL SERVICES (0.3%)
774 Browning-Ferris Industries, Inc......................................................... 22,011
2,560 Waste Management, Inc................................................................... 119,360
-----------
141,371
-----------
FARMING/SEEDS/MILLING (0.2%)
2,644 Archer-Daniels-Midland Co............................................................... 45,444
1,077 Pioneer Hi-Bred International, Inc...................................................... 29,079
-----------
74,523
-----------
FINANCE COMPANIES (1.9%)
3,220 Associates First Capital Corp. (Class A)................................................ 136,448
292 Capital One Financial Corp.............................................................. 33,580
498 Countrywide Credit Industries, Inc...................................................... 24,993
4,621 Fannie Mae.............................................................................. 341,954
3,024 Freddie Mac............................................................................. 194,859
2,151 Household International, Inc............................................................ 85,233
3,350 MBNA Corp............................................................................... 83,541
738 SLM Holding Corp........................................................................ 35,424
-----------
936,032
-----------
FINANCIAL PUBLISHING/SERVICES (0.2%)
745 Dun & Bradstreet Corp................................................................... 23,514
657 Equifax, Inc............................................................................ 22,461
438 McGraw-Hill, Inc........................................................................ 44,621
-----------
90,596
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FLUID CONTROLS (0.0%)
453 Parker-Hannifin Corp.................................................................... $ 14,836
-----------
FOOD CHAINS (0.8%)
1,094 Albertson's, Inc........................................................................ 69,674
1,223 American Stores Co...................................................................... 45,175
688 Fred Meyer, Inc.*....................................................................... 41,452
139 Great Atlantic & Pacific Tea Co., Inc................................................... 4,118
1,142 Kroger Co.*............................................................................. 69,091
2,167 Safeway Inc.*........................................................................... 132,052
662 Winn-Dixie Stores, Inc.................................................................. 29,707
-----------
391,269
-----------
FOOD DISTRIBUTORS (0.1%)
495 Supervalu, Inc.......................................................................... 13,860
1,489 Sysco Corp.............................................................................. 40,854
-----------
54,714
-----------
FOREST PRODUCTS (0.2%)
382 Georgia-Pacific Corp.................................................................... 22,371
484 Louisiana-Pacific Corp.................................................................. 8,863
887 Weyerhaeuser Co......................................................................... 45,071
-----------
76,305
-----------
HEALTH CARE (0.0%)
200 Alberto-Culver Co. (Class B)............................................................ 5,338
-----------
HOME BUILDING (0.1%)
265 Centex Corp............................................................................. 11,942
125 Fleetwood Enterprises, Inc.............................................................. 4,344
178 Kaufman & Broad Home Corp............................................................... 5,118
192 Pulte Corp.............................................................................. 5,340
-----------
26,744
-----------
HOME FURNISHINGS (0.1%)
725 Newell Co............................................................................... 29,906
668 Rubbermaid, Inc......................................................................... 21,000
236 Tupperware Corp......................................................................... 3,879
-----------
54,785
-----------
HOSPITAL/NURSING MANAGEMENT (0.3%)
2,877 Columbia/HCA Healthcare Corp............................................................ 71,206
494 HCR Manor Care, Inc.*................................................................... 14,511
1,380 Tenet Healthcare Corp.*................................................................. 36,225
-----------
121,942
-----------
HOTELS/RESORTS (0.4%)
2,654 Carnival Corp. (Class A)................................................................ 127,392
1,162 Hilton Hotels Corp...................................................................... 22,223
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,115 Marriott International, Inc............................................................. $ 32,335
-----------
181,950
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.2%)
89 Harnischfeger Industries, Inc........................................................... 907
1,114 Illinois Tool Works Inc................................................................. 64,612
733 Ingersoll-Rand Co....................................................................... 34,405
114 Milacron, Inc........................................................................... 2,195
-----------
102,119
-----------
INDUSTRIAL SPECIALTIES (0.1%)
577 Ecolab, Inc............................................................................. 20,880
180 Millipore Corp.......................................................................... 5,119
552 Pall Corp............................................................................... 13,973
-----------
39,972
-----------
INSURANCE BROKERS/SERVICES (0.2%)
758 AON Corp................................................................................ 41,974
1,147 Marsh & McLennan Companies, Inc......................................................... 67,028
-----------
109,002
-----------
INTEGRATED OIL COMPANIES (4.4%)
403 Amerada Hess Corp....................................................................... 20,049
1,431 Atlantic Richfield Co................................................................... 93,373
2,907 Chevron Corp............................................................................ 241,099
10,834 Exxon Corp.**........................................................................... 792,236
210 Kerr-McGee Corp......................................................................... 8,033
3,475 Mobil Corp.............................................................................. 302,759
1,135 Phillips Petroleum Co................................................................... 48,379
9,555 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 457,446
2,382 Texaco, Inc............................................................................. 125,948
1,076 Unocal Corp............................................................................. 31,406
-----------
2,120,728
-----------
INTERNET SERVICES (0.6%)
2,033 America Online, Inc.*................................................................... 294,277
-----------
INVESTMENT BANKERS/BROKERS/ SERVICES (0.9%)
502 Bear Stearns Companies, Inc............................................................. 18,762
517 Lehman Brothers Holdings, Inc........................................................... 22,780
1,581 Merrill Lynch & Co., Inc................................................................ 105,532
2,574 Morgan Stanley Dean Witter & Co. (Note 3)............................................... 182,754
1,786 Schwab (CHARLES) Corp................................................................... 100,351
-----------
430,179
-----------
INVESTMENT MANAGERS (0.1%)
1,128 Franklin Resources, Inc................................................................. 36,096
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE (0.5%)
1,123 American General Corp................................................................... $ 87,594
1,401 Conseco, Inc............................................................................ 42,818
472 Jefferson-Pilot Corp.................................................................... 35,400
967 SunAmerica Inc.......................................................................... 78,448
-----------
244,260
-----------
MAJOR BANKS (5.9%)
3,390 Bank of New York Co., Inc............................................................... 136,448
5,218 Bank One Corp........................................................................... 266,444
7,712 BankAmerica Corp........................................................................ 463,684
1,313 BankBoston Corp......................................................................... 51,125
425 Bankers Trust New York Corp............................................................. 36,311
1,311 BB&T Corp............................................................................... 52,850
3,769 Chase Manhattan Corp. (The)............................................................. 256,528
693 Comerica, Inc........................................................................... 47,254
4,415 First Union Corp........................................................................ 268,487
1,020 Firstar Corp............................................................................ 95,115
2,533 Fleet Financial Group, Inc.............................................................. 113,193
941 Huntington Bancshares, Inc.............................................................. 28,289
2,028 KeyCorp................................................................................. 64,896
1,164 Mellon Bank Corp........................................................................ 80,025
779 Morgan (J.P.) & Co., Inc................................................................ 81,844
1,474 National City Corp...................................................................... 106,865
1,341 PNC Bank Corp........................................................................... 72,582
478 Republic New York Corp.................................................................. 21,779
715 State Street Corp....................................................................... 49,737
774 Summit Bancorp.......................................................................... 33,814
934 SunTrust Banks, Inc..................................................................... 71,451
3,234 U.S. Bancorp............................................................................ 114,807
904 Wachovia Corp........................................................................... 79,044
7,206 Wells Fargo & Co........................................................................ 287,790
-----------
2,880,362
-----------
MAJOR CHEMICALS (1.2%)
986 Dow Chemical Co......................................................................... 89,664
5,017 Du Pont (E.I.) de Nemours & Co., Inc.................................................... 266,215
353 Eastman Chemical Co..................................................................... 15,797
448 Hercules, Inc........................................................................... 12,264
2,792 Monsanto Co............................................................................. 132,620
730 Rohm & Haas Co.......................................................................... 21,991
592 Union Carbide Corp...................................................................... 25,160
-----------
563,711
-----------
MAJOR PHARMACEUTICALS (9.3%)
6,763 Abbott Laboratories..................................................................... 331,387
5,873 American Home Products Corp............................................................. 330,723
1,274 Baxter International, Inc............................................................... 81,934
4,428 Bristol-Myers Squibb Co................................................................. 592,522
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
5,992 Johnson & Johnson....................................................................... $ 502,579
4,901 Lilly (Eli) & Co........................................................................ 435,576
5,308 Merck & Co., Inc.**..................................................................... 783,925
5,783 Pfizer, Inc.**.......................................................................... 725,405
2,264 Pharmacia & Upjohn, Inc................................................................. 128,199
6,549 Schering-Plough Corp.................................................................... 361,832
3,660 Warner-Lambert Co....................................................................... 275,186
-----------
4,549,268
-----------
MAJOR U.S. TELECOMMUNICATIONS (7.1%)
1,223 ALLTEL Corp............................................................................. 73,151
4,916 Ameritech Corp.......................................................................... 311,552
8,049 AT&T Corp............................................................................... 605,687
6,917 Bell Atlantic Corp...................................................................... 392,972
8,714 BellSouth Corp.......................................................................... 434,611
4,301 GTE Corp................................................................................ 290,049
8,170 MCI WorldCom, Inc.*..................................................................... 586,198
8,716 SBC Communications, Inc................................................................. 467,396
1,919 Sprint Corp. (FON Group)................................................................ 161,436
2,238 U.S. West, Inc.......................................................................... 144,631
-----------
3,467,683
-----------
MANAGED HEALTH CARE (0.2%)
637 Aetna Inc............................................................................... 50,084
684 Humana, Inc.*........................................................................... 12,184
830 United Healthcare Corp.................................................................. 35,742
-----------
98,010
-----------
MEAT/POULTRY/FISH (0.1%)
2,181 ConAgra, Inc............................................................................ 68,702
-----------
MEDICAL EQUIPMENT & SUPPLIES (0.3%)
2,185 Medtronic, Inc.......................................................................... 162,236
-----------
MEDICAL SPECIALTIES (0.5%)
388 ALZA Corp. (Class A)*................................................................... 20,273
239 Bard (C.R.), Inc........................................................................ 11,831
250 Bausch & Lomb, Inc...................................................................... 15,000
1,102 Becton, Dickinson & Co.................................................................. 47,042
500 Biomet, Inc............................................................................. 20,094
1,751 Boston Scientific Corp.*................................................................ 46,949
671 Guidant Corp............................................................................ 73,978
318 Mallinckrodt Group, Inc................................................................. 9,798
375 St. Jude Medical, Inc.*................................................................. 10,383
-----------
255,348
-----------
MEDICAL/DENTAL DISTRIBUTORS (0.1%)
894 Cardinal Health, Inc.................................................................... 67,832
-----------
MEDICAL/NURSING SERVICES (0.1%)
1,885 Healthsouth Corp.*...................................................................... 29,100
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
METALS FABRICATIONS (0.0%)
277 Timken Co............................................................................... $ 5,228
-----------
MID - SIZED BANKS (0.5%)
1,189 Fifth Third Bancorp..................................................................... 84,791
701 Mercantile Bancorporation, Inc.......................................................... 32,334
495 Northern Trust Corp..................................................................... 43,189
986 Regions Financial Corp.................................................................. 39,748
1,191 Synovus Financial Corp.................................................................. 29,031
606 Union Planters Corp..................................................................... 27,459
-----------
256,552
-----------
MILITARY/GOV'T/TECHNICAL (0.2%)
188 EG & G, Inc............................................................................. 5,229
565 General Dynamics Corp................................................................... 33,123
1,502 Raytheon Co. (Class B).................................................................. 79,982
-----------
118,334
-----------
MISCELLANEOUS (0.1%)
525 Solectron Corp.*........................................................................ 48,792
-----------
MOTOR VEHICLES (1.1%)
5,392 Ford Motor Co........................................................................... 316,443
2,916 General Motors Corp..................................................................... 208,676
-----------
525,119
-----------
MOVIES/ENTERTAINMENT (1.7%)
326 King World Productions Inc.*............................................................ 9,597
1,757 Seagram Co. Ltd. (Canada)............................................................... 66,766
5,468 Time Warner, Inc........................................................................ 339,358
1,550 Viacom, Inc. (Class B)*................................................................. 114,700
9,129 Walt Disney Co.......................................................................... 273,870
-----------
804,291
-----------
MULTI-LINE INSURANCE (1.6%)
3,656 Allstate Corp. (Note 3)................................................................. 141,213
4,679 American International Group, Inc....................................................... 452,108
920 CIGNA Corp.............................................................................. 71,128
1,040 Hartford Financial Services Group, Inc.................................................. 57,070
450 Lincoln National Corp................................................................... 36,816
578 SAFECO Corp............................................................................. 24,818
-----------
783,153
-----------
MULTI-SECTOR COMPANIES (3.5%)
282 Crane Co................................................................................ 8,513
14,602 General Electric Co.**.................................................................. 1,490,317
561 Honeywell, Inc.......................................................................... 42,250
507 Loews Corp.............................................................................. 49,813
215 McDermott International, Inc............................................................ 5,308
151 National Service Industries, Inc........................................................ 5,738
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
758 Tenneco, Inc............................................................................ $ 25,819
706 Textron, Inc............................................................................ 53,612
-----------
1,681,370
-----------
NATURAL GAS (0.2%)
427 Consolidated Natural Gas Co............................................................. 23,058
100 Eastern Enterprises..................................................................... 4,375
212 Nicor Inc............................................................................... 8,957
140 ONEOK, Inc.............................................................................. 5,058
145 Peoples Energy Corp..................................................................... 5,782
1,070 Sempra Energy........................................................................... 27,151
-----------
74,381
-----------
NEWSPAPERS (0.4%)
418 Dow Jones & Co., Inc.................................................................... 20,116
1,255 Gannett Co., Inc........................................................................ 83,065
350 Knight-Ridder, Inc...................................................................... 17,894
776 New York Times Co. (The) (Class A)...................................................... 26,918
355 Times Mirror Co. (Class A).............................................................. 19,880
529 Tribune Co.............................................................................. 34,914
-----------
202,787
-----------
OFFICE EQUIPMENT/SUPPLIES (0.6%)
518 Avery Dennison Corp..................................................................... 23,342
1,215 Pitney Bowes, Inc....................................................................... 80,266
1,461 Xerox Corp.............................................................................. 172,398
-----------
276,006
-----------
OIL & GAS PRODUCTION (0.2%)
536 Anardarko Petroleum Corp................................................................ 16,549
404 Apache Corp............................................................................. 10,226
790 Burlington Resources, Inc............................................................... 28,292
1,542 Occidental Petroleum Corp............................................................... 26,021
435 Oryx Energy Co.*........................................................................ 5,845
1,119 Union Pacific Resources Group, Inc...................................................... 10,141
-----------
97,074
-----------
OIL REFINERIES/MARKETING (0.2%)
341 Ashland, Inc............................................................................ 16,496
417 Sunoco Inc.............................................................................. 15,038
1,371 USX-Marathon Group...................................................................... 41,301
-----------
72,835
-----------
OIL/GAS TRANSMISSION (0.4%)
948 Coastal Corp............................................................................ 33,121
372 Columbia Energy Group, Inc.............................................................. 21,483
1,474 Enron Corp.............................................................................. 84,110
451 Sonat, Inc.............................................................................. 12,205
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,906 Williams Companies, Inc................................................................. $ 59,443
-----------
210,362
-----------
OILFIELD SERVICES/EQUIPMENT (0.4%)
1,457 Baker Hughes, Inc....................................................................... 25,771
1,959 Halliburton Co.......................................................................... 58,035
2,433 Schlumberger, Ltd....................................................................... 112,222
-----------
196,028
-----------
OTHER CONSUMER SERVICES (0.3%)
448 Block (H.&R.), Inc...................................................................... 20,160
3,802 Cendant Corp.*.......................................................................... 72,476
1,149 Service Corp. International............................................................. 43,734
-----------
136,370
-----------
OTHER METALS/MINERALS (0.1%)
116 ASARCO, Inc............................................................................. 1,747
383 Cyprus Amax Minerals Co................................................................. 3,830
654 Freeport-McMoran Copper & Gold, Inc. (Class B).......................................... 6,826
680 Inco Ltd. (Canada)...................................................................... 7,183
240 Phelps Dodge Corp....................................................................... 12,210
-----------
31,796
-----------
OTHER PHARMACEUTICALS (0.0%)
294 Allergan, Inc........................................................................... 19,037
-----------
OTHER SPECIALTY STORES (0.2%)
681 AutoZone, Inc.*......................................................................... 22,430
284 Pep Boys-Manny, Moe & Jack.............................................................. 4,455
1,389 Staples, Inc.*.......................................................................... 60,682
1,165 Toys 'R' Us, Inc.*...................................................................... 19,659
-----------
107,226
-----------
OTHER TELECOMMUNICATIONS (0.1%)
765 Frontier Corp........................................................................... 26,010
-----------
OTHER TRANSPORTATION (0.0%)
1,350 Laidlaw, Inc. (Canada).................................................................. 13,584
-----------
PACKAGE GOODS/COSMETICS (2.4%)
1,171 Avon Products, Inc...................................................................... 51,817
461 Clorox Co............................................................................... 53,851
1,305 Colgate-Palmolive Co.................................................................... 121,202
4,943 Gillette Co............................................................................. 238,809
473 International Flavors & Fragrances Inc.................................................. 20,901
2,415 Kimberly-Clark Corp..................................................................... 131,618
5,913 Procter & Gamble Co..................................................................... 539,931
-----------
1,158,129
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGED FOODS (1.7%)
1,273 BestFoods............................................................................... $ 67,787
1,996 Campbell Soup Co........................................................................ 109,780
682 General Mills, Inc...................................................................... 53,026
1,613 Heinz (H.J.) Co......................................................................... 91,336
1,806 Kellogg Co.............................................................................. 61,630
607 Quaker Oats Company (The)............................................................... 36,117
1,391 Ralston-Ralston Purina Group............................................................ 45,034
4,070 Sara Lee Corp........................................................................... 114,723
2,853 Unilever N.V. (Netherlands)............................................................. 236,621
-----------
816,054
-----------
PAINTS/COATINGS (0.1%)
790 PPG Industries, Inc..................................................................... 46,018
766 Sherwin-Williams Co..................................................................... 22,501
-----------
68,519
-----------
PAPER (0.4%)
231 Boise Cascade Corp...................................................................... 7,161
392 Champion International Corp............................................................. 15,876
982 Fort James Corp......................................................................... 39,280
1,369 International Paper Co.................................................................. 61,348
425 Mead Corp............................................................................... 12,458
119 Potlatch Corp........................................................................... 4,388
308 Union Camp Corp......................................................................... 20,790
451 Westvaco Corp........................................................................... 12,092
456 Willamette Industries, Inc.............................................................. 15,276
-----------
188,669
-----------
PHOTOGRAPHIC PRODUCTS (0.2%)
1,444 Eastman Kodak Co........................................................................ 103,968
195 Polaroid Corp........................................................................... 3,644
-----------
107,612
-----------
PRECIOUS METALS (0.1%)
1,662 Barrick Gold Corp. (Canada)............................................................. 32,409
1,024 Battle Mountain Gold Co................................................................. 4,224
1,065 Homestake Mining Co..................................................................... 9,785
685 Newmont Mining Corp..................................................................... 12,373
1,024 Placer Dome Inc. (Canada)............................................................... 11,776
-----------
70,567
-----------
PRECISION INSTRUMENTS (0.1%)
222 Perkin-Elmer Corp....................................................................... 21,659
211 Tektronix, Inc.......................................................................... 6,343
-----------
28,002
-----------
PRINTING/FORMS (0.1%)
331 Deluxe Corp............................................................................. 12,102
605 Donnelley (R.R.) & Sons Co.............................................................. 26,507
362 Moore Corp. Ltd. (Canada)............................................................... 3,982
-----------
42,591
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PROPERTY - CASUALTY INSURANCE (0.5%)
32 Berkshire Hathaway, Inc.*............................................................... $ 76,493
726 Chubb Corp.............................................................................. 47,099
744 Cincinnati Financial Corp............................................................... 27,249
323 Progressive Corp........................................................................ 54,708
1,050 St. Paul Companies, Inc................................................................. 36,488
-----------
242,037
-----------
RAILROADS (0.4%)
2,090 Burlington Northern Santa Fe Corp....................................................... 70,538
973 CSX Corp................................................................................ 40,380
1,690 Norfolk Southern Corp................................................................... 53,552
1,102 Union Pacific Corp...................................................................... 49,659
-----------
214,129
-----------
RECREATIONAL PRODUCTS/TOYS (0.1%)
406 Brunswick Corp.......................................................................... 10,049
583 Hasbro, Inc............................................................................. 21,061
1,282 Mattel, Inc............................................................................. 29,246
-----------
60,356
-----------
RENTAL/LEASING COMPANIES (0.0%)
300 Ryder System, Inc....................................................................... 7,800
-----------
RESTAURANTS (0.6%)
570 Darden Restaurants, Inc................................................................. 10,260
3,015 McDonald's Corp......................................................................... 231,024
680 Tricon Global Restaurants, Inc.*........................................................ 34,085
521 Wendy's International, Inc.............................................................. 11,364
-----------
286,733
-----------
SAVINGS & LOAN ASSOCIATIONS (0.3%)
254 Golden West Financial Corp.............................................................. 23,289
2,644 Washington Mutual, Inc.................................................................. 100,968
-----------
124,257
-----------
SEMICONDUCTORS (2.3%)
645 Advanced Micro Devices, Inc.*........................................................... 18,665
7,429 Intel Corp.**........................................................................... 880,337
629 LSI Logic Corp.*........................................................................ 10,143
951 Micron Technology, Inc.*................................................................ 48,085
741 National Semiconductor Corp.*........................................................... 10,004
1,738 Texas Instruments, Inc.................................................................. 148,708
-----------
1,115,942
-----------
SERVICES TO THE HEALTH INDUSTRY (0.2%)
2,073 HBO & Co................................................................................ 59,469
714 IMS Health Inc.......................................................................... 53,862
97 Shared Medical Systems Corp............................................................. 4,838
-----------
118,169
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHOE MANUFACTURING (0.1%)
1,276 Nike, Inc. (Class B).................................................................... $ 51,758
205 Reebok International Ltd. (United Kingdom)*............................................. 3,049
-----------
54,807
-----------
SOFT DRINKS (2.2%)
10,985 Coca Cola Co.**......................................................................... 734,622
1,747 Coca-Cola Enterprises Inc............................................................... 62,455
6,538 PepsiCo, Inc............................................................................ 267,649
-----------
1,064,726
-----------
SPECIALTY CHEMICALS (0.3%)
1,031 Air Products & Chemicals, Inc........................................................... 41,240
592 Engelhard Corp.......................................................................... 11,544
141 FMC Corp.*.............................................................................. 7,896
311 Grace (W. R.) & Co...................................................................... 4,879
263 Great Lakes Chemical Corp............................................................... 10,520
534 Morton International, Inc............................................................... 13,083
292 Nalco Chemical Co....................................................................... 9,052
3 Octel Corp.*............................................................................ 42
703 Praxair, Inc............................................................................ 24,781
412 Sigma-Aldrich Corp...................................................................... 12,051
-----------
135,088
-----------
SPECIALTY FOODS/CANDY (0.2%)
638 Hershey Foods Corp...................................................................... 39,676
518 Wrigley (Wm.) Jr. Co. (Class A)......................................................... 46,393
-----------
86,069
-----------
SPECIALTY INSURERS (0.1%)
443 MBIA, Inc............................................................................... 29,044
464 MGIC Investment Corp.................................................................... 18,473
-----------
47,517
-----------
SPECIALTY STEEL (0.0%)
361 Nucor Corp.............................................................................. 15,613
-----------
STEEL/IRON ORE (0.0%)
531 Bethlehem Steel Corp.*.................................................................. 4,447
394 USX-U.S. Steel Group, Inc............................................................... 9,062
412 Worthington Industries, Inc............................................................. 5,150
-----------
18,659
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (2.2%)
1,030 Corning, Inc............................................................................ $ 46,350
746 General Instrument Corp.*............................................................... 25,317
5,860 Lucent Technologies Inc.**.............................................................. 644,600
2,675 Motorola, Inc........................................................................... 163,342
2,906 Northern Telecom Ltd. (Canada).......................................................... 145,663
307 Scientific-Atlanta, Inc................................................................. 7,003
866 Tellabs, Inc.*.......................................................................... 59,375
-----------
1,091,650
-----------
TEXTILES (0.0%)
76 Springs Industries, Inc. (Class A)...................................................... 3,149
-----------
TOBACCO (1.3%)
10,849 Philip Morris Companies, Inc............................................................ 580,422
1,447 RJR Nabisco Holdings Corp............................................................... 42,958
829 UST, Inc................................................................................ 28,911
-----------
652,291
-----------
TOOLS/HARDWARE (0.1%)
381 Black & Decker Corp..................................................................... 21,360
99 Briggs & Stratton Corp.................................................................. 4,938
242 Snap-On, Inc............................................................................ 8,425
363 Stanley Works........................................................................... 10,073
-----------
44,796
-----------
WHOLESALE DISTRIBUTOR (0.0%)
400 Grainger (W.W.), Inc.................................................................... 16,650
555 IKON Office Solutions, Inc.............................................................. 4,751
-----------
21,401
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $40,468,724)........................................................... 44,545,509
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (8.6%)
U.S. GOVERNMENT AGENCY
$ 4,200 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $4,198,425)......... $ 4,198,425
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $44,667,149) (b).......................................................... 100.0 % 48,743,934
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (0.0) (11,966)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 48,731,968
------ ------------
------ ------------
</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) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $5,070,330 and the
aggregate gross unrealized depreciation is $993,545, resulting in net
unrealized appreciation of $4,076,785.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
UNDERLYING
DESCRIPTION, FACE
NUMBER OF DELIVERY MONTH AMOUNT UNREALIZED
CONTRACTS AND YEAR AT VALUE GAIN
- ------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index
12 March/1999 $3,736,500 $ 97,127
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (94.2%)
AUSTRALIA (2.6%)
NEWSPAPERS
156,800 News Corporation Ltd. (Pref.)...................................... $ 952,120
-----------
FINLAND (2.4%)
PAPER
31,300 UPM-Kymmene Oyj.................................................... 872,089
-----------
FRANCE (3.9%)
MULTI-LINE INSURANCE
6,340 Axa................................................................ 918,890
-----------
OIL REFINERIES/MARKETING
5,010 Total S.A. (B Shares).............................................. 507,392
-----------
TOTAL FRANCE....................................................... 1,426,282
-----------
GERMANY (4.6%)
DIVERSIFIED MANUFACTURING
2,660 MAN AG............................................................. 782,917
-----------
MOTOR VEHICLES
1,150 Bayerische Motoren Werke (BMW) AG.................................. 893,170
-----------
TOTAL GERMANY...................................................... 1,676,087
-----------
HONG KONG (2.1%)
DIVERSIFIED FINANCIAL SERVICES
31,300 HSBC Holdings PLC.................................................. 779,813
-----------
JAPAN (5.3%)
CONSUMER ELECTRONICS/APPLIANCES
13,200 Sony Corp.......................................................... 959,682
-----------
PHOTOGRAPHIC PRODUCTS
25,900 Fuji Photo Film Co................................................. 960,954
-----------
TOTAL JAPAN........................................................ 1,920,636
-----------
NETHERLANDS (5.1%)
ALCOHOLIC BEVERAGES
17,100 Heineken N.V....................................................... 1,028,093
-----------
BOOKS/MAGAZINES
3,890 Wolters Kluwer N.V................................................. 831,605
-----------
TOTAL NETHERLANDS.................................................. 1,859,698
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWEDEN (2.3%)
LIFE INSURANCE
54,800 Skandia Forsakrings AB............................................. $ 838,448
-----------
SWITZERLAND (4.0%)
BUILDING MATERIALS
680 Holderbank Financiere Glarus AG (B Shares)......................... 805,009
-----------
PACKAGED FOODS
310 Nestle S.A......................................................... 674,845
-----------
TOTAL SWITZERLAND.................................................. 1,479,854
-----------
UNITED KINGDOM (5.4%)
ALCOHOLIC BEVERAGES
55,100 Diageo PLC......................................................... 624,082
-----------
INDUSTRIAL MACHINERY/COMPONENTS
157,200 Siebe PLC.......................................................... 616,929
-----------
PACKAGED FOODS
64,000 Unilever PLC....................................................... 714,289
-----------
TOTAL UNITED KINGDOM............................................... 1,955,300
-----------
UNITED STATES (56.5%)
AIR FREIGHT/DELIVERY SERVICES
15,500 FDX Corp.*......................................................... 1,379,500
-----------
COMPUTER COMMUNICATIONS
11,250 Cisco Systems, Inc.*............................................... 1,044,141
-----------
COMPUTER SOFTWARE
15,600 Computer Associates International, Inc............................. 664,950
8,400 Microsoft Corp.*................................................... 1,163,925
-----------
1,828,875
-----------
DEPARTMENT STORES
10,300 Wal-Mart Stores, Inc............................................... 838,806
-----------
DIVERSIFIED FINANCIAL SERVICES
9,100 American Express Co................................................ 930,475
-----------
DIVERSIFIED MANUFACTURING
8,200 General Electric Co................................................ 836,912
-----------
ELECTRICAL PRODUCTS
12,200 Emerson Electric Co................................................ 763,262
-----------
INTEGRATED OIL COMPANIES
9,300 Chevron Corp....................................................... 771,319
-----------
MAJOR BANKS
27,000 Bank of New York Co., Inc.......................................... 1,086,750
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR CHEMICALS
12,400 Du Pont (E.I.) de Nemours & Co., Inc............................... $ 657,975
-----------
MAJOR PHARMACEUTICALS
18,300 American Home Products Corp........................................ 1,030,519
8,700 Lilly (Eli) & Co................................................... 773,212
-----------
1,803,731
-----------
MEDICAL EQUIPMENT & SUPPLIES
11,000 Medtronic, Inc..................................................... 816,750
-----------
MOVIES/ENTERTAINMENT
18,200 Time Warner, Inc................................................... 1,129,537
-----------
OILFIELD SERVICES/EQUIPMENT
18,900 Halliburton Co..................................................... 559,913
14,800 Schlumberger, Ltd.................................................. 682,650
-----------
1,242,563
-----------
PROPERTY - CASUALTY INSURANCE
19,300 Chubb Corp......................................................... 1,252,088
-----------
SEMICONDUCTORS
6,700 Intel Corp......................................................... 793,950
-----------
SERVICES TO THE HEALTH INDUSTRY
25,040 Quintiles Transnational Corp.*..................................... 1,334,945
-----------
SOFT DRINKS
19,500 Coca-Cola Enterprises Inc.......................................... 697,125
-----------
UNREGULATED POWER GENERATION
14,500 AES Corp. (The)*................................................... 686,938
-----------
UTILITIES - ELECTRIC
25,900 Southern Co........................................................ 752,719
-----------
TOTAL UNITED STATES................................................ 20,648,361
-----------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $32,413,286)...................................... 34,408,688
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (5.6%)
U.S. GOVERNMENT AGENCY
$ 2,050 Federal Farm Credit Bank 4.50% due 01/04/99
(AMORTIZED COST $2,049,231)...................................... $ 2,049,231
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $34,462,517) (B).......................................................... 99.8 % 36,457,919
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.2 80,861
------ ------------
NET ASSETS................................................................................. 100.0 % $ 36,538,780
------ ------------
------ ------------
</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 aggregrate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $3,446,594 and the
aggregate gross unrealized depreciation is $1,451,192, resulting in net
unrealized appreciation of $1,995,402.
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------------------------
Air Freight/Delivery Services............................... $ 1,379,500 3.8%
Alcoholic Beverages......................................... 1,652,175 4.5
Books/Magazines............................................. 831,605 2.3
Building Materials.......................................... 805,009 2.2
Computer Communications..................................... 1,044,141 2.9
Computer Software........................................... 1,828,875 5.0
Consumer Electronics/
Appliances................................................ 959,682 2.6
Department Stores........................................... 838,806 2.3
Diversified Financial Services.............................. 1,710,288 4.7
Diversified Manufacturing................................... 1,619,829 4.4
Electrical Products......................................... 763,262 2.1
Industrial Machinery/
Components................................................ 616,929 1.7
Integrated Oil Components................................... 771,319 2.1
Life Insurance.............................................. 838,448 2.3
Major Banks................................................. 1,086,750 3.0
Major Chemicals............................................. 657,975 1.8
Major Pharmaceuticals....................................... 1,803,731 4.9
Medical Equipment & Supplies................................ 816,750 2.2
Motor Vehicles.............................................. 893,170 2.4
Movies/Entertainment........................................ 1,129,537 3.1
Multi-Line Insurance........................................ 918,890 2.5
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Newspapers.................................................. $ 952,120 2.6%
Oil Refineries/Marketing.................................... 507,392 1.4
Oilfield Services/Equipment................................. 1,242,563 3.4
Packaged Foods.............................................. 1,389,134 3.8
Paper....................................................... 872,089 2.4
Photographic Products....................................... 960,954 2.6
Property - Casualty Insurance............................... 1,252,088 3.4
Semiconductors.............................................. 793,950 2.2
Services To The Health Industry............................. 1,334,945 3.7
Soft Drinks................................................. 697,125 1.9
U.S. Government Agency...................................... 2,049,231 5.6
Unregulated Power Generation................................ 686,938 1.9
Utilities - Electric........................................ 752,719 2.1
----------- -----
$36,457,919 99.8%
----------- -----
----------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks............................................... $34,408,688 94.2%
Short-Term Investment....................................... 2,049,231 5.6
----------- ---
$36,457,919 99.8%
----------- ---
----------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (67.9%)
AEROSPACE (1.3%)
96,000 Cordant Technologies, Inc........................................................... $ 3,600,000
60,500 Honeywell, Inc...................................................................... 4,556,406
------------
8,156,406
------------
AIR FREIGHT/DELIVERY SERVICES (0.4%)
66,000 Airborne Freight Corp............................................................... 2,380,125
------------
ALUMINUM (0.6%)
52,000 Aluminum Co. of America............................................................. 3,877,250
------------
BIOTECHNOLOGY (1.1%)
236,000 BioChem Pharma Inc. (Canada)*....................................................... 6,755,500
4,900 Clinichem Development Inc. (Canada)*................................................ 23,581
------------
6,779,081
------------
BROADCASTING (2.9%)
129,000 Clear Channel Communications, Inc.*................................................. 7,030,500
95,000 General Motors Corp. (Class H)*..................................................... 3,770,312
170,000 MediaOne Group Inc.*................................................................ 7,990,000
------------
18,790,812
------------
BUILDING MATERIALS/DIY CHAINS (1.5%)
152,600 Home Depot, Inc. (The).............................................................. 9,337,212
------------
CLOTHING/SHOE/ACCESSORY STORES (2.2%)
188,550 Gap, Inc. (The)..................................................................... 10,605,937
68,300 Payless ShoeSource, Inc.*........................................................... 3,235,712
------------
13,841,649
------------
COMPUTER COMMUNICATIONS (1.7%)
114,975 Cisco Systems, Inc.*................................................................ 10,671,117
------------
COMPUTER SOFTWARE (2.5%)
60,600 Microsoft Corp.*.................................................................... 8,396,887
110,500 Network Associates, Inc.*........................................................... 7,327,531
------------
15,724,418
------------
COMPUTERS (2.9%)
170,000 Dell Computer Corp.*................................................................ 12,441,875
114,000 Gateway 2000, Inc.*................................................................. 5,835,375
------------
18,277,250
------------
CONSUMER ELECTRONICS/
APPLIANCES (1.2%)
125,000 Maytag Corp......................................................................... 7,781,250
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SPECIALTIES (0.7%)
90,000 Oakley, Inc.*....................................................................... $ 855,000
112,500 Rubbermaid, Inc..................................................................... 3,536,719
------------
4,391,719
------------
DEPARTMENT STORES (1.4%)
265,000 Kmart Corp.*........................................................................ 4,057,812
77,300 May Department Stores Co............................................................ 4,666,987
------------
8,724,799
------------
DIVERSIFIED FINANCIAL SERVICES (1.7%)
50,000 American Express Co................................................................. 5,112,500
96,000 Equitable Companies, Inc............................................................ 5,556,000
------------
10,668,500
------------
ELECTRICAL PRODUCTS (1.4%)
50,000 Emerson Electric Co................................................................. 3,128,125
59,200 General Electric Co................................................................. 6,042,100
------------
9,170,225
------------
ELECTRONIC DATA PROCESSING (1.2%)
92,900 Sun Microsystems, Inc.*............................................................. 7,948,756
------------
ENVIRONMENTAL SERVICES (0.7%)
92,250 Waste Management, Inc............................................................... 4,301,156
------------
FINANCE COMPANIES (1.0%)
87,300 Fannie Mae.......................................................................... 6,460,200
------------
INTEGRATED OIL COMPANIES (4.8%)
85,000 Amerada Hess Corp................................................................... 4,228,750
80,600 Atlantic Richfield Co............................................................... 5,259,150
65,000 Chevron Corp........................................................................ 5,390,938
79,700 Exxon Corp.......................................................................... 5,828,063
70,200 Mobil Corp.......................................................................... 6,116,175
65,700 Texaco, Inc......................................................................... 3,473,888
------------
30,296,964
------------
INTERNET SERVICES (4.6%)
201,200 America Online, Inc.*............................................................... 29,123,700
------------
LIFE INSURANCE (0.5%)
100,000 Conseco, Inc........................................................................ 3,056,250
------------
MAJOR BANKS (2.9%)
64,000 BankAmerica Corp.................................................................... 3,848,000
177,350 Citigroup Inc....................................................................... 8,778,825
140,500 Wells Fargo & Co.................................................................... 5,611,219
------------
18,238,044
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR CHEMICALS (2.2%)
67,000 Dow Chemical Co..................................................................... $ 6,092,813
60,000 Du Pont (E.I.) de Nemours & Co., Inc................................................ 3,183,750
104,200 Monsanto Co......................................................................... 4,949,500
------------
14,226,063
------------
MAJOR PHARMACEUTICALS (4.9%)
128,600 Abbott Laboratories................................................................. 6,301,400
112,600 American Home Products Corp......................................................... 6,340,788
68,400 Johnson & Johnson................................................................... 5,737,050
66,600 Lilly (Eli) & Co.................................................................... 5,919,075
87,300 Warner-Lambert Co................................................................... 6,563,869
------------
30,862,182
------------
MAJOR U.S. TELECOMMUNICATIONS (1.0%)
122,000 Qwest Communications International, Inc.*........................................... 6,092,375
------------
MANAGED HEALTH CARE (0.4%)
30,000 Wellpoint Health Networks, Inc.*.................................................... 2,610,000
------------
MOTOR VEHICLES (2.4%)
95,333 DaimlerChrysler AG (Germany)*....................................................... 9,157,926
105,000 Ford Motor Co....................................................................... 6,162,188
------------
15,320,114
------------
MOVIES/ENTERTAINMENT (0.5%)
114,000 Walt Disney Co...................................................................... 3,420,000
------------
MULTI-LINE INSURANCE (0.9%)
57,750 American International Group, Inc................................................... 5,580,094
------------
OTHER METALS/MINERALS (0.1%)
10,000 Phelps Dodge Corp................................................................... 508,750
------------
OTHER SPECIALTY STORES (2.1%)
244,800 Bed Bath & Beyond Inc.*............................................................. 8,338,500
180,000 Pier 1 Imports, Inc................................................................. 1,743,750
80,000 Williams-Sonoma, Inc.*.............................................................. 3,225,000
------------
13,307,250
------------
PACKAGE GOODS/COSMETICS (0.8%)
57,800 Colgate-Palmolive Co................................................................ 5,368,175
------------
PACKAGED FOODS (1.0%)
100,000 Aurora Foods, Inc.*................................................................. 1,981,250
60,300 General Mills, Inc.................................................................. 4,688,325
------------
6,669,575
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PAPER (0.8%)
124,200 Champion International Corp......................................................... $ 5,030,100
------------
PRECISION INSTRUMENTS (1.4%)
95,000 Perkin-Elmer Corp................................................................... 9,268,438
------------
PROPERTY - CASUALTY INSURANCE (0.7%)
70,400 Chubb Corp.......................................................................... 4,567,200
------------
RETAIL (1.2%)
106,000 Costco Companies, Inc.*............................................................. 7,651,875
------------
SAVINGS & LOAN ASSOCIATIONS (1.2%)
46,000 Golden West Financial Corp.......................................................... 4,217,625
90,450 Washington Mutual, Inc.............................................................. 3,454,059
------------
7,671,684
------------
SEMICONDUCTORS (2.1%)
45,000 Intel Corp.......................................................................... 5,332,500
124,000 PMC - Sierra, Inc. (Canada)*........................................................ 7,812,000
------------
13,144,500
------------
SOFT DRINKS (0.7%)
104,900 PepsiCo, Inc........................................................................ 4,294,344
------------
SPECIALTY CHEMICALS (0.4%)
147,300 Georgia Gulf Corp................................................................... 2,366,006
------------
SPECIALTY INSURERS (0.7%)
124,500 Ace, Ltd. (Bermuda)................................................................. 4,287,469
------------
TELECOMMUNICATION EQUIPMENT (2.4%)
92,800 Lucent Technologies Inc............................................................. 10,208,000
72,100 Tellabs, Inc.*...................................................................... 4,943,356
------------
15,151,356
------------
TOBACCO (0.8%)
100,000 Philip Morris Companies, Inc........................................................ 5,350,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $271,235,769)...................................................... 430,744,433
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (7.8%)
AIRLINES (0.2%)
$ 1,000 Continental Airlines, Inc. (Series 981A)
6.648% due 03/15/19....................................................... $ 1,035,400
------------
APPAREL (0.1%)
1,000 Tommy Hilfiger USA Inc.
6.50% due 06/01/03........................................................ 993,390
------------
BANKING (0.1%)
1,000 Fleet Capital Trust V
6.226%+ due 12/18/28...................................................... 988,750
------------
BROADCAST/MEDIA (0.1%)
1,000 USA Networks, Inc. - 144A**
6.75% due 11/15/05........................................................ 1,000,160
------------
BUILDING MATERIALS (0.2%)
1,000 Masco Corp.
7.125% due 08/15/13....................................................... 1,076,790
------------
CONSUMER SUNDRIES (0.2%)
1,000 Protection One Alarm - 144A**
7.375% due 08/15/05....................................................... 1,007,040
------------
DEPARTMENT STORES (0.9%)
1,000 Federated Department Stores, Inc.
6.125% due 09/01/01....................................................... 1,010,020
1,000 Neiman Marcus Group Inc.
7.125% due 06/01/28....................................................... 968,350
1,000 Saks, Inc.
8.25% due 11/15/08........................................................ 1,061,330
2,500 Shopko Stores, Inc.
8.50% due 03/15/02........................................................ 2,641,050
------------
5,680,750
------------
FINANCE COMPANIES (0.3%)
1,000 Household Netherlands BV (Netherlands)
6.20% due 12/01/03........................................................ 1,008,650
1,000 Toyota Motor Credit Corp.
5.50% due 12/15/08........................................................ 990,050
------------
1,998,700
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (1.1%)
$ 1,000 CNA Financial Corp.
6.60% due 12/15/08........................................................ $ 1,000,550
1,000 Farmers Exchange Capital - 144A**
7.05% due 07/15/28........................................................ 1,001,190
3,000 Markel Capital Trust I (Series B)
8.71% due 01/01/46........................................................ 3,058,680
2,000 Orion Capital Trust I
8.73% due 01/01/37........................................................ 2,008,920
------------
7,069,340
------------
INDUSTRIAL SPECIALTIES (0.2%)
1,000 Lexmark International, Inc.
6.75% due 05/15/08........................................................ 1,009,440
------------
INVESTMENT BANKERS/BROKERS/SERVICES (0.8%)
1,000 Credit Suisse First Boston NY - 144A**
6.50% due 05/01/08........................................................ 1,016,530
1,000 Paine Webber Group, Inc.
8.875% due 03/15/05....................................................... 1,117,560
2,000 Paine Webber Group, Inc.
6.55% due 04/15/08........................................................ 2,011,940
1,000 Salomon Smith Barney Holdings, Inc.
7.00% due 03/15/04........................................................ 1,046,550
------------
5,192,580
------------
LIFE INSURANCE (0.3%)
1,000 Conseco, Inc.
6.40% due 06/15/01........................................................ 970,420
1,000 Lumbermens Mutual Casualty Co. - 144A**
8.30% due 12/01/37........................................................ 1,088,340
------------
2,058,760
------------
MAJOR BANKS (0.2%)
1,000 BankAmerica Corp.
7.125% due 03/01/09....................................................... 1,097,950
------------
MAJOR U.S. TELECOMMUNICATIONS (0.2%)
1,000 Sprint Capital Corp.
6.875% due 11/15/28....................................................... 1,039,660
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
MID - SIZED BANKS (0.3%)
$ 1,000 Long Island Savings Bank
6.20% due 04/02/01........................................................ $ 1,006,290
1,000 Mercantile Bancorporation, Inc.
7.30% due 06/15/07........................................................ 1,094,660
------------
2,100,950
------------
MILITARY/GOV'T/TECHNICAL (0.2%)
1,000 Raytheon Co.
7.20% due 08/15/27........................................................ 1,082,150
------------
MOTOR VEHICLES (0.2%)
1,000 Ford Motor Co.
9.00% due 09/15/01........................................................ 1,088,490
------------
OIL/GAS TRANSMISSION (0.2%)
1,000 Williams Companies, Inc.
6.50% due 08/01/06........................................................ 1,008,150
------------
PAPER (0.2%)
1,500 Champion International Corp.
6.40% due 02/15/26........................................................ 1,517,055
------------
RAILROADS (0.6%)
1,000 CSX Corp.
6.80% due 12/01/28........................................................ 1,007,660
1,966 Southern Pacific Transportation Co. (Series B)
7.28% due 04/30/15........................................................ 2,133,225
1,000 Union Pacific Corp.
6.34% due 11/25/03........................................................ 1,016,440
------------
4,157,325
------------
RETAIL (0.2%)
1,000 Penney (J.C.) Co., Inc.
7.625% due 03/01/97....................................................... 1,024,780
------------
SMALLER BANKS (0.6%)
1,000 Keystone Financial Mid Atlantic Funding Corp.
7.30% due 05/15/04........................................................ 1,050,290
2,000 St. Paul Bancorp, Inc.
7.125% due 02/15/04....................................................... 2,058,480
1,000 Wilmington Trust Corp.
6.625% due 05/01/08....................................................... 1,046,810
------------
4,155,580
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES (0.2%)
$ 1,000 Hyder PLC - 144A** (United Kingdom)
6.50% due 12/15/08........................................................ $ 1,007,500
------------
UTILITIES - ELECTRIC (0.2%)
1,000 Western Resources, Inc.
6.875% due 08/01/04....................................................... 1,052,280
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $49,186,831)............................................... 49,442,970
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
GOVERNMENT & AGENCY OBLIGATIONS (10.4%)
2,000 Federal Home Loan Banks
5.515% due 04/13/04....................................................... 1,994,940
3,000 Federal Home Loan Banks
5.80% due 09/02/08........................................................ 3,093,360
2,000 Federal Home Loan Mortgage Corp.
5.125% due 10/15/08....................................................... 1,968,660
2,000 Federal National Mortgage Assoc.
5.75% due 06/15/05........................................................ 2,054,840
1,000 Ontario Province of Canada (Canada)
5.50% due 10/01/08........................................................ 1,003,750
4,800 U.S. Treasury Bond
5.50% due 08/15/28........................................................ 5,023,968
4,000 U.S. Treasury Bond
6.00% due 02/15/26........................................................ 4,362,960
4,000 U.S. Treasury Bond
6.125% due 11/15/27....................................................... 4,478,320
2,400 U.S. Treasury Bond
6.625% due 02/15/27....................................................... 2,837,640
1,000 U.S. Treasury Note
4.75% due 11/15/08........................................................ 1,006,880
2,000 U.S. Treasury Note
5.75% due 08/15/03........................................................ 2,089,040
2,000 U.S. Treasury Note
5.875% due 02/28/99....................................................... 2,003,740
3,000 U.S. Treasury Note
6.125% due 08/15/07....................................................... 3,275,940
13,500 U.S. Treasury Note
6.25% due 05/31/99........................................................ 13,587,210
1,000 U.S. Treasury Note
6.375% due 05/15/99....................................................... 1,006,180
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 2,000 U.S. Treasury Note
6.375% due 08/15/02....................................................... $ 2,111,660
1,500 U.S. Treasury Note
6.50% due 04/30/99........................................................ 1,508,790
7,000 U.S. Treasury Note
6.875% due 08/31/99....................................................... 7,099,680
2,000 U.S. Treasury Note
6.875% due 03/31/00....................................................... 2,052,380
1,000 U.S. Treasury Note
7.25% due 05/15/04........................................................ 1,120,520
1,000 U.S. Treasury Note
7.25% due 08/15/04........................................................ 1,124,300
1,000 U.S. Treasury Note
7.50% due 11/15/01........................................................ 1,074,520
------------
TOTAL GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST
$65,295,010)................................................................ 65,879,278
------------
SHORT-TERM INVESTMENTS (a) (13.6%)
COMMERCIAL PAPER (5.5%)
FINANCE COMPANIES
17,000 American Express Credit Corp. 5.80% due 01/04/99............................ 16,991,784
18,000 CIT Group Inc. 5.99% due 01/11/99........................................... 17,970,050
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $34,961,834)................................................ 34,961,834
------------
U.S. GOVERNMENT AGENCIES (8.1%)
8,000 Federal Farm Credit Bank 5.08% due 01/13/99................................. 7,986,453
22,000 Federal Home Loan Banks 5.05% due 01/08/99.................................. 21,978,397
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 21,200 Student Loan Marketing Assoc. 4.28% due 01/04/99............................ $ 21,192,439
------------
TOTAL U.S. GOVERMENT AGENCIES
(AMORTIZED COST $51,157,289)................................................ 51,157,289
------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $86,119,123)................................................ 86,119,123
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $471,836,733) (b)............................................... 99.7 % 632,185,804
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES................................... 0.3 1,748,476
------ -------------
NET ASSETS....................................................................... 100.0 % $ 633,934,280
------ -------------
------ -------------
</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, 1998.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $172,229,919 and the
aggregate gross unrealized depreciation is $11,880,848, resulting in net
unrealized appreciation of $160,349,071.
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
(This page has been left blank intentionally.)
95
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<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 *..................... $ 442,351,870 $ 540,108,594 $ 356,688,690 $ 558,679,775 $ 87,015,641 $ 2,253,199,634
Cash.......................... 13,212 -- -- -- -- 26,860
Receivable for:
Investments sold.......... -- -- -- 547,507 298,522 --
Shares of beneficial
interest sold........... 198,052 121,185 88,636 156,414 -- 1,232,779
Dividends................. -- -- -- 1,008,496 199,135 4,072,247
Interest.................. 622,465 7,758,037 7,867,096 944,939 501,244 --
Foreign withholding taxes
reclaimed............... -- -- -- -- -- --
Variation margin.......... -- -- -- -- -- --
Prepaid expenses and other
assets...................... 2,092 2,846 3,892 443 2,233 11,645
Receivable from affiliate..... -- -- -- -- -- --
------------- --------------- --------------- -------------- ------------ ---------------
TOTAL ASSETS............. 443,187,691 547,990,662 364,648,314 561,337,574 88,016,775 2,258,543,165
------------- --------------- --------------- -------------- ------------ ---------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- -- -- 130,504 6,609,369
Shares of beneficial
interest repurchased.... 906,707 111,888 359,279 182,126 40,930 912,894
Investment management
fee..................... 190,311 229,955 154,705 296,174 54,953 961,510
Accrued expenses and other
payables.................... 56,189 66,038 55,426 56,441 21,254 132,613
------------- --------------- --------------- -------------- ------------ ---------------
TOTAL LIABILITIES........ 1,153,207 407,881 569,410 534,741 247,641 8,616,386
------------- --------------- --------------- -------------- ------------ ---------------
NET ASSETS:
Paid-in-capital............... 442,034,462 538,007,357 485,415,754 327,439,436 87,415,695 1,589,263,617
Accumulated undistributed net
investment income (loss).... 22 (300) 151,756 25 14,879 154
Accumulated undistributed net
realized gain (loss)........ -- (16,182,861) (39,811,533) 11,143,579 930,544 319,156,658
Net unrealized appreciation
(depreciation).............. -- 25,758,585 (81,677,073) 222,219,793 (591,984) 341,506,350
------------- --------------- --------------- -------------- ------------ ---------------
NET ASSETS............... $ 442,034,484 $ 547,582,781 $ 364,078,904 $ 560,802,833 $ 87,769,134 $ 2,249,926,779
------------- --------------- --------------- -------------- ------------ ---------------
------------- --------------- --------------- -------------- ------------ ---------------
*IDENTIFIED COST......... $ 442,351,870 $ 514,350,009 $ 438,365,763 $ 336,459,982 $ 87,607,625 $ 1,911,693,284
------------- --------------- --------------- -------------- ------------ ---------------
------------- --------------- --------------- -------------- ------------ ---------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 442,034,462 49,794,001 71,785,647 26,391,176 7,657,710 101,647,547
------------- --------------- --------------- -------------- ------------ ---------------
------------- --------------- --------------- -------------- ------------ ---------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $1.00 $11.00 $5.07 $21.25 $11.46 $22.13
------------- --------------- --------------- -------------- ------------ ---------------
------------- --------------- --------------- -------------- ------------ ---------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
** Includes foreign cash of $349,876.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
GLOBAL
CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
GROWTH GROWTH GROWTH GROWTH APPRECIATION
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value *..................... $ 137,631,624 $ 482,075,760 $ 509,880,098 $ 52,538,411 $ 32,536,300
Cash.......................... -- 565,563 471,147 425,688** 60,263
Receivable for:
Investments sold.......... 1,019,600 753,725 -- -- --
Shares of beneficial
interest sold........... 53,806 47,030 386,355 1,812 46,447
Dividends................. 66,375 993,077 298,214 32,704 4,694
Interest.................. 253 3,720 8,705 17,857 --
Foreign withholding taxes
reclaimed............... -- 399,104 656,162 -- --
Variation margin.......... -- -- -- -- --
Prepaid expenses and other
assets...................... 4,899 27,511 29,313 126 228
Receivable from affiliate..... -- -- -- -- 20,809
-------------- -------------- -------------- -------------- --------------
TOTAL ASSETS............. 138,776,557 484,865,490 511,729,994 53,016,598 32,668,741
-------------- -------------- -------------- -------------- --------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- -- -- --
Shares of beneficial
interest repurchased.... 66,069 228,369 577,185 18,439 42,893
Investment management
fee..................... 70,630 302,550 395,356 42,938 --
Accrued expenses and other
payables.................... 36,748 107,007 119,856 113,684 21,031
-------------- -------------- -------------- -------------- --------------
TOTAL LIABILITIES........ 173,447 637,926 1,092,397 175,061 63,924
-------------- -------------- -------------- -------------- --------------
NET ASSETS:
Paid-in-capital............... 96,044,693 414,618,546 331,073,981 110,265,670 34,478,487
Accumulated undistributed net
investment income (loss).... (424) 520,531 3,134,104 411,637 386,474
Accumulated undistributed net
realized gain (loss)........ 14,067,938 24,439,258 43,112,022 (59,610,315) (6,501,098)
Net unrealized appreciation
(depreciation).............. 28,490,903 44,649,229 133,317,490 1,774,545 4,240,954
-------------- -------------- -------------- -------------- --------------
NET ASSETS............... $ 138,603,110 $ 484,227,564 $ 510,637,597 $ 52,841,537 $ 32,604,817
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
*IDENTIFIED COST......... $ 109,140,721 $ 437,456,748 $ 376,597,847 $ 50,606,970 $ 28,295,346
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 6,806,997 35,025,587 18,785,057 10,269,558 3,147,999
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $20.36 $13.82 $27.18 $5.15 $10.36
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
S&P 500 COMPETITIVE EDGE
EQUITY INDEX "BEST IDEAS" STRATEGIST
<S> <C> <C> <C> <C>
- ------------------------------
ASSETS:
Investments in securities, at
value *..................... $ 1,199,558,701 $ 48,743,934 $ 36,457,919 $ 632,185,804
Cash.......................... -- 96,318 60,532 90,081
Receivable for:
Investments sold.......... 9,295,564 247,312 -- --
Shares of beneficial
interest sold........... 749,558 133,201 7,519 295,145
Dividends................. 232,030 43,939 13,050 231,493
Interest.................. -- -- -- 1,782,167
Foreign withholding taxes
reclaimed............... 132,654 -- 6,875 --
Variation margin.......... -- 10,291 -- --
Prepaid expenses and other
assets...................... 6,924 23 53 1,786
Receivable from affiliate..... -- 12,489 24,163 --
---------------- -------------- ------------------ --------------
TOTAL ASSETS............. 1,209,975,431 49,287,507 36,570,111 634,586,476
---------------- -------------- ------------------ --------------
LIABILITIES:
Payable for:
Investments purchased..... 70,270,953 503,347 -- --
Shares of beneficial
interest repurchased.... 762,181 39,680 7,227 330,477
Investment management
fee..................... 453,571 -- -- 257,845
Accrued expenses and other
payables.................... 76,003 12,512 24,104 63,874
---------------- -------------- ------------------ --------------
TOTAL LIABILITIES........ 71,562,708 555,539 31,331 652,196
---------------- -------------- ------------------ --------------
NET ASSETS:
Paid-in-capital............... 757,548,016 44,127,014 35,547,604 480,626,039
Accumulated undistributed net
investment income (loss).... (5,165) 244,990 267,028 458
Accumulated undistributed net
realized gain (loss)........ 160,637,236 186,052 (1,271,376) (7,041,288)
Net unrealized appreciation
(depreciation).............. 220,232,636 4,173,912 1,995,524 160,349,071
---------------- -------------- ------------------ --------------
NET ASSETS............... $ 1,138,412,723 $ 48,731,968 $ 36,538,780 $ 633,934,280
---------------- -------------- ------------------ --------------
---------------- -------------- ------------------ --------------
*IDENTIFIED COST......... $ 979,326,065 $ 44,667,149 $ 34,462,517 $ 471,836,733
---------------- -------------- ------------------ --------------
---------------- -------------- ------------------ --------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 29,505,782 4,343,636 3,722,740 38,098,404
---------------- -------------- ------------------ --------------
---------------- -------------- ------------------ --------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $38.58 $11.22 $9.82 $16.64
---------------- -------------- ------------------ --------------
---------------- -------------- ------------------ --------------
</TABLE>
97
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
QUALITY
MONEY INCOME HIGH INCOME DIVIDEND
MARKET PLUS YIELD UTILITIES BUILDER GROWTH
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS):
INCOME
Interest...................... $ 21,440,157 $ 34,017,757 $ 49,800,195 $ 3,768,540 $ 2,415,707 $ 2,526,630
Dividends..................... -- -- -- 13,552,605** 2,265,784** 47,422,494**
------------- ------------- ------------- ------------- ----------- ------------
TOTAL INCOME............. 21,440,157 34,017,757 49,800,195 17,321,145 4,681,491 49,949,124
------------- ------------- ------------- ------------- ----------- ------------
EXPENSES
Investment management fee..... 1,927,552 2,514,720 1,946,259 3,160,139 595,359 10,828,424
Professional fees............. 27,698 29,384 30,455 28,190 18,742 29,000
Custodian fees................ 21,401 46,257 40,474 29,575 23,513 106,165
Shareholder reports and
notices..................... 22,340 29,946 24,795 29,990 2,094 109,715
Trustees' fees and expenses... 1,051 1,462 1,124 1,406 111 6,082
Transfer agent fees and
expenses.................... 500 500 500 500 500 500
Other......................... 3,140 10,385 9,832 6,728 3,511 19,703
------------- ------------- ------------- ------------- ----------- ------------
TOTAL EXPENSES........... 2,003,682 2,632,654 2,053,439 3,256,528 643,830 11,099,589
Less: amounts
waived/assumed.............. -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET EXPENSES............. 2,003,682 2,632,654 2,053,439 3,256,528 643,830 11,099,589
------------- ------------- ------------- ------------- ----------- ------------
NET INVESTMENT INCOME
(LOSS)................... 19,436,475 31,385,103 47,746,756 14,064,617 4,037,661 38,849,535
------------- ------------- ------------- ------------- ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 1,854 7,060,684 (10,756,455) 11,183,431 936,441 322,115,886
Futures contracts......... -- -- -- -- -- --
Foreign exchange
transactions............ -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET GAIN (LOSS).......... 1,854 7,060,684 (10,756,455) 11,183,431 936,441 322,115,886
------------- ------------- ------------- ------------- ----------- ------------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... -- 3,370,100 (62,350,933) 81,869,637 (3,662,539) (89,389,463)
Futures contracts......... -- -- -- -- -- --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------- ------------
NET APPRECIATION
(DEPRECIATION)........... -- 3,370,100 (62,350,933) 81,869,637 (3,662,539) (89,389,463)
------------- ------------- ------------- ------------- ----------- ------------
NET GAIN (LOSS).......... 1,854 10,430,784 (73,107,388) 93,053,068 (2,726,098) 232,726,423
------------- ------------- ------------- ------------- ----------- ------------
NET INCREASE (DECREASE)....... $ 19,438,329 $ 41,815,887 $ (25,360,632) $ 107,117,685 $ 1,311,563 $271,575,958
------------- ------------- ------------- ------------- ----------- ------------
------------- ------------- ------------- ------------- ----------- ------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period May 18, 1998 (commencement of operations) through December
31, 1998.
** Net of $86,199, $330, $175,289, $1,177, $1,126,265, $1,255,910, $93,699,
$263, $132,800, $879, $5,116 and $14,038 foreign withholding tax,
respectively.
(1) Includes $61,741 of interest expense.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
GLOBAL
CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL
GROWTH GROWTH GROWTH GROWTH APPRECIATION
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS):
INCOME
Interest...................... $ 276,646 $ 734,562 $ 707,746 $ 212,841 $ 300,377
Dividends..................... 316,623** 11,657,917** 7,644,102** 1,132,403** 86,097**
------------- ------------ ------------- ------------- -------------
TOTAL INCOME............. 593,269 12,392,479 8,351,848 1,345,244 386,474
------------- ------------ ------------- ------------- -------------
EXPENSES
Investment management fee..... 862,257 3,698,722 4,705,416 551,718 248,985
Professional fees............. 28,323 32,322 32,968 38,709 18,734
Custodian fees................ 33,855 344,990 428,801 156,937 17,754
Shareholder reports and
notices..................... 8,366 28,366 73,919 13,447 1,456
Trustees' fees and expenses... 278 1,699 1,499 -- 30
Transfer agent fees and
expenses.................... 500 500 500 500 500
Other......................... 912 12,668 13,962 79,190(1) 622
------------- ------------ ------------- ------------- -------------
TOTAL EXPENSES........... 934,491 4,119,267 5,257,065 840,501 288,081
Less: amounts
waived/assumed.............. -- -- -- -- (288,081)
------------- ------------ ------------- ------------- -------------
NET EXPENSES............. 934,491 4,119,267 5,257,065 840,501 --
------------- ------------ ------------- ------------- -------------
NET INVESTMENT INCOME
(LOSS)................... (341,222) 8,273,212 3,094,783 504,743 386,474
------------- ------------ ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 15,646,625 29,850,665 43,131,572 (31,761,827) (6,243,234)
Futures contracts......... -- -- -- -- --
Foreign exchange
transactions............ -- (49,301) 120,833 (39,201) --
------------- ------------ ------------- ------------- -------------
NET GAIN (LOSS).......... 15,646,625 29,801,364 43,252,405 (31,801,028) (6,243,234)
------------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... 6,997,899 16,160,201 43,991,360 24,589,983 2,856,814
Futures contracts......... -- -- -- -- --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- 47,322 57,808 (157,974) --
------------- ------------ ------------- ------------- -------------
NET APPRECIATION
(DEPRECIATION)........... 6,997,899 16,207,523 44,049,168 24,432,009 2,856,814
------------- ------------ ------------- ------------- -------------
NET GAIN (LOSS).......... 22,644,524 46,008,887 87,301,573 (7,369,019) (3,386,420)
------------- ------------ ------------- ------------- -------------
NET INCREASE (DECREASE)....... $ 22,303,302 $ 54,282,099 $ 90,396,356 $ (6,864,276) $ (2,999,946)
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
<CAPTION>
S&P 500 COMPETITIVE EDGE
EQUITY INDEX* "BEST IDEAS"* STRATEGIST
<S> <C> <C> <C> <C>
- ------------------------------
NET INVESTMENT INCOME (LOSS):
INCOME
Interest...................... $ 6,083,933 $ 61,440 $ 113,348 $ 11,565,956
Dividends..................... 5,747,355** 183,550** 153,010** 4,125,742**
------------- ------------ ----------- ------------
TOTAL INCOME............. 11,831,288 244,990 266,358 15,691,698
------------- ------------ ----------- ------------
EXPENSES
Investment management fee..... 4,753,680 52,991 99,771 2,762,516
Professional fees............. 28,854 14,368 15,645 28,901
Custodian fees................ 64,304 3,614 18,707 34,902
Shareholder reports and
notices..................... 49,628 5,958 4,058 33,782
Trustees' fees and expenses... 2,739 -- -- 1,610
Transfer agent fees and
expenses.................... 500 312 313 500
Other......................... 6,858 1,336 1,680 9,423
------------- ------------ ----------- ------------
TOTAL EXPENSES........... 4,906,563 78,579 140,174 2,871,634
Less: amounts
waived/assumed.............. -- (78,579) (140,174) --
------------- ------------ ----------- ------------
NET EXPENSES............. 4,906,563 -- -- 2,871,634
------------- ------------ ----------- ------------
NET INVESTMENT INCOME
(LOSS)................... 6,924,725 244,990 266,358 12,820,064
------------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 161,754,922 3,032 (1,271,376) (7,041,288)
Futures contracts......... -- 183,020 -- --
Foreign exchange
transactions............ 9 -- 670 --
------------- ------------ ----------- ------------
NET GAIN (LOSS).......... 161,754,931 186,052 (1,270,706) (7,041,288)
------------- ------------ ----------- ------------
Net change in unrealized
appreciation/ depreciation
on:
Investments............... 89,582,262 4,076,785 1,995,402 125,871,829
Futures contracts......... -- 97,127 -- --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- 122 --
------------- ------------ ----------- ------------
NET APPRECIATION
(DEPRECIATION)........... 89,582,262 4,173,912 1,995,524 125,871,829
------------- ------------ ----------- ------------
NET GAIN (LOSS).......... 251,337,193 4,359,964 724,818 118,830,541
------------- ------------ ----------- ------------
NET INCREASE (DECREASE)....... $ 258,261,918 $ 4,604,954 $ 991,176 $131,650,605
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
</TABLE>
99
<PAGE>
MORGAN STANLEY 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, 1998 31, 1997 1998 31, 1997
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 19,436,475 $ 18,013,271 $ 31,385,103 $ 30,890,531
Net realized gain (loss)...... 1,854 -- 7,060,684 4,211,639
Net change in unrealized
appreciation/depreciation... -- -- 3,370,100 12,724,498
-------------- -------------- ------------- --------------
NET INCREASE
(DECREASE)............... 19,438,329 18,013,271 41,815,887 47,826,668
-------------- -------------- ------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (19,436,518) (18,013,450) (31,385,551) (30,957,912)
Net realized gain............. (1,854) -- -- --
-------------- -------------- ------------- --------------
TOTAL.................... (19,438,372) (18,013,450) (31,385,551) (30,957,912)
-------------- -------------- ------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 465,453,549 186,625,741 145,861,267 20,704,612
Reinvestment of dividends and
distributions............... 19,438,372 18,013,450 31,385,551 30,957,912
Cost of shares repurchased.... (378,435,543) (209,298,904) (115,083,881) (68,201,984)
-------------- -------------- ------------- --------------
NET INCREASE
(DECREASE)............... 106,456,378 (4,659,713) 62,162,937 (16,539,460)
-------------- -------------- ------------- --------------
TOTAL INCREASE
(DECREASE)............... 106,456,335 (4,659,892) 72,593,273 329,296
NET ASSETS:
Beginning of period........... 335,578,149 340,238,041 474,989,508 474,660,212
-------------- -------------- ------------- --------------
END OF PERIOD............ $ 442,034,484 $ 335,578,149 $547,582,781 $ 474,989,508
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 22 $ 65 $ (300) $ 148
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 465,453,549 186,625,741 13,356,857 1,958,805
Issued in reinvestment of
dividends and
distributions............... 19,438,372 18,013,450 2,881,413 2,970,264
Repurchased................... (378,435,543) (209,298,904) (10,567,612) (6,558,494)
-------------- -------------- ------------- --------------
NET INCREASE (DECREASE)....... 106,456,378 (4,659,713) 5,670,658 (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
100
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES
----------------------------- -----------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 47,746,756 $ 38,277,750 $ 14,064,617 $ 14,516,395
Net realized gain (loss)...... (10,756,455) 184,126 11,183,431 24,274,209
Net change in unrealized
appreciation/depreciation... (62,350,933) (2,939,937) 81,869,637 61,888,240
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... (25,360,632) 35,521,939 107,117,685 100,678,844
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (47,889,896) (37,998,064) (14,064,645) (14,516,342)
Net realized gain............. -- -- (24,274,238) (5,380,346)
------------- ------------- ------------- -------------
TOTAL.................... (47,889,896) (37,998,064) (38,338,883) (19,896,688)
------------- ------------- ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 150,152,649 94,751,829 107,347,532 10,084,184
Reinvestment of dividends and
distributions............... 47,889,896 37,998,064 38,338,883 19,896,688
Cost of shares repurchased.... (128,774,384) (21,761,038) (111,796,640) (93,290,638)
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 69,268,161 110,988,855 33,889,775 (63,309,766)
------------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE)............... (3,982,367) 108,512,730 102,668,577 17,472,390
NET ASSETS:
Beginning of period........... 368,061,271 259,548,541 458,134,256 440,661,866
------------- ------------- ------------- -------------
END OF PERIOD............ $364,078,904 $368,061,271 $560,802,833 $458,134,256
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 151,756 $ 294,896 $ 25 $ 53
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 26,123,968 15,438,103 5,490,004 586,036
Issued in reinvestment of
dividends and
distributions............... 8,453,299 6,235,666 1,967,479 1,234,020
Repurchased................... (22,927,167) (3,542,834) (5,716,328) (5,905,011)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE)....... 11,650,100 18,130,935 1,741,155 (4,084,955)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
INCOME BUILDER DIVIDEND GROWTH
------------------------------ -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED FOR THE YEAR ENDED ENDED
DECEMBER 31, ENDED DECEMBER DECEMBER 31, DECEMBER 31,
1998 31, 1997* 1998 1997
<S> <C> <C> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 4,037,661 $ 1,300,879 $ 38,849,535 $ 33,294,853
Net realized gain (loss)...... 936,441 773,374 322,115,886 187,796,245
Net change in unrealized
appreciation/depreciation... (3,662,539) 3,070,555 (89,389,463) 131,882,494
------------- -------------- -------------- --------------
NET INCREASE
(DECREASE)............... 1,311,563 5,144,808 271,575,958 352,973,592
------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (4,033,908) (1,300,838) (38,849,522) (33,294,817)
Net realized gain............. (768,186) -- (187,973,609) (76,862,062)
------------- -------------- -------------- --------------
TOTAL.................... (4,802,094) (1,300,838) (226,823,131) (110,156,879)
------------- -------------- -------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 50,649,400 51,206,002 479,551,623 315,154,387
Reinvestment of dividends and
distributions............... 4,802,094 1,300,838 226,823,131 110,156,879
Cost of shares repurchased.... (19,614,662) (927,977) (407,106,560) (50,626,648)
------------- -------------- -------------- --------------
NET INCREASE
(DECREASE)............... 35,836,832 51,578,863 299,268,194 374,684,618
------------- -------------- -------------- --------------
TOTAL INCREASE
(DECREASE)............... 32,346,301 55,422,833 344,021,021 617,501,331
NET ASSETS:
Beginning of period........... 55,422,833 -- 1,905,905,758 1,288,404,427
------------- -------------- -------------- --------------
END OF PERIOD............ $ 87,769,134 $ 55,422,833 $2,249,926,779 $1,905,905,758
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 14,879 $ 41 $ 154 $ 141
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 4,241,399 4,681,304 21,516,674 15,299,661
Issued in reinvestment of
dividends and
distributions............... 415,816 114,240 10,521,804 5,383,295
Repurchased................... (1,710,560) (84,489) (18,647,038) (2,443,929)
------------- -------------- -------------- --------------
NET INCREASE (DECREASE)....... 2,946,655 4,711,055 13,391,440 18,239,027
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
101
<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 YEAR ----------------------------------
ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR
DECEMBER 31, ENDED DECEMBER ENDED DECEMBER ENDED DECEMBER
1998 31, 1997 31, 1998 31, 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ (341,222) $ 9,982 $ 8,273,212 $ 6,849,599
Net realized gain (loss)...... 15,646,625 9,166,337 29,801,364 48,844,173
Net change in unrealized
appreciation/depreciation... 6,997,899 11,601,734 16,207,523 (13,083,151)
------------- -------------- ----------------- --------------
NET INCREASE
(DECREASE)............... 22,303,302 20,778,053 54,282,099 42,610,621
------------- -------------- ----------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (10,014) (406,792) (8,206,088) (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) (60,411,157) (24,903,636)
------------- -------------- ----------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 28,039,255 33,654,933 75,090,455 124,800,012
Reinvestment of dividends and
distributions............... 10,090,556 12,049,624 60,411,157 24,903,636
Cost of shares repurchased.... (38,839,523) (14,195,060) (126,758,450) (20,618,115)
------------- -------------- ----------------- --------------
NET INCREASE
(DECREASE)............... (709,712) 31,509,497 8,743,162 129,085,533
------------- -------------- ----------------- --------------
TOTAL INCREASE
(DECREASE)............... 11,503,034 40,237,926 2,614,104 146,792,518
NET ASSETS:
Beginning of period........... 127,100,076 86,862,150 481,613,460 334,820,942
------------- -------------- ----------------- --------------
END OF PERIOD............ $138,603,110 $ 127,100,076 $ 484,227,564 $ 481,613,460
------------- -------------- ----------------- --------------
------------- -------------- ----------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ (424) $ 9,662 $ 520,531 $ (74,436)
------------- -------------- ----------------- --------------
------------- -------------- ----------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 1,431,494 1,796,050 5,251,149 8,901,084
Issued in reinvestment of
dividends and
distributions............... 513,776 710,054 4,451,226 1,756,694
Repurchased................... (2,085,691) (774,142) (9,357,396) (1,479,827)
------------- -------------- ----------------- --------------
NET INCREASE (DECREASE)....... (140,421) 1,731,962 344,979 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
102
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EUROPEAN GROWTH PACIFIC GROWTH
----------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 3,094,783 $ 3,717,809 $ 504,743 $ 1,303,162
Net realized gain (loss)...... 43,252,405 33,715,966 (31,801,028) (18,390,247)
Net change in unrealized
appreciation/depreciation... 44,049,168 15,487,002 24,432,009 (29,854,161)
------------- ------------- ------------ ------------
NET INCREASE
(DECREASE)............... 90,396,356 52,920,777 (6,864,276) (46,941,246)
------------- ------------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (5,476,236) (3,760,260) (2,947,935) (1,891,258)
Net realized gain............. (30,256,754) (18,466,454) -- --
------------- ------------- ------------ ------------
TOTAL.................... (35,732,990) (22,226,714) (2,947,935) (1,891,258)
------------- ------------- ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 190,691,042 69,322,769 65,895,854 27,108,335
Reinvestment of dividends and
distributions............... 35,732,990 22,226,714 2,947,935 1,891,258
Cost of shares repurchased.... (161,891,054) (33,224,347) (75,093,578) (55,800,009)
------------- ------------- ------------ ------------
NET INCREASE
(DECREASE)............... 64,532,978 58,325,136 (6,249,789) (26,800,416)
------------- ------------- ------------ ------------
TOTAL INCREASE
(DECREASE)............... 119,196,344 89,019,199 (16,062,000) (75,632,920)
NET ASSETS:
Beginning of period........... 391,441,253 302,422,054 68,903,537 144,536,457
------------- ------------- ------------ ------------
END OF PERIOD............ $510,637,597 $391,441,253 $52,841,537 $68,903,537
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 3,134,104 $ 5,394,724 $ 411,637 $ 2,054,796
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 7,118,106 3,070,886 13,473,730 3,373,487
Issued in reinvestment of
dividends and
distributions............... 1,290,932 983,918 677,325 188,937
Repurchased................... (6,252,813) (1,452,789) (15,145,796) (6,804,802)
------------- ------------- ------------ ------------
NET INCREASE (DECREASE)....... 2,156,225 2,602,015 (994,741) (3,242,378)
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
<CAPTION>
CAPITAL APPRECIATION EQUITY
--------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, ENDED DECEMBER DECEMBER 31,
1998 1997* 31, 1998 1997
<S> <C> <C> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 386,474 $ 209,858 $ 6,924,725 $ 4,000,633
Net realized gain (loss)...... (6,243,234) (257,864) 161,754,931 114,548,760
Net change in unrealized
appreciation/depreciation... 2,856,814 1,384,140 89,582,262 87,770,605
------------ ------------ -------------- -------------
NET INCREASE
(DECREASE)............... (2,999,946) 1,336,134 258,261,918 206,319,998
------------ ------------ -------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (209,858) -- (6,924,673) (4,001,396)
Net realized gain............. -- -- (114,146,703) (43,430,509)
------------ ------------ -------------- -------------
TOTAL.................... (209,858) -- (121,071,376) (47,431,905)
------------ ------------ -------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 19,359,401 33,834,119 262,726,068 150,537,439
Reinvestment of dividends and
distributions............... 209,858 -- 121,071,376 47,431,905
Cost of shares repurchased.... (16,060,549) (2,864,342) (205,665,545) (55,675,579)
------------ ------------ -------------- -------------
NET INCREASE
(DECREASE)............... 3,508,710 30,969,777 178,131,899 142,293,765
------------ ------------ -------------- -------------
TOTAL INCREASE
(DECREASE)............... 298,906 32,305,911 315,322,441 301,181,858
NET ASSETS:
Beginning of period........... 32,305,911 -- 823,090,282 521,908,424
------------ ------------ -------------- -------------
END OF PERIOD............ $32,604,817 $32,305,911 $1,138,412,723 $823,090,282
------------ ------------ -------------- -------------
------------ ------------ -------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 386,474 $ 209,858 $ (5,165) $ --
------------ ------------ -------------- -------------
------------ ------------ -------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 1,745,653 3,118,030 7,421,841 4,895,346
Issued in reinvestment of
dividends and
distributions............... 17,860 -- 3,456,577 1,670,194
Repurchased................... (1,470,199) (263,345) (5,884,436) (1,832,698)
------------ ------------ -------------- -------------
NET INCREASE (DECREASE)....... 293,314 2,854,685 4,993,982 4,732,842
------------ ------------ -------------- -------------
------------ ------------ -------------- -------------
</TABLE>
103
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
S&P 500 COMPETITIVE
INDEX EDGE STRATEGIST
------------ "BEST IDEAS" --------------------------
FOR THE YEAR -------------- FOR THE YEAR FOR THE YEAR
ENDED FOR THE YEAR ENDED ENDED
DECEMBER 31, ENDED DECEMBER DECEMBER 31, DECEMBER 31,
1998* 31, 1998* 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 244,990 $ 266,358 $12,820,064 $14,575,529
Net realized gain (loss)...... 186,052 (1,270,706) (7,041,288) 52,520,724
Net change in unrealized
appreciation/depreciation... 4,173,912 1,995,524 125,871,829 (8,667,550)
------------ -------------- ------------ ------------
NET INCREASE............. 4,604,954 991,176 131,650,605 58,428,703
------------ -------------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... -- -- (12,819,604) (14,592,034)
Net realized gain............. -- -- (52,303,444) (10,026,602)
------------ -------------- ------------ ------------
TOTAL.................... -- -- (65,123,048) (24,618,636)
------------ -------------- ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 50,279,637 48,814,147 120,982,104 49,903,217
Reinvestment of dividends and
distributions............... -- -- 65,123,048 24,618,636
Cost of shares repurchased.... (6,152,623) (13,266,543) (115,726,574) (35,071,627)
------------ -------------- ------------ ------------
NET INCREASE............. 44,127,014 35,547,604 70,378,578 39,450,226
------------ -------------- ------------ ------------
TOTAL INCREASE........... 48,731,968 36,538,780 136,906,135 73,260,293
NET ASSETS:
Beginning of period........... -- -- 497,028,145 423,767,852
------------ -------------- ------------ ------------
END OF PERIOD............ $48,731,968 $ 36,538,780 $633,934,280 $497,028,145
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME........................ $ 244,990 $ 267,028 $ 458 $ 62
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 4,974,649 5,131,070 7,783,951 3,393,163
Issued in reinvestment of
dividends and
distributions............... -- -- 4,189,589 1,704,636
Repurchased................... (631,013) (1,408,330) (7,464,531) (2,398,648)
------------ -------------- ------------ ------------
NET INCREASE.................. 4,343,636 3,722,740 4,509,009 2,699,151
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
</TABLE>
- ------------------
<TABLE>
<C> <S>
* For the period May 18, 1998 (commencement of operations) through December
31, 1998.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
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>
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>
105
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 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
106
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 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 Stanley Dean Witter Investment Management Inc.
(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 AND FUTURES CONTRACTS -- (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
107
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
a gain or loss from the sale of the underlying security or currency and the
proceeds from such sale are increased by the premium originally received. If a
put option which the Fund has written is exercised, the amount of the premium
originally received reduces the cost of the security which the Fund purchases
upon exercise of the option; and (2) Purchased options on debt obligations,
equities and foreign currency: when the Fund purchases a call or put option, the
premium paid is recorded as an investment and is subsequently marked-to-market
to reflect the current market value. If a purchased option expires, the Fund
will realize a loss to the extent of the premium paid. If the Fund enters into a
closing sale transaction, a gain or loss is realized for the difference between
the proceeds from the sale and the cost of the option. If a put option is
exercised, the cost of the security sold upon exercise will be increased by the
premium originally paid. If a call option is exercised, the cost of the security
purchased upon exercise will be increased by the premium originally paid; (3)
Options on futures contracts: the Fund is required to deposit cash, U.S.
Government securities or other liquid portfolio securities as "initial margin"
and "variation margin" with respect to written call and put options on futures
contracts. If a written option expires, the Fund realizes a gain. If a written
call or put option is exercised, the premium received will decrease or increase
the unrealized loss or gain on the futures contract. If 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 futures contract and the liability
related to such option is extinguished; (4) Futures contracts: a futures
contract is an agreement between two parties to buy and sell financial
instruments at a set price on a future date. Upon entering into such a contract,
the Fund is required to pledge to the broker cash, U.S. Government securities or
other liquid portfolio securities equal to the minimum initial margin
requirements of the applicable futures exchange. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments known
as variation margin are recorded by the Fund as unrealized gains or losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
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.
108
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
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 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
109
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
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% of 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 -- 0.95% to the portion of daily net assets not exceeding $500
million (prior to December 1, 1998, the annual rate was 1.0%). Effective May 1,
1998 the Agreement was amended to reduce the annual rate applied to the portion
of daily net assets exceeding $500 million to 0.95% (the rate was reduced to
0.90% effective December 1, 1998); Pacific Growth -- 0.95% (prior to November 1,
1998, the annual rate was 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% of 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 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. Prior to November 1, 1998 for Pacific
Growth and December 1, 1998 for European Growth, Morgan Grenfell Investment
Services Limited ("MGIS") acted as sub-advisor to both portfolios. As
compensation for its services under the Sub-Advisory Agreements, the Investment
Manager paid MGIS 40% of its monthly compensation.
110
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
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 April 30, 1999 and with S&P 500 Index and Competitive
Edge "Best Ideas" until such time as each Portfolio has $50 million of net
assets or until April 30, 1999, whichever occurs first. At December 31, 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 year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
---------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Money Market............................ $115,325,487 $ 27,793,430 $1,553,838,890 $ 1,552,687,984
Quality Income Plus..................... 580,087,998 567,198,557 239,149,240 193,781,103
High Yield.............................. -- -- 405,411,638 352,871,007
Utilities............................... -- -- 31,492,522 37,480,272
Income Builder.......................... 1,032,516 789,501 71,520,788 38,197,634
Dividend Growth......................... 35,027,344 75,150,313 1,021,898,293 847,971,398
Capital Growth.......................... -- -- 318,158,863 331,541,150
Global Dividend Growth.................. -- -- 246,278,457 298,807,889
European Growth......................... -- -- 261,273,517 257,373,595
Pacific Growth.......................... -- -- 58,410,740 65,053,250
Capital Appreciation.................... -- -- 100,967,022 92,651,940
Equity.................................. 245,309,950 309,564,022 2,111,079,774 1,991,844,186
S&P 500 Index........................... 459,315 -- 40,380,226 373,844
Competitive Edge "Best Ideas"........... -- -- 40,633,470 6,948,809
Strategist.............................. 115,941,858 106,212,546 288,488,708 282,624,483
</TABLE>
Included in the aforementioned purchases of portfolio securities of S&P 500
Index are purchases of Morgan Stanley Dean Witter & Co., and Allstate Corp.,
affiliates of the Investment Manager, of $188,688 and $160,089, respectively.
Included in the payable for investments purchased at December 31, 1998 for
Dividend Growth, Income Builder and Equity, are $6,609,369, $130,504 and
$25,561,660, 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, 1998 for Capital Growth, Income Builder and
Global Dividend Growth are $1,019,600, $139,606 and $264,658, respectively, for
unsettled trades with DWR.
111
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
For the year ended December 31, 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>
$ 6,675 $ 29,334 $ 111,865 $ 44,940 $ 38,325 $ 49,104 $ 248,435 $ 18,566
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
----------- ------------ -------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
For the year ended December 31, 1998, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co. Inc., an affiliate of the
Investment Manager, for portfolio transactions executed on behalf of the
Portfolio:
<TABLE>
<CAPTION>
COMPETITIVE
GLOBAL EDGE
INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC CAPITAL "BEST
BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH APPRECIATION EQUITY IDEAS" STRATEGIST
------- -------- ------- -------- -------- ------- ---------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$970 $294,795 $57,785 $242,135 $29,622 $11,373 $ 4,565 $432,631 $26,356 $29,875
------- -------- ------- -------- -------- ------- ------ ------- ---------- ----------
------- -------- ------- -------- -------- ------- ------ ------- ---------- ----------
</TABLE>
For the period January 1, 1998 through November 30, 1998, European Growth and
Pacific Growth incurred brokerage commissions of $4,661 and $6,540,
respectively, with affiliates of MGIS 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 year ended December 31, 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:
<TABLE>
<CAPTION>
AGGREGATE PENSION COSTS
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>
$ 307 $ 440 $ 374 $ 438 $ 73 $ 1,992 $ 136 $ 485 $ 533 $ 58 $ 30 $ 850 $ 506
------- ------- ------ --------- ------- -------- ------- -------- -------- ------- --- ------ ----------
------- ------- ------ --------- ------- -------- ------- -------- -------- ------- --- ------ ----------
ACCRUED PENSION LIABILITY
$11,445 $7,607 $3,681 $ 5,089 $ 73 $ 9,212 $ 424 $ 907 $ 1,121 $ 264 $ 34 $5,778 $ 8,302
------- ------- ------ --------- ------- -------- ------- -------- -------- ------- --- ------ ----------
------- ------- ------ --------- ------- -------- ------- -------- -------- ------- --- ------ ----------
</TABLE>
112
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
4. FEDERAL INCOME TAX STATUS
At December 31, 1998, 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, 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL
- ---------------------------------------- ------- ------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quality Income Plus..................... -- -- -- $12,951 -- $2,491 -- -- $15,442
High Yield.............................. $ 7,336 $3,057 $4,736 3,256 $ 2,984 5,521 -- $2,735 29,625
Pacific Growth.......................... -- -- -- -- 1,939 4,124 $11,428 33,463 50,954
Capital Appreciation.................... -- -- -- -- -- -- 228 6,087 6,315
Competitive Edge "Best Ideas"........... -- -- -- -- -- -- -- 853 853
Strategist.............................. -- -- -- -- -- -- -- 6,900 6,900
</TABLE>
During the year ended December 31, 1998, Quality Income Plus utilized
approximately $7,801,000 of its net capital loss carryover.
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 1998: Quality
Income Plus -- $692,000; High Yield -- $7,991,000; Income Builder -- $346,000;
European Growth -- $4,790,000; Pacific Growth -- $4,534,000; Capital
Appreciation -- $167,000; Competitive Edge "Best Ideas" -- $346,000 and
Strategist -- $59,000.
At December 31, 1998, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
PERMANENT DIFFERENCES
TEMPORARY DIFFERENCES -------------------------------
---------------------------- EXPIRED
LOSS DEFERRALS FOREIGN CAPITAL
POST-OCTOBER FROM WASH CURRENCY LOSS
LOSSES SALES GAIN/LOSSES CARRYFORWARD
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Quality Income Plus..................... - -
High Yield.............................. - - -
Utilities............................... -
Income Builder.......................... - -
Dividend Growth......................... -
Capital Growth.......................... -
Global Dividend Growth.................. - -
European Growth......................... - - -
Pacific Growth.......................... - - -
Capital Appreciation.................... - -
Equity.................................. - -
Competitive Edge "Best Ideas"........... - - -
Strategist.............................. - -
</TABLE>
113
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
Additionally, Global Dividend Growth and Pacific Growth Portfolios had temporary
differences attributable to income from the mark-to-market of passive foreign
investment companies ("PFICs"), High Yield had temporary differences
attributable to interest on bonds in default and S&P 500 Index had temporary
differences attributable to the mark-to-market of futures contracts. Global
Dividend Growth and Pacific Growth Portfolios had permanent differences
attributable to tax adjustments on PFICs sold by the Portfolios and Capital
Growth Portfolio had permanent differences attributable to a net operating loss.
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME (LOSS) NET REALIZED GAIN (LOSS)
----------------------------------- ----------------------------------
<S> <C> <C>
High Yield.............................. $ 34,290,387
Capital Growth.......................... $ 341,150 (341,150)
Global Dividend Growth.................. 527,843 (527,843)
Income Builder.......................... 11,085 (11,085)
European Growth......................... 120,833 (120,833)
Pacific Growth.......................... 800,033 (842,919)
Equity.................................. (5,217) 5,217
Competitive Edge "Best Ideas"........... 670 (670)
Strategist.............................. (64) 64
<CAPTION>
PAID-IN-CAPITAL
------------------
<S> <C>
High Yield.............................. $ (34,290,387)
Capital Growth..........................
Global Dividend Growth..................
Income Builder..........................
European Growth.........................
Pacific Growth.......................... 42,886
Equity..................................
Competitive Edge "Best Ideas"...........
Strategist..............................
</TABLE>
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 December 31, 1998, Global Dividend Growth and Pacific Growth had outstanding
forward contracts.
114
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
S&P 500 Index may purchase and sell stock index futures ("futures contracts")
for the following reasons: to simulate full investment in the S&P 500 INDEX
while retaining a cash balance for fund 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.
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. S&P 500 Index bears the
risk of an unfavorable change in the value of the underlying securities.
At December 31, 1998, S&P 500 Index had outstanding futures contracts.
At December 31, 1998, European Growth's investments in securities of issuers in
the United Kingdom represented 26.3% of the Portfolio's net assets. Pacific
Growth's investments in securities of issuers in Japan and Hong Kong represented
27.2% and 21.1%, respectively, 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, 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. PORTFOLIO MERGER
On October 29, 1998, the Board of Trustees of Morgan Stanley Dean Witter
Variable Investment Series approved a reorganization plan ("the Plan") whereby
Capital Appreciation would be merged into Equity. The Plan is subject to the
consent of Capital Appreciation's shareholders. If approved, the assets of
Capital Appreciation would be combined with the assets of Equity and
shareholders of Capital Appreciation would become shareholders of Equity,
receiving shares of Equity equal to the value of their holdings in Capital
Appreciation.
115
<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
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 1.00 0.051 -- 0.051 (0.051) -- (0.051)
QUALITY INCOME PLUS
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 10.77 0.68 0.23 0.91 (0.68) -- (0.68)
HIGH YIELD
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 6.12 0.71 (1.05) (0.34) (0.71) -- (0.71)
UTILITIES
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 18.59 0.57 3.68 4.25 (0.57) (1.02) (1.59)
INCOME BUILDER
1997(a) 10.00 0.44 1.76 2.20 (0.44) -- (0.44)
1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11) (0.67)
DIVIDEND GROWTH
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 21.60 0.41 2.58 2.99 (0.41) (2.05) (2.46)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
116
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET ASSET NET ASSETS AT NET PORTFOLIO
VALUE END END OF PERIOD INVESTMENT TURNOVER
OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
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 1.00 5.18 442,034 0.52 5.04 N/A
QUALITY INCOME PLUS
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 11.00 8.67 547,583 0.52 6.23 152
HIGH YIELD
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 5.07 (6.20) 364,079 0.53 12.27 93
UTILITIES
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 21.25 23.76 560,803 0.67 2.89 7
INCOME BUILDER
1997(a) 11.76 22.38(1) 55,423 0.15(2) (4) 5.73 (2) (4) 41(1)
1998 11.46 3.21 87,769 0.81 5.09 54
DIVIDEND GROWTH
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 22.13 14.28 2,249,927 0.53 1.85 45
</TABLE>
117
<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
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 18.29 (0.05) 3.59 3.54 -- (1.47) (1.47)
GLOBAL DIVIDEND GROWTH
1994(b) 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 13.89 0.24 1.45 1.69 (0.24) (1.52) (1.76)
EUROPEAN GROWTH
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 23.54 0.15 5.53 5.68 (0.31) (1.73) (2.04)
PACIFIC GROWTH
1994(b) 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 6.12 0.06 (0.75) (0.69) (0.28) -- (0.28)
CAPITAL APPRECIATION
1997(a) 10.00 0.07 1.25 1.32 -- -- --
1998 11.32 0.12 (1.01) (0.89) (0.07) -- (0.07)
EQUITY
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 33.58 0.25 9.47 9.72 (0.25) (4.47) (4.72)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
118
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET
NET ASSET NET ASSETS AT INVESTMENT PORTFOLIO
VALUE END END OF PERIOD INCOME TURNOVER
OF PERIOD TOTAL RETURN+ (000'S) EXPENSES (LOSS) RATE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
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 20.36 19.63 138,603 0.70 (0.26 ) 248
GLOBAL DIVIDEND GROWTH
1994(b) 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 13.82 12.53 484,228 0.84 1.68 52
EUROPEAN GROWTH
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 27.18 23.96 510,638 1.11 0.65 56
PACIFIC GROWTH
1994(b) 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 5.15 (10.40) 52,842 1.51 0.91 112
CAPITAL APPRECIATION
1997(a) 11.32 13.20(1) 32,306 -- (4) 1.30 (2)(4) 25(1)
1998 10.36 (7.96) 32,605 -- (5) 1.16 (5) 340
EQUITY
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 38.58 30.45 1,138,413 0.52 0.73 257
</TABLE>
119
<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(c) $ 10.00 $ 0.06 $ 1.16 $ 1.22 -- -- --
COMPETITIVE EDGE "BEST IDEAS"
1998(c) 10.00 0.07 (0.25) (0.18) -- -- --
STRATEGIST
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 14.80 0.36 3.40 3.76 (0.36) (1.56) (1.92)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
Commencement of operations:
(a) January 21, 1997.
(b) February 23, 1994.
(c) 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.
(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 period May 18, 1998 through December 31, 1998 for
Competitive Edge "Best Ideas" and S&P 500 Index, respectively, and for the
period January 1, 1998 through December 31, 1998 for Capital Appreciation,
the ratios of expenses and net investment income to average net assets
would have been 0.92% and 0.83%, respectively, for Competitive Edge "Best
Ideas", 0.59% and 1.26%, respectively, for S&P 500 Index and 0.86% and
0.30%, respectively, for Capital Appreciation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
120
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET ASSET NET ASSETS AT NET PORTFOLIO
VALUE END END OF PERIOD INVESTMENT TURNOVER
OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME RATE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 INDEX
1998(c) $ 11.22 12.20%(1) $ 48,732 -- (5) 1.85 %(2)(5) 2%(1)
COMPETITIVE EDGE "BEST
IDEAS"
1998(c) 9.82 (1.90) (1) 36,539 -- (5) 1.74 (2)(5) 31(1)
STRATEGIST
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 16.64 26.55 633,934 0.52 2.32 84
</TABLE>
121
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY 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, the S&P 500 Index Portfolio, the Competitive
Edge "Best Ideas" Portfolio and the Strategist Portfolio (constituting Morgan
Stanley Dean Witter Variable Investment Series, formerly Dean Witter Variable
Investment Series, hereafter referred to as the "Fund") at December 31, 1998,
the results of each of their operations for the year or period then ended, and
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, 1998 by correspondence with the
custodians and brokers, provide a reasonable basis for the opinion expressed
above.
As described in Note 6 to the financial statements, the Board of Trustees of
Morgan Stanley Dean Witter Variable Investment Series approved a reorganization
plan, subject to shareholder approval, whereby the Capital Appreciation
Portfolio will be merged into the Equity Portfolio.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 12, 1999
122
<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 Stanley Dean Witter Investment
Management Inc.
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>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
- -------------------------------------------------------------------------------
ANNUAL REPORT
- -------------------------------------------------------------------------------
DECEMBER 31, 1998
<PAGE>
Northbrook Life Insurance Company
P.O. Box 94040
Palatine, IL 60094-4040
40113A
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
- -------------------------------------------------------------------------------
ANNUAL REPORT
- -------------------------------------------------------------------------------
DECEMBER 31, 1998
<PAGE>
Allstate Life Insurance Company of New York
P.O. Box 94038
Palatine, IL 60094-4038
40915A
