<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1999
REGISTRATION NOS.: 2-82510
811-3692
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 26 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 27 /X/
------------------------
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Post-Effective
Amendment becomes effective
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on April 30, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ---------------------------------------------- ---------------------------------------------------------------------
<S> <C>
PART A
1. ......................................... Cover Page; Back Cover
2. ......................................... The Portfolios; Additional Risk Information
3. ......................................... Not Applicable
4. ......................................... The Portfolios; Additional Investment Strategy Information;
Additional Risk Information
5. ......................................... Not Applicable
6. ......................................... Eligible Investors; Portfolio Management
7. ......................................... Eligible Investors; Shareholder Information
8. ......................................... Not Applicable
9. ......................................... Financial Highlights
PART B STATEMENT OF ADDITIONAL INFORMATION
Information required to be included in Part B is set forth under the appropriate caption in Part B of this
Registration Statement.
PART C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of
this Registration Statement.
</TABLE>
<PAGE>
PROSPECTUS - MAY 1, 1999
Morgan Stanley Dean Witter
VARIABLE INVESTMENT SERIES
Morgan Stanley Dean Witter Variable Investment Series is a
mutual fund comprised of 16 separate Portfolios, each with
its own distinctive investment objective(s) and policies.
The Portfolios are:
<TABLE>
<S> <C>
The Money Market Portfolio The Global Dividend Growth Portfolio
The Short-Term Bond Portfolio The European Growth Portfolio
The Quality Income Plus Portfolio The Pacific Growth Portfolio
The High Yield Portfolio The Equity Portfolio
The Utilities Portfolio The S&P 500 Index Portfolio
The Income Builder Portfolio The Competitive Edge "Best Ideas" Portfolio
The Dividend Growth Portfolio The Aggressive Equity Portfolio
The Capital Growth Portfolio The Strategist Portfolio
</TABLE>
Shares of each Portfolio are sold exclusively to certain
life insurance companies in connection with particular life
insurance and/or annuity contracts they issue. The insurance
companies invest in shares of the portfolios in accordance
with instructions received from owners of the applicable
life insurance or annuity policy.
This PROSPECTUS must be accompanied by a current prospectus
for the variable annuity contracts issued by Northbrook Life
Insurance Company, Allstate Life Insurance Company of New
York or Glenbrook Life and Annuity Company or a current
prospectus for the variable life insurance contracts issued
by Northbrook Life Insurance Company, Glenbrook Life and
Annuity Company or Paragon Life Insurance Company.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this PROSPECTUS. Any representation
to the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
Eligible Investors ............................................................ 1
The Portfolios ............................................................ 2
The Money Market Portfolio.................................. 2
The Short-Term Bond Portfolio............................... 5
The Quality Income Plus Portfolio........................... 7
The High Yield Portfolio.................................... 10
The Utilities Portfolio..................................... 12
The Income Builder Portfolio................................ 15
The Dividend Growth Portfolio............................... 18
The Capital Growth Portfolio................................ 20
The Global Dividend Growth Portfolio........................ 22
The European Growth Portfolio............................... 24
The Pacific Growth Portfolio................................ 27
The Equity Portfolio........................................ 30
The S&P 500 Index Portfolio................................. 33
The Competitive Edge "Best Ideas" Portfolio................. 35
The Aggressive Equity Portfolio............................. 38
The Strategist Portfolio.................................... 40
Additional Investment
Strategy Information ............................................................ 43
Additional Risk
Information ............................................................ 44
Portfolio Management ............................................................ 49
Shareholder Information ............................................................ 52
Pricing Fund Shares......................................... 52
Distributions............................................... 53
Tax Consequences............................................ 53
Financial Highlights ............................................................ 54
</TABLE>
<PAGE>
ELIGIBLE INVESTORS
Morgan Stanley Dean Witter Variable Investment Series (the
"Fund") is comprised of 16 separate Portfolios (each a
"Portfolio"), each with its own distinct investment
objective(s) and policies. The Fund is offered exclusively
to certain life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer.
Shares of each Portfolio are purchased by the life insurance
companies at net asset value per share without a sales
charge in accordance with instructions received from the
owners of the applicable life insurance or annuity contract.
Currently the Fund is offered to the following insurance
companies:
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
- -----------------------------------------------------------------------------
Northbrook Life Insurance Certain Flexible Premium Variable Annuity and
Company Variable Life Insurance Contracts
- -----------------------------------------------------------------------------
Allstate Life Insurance Certain Flexible Premium Deferred Variable
Company Annuity Contracts
- -----------------------------------------------------------------------------
Glenbrook Life and Annuity Certain Flexible Premium Deferred Variable
Company Annuity Contracts and Certain Flexible
Premium Variable Life Insurance Contracts
- -----------------------------------------------------------------------------
Paragon Life Insurance Certain Flexible Premium Variable Life
Company Insurance Contracts (issued in connection
with an employer-sponsored insurance program
offered only to certain employees of Morgan
Stanley Dean Witter & Co., the parent of the
Fund's Investment Manager)
- -----------------------------------------------------------------------------
</TABLE>
1
<PAGE>
(Sidebar)
MONEY MARKET
A mutual fund having the goal to select securities to provide current income
while seeking to maintain a stable share price of $1.00.
YIELD
The Portfolio's yield reflects the actual income the Portfolio pays to you
expressed as a percentage of the Portfolio share price. Because the Portfolio's
income from its portfolio securities will fluctuate, the income it in turn
distributes to you and the Portfolio's yield will vary.
(End Sidebar)
THE PORTFOLIOS
THE MONEY MARKET PORTFOLIO
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objectives of the Money Market Portfolio are
high current income, preservation of capital and liquidity.
There is no guarantee that the Portfolio will achieve these
objectives.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio invests in high quality, short-term debt
obligations. In selecting investments, the "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., seeks to
maintain the Portfolio's share price at $1.00. A mutual
fund's share price remaining stable at $1.00 means that the
fund would preserve the principal value of the shareholders'
investments.
The Portfolio's investments are limited, as a matter of
fundamental investment policy, which may not be changed
without shareholder approval, to the following types of
money market instruments:
<TABLE>
<C> <S> <C>
- commercial paper -- rated by Standard & Poor's Corporation ("S&P")
in one of the two highest rating categories or
the highest grade by Moody's Investors Services
Inc. ("Moody's") or, if not rated, issued by a
company having an outstanding debt issue rated
at least AA by S&P or Aa by Moody's;
- corporate obligations -- rated at least A by S&P or Moody's;
- bank obligations -- including certificates of deposit, of U.S.-
regulated banks having total assets of $1
billion or more, and investments secured by
these obligations;
- Eurodollar certificates of deposit issued by foreign branches of domestic banks
-- having assets of $1 billion or more;
- savings institution obligations -- including certificates of deposit of savings
banks and savings and loan institutions having
assets of $1 billion or more;
- U.S. government securities -- issued or guaranteed as to principal by the
U.S. government, its agencies or its
instrumentalities;
- insured certificates of deposit -- of banks and saving institutions having assets
of less than $1 billion; and
- repurchase agreements -- which may be viewed as a type of secured
lending by the Portfolio.
</TABLE>
2
<PAGE>
The Portfolio may purchase debt obligations that have fixed,
variable or floating rates of interest. The interest rates
payable on variable rate or floating rate obligations may
fluctuate based upon changes in market rates.
The Portfolio attempts to balance its objectives of high
income, capital preservation and liquidity by investing in
securities of varying maturities and risks. The Portfolio
does not, however, invest in securities that mature in more
than one year from the date of purchase.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
Principal risks of investing in the Portfolio are associated
with its debt obligation investments. All debt obligations,
such as bonds, are subject to two types of risk: credit risk
and interest rate risk. Credit risk refers to the
possibility that the issuer of a security will be unable to
make interest payments and/or repay the principal on its
debt. Interest rate risk refers to fluctuations in the value
of a debt security resulting from changes in the general
level of interest rates.
The Investment Manager actively manages the Portfolio's
assets to reduce the risk of losing any principal investment
as a result of credit or interest rate risks. The
Portfolio's assets are reviewed to maintain or improve
creditworthiness. In addition, federal regulations require
money market funds to invest only in debt obligations of
high quality and short maturities, and repurchase agreements
with respect to such obligations.
An investment in the Portfolio is not a bank deposit and is
not insured or guaranteed by the FDIC or any other
governmental agency. Although the Portfolio seeks to
preserve the value of your investment at $1.00 per share, if
it is unable to do so, it is possible to lose money by
investing in the Portfolio.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy.
3
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Money Market Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 9.10%
...90 7.93%
...91 5.70%
...92 3.43%
...93 2.75%
...94 3.81%
...95 5.66%
...96 5.11%
...97 5.23%
...98 5.18%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 2.40% (quarter ended June
30, 1989) and the lowest return for a calendar quarter was
0.66% (quarter ended June 30, 1993). Year-to-date total
return as of March 31, 1999 was 1.12%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Money Market Portfolio 5.18% 5.00% 5.38%
- -------------------------------------------------------------------------------
Lipper Money Market Funds
Average(1) 5.10% 4.91% 5.15%
- -------------------------------------------------------------------------------
</TABLE>
(1) The Lipper Variable Annuity Money Market Funds Average tracks the
performance of all funds that invest in high quality financial instruments
rated in the top two grades with dollar-weighted average maturities of less
than 90 days and intend to keep a constant net asset value, as reported by
Lipper Analytical Services.
4
<PAGE>
(Sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in value.
(End Sidebar)
THE SHORT-TERM BOND PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Short-Term Bond Portfolio is
to provide a high level of current income consistent with
the preservation of capital. There is no guarantee that the
Portfolio will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in bonds issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or
instrumentalities (including zero coupon securities), and
investment grade corporate and other types of bonds. In
selecting portfolio investments, the "Investment Manager,"
Morgan Stanley Dean Witter Advisors Inc., considers both
domestic and international economic developments, interest
rate trends and other factors and seeks to maintain an
overall weighted average maturity for the Portfolio of less
than three years.
MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government
securities in which the Portfolio may invest are
mortgage-backed securities. One type of mortgage-backed
security, in which the Portfolio may invest, is a mortgage
pass-through security. These securities represent a
participation interest in a pool of residential mortgage
loans originated by U.S. Governmental or private lenders
such as banks. They differ from conventional debt
securities, which provide for periodic payment of interest
in fixed amounts and principal payments at maturity or on
specified call dates. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of
the monthly interest and principal payments made by the
individual borrowers on the pooled mortgage loans. Mortgage
pass-through securities may be collateralized by mortgages
with fixed rates of interest or adjustable rates.
The Portfolio may invest up to 25% of its assets in
investment grade fixed-income securities issued by foreign
governments or corporations. The Portfolio's investments
also include "Rule 144A" fixed-income securities, which are
subject to resale restrictions. Up to 5% of the Portfolio's
assets may be invested in fixed-income securities rated
lower than investment grade, or if unrated of comparable
quality as determined by the Investment Manager (commonly
known as "junk bonds").
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
5
<PAGE>
Principal risks of investing in the Portfolio are associated
with the Portfolio's investments in fixed-income securities.
These risks are credit risk and interest rate risk. Credit
risk is the possibility that the issuer of a security will
be unable to make interest payments and/or repay the
principal on its debt. Interest rate risk refers to
fluctuations in the value of a fixed-income security
resulting from changes in the general level of interest
rates.
There are also particular risks associated with the
Portfolio's investments in mortgage-backed securities. For
example mortgage-backed securities are subject to prepayment
risk and in some cases may be more volatile and less liquid
than other traditional types of debt securities.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
6
<PAGE>
(Sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in value.
(End Sidebar)
THE QUALITY INCOME PLUS PORTFOLIO
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The primary investment objective of the Quality Income Plus
Portfolio is to provide a high level of current income by
investing primarily in U.S. government securities and other
fixed-income securities. As a secondary objective the
Portfolio seeks capital appreciation but only when
consistent with its primary objective. There is no guarantee
that the Portfolio will achieve these objectives.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in (i) U.S. Government securities issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, (ii) debt
securities (including zero coupon securities), rated at the
time of purchase within the three highest bond rating
categories by Moody's or S&P or if not rated determined to
be of comparable quality by the "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., and (iii) Yankee
government bonds rated at the time of purchase within the
three highest rating categories of Moody's or S&P or if not
rated determined to be of comparable quality by the
Investment Manager. Yankee government bonds are U.S. dollar
denominated bonds issued by foreign government agencies or
instrumentalities (no more than 20% of the Portfolio's
assets may be invested in Yankee government bonds). The
Portfolio is not limited as to the maturities of the U.S.
Government and other debt securities in which it may invest.
In making investment decisions for the Portfolio, the
Investment Manager considers both domestic and international
economic developments, interest rate trends and other
factors. The Investment Manager evaluates technical
considerations such as the relative supply of and demand for
corporate notes and U.S. Treasury and agencies issues before
it decides upon an asset allocation. Similarly, the
assessment of the strength of individual companies that
issue corporate debt and the overall country risk of
sovereign debt obligations contribute to the decision-making
process.
MORTGAGE-BACKED SECURITIES. Certain of the U.S. Government
securities in which the Portfolio may invest are
mortgage-backed securities. One type of mortgage-backed
security, in which the Portfolio may invest, is a mortgage
pass-through security. These securities represent a
participation interest in a pool of residential mortgage
loans originated by U.S. Governmental or private lenders
such as banks. They differ from conventional debt
securities, which provide for periodic payment of interest
in fixed amounts and principal payments at maturity or on
specified call dates. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of
the monthly interest and principal payments made by the
individual borrowers on the pooled mortgage loans. Mortgage
pass-through securities may be collateralized by mortgages
with fixed rates of interest or adjustable rates.
7
<PAGE>
BORROWING. In seeking to increase income, the Portfolio may
borrow to purchase securities. Such borrowing may not exceed
25% of the Portfolio's total assets.
OTHER INVESTMENTS. The Portfolio may invest up to 15% of its
assets in Yankee corporate bonds which are rated at the time
of purchase within the three highest grades as determined by
Moody's or S&P or which, if not rated, are of comparable
quality as determined by the Investment Manager. Yankee
corporate bonds are U.S. dollar denominated debt securities
issued by foreign companies.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with the Portfolio's investments in fixed-income securities.
These risks are credit risk and interest rate risk. Credit
risk is the possibility that the issuer of a security will
be unable to make interest payments and/or repay the
principal on its debt. Interest rate risk refers to
fluctuations in the value of a fixed-income security
resulting from changes in the general level of interest
rates.
There are also particular risks associated with the
Portfolio's investments in mortgage-backed securities. For
example mortgage-backed securities are subject to prepayment
risk and in some cases may be more volatile and less liquid
than other traditional types of debt securities.
The Portfolio may borrow money to purchase securities. To
the extent that the Portfolio engages in such practice it
may be leveraged. Leveraging generally exaggerates the
effect on net asset value of any increase or decrease in the
market value of the Portfolio's investments.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
8
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Quality Income Plus Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 12.78%
...90 6.84%
...91 18.75%
...92 8.26%
...93 12.99%
...94 -6.63%
...95 24.30%
...96 1.56%
...97 11.09%
...98 8.67%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 8.07% (quarter ended June
30, 1995) and the lowest return for a calendar quarter was
-4.83% (quarter ended March 31, 1994). Year-to-date total
return as of March 31, 1999 was -1.70%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Quality Income Plus Portfolio 8.67% 7.31% 9.55%
- -------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index(1) 8.69% 7.27% 9.26%
- -------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Corporate Debt
A-Rated Underlying Funds
Average(2) 7.04% 5.96% 8.14%
- -------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S.
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.
(2) The Lipper Variable Annuity Corporate Debt A-Rated 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.
9
<PAGE>
(Sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in value.
(End Sidebar)
THE HIGH YIELD PORTFOLIO
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The primary investment objective of the High Yield Portfolio
is to provide a high level of current income by investing in
a diversified portfolio consisting principally of
fixed-income securities, which may include both
non-convertible and convertible debt securities and
preferred stocks. As a secondary objective the Portfolio
will seek capital appreciation, but only when consistent
with its primary objective. There is no guarantee that the
Portfolio will achieve these objectives.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in fixed-income securities (including zero coupon
securities) rated Baa or lower by Moody's or BBB or lower by
S&P or in nonrated securities considered by the Investment
Manager to be appropriate investments for the Portfolio.
These securities are commonly known as "junk bonds." They
may also include "Rule 144A" securities, which are subject
to resale restrictions. There are no minimum quality ratings
for investments.
In making investment decisions the "Investment Manager,"
Morgan Stanley Dean Witter Advisors Inc., considers an
issuer's creditworthiness, economic developments, interest
rate trends and other factors it deems relevant. In
evaluating an issuer's creditworthiness the Investment
Manager relies principally on its own analysis. A security's
credit rating is simply one factor that may be considered by
the Investment Manager in this regard.
In addition to junk bonds, the Portfolio may invest in the
following:
- Higher rated fixed-income securities -- The Portfolio may
invest in securities rated higher than Baa or BBB (or if
not rated, determined to be of comparable quality) when
the Investment Manager believes that such securities may
produce attractive yields.
- Foreign securities -- The Portfolio may invest up to 20%
of its assets in securities issued by foreign governments
and other foreign issuers (including American depository
receipts or other similar securities convertible into
securities of foreign issuers) but not more than 10% of
its assets in these securities may be denominated in
foreign currencies.
- Unit Offerings -- The Portfolio may purchase units which
combine debt securities with equity securities and/or
warrants.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its investments in junk bonds. Junk bonds are subject
to greater risk of loss of income and principal than higher
rated securities. The prices of junk bonds have been found
generally to be less sensitive to changes in prevailing
interest rates than higher rated securities but are more
likely to be sensitive to adverse economic changes or
individual corporate developments. In addition, all
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
10
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the High Yield Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 -12.44%
...90 -25.54%
...91 58.14%
...92 18.35%
...93 24.13%
...94 -2.47%
...95 14.93%
...96 11.98%
...97 11.87%
...98 -6.20%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 27.00% (quarter ended
March 31, 1991) and the lowest return for a calendar quarter
was -15.93% (quarter ended December 31, 1990). Year-to-date
total return as of March 31, 1999 was 0.18%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
High Yield Portfolio -6.20% 5.66% 7.15%
- -------------------------------------------------------------------------------
Lehman Brothers High Yield
Index(1) 1.60% 8.52% 10.52%
- -------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity High Current
Yield Underlying Funds Average(2) -1.57% 7.42% 9.52%
- -------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) The Lipper Variable Annuity High Current Yield 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.
11
<PAGE>
THE UTILITIES PORTFOLIO
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in value and pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Utilities Portfolio is to
provide current income and long term growth of income and
capital by investing primarily in equity and fixed-income
securities of companies engaged in the public utilities
industry. There is no guarantee that the Portfolio will
achieve this objective.
On April 22, 1999, the Board of Trustees of the Fund
unanimously recommended that the Portfolio's shareholders
approve changing the Portfolio's investment objective to:
"provide capital appreciation and current income." This
change would have the effect of (i) eliminating long-term
growth of income as an objective of the Portfolio and (ii)
permitting the Portfolio to invest primarily in the entire
utilities industry, as opposed to the more limited PUBLIC
utilities industry.
If the Portfolio's shareholders approve this change (a
shareholders' meeting to consider the change has been
scheduled for August 4, 1999), then conforming changes would
also be made to the Portfolio's principal investment
strategies. Of course, we will provide you details of these
changes if and when they become effective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in the securities of companies engaged in the public
utilities industry. These companies are involved in various
aspects of the industry, such as communications, and gas and
electric energy, but they do not include public broadcasting
companies. A company will be considered engaged in the
public utilities industry if it derives at least 50% of its
revenues from that industry or it devotes at least 50% of
its assets to activities in that industry.
The Portfolio's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., will shift the Portfolio's assets
between different segments of the utilities industry and
between common stock, other equity securities and investment
grade fixed-income securities based on its view of
prevailing market, economic and financial conditions. In
selecting common stock and other equity securities, the
Investment Manager considers earnings and dividend growth,
book value, dividend discount and price/earnings
relationships. In addition, the Investment Manager makes
continuing assessments of management, the prevailing
regulatory framework and industry trends. Computer-based
equity selection models also may be used. If the Investment
Manager believes favorable conditions for capital growth of
equity securities are not prevalent at a particular time, it
may allocate the Portfolio's assets predominantly or
exclusively to debt securities with the aim of obtaining
current income and thus benefitting long-term growth of
capital.
The Portfolio may invest up to 35% of its assets in U.S.
Government securities issued or guaranteed as to principal
and interest by the U.S. Government or its agencies or
instrumentalities and in real estate investment trusts
(commonly known as "REITs").
The Portfolio may invest up to 25% of its assets in foreign
securities (including depository receipts). This percentage
limitation, however, does not apply to securities of foreign
companies that are listed in the U.S. on a national
securities exchange.
12
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
The Portfolio invests primarily in securities of companies
in the public utilities industry. The Portfolio's
investments in the public utilities industry are impacted by
a host of risks particular to that industry. Changing
regulation constitutes one of the key industry-specific
risks for the Portfolio. State and other regulators monitor
and control utility revenues and costs, and therefore may
limit utility profits and dividends paid to investors.
Regulatory authorities also may restrict a company's access
to new markets, thereby diminishing the company's long-term
prospects. Individual sectors of the utility market are
subject to additional risks. For example, telecommunications
companies have been affected by technological development
leading to increased competition, as well as changing
regulation of local and long-distance telephone service and
other telecommunications businesses. Certain
telecommunications companies have not benefitted from the
new competitive climate.
Electric utilities may be burdened by unexpected increases
in fuel and other operating costs. They are also adversely
affected when long-term interest rates rise. Long-term
borrowings are used to finance most utility investment, and
rising interest rates lead to higher financing costs and
reduced earnings. There are also the considerable costs
associated with environmental compliance, nuclear waste
clean-up, and safety regulation. Increasingly, regulators
are calling upon electric utilities to bear these added
costs, and there is a risk that these costs will not be
fully recovered through an increase in revenues.
Among gas companies, there has been a move to diversify into
oil and gas exploration and development, making investment
return more sensitive to energy prices.
The Portfolio's investments in common stock are also subject
to the risks that affect all common stocks. In particular,
stock prices can fluctuate widely in response to activities
specific to the issuer as well as general market economic
and political conditions.
The Portfolio's investment in fixed-income securities are
subject to credit risk and interest rate risk. Credit risk
refers to a possibility that the issuer of a security will
be unable to make interest payments and/or repay the
principal on its debts. Interest rate risk refers to
fluctuations in the value of a fixed-income security
resulting from changes in the general level of interest
rates.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
13
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 8 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Utilities Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1991 20.56%
...92 12.64%
...93 15.69%
...94 -9.02%
...95 28.65%
...96 8.68%
...97 27.15%
...98 23.76%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 12.58% (quarter ended
December 31, 1997) and the lowest return for a calendar
quarter was 8.19% (quarter ended March 31, 1994).
Year-to-date total return as of March 31, 1999 was -1.87%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- --------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Utilities Portfolio 23.76% 14.89% 14.42%
- --------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 24.05% 18.98%
- --------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Utility
Underlying Funds Average(2) 16.79% 13.53% 13.19%
- --------------------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Utility Fund Average tracks the performance of
funds which invest at least 65% of their portfolio in utility shares, as
reported by Lipper Analytical Services.
14
<PAGE>
THE INCOME BUILDER PORTFOLIO
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in value and pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The primary investment objective of the Income Builder
Portfolio is to seek reasonable income. Growth of capital is
a secondary objective. There is no guarantee that the
Portfolio will achieve these objectives.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in income-producing equity securities, including
common stock, preferred stock and convertible securities.
The "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., uses a value-oriented style in the selection
of securities. Investments are normally made primarily in
(i) common stocks of large capitalization companies with a
record of paying dividends and which in the opinion of the
Investment Manager have the potential for maintaining
dividends, (ii) preferred stock and (iii) securities
convertible into common stocks of small and midcap companies
-- including synthetic and enhanced convertibles. The
Portfolio's investments also include "Rule 144A" securities,
which are subject to resale restrictions.
The Investment Manager follows a "bottom-up" approach in the
selection of convertible securities for the Portfolio.
Beginning with a universe of about 500 companies, the
Investment Manager narrows the focus to small and midcap
companies and reviews the issues to determine if the
convertible is trading with the underlying equity security.
The yield of the underlying equity security is evaluated and
company fundamentals are studied to evaluate cash flow,
risk/reward balance, valuation and the prospects for growth.
The Portfolio may invest up to 25% of its assets in
"enhanced" convertible securities. Enhanced convertible
securities offer holders the opportunity to obtain higher
current income than would be available from a traditional
equity security issued by the same company, in return for
reduced participation or a cap on appreciation in the
underlying common stock of the issuer which the holder can
realize. In addition, in many cases, enhanced convertible
securities are convertible into the underlying common stock
of the issuer automatically at maturity, unlike traditional
convertible securities which are convertible only at the
option of the security holder.
The Portfolio may invest up to 10% of its assets in
"synthetic" convertible securities. Unlike traditional
convertible securities whose conversion values are based on
the common stock of the issuer of the convertible security,
"synthetic" convertible securities are preferred stocks or
debt obligations of an issuer which are combined with an
equity component whose conversion value is based on the
value of the common stock of a different issuer or a
particular benchmark (which may include a foreign issuer or
basket of foreign stocks, or a company whose stock is not
yet publicly traded). In many cases, "synthetic" convertible
securities are not convertible prior to maturity, at which
time the value of the security is paid in cash by the
issuer.
15
<PAGE>
The Portfolio may invest up to 20% of its assets in
fixed-income securities rated lower than investment grade by
S&P or Moody's (but not below B) or if unrated of comparable
quality as determined by the Investment Manager (commonly
known as "junk bonds"). The 20% limitation is not applicable
to convertible securities.
The Portfolio may invest up to 35% of its assets in U.S.
Government securities issued or guaranteed as to principal
and interest by the U.S. Government or its agencies or
instrumentalities and investment grade fixed-income
securities (including zero coupon securities), common stocks
that do not pay a regular dividend and real estate
investment trusts (commonly known as "REITs").
The Portfolio may invest up to 25% of its assets in foreign
securities (including depository receipts). This percentage
limitation, however, does not apply to securities of foreign
companies that are listed in the U.S. on a national
securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its investment in common stocks. In particular the
prices of common stocks can fluctuate widely in response to
activities specific to the issuer as well as general market,
economic and political conditions.
The Portfolio is also subject to the risks of investing in
convertible securities. These securities may carry risks
associated with both common stock and fixed-income
securities. In addition, because the convertible securities
in which the Portfolio invests are convertible into the
common stocks of small and midcap companies, the Portfolio
is subject to the specific risks associated with investing
in small and midcap companies. Investments in small and
medium capitalization companies involve greater risk of
volatility than is customarily associated with investments
in more established companies as well as certain other
additional risks.
There are also special risks associated with the Portfolio's
investments in "enhanced" and "synthetic" convertible
securities. These securities may be more volatile and less
liquid than traditional convertible securities.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
16
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past calendar year.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Income Builder Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 3.21%
</TABLE>
During the period shown in the bar chart, the highest return
for a calendar quarter was 9.85% (quarter ended December 31,
1998) and the lowest return for a calendar quarter was
-10.46% (quarter ended September 30, 1998). Year-to-date
total return as of March 31, 1999 was -1.50%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR
YEAR)
- -----------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
- -----------------------------------------------------------------------
Income Builder Portfolio 3.21% 12.79%
- -----------------------------------------------------------------------
S&P 500 Index(1) 28.58% 28.32%
- -----------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Equity Income
Underlying Funds Average(2) 11.20% 17.82%
- -----------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Equity Income Fund 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.
17
<PAGE>
THE DIVIDEND GROWTH PORTFOLIO
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in value and pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Dividend Growth Portfolio is
to provide reasonable current income and long term growth of
income and capital. There is no guarantee that the Portfolio
will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will invest at least 70% of its assets in
common stock of companies with a record of paying dividends
and the potential for increasing dividends. The "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc.,
initially employs a quantitative screening process in an
attempt to develop a number of common stocks which are
undervalued and which have a record of paying dividends. The
Investment Manager then applies qualitative analysis to
determine which stocks it believes have the potential to
increase dividends and, finally, to determine whether any of
the stocks should be added to the Portfolio. The Investment
Manager attempts to avoid investment in speculative
securities or those with speculative characteristics.
The Portfolio may invest up to 30% of its assets in
convertible securities, U.S. Government securities issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and
investment grade fixed-income securities (including zero
coupon securities). The Portfolio may also invest any amount
of its assets in foreign securities (including depository
receipts) that are listed in the U.S. on a national
securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its investments in common stock. In particular the
prices of common stock may fluctuate widely in response to
activities specific to the company as well as general
market, economic and political conditions.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
18
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 8 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Dividend Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1991 27.76%
...92 8.16%
...93 14.34%
...94 -3.27%
...95 36.38%
...96 23.96%
...97 25.61%
...98 14.28%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 16.92% (quarter ended June
30, 1997) and the lowest return for a calendar quarter was
-8.29% (quarter ended September 30, 1998). Year-to-date
total return as of March 31, 1999 was 0.69%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- --------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Dividend Growth Portfolio 14.28% 18.61% 14.93%
- --------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 24.05% 18.98%
- --------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Growth and Income
Underlying Funds Average(2) 15.72% 17.60% 14.99%
- --------------------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Growth and Income 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.
19
<PAGE>
THE CAPITAL GROWTH PORTFOLIO
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Capital Growth Portfolio is
long term capital growth. There is no guarantee that the
Portfolio will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in common stocks. The "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., utilizes a two-stage
computerized screening process designed to find companies
that demonstrate a history of consistent growth in earnings
and revenues over the past several years, and have solid
future earnings growth characteristics and attractive
valuations. Dividend income is not a consideration in this
stock selection process. Companies meeting these
requirements are potential candidates for investment by the
Portfolio. The Investment Manager may modify the screening
process and/or may utilize additional or different screening
processes in connection with the Portfolio's investments.
The Portfolio may invest up to 35% of its assets in U.S.
Government securities issued or guaranteed as to principal
and interest by the U.S. Government or its agencies or
instrumentalities, investment grade fixed-income securities
(including zero coupon securities), convertible securities,
unit offerings involving a combination of a debt security
and a convertible security and/or warrant and real estate
investment trusts (commonly known as "REITs").
The Portfolio may invest up to 25% of its assets in foreign
securities (including depository receipts). This percentage
limitation, however, does not apply to securities of foreign
companies that are listed in the U.S. on a national
securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investment in the Portfolio is
associated with the Portfolio's investments in common stock.
In particular the prices of common stocks may fluctuate
widely in response to activities specific to the company as
well as general market, economic and political conditions.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
20
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 7 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Capital Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1992 1.64%
...93 -6.99%
...94 -1.28%
...95 32.92%
...96 11.55%
...97 24.54%
...98 19.63%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 20.47% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -13.95% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 6.78%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- --------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Capital Growth Portfolio 19.63% 16.88% 13.23%
- --------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 24.05% 19.44%
- --------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Growth Underlying
Funds Average(2) 25.82% 19.19% 17.07%
- --------------------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Growth Fund 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.
21
<PAGE>
THE GLOBAL DIVIDEND GROWTH PORTFOLIO
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potental to rise in value and pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Global Dividend Growth
Portfolio is to provide reasonable current income and long
term growth of income and capital. There is no guarantee
that the Portfolio will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in dividend paying equity securities issued by
issuers located in various countries around the world. The
"Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., seeks investments primarily in common stock of
companies with a record of paying dividends and potential
for increasing dividends. The Portfolio invests in at least
three separate countries. The percentage of assets invested
in particular geographic sectors will shift from time to
time in accordance with the judgement of the Investment
Manager.
Up to 35% of the Portfolio's assets may be invested as
follows:
- Convertible securities, U.S. Government securities issued
or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities,
fixed-income securities issued by foreign governments and
international organizations and investment grade debt
securities (including zero coupon securities).
- Forward currency contracts, which involve the purchase or
sale of a specific amount of foreign currency at a
specified price with delivery at a specified future date.
The Portfolio may use these contracts to hedge against
adverse price movements in its portfolio securities and
the currencies in which they are denominated.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of Investment in the Portfolio is
associated with the Portfolio's investments in common
stocks. In particular, the price of common stocks may
fluctuate widely in response to activities specific to the
company as well as general market, economic and political
conditions.
Another principal risk relates to the Portfolio's
investments in foreign securities. In particular, foreign
security investments may be adversely affected by changes in
currency exchange rates. In addition, investments in foreign
securities may be adversely affected by among other things
political, social and economic developments abroad.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
22
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Global Dividend Growth Portfolio.
The Portfolio's past performance does not indicate how it
will perform in the future. The returns shown do not reflect
fees charged under the life insurance or annuity contracts,
which would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 22.04%
...96 17.59%
...97 12.04%
...98 12.53%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.14% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -12.43% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 0.11%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR
YEAR)
- -----------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 2/23/94)
<S> <C> <C>
- -----------------------------------------------------------------------
Global Dividend Growth Portfolio 12.53% 13.06%
- -----------------------------------------------------------------------
Morgan Stanley Capital International
World Index(1) 22.78% 13.46%
- -----------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Global Underlying
Funds Average(2) 15.84% 11.68%
- -----------------------------------------------------------------------
</TABLE>
(1) 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.
(2) The Lipper Variable Annuity Global 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.
23
<PAGE>
THE EUROPEAN GROWTH PORTFOLIO
(Sidebar)
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the European Growth Portfolio is
to maximize the capital appreciation of its investments.
There is no guarantee that the Portfolio will achieve this
objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in securities issued by issuers located in European
countries. A company is considered located in Europe if (i)
it is organized under the laws of a European country and has
a principal office in a European country; (ii) it derives at
least 50% of its total revenue from business in Europe; or
(iii) the company's equity securities are traded principally
on a stock exchange in Europe. The principal countries in
which the Portfolio invests are France, the United Kingdom,
Germany, the Netherlands, Spain, Sweden, Switzerland and
Italy. The Portfolio invests in at least three separate
countries.
The Portfolio generally invests principally in equity
securities but may also invest without limitation in
fixed-income securities issued or guaranteed by European
governments when the "Investment Manager," Morgan Stanley
Dean Witter Advisors Inc., or the "Sub-Advisor," Morgan
Stanley Dean Witter Investment Management Inc., determine
such investments to be appropriate.
The Investment Manager and the Sub-Advisor generally invest
Portfolio assets in companies they believe have a high rate
of earnings growth potential. They also select securities,
which in their view, possess, both on an absolute basis and
as compared with other securities around the world,
attractive price/earnings, price/ cash flow and
price/revenue ratios.
The Portfolio may invest up to 35% of its assets as follows:
- Equity securities issued by non-European issuers, and
government and convertible securities issued by
non-European governmental or private issuers.
- Forward currency contracts, which involve the purchase or
sale of a specific amount of foreign currency at the
current price with delivery at a specified future date.
The Portfolio may use these contracts to hedge against
adverse price movements in its portfolio securities and
securities it intends to purchase and the currencies in
which they are denominated.
The Portfolio may invest up to 5% of its assets in put and
call options with respect to foreign currencies (limit of 5%
of its assets for the purchase of put and call options).
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
24
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk factor associated with investment in the
Portfolio relates to the Portfolio's investments in Europe.
In particular, adverse political, social or economic
developments in Europe, or in a particular European country,
could cause a substantial decline in the value of the
Portfolio.
The Portfolio's investments in common stock are also subject
to the risks that affect all common stocks. In particular,
stock prices can fluctuate widely in response to activities
specific to the issuer as well as general market economic
and political conditions.
The conversion to a single European currency by many
European countries could potentially adversely affect the
value and/or increase the volatility of the Portfolio's
investments.
In addition, the Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
In addition, the Portfolio's investments in fixed-income
securities are subject to two types of risk: credit risk and
interest rate risk.
The performance of the Portfolio also will depend on whether
the Sub-Advisor is successful in pursuing the Portfolio's
investment strategy. In addition, the Portfolio is subject
to other risks from its permissible investments. For
information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
25
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 7 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the European Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1992 3.99%
...93 40.88%
...94 8.36%
...95 25.89%
...96 29.99%
...97 16.07%
...98 23.96%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 20.09% (quarter ended
March 31, 1998) and the lowest return for a calendar quarter
was -15.72% (quarter ended September 30, 1998). Year-to-date
total return as of March 31, 1999 was 0.44%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- --------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
European Growth Portfolio 23.96% 20.60% 18.53%
- --------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 22.78% 13.95% 10.80%
- --------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity International
Underlying Funds Average(2) 12.54% 8.18% 8.77%
- --------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) The Lipper Variable Annuity International 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.
26
<PAGE>
THE PACIFIC GROWTH PORTFOLIO
(Sidebar)
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Pacific Growth Portfolio is
to maximize the capital appreciation of its investments.
There is no guarantee that the Portfolio will achieve this
objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in common stocks and other securities of companies
which are (i) organized under the laws of and have a
principal place of business in Asia, Australia or New
Zealand or (ii) derives at least 50% of their total revenues
from business in such areas. The principal Asian countries
include: Japan, Malaysia, Singapore, Hong Kong, Thailand,
the Philippines, India, Indonesia, Taiwan and South Korea.
The Portfolio's assets are invested in at least three
countries. The Portfolio may invest more than 25% of its
assets in Japan, Hong Kong, South Korea and Taiwan. Thus,
the investment performance of the Portfolio may be subject
to the social, political and economic events occurring in
these countries to a greater extent than other countries.
The "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., and the "Sub-Advisor," Morgan Stanley Dean
Witter Investment Management Inc., generally invest
Portfolio assets in companies they believe have a high rate
of earnings growth potential. They also select securities,
which in their view, possess, both on an absolute basis and
as compared with other securities around the world,
attractive price/earnings, price/cash flow and price/revenue
ratios.
The Portfolio generally invests principally in equity
securities but may also invest without limitation in
fixed-income obligations issued or guaranteed by an Asian
country or Australia or New Zealand when the Investment
Manager or the Sub-Advisor determine such investments to be
appropriate.
The Portfolio may invest up to 35% of its assets as follows:
- Equity, fixed-income or convertible securities (including
zero coupon securities) of companies located anywhere in
the world, including the United States.
- Forward currency contracts, which involve the purchase or
sale of a specific amount of foreign currency at the
current price with a delivery at a specified future date.
The Portfolio may use these contracts to hedge against
adverse price movements in its portfolio securities and
securities it intends to purchase and the currencies in
which they are denominated.
The Portfolio may invest up to 5% of its assets in put and
call options with respect to foreign currencies (limit of 5%
of its assets for the purchase of put and call options).
The Portfolio may invest up to 10% of its assets in
securities issued by other investment companies. The
Investment Manager and/or Sub-Advisor may view these
investments as necessary or advisable to participate in
certain foreign markets where foreigners are prohibited from
investing directly in the securities of individual companies
without regulatory approval.
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
27
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investment in the Portfolio relates to
the Portfolio's investments in the Pacific region. In
particular, adverse political, social or economic
developments in the Pacific region or in a particular
Pacific country could cause a substantial decline in the
value of the Portfolio.
The Portfolio's investments in common stock are also subject
to the risks that affect all common stocks. In particular,
stock prices can fluctuate widely in response to activities
specific to the issuer as well as general market economic
and political conditions.
In addition, the Portfolio is subject to the risks
associated with foreign securities generally. These risks
include among other things the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates. The Portfolio may invest a substantial
portion of its assets in developing countries. These
investments carry greater risks than those associated with
investment in more developed countries.
In addition, the Portfolio's investments in fixed-income
securities are subject to two types of risk: credit risk and
interest rate risk.
The performance of the Portfolio also will depend on whether
the Sub-Advisor is successful in pursuing the Portfolio's
investment strategy. In addition, the Portfolio is subject
to other risks from its permissible investments. For
information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
28
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Pacific Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 5.74%
...96 3.89%
...97 -37.70%
...98 -10.40%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 25.61% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -27.57% (quarter ended December 31, 1997).
Year-to-date total return as of March 31, 1999 was 6.99%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR
YEAR)
- -----------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 2/23/94)
<S> <C> <C>
- -----------------------------------------------------------------------
Pacific Growth Portfolio -10.40% -10.88%
- -----------------------------------------------------------------------
Morgan Stanley Capital International
World Index(1) 22.78% 13.46%
- -----------------------------------------------------------------------
Morgan Stanley Capital International
Pacific Free Index(2) 1.43% -7.79%
- -----------------------------------------------------------------------
Morgan Stanley Capital International
All Country Far East (excluding Japan)
Free Index(3) -7.39% -11.81%
- -----------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Pacific Region
Underlying Funds Average(4) -7.01% -7.26%
- -----------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International World Index (MSCI) measures
performance from a diverse range of global stock markets including the
U.S., Canada, Europe, Australia, New Zealand, and the Far East. The Index
does not include any expenses, fees, or charges, or reinvestment of
dividends. The Index is unmanaged and should not be considered an
investment.
(2) 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.
(3) The Morgan Stanley Capital International All Country Far East Free
(excluding Japan) Index (MSCI ACFEF) measures performance of both the
developed and the emerging markets of the Far East (excluding Japan), and
excludes shares that are not readily purchased by non-local investors. The
Index does not include any expenses, fees, or charges, or reinvestment of
dividends. The Index is unmanaged and should not be considered an
investment.
(4) The Lipper Variable Annuity Pacific Region 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.
29
<PAGE>
THE EQUITY PORTFOLIO
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The primary investment objective of the Equity Portfolio is
growth of capital through investments in common stocks of
companies believed by the Investment Manager to have
potential for superior growth. As a secondary objective the
Equity Portfolio seeks income but only when consistent with
its primary objective. There is no guarantee that the
Portfolio will achieve these objectives.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in equity securities and securities convertible into
equity securities. In selecting investments, the "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., may
employ valuation models based on various economic and market
indicators. The Investment Manager currently utilizes a
process, known as sector rotation, that emphasizes industry
selection over individual company selection. The Investment
Manager invests in those industries that it believes will
have the strongest relative earnings growth potential given
the projected economic outlook. After selecting the
Portfolio's target industries, the Investment Manager then
selects specific companies within those industries whose
prospects are deemed attractive after assessing company
fundamentals and valuation screens.
The Investment Manager will utilize a sector rotation
process designed to respond to changing economic cycles by
proactively investing in industries that the Investment
Manager believes to be positioned to benefit from the
current phase of the economic cycle. First, the Investment
Manager attempts to identify at what stage of the business
cycle the economy is in and which industries have
historically outperformed the overall market during that
stage of the cycle. To accomplish that task, the Investment
Manager establishes an economic forecast based on its short
term and long term views of the domestic and global economic
cycles. As part of this process, the Investment Manager will
attempt to identify secular trends, such as shifting
demographics or technological developments, that could add
clarity to its analysis. Also considered are competitive
industry variables, such as supply and demand, pricing
trends and new product cycles.
The Portfolio may invest up to 35% of its assets in
corporate debt securities (including zero coupon securities)
rated Aa or better by Moody's or AA or better by S&P, U.S.
Government securities, issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or
instrumentalities, and preferred stocks.
The Portfolio may invest in securities of Canadian issuers
registered under the Securities Exchange Act of 1934 or
American Depository Receipts.
30
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investment in the Portfolio is
associated with the Portfolio's investments in common stock.
In particular the price of common stocks may fluctuate
widely in response to activities specific to the company as
well as general market, economic and political conditions.
Stocks of small and medium capitalization companies in which
the Portfolio may invest pose greater risk of volatility
than is customarily associated with larger established
companies as well as certain other additional risks.
Another principal risk relates to the Portfolio's
investments in fixed-income securities. Fixed-income
securities involve credit risk and interest rate risk.
Credit risk relates to the possibility that an issuer could
default on its obligation to pay principal and/or interest.
Interest rate risk relates to the possibility that the value
of securities may be adversely affected by fluctuations in
interest rates.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
31
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Equity Portfolio. The Portfolio's
past performance does not indicate how it will perform in
the future. The returns shown do not reflect fees charged
under the life insurance or annuity contracts, which would
lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 18.83%
...90 -3.62%
...91 59.05%
...92 0.05%
...93 19.72%
...94 -4.91%
...95 42.53%
...96 12.36%
...97 37.43%
...98 30.45%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 20.65% (quarter ended
March 31, 1991) and the lowest return for a calendar quarter
was -15.83% (quarter ended September 30, 1990). Year-to-date
total return as of March 31, 1999 was 10.87%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Equity Portfolio 30.45% 22.25% 19.54%
- -------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 24.05% 19.19%
- -------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Growth Underlying
Funds Average(2) 25.82% 19.19% 16.95%
- -------------------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Growth Fund 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.
32
<PAGE>
(Sidebar)
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in value and pay out income.
(End Sidebar)
THE S&P 500 INDEX PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the S&P 500 Index Portfolio is
to provide investment results that before expenses,
correspond to the total return (I.E., the combination of
capital changes and income) of the Standard &
Poor's-Registered Trademark- 500 Composite Stock Price
Index. There is no guarantee that the Portfolio will achieve
this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its
assets in common stocks included in the S&P 500 Index. The
"Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., "passively" manages the Portfolio's assets by
investing in stocks in approximately the same proportion as
they are represented in the S&P 500 Index. For example,
where the common stock of a specific company represents five
percent of the Index, the Investment Manager typically will
invest five percent of the Portfolio's assets in that stock.
The S&P 500 Index is a well-known stock market index that
includes common stocks of 500 companies representing a
significant portion of the market value of all common stocks
publicly traded in the United States.
"Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by the S&P 500 Index Portfolio.
The Portfolio is not sponsored, endorsed, sold or promoted
by S&P, and S&P makes no representation regarding the
advisability of investing in the Portfolio. (Please see the
Statement of Additional Information which sets forth certain
additional disclaimers and limitations of liabilities on
behalf of S&P.)
The Portfolio may purchase and sell stock index futures to
simulate investment in the S&P 500. Generally stock index
futures will be employed to provide liquidity necessary to
meet anticipated redemptions or for day-to-day operating
purposes.
The Portfolios may invest in securities referred to as SPDRs
(known as "spiders") that are designed to track the S&P 500
Index. SPDRs represent an ownership interest in the SPDR
Trust, which holds a portfolio of common stocks that closely
tracks the price performance and dividend yield of the S&P
500 Index. SPDRs trade on the American Stock Exchange like
shares of common stock. The Portfolio may invest up to 10%
of its total assets in the aggregate in SPDRs.
33
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the issuer,
as well as general market, economic and political
conditions. Stock prices can fluctuate widely in response to
these factors.
Another risk of investing in the Portfolio arises from its
operation as a "passively" managed index fund. As such, the
adverse performance of a particular stock ordinarily will
not result in the elimination of the stock from the
Portfolio. The Portfolio will remain invested in common
stocks even when stock prices are generally falling.
Ordinarily, the Investment Manager will not sell the
Portfolio's securities except to reflect additions or
deletions of the stocks that comprise the S&P 500 Index, or
as may be necessary to raise cash to pay Portfolio
shareholders who sell (redeem) Portfolio shares.
The performance of the S&P 500 is a hypothetical number
which does not take into account brokerage commissions and
other transaction costs, custody and other costs of
investing which will be borne by the Portfolio and any
incremental operating costs borne by the Portfolio (e.g.,
management fee, transfer agency and accounting costs).
Accordingly, the performance of the Portfolio may not
correlate directly with the performance of the S&P 500
Index.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
34
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Competitive Edge "Best
Ideas" Portfolio is long-term capital growth. There is no
guarantee that the Portfolio will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its
assets in common stock of companies included in the "Best
Ideas" subgroup of "Global Investing: The Competitive Edge,"
a research compilation assembled by Morgan Stanley Dean
Witter ("MSDW") Equity Research -- and other securities
selected by the Portfolio's "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc.
THE COMPETITIVE EDGE "BEST IDEAS" LIST. MSDW Equity Research
is recognized as a world leader in global financial research
and provides comprehensive research and in-depth knowledge
about general markets and specific companies from around the
world. It believes that companies with a sustainable
competitive edge in the operations of their businesses are
worth more than their weaker competitors. Through its
ongoing research and analysis, MSDW Equity Research has
developed and undertaken a comprehensive study which it
calls "Global Investing: The Competitive Edge" which
represents the list of those companies.
MSDW Equity Research group's research analysts and
strategists presently evaluate approximately 2,100 companies
in 21 industry sectors worldwide. An initial comprehensive
review was conducted in October 1996 and identified 238 of
these companies as having a long-term sustainable
competitive advantage in the global arena (the "Competitive
Edge List"). The criteria used to select companies that have
a global competitive advantage vary according to industry
sector. The Competitive Edge List is currently updated
quarterly. From the Competitive Edge List, MSDW Equity
Research then assembles a subgroup of approximately 40
companies which it considers at that time to be the most
attractive investment opportunities of the companies
identified as having a long-term sustainable competitive
advantage in the global arena (the "Competitive Edge 'Best
Ideas' List"). A list of the companies contained on the
Competitive Edge "Best Ideas" List as of February 4, 1999 is
set forth in the Statement of Additional Information. In
order to respond to changing market conditions, MSDW Equity
Research may update the Competitive Edge "Best Ideas" List
at any time.
It is the intention of the Investment Manager that generally
at least 1% and not more than 5% of the Portfolio's assets
will be invested in each company on the Competitive Edge
"Best Ideas" List. The Portfolio will purchase any security
which is added to the Competitive Edge "Best Ideas" List,
and generally will sell a security which is eliminated from
the Competitive Edge "Best Ideas" List as soon as
practicable after the Competitive Edge "Best Ideas" List has
been updated by MSDW Equity Research. Accordingly,
securities may be purchased and sold by the Portfolio when
such purchases and sales would not be made under traditional
investment criteria.
The Portfolio may at times purchase securities that are not
included on the Competitive Edge "Best Ideas" List but are
on the Competitive Edge List or, in the event that the
Investment Manager believes that there are no suitable
securities on
35
<PAGE>
the Competitive Edge List, the Portfolio may purchase
securities outside the list. Securities that are not on the
Competitive Edge "Best Ideas" List generally will not exceed
35% of the Portfolio's assets.
The Portfolio's investments may include forward currency
contracts which involve the purchase or sale of a specific
amount of foreign currency at a specified price with
delivery at a specified future date. The Portfolio may use
these contracts to hedge against adverse price movements in
its portfolio securities and the currencies in which they
are denominated.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investment in the Portfolio is
associated with the Portfolio's investments in common
stocks. In particular the prices of common stocks may
fluctuate widely in response to activities specific to the
company as well as general market, economic and political
conditions.
The Portfolio invests principally in securities included on
the Competitive Edge "Best Ideas" List which currently
consists of 40 companies. As a result of the small universe
of stocks in which the Portfolio invests it may be subject
to greater risks than would a more diversified company. At
times the Portfolio may be restricted in its ability to
purchase or sell securities on the Competitive Edge "Best
Ideas" List as a result of activities of affiliates of the
Investment Manager. In addition, performance of the
securities included in the List cannot be used to predict
the performance of the Portfolio, an actively managed mutual
fund.
The activities of affiliates of the Investment Manager,
including but not limited to Dean Witter Reynolds Inc. or
Morgan Stanley & Co. Incorporated, may from time to time
limit the Portfolio's ability to purchase or sell securities
on the Competitive Edge "Best Ideas" List. In addition, the
List is available to other clients of MSDW and its
affiliates, including the Investment Manager, as well as the
Portfolio. The list is also subject to restrictions related
to MSDW's other businesses, and particular securities may or
may not be on the list due to other business concerns of, or
legal restrictions applicable to, MSDW.
As a diversified financial services firm, with three primary
businesses -- securities, asset management and credit
services -- MSDW provides a wide range of financial services
to issuers of securities and investors in securities. MSDW
and others associated with it may create markets or
specialize in, have positions in and affect transactions in
securities of companies included on its research lists and
may also perform or seek to perform investment banking
services for those companies. Within the last three years
MSDW may have managed or co-managed public security
offerings for companies included on their research lists,
and they or their
36
<PAGE>
employees may have a long or short position on holdings in
the securities, or options on securities, or other related
investments of companies included on their research lists.
The Portfolio may invest a substantial portion of its assets
in foreign securities. Foreign securities investments may be
adversely affected by changes in currency exchange rates. In
addition, investment in foreign securities may be adversely
affected by among other things political, social and
economic developments abroad.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
37
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
THE AGGRESSIVE EQUITY PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Aggressive Equity Portfolio
is long-term capital growth. There is no guarantee that the
Portfolio will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its
assets in the equity securities of companies covered by
Morgan Stanley Dean Witter ("MSDW") Equity Research that the
"Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., believes offer the potential for superior earnings
growth. The equity securities in which the Portfolio may
invest include common stocks, preferred stocks, convertible
securities, rights and warrants. No more than 25% of the
Portfolio's assets may be invested in foreign equity or
fixed-income securities denominated in a foreign currency
and traded primarily in non-U.S. markets.
The Investment Manager utilizes a process, known as sector
rotation, that emphasizes industry selection over individual
company selection. The Investment Manager invests in those
industries that it believes are trading at attractive prices
relative to their earnings-growth potential. After
identifying industries, the Investment Manager then selects
individual companies. At this stage, the Investment Manager
will review and assess the available analytical research
reports and investment recommendations from MSDW Equity
Research, as well as from the equity research departments of
other recognized securities firms. Companies are selected by
the Investment Manager utilizing this research as well as
its own industry and company analysis including an
evaluation of valuation screens and prospective company
fundamentals.
MSDW EQUITY RESEARCH. MSDW Equity Research is recognized as
a world leader in global financial research and provides
comprehensive research and in-depth knowledge about general
markets and specific companies from around the world. MSDW
Equity Research's analysts and strategists presently
evaluate approximately 2,100 companies in 21 industry
sectors worldwide. While MSDW Equity Research is an
affiliate of the Investment Manager, MSDW Equity Research
has no role in the selection of securities for the
Portfolio.
The Portfolio may invest up to 35% of its assets as follows:
- (a) U.S. and foreign equity securities (subject to the 25%
overall limit on foreign securities described above) not
covered by MSDW Equity Research, (b) fixed-income
securities of U.S. companies, (c) fixed-income securities
of foreign companies and governments and international
organizations, (d) U.S. Government securities, issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and (e)
real estate investment trusts (commonly known as "REITs").
However, no more than 5% of the Portfolio's assets may be
invested in debt securities rated lower than investment
grade, or if unrated of comparable quality as determined
by the Investment Manager (commonly known as "junk
bonds").
- Forward currency contracts, which involve the purchase or
sale of a specific amount of foreign currency at a
specified price with delivery at a specified future
38
<PAGE>
date. The Portfolio may use these contracts to hedge
against adverse price movements in its portfolio
securities and the currencies in which they are
denominated.
- Put and call options and futures with respect to financial
instruments, stock and interest rate indexes and foreign
currencies (limit of 5% of its assets for the purchase of
put and call options). Options and futures may be used to
generate income or to seek to protect against a decline in
security or currency prices or an increase in prices of
securities or currencies that may be purchased.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investment in the Portfolio is
associated with the Portfolio's investments in common
stocks. In particular, the prices of common stocks may
fluctuate widely in response to activities specific to the
company as well as general market, economic and political
conditions.
The Portfolio may invest a substantial portion of its assets
in securities issued by small and medium sized companies.
Investment in small and medium size companies involves
greater risk of volatility than is customarily associated
with investment in larger established companies as well as
certain other additional risks.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
39
<PAGE>
THE STRATEGIST PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Strategist Portfolio is high
total investment return through a fully managed investment
policy utilizing equity, fixed-income and money market
securities and the writing of covered call and put options.
There is no guarantee that the Portfolio will achieve this
objective.
(Sidebar)
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in value and pay out income.
(End Sidebar)
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., will actively allocate the Portfolio's assets
among the major asset categories of equity securities,
fixed-income securities and money market instruments. Assets
are allocated by the Investment Manager based on among other
things, its assessment of economic and market trends on
different sectors of the market. There is no limit as to the
percentage of assets that may be allocated to any one asset
class. The Investment Manager does not, however, currently
intend to write covered call or put options.
Within the equity sector, the Investment Manager actively
allocates funds to those economic sectors it expects to
benefit from major trends and to individual stocks which it
considers to have superior investment potential.
Within the fixed-income sector of the market, the Investment
Manager seeks to maximize the return on its investments by
adjusting maturities and coupon rates as well as by
exploiting yield differentials among different types of
investment grade bonds, including short-term and
intermediate-term bonds.
Within the money market sector of the market, the Investment
Manager seeks to maximize returns by exploiting spreads
among short-term instruments.
Securities in which the Portfolio may invest include common
stocks, preferred stocks, convertible securities, investment
grade debt securities (including zero coupon securities),
U.S. Government securities, real estate investment trusts
(commonly known as "REITs") and money market instruments.
The Portfolio is not limited as to the maturities of the
U.S. government securities and other debt securities in
which it may invest.
The Portfolio may invest up to 20% of its assets in
securities issued by foreign governments and foreign private
issuers but not more than 10% of its assets in securities
denominated in a foreign currency.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Portfolio's share price will fluctuate with changes in
the market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
40
<PAGE>
A principal risk of investment in the Portfolio is
associated with the Portfolio's investments in common
stocks. In particular, the prices of common stocks may
fluctuate widely in response to activities specific to the
company as well as general market, economic and political
conditions.
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 10 calendar years.
(End Sidebar)
The Portfolio's investment in fixed-income securities are
subject to credit risk and interest rate risk. Credit risk
refers to a possibility that the issuer of a security will
be unable to make interest payments and/or repay the
principal on its debts. Interest rate risk refers to
fluctuations in the value of a fixed-income security
resulting from changes in the general level of interest
rates.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Strategist Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 10.67%
...90 1.56%
...91 28.26%
...92 7.24%
...93 10.38%
...94 3.94%
...95 9.40%
...96 15.02%
...97 13.71%
...98 26.55%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.60% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -8.25% (quarter ended September 30, 1990).
Year-to-date total return as of March 31, 1999 was 4.12%.
41
<PAGE>
(Sidebar)
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Strategist Portfolio 26.55% 13.48% 12.38%
- -------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 24.05% 19.19%
- -------------------------------------------------------------------------------
Lehman Brothers Government/
Corporate Bond Index(2) 9.47% 7.30% 9.33%
- -------------------------------------------------------------------------------
Lipper Analytical Services Inc.
Variable Annuity Flexible
Portfolio Underlying Fund
Average(3) 13.05% 12.24% 12.56%
- -------------------------------------------------------------------------------
</TABLE>
(1) The Standard and Poor's-Registered Trademark- 500 Composite Stock Price
Index is a broad-based index, the performance of which is based on the
average performance of 500 widely held common stocks. The performance of
the Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) 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.
(3) The Lipper Variable Annuity Flexible Portfolio 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.
42
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information concerning each
Portfolio's principal strategies.
INVESTMENT DISCRETION. In pursuing each Portfolio's
investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys,
holds or sells on a day-to-day basis - and which trading
strategies it uses. For example, the Investment Manager in
its discretion may determine to use some permitted trading
strategies while not using others. The Sub-Advisor has a
similar degree of discretion.
DEFENSIVE INVESTING. Each Portfolio (other than the Money
Market Portfolio and the S&P 500 Index Portfolio) may take
temporary "defensive" positions in attempting to respond to
adverse market conditions. Each Portfolio may invest any
amount of its assets in cash or money market instruments in
a defensive posture when the Investment Manager or
Sub-Advisor, as the case may be, believes it advisable to do
so. Although taking a defensive posture is designed to
protect the Portfolio from an anticipated market downturn,
it could have the effect of reducing the benefit of an
upswing in the market.
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio apply at the time a Portfolio
acquires an investment. Subsequent percentage changes that
result from market fluctuations or changes in assets will
not require a Portfolio to sell any Portfolio security. A
Portfolio may change its principal investment strategies
without shareholder approval; however you would be notified
of any change.
PORTFOLIO TURNOVER. Each Portfolio's turnover rate is not
expected to exceed the following respective percentages
under normal circumstances.
<TABLE>
<S> <C>
The Short-Term Bond Portfolio 100%
- ---------------------------------------------------------------
The Quality Income Plus Portfolio
300%
- ---------------------------------------------------------------
The High Yield Portfolio
300%
- ---------------------------------------------------------------
The Utilities Portfolio
100%
- ---------------------------------------------------------------
The Income Builder Portfolio
90%
- ---------------------------------------------------------------
The Dividend Growth Portfolio
90%
- ---------------------------------------------------------------
The Capital Growth Portfolio
200%
- ---------------------------------------------------------------
The Global Dividend Growth Portfolio
100%
- ---------------------------------------------------------------
The European Growth Portfolio
100%
- ---------------------------------------------------------------
The Pacific Growth Portfolio
100%
- ---------------------------------------------------------------
The Equity Portfolio
300%
- ---------------------------------------------------------------
The S&P 500 Index Portfolio
100%
- ---------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio
100%
- ---------------------------------------------------------------
The Aggressive Equity Portfolio
400%
- ---------------------------------------------------------------
The Strategist Portfolio
400%
- ---------------------------------------------------------------
</TABLE>
A high turnover rate will increase a Portfolio's costs. It
may also increase a Portfolio's capital gains which will be
passed along to Portfolio shareholders.
43
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information regarding the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by any bank, governmental entity, or
the FDIC.
RISKS OF YEAR 2000. Each Portfolio could be adversely
affected if the computer systems necessary for the efficient
operation of the Investment Manager, the Sub-Advisor, the
Fund's other service providers and the markets and
individual and governmental issuers in which the Portfolios
invest do not properly process and calculate date-related
information from and after January 1, 2000. While year
2000-related computer problems could have a negative effect
on the Fund and the Portfolios, the Investment Manager, the
Sub-Advisor and affiliates are working hard to avoid any
problems and to obtain assurances from their service
providers that they are taking similar steps.
In addition, it is possible that the markets for securities
in which the Portfolios invest may be detrimentally affected
by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and
liquidity issues. Corporate and governmental data processing
errors also may result in production problems for individual
companies and overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs,
which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the
Portfolios' investments may be adversely affected.
* * *
The risks set forth below are applicable to a Portfolio only
to the extent the Portfolio invests in the investment
described. See "The Portfolios" for a description of the
investments which each Portfolio may make.
FIXED-INCOME SECURITIES. All fixed-income securities are
subject to two types of risk: credit risk and interest rate
risk. Credit risk refers to the possibility that the issuer
of a security will be unable to make interest payments
and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general
level of interest rates. When the general level of interest
rates goes up, the prices of most fixed-income securities go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. (Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.)
Accordingly, a rise in the general level of interest rates
may cause the price of a Portfolio's fixed-income securities
to fall substantially. As merely illustrative of the
relationship between fixed-income securities and interest
rates, the following table shows how interest rates affect
bond prices.
44
<PAGE>
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
-------------------------------------
INCREASE DECREASE
----------------- -----------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
1 year N/A $ 1,000 $ 1,000 $ 1,000 $ 1,000
- -------------------------------------------------------------------------------
5 years 4.25% $ 967 $ 934 $ 1,038 $ 1,076
- -------------------------------------------------------------------------------
10 years 4.75% $ 930 $ 867 $ 1,074 $ 1,155
- -------------------------------------------------------------------------------
30 years 5.25% $ 865 $ 756 $ 1,166 $ 1,376
- -------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December
31, 1998. The table is not representative of price changes
for mortgage-backed securities principally because of
prepayments, and it is not representative of junk bonds. In
addition, the table is an illustration and does not
represent expected yields or share price changes of any
Morgan Stanley Dean Witter mutual fund.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have
different risk characteristics than traditional debt
securities. Although generally the value of fixed-income
securities increases during periods of falling interest
rates and decreases during periods of rising interest rates,
this is not always the case with mortgage-backed securities.
This is due to the fact that principal on underlying
mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a
period of falling interest rates and decrease during a
period of rising interest rates. The rate of prepayments
also may be influenced by economic and other factors.
Prepayment risk includes the possibility that, as interest
rates fall, securities with stated interest rates may have
the principal prepaid earlier than expected, requiring the
Fund to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based
upon, among other things, expectations regarding the rate of
prepayments on underlying mortgage pools. Rates of
prepayment, faster or slower than expected by the Investment
Manager, could reduce a Portfolio's yield, increase the
volatility of the Portfolio and/ or cause a decline in net
asset value. Certain mortgage-backed securities in which a
Portfolio may invest may be more volatile and less liquid
than other traditional types of debt securities.
JUNK BONDS. A Portfolio's investments in securities rated
lower than investment grade or if unrated of comparable
quality as determined by the Investment Manager (commonly
known as "junk bonds") pose significant risks. The prices of
junk bonds are likely to be more sensitive to adverse
economic changes or individual corporate developments than
higher rated securities. During an economic downturn or
substantial period of rising interest rates, junk bond
issuers and, in particular, highly leveraged issuers may
experience financial stress that would adversely affect
their ability to service their principal and interest
payment obligations, to meet their projected business goals
or to obtain additional financing. In the event of a
default, the Portfolio may incur additional expenses to seek
recovery. The secondary market
45
<PAGE>
for junk bonds may be less liquid than the markets for
higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. The Rule
144A securities could have the effect of increasing the
level of Portfolio illiquidity to the extent a Portfolio may
be unable to find qualified institutional buyers interested
in purchasing the securities. The illiquidity of the market
may also adversely affect the ability of the Fund's Trustees
to arrive at a fair value for certain junk bonds at certain
times and could make it difficult for the Portfolios to sell
certain securities. In addition, periods of economic
uncertainty and change probably would result in an increased
volatility of market prices of high yield securities and a
corresponding volatility in a Portfolio's net asset value.
SECURITIES RATED IN THE LOWEST INVESTMENT GRADE CATEGORY.
Investments in the fixed-income securities rated in the
lowest investment grade category by Moody's or S&P may have
speculative characteristics and therefore changes in
economic or other circumstances are more likely to weaken
their capacity to make principal and interest payments than
would be the case with investments in securities with higher
credit ratings.
FOREIGN SECURITIES. Foreign securities (including depository
receipts) involve risks in addition to the risks associated
with domestic securities. One additional risk is currency
risk. While the price of Portfolio shares is quoted in U.S.
dollars, a Portfolio generally converts U.S. dollars to a
foreign market's local currency to purchase a security in
that market. If the value of that local currency falls
relative to the U.S. dollar, the U.S. dollar value of the
foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and
political developments abroad, including effects of foreign
social, economic or political instability. Foreign
companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be
less publicly available information about these companies.
Moreover, foreign accounting, auditing and financial
reporting standards generally are different from those
applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment
against the issuers of the securities.
Securities of foreign issuers may be less liquid than
comparable securities of U.S. issuers and, as such, their
price changes may be more volatile. Furthermore, foreign
exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their
U.S. counterparts.
The foreign securities in which certain of the Portfolios
may invest (in particular the Pacific Growth Portfolio) may
be issued by companies located in developing countries.
Compared to the United States and other developed countries,
developing countries may have relatively unstable
governments, economies based on only a few
46
<PAGE>
industries and securities markets that trade a small number
of securities. Prices of these securities tend to be
especially volatile and, in the past, securities in these
countries have offered greater potential loss (as well as
gain) than securities of companies located in developed
countries. Many European countries have adopted or are in
the process of adopting a single European currency, referred
to as the "euro." The consequences of the euro conversion
for foreign exchange rates, interest rates and the value of
European securities the Fund may purchase are presently
unclear. The consequences may adversely affect the value
and/or increase the volatility of securities held by a
Portfolio.
SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's
investments in smaller and medium sized companies carry more
risk than investments in larger companies. While some of a
Portfolio's holdings in these companies may be listed on a
national securities exchange, such securities are more
likely to be traded in the over-the-counter market. The low
market liquidity of these securities may have an adverse
impact on a Portfolio's ability to sell certain securities
at favorable prices and may also make it difficult for a
Portfolio to obtain market quotations based on actual
trades, for purposes of valuing a Portfolio's securities.
Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of a
Portfolio's net asset value than is customarily associated
with larger, more established companies. Often smaller and
medium capitalization companies and the industries in which
they are focused are still evolving and, while this may
offer better growth potential than larger, more established
companies, it also may make them more sensitive to changing
market conditions.
OPTIONS AND FUTURES. If a Portfolio invests in options
and/or futures, its participation in these markets would
subject the Portfolio to certain risks. The Investment
Manager's predictions of movements in the direction of the
stock, bond, currency or interest rate markets may be
inaccurate, and the adverse consequences to the Portfolio
(e.g., a reduction in the Portfolio's net asset value or a
reduction in the amount of income available for
distribution) may leave the Portfolio in a worse position
than if these strategies were not used. Other risks inherent
in the use of options and futures include, for example, the
possible imperfect correlation between the price of options
and futures contracts and movements in the prices of the
securities being hedged, and the possible absence of a
liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are
options negotiated with dealers; there is no secondary
market for these investments.
FORWARD CURRENCY CONTRACTS. A Portfolio's participation in
forward currency contracts also involves risks. If the
Investment Manager employs a strategy that does not
correlate well with the Fund's investments or the currencies
in which the investments are denominated, currency contracts
could result in a loss. The contracts also may increase the
Fund's volatility and may involve a significant risk.
47
<PAGE>
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs pool
investors funds for investments primarily in commercial real
estate properties. Like mutual funds, REITs have expenses,
including advisory and administration fees that are paid by
its shareholders. As a result, you will absorb duplicate
levels of fees when a Portfolio invests in REITs. The
performance of any Portfolio REIT holdings ultimately
depends on the types of real property in which the REITs
invest and how well the property is managed. A general
downturn in real estate values also can hurt REIT
performance.
48
<PAGE>
(Sidebar)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc., its
wholly-owned subsidiary, has more than $129 billion in assets under management
or administration as of March 31, 1999.
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
The Sub-Advisor, together with its institutional investment management
affiliates, manages more than $150 billion primarily for employee benefit plans,
investment companies, endowments, foundations and wealthy individuals.
(End Sidebar)
PORTFOLIO MANAGEMENT
Morgan Stanley Dean Witter Advisors Inc. is the Investment
Manager to each Portfolio. Each Portfolio has retained the
Investment Manager to provide administrative services,
manage its business affairs and (except for the Pacific and
European Portfolios) invest its assets, including the
placing of orders for the purchase and sale of portfolio
securities. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market
positions in each of its three primary businesses:
securities, asset management and credit services. Its main
business office is located at Two World Trade Center, New
York, NY 10048.
Each of the Pacific Growth and European Growth Portfolios
has retained the Investment Manager to supervise the
investment of its assets. The Investment Manager has, in
turn, contracted with the Sub-Advisor - Morgan Stanley Dean
Witter Investment Management Inc. - to invest each
Portfolio's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Sub-Advisor
also is a subsidiary of Morgan Stanley Dean Witter & Co. Its
main business office is located at 1221 Avenue of the
Americas, New York, New York.
Each Portfolio pays the Investment Manager a monthly
management fee as full compensation for the services and
facilities furnished to each Portfolio, and for Portfolio
expenses assumed by the Investment Manager. The fee is based
on the Portfolio's average daily net assets. For the fiscal
year ended December 31, 1998 each Portfolio (other than the
Short-Term Bond Portfolio and the Aggressive Equity
Portfolio which, as of the date of this PROSPECTUS, had not
yet commenced operations) accrued total compensation to the
Investment Manager as set forth in the following table. The
contractual fee rate for the Short-Term Bond Portfolio is
0.45% of average daily net assets and for the Aggressive
Equity Portfolio is 0.75% of average daily net assets.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF
AVERAGE
NAME OF PORTFOLIO DAILY NET ASSETS
<S> <C>
- ------------------------------------------------------------------------
The Money Market Portfolio 0.50%
- ------------------------------------------------------------------------
The Quality Income Plus Portfolio 0.50%
- ------------------------------------------------------------------------
The High Yield Portfolio 0.50%
- ------------------------------------------------------------------------
The Utilities Portfolio 0.65%
- ------------------------------------------------------------------------
The Income Builder Portfolio 0.75%
- ------------------------------------------------------------------------
The Dividend Growth Portfolio 0.52%
- ------------------------------------------------------------------------
The Capital Growth Portfolio 0.65%
- ------------------------------------------------------------------------
The Global Dividend Growth Portfolio 0.75%
- ------------------------------------------------------------------------
The European Growth Portfolio(1) 0.99%(2)
- ------------------------------------------------------------------------
The Pacific Growth Portfolio(3) 0.99%(2)
- ------------------------------------------------------------------------
The Equity Portfolio 0.50%
- ------------------------------------------------------------------------
The S&P 500 Index Portfolio(4) 0%(5)
- ------------------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio(4) 0%
- ------------------------------------------------------------------------
The Strategist Portfolio 0.50%
- ------------------------------------------------------------------------
</TABLE>
(1) Effective December 1, 1998 the investment management fee was reduced to
0.95% of the Portfolio's daily net assets up to $500 million and 0.90% of
the Portfolio's daily net assets over $500 million. Previously the fee had
been 1.00% of daily net assets up to $500 million and 0.95% of daily net
assets over $500 million.
49
<PAGE>
<TABLE>
<S> <C>
(2) 40% of the Investment Manager's compensation is paid to the Sub-Advisor.
(3) Effective November 1, 1998 the investment management fee was reduced from
1.00% of daily net assets to 0.95%.
(4) The S&P 500 Index Portfolio and the Competitive Edge "Best Ideas" Portfolio
commenced operations on May 18, 1998. The Investment Manager had undertaken
to assume all expenses of each of these Portfolios (except for any
brokerage fees) and to waive the compensation provided for each of these
Portfolios in its Management Agreement with the Fund until such time as the
pertinent Portfolio attained $50 million of net assets or until April 30,
1999, whichever occurred first. The S&P 500 Index Portfolio attained $50
million of net assets on January 5, 1999. As of the date of this PROSPECTUS
the Competitive Edge "Best Ideas" Portfolio had not attained $50 million of
net assets. The contractual fee rate for the S&P 500 Index Portfolio is
0.40% of average daily net assets and for the Competitive Edge "Best Ideas"
Portfolio is 0.65% of average daily net assets.
(5) The Investment Manager has permanently undertaken to cap total expenses of
the S&P 500 Index Portfolio (other than brokerage fees) at 0.50% of average
daily net assets.
</TABLE>
The following individuals are primarily responsible for the
day-to-day management of certain of the Portfolios of the
Fund. Except as otherwise noted, each of these individuals
has been a primary portfolio manager of the designated
Portfolio for over five years or since the inception of the
Portfolio (if less than five years) and has been a portfolio
manager with the Investment Manager or the Sub-Advisor for
over five years.
SHORT-TERM BOND PORTFOLIO - Rochelle G. Siegel, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
QUALITY INCOME PLUS PORTFOLIO - Paula LaCosta, Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
HIGH YIELD PORTFOLIO - Peter M. Avelar, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
UTILITIES PORTFOLIO - Edward F. Gaylor, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
INCOME BUILDER PORTFOLIO - Paul D. Vance, Senior Vice
President of the Investment Manager, has been a primary
portfolio manager of the Portfolio since its inception. Mr.
Avelar has been a primary portfolio manager of the Portfolio
since January 1998.
DIVIDEND GROWTH PORTFOLIO - Mr. Vance is the primary
portfolio manager of the Portfolio.
CAPITAL GROWTH PORTFOLIO - Peter Hermann, Vice President of
the Investment Manager, has been the primary portfolio
manager of the Portfolio since May 1996.
GLOBAL DIVIDEND GROWTH PORTFOLIO - Mr. Vance has been a
primary portfolio manager of the Portfolio since its
inception. Matthew T. Haynes, Vice President of the
Investment Manager, has been a primary portfolio manager of
the Portfolio since May 1997.
EUROPEAN GROWTH PORTFOLIO - Jeremy Lodwick, a principal of
the Sub-Advisor, has been the primary portfolio manager of
the Portfolio since December 1998. Prior to joining the
Sub-Advisor, Mr. Lodwick was a portfolio manager with Morgan
Grenfell Investment Services Limited for over five years,
where he was the Portfolio's primary portfolio manager from
April 1994 to April 1998.
PACIFIC GROWTH PORTFOLIO - Timothy Jensen, a Principal of
the Sub-Advisor, and Ashutosh Sinha, Vice President of the
Sub-Advisor, have been primary portfolio
50
<PAGE>
managers of the Portfolio since November 1998. John R.
Alkire, a Managing Director of the Sub-Advisor and President
of Morgan Stanley Investment Advisory, Japan, has been a
primary portfolio manager of the Portfolio since May 1999.
Prior to joining the Sub-Advisor in January 1998, Mr. Jensen
was a Partner at Ardsley Partners (July 1994 - December
1997) and prior thereto was a Vice President of Bankers
Trust (June 1993 - June 1994). Mr. Sinha was an analyst at
SBI Funds Management Ltd. (1993 - 1995) prior to joining the
Sub-Advisor in June 1995.
EQUITY PORTFOLIO - Michelle Kaufman, Vice President of the
Investment Manager, has been a primary portfolio manager of
the Portfolio since May 1996, and has been the sole primary
portfolio manager of the Portfolio since December 1996.
S&P 500 INDEX PORTFOLIO - Guy G. Rutherfurd, Jr., Senior
Vice President of the Investment Manager, and Kevin Jung,
Vice President of the Investment Manager, have been the
primary portfolio managers of the Portfolio since May 1999.
Prior to that date, Mr. Jung had assisted the former primary
portfolio manager of the Portfolio since October 1998. Mr.
Rutherfurd has been a portfolio manager with the Investment
Manager since February 1997, prior to which time he was
Executive Vice President and Chief Investment Officer of
Nomura Asset Management (U.S.A.) Inc. (May 1992-February
1997) . Mr. Jung has been a portfolio manager with the
Investment Manager since September 1997, prior to which time
he was a Vice President and portfolio manager with UBS Asset
Management (NY) Inc. (April 1993 - August 1997).
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO - Mark Bavoso,
Senior Vice President of the Investment Manager, is the
primary portfolio manager of the Portfolio.
AGGRESSIVE EQUITY PORTFOLIO - Anita H. Kolleeny, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio and co-management is
provided by Ms. Kaufman.
STRATEGIST PORTFOLIO - Mr. Bavoso has been the primary
portfolio manager of the Portfolio since September 1995.
51
<PAGE>
SHAREHOLDER INFORMATION
ICON PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of shares of each Portfolio called "net asset
value," is based on the value of its portfolio securities.
The net asset value for each Portfolio is calculated once
daily at 4:00 p.m. Eastern time on each day the New York
Stock Exchange is open (or, on days when the New York Stock
Exchange closes prior to 4:00 p.m., at such earlier time).
Shares will not be priced on days that the New York Stock
Exchange is closed.
The value of each Portfolio's securities (other than the
Money Market Portfolio) is based on the securities' market
price when available. When a market price is not readily
available, including circumstances under which the
Investment Manager (or, if applicable, the Sub-Advisor)
determines that a security's market price is not accurate, a
portfolio security is valued at its fair value, as
determined under procedures established by the Fund's Board
of Trustees. In these cases, the applicable Portfolio's net
asset value will reflect certain portfolio securities' fair
value rather than their market price. In addition, if a
Portfolio holds securities that are primarily listed on
foreign exchanges, the value of the Portfolio's investment
securities may change on days when shareholders will not be
able to purchase or sell their shares.
An exception to the general policy of using market prices
concerns each Portfolio's short-term debt portfolio
securities. Debt securities with remaining maturities of
sixty days or less at the time of purchase are valued at
amortized cost. However, if the cost does not reflect the
securities' market value, these securities will be valued at
their fair value.
The Money Market Portfolio utilizes amortized cost in
determining the value of its portfolio securities. The
amortized cost valuation method involves valuing a debt
obligation in reference to its acquisition cost rather than
market forces.
52
<PAGE>
ICON DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio passes substantially all of its earnings from
income and capital gains along to its investors as
"distributions." Each Portfolio earns income from stocks
and/or interest from fixed-income investments. These amounts
are passed along to the appropriate Portfolio investors as
"income dividend distributions." Each Portfolio realizes
capital gains whenever it sells securities for a higher
price than it paid for them. These amounts may be passed
along as "capital gain distributions."
Dividends from net investment income and capital gains
distributions, if any, are declared and paid as follows:
<TABLE>
<CAPTION>
NET REALIZED
CAPITAL GAINS
DIVIDENDS DISTRIBUTIONS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO Declared and paid on each day the New Declared and paid at least once per
York Stock Exchange is open to calendar year, net short-term gains may
shareholders as of the close of business be paid more frequently
the preceding business day
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND, QUALITY INCOME PLUS Declared and paid monthly Declared and paid at least once per year
AND HIGH YIELD PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------------
UTILITIES, INCOME BUILDER, DIVIDEND Declared and paid quarterly Declared and paid at least once per
GROWTH, GLOBAL DIVIDEND GROWTH, EQUITY calendar year
AND STRATEGIST PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH, EUROPEAN GROWTH, Declared and paid at least once per Declared and paid at least once per
PACIFIC GROWTH, S&P 500 INDEX, calendar year calendar year
COMPETITIVE EDGE "BEST IDEAS" AND
AGGRESSIVE EQUITY PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ICON TAX CONSEQUENCES
- --------------------------------------------------------------------------------
For information concerning the federal income tax
consequences to holders of the underlying variable annuity
or variable life insurance contracts, see the accompanying
prospectus for the applicable contract.
53
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the past 5 fiscal years of the
Fund. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate an
investor would have earned or lost on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions).
Further information about the performance of the Portfolios of the Fund
is contained in the Fund's ANNUAL REPORT TO SHAREHOLDERS, which may be
obtained without charge upon request to the Fund. See the discussion
under the caption "Charges and Other Deductions" in the accompanying
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL
VALUE NET AND TOTAL FROM DISTRIBUTIONS DIVIDENDS
BEGINNING INVESTMENT UNREALIZED INVESTMENT DIVIDENDS TO TO 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>
54
<PAGE>
prospectus for either the Variable Annuity Contracts or the Variable
Life Contracts issued by the applicable insurance company for a
description of charges which are applicable thereto. Any such charges
are not reflected in the financial highlights below. Inclusion of any
such charge would reduce the total return figures for all periods shown.
The S&P 500 Index Portfolio and the Competitive Edge "Best Ideas"
Portfolio commenced operations on May 18, 1998. The Short-Term Bond
Portfolio and the Aggressive Equity Portfolio have not as of the date of
this PROSPECTUS commenced operation.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-------------------------
NET ASSET NET ASSETS AT NET PORTFOLIO
VALUE END TOTAL END OF PERIOD INVESTMENT TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
$ 1.00 3.81% $ 268,624 0.55% 3.93% N/A
-------------------------------------------------------------------------------------------
1.00 5.66 249,787 0.53 5.52 N/A
-------------------------------------------------------------------------------------------
1.00 5.11 340,238 0.52 4.97 N/A
-------------------------------------------------------------------------------------------
1.00 5.23 335,578 0.52 5.10 N/A
-------------------------------------------------------------------------------------------
1.00 5.18 442,034 0.52 5.04 N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
9.45 (6.63) 414,905 0.54 6.88 254%
-------------------------------------------------------------------------------------------
10.96 24.30 520,579 0.54 7.07 162
-------------------------------------------------------------------------------------------
10.37 1.56 474,660 0.53 6.84 182
-------------------------------------------------------------------------------------------
10.77 11.09 474,990 0.53 6.71 171
-------------------------------------------------------------------------------------------
11.00 8.67 547,583 0.52 6.23 152
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
6.16 (2.47) 111,934 0.59 11.71 105
-------------------------------------------------------------------------------------------
6.26 14.93 154,310 0.54 12.67 58
-------------------------------------------------------------------------------------------
6.18 11.98 259,549 0.51 12.59 57
-------------------------------------------------------------------------------------------
6.12 11.87 368,061 0.53 12.44 95
-------------------------------------------------------------------------------------------
5.07 (6.20) 364,079 0.53 12.27 93
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
11.92 (9.02) 382,412 0.68 4.21 15
-------------------------------------------------------------------------------------------
14.68 28.65 479,070 0.68 4.00 13
-------------------------------------------------------------------------------------------
15.34 8.68 440,662 0.67 3.61 9
-------------------------------------------------------------------------------------------
18.59 27.15 458,134 0.67 3.48 13
-------------------------------------------------------------------------------------------
21.25 23.76 560,803 0.67 2.89 7
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
11.76 22.38(1) 55,423 0.15(2)(4) 5.73(2)(4) 41(1)
-------------------------------------------------------------------------------------------
11.46 3.21 87,769 0.81 5.09 54
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
11.99 (3.27) 572,952 0.64 3.13 20
-------------------------------------------------------------------------------------------
15.59 36.38 865,417 0.61 2.75 24
-------------------------------------------------------------------------------------------
18.40 23.96 1,288,404 0.57 2.46 23
-------------------------------------------------------------------------------------------
21.60 25.61 1,905,906 0.54 2.06 28
-------------------------------------------------------------------------------------------
22.13 14.28 2,249,927 0.53 1.85 45
-------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET
NET ASSET NET REALIZED TOTAL
VALUE INVESTMENT AND TOTAL FROM DIVIDENDS DISTRIBUTIONS DIVIDENDS
BEGINNING INCOME UNREALIZED INVESTMENT TO TO 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>
56
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
------------------------
NET ASSETS NET
NET ASSET AT END OF INVESTMENT PORTFOLIO
VALUE END TOTAL PERIOD INCOME TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) RATE
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
$11.52 (1.28)% $ 45,715 0.77% 0.90% 37%
-------------------------------------------------------------------------------------------
15.22 32.92 66,995 0.74 0.70 34
-------------------------------------------------------------------------------------------
16.65 11.55 86,862 0.73 0.52 98
-------------------------------------------------------------------------------------------
18.29 24.54 127,100 0.71 0.01 139
-------------------------------------------------------------------------------------------
20.36 19.63 138,603 0.70 (0.26) 248
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
9.82 0.27(1) 138,486 0.87(2)(3) 2.62(2) 20(1)
-------------------------------------------------------------------------------------------
11.69 22.14 205,739 0.88 2.23 55
-------------------------------------------------------------------------------------------
13.13 17.49 334,821 0.85 1.94 39
-------------------------------------------------------------------------------------------
13.89 12.04 481,613 0.84 1.61 48
-------------------------------------------------------------------------------------------
13.82 12.53 484,228 0.84 1.68 52
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
14.56 8.36 152,021 1.16 1.49 58
-------------------------------------------------------------------------------------------
17.53 25.89 188,119 1.17 1.25 69
-------------------------------------------------------------------------------------------
21.56 29.99 302,422 1.11 0.97 43
-------------------------------------------------------------------------------------------
23.54 16.07 391,441 1.12 1.04 45
-------------------------------------------------------------------------------------------
27.18 23.96 510,638 1.11 0.65 56
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
9.26 (6.73)(1) 75,425 1.00(2)(3) 0.56(2) 22(1)
-------------------------------------------------------------------------------------------
9.70 5.74 98,330 1.44 1.23 53
-------------------------------------------------------------------------------------------
9.96 3.89 144,536 1.37 1.01 50
-------------------------------------------------------------------------------------------
6.12 (37.70) 68,904 1.44 1.09 58
-------------------------------------------------------------------------------------------
5.15 (10.40) 52,842 1.51 0.91 112
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
11.32 13.20(1) 32,306 --(4) 1.30(2)(4) 25(1)
-------------------------------------------------------------------------------------------
10.36 (7.96) 32,605 --(5) 1.16(5) 340
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
19.25 (4.91) 225,289 0.57 1.19 299
-------------------------------------------------------------------------------------------
27.14 42.53 359,779 0.54 0.97 269
-------------------------------------------------------------------------------------------
26.39 12.36 521,908 0.54 0.58 279
-------------------------------------------------------------------------------------------
33.58 37.43 823,090 0.52 0.61 145
-------------------------------------------------------------------------------------------
38.58 30.45 1,138,413 0.52 0.73 257
-------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET
REALIZED
NET ASSET AND TOTAL
VALUE NET UNREALIZED TOTAL FROM DIVIDENDS DISTRIBUTIONS DIVIDENDS
BEGINNING INVESTMENT GAIN INVESTMENT TO TO AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME (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>
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.
58
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
----------------------------
NET ASSET NET ASSETS AT NET PORTFOLIO
VALUE END TOTAL END OF PERIOD INVESTMENT TURNOVER
OF PERIOD RETURN+ (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
$11.22 12.20%(1) $ 48,732 --(5) 1.85%(2)(5) 2%(1)
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
9.82 (1.90)(1) 36,539 --(5) 1.74(2)(5) 31(1)
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
12.45 3.94 392,760 0.54% 3.93 125
-------------------------------------------------------------------------------------------------
12.45 9.48 388,579 0.52 5.03 329
-------------------------------------------------------------------------------------------------
13.72 15.02 423,768 0.52 3.30 153
-------------------------------------------------------------------------------------------------
14.80 13.71 497,028 0.52 3.09 159
-------------------------------------------------------------------------------------------------
16.64 26.55 633,934 0.52 2.32 84
-------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
Additional information about the Fund's investments is
available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO
SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. The Fund's
STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL
INFORMATION is incorporated herein by reference (legally is
part of this PROSPECTUS). For a free copy of any of these
documents, to request other information about the Fund, or
to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling
your Morgan Stanley Dean Witter Financial Advisor.
Information about the Fund (including the STATEMENT OF
ADDITIONAL INFORMATION) can be viewed and copied at the
Securities and Exchange Commission's Public Reference Room
in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800)
SEC-0330. Reports and other information about the Fund are
available on the SEC's Internet site at www.sec.gov, and
copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
(INVESTMENT COMPANY ACT FILE NO. 811-3692)
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
MAY 1, 1999 SERIES
- ----------------------------------------------------------------------------
-THE MONEY MARKET PORTFOLIO
-THE SHORT-TERM BOND 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 EQUITY PORTFOLIO
-THE S&P 500 INDEX PORTFOLIO
-THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
-THE AGGRESSIVE EQUITY PORTFOLIO
-THE STRATEGIST PORTFOLIO
This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated May 1, 1999) for the Morgan Stanley Dean Witter Variable Investment
Series (the "Fund") provides the basic information you should know before
allocating your investment under your variable annuity contract or your variable
life contract. The Prospectus may be obtained without charge from the Fund at
its address or telephone number listed below or from the Fund's Distributor,
Morgan Stanley Dean Witter Distributors Inc., or from Dean Witter Reynolds at
any of its branch offices.
Morgan Stanley Dean Witter
Variable Investment Series
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
I. Fund History........................................................ 4
II. Description of the Fund and Its Investments and Risks............... 4
A. Classification................................................. 4
B. Eligible Purchasers............................................ 4
C. Investment Strategies and Risks................................ 4
D. Fund Policies/Investment Restrictions.......................... 17
E. Portfolio Turnover............................................. 20
III. Management of the Fund.............................................. 20
A. Board of Trustees.............................................. 20
B. Management Information......................................... 20
C. Compensation................................................... 26
IV. Control Persons and Principal Holders of Securities................. 27
V. Investment Management and Other Services............................ 27
A. Investment Manager and Sub-Advisor............................. 27
B. Principal Underwriter.......................................... 30
C. Services Provided by the Investment Manager and Fund Expenses
Paid by Third Parties.......................................... 30
D. Other Service Providers........................................ 31
VI. Brokerage Allocation and Other Practices............................ 32
A. Brokerage Transactions......................................... 32
B. Commissions.................................................... 32
C. Brokerage Selection............................................ 34
D. Directed Brokerage............................................. 35
E. Regular Broker-Dealers......................................... 36
VII. Capital Stock and Other Securities.................................. 37
VIII. Purchase, Redemption and Pricing of Shares.......................... 38
A. Purchase of Shares............................................. 38
B. Offering Price................................................. 38
IX. Taxation of the Fund and Shareholders............................... 41
X. Underwriters........................................................ 41
XI. Calculation of Performance Data..................................... 41
XII. Financial Statements................................................ 44
Appendix--Ratings of Corporate Debt Instruments Investments......... 141
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CONTRACT"--Variable annuity contract and/or variable life insurance contract
issued by Northbrook Life Insurance Company, Allstate Life Insurance Company of
New York, Glenbrook Life and Annuity Company and Paragon Life Insurance Company.
"CONTRACT OWNERS"--Owners of a Contract.
"CUSTODIAN"--The Bank of New York for each Portfolio other than the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO. The Chase Manhattan Bank for the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FUND"--Morgan Stanley Dean Witter Variable Investment Series, a registered
open-end series investment company currently consisting of sixteen Portfolios.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor; and (ii) that
hold themselves out to investors as related companies for investment and
investor services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"PORTFOLIO(S)"--The separate investment portfolio(s) of the Fund.
"SUB-ADVISOR"--Morgan Stanley Dean Witter Investment Management Inc., a
subsidiary of MSDW (only applicable to the EUROPEAN GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO).
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized under the laws of the Commonwealth of Massachusetts
on February 25, 1983 under the name Dean Witter Variable Annuity Investment
Series and is a trust of the type commonly referred to as a Massachusetts
Business Trust. Effective February 23, 1988, the Fund's name was changed to Dean
Witter Variable Investment Series. On September 1, 1995, the name of the MANAGED
ASSETS PORTFOLIO was changed to the STRATEGIST PORTFOLIO. Effective June 22,
1998, the Fund's name was changed to Morgan Stanley Dean Witter Variable
Investment Series.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company.
B. ELIGIBLE PURCHASERS
As discussed in the Prospectus, shares of the Fund are sold only to
particular insurance companies in connection with variable annuity and/or
variable life insurance contracts they issue. It is conceivable that in the
future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
funds. Although neither the various insurance companies nor the Fund currently
foresee any such disadvantage, the Trustees intend to monitor events in order to
identify any material irreconcilable conflict between the interest of variable
annuity contract owners and variable life insurance contract owners and to
determine what action, if any, should be taken in response thereto.
C. INVESTMENT STRATEGIES AND RISKS
The following discussion of each Portfolio's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
CONVERTIBLE SECURITIES. Each Portfolio, other than the MONEY MARKET
PORTFOLIO, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS"
PORTFOLIO, may acquire through purchase fixed-income securities which are
convertible into common stock ("CONVERTIBLE SECURITIES"). In addition, each
Portfolio, other than the MONEY MARKET PORTFOLIO, may acquire convertible
securities through a distribution by a security held in its portfolio.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, entail less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege) and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and to decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its conversion
value. (This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by a
Portfolio at varying price levels above their investment values and/ or their
conversion values in keeping with the Portfolio's objective.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The SHORT-TERM BOND PORTFOLIO,
the HIGH YIELD PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO,
the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO
may enter into
4
<PAGE>
forward foreign currency exchange contracts ("FORWARD CONTRACTS"): to facilitate
settlement in an attempt to limit the effect of changes in the relationship
between the U.S. dollar and the foreign currency during the period between the
date on which the security is purchased or sold and the date on which payment is
made or received. In addition, the SHORT-TERM BOND PORTFOLIO, the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY
PORTFOLIO may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates. Each Portfolio may conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial and investment banks) and their customers. Forward
contracts only will be entered into with United States banks and their foreign
branches or foreign banks whose assets total $1 billion or more. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
The Portfolios may use a forward contract to "lock in" the price of a
security in U.S. dollars or some other foreign currency which a Portfolio is
holding in its portfolio. By entering into a forward contract for the purchase
or sale, for a fixed amount of dollars or other currency, of the amount of
foreign currency involved in the underlying security transactions, the Portfolio
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar or other currency which is
being used for the security purchase and the foreign currency in which the
security is denominated during the period between the date on which the security
is purchased or sold and the date on which payment is made or received.
The SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the
AGGRESSIVE EQUITY PORTFOLIO also may from time to time utilize forward contracts
for other purposes. For example, they may be used to hedge a foreign security
held in the portfolio or a security which pays out principal tied to an exchange
rate between the U.S. dollar and a foreign currency, against a decline in value
of the applicable foreign currency. They also may be used to lock in the current
exchange rate of the currency in which those securities anticipated to be
purchased are denominated. At times, the Portfolios may enter into
"cross-currency" hedging transactions involving currencies other than those in
which securities are held or proposed to be purchased are denominated.
A Portfolio will not enter into forward currency contracts or maintain a net
exposure to these contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's portfolio securities.
Although a Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
A Portfolio may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.
Forward contracts may limit gains on portfolio securities that could
otherwise be realized had they not been utilized and could result in losses. The
contracts also may increase the Portfolio's volatility and may involve a
significant amount of risk relative to the investment of cash.
OPTION AND FUTURES TRANSACTIONS. Each of the following Portfolios may
engage in transactions in listed and OTC options: the SHORT-TERM BOND PORTFOLIO,
the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
5
<PAGE>
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE
EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the STRATEGIST
PORTFOLIO. Listed options are issued or guaranteed by the exchange on which they
are traded or by a clearing corporation such as the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Portfolio the right to buy
from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell to the OCC (in the U.S.) or other
clearing corporation or exchange, the underlying security or currency at that
exercise price prior to the expiration date of the option, regardless of its
then current market price. Ownership of a listed put option would give the
Portfolio the right to sell the underlying security or currency to the OCC (in
the U.S.) or other clearing corporation or exchange, at the stated exercise
price. Upon notice of exercise of the put option, the writer of the put would
have the obligation to purchase the underlying security or currency from the OCC
(in the U.S.) or other clearing corporation or exchange, at the exercise price.
COVERED CALL WRITING. Each of the above-named Portfolios is permitted to
write covered call options on portfolio securities without limit. Each of the
SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO may also write covered call
options on the U.S. dollar and foreign currencies in which its portfolio
securities are denominated, without limit.
The Portfolio will receive from the purchaser, in return for a call it has
written, a "premium," I.E., the price of the option. Receipt of these premiums
may better enable the Portfolio to earn a higher level of current income than it
would earn from holding the underlying securities (or currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Portfolio if the securities (or currencies) underlying the
option decline in value.
The Portfolio may be required, at any time during the option period, to
deliver the underlying security (or currency) against payment of the exercise
price on any calls it has written. This obligation is terminated upon the
expiration of the option period or at such earlier time when the writer effects
a closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
Options written by the Portfolio normally have expiration dates of from up
to eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
COVERED PUT WRITING. Each of the Portfolios that may engage in covered call
writing may engage in covered put writing. As a writer of a covered put option,
the Portfolio incurs an obligation to buy the security underlying the option
from the purchaser of the put, at the option's exercise price at any time during
the option period, at the purchaser's election. Through the writing of a put
option, the Portfolio would receive income from the premium paid by purchasers.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction). At any time during
the option period, the Portfolio may be required to make payment of the exercise
price against delivery of the underlying security (or currency). The aggregate
value of the obligations underlying puts may not exceed 50% of the Portfolio's
assets. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
PURCHASING CALL AND PUT OPTIONS. Each of the SHORT-TERM BOND PORTFOLIO, the
CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY
PORTFOLIO may purchase listed and OTC call and put options in amounts equaling
up to 5% of its total assets and, in the case of each of the QUALITY INCOME PLUS
PORTFOLIO, the UTILITIES PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the
STRATEGIST PORTFOLIO, up to 10% of its total assets. Each of the last three
listed Portfolios may purchase stock index options in amounts not exceeding 5%
of its total assets. The purchase of a call option would enable a Portfolio, in
return for the
6
<PAGE>
premium paid, to lock in a purchase price for a security or currency during the
term of the option. The purchase of a put option would enable a Portfolio, in
return for a premium paid, to lock in a price at which it may sell a security or
currency during the term of the option.
OPTIONS ON FOREIGN CURRENCIES. The SHORT-TERM BOND PORTFOLIO, the GLOBAL
DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, and the AGGRESSIVE
EQUITY PORTFOLIO may purchase and write options on foreign currencies for
purposes similar to those involved with investing in forward foreign currency
exchange contracts.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a
Portfolio. With OTC options, such variables as expiration date, exercise price
and premium will be agreed upon between a Portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. The Portfolios may
engage in OTC option transactions only with member banks of the Federal Reserve
Bank System or primary dealers in U.S. Government securities or with affiliates
of such banks or dealers.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager or, if applicable, the Sub-Advisor, to
forecast correctly interest rates, currency exchange rates and/or market
movements. If the market value of the portfolio securities (or the currencies in
which they are denominated) upon which call options have been written increases,
a Portfolio may receive a lower total return from the portion of its portfolio
upon which calls have been written than it would have had such calls not been
written. During the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the value of its denominated currency) increase, but has retained the risk of
loss should the price of the underlying security (or the value of its
denominated currency) decline. The covered put writer also retains the risk of
loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Prior to exercise
or expiration, an option position can only be terminated by entering into a
closing purchase or sale transaction. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price.
A Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in options, the Portfolio could experience delays and/or losses
in liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. In the case of OTC
options, if the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, due to insolvency or otherwise, the Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the
Portfolios may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
7
<PAGE>
The markets in foreign currency options are relatively new and a Portfolio's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
STOCK INDEX OPTIONS. Each of the UTILITIES PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO
may invest in options on stock indexes. Options on stock indexes are similar to
options on stock except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, a Portfolio could not, if it wrote a call option, provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock
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portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. Each of the SHORT-TERM BOND PORTFOLIO, the QUALITY
INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO,
the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC
GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE
EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may purchase and sell interest
rate and index futures contracts that are traded on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, bills and GNMA
Certificates and, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE
"BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO, on any foreign
government fixed-income security and on various currencies, and with respect to
each of the ten listed Portfolios that may engage in futures transactions, on
such indexes of U.S. (and, if applicable, foreign securities) as may exist or
come into existence.
A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables a Portfolio, during the term of the contract, to lock in a
price at which it may purchase a security or currency and protect against a rise
in prices pending purchase of portfolio securities. The sale of a futures
contract enables a Portfolio to lock in a price at which it may sell a security
or currency and protect against declines in the value of portfolio securities.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that a Portfolio will be able to enter into a
closing transaction.
MARGIN. If a Portfolio enters into a futures contract, it is initially
required to deposit an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities ranging from approximately 2% to 5% of the
contract amount. Initial margin requirements are established by the exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Portfolio upon the proper termination of
the futures
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contract. The margin deposits made are marked to market daily and the Portfolio
may be required to make subsequent deposits of cash or U.S. Government
securities, called "variation margin," which are reflective of price
fluctuations in the futures contract.
OPTIONS ON FUTURES CONTRACTS. Each of the SHORT-TERM BOND PORTFOLIO, the
QUALITY INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO,
the PACIFIC GROWTH PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the
AGGRESSIVE EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may purchase and write
call and put options on futures contracts and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid),
and the writer the obligation, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. A Portfolio may
not enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Portfolio's total assets, after taking into account unrealized gains and
unrealized losses on such contracts into which it has entered; provided,
however, that in the case of an option that is in-the-money (the exercise price
of the call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage of
a Portfolio's net assets which may be subject to a hedge position.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Portfolio's securities (and the currencies in which they are
denominated). Also, prices of futures contracts may not move in tandem with the
changes in prevailing interest rates, market movements and/or currency exchange
rates against which a Portfolio seeks a hedge. A correlation may also be
distorted (a) temporarily, by short-term traders' seeking to profit from the
difference between a contract or security price objective and their cost of
borrowed funds; (b) by investors in futures contracts electing to close out
their contracts through offsetting transactions rather than meet margin deposit
requirements; (c) by investors in futures contracts opting to make or take
delivery of underlying securities rather than engage in closing transactions,
thereby reducing liquidity of the futures market; and (d) temporarily, by
speculators who view the deposit requirements in the futures markets as less
onerous than margin requirements in the cash market. Due to the possibility of
price distortion in the futures market and because of the possible imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of interest rate, currency
exchange rate and/or market movement trends by the Investment Manager (and/or if
applicable, the Sub-Advisor) may still not result in a successful hedging
transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a Portfolio may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel or prevent the Portfolio from closing out a
contract which may result in reduced gain or increased loss to the Portfolio.
The
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absence of a liquid market in futures contracts might cause the Portfolio to
make or take delivery of the underlying securities (currencies) at a time when
it may be disadvantageous to do so.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, a Portfolio would continue
to be required to make daily cash payments of variation margin on open futures
positions. In these situations, if the Portfolio has insufficient cash, it may
have to sell portfolio securities to meet daily variation margin requirements at
a time when it may be disadvantageous to do so. In addition, the Portfolio may
be required to take or make delivery of the instruments underlying interest rate
futures contracts it holds at a time when it is disadvantageous to do so. The
inability to close out options and futures positions could also have an adverse
impact on a Portfolio's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit a Portfolio's ability to enter into
certain commodity transactions on foreign exchanges. Moreover, differences in
clearance and delivery requirements on foreign exchanges may occasion delays in
the settlement of a Portfolio's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in futures or options thereon, the Portfolio could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker.
ADDITIONAL INFORMATION CONCERNING THE QUALITY INCOME PLUS AND SHORT-TERM BOND
PORTFOLIOS
COLLATERALIZED MORTGAGE OBLIGATIONS. The Portfolio(s) may invest in CMOs -
collateralized mortgage obligations. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (collectively "Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets and any
reinvestment income are used to make payments on the CMOs. CMOs are issued in
multiple classes. Each class has a specific fixed or floating coupon rate and a
stated maturity or final distribution date. The principal and interest on the
Mortgage Assets may be allocated among the classes in a number of different
ways. Certain classes will, as a result of the collection, have more predictable
cash flows than others. As a general matter, the more predictable the cash flow,
the lower the yield relative to other Mortgage Assets. The less predictable the
cash flow, the higher the yield and the greater the risk. The Portfolio(s) may
invest in any class of CMO.
Certain mortgage-backed securities in which the Portfolio(s) may invest
(E.G.,certain classes of CMOs) may increase or decrease in value substantially
with changes in interest rates and/or the rates of prepayment. In addition, if
the collateral securing CMOs or any third party guarantees are insufficient to
make payments, the Portfolio could sustain a loss.
In addition, the SHORT-TERM BOND PORTFOLIO may invest up to 15% of its net
assets in stripped mortgage-backed securities, which are usually structured in
two classes. One class entitles the holder to receive all or most of the
interest but little or none of the principal of a pool of Mortgage Assets (the
interest-only or "IO Class"), while the other class entitles the holder to
receive all or most of the principal but little or none of the interest (the
principal-only or "PO" Class). IOs tend to decrease in value substantially if
interest rates decline and prepayment rates become more rapid. POs tend to
decrease in value substantially if interest rates increase and the rate of
repayment decreases.
The SHORT-TERM BOND PORTFOLIO may invest up to 10% of its assets in inverse
floaters. An inverse floater has a coupon rate that moves in the direction
opposite to that of a designated interest rate index. Like most other fixed
income securities, the value of inverse floaters will decrease as interest rates
increase. They are more volatile, however, than most other fixed income
securities because the coupon
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rate on an inverse floater typically changes at a multiple of the change in the
relevant index rate. Thus, any rise in the index rate (as a consequence of an
increase in interest rates) causes a correspondingly greater drop in the coupon
rate of an inverse floater while a drop in the index rate causes a
correspondingly greater increase in the coupon of an inverse floater. Some
inverse floaters may also increase or decrease substantially because of changes
in the rate of prepayments.
ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-backed securities are also applied to a broad range of other assets.
Various types of assets, primarily automobile and credit card receivables and
home equity loans, are being securitized in pass-through structures similar to
the mortgage pass-through structures. These types of securities are known as
asset-backed securities. The Portfolio(s) may invest in any type of asset-backed
security.
Asset-backed securities have risk characteristics similar to mortgage-backed
securities. Like mortgage-backed securities, they generally decrease in value as
a result of interest rate increases, but may benefit less than other
fixed-income securities from declining interest rates, principally because of
prepayments. Also, as in the case of mortgage-backed securities, prepayments
generally increase during a period of declining interest rates although other
factors, such as changes in credit use and payment patterns, may also influence
prepayment rates. Asset-backed securities also involve the risk that various
federal and state consumer laws and other legal and economic factors may result
in the collateral backing the securities being insufficient to support payment
on the securities.
ADDITIONAL INFORMATION CONCERNING THE SHORT-TERM BOND PORTFOLIO. The
SHORT-TERM BOND PORTFOLIO'S investments in preferred stocks are limited to those
rated in one of the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's Investors Service,
Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch Investors
Service, Inc. Investments in securities rated within the four highest rating
categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings.
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX PORTFOLIO. The S&P 500
INDEX PORTFOLIO is not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of shares of the
Portfolio or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the S&P 500 INDEX PORTFOLIO is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to the Portfolio. S&P has no obligation to take
the needs of the Portfolio or the owners of shares of the Portfolio into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Portfolio or the timing of the issuance or sale of shares of
the Portfolio. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Portfolio.
S&P does not guarantee the accuracy or the completeness of the S&P 500 Index
or any data included therein, and S&P shall have no liability for any errors,
omissions or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the S&P 500 INDEX PORTFOLIO, owners of shares of
the Portfolio, or any other person or entity from the use of the S&P 500 Index
or any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO: "BEST IDEAS" LIST. As of February
4, 1999, the companies in the "Best Ideas" subgroup of "Global Investing: The
Competitive Edge" were as follows: AES Corp., American Express, American Home
Products, AXA-UAP, Bank of New York, BMW, BTR
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Siebe, Chubb, Cisco Systems, Clear Channel Comm., Coca-Cola Enterprises, Danone,
Diageo, DuPont, Eli Lilly, EMC Corp., Emerson Electric, Federal Express, General
Electric, Halliburton, Heineken, Holderbank, HSBC Holdings, Intel, Lucent, MCI
Worldcom, Medtronic, Microsoft, News Corp., Quintiles Transnational,
Schlumberger, Skandia International, Sony, Southern Company, Time Warner, Total,
UPM-Kymmene, Wal-Mart, Walt Disney and Wolters Kluwer.
MONEY MARKET SECURITIES. In addition to the short-term fixed-income
securities in which the Portfolios may otherwise invest, the Portfolios may
invest in various money market securities for cash management purposes or when
assuming a temporary defensive position, which among others may include
commercial paper, bank acceptances, bank obligations, corporate debt securities,
certificates of deposit, U.S. Government securities, obligations of savings
institutions and repurchase agreements. (This section does not apply to the
MONEY MARKET PORTFOLIO whose money market instruments are described in the
Prospectus.) Such securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan association, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of a Portfolio's total assets in all such obligations and in all illiquid
assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements.
When cash may be available for only a few days, it may be invested by a
Portfolio in repurchase agreements until such time as it may otherwise be
invested or used for payments of obligations of the Portfolio. These agreements,
which may be viewed as a type of secured lending by the Portfolio, typically
involve the acquisition by the Portfolio of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Portfolio will sell back to the
institution, and that the institution will repurchase, the underlying security
serving as collateral at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. The collateral will
be marked-to-market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Portfolio will accrue interest from the institution until
the time when the repurchase is to occur. Although this date is deemed by the
Portfolio to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Portfolio follows procedures designed to
minimize such risks. These procedures include
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effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager subject to procedures
established by the Trustees. In addition, as described above, the value of the
collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the case of the MONEY MARKET PORTFOLIO, such collateral will
consist entirely of securities that are direct obligations of, or that are fully
guaranteed as to principal and interest by, the United States or any agency
thereof, and/or certificates of deposit, bankers' acceptances which are eligible
for acceptance by a Federal Reserve Bank, and, if the seller is a bank, mortgage
related securities (as such term is defined in section 3(a)(41) of the
Securities Exchange Act of 1934) that at the time the repurchase agreement is
entered into are rated in the highest rating category by the "Requisite NRSROs"
(as defined in Rule 2a-7 under the Investment Company Act of 1940).
Additionally, in the case of the MONEY MARKET PORTFOLIO, the collateral must
qualify the repurchase agreement for preferential treatment under the Federal
Deposit Insurance Act of the Federal Bankruptcy Code. In the event of a default
or bankruptcy by a selling financial institution, the Portfolio will seek to
liquidate such collateral. However, the exercising of the Portfolio's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Portfolio could suffer a
loss. It is the current policy of each Portfolio not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Portfolio, amounts to more than 10%
of its net assets in the case of each of the MONEY MARKET PORTFOLIO, the QUALITY
INCOME PLUS PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO,
the CAPITAL GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the EQUITY
PORTFOLIO and the STRATEGIST PORTFOLIO and 15% of its net assets in the case of
each of the other Portfolios.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each of the SHORT-TERM BOND
PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and
the PACIFIC GROWTH PORTFOLIO and may use reverse repurchase agreements for
purposes of meeting redemptions or as part of its investment strategy. The
SHORT-TERM BOND PORTFOLIO may also use dollar rolls as part of its investment
strategy.
Reverse repurchase agreements involve sales by the Portfolio of assets
concurrently with an agreement by the Portfolio to repurchase the same assets at
a later date at a fixed price. Reverse repurchase agreements involve the risk
that the market value of the securities the Portfolio is obligated to purchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the Portfolio's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Portfolio's obligation to repurchase the
securities.
Dollar rolls involve the Portfolio selling securities for delivery in the
current month and simultaneously contracting to repurchase substantially similar
(same type and coupon) securities on a specified future date. During the roll
period, the Portfolio will forgo principal and interest paid on the securities.
The Portfolio is compensated by the difference between the current sales price
and the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage and are considered borrowings by the Portfolio. With respect
to each of the QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and
the PACIFIC GROWTH PORTFOLIO, reverse repurchase agreements may not exceed 10%
of the Portfolio's total assets.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. Each of the UTILITIES
PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the
CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO the EQUITY
PORTFOLIO and the STRATEGIST PORTFOLIO may invest in real estate investment
trusts, which pool investors' funds for investments primarily in commercial real
estate properties. Investment in real estate investment trusts may be the most
practical available means for a Portfolio to invest in the real estate industry
(the Fund is prohibited from investing in real estate directly). As a
shareholder in a real estate investment trust, a Portfolio would bear its
ratable share of the real estate investment trust's expenses,
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including its advisory and administration fees. At the same time the Portfolio
would continue to pay its own investment management fees and other expenses, as
a result of which the Portfolio and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in real estate investment
trusts.
LENDING PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities to brokers, dealers and other financial institutions, provided that
the loans are callable at any time by the Portfolio, and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least 100%
of the market value, determined daily, of the loaned securities. The advantage
of these loans is that the Portfolio continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. A
Portfolio will not lend securities with a value exceeding 10% of the Portfolio's
total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Portfolio's management to be creditworthy
and when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Portfolio. Any gain or loss in the market price during the
loan period would inure to the Portfolio.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Portfolio will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of the
rights if the matters involved would have a material effect on the Portfolio's
investment in the loaned securities. The Portfolio will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, each Portfolio other than the S&P 500 INDEX PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may purchase securities on a when-issued
or delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When these transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. While a Portfolio will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Portfolio may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date.
At the time a Portfolio makes the commitment to purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis, it will record
the transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of a
Portfolio's assets committed to the purchase of securities on a when-issued,
delayed delivery or forward commitment basis may increase the volatility of its
net asset value. The Portfolio will also establish a segregated account on its
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio other than the MONEY
MARKET PORTFOLIO, the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO may purchase securities on a "when, as and if issued" basis
under which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in a Portfolio until the Portfolio determines that issuance of the
security is probable. At that time, the Portfolio will record the transaction
and, in determining its net asset value, will reflect the value of the security
daily. At that time, the Portfolio will also establish a segregated account on
the Portfolio's books in which it will maintain cash or cash equivalents or
other liquid portfolio securities equal in value to recognized commitments for
such securities.
15
<PAGE>
The value of a Portfolio's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Portfolio, may not exceed 5% of the value of the Portfolio's total assets at the
time the initial commitment to purchase such securities is made. An increase in
the percentage of the Portfolio assets committed to the purchase of securities
on a "when, as and if issued" basis may increase the volatility of its net asset
value. A Portfolio may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Portfolio at the time of sale.
PRIVATE PLACEMENTS. As a fundamental policy, which may only be changed by
the shareholders of the affected Portfolios, each of the QUALITY INCOME PLUS
PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the
STRATEGIST PORTFOLIO may invest up to 5% of its total assets in securities which
are subject to restrictions on resale because they have not been registered
under the Securities Act of 1933 (the "SECURITIES ACT"), or which are otherwise
not readily marketable.
As a non-fundamental policy, which may be changed by the Trustees, each of
the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the INCOME BUILDER
PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO may invest up to 10% of its total
assets in such restricted securities; each of the HIGH YIELD PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest up to 15% of its total assets
in such restricted securities; and each of the SHORT-TERM BOND PORTFOLIO and the
AGGRESSIVE EQUITY PORTFOLIO may invest up to 15% of its net assets in such
restricted securities. (With respect to these ten Portfolios, securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) Limitations on the
resale of these securities may have an adverse effect on their marketability,
and may prevent a Portfolio from disposing of them promptly at reasonable
prices. A Portfolio may have to bear the expense of registering the securities
for resale and the risk of substantial delays in effecting the registration.
Rule 144A permits the above-listed Portfolios to sell restricted securities
to qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees, will make a determination as to
the liquidity of each restricted security purchased by a Portfolio. If a
restricted security is determined to be "liquid," the security will not be
included within the category "illiquid securities," which under current policy
may not exceed, as to each of the QUALITY INCOME PLUS PORTFOLIO, the UTILITIES
PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the
EUROPEAN GROWTH PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO,
10% of the Portfolio's total assets and as to each of the other Portfolios
listed above, 15% of the Portfolio's net assets, as more fully described under
"Fund Policies/Investment Restrictions" below. However, investing in Rule 144A
securities could have the effect of increasing the level of Portfolio
illiquidity to the extent the Portfolio, at a particular point in time, may be
unable to find qualified institutional buyers interested in purchasing such
securities.
WARRANTS AND SUBSCRIPTION RIGHTS. The Portfolios, other than the MONEY
MARKET PORTFOLIO and the QUALITY INCOME PLUS PORTFOLIO, may acquire warrants and
subscription rights attached to other securities. In addition, each of the
INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO,
the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may invest up to 5% of its
assets in warrants not attached to other securities with a limit of up to 2 % of
its total assets in warrants that are not listed on the New York or American
Stock Exchange. The COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO may invest in
warrants which are issued as a distribution by the issuer or a security held in
its portfolio. A warrant is, in effect, an option to purchase equity securities
at a specific price, generally valid for a specific period of time, and has no
voting rights, pays no dividends and has no rights with respect to the
corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock. A subscription right is freely transferable.
YEAR 2000. The investment management services provided to the Portfolios by
the Investment Manager, and, in the case of the EUROPEAN GROWTH PORTFOLIO and
the PACIFIC GROWTH PORTFOLIO, by the Sub-
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<PAGE>
Advisor, and the services provided to shareholders by the Distributor and the
Transfer Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Investment Manager, the
Sub-Advisor, the Distributor and the Transfer Agent have been actively working
on necessary changes to their own computer systems to prepare for the year 2000
and expect that their systems will be adapted before that date, but there can be
no assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
D. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the Fund as
fundamental policies of the Portfolios. Under the Investment Company Act of 1940
(the "INVESTMENT COMPANY ACT"), a fundamental policy of a Portfolio may not be
changed without the vote of a majority of the outstanding voting securities of
the Portfolio. The Investment Company Act defines a majority as the lesser of
(a) 67% or more of the shares of a Portfolio present at a meeting of Fund
shareholders, if the holders of 50% of the outstanding shares of the Portfolio
are present or represented by proxy; or (b) more than 50% of the outstanding
shares of the Portfolio. For purposes of the following restrictions: (i) all
percentage limitations apply immediately after a purchase or initial investment;
and (ii) any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
INVESTMENT OBJECTIVES
The investment objective of each Portfolio is a fundamental policy which may
not be changed without the approval of the shareholders of that Portfolio.
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio may not:
1. Invest more that 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities), or purchase more than 10%
of the voting securities, or more than 10% of any class of security, of any
issuer (for this purpose all outstanding debt securities of an issuer are
considered as one class and all preferred stock of an issuer are considered as
one class). With regard to the SHORT-TERM BOND PORTFOLIO, the INCOME BUILDER
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the S&P 500 INDEX
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY
PORTFOLIO, these limitations apply only as to 75% of the Portfolio's total
assets.
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, a Portfolio may invest
up to 25% of its total assets (valued at the time of investment) in any one
industry classification used by that Portfolio for investment purposes. This
restriction does not apply to obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities, or, in the case of the
MONEY MARKET PORTFOLIO, to domestic bank obligations (not including obligations
issued by foreign branches of such banks) or, in the case of the UTILITIES
PORTFOLIO, to the utilities industry, in which industry the Portfolio will
concentrate.
3. Except for the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY
PORTFOLIO, invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
4. Purchase or sell commodities or commodity futures contracts, or oil, gas
or mineral exploration or developmental programs, except that a Portfolio may
invest in the securities of companies which operate, invest in, or sponsor such
programs, and (i) the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS
PORTFOLIO, the UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND
GROWTH PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY PORTFOLIO and the
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<PAGE>
STRATEGIST PORTFOLIO may purchase or sell futures contracts and related options
thereon, (ii) the SHORT-TERM BOND PORTFOLIO, the GLOBAL DIVIDEND GROWTH
PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO may
purchase or sell currency futures contracts and related options thereon and the
S&P 500 INDEX PORTFOLIO may purchase or sell index futures contracts.
5. Borrow money (except insofar as each of the SHORT-TERM BOND PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO may be deemed to
have borrowed by entrance into a reverse repurchase agreement (in an amount not
exceeding 10% of the Portfolio's total assets, except in the case of the
SHORT-TERM BOND PORTFOLIO)), except from banks for temporary or emergency
purposes or to meet redemption requests which might otherwise require the
untimely disposition of securities, and, in the case of the Portfolios other
than the QUALITY INCOME PLUS PORTFOLIO, not for investment or leveraging,
provided that borrowing in the aggregate (other than, in the case of the QUALITY
INCOME PLUS PORTFOLIO, for investment or leveraging) may not exceed 5% of the
value of the Portfolio's total assets (including the amount borrowed) at the
time of such borrowing.
6. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial margin for futures are not deemed to be pledges of
assets.)
7. Purchase securities on margin (but the Portfolios may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the SHORT-TERM BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the
UTILITIES PORTFOLIO, the INCOME BUILDER PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the CAPITAL GROWTH PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO,
the EUROPEAN GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO, the S&P 500 INDEX
PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO, the AGGRESSIVE EQUITY
PORTFOLIO and the Strategist Portfolio of initial or variation margin in
connection with futures contracts or related options thereon is not considered
the purchase of a security on margin.
8. In the case of each Portfolio other than the SHORT-TERM BOND PORTFOLIO,
the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the
AGGRESSIVE EQUITY PORTFOLIO, purchase securities of other investment companies,
except in connection with a merger, consolidation, reorganization or acquisition
of assets or, in the case of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN
GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, in accordance with the
provisions of Section 12(d) of the Investment Company Act and any Rules
promulgated thereunder.
9. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 10% of the value of a
Portfolio's total assets, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned,
provided that lending of portfolio securities is not deemed to be loans in the
case of the SHORT-TERM BOND PORTFOLIO, the S&P 500 INDEX PORTFOLIO, the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO.
10. In the case of each portfolio other than the SHORT-TERM BOND PORTFOLIO,
the S&P 500 INDEX PORTFOLIO, the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO and the
AGGRESSIVE EQUITY PORTFOLIO, invest in securities of any issuer if, to the
knowledge of the Fund, any officer or Trustee of the Fund or any officer or
director of the Investment Manager owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers, Trustees and directors who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
11. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, including real estate investment
trusts and securities which are secured by real estate or interests therein.
12. Engage in the underwriting of securities except insofar as the Portfolio
may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.
13. Invest for the purposes of exercising control or management of another
company.
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14. Participate on a joint or a joint and several basis in any securities
trading account. The "bunching" of orders of two or more Portfolios (or of one
or more Portfolios and of other accounts under the investment management of the
Investment Manager) for the sale or purchase of portfolio securities shall not
be considered participating in a joint securities trading account.
15. Issue senior securities as defined in the Investment Company Act except
insofar as the Portfolio may be deemed to have issued a senior security by
reason of: (a) entering into any repurchase agreement (or, in the case of the
QUALITY INCOME PLUS PORTFOLIO, the EUROPEAN GROWTH PORTFOLIO and the PACIFIC
GROWTH PORTFOLIO, a reverse repurchase agreement, or, in the case of the
SHORT-TERM BOND PORTFOLIO, a reverse repurchase agreement or a dollar roll); (b)
borrowing money in accordance with restrictions described above; (c) purchasing
any security on a when-issued, delayed delivery or forward commitment basis; (d)
lending portfolio securities; or (e) purchasing or selling futures contracts,
forward foreign exchange contracts or options, if such investments are otherwise
permitted for the Portfolio.
RESTRICTIONS APPLICABLE TO RESTRICTED AND ILLIQUID SECURITIES
16. Each of the QUALITY INCOME PLUS PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO may not invest more
than 5% of the value of its total assets in securities which are restricted as
to disposition under the Federal securities laws or otherwise, provided that
this restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Portfolio; however, these Portfolios will attempt
to dispose in an orderly fashion of any of these securities to the extent that
these, together with other illiquid securities, exceed 10% of the Portfolio's
total assets.
17. Each of the UTILITIES PORTFOLIO, the CAPITAL GROWTH PORTFOLIO and the
EUROPEAN GROWTH PORTFOLIO may not invest more than 10% of its total assets in
"illiquid securities" (securities for which market quotations are not readily
available) and repurchase agreements which have a maturity of longer than seven
days. In addition, no more than 15% of the EUROPEAN GROWTH PORTFOLIO'S net
assets will be invested in such illiquid securities and foreign securities not
traded on a recognized domestic or foreign exchange.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY
The MONEY MARKET PORTFOLIO may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase agreements
having a term of one year or less from the date of delivery, the securities
subject to the agreement may have maturity dates in excess of one year from the
date of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale (I.E., restricted securities).
4. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof.
RESTRICTIONS APPLICABLE TO THE QUALITY INCOME PLUS PORTFOLIO ONLY
The QUALITY INCOME PLUS PORTFOLIO may not acquire any common stocks except
when acquired upon conversion of fixed-income securities. The QUALITY INCOME
PLUS PORTFOLIO will attempt to dispose in an orderly fashion of any common
stocks acquired under these circumstances.
RESTRICTIONS APPLICABLE TO THE HIGH YIELD PORTFOLIO ONLY
The HIGH YIELD PORTFOLIO may not:
1. Acquire any common stocks, except (a) when attached to or included in a
unit with fixed-income securities; (b) when acquired upon conversion of
fixed-income securities; or (c) when acquired upon exercise of warrants attached
to fixed-income securities. The HIGH YIELD PORTFOLIO may retain common stocks so
acquired, but not in excess of 10% of its total assets.
2. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof.
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<PAGE>
RESTRICTIONS APPLICABLE TO THE DIVIDEND GROWTH PORTFOLIO ONLY
The DIVIDEND GROWTH PORTFOLIO may not invest more than 5% of the value of
its total assets in warrants, including not more than 2% of such assets in
warrants not listed on either the New York or American Stock Exchange. However,
the acquisition of warrants attached to other securities is not subject to this
restriction.
RESTRICTIONS APPLICABLE TO THE EQUITY PORTFOLIO ONLY
The EQUITY PORTFOLIO may not:
1. Invest more than 5% of the value of its total assets in warrants,
including not more than 2% of such assets in warrants not listed on either the
New York or American Stock Exchange. However, the acquisition of warrants
attached to other securities is not subject to this restriction.
2. Purchase non-convertible corporate bonds unless rated at the time of
purchase Aa or better by Moody's Investors Service ("Moody's") or AA or better
by S&P, or purchase commercial paper unless issued by a U.S. corporation and
rated at the time of purchase Prime-1 by Moody's or A-1 by S&P, although it may
continue to hold a security if its quality rating is reduced by a rating service
below those specified.
3. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof.
4. Invest in securities of foreign issuers, except for (i) securities of
Canadian issuers registered under the Securities Exchange Act of 1934 and (ii)
American Depositary Receipts.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
E. PORTFOLIO TURNOVER
For the fiscal years ended December 31, 1997 and 1998, the portfolio
turnover rates of the Capital Growth Portfolio were 139% and 248%, respectively,
and the portfolio turnover rates of the Pacific Growth Portfolio were 58% and
112%, respectively. These variations resulted form the portfolio managers'
response to market conditions during these periods and, in the case of the
Pacific Growth Portfolio, also resulted from portfolio changes made in
connection with the present Sub-Advisor's assumption of duties with respect to
that Portfolio on November 1, 1998.
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Trustees oversee the management of the Portfolios but do not manage each
Portfolio. The Trustees review various services provided by or under the
direction of the Investment Manager to ensure that each Portfolio's general
investment policies and programs are properly carried out. The Trustees also
conduct their review to ensure that administrative services are provided to each
Portfolio in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and each Portfolio and
not the Trustee's own interest or the interest of another person or
organization. A Trustee satisfies his or her duty of care by acting in good
faith with the care of an ordinarily prudent person and in a manner the Trustee
reasonably believes to be in the best interest of the Fund and each Portfolio
and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other two Trustees (the "MANAGEMENT TRUSTEES") are
affiliated with the Investment Manager. All of the Independent
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<PAGE>
Trustees also serve as Independent Trustees of "Discover Brokerage Index
Series," a mutual fund for which the Investment Manager is the investment
advisor. Three of the six Independent Trustees are also Independent Trustees of
certain other mutual funds, referred to as the "TCW/DW Funds," for which MSDW
Services Company is the manager and TCW Funds Management, Inc. is the investment
advisor.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 85 Morgan Stanley Dean Witter Funds, the 11
TCW/DW Funds and Discover Brokerage Index Series are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michael Bozic (58) Vice Chairman of Kmart Corporation (since December, 1998); Director or
Trustee Trustee of the Morgan Stanley Dean Witter Funds and Discover Brokerage
c/o Kmart Corporation Index Series; formerly Chairman and Chief Executive Officer of Levitz
3100 West Big Beaver Road Furniture Corporation (November, 1995-November, 1998) and President and
Troy, Michigan Chief Executive Officer of Hills Department Stores (May, 1991-July,
1995); formerly variously Chairman, Chief Executive Officer, President
and Chief Operating Officer (1987-1991) of the Sears Merchandise Group
of Sears, Roebuck and Co.; Director of Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee and Chief Executive Officer of the Morgan
Chairman of the Board, Stanley Dean Witter Funds, the TCW/DW Funds and Discover Brokerage
Chief Executive Officer Index Series; formerly Chairman, Chief Executive Officer and Director
and Trustee of the Investment Manager, the Distributor and MSDW Services Company;
Two World Trade Center Executive Vice President and Director of Dean Witter Reynolds; Chairman
New York, New York and Director of the Transfer Agent; formerly Director and/or officer of
various MSDW subsidiaries (until June, 1998).
Edwin J. Garn (66) Director or Trustee of the Morgan Stanley Dean Witter Funds and
Trustee Discover Brokerage Index Series; formerly United States Senator
c/o Huntsman Corporation (R-Utah)(1974-1992) and Chairman, Senate Banking Committee (1980-1986);
500 Huntsman Way formerly Mayor of Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation; Director of Franklin Covey (time management systems), BMW
Bank of North America, Inc., United Space Alliance (joint venture
between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific
(multilevel marketing); member of the board of various civic and
charitable organizations.
Wayne E. Hedien (65) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds
Trustee and Discover Brokerage Index Series; Director of The PMI Group, Inc.
c/o Gordon Altman Butowsky (private mortgage insurance); Trustee and Vice Chairman of The Field
Weitzen Shalov & Wein Museum of Natural History; formerly associated with the Allstate
Counsel to the Companies (1966-1994), most recently as Chairman of The Allstate
Independent Trustees Corporation (March, 1993-December, 1994) and Chairman and Chief
114 West 47th Street Executive Officer of its wholly- owned subsidiary, Allstate Insurance
New York, New York Company (July, 1989-December, 1994); director of various other business
and charitable organizations.
</TABLE>
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<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (50) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick international economic commission; Chairman of the Audit Committee and
International, Inc. Director or Trustee of the Morgan Stanley Dean Witter Funds, the TCW/DW
1133 Connecticut Avenue, N.W. Funds and Discover Brokerage Index Series; Director of Greenwich
Washington, D.C. Capital Markets, Inc. (broker-dealer) and NVR, Inc. (home
construction); Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of the Financial Accounting
Standards Board); formerly Vice Chairman of the Board of Governors of
the Federal Reserve System (1986-1990) and Assistant Secretary of the
U.S. Treasury.
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership; Chairman of the Insurance Committee and Director or Trustee of
c/o Triumph Capital, L.P. the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and Discover
237 Park Avenue Brokerage Index Series; formerly Vice President, Bankers Trust Company
New York, New York and BT Capital Corporation (1984-1988); director of various business
organizations.
Philip J. Purcell* (55) Chairman of the Board of Directors and Chief Executive Officer of MSDW,
Trustee Dean Witter Reynolds and Novus Credit Services Inc.; Director of the
1585 Broadway Distributor; Director or Trustee of the Morgan Stanley Dean Witter
New York, New York Funds and Discover Brokerage Index Series; Director and/or officer of
various MSDW subsidiaries.
John L. Schroeder (68) Retired; Chairman of the Derivatives Committee and Director or Trustee
Trustee of the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and Discover
c/o Gordon Altman Butowsky Brokerage Index Series; Director of Citizens Utilities Company;
Weitzen Shalov & Wein formerly Executive Vice President and Chief Investment Officer of the
Counsel to the Independent Home Insurance Company (August, 1991-September, 1995).
Trustees
114 West 47th Street
New York, New York
Mitchell M. Merin (45) President and Chief Operating Officer of Asset Management of MSDW
President (since December, 1998); President and Director (since April, 1997) and
Two World Trade Center Chief Executive Officer (since June, 1998) of the Investment Manager
New York, New York and MSDW Services Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June, 1998); Chairman and Chief
Executive Officer (since June, 1998) and Director (since January, 1998)
of the Transfer Agent; Director of various MSDW subsidiaries; President
of the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and Discover
Brokerage Index Series (since May, 1999); previously Chief Strategic
Officer of the Investment Manager and MSDW Services Company and
Executive Vice President of the Distributor (April, 1997-June, 1998),
Vice President of the Morgan Stanley Dean Witter Funds, the TCW/DW
Funds and Discover Brokerage Index Series (May, 1997-April, 1999), and
Executive Vice President of Dean Witter, Discover & Co.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Barry Fink (44) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Counsel (since February, 1997) and Director (since July, 1998) of the
Secretary and General Counsel Investment Manager and MSDW Services Company; Senior Vice President
Two World Trade Center (since March, 1997) and Assistant Secretary and Assistant General
New York, New York Counsel (since February, 1997) of the Distributor; Assistant Secretary
of Dean Witter Reynolds (since August, 1996); Vice President, Secretary
and General Counsel of the Morgan Stanley Dean Witter Funds and the
TCW/ DW Funds (since February, 1997); Vice President, Secretary and
General Counsel of Discover Brokerage Index Series; previously First
Vice President (June, 1993-February, 1997), Vice President and
Assistant Secretary and Assistant General Counsel of the Investment
Manager and MSDW Services Company and Assistant Secretary of the Morgan
Stanley Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar (40) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Mark Bavoso (38) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (57) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Rajesh K. Gupta (38) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Matthew Haynes (33) Vice President of the Investment Manager (since June, 1997) and
Vice President portfolio manager with the Investment Manager (since April, 1993); Vice
Two World Trade Center President or Assistant Vice President of various Morgan Stanley Dean
New York, New York Witter Funds; previously Assistant Vice President of the Investment
Manager (May, 1995-June, 1997).
Peter Hermann (39) Vice President of the Investment Manager (since May, 1995) and
Vice President portfolio manager with the Investment Manager (since March, 1994); Vice
Two World Trade Center President of various Morgan Stanley Dean Witter Funds.
New York, New York
Kevin Jung (33) Vice President of the Investment Manager (since September, 1997);
Vice President formerly Vice President of UBS Asset Management (NY) Inc. (April,
Two World Trade Center 1993-August, 1997).
New York, New York
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michelle Kaufman (34) Vice President of the Investment Manager (since June, 1997) and
Vice President portfolio manager with the Investment Manager (since September, 1993);
Two World Trade Center Vice President or Assistant Vice President of various Morgan Stanley
New York, New York Dean Witter Funds; previously Assistant Vice President of the
Investment Manager (May, 1995-June, 1997).
Anita H. Kolleeny (43) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paula LaCosta (47) Vice President of the Investment Manager; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page (52) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Guy G. Rutherfurd, Jr. (59) Senior Vice President of the Investment Manager (since February, 1997);
Vice President Vice President of various Morgan Stanley Dean Witter Funds; formerly
Two World Trade Center Executive Vice President and Chief Investment Officer of Nomura Asset
New York, New York Management (U.S.A.) Inc. (May, 1992-February, 1997).
Rochelle G. Siegel (50) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paul D. Vance (63) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (53) First Vice President and Assistant Treasurer of the Investment Manager
Treasurer and MSDW Services Company; Treasurer of the Morgan Stanley Dean Witter
Two World Trade Center Funds, the TCW/DW Funds and Discover Brokerage Index Series.
New York, New York
</TABLE>
- -------------------
* Denotes Trustees who are "interested persons" of the Fund as defined in the
Investment Company Act.
In addition, RONALD E. ROBISON, Executive Vice President and Chief
Administrative Officer of the Investment Manager and MSDW Services Company,
ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager, MSDW
Services Company, the Distributor and the Transfer Agent and Director of the
Transfer Agent, JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
and KENTON J. HINCHLIFTE, KEVIN HURLEY and JAYNE STEVLINGSON, Senior Vice
Presidents of the Investment Manager, are Vice Presidents of the Fund, and Aaron
Clark, Vice President of the Investment Manager, is an Assistant Vice President
of the Fund.
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS,
CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, and TODD LEBO,
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
24
<PAGE>
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. Indeed, by serving on the Funds' Boards,
certain Trustees who would otherwise be qualified and in demand to serve on bank
boards would be prohibited by law from doing so. All of the Independent Trustees
serve as members of the Audit Committee. In addition, three of the Trustees,
including two Independent Trustees, serve as members of the Derivatives
Committee and the Insurance Committee.
The Independent Trustees are charged with recommending to the full Board
approval of man-agement, advisory and administration contracts and distribution
and underwriting agreements; continually reviewing Portfolio performance;
checking on the pricing of portfolio securities, brokerage commissions, transfer
agent costs and performance, and trading among Funds in the same complex; and
approving fidelity bond and related insurance coverage and allocations, as well
as other matters that arise from time to time.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
The Board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Portfolios.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds' management
believe that having the same Independent Trustees for each of the Morgan Stanley
Dean Witter Funds avoids the duplication of effort that would arise from having
different groups of individuals serving as Independent Trustees for each of the
Funds or even of sub-groups of Funds. They believe that having the same
individuals serve as Independent Trustees of all the Funds tends to increase
their knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent Trustees
serve on all Fund Boards enhances the ability of each Fund to obtain, at modest
cost to each separate Fund, the services of Independent Trustees, of the
caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
25
<PAGE>
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended December 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic.................................................................................... $ 1,500
Edwin J. Garn.................................................................................... 1,650
Wayne E. Hedien.................................................................................. 1,650
Dr. Manuel H. Johnson............................................................................ 1,600
Michael E. Nugent................................................................................ 1,650
John L. Schroeder................................................................................ 1,650
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 85 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Johnson,
Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at December 31,
1998. With respect to Messrs. Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds. No compensation was paid
to the Fund's Independent Trustees by Discover Brokerage Index Series for the
calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
DIRECTOR OR TOTAL CASH
TRUSTEE AND COMPENSATION FOR
COMMITTEE FOR SERVICE AS SERVICES TO 85
MEMBER OF 85 TRUSTEE AND MORGAN STANLEY
MORGAN STANLEY COMMITTEE DEAN WITTER FUNDS
DEAN WITTER MEMBER OF 11 AND 11 TCW/DW
NAME OF INDEPENDENT TRUSTEE FUNDS TCW/DW FUNDS FUNDS
- ---------------------------------------------------------- ---------------- ---------------- ------------------
<S> <C> <C> <C>
Michael Bozic............................................. $ 120,150 -- $ 120,150
Edwin J. Garn............................................. 132,450 -- 132,450
Wayne E. Hedien........................................... 132,350 -- 132,350
Dr. Manuel H. Johnson..................................... 128,400 $ 62,331 190,731
Michael E. Nugent......................................... 132,450 62,131 194,581
John L. Schroeder......................................... 132,450 64,731 197,181
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "ADOPTING FUND"
and each such Trustee referred
26
<PAGE>
to as an "ELIGIBLE TRUSTEE") is entitled to retirement payments upon reaching
the eligible retirement age (normally, after attaining age 72). Annual payments
are based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the year ended December 31, 1998 and
by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the year
ended December 31, 1998, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1998 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1998.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------- RETIREMENT BENEFITS ESTIMATED ANNUAL
ESTIMATED BENEFITS
CREDITED ACCRUED AS EXPENSES UPON
YEARS ESTIMATED RETIREMENT(2)
OF SERVICE PERCENTAGE ------------------------------ ----------------
AT OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ------------------------------ ------------ ------------ ----------- ------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic................. 10 60.44% $ 420 $ 22,377 $1,058 $ 52,250
Edwin J. Garn................. 10 60.44 642 35,225 1,058 52,250
Wayne E. Hedien............... 9 51.37 785 41,979 899 44,413
Dr. Manuel H. Johnson......... 10 60.44 257 14,047 1,058 52,250
Michael E. Nugent............. 10 60.44 454 25,336 1,058 52,250
John L. Schroeder............. 8 50.37 851 45,117 885 44,343
</TABLE>
- ------------------------------
(1) An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount, when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, Northbrook Life
Insurance Company, Allstate Life Insurance Company of New York and Paragon Life
Insurance Company owned all of the outstanding shares of the Fund for allocation
to their respective separate accounts ("ACCOUNTS"), none of the Fund's Trustees
was a Contract Owner under the Accounts, and the aggregate number of shares of
each Portfolio of the Fund allocated to Contracts owned by the Fund's officers
as a group was less than one percent of each Portfolio's outstanding shares.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER AND SUB-ADVISOR
The Investment Manager to each Portfolio is Morgan Stanley Dean Witter
Advisors Inc., a Delaware corporation, whose address is Two World Trade Center,
New York, New York 10048. The Investment
27
<PAGE>
Manager is a wholly-owned subsidiary of MSDW, a Delaware corporation. MSDW is a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses: securities, asset management
and credit services.
The Sub-Advisor to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO is Morgan Stanley Dean Witter Investment Management Inc., a subsidiary
of MSDW and an affiliate of the Investment Manager, whose address is 1221 Avenue
of the Americas, New York, New York 10020. The Sub-Advisor was retained to
provide sub-advisory services to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC
GROWTH PORTFOLIO effective December 1, 1998 and November 1, 1998, respectively.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide each Portfolio administrative services, manage its business affairs and,
other than with respect to the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO, manage its investments, including the placing of orders for the
purchase and sale of portfolio securities. With respect to the EUROPEAN GROWTH
PORTFOLIO and the PACIFIC GROWTH PORTFOLIO, the Investment Manager supervises
these Portfolios' investments. The Fund pays the Investment Manager monthly
compensation calculated daily by applying the following annual rates to the net
assets of each Portfolio determined as of the close of each business day:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO INVESTMENT MANAGEMENT FEE RATES
- ------------------------------------------- ---------------------------------------------------------------------
<S> <C>
The Money Market Portfolio 0.50% of net assets up to $500 million;
0.425% of net assets exceeding $500 million
but not exceeding $750 million; and
0.375% of net assets exceeding $750 million
The Short-Term Bond Portfolio 0.45% of net assets
The Quality Income Plus Portfolio 0.50% of net assets up to $500 million and
0.45% of net assets exceeding $500 million
The High Yield Portfolio 0.50% of net assets up to $500 million and
0.425% of net assets exceeding $500 million
The Utilities Portfolio 0.65% of net assets up to $500 million;
0.55% of net assets exceeding $500 million
but not exceeding $1 billion; and
0.525% of net assets exceeding $1 billion
The Income Builder Portfolio 0.75% of net assets
The Dividend Growth Portfolio 0.625% of net assets up to $500 million;
0.50% of net assets exceeding $500 million
but not exceeding $1 billion;
0.475% of net assets exceeding $1 billion
but not exceeding $2 billion;
0.45% of net assets exceeding $2 billion
but not exceeding $3 billion; and
0.425% of net assets exceeding $3 billion
The Capital Growth Portfolio 0.65% of net assets
The Global Dividend Growth Portfolio 0.75% of net assets up to $1 billion and
0.725% of net assets exceeding $1 billion
The European Growth Portfolio 0.95% of net assets up to $500 million and
0.90% of net assets exceeding $500 million
The Pacific Growth Portfolio 0.95% of net assets
The Equity Portfolio 0.50% of net assets up to $1 billion and
0.475% of net assets exceeding $1 billion
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME OF PORTFOLIO INVESTMENT MANAGEMENT FEE RATES
- ------------------------------------------- ---------------------------------------------------------------------
<S> <C>
The S&P 500 Index Portfolio 0.40% of net assets
The Competitive Edge "Best Ideas" Portfolio 0.65% of net assets
The Aggressive Equity Portfolio 0.75% of net assets
The Strategist Portfolio 0.50% of net assets up to $1.5 billion and
0.475% of net assets exceeding $1.5 billion
</TABLE>
For the fiscal years ended December 31, 1996, 1997 and 1998, the Investment
Manager accrued compensation under the Management Agreement as follows:
<TABLE>
<CAPTION>
COMPENSATION ACCRUED FOR THE FISCAL YEAR ENDED
DECEMBER 31,
----------------------------------------------
NAME OF PORTFOLIO 1996 1997 1998
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
The Money Market Portfolio...................................... $ 1,454,423 $ 1,764,304 $ 1,927,552
The Quality Income Plus Portfolio............................... 2,407,993 2,301,725 2,514,720
The High Yield Portfolio........................................ 1,009,452 1,539,080 1,946,259
The Utilities Portfolio......................................... 2,972,835 2,710,383 3,160,139
The Income Builder Portfolio.................................... N/A 30,071 595,359
The Dividend Growth Portfolio................................... 5,902,896 8,563,208 10,828,424
The Capital Growth Portfolio.................................... 509,004 698,171 862,257
The Global Dividend Growth Portfolio............................ 2,005,162 3,183,049 3,698,722
The European Growth Portfolio................................... 2,332,742 3,589,371 4,705,416
The Pacific Growth Portfolio.................................... 1,392,813 1,195,454 551,718
The Equity Portfolio............................................ 2,211,777 3,306,222 4,753,680
The S&P 500 Index Portfolio..................................... N/A N/A -0-
The Competitive Edge "Best Ideas" Portfolio..................... N/A N/A -0-
The Strategist Portfolio........................................ 1,994,396 2,361,054 2,762,516
-------------- -------------- --------------
Total....................................................... $ 24,193,493 $ 31,242,092 $ 38,306,762
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO did not
commence operations prior to the date of this STATEMENT OF ADDITIONAL
INFORMATION.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
Under a Sub-Advisory Agreement (the "SUB-ADVISORY AGREEMENT") between the
Sub-Advisor and the Investment Manager respecting the EUROPEAN GROWTH PORTFOLIO
and the PACIFIC GROWTH PORTFOLIO, the Sub-Advisor provides these Portfolios with
investment advice and portfolio management, subject to the overall supervision
of the Investment Manager. The Investment Manager pays the Sub-Advisor monthly
compensation equal to 40% of the Investment Manager's fee, payable in respect of
the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO.
Prior to November 1, 1998, with respect to the PACIFIC GROWTH PORTFOLIO and
December 1, 1998, with respect to the EUROPEAN GROWTH PORTFOLIO, these
Portfolios were sub-advised by the Former Sub-Advisor, Morgan Grenfell
Investment Services Limited, in each case pursuant to a sub-advisory agreement
between the Investment Manager and the Former Sub-Advisor (the "PRIOR
SUB-ADVISORY AGREEMENT"). In May, 1998, the Former Sub-Advisor indicated its
intention to resign as Sub-Advisor for both Portfolios. On June 2, 1998, the
Trustees recommended that the Sub-Advisory Agreements with the Sub-Advisor be
submitted to shareholders of each of the EUROPEAN GROWTH PORTFOLIO and the
PACIFIC GROWTH PORTFOLIO for approval. The Sub-Advisory Agreement with the
Sub-Advisor was approved on August 18, 1998. Under the Prior Sub-Advisory
Agreement, the Investment Manager paid the Former Sub-Advisor monthly
compensation equal to 40% of the Investment Manager's fee in respect of the
EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO.
29
<PAGE>
Concurrent with effectiveness of the Sub-Advisory Agreement, the Investment
Manager and the Fund amended the Management Agreement to reduce the fee paid by
the Fund to the Investment Manager respecting the EUROPEAN GROWTH PORTFOLIO and
the PACIFIC GROWTH PORTFOLIO, from an annual rate of (a) with respect to the
EUROPEAN GROWTH PORTFOLIO, 1.00% of the portion of daily net assets up to $500
million and 0.95% of the portion of daily net assets exceeding $500 million; and
(b) with respect to the PACIFIC GROWTH PORTFOLIO, 1.00% of the portion of that
Portfolio's daily net assets; to the rates set forth above.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, each Portfolio's shares
are distributed by the Distributor. The Distributor, a Delaware corporation, is
a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses incurred by it in connection with its
duties and activities under the Distribution Agreement (except such expenses as
are specifically undertaken by the Fund under the Agreement). The Fund bears all
costs and expenses of the Fund, including the expense of preparing, printing,
mailing and otherwise distributing prospectuses, annual or interim reports or
proxy materials to Contract Owners. The Fund also bears the costs of registering
the Fund and its shares under federal securities laws and, if deemed necessary
or advisable, to qualify the shares of the Fund for sale under state securities
laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
Each Portfolio has retained the Investment Manager to provide administrative
services, manage its business affairs and (except for the PACIFIC GROWTH
PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO) invest its assets, including the
placing of orders for the purchase and sale of portfolio securities. Each of the
PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO has retained the
Investment Manager to supervise the investment of its assets.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, the office space, facilities, equipment, clerical help, bookkeeping and
certain legal services as the Fund may reasonably require in the conduct of its
business, including the preparation of prospectuses, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
The services provided by the Sub-Advisor are discussed above under
"Investment Manager and Sub-Advisor."
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisor for the EUROPEAN GROWTH PORTFOLIO and
the PACIFIC GROWTH PORTFOLIO under the Sub-Advisory Agreement, or by the
Distributor, will be paid by the Portfolios. Each Portfolio pays all expenses
incurred in its operation and a portion of the Fund's general administration
expenses allocated based on the asset sizes of the Portfolios. The Portfolios'
direct expenses include, but are not limited to: charges and expenses of any
registrar, custodian, transfer and dividend disbursing agent; brokerage
commissions; certain taxes; registration costs of the Fund under federal and
state securities laws; shareholder servicing costs, charges and expenses of any
outside service used for pricing of the Portfolios' shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested persons
of the Fund or of the Investment Manager (or the Sub-Advisor) (not including
compensation or expenses of
30
<PAGE>
attorneys who are employees of the Investment Manager (or the Sub-Advisor));
fees and expenses of the Fund's independent accountants; interest on Portfolio
borrowings; and all other expenses attributable to a particular Portfolio.
Expenses which are allocated on the basis of size of the respective
Portfolios include the costs and expenses of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager (or the Sub-Advisor) or any corporate affiliate of the
Investment Manager (or the Sub-Advisor); state franchise taxes; Securities and
Exchange Commission fees; membership dues of industry associations; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Fund which inure to its benefit; and all other costs of the Fund's
operations properly payable by the Fund and allocable on the basis of size to
the respective Portfolios. Depending on the nature of a legal claim, liability
or lawsuit, litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to the Portfolio or
allocated on the basis of the size of the respective Portfolios. The Trustees
have determined that this is an appropriate method of allocation of expenses.
Each of the Management Agreement and the Sub-Advisory Agreement provides
that in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations thereunder, the Investment Manager and the
Sub-Advisor, respectively, are not liable to the Fund or any of its investors
(and, in the case of the Sub-Advisory Agreement, to the Investment Manager) for
any act or omission or for any losses sustained by the Fund or its investors.
Each of the Management Agreement and the Sub-Advisory Agreement will remain
in effect from year to year provided continuance of the applicable Agreement is
approved at least annually by the vote of the holders of a majority, as defined
in the Investment Company Act, of the outstanding shares of the Fund, or by the
Trustees; provided that in either event such continuance is approved annually by
the vote of a majority of the Trustees.
D. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-DISBURSING AGENT
The Transfer Agent is the transfer agent for each Portfolio's shares and the
Dividend Disbursing Agent for payment of dividends and distributions on
Portfolio shares. The principal business address of the Transfer Agent is
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286, is the
Custodian of each Portfolio's assets other than those of the GLOBAL DIVIDEND
GROWTH PORTFOLIO, the PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH
PORTFOLIO. The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005
is the Custodian of the assets of the GLOBAL DIVIDEND GROWTH PORTFOLIO, the
PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO. Any Portfolio's cash
balances with the Custodian in excess of $100,000 are unprotected by federal
deposit insurance. These balances may, at times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036 serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, of the
Sub-Advisor and of the Distributor. As Transfer Agent and Dividend Disbursing
Agent, the Transfer Agent's responsibilities include maintaining shareholder
accounts, reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, tabulating proxies and
maintaining shareholder records and lists. For these services, the Transfer
Agent receives an annual fee of $500 per account from each Portfolio and is
reimbursed for its out-of-pocket expenses in connection with such services.
31
<PAGE>
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
and, for the PACIFIC GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO, the
Sub-Advisor are responsible for decisions to buy and sell securities for each
Portfolio, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer. The Fund also expects that securities will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, generally referred to as the underwriter's concession or
discount. Options and futures transactions will usually be effected through a
broker and a commission will be charged. Certain securities (e.g., certain money
market instruments) are purchased directly from an issuer, in which case no
commissions or discounts are paid.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Portfolios
paid brokerage commissions as follows:
<TABLE>
<CAPTION>
BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS PAID COMMISSIONS PAID COMMISSIONS PAID
FOR FISCAL YEAR FOR FISCAL YEAR FOR FISCAL YEAR
NAME OF PORTFOLIO ENDED 12/31/96 ENDED 12/31/97 ENDED 12/31/98
- ---------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
High Yield Portfolio................................ $ 10,013 -- --
Utilities Portfolio................................. 120,935 $ 110,773 $ 58,322
Income Builder Portfolio............................ N/A 39,789 63,997
Dividend Growth Portfolio........................... 796,688 1,267,591 2,028,310
Capital Growth Portfolio............................ 176,767 265,450 557,556
Global Dividend Growth Portfolio.................... 762,353 1,244,001 1,288,309
European Growth Portfolio........................... 575,660 783,716 1,087,616
Pacific Growth Portfolio............................ 878,874 670,101 422,494
Equity Portfolio.................................... 1,825,817 1,573,295 3,639,562
S&P 500 Index Portfolio............................. N/A N/A 30,177
Competitive Edge "Best Ideas" Portfolio............. N/A N/A 36,526
Strategist Portfolio................................ 429,659 455,450 281,844
------------------ ------------------ ------------------
Total........................................... $ 5,576,766 $ 6,410,166 $ 9,494,713
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
B. COMMISSIONS
Pursuant to an order of the SEC, the Portfolios may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Portfolios will limit their transactions with Dean Witter Reynolds to U.S.
Government and government agency securities, bank money instruments (i.e.,
certificates of deposit and bankers' acceptances) and commercial paper. The
transactions will be effected with Dean Witter Reynolds only when the price
available from Dean Witter Reynolds is better than that available from other
dealers.
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through Dean Witter Reynolds, Morgan Stanley & Co. and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions on an exchange for the Portfolios, the commissions, fees
or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow the affiliated broker or dealer to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction. Furthermore, the
Trustees, including the Independent Trustees, have adopted procedures
32
<PAGE>
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to an affiliated broker or dealer are consistent with the
foregoing standard. The Fund does not reduce the management fee it pays to the
Investment Manager by any amount of the brokerage commissions it may pay to an
affiliated broker or dealer.
During the fiscal years ended December 31, 1996 and 1997 the Portfolios paid
brokerage commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
PAID
TO DEAN WITTER REYNOLDS
FOR FISCAL YEAR ENDED
------------------------
NAME OF PORTFOLIO 12/31/96 12/31/97
- ---------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Utilities Portfolio............................................................... $ 49,500 $ 35,250
Income Builder Portfolio.......................................................... N/A 24,982
Dividend Growth Portfolio......................................................... 181,121 229,890
Capital Growth Portfolio.......................................................... 38,010 45,335
Global Dividend Growth Portfolio.................................................. 35,401 54,004
Equity Portfolio.................................................................. 220,150 158,587
Strategist Portfolio.............................................................. 34,525 73,880
----------- -----------
Total......................................................................... $ 558,707 $ 621,928
----------- -----------
----------- -----------
</TABLE>
For the fiscal year ended December 31, 1998, the Portfolios paid brokerage
commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
PERCENTAGE OF TRADES ON WHICH
BROKERAGE AGGREGATE BROKERAGE BROKERAGE
COMMISSIONS PAID TO COMMISSIONS FOR COMMISSIONS WERE
DWR FOR FISCAL YEAR FISCAL YEAR ENDED PAID FOR FISCAL
NAME OF PORTFOLIO ENDED 12/31/98 12/31/98 YEAR ENDED 12/31/98
- ----------------------------------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C>
Utilities Portfolio............................ $ 6,675 11.45% 19.73%
Income Builder Portfolio....................... 29,334 45.84 55.15
Dividend Growth Portfolio...................... 111,865 5.52 7.54
Capital Growth Portfolio....................... 44,940 8.06 10.31
Global Dividend Growth Portfolio............... 38,325 2.97 8.60
Equity Portfolio............................... 248,435 6.83 7.98
Strategist Portfolio........................... 18,566 6.59 7.04
----------
Total...................................... $ 498,140
----------
----------
</TABLE>
During the period June 1 through December 31, 1997, the Portfolios paid
brokerage commissions to Morgan Stanley & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc., as
follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS PAID TO
MORGAN STANLEY & CO. FOR FISCAL
NAME OF PORTFOLIO YEAR ENDED 12/31/97
- --------------------------------------------------------------------------------- -------------------------------
<S> <C>
Utilities Portfolio.............................................................. $ 1,000
Income Builder Portfolio......................................................... 710
Dividend Growth Portfolio........................................................ 73,920
Capital Growth Portfolio......................................................... 10,305
Global Dividend Growth Portfolio................................................. 123,860
European Growth Portfolio........................................................ 4,655
Pacific Growth Portfolio......................................................... 13,927
Equity Portfolio................................................................. 69,900
Strategist Portfolio............................................................. 34,140
----------
Total........................................................................ $ 332,417
----------
----------
</TABLE>
33
<PAGE>
For the fiscal year ended December 31, 1998, the Portfolios paid brokerage
commissions to Morgan Stanley & Co. as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
BROKERAGE COMMISSIONS PERCENTAGE OF AGGREGATE TRADES ON WHICH
PAID TO MORGAN STANLEY & BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS
CO. FOR FISCAL YEAR FOR FISCAL YEAR ENDED WERE PAID FOR FISCAL
NAME OF PORTFOLIO ENDED 12/31/98 12/31/98 YEAR ENDED 12/31/98
- ------------------------------------------ ------------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Income Builder Portfolio.................. $ 970 1.52% 2.46%
Dividend Growth Portfolio................. 294,795 14.53 14.91
Capital Growth Portfolio.................. 57,785 10.36 11.38
Global Dividend Growth Portfolio.......... 242,135 18.79 17.68
European Growth Portfolio................. 29,622 2.72 2.70
Pacific Growth Portfolio.................. 11,373 2.69 3.93
Equity Portfolio.......................... 432,631 11.89 13.36
Competitive Edge "Best Ideas" Portfolio... 26,356 72.16 88.32
Strategist Portfolio...................... 29,875 10.60 12.01
-----------
Total................................. $ 1,125,542
-----------
-----------
</TABLE>
For the fiscal years ended December 31, 1996 and 1997, the EUROPEAN GROWTH
PORTFOLIO paid a total of $0 and $1,849, respectively, in brokerage commissions
to Deutsche Bank AG, London, and a total of $0 and $2,624, respectively, in
brokerage commissions to Deutsche Morgan Grenfell, London, affiliated brokers of
the Former Sub-Advisor, and the PACIFIC GROWTH PORTFOLIO paid a total of $2,146
and $3,263, respectively, in brokerage commissions to Deutsche Morgan Grenfell &
Partners Securities Pte Ltd. and a total of $14,787 and $7,569, respectively, in
brokerage commissions to Deutsche Morgan Grenfell Securities Hong Kong Limited,
also affiliated brokers of the Former Sub-Advisor. For the period January
1-November 30, 1998 (the date the Former Sub-Advisor ceased to serve as such),
the EUROPEAN GROWTH PORTFOLIO and the PACIFIC GROWTH PORTFOLIO paid brokerage
commissions to affiliated brokers of the Former Sub-Advisor for transactions as
follows:
<TABLE>
<CAPTION>
BROKERAGE
COMMISSIONS PAID PERCENTAGE OF
TO AFFILIATED AGGREGATE DOLLAR
BROKER OF MORGAN PERCENTAGE OF AMOUNT OF EXECUTED
GRENFELL AGGREGATE TRADES ON WHICH
INVESTMENT BROKERAGE BROKERAGE
SERVICES LTD. COMMISSIONS COMMISSIONS WERE
FOR FISCAL FOR FISCAL PAID FOR FISCAL
PERIOD ENDED PERIOD ENDED PERIOD ENDED
NAME OF PORTFOLIO NAME OF BROKER 11/30/98 11/30/98 11/30/98
- ----------------------------------- ---------------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
European Growth Portfolio.......... Deutsche Morgan
Grenfell, London $ 4,661 0.43% 0.55%
Pacific Growth Portfolio........... Deutsche Securities
Asia Ltd. 6,540 1.55 1.69
</TABLE>
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for the
Portfolios is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager (or, if applicable, the
Sub-Advisor) from obtaining a high quality of brokerage and research services.
In seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager (or, if applicable,
34
<PAGE>
the Sub-Advisor) relies upon its experience and knowledge regarding commissions
generally charged by various brokers and on its judgment in evaluating the
brokerage and research services received from the broker effecting the
transaction. These determinations are necessarily subjective and imprecise, as
in most cases an exact dollar value for those services is not ascertainable.
In seeking to implement each Portfolio's policies, the Investment Manager
(or, if applicable, the Sub-Advisor) effects transactions with those brokers and
dealers who the Investment Manager (or, if applicable, the Sub-Advisor) believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager (or, if applicable, the Sub-Advisor)
believes the prices and executions are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Investment Manager (or, if applicable, the Sub-Advisor). The services may
include, but are not limited to, any one or more of the following: information
as to the availability of securities for purchase or sale; statistical or
factual information or opinions pertaining to investment; wire services; and
appraisals or evaluations of portfolio securities. The information and services
received by the Investment Manager (or, if applicable, the Sub-Advisor) from
brokers and dealers may be of benefit to the Investment Manager (or, if
applicable, the Sub-Advisor) in the management of accounts of some of its other
clients and may not in all cases benefit a Portfolio directly.
The Investment Manager and the Sub-Advisor currently serve as investment
advisors to a number of clients, including other investment companies, and may
in the future act as investment advisors to others. It is the practice of the
Investment Manager (or, if applicable, the Sub-Advisor) to cause purchase and
sale transactions to be allocated among the Portfolios and others whose assets
it manages in such manner as it deems equitable. In making such allocations
among the Portfolios and other client accounts, various factors may be
considered, including the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the Portfolios and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager (or, if applicable, the Sub-Advisor) utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.
D. DIRECTED BROKERAGE
During the fiscal year ended December 31, 1998, the Portfolios paid
brokerage commissions to brokers because of research services provided as
follows:
<TABLE>
<CAPTION>
AGGREGATE DOLLAR AMOUNT OF
BROKERAGE COMMISSIONS DIRECTED TRANSACTIONS FOR WHICH
IN CONNECTION WITH RESEARCH SUCH COMMISSIONS WERE PAID
SERVICES PROVIDED FOR FISCAL FOR FISCAL YEAR ENDED
NAME OF PORTFOLIO YEAR ENDED 12/31/98 12/31/98
- ---------------------------------------------------- ------------------------------- --------------------------
<S> <C> <C>
Utilities Portfolio................................. $ 50,147 $ 21,170,780
Income Builder Portfolio............................ 32,922 17,273,606
Dividend Growth Portfolio........................... 1,556,339 1,351,837,478
Capital Growth Portfolio............................ 452,869 320,967,219
Global Dividend Growth Portfolio.................... 999,418 392,118,029
Pacific Growth Portfolio............................ 39,571 17,419,411
Equity Portfolio.................................... 2,925,383 2,357,995,938
Competitive Edge "Best Ideas" Portfolio............. 7,229 3,825,011
Strategist Portfolio................................ 226,348 148,868,076
----------- --------------------------
Total........................................... $ 6,290,226 $ 4,631,475,548
----------- --------------------------
----------- --------------------------
</TABLE>
35
<PAGE>
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1998, the Portfolios purchased the
following securities issued by issuers which were among the ten brokers or the
ten dealers that executed transactions for or with the Fund or the Portfolio in
the largest dollar amounts during the year:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY
- ----------------------------------------------- ----------------------------------- ----------------------------
<S> <C> <C>
Money Market Portfolio......................... American General Finance Corp. commercial paper
Chase Manhattan Corp. commercial paper
J.P. Morgan & Co. commercial paper
The Chase Manhattan Bank certificate of deposit
General Electric Capital Corp. commercial paper
Goldman Sachs Group LP commercial paper
Merrill Lynch & Co. Inc. commercial paper
NationsBank Corp. commercial paper
NationsBank N.A. short-term bank note
Sears Roebuck Acceptance Corp. commercial paper
Quality Income Plus Portfolio.................. Donaldson Lufkin & Jenrette bonds
Income Builder Portfolio....................... Merrill Lynch & Co. Inc. convertible preferred stock
Capital Growth Portfolio....................... BankAmerica Corp. common stock
Equity Portfolio............................... Merrill Lynch & Co. Inc. common stock
Lehman Brothers Holdings Inc. common stock
The Bank of New York common stock
S&P 500 Index Portfolio........................ Merrill Lynch & Co. Inc. common stock
The Bank of New York common stock
BankAmerica Corp. common stock
Competitive Edge "Best Ideas" Portfolio........ The Bank of New York common stock
Strategist Portfolio........................... BankAmerica Corp. bonds
Chase Manhattan Corp. bonds
C.S. First Boston NY bond
Ford Motor Credit Corp. bonds
Ford Motor Company bond
Ford Motor Company common stock
Lehman Brothers Holdings Inc. bonds
Merrill Lynch & Co. Inc. bond
PaineWebber Group bonds
</TABLE>
At December 31, 1998, the Portfolios held the following securities issued by
such brokers with the following market values:
<TABLE>
<CAPTION>
MARKET VALUE
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY AT 12/31/98
- ------------------------------- ----------------------------------- ---------------------------- -------------
<S> <C> <C> <C>
Money Market Portfolio......... American General Finance Corp. commercial paper $17,043,227
General Electric Capital Corp. commercial paper 20,381,474
Sears Roebuck Acceptance Corp. commercial paper 20,126,483
NationsBank N.A. short-term bank note 8,390,000
The Chase Manhattan Bank certificate of deposit 5,000,000
Quality Income Plus Portfolio.. Bear, Stearns & Co. Inc. bond 2,228,580
Lehman Brothers Holdings Inc. bond 7,701,070
Donaldson Lufkin & Jenrette bond 5,160,750
Income Builder Portfolio....... Merrill Lynch & Co. Inc. convertible preferred stock 1,123,575
Equity Portfolio............... Merrill Lynch & Co. Inc. common stock 10,479,750
Lehman Brothers Holdings Inc. common stock 6,697,500
The Bank of New York common stock 780,850
S&P 500 Index Portfolio........ Merrill Lynch & Co. Inc. common stock 105,532
The Bank of New York common stock 136,448
BankAmerica Corp. common stock 463,684
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY AT 12/31/98
- ------------------------------- ----------------------------------- ---------------------------- -------------
<S> <C> <C> <C>
Competitive Edge "Best Ideas"
Portfolio...................... The Bank of New York common stock 1,086,750
Strategist Portfolio........... BankAmerica Corp. bond 1,097,950
BankAmerica Corp. common stock 3,848,000
C.S. First Boston NY bond 1,016,530
Ford Motor Co. bond 1,088,490
Ford Motor Co. common stock 6,162,188
PaineWebber Group bonds 3,129,500
</TABLE>
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of each Portfolio are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. The Fund's shares of beneficial
interest are divided currently into sixteen separate Portfolios.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional Portfolios and additional classes of shares within any
Portfolio.
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by action of the
Trustees or by the shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.
Shareholders have the right to vote on the election of Trustees of the Fund
and on any and all matters on which by law or the provisions of the Fund's
By-Laws they may be entitled to vote. To the extent required by law, Northbrook
Life Insurance Company, Allstate Life Insurance Company of New York, Glenbrook
Life and Annuity Company and Paragon Life Insurance Company, which are the only
shareholders of the Fund, will vote the shares of the Fund held in each Account
established to fund the benefits under either a flexible premium deferred
variable annuity Contract or a flexible premium variable life insurance Contract
in accordance with instructions from the owners of such Contracts. Shareholders
of all Portfolios vote for a single set of Trustees. All of the Trustees have
been elected by the shareholders of the Fund, most recently at a Special Meeting
of Shareholders held on May 21, 1997. The Trustees themselves have the power to
alter the number and the terms of office of the Trustees (as provided for in the
Declaration of Trust), and they may at any time lengthen or shorten their own
terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios, but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
With respect to the submission to shareholder vote of a matter requiring
separate voting by Portfolio, the matter shall have been effectively acted upon
with respect to any Portfolio if a majority of the
37
<PAGE>
outstanding voting securities of that Portfolio votes for the approval of the
matter, notwithstanding that: (1) the matter has not been approved by a majority
of the outstanding voting securities of any other Portfolio; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Fund. The voting rights of shareholders are not cumulative, so that holders of
more than 50 percent of the shares voting can, if they choose, elect all
Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE OF SHARES
Information concerning how Fund shares are offered (and how they are
redeemed) is provided in the Fund's Prospectus.
B. OFFERING PRICE
The price of each Portfolio shares, called "net asset value," is based on
the value of the Portfolio's securities.
The MONEY MARKET PORTFOLIO, however, utilizes the amortized cost method in
valuing its portfolio securities for purposes of determining the net asset value
of its shares. The MONEY MARKET PORTFOLIO utilizes the amortized cost method in
valuing its portfolio securities even though the portfolio securities may
increase or decrease in market value, generally in connection with changes in
interest rates. The amortized cost method of valuation involves valuing a
security at its cost at the time of purchase adjusted by a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the MONEY MARKET
PORTFOLIO would receive if it sold the investment. During such periods, the
yield to investors in the MONEY MARKET PORTFOLIO may differ somewhat from that
obtained in a similar company which uses mark-to-market values for all of its
portfolio securities. For example, if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the MONEY MARKET PORTFOLIO would be able to obtain a somewhat higher
(lower) yield than would result from investment in such a similar company and
existing investors would receive less (more) investment income. The purpose of
this method of calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "RULE") and is
conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Portfolio's shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Portfolio's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust, reducing the number of outstanding shares of the MONEY
MARKET PORTFOLIO) to eliminate or reduce to the extent reasonably practicable
material dilution or other unfair results to investors or existing shareholders
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be
38
<PAGE>
effected by having each shareholder proportionately contribute to the MONEY
MARKET PORTFOLIO'S capital the necessary shares that represent the amount of
excess upon such determination. Each Contract Owner will be deemed to have
agreed to such contribution in these circumstances by allocating investment
under his or her Contract to the MONEY MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which the MONEY MARKET
PORTFOLIO'S interest in the instrument is subject to market action) until the
date on which in accordance with the terms of the security the principal amount
must unconditionally be paid, or in the case of a security called for
redemption, the date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. A floating rate security that is subject to a demand
feature is deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
An "NRSRO" is a nationally recognized statistical rating organization. The
term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (ii) if only
one NRSRO has issued a rating with respect to such security or issuer at the
time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) a security: (A) that at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligations within that class) that is now comparable
in priority and security with the security, in one of the two highest short-term
rating categories (within which there may be subcategories or gradations
indicating relative standing); or (iii) an unrated security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the Trustees. The MONEY MARKET PORTFOLIO will limit its
investments to securities that meet the requirements for Eligible Securities
including the required ratings by S&P or Moody's.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and (ii)
no more than the greater of 1% of total assets, or $1 million, in the securities
on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
The Rule further requires that the Money Market Portfolio limit its
investments to U.S. dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are
39
<PAGE>
Eligible Securities. The Rule also requires the Portfolio to maintain a
dollar-weighted average portfolio maturity (not more than 90 days) appropriate
to its objective of maintaining a stable net asset value of $1.00 per share and
precludes the purchase of any instrument with a remaining maturity of more than
397 days. (An Investment Restriction of the Fund further precludes the Portfolio
from investing in securities maturing more than one year from the date of
purchase.) Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Portfolio
will invest its available cash in such a manner as to reduce such maturity to 90
days or less a soon as is reasonably practicable.
If the Trustees determine that it is no longer in the best interests of the
MONEY MARKET PORTFOLIO and its shareholders to maintain a stable price of $1 per
share or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the board has the right to change from
an amortized cost basis of valuation to valuation based on market quotations.
The Fund will notify shareholders of the Portfolio of any such change.
In the calculation of a Portfolio's net asset value (other than for the
MONEY MARKET PORTFOLIO): (1) an equity security listed or traded on the New York
or American Stock Exchange or other 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 a security is traded on more than one exchange, the security is valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); and (2) all other securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. When market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager (or if applicable, the Sub-Advisor) that
sale or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's
Trustees. For valuation purposes, quotations of foreign portfolio securities,
other assets and liabilities and forward contracts stated in foreign currency
are translated into U.S. dollar equivalents at the prevailing market rates prior
to the close of the New York Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Portfolios' securities (other than securities of the MONEY
MARKET PORTFOLIO) may be valued by an outside pricing service approved by the
Fund's Trustees. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research evaluations by its staff, including review of broker-dealer market
price quotations in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service.
Listed options on securities are valued at the latest sale price on the
exchange on which they are listed unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
latest bid and asked prices. Unlisted options on debt securities and all options
on equity securities are valued at the mean between their latest bid and asked
prices. Futures are valued at the latest sale price on the commodities exchange
on which they trade unless the Trustees determine such price does not reflect
their market value, in which case they will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events which may affect the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange and will therefore not be reflected in the
computation of a Portfolio's net asset value. If events that may affect the
value of such securities occur
40
<PAGE>
during such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
IX. TAXATION OF THE PORTFOLIOS AND SHAREHOLDERS
- --------------------------------------------------------------------------------
Each of the Portfolios is treated as a separate entity for federal tax
purposes. Each of the Portfolios intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986. As
such, each of the Portfolios will not be subject to federal income tax on its
net investment income and capital gains, if any, to the extent that it
distributes such income and capital gains to its shareholders. Each of the
Portfolios generally intends to distribute sufficient income and gains so that
each of the Portfolios will not pay corporate income tax on its earnings.
Section 817(h) of the Internal Revenue Code provides that the investments of
a separate account underlying a variable insurance contract (or the investments
of a mutual fund, the shares of which are owned by the variable separate
account) must be "adequately diversified" in order for the contract to be
treated as an annuity or life insurance for tax purposes. The Treasury
Department has issued regulations prescribing these diversification
requirements. Each Portfolio intends to comply with these requirements.
Information concerning the federal income tax consequences to holders of the
underlying variable annuity or variable life insurance Contracts is contained in
the accompanying prospectus for the applicable Contract.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The Portfolios' shares are offered on a continuous basis. The Distributor,
as the principal underwriter of the shares, has certain obligations under the
Distribution Agreement concerning the distribution of the shares. These
obligations are described above in the section titled "Principal Underwriter."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
The annualized current yield of the MONEY MARKET PORTFOLIO, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated seven-day period,
the net change, exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends declared therefrom,
in the value of a hypothetical pre-existing account have a balance of one share
at the beginning of the period, subtracting a hypothetical charge which reflects
deductions from shareholder accounts (such as management fees), and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
(365/7).
The MONEY MARKET PORTFOLIO'S annualized effective yield, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining (for the same stated seven-day
period as for the current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with dividends and any
dividends declared therefrom, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the based period return by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the MONEY MARKET PORTFOLIO in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the MONEY MARKET
PORTFOLIO and changes in interest rates on such investments, but also on changes
in the Portfolio's expenses during the period.
41
<PAGE>
Yield information may be useful in reviewing the performance of the Money
Market Portfolio and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Portfolio's
yield fluctuates. Furthermore, the quoted yield does not reflect charges which
may be imposed on the Contracts by the applicable Account and therefore is not
equivalent to total return under a Contract. (For a description of such charges,
see the Prospectus for the Contracts which accompanies the PROSPECTUS for the
Fund.)
The current yield of the MONEY MARKET PORTFOLIO for the seven days ending
December 31, 1998 was 4.71%. The effective annual yield on 4.71% is 4.82%,
assuming daily compounding.
From time to time the Fund may quote the "yield" of each of the SHORT-TERM
BOND PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO and
the UTILITIES PORTFOLIO in advertising and sales literature. Yield is calculated
for any 30-day period as follows: the amount of interest and/or dividend income
for each security in the Portfolio is determined in accordance with regulatory
requirements; the total for the entire portfolio constitutes the Portfolio's
gross income for the period. Expenses accrued during the period are subtracted
to arrive at "net investment income." The resulting amount is divided by the
product of the net asset value per share on the last day of the period
multiplied by the average number of Portfolio shares outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised to
the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The "yield" of a Portfolio
does not reflect the deduction of any charges which may be imposed on the
Contracts by the applicable Account which, if quoted, would reduce the yield
quoted. For the 30-day period ended December 31, 1998, the yield of the QUALITY
INCOME PLUS PORTFOLIO, calculated pursuant to this formula, was 5.89%, the yield
of the HIGH YIELD PORTFOLIO, calculated pursuant to this formula, was 14.45%,
and the yield of the UTILITIES PORTFOLIO, calculated pursuant to this formula,
was 2.64%. The SHORT-TERM BOND PORTFOLIO did not commence operations prior to
the date of this STATEMENT OF ADDITIONAL INFORMATION.
From time to time the Fund may quote the "total return" of each Portfolio in
advertising and sales literature. A Portfolio's "average annual total return"
represents an annualization of the Portfolio's total return over a particular
period and is computed by finding the annual percentage rate which will result
in the ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of the Portfolio's operations, if shorter than any of the
foregoing. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. However, average annual total return does not
reflect the deduction of any charges which may be imposed on the Contracts by
the applicable Account which, if quoted, would reduce the performance quoted.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result.
The average annual total returns for the one, five and ten year periods
ended December 31, 1998 were 5.18%, 5.00% and 5.38%, respectively, for the MONEY
MARKET PORTFOLIO; 8.67%, 7.31% and 9.55%, respectively, for the QUALITY INCOME
PLUS PORTFOLIO; -6.20%, 5.66% and 7.15%, respectively, for the HIGH YIELD
PORTFOLIO; 30.45%, 22.25% and 19.54%, respectively, for the EQUITY PORTFOLIO;
and 26.55%, 13.48% and 12.38%, respectively, for the STRATEGIST PORTFOLIO. The
average annual total returns of the UTILITIES PORTFOLIO and the DIVIDEND GROWTH
PORTFOLIO for the one and five year periods ended December 31, 1998 and for the
period from March 1, 1990 (commencement of these Portfolios' operations) through
December 31, 1998 were 23.76%, 14.89% and 14.42%, respectively, for the
UTILITIES PORTFOLIO and 14.28%, 18.61% and 14.93%, respectively, for the
DIVIDEND GROWTH PORTFOLIO. The average annual total returns of the CAPITAL
GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO for one and five year periods
ended December 31, 1998 and for the period from March 1, 1991 (commencement of
these Portfolios' operations) through December 31, 1998 were 19.63%, 16.88% and
13.23%, respectively, for the CAPITAL GROWTH PORTFOLIO and 23.96%, 20.60% and
18.53%, respectively, for the EUROPEAN GROWTH PORTFOLIO. The average annual
total returns of the GLOBAL DIVIDEND GROWTH PORTFOLIO and the PACIFIC GROWTH
PORTFOLIO for
42
<PAGE>
the one year period ended December 31, 1998 and for the period from February 23,
1994 (commencement of these Portfolios' operations) through December 31, 1998
were 12.53% and 13.06%, respectively, for the GLOBAL DIVIDEND GROWTH PORTFOLIO
and -10.40% and -10.88%, respectively, for the PACIFIC GROWTH PORTFOLIO. The
average annual total returns of the INCOME BUILDER PORTFOLIO for the year ended
December 31, 1998 and for the period from January 21, 1997 (commencement of the
Portfolio's operations) through December 31, 1998, were 3.21% and 12.79%,
respectively. The SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO
did not commence operations prior to the date of this STATEMENT OF ADDITIONAL
INFORMATION.
The Fund quotes the "total return" of a Portfolio that has been in operation
for less than one year on an non-annualized basis. The Fund may compute the
aggregate total return of each of the S&P 500 INDEX PORTFOLIO and the
COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO (which commenced operations on May 18,
1998) and the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE EQUITY PORTFOLIO
(which did not commence operations prior to the date of this STATEMENT OF
ADDITIONAL INFORMATION) for specified periods by determining the aggregate
percentage rate that will result in the ending value of a hypothetical $1,000
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value by the initial $1,000 investment and subtracting 1
from the result. Based on the foregoing calculation, the total returns of the
S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO for the
period May 18, 1998 through December 31, 1998 were 12.20% and -1.90%,
respectively. The Investment Manager had undertaken to assume all operating
expenses of each of the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST
IDEAS" PORTFOLIO until the earlier of April 30, 1999 or the attainment by the
respective Portfolio of $50 million of net assets. The S&P 500 INDEX PORTFOLIO
attained $50 million of net assets on January 5, 1999. Without the waiver of
fees and assumption of expenses by the Investment Manager, the total returns of
the S&P 500 INDEX PORTFOLIO and the COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
would have been 12.00% and -2.20%, respectively.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by an Account. The Fund may also compute the aggregate total returns
of the Portfolios for specified periods by determining the aggregate percentage
rate which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without the reduction for any charges imposed on the Contracts by
the applicable Account) by the initial $1,000 investment and subtracting 1 from
the result. Based on the foregoing calculation, the total returns of the MONEY
MARKET PORTFOLIO, the QUALITY INCOME PLUS PORTFOLIO, the HIGH YIELD PORTFOLIO,
the EQUITY PORTFOLIO and the STRATEGIST PORTFOLIO for the one, five and ten year
periods ended December 31, 1998 were 5.18%, 27.63% and 68.82%, respectively, for
the MONEY MARKET PORTFOLIO, 8.67%, 42.30% and 149.05%, respectively, for the
QUALITY INCOME PLUS PORTFOLIO; -6.20%, 31.71% and 99.48%, respectively, for the
HIGH YIELD PORTFOLIO, 30.45%, 173.01% and 495.72%, respectively, for the EQUITY
PORTFOLIO; and 26.55%, 88.20% and 221.15%, respectively, for the STRATEGIST
PORTFOLIO, the total returns of the UTILITIES PORTFOLIO and the DIVIDEND GROWTH
PORTFOLIO for the one and five year periods ended December 31, 1998 and for the
period from March 1, 1990 through December 31, 1998 were 23.76%, 100.17% and
228.72%, respectively, for the UTILITIES PORTFOLIO and 14.28%, 134.73% and
241.92%, respectively, for the DIVIDEND GROWTH PORTFOLIO, the total returns of
the CAPITAL GROWTH PORTFOLIO and the EUROPEAN GROWTH PORTFOLIO for the one and
five year periods ended December 31, 1998 and for the period from March 1, 1991
through December 31, 1998 were 19.63%, 118.08% and 164.73%, respectively, for
the CAPITAL GROWTH PORTFOLIO and 23.96%, 155.15% and 278.84%, respectively, for
the EUROPEAN GROWTH PORTFOLIO, the total returns of the GLOBAL DIVIDEND GROWTH
PORTFOLIO and the PACIFIC GROWTH PORTFOLIO for the one year period ended
December 31, 1998 and for the period from February 23, 1994 through December 31,
1998 were 12.53% and 81.41%, respectively, for the GLOBAL DIVIDEND GROWTH
PORTFOLIO and -10.40% and -42.80%, respectively, for the PACIFIC GROWTH
PORTFOLIO, and the total returns of the INCOME BUILDER PORTFOLIO for the year
ended December 31,
43
<PAGE>
1998 and for the period from January 21, 1997 (commencement of the Portfolio's
operations) through December 31, 1998, were 3.21% and 26.32%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of a Portfolio by adding 1 to the
Portfolio's aggregate total return to date (expressed as a decimal) and
multiplying by $10,000, $50,000 or $100,000, as the case may be. Investments of
$10,000, $50,000 and $100,000 in each Portfolio of the Fund at inception of the
Portfolio would have grown (or declined) to the following amounts at December
31, 1998:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT OF
OPERATIONS OF
-------------------------------
NAME OF PORTFOLIO $10,000 $50,000 $100,000
- -------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Money Market Portfolio.......................................................... 23,752 118,760 237,520
Quality Income Plus Portfolio................................................... 27,430 137,150 274,300
High Yield Portfolio............................................................ 38,145 180,725 361,450
Utilities Portfolio............................................................. 32,872 164,360 328,720
Income Builder Portfolio........................................................ 12,632 63,160 126,320
Dividend Growth Portfolio....................................................... 34,192 170,960 341,920
Capital Growth Portfolio........................................................ 26,473 132,365 264,730
Global Dividend Growth Portfolio................................................ 18,141 90,705 181,410
European Growth Portfolio....................................................... 37,884 189,420 378,840
Pacific Growth Portfolio........................................................ 5,720 28,600 57,200
Equity Portfolio................................................................ 98,646 493,230 986,460
S&P 500 Index Portfolio......................................................... 11,220 56,100 112,200
Competitive Edge "Best Ideas" Portfolio......................................... 9,810 49,050 98,100
Strategist Portfolio............................................................ 36,669 183,345 366,690
</TABLE>
The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
independent organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1998 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
* * * * *
This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
44
<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
45
<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
46
<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
47
<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
48
<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
49
<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
50
<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
51
<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
52
<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
53
<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
54
<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
55
<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
56
<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
57
<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
58
<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
59
<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>
<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
60
<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
61
<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
62
<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
63
<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
64
<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
65
<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
66
<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
67
<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
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
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
68
<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
69
<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
70
<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
71
<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
72
<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
73
<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
74
<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
75
<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>
<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
76
<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
77
<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
78
<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
79
<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
80
<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
81
<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
82
<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
83
<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
84
<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
85
<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
86
<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
87
<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
88
<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
89
<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
90
<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
91
<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
92
<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
93
<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
94
<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
95
<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
96
<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
97
<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
98
<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
99
<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
100
<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
101
<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
102
<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
103
<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
104
<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
105
<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
106
<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
107
<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
108
<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
109
<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%+ due12/18/28....................................................... 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
110
<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
111
<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
112
<PAGE>
(This page has been left blank intentionally.)
113
<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
114
<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 S&P 500
GROWTH GROWTH GROWTH GROWTH APPRECIATION EQUITY INDEX
<S> <C> <C> <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 $1,199,558,701 $ 48,743,934
Cash.......................... -- 565,563 471,147 425,688** 60,263 -- 96,318
Receivable for:
Investments sold.......... 1,019,600 753,725 -- -- -- 9,295,564 247,312
Shares of beneficial
interest sold........... 53,806 47,030 386,355 1,812 46,447 749,558 133,201
Dividends................. 66,375 993,077 298,214 32,704 4,694 232,030 43,939
Interest.................. 253 3,720 8,705 17,857 -- -- --
Foreign withholding taxes
reclaimed............... -- 399,104 656,162 -- -- 132,654 --
Variation margin.......... -- -- -- -- -- -- 10,291
Prepaid expenses and other
assets...................... 4,899 27,511 29,313 126 228 6,924 23
Receivable from affiliate..... -- -- -- -- 20,809 -- 12,489
------------ ------------ ------------ ----------- ----------- ------------ ------------
TOTAL ASSETS............. 138,776,557 484,865,490 511,729,994 53,016,598 32,668,741 1,209,975,431 49,287,507
------------ ------------ ------------ ----------- ----------- ------------ ------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- -- -- -- 70,270,953 503,347
Shares of beneficial
interest repurchased.... 66,069 228,369 577,185 18,439 42,893 762,181 39,680
Investment management
fee..................... 70,630 302,550 395,356 42,938 -- 453,571 --
Accrued expenses and other
payables.................... 36,748 107,007 119,856 113,684 21,031 76,003 12,512
------------ ------------ ------------ ----------- ----------- ------------ ------------
TOTAL LIABILITIES........ 173,447 637,926 1,092,397 175,061 63,924 71,562,708 555,539
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSETS:
Paid-in-capital............... 96,044,693 414,618,546 331,073,981 110,265,670 34,478,487 757,548,016 44,127,014
Accumulated undistributed net
investment income (loss).... (424) 520,531 3,134,104 411,637 386,474 (5,165) 244,990
Accumulated undistributed net
realized gain (loss)........ 14,067,938 24,439,258 43,112,022 (59,610,315) (6,501,098) 160,637,236 186,052
Net unrealized appreciation
(depreciation).............. 28,490,903 44,649,229 133,317,490 1,774,545 4,240,954 220,232,636 4,173,912
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSETS............... $138,603,110 $484,227,564 $510,637,597 $52,841,537 $32,604,817 $1,138,412,723 $ 48,731,968
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
*IDENTIFIED COST......... $109,140,721 $437,456,748 $376,597,847 $50,606,970 $28,295,346 $979,326,065 $ 44,667,149
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 6,806,997 35,025,587 18,785,057 10,269,558 3,147,999 29,505,782 4,343,636
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $20.36 $13.82 $27.18 $5.15 $10.36 $38.58 $11.22
------------ ------------ ------------ ----------- ----------- ------------ ------------
------------ ------------ ------------ ----------- ----------- ------------ ------------
<CAPTION>
COMPETITIVE EDGE
"BEST IDEAS" STRATEGIST
<S> <C> <C>
- ------------------------------
ASSETS:
Investments in securities, at
value *..................... $ 36,457,919 $632,185,804
Cash.......................... 60,532 90,081
Receivable for:
Investments sold.......... -- --
Shares of beneficial
interest sold........... 7,519 295,145
Dividends................. 13,050 231,493
Interest.................. -- 1,782,167
Foreign withholding taxes
reclaimed............... 6,875 --
Variation margin.......... -- --
Prepaid expenses and other
assets...................... 53 1,786
Receivable from affiliate..... 24,163 --
--------------------- ------------
TOTAL ASSETS............. 36,570,111 634,586,476
--------------------- ------------
LIABILITIES:
Payable for:
Investments purchased..... -- --
Shares of beneficial
interest repurchased.... 7,227 330,477
Investment management
fee..................... -- 257,845
Accrued expenses and other
payables.................... 24,104 63,874
--------------------- ------------
TOTAL LIABILITIES........ 31,331 652,196
--------------------- ------------
NET ASSETS:
Paid-in-capital............... 35,547,604 480,626,039
Accumulated undistributed net
investment income (loss).... 267,028 458
Accumulated undistributed net
realized gain (loss)........ (1,271,376) (7,041,288)
Net unrealized appreciation
(depreciation).............. 1,995,524 160,349,071
--------------------- ------------
NET ASSETS............... $ 36,538,780 $633,934,280
--------------------- ------------
--------------------- ------------
*IDENTIFIED COST......... $ 34,462,517 $471,836,733
--------------------- ------------
--------------------- ------------
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 3,722,740 38,098,404
--------------------- ------------
--------------------- ------------
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $9.82 $16.64
--------------------- ------------
--------------------- ------------
</TABLE>
115
<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
116
<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>
117
<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
118
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH YIELD UTILITIES INCOME BUILDER
----------------------------- ----------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED FOR THE YEAR
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER
1998 1997 1998 1997 1998 31, 1997*
<S> <C> <C> <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 $ 4,037,661 $ 1,300,879
Net realized gain (loss)...... (10,756,455) 184,126 11,183,431 24,274,209 936,441 773,374
Net change in unrealized
appreciation/depreciation... (62,350,933) (2,939,937) 81,869,637 61,888,240 (3,662,539) 3,070,555
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE
(DECREASE)............... (25,360,632) 35,521,939 107,117,685 100,678,844 1,311,563 5,144,808
------------- ------------- ------------- ------------- ------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (47,889,896) (37,998,064) (14,064,645) (14,516,342) (4,033,908) (1,300,838)
Net realized gain............. -- -- (24,274,238) (5,380,346) (768,186) --
------------- ------------- ------------- ------------- ------------- --------------
TOTAL.................... (47,889,896) (37,998,064) (38,338,883) (19,896,688) (4,802,094) (1,300,838)
------------- ------------- ------------- ------------- ------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 150,152,649 94,751,829 107,347,532 10,084,184 50,649,400 51,206,002
Reinvestment of dividends and
distributions............... 47,889,896 37,998,064 38,338,883 19,896,688 4,802,094 1,300,838
Cost of shares repurchased.... (128,774,384) (21,761,038) (111,796,640) (93,290,638) (19,614,662) (927,977)
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE
(DECREASE)............... 69,268,161 110,988,855 33,889,775 (63,309,766) 35,836,832 51,578,863
------------- ------------- ------------- ------------- ------------- --------------
TOTAL INCREASE
(DECREASE)............... (3,982,367) 108,512,730 102,668,577 17,472,390 32,346,301 55,422,833
NET ASSETS:
Beginning of period........... 368,061,271 259,548,541 458,134,256 440,661,866 55,422,833 --
------------- ------------- ------------- ------------- ------------- --------------
END OF PERIOD............ $364,078,904 $368,061,271 $560,802,833 $458,134,256 $ 87,769,134 $ 55,422,833
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 151,756 $ 294,896 $ 25 $ 53 $ 14,879 $ 41
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 26,123,968 15,438,103 5,490,004 586,036 4,241,399 4,681,304
Issued in reinvestment of
dividends and
distributions............... 8,453,299 6,235,666 1,967,479 1,234,020 415,816 114,240
Repurchased................... (22,927,167) (3,542,834) (5,716,328) (5,905,011) (1,710,560) (84,489)
------------- ------------- ------------- ------------- ------------- --------------
NET INCREASE (DECREASE)....... 11,650,100 18,130,935 1,741,155 (4,084,955) 2,946,655 4,711,055
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
<CAPTION>
DIVIDEND GROWTH
FOR THE YEAR FOR THE YEAR
ENDED DECEMBER ENDED DECEMBER
31, 1998 31, 1997
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 38,849,535 $ 33,294,853
Net realized gain (loss)...... 322,115,886 187,796,245
Net change in unrealized
appreciation/depreciation... (89,389,463) 131,882,494
-------------- --------------
NET INCREASE
(DECREASE)............... 271,575,958 352,973,592
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (38,849,522) (33,294,817)
Net realized gain............. (187,973,609) (76,862,062)
-------------- --------------
TOTAL.................... (226,823,131) (110,156,879)
-------------- --------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 479,551,623 315,154,387
Reinvestment of dividends and
distributions............... 226,823,131 110,156,879
Cost of shares repurchased.... (407,106,560) (50,626,648)
-------------- --------------
NET INCREASE
(DECREASE)............... 299,268,194 374,684,618
-------------- --------------
TOTAL INCREASE
(DECREASE)............... 344,021,021 617,501,331
NET ASSETS:
Beginning of period........... 1,905,905,758 1,288,404,427
-------------- --------------
END OF PERIOD............ $2,249,926,779 $1,905,905,758
-------------- --------------
-------------- --------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 154 $ 141
-------------- --------------
-------------- --------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 21,516,674 15,299,661
Issued in reinvestment of
dividends and
distributions............... 10,521,804 5,383,295
Repurchased................... (18,647,038) (2,443,929)
-------------- --------------
NET INCREASE (DECREASE)....... 13,391,440 18,239,027
-------------- --------------
-------------- --------------
</TABLE>
119
<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
120
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EUROPEAN GROWTH PACIFIC GROWTH CAPITAL APPRECIATION
----------------------------- --------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997*
<S> <C> <C> <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 $ 386,474 $ 209,858
Net realized gain (loss)...... 43,252,405 33,715,966 (31,801,028) (18,390,247) (6,243,234) (257,864)
Net change in unrealized
appreciation/depreciation... 44,049,168 15,487,002 24,432,009 (29,854,161) 2,856,814 1,384,140
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 90,396,356 52,920,777 (6,864,276) (46,941,246) (2,999,946) 1,336,134
------------- ------------- ------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (5,476,236) (3,760,260) (2,947,935) (1,891,258) (209,858) --
Net realized gain............. (30,256,754) (18,466,454) -- -- -- --
------------- ------------- ------------ ------------ ------------ ------------
TOTAL.................... (35,732,990) (22,226,714) (2,947,935) (1,891,258) (209,858) --
------------- ------------- ------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 190,691,042 69,322,769 65,895,854 27,108,335 19,359,401 33,834,119
Reinvestment of dividends and
distributions............... 35,732,990 22,226,714 2,947,935 1,891,258 209,858 --
Cost of shares repurchased.... (161,891,054) (33,224,347) (75,093,578) (55,800,009) (16,060,549) (2,864,342)
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE
(DECREASE)............... 64,532,978 58,325,136 (6,249,789) (26,800,416) 3,508,710 30,969,777
------------- ------------- ------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... 119,196,344 89,019,199 (16,062,000) (75,632,920) 298,906 32,305,911
NET ASSETS:
Beginning of period........... 391,441,253 302,422,054 68,903,537 144,536,457 32,305,911 --
------------- ------------- ------------ ------------ ------------ ------------
END OF PERIOD............ $510,637,597 $391,441,253 $52,841,537 $68,903,537 $32,604,817 $32,305,911
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 3,134,104 $ 5,394,724 $ 411,637 $ 2,054,796 $ 386,474 $ 209,858
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 7,118,106 3,070,886 13,473,730 3,373,487 1,745,653 3,118,030
Issued in reinvestment of
dividends and
distributions............... 1,290,932 983,918 677,325 188,937 17,860 --
Repurchased................... (6,252,813) (1,452,789) (15,145,796) (6,804,802) (1,470,199) (263,345)
------------- ------------- ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)....... 2,156,225 2,602,015 (994,741) (3,242,378) 293,314 2,854,685
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
<CAPTION>
EQUITY
------------------------------
FOR THE YEAR
FOR THE YEAR ENDED
ENDED DECEMBER DECEMBER 31,
31, 1998 1997
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 6,924,725 $ 4,000,633
Net realized gain (loss)...... 161,754,931 114,548,760
Net change in unrealized
appreciation/depreciation... 89,582,262 87,770,605
-------------- -------------
NET INCREASE
(DECREASE)............... 258,261,918 206,319,998
-------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (6,924,673) (4,001,396)
Net realized gain............. (114,146,703) (43,430,509)
-------------- -------------
TOTAL.................... (121,071,376) (47,431,905)
-------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 262,726,068 150,537,439
Reinvestment of dividends and
distributions............... 121,071,376 47,431,905
Cost of shares repurchased.... (205,665,545) (55,675,579)
-------------- -------------
NET INCREASE
(DECREASE)............... 178,131,899 142,293,765
-------------- -------------
TOTAL INCREASE
(DECREASE)............... 315,322,441 301,181,858
NET ASSETS:
Beginning of period........... 823,090,282 521,908,424
-------------- -------------
END OF PERIOD............ $1,138,412,723 $823,090,282
-------------- -------------
-------------- -------------
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ (5,165) $ --
-------------- -------------
-------------- -------------
SHARES ISSUED AND REPURCHASED:
Sold.......................... 7,421,841 4,895,346
Issued in reinvestment of
dividends and
distributions............... 3,456,577 1,670,194
Repurchased................... (5,884,436) (1,832,698)
-------------- -------------
NET INCREASE (DECREASE)....... 4,993,982 4,732,842
-------------- -------------
-------------- -------------
</TABLE>
121
<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
122
<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>
<TABLE>
<CAPTION>
The investment objectives of each Portfolio are as follows:
<S> <C>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Money Market Seeks high current income, preservation of capital and liquidity
by investing in short-term money market instruments.
Quality Income Plus Seeks, as its primary objective, to earn a high level of current
income and, as a secondary objective, capital appreciation, but
only when consistent with its primary objective, by investing
primarily in U.S. Government securities and higher-rated fixed
income securities.
High Yield Seeks, as its primary objective, to earn a high level of current
income and, as a secondary objective, capital appreciation, but
only when consistent with its primary objective, by investing
primarily in lower-rated fixed income securities.
Utilities Seeks to provide current income and long-term growth of income
and capital by investing primarily in equity and fixed income
securities of companies engaged in the public utilities industry.
Income Builder Seeks, as its primary objective, to earn reasonable income and,
as a secondary objective, growth of capital by investing
primarily in income-producing equity securities.
</TABLE>
123
<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
124
<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
125
<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.
126
<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
127
<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.
128
<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.
129
<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>
130
<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>
131
<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.
132
<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.
133
<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
134
<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>
135
<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
136
<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>
137
<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
138
<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>
139
<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
140
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as high
grade fixed-income securities. They are rated lower than the best fixed-income
securities because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Fixed-income securities which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade
obligations; I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great length
of time. Such fixed-income securities lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position characterizes bonds in
this class.
B Fixed-income securities which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa Fixed-income securities which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal or
interest.
Ca Fixed-income securities which are rated Ca present obligations which are speculative
in a high degree. Such issues are often in default or have other marked shortcomings.
C Fixed-income securities which are rated C are the lowest rated class of fixed-income
securities, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
141
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than fixed-income securities in
higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for fixed-income
securities in this category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default than
other speculative grade fixed-income securities. However, it faces major ongoing
uncertainties or exposures to adverse business, financial or economic conditions
which could lead to inadequate capacity or willingness to pay interest and repay
principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but
presently have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
</TABLE>
142
<PAGE>
<TABLE>
<S> <C>
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, they are not likely to
have the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities on which no interest is
being paid.
NR Indicates that no rating has been requested, that there is insufficient information
on which to base a rating or that Standard & Poor's does not rate a particular type
of obligation as a matter of policy.
Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to pay interest
and repay principal. "BB" indicates the least degree of speculation and "C" the
highest degree of speculation. While such fixed-income securities will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major ratings
categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
</TABLE>
143
<PAGE>
FITCH INVESTORS SERVICE, INC. ("FITCH")
BOND RATINGS
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific debt
issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal .
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which it
considers reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA rated bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change over
the term of the issue.
A rated bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's
ability to pay interest and repay principal is not strong and is considered likely
to be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly
protected as to the obligor's ability to pay interest over the life of the issue and
repay principal when due.
CCC rated bonds may have certain identifiable characteristics which, if not remedied,
could lead to the possibility of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or principal
seems probable.
C rated bonds are in imminent default in payment of interest and/or principal.
</TABLE>
144
<PAGE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner. Fitch's
short-term ratings are as follows:
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as the two
higher categories.
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near term adverse changes in financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued
by a commercial bank.
</TABLE>
DUFF & PHELPS, INC.
LONG-TERM RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security, (E.G.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING
SCALE DEFINITION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free U.S.
Treasury debt.
</TABLE>
145
<PAGE>
<TABLE>
<S> <C>
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from time to
AA time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater in
A periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for prudent investment. Considerable
BBB variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
BB protection factors fluctuate according to industry conditions or company fortunes. Overall quality may
BB- move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial
B protection factors will fluctuate widely according to economic cycles, industry conditions and/or
B- company fortunes. Potential exists for frequent changes in the quality rating within this category or
into a higher or lower quality rating grade.
CCC Well below investment grade securities. May be in default or considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<S> <C>
A. Category 1: High Grade
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
B. Category 2: Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
</TABLE>
146
<PAGE>
<TABLE>
<S> <C>
C. Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
D. Category 4: Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
E. Category 5: Default
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
</TABLE>
147
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
PART C OTHER INFORMATION
Item 23. EXHIBITS
2. Amended and Restated By-Laws of the Registrant dated May 1, 1999.
4. Form of Amended Investment Management Agreement between the Registrant
and Morgan Stanley Dean Witter Advisors Inc.
6. Retirement Plan for Non-Interested Trustees or Directors.
8. Form of Amended Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company Inc.
10. Consent of Independent Accountants.
14. Financial Data Schedules.
All other exhibits were previously filed via EDGAR and are hereby incorporated
by reference.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
Item 25. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted
1
<PAGE>
against the Registrant by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal address of the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
2
<PAGE>
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International SmallCap Fund
(32) Morgan Stanley Dean Witter Japan Fund
(33) Morgan Stanley Dean Witter Limited Term Municipal Trust
(34) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(35) Morgan Stanley Dean Witter Market Leader Trust
(36) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(37) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(38) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(39) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(40) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(41) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(42) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(43) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(44) Morgan Stanley Dean Witter Real Estate Fund
(45) Morgan Stanley Dean Witter S&P 500 Index Fund
(46) Morgan Stanley Dean Witter S&P 500 Select Fund
(47) Morgan Stanley Dean Witter Select Dimensions Investment Series
3
<PAGE>
(48) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(49) Morgan Stanley Dean Witter Short-Term Bond Fund
(50) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(51) Morgan Stanley Dean Witter Special Value Fund
(52) Morgan Stanley Dean Witter Strategist Fund
(53) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(54) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(55) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(56) Morgan Stanley Dean Witter U.S. Government Securities Trust
(57) Morgan Stanley Dean Witter Utilities Fund
(58) Morgan Stanley Dean Witter Value-Added Market Series
(59) Morgan Stanley Dean Witter Value Fund
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- -------------------------------------------------
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and
Director Director of Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors") and Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust");
President, Chief Executive Officer and Director of
Morgan Stanley Dean Witter Services Company Inc.
("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series; Executive Vice President
and Director of Dean Witter Reynolds Inc. ("DWR");
Director of various MSDW subsidiaries.
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
<S> <C>
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter
Executive Vice President Funds and Discover Brokerage Index Series;
and Chief Investment Director of MSDW Trust.
Officer
Ronald E. Robison Executive Vice President, Chief Administrative Officer and
Executive Vice President, Director of MSDW Services; Vice President of the Morgan
Chief Administrative Stanley Dean Witter Funds, TCW/DW Funds and Discover
Officer and Director Brokerage Index Series.
Edward C. Oelsner, III
Executive Vice President
John Van Heuvelen President of MSDW Trust.
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,Secretary,
Senior Vice President, General Counsel and Director of MSDW Services; Senior Vice
Secretary, General President, Assistant Secretary and Assistant General Counsel of
Counsel and Director MSDW Distributors; Vice President, Secretary and General Counsel
of the Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds,
TCW/DW Funds and Discover Brokerage Index Series.
5
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds and Discover Brokerage Index Series.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
6
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Frank Bruttomesso First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
April 23, 1999Brokerage Index Series.
Toby Burroughs
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds, TCW/DW
Funds and Discover Brokerage Index Series.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors, the Morgan Stanley Dean
Witter Funds, TCW/DW Funds and Discover Brokerage Index Series.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
7
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors, the
and Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
James P. Wallin
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur
Vice President
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
Ronald Caldwell
Vice President
8
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
9
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Christopher Jones
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
Nancy Kennedy
Vice President
Doug Ketterer
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
10
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
George Paoletti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund.
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
11
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------------------------
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Stuart Taylor
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
Item 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
12
<PAGE>
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International SmallCap Fund
(32) Morgan Stanley Dean Witter Japan Fund
(33) Morgan Stanley Dean Witter Limited Term Municipal Trust
(34) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(35) Morgan Stanley Dean Witter Market Leader Trust
(36) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(37) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(38) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(39) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(40) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(41) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(42) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(43) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(44) Morgan Stanley Dean Witter Prime Income Trust
(45) Morgan Stanley Dean Witter Real Estate Fund
(46) Morgan Stanley Dean Witter S&P 500 Index Fund
(47) Morgan Stanley Dean Witter S&P 500 Select Fund
(48) Morgan Stanley Dean Witter Short-Term Bond Fund
(49) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(50) Morgan Stanley Dean Witter Special Value Fund
(51) Morgan Stanley Dean Witter Strategist Fund
(52) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(53) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(54) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(55) Morgan Stanley Dean Witter U.S. Government Securities Trust
(56) Morgan Stanley Dean Witter Utilities Fund
(57) Morgan Stanley Dean Witter Value-Added Market Series
(58) Morgan Stanley Dean Witter Value Fund
13
<PAGE>
(59) Morgan Stanley Dean Witter Variable Investment Series
(60) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than
Mr. Purcell, who is a Trustee of the Registrant, none of the following persons
has any position or office with the Registrant.
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
Christine A. Edwards Executive Vice President, Secretary, Director and Chief
Legal Officer.
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 30. UNDERTAKINGS
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 26th day of April, 1999.
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
By: /s/ Barry Fink
----------------------------
. Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 26 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By: /s/ Charles A. Fiumefreddo 04/26/99
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 04/26/99
----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 04/26/99
----------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By: /s/ David M. Butowsky 04/26/99
-----------------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
EXHIBIT INDEX
2. Amended and Restated By-Laws of the Registrant dated May 1, 1999.
4. Form of Amended Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
6. Retirement Plan for Non-Interested Trustees or Directors.
8. Form of Amended Services Agreement between Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc.
10. Consent of Independent Accountants.
14. Financial Data Schedules.
<PAGE>
BY-LAWS
OF
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
AMENDED AND RESTATED AS OF MAY 1, 1999
ARTICLE I
DEFINITIONS
The terms "COMMISSION," "DECLARATION," "DISTRIBUTOR," "INVESTMENT
ADVISER," "MAJORITY SHAREHOLDER VOTE," "1940 ACT," "SHAREHOLDER," "SHARES,"
"TRANSFER AGENT," "TRUST," "TRUST PROPERTY," and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Morgan Stanley
Dean Witter Variable Investment Series dated February 24, 1983, as amended
from time to time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote not less than twenty-five percent
(25%) of all the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed
to be acted on thereat. The Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the
meeting, and upon payment to the Trust of such costs, the Secretary shall
give notice stating the purpose or purposes of the meeting to all entitled to
vote at such meeting. No meeting need be called upon the request of the
holders of Shares entitled to cast less than a majority of all votes entitled
to be cast at such meeting, to consider any matter which is substantially the
same as a matter voted upon at any meeting of Shareholders held during the
preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the
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<PAGE>
Shareholders present or represented by proxy and entitled to vote thereat
shall have the power to adjourn the meeting from time to time. The
Shareholders present in person or represented by proxy at any meeting and
entitled to vote thereat also shall have the power to adjourn the meeting
from time to time if the vote required to approve or reject any proposal
described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present
in person or represented by proxy shall be required to adjourn any meeting.
Any adjourned meeting may be reconvened without further notice. At any
reconvened meeting at which a quorum shall be present, any business may be
transacted that might have been transacted at the meeting as originally
called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his or her name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled
to vote at such meeting. Without limiting the manner in which a Shareholder
may authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be
accomplished by the Shareholder or such Shareholder's authorized officer,
director, employee, attorney-in-fact or another agent signing such writing
or causing such person's signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile or telecopy
signature. No written evidence of authority of a Shareholder's authorized
officer, director, employee, attorney-in-fact or other agent shall be
required; and
(ii) A Shareholder may authorize another person or persons to act for
such Shareholder as proxy by transmitting or authorizing the transmission
of a telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. In determining whether a
telegram, cablegram or other electronic transmission is valid, the chairman
or inspector, as the case may be, shall specify the information upon which he
or she relied. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or Officers of
the Trust. Proxy solicitations may be made in writing or by using telephonic
or other electronic solicitation procedures that include appropriate methods
of verifying the identity of the Shareholder and confirming any instructions
given thereby.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares
2
<PAGE>
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising in
connection with the right to vote, shall count and tabulate all votes or
consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. On request of
the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Business Corporation Law
of the Commonwealth of Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
SECTION 3.10. PRESENCE AT MEETINGS. PRESENCE at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required
3
<PAGE>
or permitted to be taken at any meeting of the Trustees may be taken without
a meeting if a consent in writing setting forth the action shall be signed by
all of the Trustees entitled to vote upon the action and such written consent
is filed with the minutes of proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
4
<PAGE>
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the Investment Company Act of 1940, nor parties to
the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no
5
<PAGE>
person may satisfy any right of indemnity or reimbursement granted herein or
to which he may be otherwise entitled except out of the property of the
Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute,
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acknowledge or verify any instrument in more than one capacity. The executive
officers of the Trust shall be elected annually by the Trustees and each
executive officer so elected shall hold office until his or her successor is
elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the Chairman the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his or her successor is elected and has qualified.
Any officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. POWERS AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws or, to the extent not so provided, as may be prescribed by the
Trustees; provided that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless such third
party has knowledge thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall be the chief executive
officer of the Trust, shall preside at all meetings of the Shareholders and
of the Trustees, shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are
carried into effect and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his or
her powers and duties at such times and in such manner as he or she may deem
advisable, shall be a signatory on all Annual and Semi-Annual Reports as may
be sent to Shareholders, and shall perform such other duties as the Trustees
may from time to time prescribe.
SECTION 6.7. THE PRESIDENT. The President shall perform such duties as the
Trustees and the Chairman may from time to time prescribe and shall, in the
absence or disability of the Chairman, exercise the powers and perform the
duties of the Chairman. The President shall be authorized to delegate to one
or more Vice Presidents such of his or her powers and duties at such times
and in such manner as he or she may deem advisable.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there shall be more than one, the
Vice Presidents in such order as may be determined from time to time by the
Trustees or the Chairman, shall, in the absence or disability of the
President, exercise the powers and perform the duties of the President, and
shall perform such other duties as the Trustees or the Chairman may from time
to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there shall be more than one, the Assistant Vice Presidents in such
order as may be determined from time to time by the Trustees or the Chairman,
shall perform such duties and have such powers as may be assigned them from
time to time by the Trustees or the Chairman.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He or she shall give, or cause to be given, notice
of all meetings of the Shareholders and special meetings of the Trustees, and
shall perform such other duties and have such powers as the Trustees or the
Chairman may from time to time prescribe. He or she shall keep in safe
custody the seal of the Trust and affix or cause the same to be affixed to
any instrument requiring it, and, when so affixed, it shall be attested by
his or her signature or by the signature of an Assistant Secretary.
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SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there shall be more than one, the Assistant Secretaries in such order as may
be determined from time to time by the Trustees or the Chairman, shall, in
the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such duties and have such other
powers as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He or she shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging to the
Trust, and he or she shall render to the Trustees and the Chairman, whenever
any of them require it, an account of his or her transactions as Treasurer
and of the financial condition of the Trust, and he or she shall perform such
other duties as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in such order as may
be determined from time to time by the Trustees or the Chairman, shall, in
the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and
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delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall appear therein
had not ceased to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order.
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank or trust
company organized under the laws of the United States or one of the states
thereof and having capital, surplus and undivided profits of at least five
million dollars ($5,000,000).
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and
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filed with the records of the meeting, whether before or after the holding
thereof, or actual attendance at the meeting of Shareholders, Trustees or
committee, as the case may be, in person, shall be deemed equivalent to the
giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. The
record date, in any case, shall not be more than ninety (90) days, and in the
case of a meeting of Shareholders not less than ten (10) days, prior to the
date on which such meeting is to be held or the date on which such other
particular action requiring determination of Shareholders is to be taken, as
the case may be. In the case of a meeting of Shareholders, the meeting date
set forth in the notice to Shareholders accompanying the proxy statement
shall be the date used for purposes of calculating the 90 day or 10 day
period, and any adjourned meeting may be reconvened for up to 60 days from
the original meeting without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall
be closed for at least ten (10) days immediately preceding the meeting.
SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended,
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adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration, or these By-Laws, a vote of the
Shareholders. The Trustees shall in no event adopt By-Laws which are in
conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Morgan Stanley Dean Witter Variable
Investment Series, dated February 24, 1983, a copy of which, together with
all amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Morgan Stanley Dean
Witter Variable Investment Series refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally;
and no Trustee, Shareholder, officer, employee or agent of Morgan Stanley
Dean Witter Variable Investment Series shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Morgan Stanley Dean Witter Variable Investment Series, but
the Trust Estate only shall be liable.
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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of May 1,
1998 and May 1, 1999, by and between Morgan Stanley Dean Witter Variable
Investment Series, an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter called the "Fund"), and Morgan
Stanley Dean Witter Advisors Inc., a Delaware corporation (hereinafter called
the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund is authorized to issue shares of beneficial interest in
separate portfolios (the "Portfolios") with each Portfolio representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, The Fund presently offers shares in several Portfolios, such
Portfolios together with all other Portfolios subsequently established by the
Fund with respect to which the Fund desires to retain the Investment Manager to
render management and investment advisory services in the manner and on the
terms and conditions hereinafter set forth being collectively referred to as the
"Portfolios"; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Portfolios and, subject to the supervision of the Trustees, to
supervise the investment activities of the Portfolios as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; with respect to the
Portfolios other than the European Growth Portfolio and the Pacific Growth
Portfolio, shall continuously manage the assets of the Portfolios in a manner
consistent with the investment objectives and policies of the Portfolios and
shall determine the securities and commodities to be purchased, sold or
otherwise disposed of by the Portfolios and the timing of such purchases, sales
and dispositions; with respect to the European Growth Portfolio and the Pacific
Growth Portfolio, shall supervise the management of the assets of the Portfolio
in a manner consistent with the investment objectives and policies of the
Portfolio and subject to such other limitations and directions as the Trustees
of the Fund may from time to time prescribe; and shall take such further action,
including the placing of purchase and sale orders on behalf of the Portfolios
other than the European Growth Portfolio and the Pacific Growth Portfolio, as
the Investment Manager shall deem necessary or appropriate. The Investment
Manager shall also furnish to or place at the disposal of the Fund such of the
information, evaluations, analyses and opinions formulated or obtained by the
Investment Manager in the discharge of its duties as the Fund may, from time to
time, reasonably request.
In the event the Fund establishes another Portfolio other than the current
Portfolios with respect to which it desires to retain the Investment Manager to
render investment advisory services hereunder, it shall notify the Investment
Manager in writing. If the Investment Manager is willing to render such
services, it shall notify the Fund in writing, whereupon such other Portfolio
shall become a Portfolio hereunder.
98nyc6035
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2. The Investment Manager shall, at its own expense, enter into
Sub-Advisory Agreements in respect of the European Growth Portfolio and the
Pacific Growth Portfolio with a Sub-Adviser or Sub-Advisers to make
determinations as to the securities and commodities to be purchased, sold or
otherwise disposed of by the European Growth Portfolio or the Pacific Growth
Portfolio and the timing of such purchases, sales and dispositions and to take
such further action, including the placing of purchase and sale orders on behalf
of the Portfolio, as the Sub-Adviser, in consultation with the Investment
Manager, shall deem necessary or appropriate; provided that the Investment
Manager shall be responsible for monitoring compliance by such Sub-Adviser with
the investment policies and restrictions of the Portfolio and with such other
limitations or directions as the Trustees of the Fund may from time to time
prescribe.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities or commodities and other property, and any
stock transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio transactions to
which the Fund is a party; all taxes, including securities or commodities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing (including typesetting) and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the
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Act) of the Fund or the Investment Manager, and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Trustees) of the Fund which
inure to its benefit; extraordinary expenses (including but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the various Portfolios of the Fund
shall pay to the Investment Manager monthly compensation determined by applying
the following annual rates to the daily net assets of the respective Portfolios
determined as of the close of each business day: (a) the S&P 500 Index Portfolio
- -- 0.40%; (b) the Money Market Portfolio -- 0.50% of daily net assets up to $500
million, 0.425% of the next $250 million, and 0.375% of daily net assets over
$750 million; (c) the High Yield Portfolio -- 0.50% of daily net assets up to
$500 million and 0.425% of daily net assets over $500 million; (d) the Quality
Income Plus Portfolio -- 0.50% of daily net assets up to $500 million and 0.45%
of daily net assets over $500 million; (e) the Equity Portfolio -- 0.50% of
daily net assets up to $1 billion and 0.475% of daily net assets over $1
billion; (f) the Strategist Portfolio -- 0.50% of daily net assets up to $1.5
billion and 0.475% of daily net assets over $1.5 billion; (g) the Dividend
Growth Portfolio -- 0.625% of daily net assets up to $500 million, 0.50% of the
next $500 million, 0.475% of the next $1 billion, 0.45% of the next $1 billion,
and 0.425% of daily net assets over $3 billion; (h) each of the Capital Growth
Portfolio and the Competitive Edge "Best Ideas" Portfolio -- 0.65% of daily net
assets; (i) the Utilities Portfolio -- 0.65% of daily net assets up to $500
million, 0.55% of the next $500 million, and 0.525% of daily net assets over $1
billion; (j) each of the Income Builder Portfolio and the Aggressive Equity
Portfolio -- 0.75% of daily net assets; (k) the Global Dividend Growth Portfolio
- -- 0.75% of daily net assets up to $1 billion and 0.725% of daily net assets
over $1 billion; (l) the Short-Term Bond Portfolio -- 0.45% of daily net assets;
(m) the European Growth Portfolio -- 1.0% of daily net assets up to $500 million
and 0.95% of daily net assets over $500 million; and (n) the Pacific Growth
Portfolio -- 1.0% of daily net assets. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly. Such calculations shall be
made by applying 1/365ths of the annual rates to the net assets of the
respective Portfolios each day determined as of the close of business on that
day or the last previous business day. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above.
Subject to the provisions of paragraph 8 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event that the operating expenses of any of the Money Market
Portfolio, the High Yield Portfolio, the Equity Portfolio, the Quality Income
Plus Portfolio, the Strategist Portfolio, the Utilities Portfolio or the
Dividend Growth Portfolio, including amounts payable to the Investment Manager
pursuant to paragraph 7 hereof, for any year ending on a date on which this
Agreement is in effect exceed 1.5% of the average daily net assets of such
Portfolio up to $30 million and 1.0% of the average daily net assets of such
Portfolio in excess of $30 million (the "expense limitation" of these
Portfolios), or in the event that the operating expenses of any of the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio or the Pacific Growth Portfolio, including amounts payable to the
Investment Manager pursuant to paragraph 7 hereof, for any year ending on a date
on which this Agreement is in effect exceed 2.5% of the average daily net assets
of such Portfolio up to $30 million, 2.0% of the next $70 million and 1.5% of
the average daily net assets of such Portfolio in excess of $100 million (the
"expense limitation" of these Portfolios), the Investment Manager shall reduce
its management fee in respect of such Portfolio to the extent of such excess and
will reimburse such Portfolio for annual operating expenses in excess of the
applicable expense limitation, up to the amount of the management fee for that
Portfolio which otherwise would be payable for that year; provided, however,
there shall be excluded from
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<PAGE>
such expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by such Portfolio. Such reduction, if any, shall be computed and
accrued daily, shall be settled on a monthly basis, and shall be based upon the
expense limitation applicable to such Portfolio as at the end of the last
business day of the month.
9. The Investment Manager will use its best efforts in the supervision and
management of the
investment activities of the Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
the Investment Manager shall not be liable to the Fund or any of its investors
for any error of judgment or mistake of law or for any act or omission by the
Investment Manager or for any losses sustained by the Fund or its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Trustee, officer or
employee of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 2000 and from year
to year thereafter with respect to each Portfolio provided such continuance with
respect to a Portfolio is approved at least annually by the vote of holders of a
majority (as defined in the Act) of the outstanding voting securities of such
Portfolio or by the Trustees of the Fund; provided that in either event such
continuance is also approved annually by the vote of a majority of the Trustees
of the Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon thirty days' written notice to the Investment
Manager, either by majority vote of the Trustees of the Fund or, with respect to
a Portfolio, by the vote of a majority of the outstanding voting securities of
such Portfolio; (b) this Agreement shall immediately terminate in the event of
its assignment (to the extent required by the Act and the rules thereunder)
unless such automatic terminations shall be prevented by an exemptive order of
the Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Portfolio shall be effective to continue
this Agreement with respect to such Portfolio notwithstanding (a) that this
Agreement has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio or (b) that this Agreement has not been
approved by the vote of a majority of the outstanding voting securities of the
Fund, unless such approval shall be required by any other applicable law or
otherwise.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
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<PAGE>
14. The Investment Manager and the Fund each agree that the name "Morgan
Stanley Dean Witter," which comprises a component of the Fund's name, is a
property right of Morgan Stanley Dean Witter & Co. ("MSDW"), the parent of the
Investment Manager. The Fund agrees and consents that (i) it will only use the
name "Morgan Stanley Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Morgan Stanley Dean Witter" for any purpose, (iii) MSDW, or any
corporate affiliate of MSDW, may use or grant to others the right to use the
name "Morgan Stanley Dean Witter," or any combination or abbreviation thereof,
as all or a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment company, (iv)
at the request of MSDW or any corporate affiliate of MSDW, the Fund will take
such action as may be required to provide its consent to the use of the name
"Morgan Stanley Dean Witter," or any combination or abbreviation thereof, by
MSDW or any corporate affiliate of MSDW, or by any person to whom MSDW or a
corporate affiliate of MSDW shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which a corporate
affiliate of MSDW and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request of MSDW or
any corporate affiliate of MSDW, cease to use the name "Morgan Stanley Dean
Witter" as a component of its name, and shall not use the name, or any
combination or abbreviation thereof, as a part of its name or for any other
commercial purpose, and shall cause its officers, trustees and shareholders to
take any and all actions which MSDW or any corporate affiliate of MSDW may
request to effect the foregoing and to reconvey to MSDW any and all rights to
such name.
15. The Declaration of Trust establishing Morgan Stanley Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Morgan
Stanley Dean Witter Variable Investment Series refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Morgan Stanley Dean
Witter Variable Investment Series shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Morgan
Stanley Dean Witter Variable Investment Series, but the Trust Estate only shall
be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on May 1, 1999 in New York, New York.
MORGAN STANLEY DEAN WITTER VARIABLE
INVESTMENT SERIES
By:
......................................
Attest:
.....................................
MORGAN STANLEY DEAN WITTER ADVISORS
INC.
By:
......................................
Attest:
.....................................
5
<PAGE>
SECOND AMENDED AND RESTATED
RETIREMENT PLAN FOR
NON-INTERESTED TRUSTEES
OR DIRECTORS
Certain of the investment companies for which Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") currently acts as manager or adviser adopted a
Retirement Plan for Non-Interested Trustees and Directors (the "Original Plan")
on February 21, 1991 (the "Commencement Date"). The Original Plan was amended
and restated on October 22, 1993, effective January 1, 1994 and further amended
by First Amendment dated December 19, 1995 and by Second Amendment dated May 8,
1997. The participating Funds now desire to amend and restate the Plan further
as provided herein effective as of the Commencement Date (as so amended, the
"Plan"), for the purposes of expanding the flexibility of Non-Interested
Trustees and Directors to make and change their elections of benefits.
1. DEFINITIONS
(a) "Independent Board Member" shall mean (i) a Trustee of an Adopting Fund
if the Adopting Fund is organized as a Massachusetts business trust, (ii) a
Director of an Adopting Fund if the Adopting Fund is organized as a corporation,
and (iii) a "director" (as such term is defined in Section 2(a)(12) of the
Investment Company Act of 1940, as amended [the "Act"]) of an Adopting Fund if
the Adopting Fund is any other type of organization, who in any such case is not
an interested person (as such term is defined in Section 2(a)(19) of the Act) of
MSDW Advisors.
(b) "Eligible Board Member" shall mean an Independent Board Member who at
the time of Retirement (as hereinafter defined) has served as an Independent
Board Member of any Adopting Fund for at least five years, or such lesser period
as may be determined by the Board.
(c) "Eligible Service" shall mean service as an Independent Board Member.
(d) "Eligible Retirement Date" shall mean, with respect to any Independent
Board Member, the later of (i) January 1, 1993, (ii) the first day of the
calendar month following the month in which such Independent Board Member's
seventy-second birthday occurs, or (iii) such later date as the Board may
establish as his or her "Eligible Retirement Date."
(e) "Retirement" shall mean any termination of service of an Independent
Board Member except any termination which the Board determines to have resulted
from the Independent Board Member's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Independent Board Member.
(f) "Benefit" shall mean with respect to any Eligible Board Member, (i) the
Regular Benefit, unless the Alternate Benefit has been elected or the Early
Benefit granted, (ii) the Alternate Benefit, if elected by such Eligible Board
Member, unless the Early Benefit has been granted, or (iii) the Early Benefit,
if granted by the Board.
(g) "Eligible Compensation" shall mean, with respect to any Eligible Board
Member of any Adopting Fund, an amount equal to one-fifth of the total
compensation, inclusive of compensation as a member of the Board or of a Board
Committee or as chairperson of a Board Committee, earned by such Eligible Board
Member for Eligible Service with respect to such Adopting Fund (other than under
this Plan) in the five year period prior to the date of his or her Retirement.
(h) "Actuarial Equivalent" shall mean an actuarially equivalent benefit, as
computed by the Board with the advice of an enrolled actuary (as defined in the
Employee Retirement Income Security Act of 1974, as amended ["ERISA"]), using
assumptions determined by the Board at the time of the computation.
(i) "Board" shall mean, with respect to any Adopting Fund, the Board of
Directors or Trustee or "directors," (as such term is defined in Section
2(a)(12) of the Act, of such Adopting Fund.
(j) "Adoption Date" shall mean February 21, 1991.
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2. ELIGIBILITY
Each Eligible Board Member will be eligible to receive a Benefit from each
Adopting Fund commencing on such Eligible Board Member's Eligible Retirement
Date.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) RETIREMENT. Each Independent Board Member will retire not later than
his or her Eligible Retirement Date. The foregoing provision shall be deemed
by the adoption of this Plan by any Fund to be an amendment of such Fund's
by-laws superseding any provision therein that an Independent Board Member
shall serve until his or her successor shall have been elected and qualified.
Notwithstanding the foregoing, the Board of any Adopting Fund may, to avoid
the simultaneous retirement of more than one of the Independent Board Members
or for any other appropriate reason, waive the obligation of any Independent
Board Member to retire on such date and may establish a later date as his or
her "Eligible Retirement Date." Any establishment of an Eligible Retirement
Date may be further extended by the Board.
(b) REGULAR RETIREMENT BENEFIT. Upon Retirement, each Eligible Board Member
will receive, commencing as of such Eligible Board Member's Eligible Retirement
Date and continuing for the remainder of the Eligible Board Member's life, from
each Adopting Fund a retirement benefit (the "Regular Benefit") paid at an
annual rate equal to the percentage of his or her Eligible Compensation
established by resolution of the Board of such Adopting Fund most recently
adopted prior to the date of his or her retirement (the "Most Recent
Resolution") as the "Minimum Percentage," PLUS an additional percentage of such
Eligible Compensation for each full month of Eligible Service for any of the
Adopting Funds in excess of five years established by the Most Recent Resolution
as the "Monthly Additional Percentage," up to the percentage established by the
Most Recent Resolution as the "Maximum Percentage" of such Eligible Compensation
for ten or more years of Eligible Service for any of the Adopting Funds.
(c) ELECTION OF ALTERNATE PAYMENT OF BENEFIT. Each Independent Board Member
shall have the option, exercisable at any time, and revisable at any time and
from time to time, prior to his or her first acceptance of benefits under the
Plan to elect (i) to receive, subject to being or becoming an Eligible Board
Member, a retirement benefit (the "Alternate Benefit") based upon the combined
life expectancy of such Eligible Board Member and his or her spouse on the date
of such Eligible Board Member's Retirement (rather than solely upon such
Eligible Board Member's own life, as shall be the case unless such Eligible
Board Member shall otherwise elect as provided in this Section 3(c)), and (ii)
if the Independent Board Member elects to receive the Alternate Benefit, to
elect a benefit either (x) to the last survivor of the Eligible Board Member or
spouse, whether the Eligible Board Member or spouse is the last survivor (a
"joint and last survivor" benefit) or (y) to the Eligible Board Member's spouse
if the spouse survives the Eligible Board Member (a "joint and contingent
survivor" benefit) equal in periodic amount to a percentage (the "Designated
Survivor's Percentage") of the periodic amount that would be, or would be
assumed to be, in effect while both the Eligible Board Member and spouse were
alive. The Designated Survivor's Percentage shall be the percentage stated in
the most recently delivered notice of election given by such Independent Board
Member, or, if no percentage is stated in any such notice, 100%. Payment of the
Alternate Benefit shall commence on the later of such Eligible Board Member's
Eligible Retirement Date or the date of his or her Retirement, shall be reduced
to the Designated Survivor's Percentage (if less than 100%) upon the earlier of
the deceases of the Eligible Board Member and spouse in the case of a joint and
last survivor benefit, or of the Eligible Board Member in the case of a joint
and contingent survivor benefit, and shall be payable through the remainder of
the life of the survivor of such Eligible Board Member and spouse. The Alternate
Benefit shall be the Actuarial Equivalent of the Regular Benefit provided under
paragraph 3(b). In the event of the death of an Eligible Board Member who has
chosen the Alternate Benefit prior to such Eligible Board Member's Retirement,
his or her spouse shall be entitled to a retirement benefit, commencing upon
such death, which shall be the Actuarial Equivalent of the benefit such spouse
would have received had such Eligible Board Member died on his or her Eligible
Retirement Date.
(d) EARLY PAYMENT OF BENEFIT. An Eligible Board Member for good cause may
apply to the Board of any Adopting Fund for, and, at the discretion of such
Board, may be granted, a retirement benefit (the "Early Benefit") which is the
Actuarial Equivalent of the Regular Benefit or Alternate Benefit previously
elected
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<PAGE>
by such Eligible Board Member. Payment of the Early Benefit shall commence on a
date fixed by the Board in its sole discretion as such Eligible Board Member's
Eligible Retirement Date and shall be payable through the remainder of such
Eligible Board Member's life, or, if the Alternate Benefit had been elected, the
later of the lives of such Eligible Board Member and spouse. Good cause for
these purposes may include (but is not limited to) the permanent disability of
the Eligible Board Member.
(e) Anything contained herein to the contrary notwithstanding, upon the
adoption by an Adopting Fund of a plan of liquidation, such Adopting Fund shall
pay to each Eligible Board Member who has retired, in lieu of his or her Benefit
from such Adopting Fund, an amount (the "Lump Sum") equal to the then present
value of the Benefit, using a discount rate determined by the Board at the time
of the computation. The Lump Sum shall be paid by such Adopting Fund at or
before the final liquidation and dissolution of such Adopting Fund.
4. TIME OF PAYMENT
The Benefit to each Eligible Board Member or his or her spouse will, except
as provided in Section 3(c), 3(d) or 3(e) hereof, commence on such Eligible
Board Member's Eligible Retirement Date and will be paid each year in quarterly
installments that are as nearly equal as possible on the first day of each
calendar quarter.
5. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
Each Adopting Fund is responsible for the payment of Benefits based upon
Eligible Compensation from such Adopting Fund, as well as its proportionate
share of all expenses of administration of the Plan, including without
limitation all accounting and legal fees and expenses and fees and expenses of
any enrolled actuary. The obligations of each Adopting Fund to pay such benefits
and expenses will not be secured or funded in any manner, and such obligations
will not have any preference over the lawful claims of the Adopting Funds'
creditors and stockholders, shareholders, beneficiaries or limited partners, as
the case may be. To the extent that an Adopting Fund consists of one or more
separate portfolios, such costs and expenses will be allocated among such
portfolios in the proportion that compensation of Independent Board Members is
allocated among such portfolios.
6. ADMINISTRATION
(a) ADMINISTRATION. Any question involving entitlement to payments under or
the administration of the Plan will be referred to the Board, which shall make
all interpretations and determinations necessary or desirable for the Plan's
administration (such interpretations and determinations to be final and
conclusive) and shall cause such records to be kept as may be necessary for the
administration of the Plan.
7. MISCELLANEOUS
(a) RIGHTS NOT ASSIGNABLE. The right to receive any payment under the Plan
is not transferable or assignable. Except as otherwise provided herein with
respect to the Alternate Benefit, the Plan shall not create any benefit, cause
of action, right of sale, transfer, assignment, pledge, encumbrance, or other
such right in any spouse or heirs or the estate of any Eligible Board Member or
retired Eligible Board Member.
(b) AMENDMENT, ETC. With respect to each Adopting Fund, the Board, including
a majority of the Independent Board Members of such Board, may at any time amend
or terminate the Plan or waive any provision of the Plan, PROVIDED, that except
as otherwise provided herein, no amendment, termination or waiver will impair
the rights of an Independent Board Member to receive upon Retirement the
payments which would have been made to such Independent Board Member had there
been no such amendment, termination or waiver (based upon such Board Member's
Eligible Service to the date of such amendment, termination or waiver) or the
rights of a retired Eligible Board Member to receive any Benefit due under the
Plan, without the consent of such Independent Board Member or Eligible Board
Member. Notwithstanding any provision to the contrary, the Board, with the
concurrence of a majority of the Independent Board Members of such Board and
without the consent of any individual Independent Board Member, may at any time
(i) amend or terminate the Plan to comply with any applicable provision of law
or any rule or regulation adopted, or proposed to be adopted, by any
governmental agency or any decision of any court or administrative agency, (ii)
change any assumptions used to determine what benefit may be an
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<PAGE>
Actuarial Equivalent, or (iii) terminate the Plan of an Adopting Fund (an
"Acquired Adopting Fund") substantially all the assets of which are acquired by
an entity which is itself an Adopting Fund (the "Acquiring Adopting Fund")
pursuant to a plan of reorganization between the Acquired Adopting Fund and the
Acquiring Adopting Fund (the "Reorganization Plan"), such termination to be
deemed approved upon adoption of the Reorganization Plan and to be effective
upon the effectiveness of the reorganization contemplated thereby without
liability or further obligation for any benefits accrued or otherwise payable to
an Independent Board Member by the Acquired Adopting Fund.
(c) NO RIGHT TO REELECTION. Nothing in the Plan will create any obligation
on the part of the Board to nominate any Independent Board Member for
reelection.
(d) VACANCIES. Although the Board will retain the right to increase or
decrease its size, it shall be the general policy to replace each retired
Independent Board Member by selecting a new Independent Board Member from
candidates recommended by the remaining Independent Board Members.
(e) CONSULTING. Each retired Eligible Board Member may render such services
for any of the Adopting Funds, for such compensation, as may be agreed upon from
time to time by such retired Eligible Board Member and the Board.
(f) EFFECTIVENESS. The Plan will be effective for all Independent Board
Members who have dates of Retirement occurring on or after the Adoption Date.
Periods of Eligible Service shall include periods commencing prior to such date.
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS:
FUNDS THAT HAVE ADOPTED THE RETIREMENT PLAN
FOR NON-INTERESTED TRUSTEES OR DIRECTORS
SCHEDULE A
MARCH 1999
<TABLE>
<S> <C>
1) Active Assets California Tax-Free Trust
2) Active Assets Government Securities Trust
3) Active Assets Money Trust
4) Active Assets Tax-Free Trust
5) Morgan Stanley Dean Witter American Value Fund
6) Morgan Stanley Dean Witter California Insured Municipal Income Trust
7) Morgan Stanley Dean Witter California Quality Municipal Securities
8) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9) Morgan Stanley Dean Witter California Tax-Free Income Fund
10) Morgan Stanley Dean Witter Capital Growth Securities
11) Morgan Stanley Dean Witter Convertible Securities Trust
12) Morgan Stanley Dean Witter Developing Growth Securities Trust
13) Morgan Stanley Dean Witter Diversified Income Trust
14) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
15) Morgan Stanley Dean Witter European Growth Fund Inc.
16) Morgan Stanley Dean Witter Federal Securities Trust
17) Morgan Stanley Dean Witter Global Dividend Growth Securities
18) Morgan Stanley Dean Witter Government Income Trust
19) Morgan Stanley Dean Witter Health Sciences Trust
20) Morgan Stanley Dean Witter High Income Advantage Trust
21) Morgan Stanley Dean Witter High Income Advantage Trust II
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Securities Inc.
24) Morgan Stanley Dean Witter Insured Municipal Bond Trust
25) Morgan Stanley Dean Witter Insured Municipal Income Trust
26) Morgan Stanley Dean Witter Insured Municipal Securities
27) Morgan Stanley Dean Witter Insured Municipal Trust
28) Morgan Stanley Dean Witter Intermediate Income Securities
29) Morgan Stanley Dean Witter Limited Term Municipal Trust
30) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
31) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
32) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
33) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
34) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
35) Morgan Stanley Dean Witter Municipal Income Trust
36) Morgan Stanley Dean Witter Municipal Income Trust II
37) Morgan Stanley Dean Witter Municipal Premium Income Trust
38) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
39) Morgan Stanley Dean Witter New York Municipal Money Market Trust
40) Morgan Stanley Dean Witter New York Tax-Free Income Fund
41) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
42) Morgan Stanley Dean Witter Prime Income Trust
43) Morgan Stanley Dean Witter Quality Municipal Income Trust
44) Morgan Stanley Dean Witter Quality Municipal Investment Trust
45) Morgan Stanley Dean Witter Quality Municipal Securities
46) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
47) Morgan Stanley Dean Witter Strategist Fund
</TABLE>
5
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<TABLE>
<S> <C>
48) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
49) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
50) Morgan Stanley Dean Witter U.S. Government Money Market Trust
51) Morgan Stanley Dean Witter U.S. Government Securities Trust
52) Morgan Stanley Dean Witter Utilities Fund
53) Morgan Stanley Dean Witter Value-Added Market Series
54) Morgan Stanley Dean Witter Variable Investment Series
55) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
6
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which MSDW Advisors is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended (the
"Act"), the notification to the Fund and MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares; (iii)
provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
98NYC8262
<PAGE>
(other than those maintained by the Fund's transfer agent, registrar, custodian
and other agencies). All such books and records so maintained shall be the
property of the Fund and, upon request therefor, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates to
the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of a
closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series or any
Series thereof, the expense limitation specified in the Fund's Investment
Management Agreement, the fee payable hereunder shall be reduced on a pro rata
basis in the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.
6. MSDW Services shall bear the cost of rendering the administrative
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the Fund
employed by MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services shall not be liable to the Fund or any of
its investors for any error of judgment or mistake of law or for any act or
omission by MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration service or other contracts with other
organizations and persons, and may have other interests and businesses, and
further may purchase, sell or trade any securities or commodities for their own
accounts or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1999, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the event that the Investment Management
Agreement between any Fund and MSDW Advisors is terminated, this Agreement will
automatically terminate with respect to such Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written consent
of the other party.
12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF MAY 1, 1999
OPEN-END FUNDS
<TABLE>
<C> <S>
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Morgan Stanley Dean Witter Aggressive Equity Fund
6. Morgan Stanley Dean Witter American Opportunities Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Growth Securities
12. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13. Morgan Stanley Dean Witter Convertible Securities Trust
14. Morgan Stanley Dean Witter Developing Growth Securities Trust
15. Morgan Stanley Dean Witter Diversified Income Trust
16. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17. Morgan Stanley Dean Witter Equity Fund
18. Morgan Stanley Dean Witter European Growth Fund Inc.
19. Morgan Stanley Dean Witter Federal Securities Trust
20. Morgan Stanley Dean Witter Financial Services Trust
21. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
22. Morgan Stanley Dean Witter Global Dividend Growth Securities
23. Morgan Stanley Dean Witter Global Utilities Fund
24. Morgan Stanley Dean Witter Growth Fund
25. Morgan Stanley Dean Witter Hawaii Municipal Trust
26. Morgan Stanley Dean Witter Health Sciences Trust
27. Morgan Stanley Dean Witter High Yield Securities Inc.
28. Morgan Stanley Dean Witter Income Builder Fund
29. Morgan Stanley Dean Witter Information Fund
30. Morgan Stanley Dean Witter Intermediate Income Securities
31. Morgan Stanley Dean Witter International Fund
32. Morgan Stanley Dean Witter International SmallCap Fund
33. Morgan Stanley Dean Witter Japan Fund
34. Morgan Stanley Dean Witter Limited Term Municipal Trust
35. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
36. Morgan Stanley Dean Witter Managers Focus Fund
37. Morgan Stanley Dean Witter Market Leader Trust
38. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
39. Morgan Stanley Dean Witter Mid-Cap Growth Fund
40. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
41. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
42. Morgan Stanley Dean Witter New York Municipal Money Market Trust
43. Morgan Stanley Dean Witter New York Tax-Free Income Fund
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
44. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
45. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
46. Morgan Stanley Dean Witter Real Estate Fund
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Opportunities Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value Fund
61. Morgan Stanley Dean Witter Value-Added Market Series
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Aggressive Equity Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Short-Term Bond Portfolio
(xv) Strategist Portfolio
(xvi) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
65. Morgan Stanley Dean Witter High Income Advantage Trust
66. Morgan Stanley Dean Witter High Income Advantage Trust II
67. Morgan Stanley Dean Witter High Income Advantage Trust III
68. Morgan Stanley Dean Witter Income Securities Inc.
69. Morgan Stanley Dean Witter Government Income Trust
70. Morgan Stanley Dean Witter Insured Municipal Bond Trust
71. Morgan Stanley Dean Witter Insured Municipal Trust
72. Morgan Stanley Dean Witter Insured Municipal Income Trust
73. Morgan Stanley Dean Witter California Insured Municipal Income Trust
74. Morgan Stanley Dean Witter Insured Municipal Securities
75. Morgan Stanley Dean Witter Insured California Municipal Securities
76. Morgan Stanley Dean Witter Quality Municipal Investment Trust
77. Morgan Stanley Dean Witter Quality Municipal Income Trust
78. Morgan Stanley Dean Witter Quality Municipal Securities
79. Morgan Stanley Dean Witter California Quality Municipal Securities
80. Morgan Stanley Dean Witter New York Quality Municipal Securities
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF MAY 1, 1999
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter Balanced Income Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter California Tax-Free Income Fund 0.055% of the portion of the daily net assets not exceeding $500
million; 0.0525% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.050% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.0475% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion; and
0.045% of the portion of the daily net assets exceeding $1.25
billion.
Morgan Stanley Dean Witter Convertible Securities Trust 0.060% of the portion of the daily net assets not exceeding $750
million; 0.055% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets of the exceeding $1 billion but not
exceeding $1.5 billion; 0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Diversified Income Trust 0.040% of the daily net assets.
Morgan Stanley Dean Witter Federal Securities Trust 0.055% of the portion of the daily net assets not exceeding $1
billion; 0.0525% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.050% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0475% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.045% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0425% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.040% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0375% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.035% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter Hawaii Municipal Trust 0.035% of the daily net assets.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter High Yield Securities Inc. 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion; 0.0325%
of the portion of the daily net assets exceeding $2 billion but
not exceeding $3 billion; and 0.030% of the portion of daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter Intermediate Income Securities 0.060% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.040% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.030% of the portion of the daily net
assets exceeding $1 billion.
Morgan Stanley Dean Witter Limited Term Municipal Trust 0.050% of the daily net assets.
Morgan Stanley Dean Witter Multi-State Municipal Series Trust 0.035% of the daily net assets.
(10 Series)
Morgan Stanley Dean Witter New York Tax-Free Income Fund 0.055% of the portion of the daily net assets not exceeding $500
million; and 0.0525% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Select Dimensions Investment Series--
Diversified Income Portfolio 0.040% of the daily net assets.
North American Government Securities Portfolio 0.039% of the daily net assets.
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund 0.050% of the daily net assets.
Morgan Stanley Dean Witter Short-Term Bond Fund 0.070% of the daily net assets.
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust 0.035% of the daily net assets.
Morgan Stanley Dean Witter Tax-Exempt Securities Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net assets exceeding $1.25
billion.
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter U.S. Government Securities Trust 0.050% of the portion of the daily net assets not exceeding $1
billion; 0.0475% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.045% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0425% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.040% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0375% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.035% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter Variable Investment Series--
High Yield Portfolio 0.050% of the portion of the daily net assets not exceeding $500
million; and 0.0425% of the daily net assets exceeding $500
million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Short-Term Bond Portfolio 0.045% of the daily net assets.
Morgan Stanley Dean Witter World Wide Income Trust 0.075% of the portion of the daily net assets up to $250 million;
0.060% of the portion of the daily net assets exceeding $250
million but not exceeding $500 million; 0.050% of the portion of
the daily net assets of the exceeding $500 million but not
exceeding $750 million; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and
0.030% of the portion of the daily net assets exceeding $1
billion.
Morgan Stanley Dean Witter Worldwide High Income Fund 0.060% of the daily net assets.
EQUITY FUNDS
Morgan Stanley Dean Witter Aggressive Equity Fund 0.075% of the daily net assets.
Morgan Stanley Dean Witter American Opportunities Fund 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $2.25 billion; 0.0475% of the
portion of the daily net assets exceeding $2.25 billion but not
exceeding $3.5 billion; 0.0450% of the portion of the daily net
assets exceeding $3.5 billion but not exceeding $4.5 billion; and
0.0425% of the portion of the daily net assets exceeding $4.5
billion.
Morgan Stanley Dean Witter Balanced Growth Fund 0.060% of the portion of the daily net assets not exceeding $500
million; and 0.0575% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Capital Growth Securities 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion exceeding $500 million but not
exceeding $1 billion; 0.050% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and
0.0475% of the portion of the daily net assets exceeding $1.5
billion.
Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" 0.065% of the portion of the daily net assets not exceeding $1.5
Portfolio billion; and 0.0625% of the portion of the daily net assets
exceeding $1.5 billion.
Morgan Stanley Dean Witter Developing Growth Securities Trust 0.050% of the portion of the daily net assets not exceeding $500
million; and 0.0475% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Dividend Growth Securities Inc. 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1 billion but not exceeding $2
billion; 0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425% of the portion
of the daily net assets exceeding $3 billion but not exceeding $4
billion; 0.040% of the portion of the daily net assets exceeding
$4 billion but not exceeding $5 billion; 0.0375% of the portion
of the daily net assets exceeding $5 billion but not exceeding $6
billion; 0.035% of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; 0.0325% of the portion
of the daily net assets exceeding $8 billion but not exceeding
$10 billion; 0.030% of the portion of the daily net assets
exceeding $10 billion but not exceeding $15 billion; and 0.0275%
of the portion of the daily net assets exceeding $15 billion.
Morgan Stanley Dean Witter Equity Fund 0.051% of the daily net assets.
Morgan Stanley Dean Witter European Growth Fund Inc. 0.057% of the portion of the daily net assets not exceeding $500
million; 0.054% of the portion of the daily net assets exceeding
$500 million but not exceeding $2 billion; and 0.051% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Financial Services Trust 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Fund of Funds--
Domestic Portfolio None
International Portfolio None
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Global Dividend Growth Securities 0.075% of the portion of the daily net assets not exceeding $1
billion; 0.0725% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.070% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2.5 billion; 0.0675% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3.5 billion; 0.0650% of
the portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.0625% of the portion of the
daily net assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global Utilities Fund 0.065% of the portion of the daily net assets not exceeding $500
million; 0.0625% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.060% of the
portion of the daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter Growth Fund 0.048% of the portion of daily net assets not exceeding $750
million; 0.045% of the portion of daily net assets exceeding $750
million but not exceeding $1.5 billion; and 0.042% of the portion
of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter Health Sciences Trust 0.10% of the portion of daily net assets not exceeding $500
million; and 0.095% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Income Builder Fund 0.075% of the portion of the net assets not exceeding $500
million; and 0.0725% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Information Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter International Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter International SmallCap Fund 0.069% of the daily net assets.
Morgan Stanley Dean Witter Japan Fund 0.057% of the daily net assets.
Morgan Stanley Dean Witter Managers Focus Fund 0.0625% of the daily net assets.
Morgan Stanley Dean Witter Market Leader Trust 0.075% of the daily net assets.
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities 0.075% of the daily net assets.
Morgan Stanley Dean Witter Mid-Cap Growth Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Natural Resource Development 0.0625% of the portion of the daily net assets not exceeding $250
Securities Inc. million and 0.050% of the portion of the daily net assets
exceeding $250 million.
Morgan Stanley Dean Witter Pacific Growth Fund Inc. 0.057% of the portion of the daily net assets not exceeding $1
billion; 0.054% of the portion of the daily net assets exceeding
$1 billion but not exceeding $2 billion; and 0.051% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Precious Metals and 0.080% of the daily net assets.
Minerals Trust
Morgan Stanley Dean Witter Real Estate Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter Select Dimensions Investment Series--
American Opportunities Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; and 0.060% of the portion of the daily net assets
exceeding $500 million.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.0475% of the
portion of the daily net assets exceeding $1 billion.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter Special Value Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Strategist Fund 0.060% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.0475% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.0 billion; and 0.045%
of the portion of the daily net assets exceeding $2.0 billion.
Morgan Stanley Dean Witter S&P 500 Index Fund 0.040% of the portion of the daily net assets not exceeding $1.5
billion; 0.0375% of the portion of daily net assets exceeding
$1.5 billion but not exceeding $3 billion; and 0.035% of the
portion of daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter S&P 500 Select Fund 0.060% of the daily net assets.
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Utilities Fund 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0525% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion; 0.0475% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $3.5 billion; 0.045% of the portion of the daily
net assets exceeding $3.5 but not exceeding $5 billion; and
0.0425% of the daily net assets exceeding $5 billion.
Morgan Stanley Dean Witter Value Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter Value-Added Market Series 0.050% of the portion of the daily net assets not exceeding $500
million; 0.45% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0425% of the portion
of the daily net assets exceeding $1.0 billion but not exceeding
$2.0 billion; and 0.040% of the portion of the daily net assets
exceeding $2 billion.
Morgan Stanley Dean Witter Variable Investment Series--
Aggressive Equity Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" Portfolio 0.065% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1.0 billion but not exceeding
$2.0 billion; 0.045% of the portion of the daily net assets
exceeding $2 billion but not exceeding $3 billion; and 0.0425% of
the portion of the daily net assets exceeding $3 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not exceeding $1
billion; and 0.0475% of the portion of the daily net assets
exceeding $1 billion.
European Growth Portfolio 0.057% of the portion of the daily net assets not exceeding $500
million; and 0.054% of the portion of the daily net assets
exceeding $500 million.
Global Dividend Growth Portfolio 0.075% of the portion of the daily net assets not exceeding $1
billion; and 0.0725% of the portion of daily net assets exceeding
$1 billion.
Income Builder Portfolio 0.075% of the daily net assets.
Pacific Growth Portfolio 0.057% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the portion of the daily net assets not exceeding $1.5
billion; and 0.0475% of the portion of the daily net assets
exceeding $1.5 billion.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.0525% of the
portion of the daily net assets exceeding $1 billion.
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding $500
(1) Active Assets Tax-Free Trust million; 0.0425% of the portion of the daily net assets exceeding
(2) Active Assets California Tax-Free Trust $500 million but not exceeding $750 million; 0.0375% of the
(3) Active Assets Government Securities Trust portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
(4) Active Assets Money Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; 0.025% of the portion
of the daily net assets exceeding $3 billion but not exceeding
$15 billion; 0.0249% of the portion of the daily net assets
exceeding $15 billion but not exceeding $17.5 billion; and
0.0248% of the portion of the daily net assets exceeding $17.5
billion.
Morgan Stanley Dean Witter California Tax-Free Daily 0.050% of the portion of the daily net assets not exceeding $500
Income Trust million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Liquid Asset Fund Inc. 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding $1.35
billion but not exceeding $1.75 billion; 0.030% of the portion of
the daily net assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily net assets
exceeding $2.15 billion but not exceeding $2.5 billion; 0.025% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily net assets exceeding
$17.5 billion.
Morgan Stanley Dean Witter New York Municipal Money Market Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Select Dimensions Investment Series-- 0.050% of the daily net assets.
Money Market Portfolio
Morgan Stanley Dean Witter Tax-Free Daily Income Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter U.S. Government Money Market Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Variable Investment Series--Money 0.050% of the portion of the daily net assets not exceeding $500
Market Portfolio million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; and 0.0375% of the
portion of the daily net assets exceeding $750 million.
</TABLE>
Monthly compensation calculated weekly by applying the following annual rates
to a fund's weekly net assets:
<TABLE>
<S> <C>
CLOSED-END FUNDS
Morgan Stanley Dean Witter Government Income Trust 0.060% of the average weekly net assets.
Morgan Stanley Dean Witter High Income Advantage Trust 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
Morgan Stanley Dean Witter High Income Advantage Trust II 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
Morgan Stanley Dean Witter High Income Advantage Trust III 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of the average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Income Securities Inc. 0.050% of the average weekly net assets.
Morgan Stanley Dean Witter Insured Municipal Bond Trust 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter Insured Municipal Trust 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter Insured Municipal Income Trust 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter California Insured Municipal Income 0.035% of the average weekly net assets.
Trust
Morgan Stanley Dean Witter Quality Municipal Investment Trust 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter New York Quality Municipal Securities 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter Quality Municipal Income Trust 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter Quality Municipal Securities 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter California Quality Municipal 0.035% of the average weekly net assets.
Securities
Morgan Stanley Dean Witter Insured Municipal Securities 0.035% of the average weekly net assets.
Morgan Stanley Dean Witter Insured California Municipal 0.035% of the average weekly net assets.
Securities
</TABLE>
B-11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 26 to the registration
statement on Form N-!A (the "Registration Statement") of our report dated
February 12, 1999, relating to the financial statements and financial highlights
of Morgan Stanley Dean Witter Variable Investment Series, formerly Dean Witter
Variable Investment Series, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Custodian and Independent
Accountants" and "Experts" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MS/DW VARIABLE INVESTMENT SERIES - MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 442,351,870
<INVESTMENTS-AT-VALUE> 442,351,870
<RECEIVABLES> 820,517
<ASSETS-OTHER> 2,092
<OTHER-ITEMS-ASSETS> 13,212
<TOTAL-ASSETS> 443,187,691
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,153,207
<TOTAL-LIABILITIES> 1,153,207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,034,462
<SHARES-COMMON-STOCK> 442,034,462
<SHARES-COMMON-PRIOR> 335,578,084
<ACCUMULATED-NII-CURRENT> 22
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 442,034,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,440,157
<OTHER-INCOME> 0
<EXPENSES-NET> 2,003,682
<NET-INVESTMENT-INCOME> 19,436,475
<REALIZED-GAINS-CURRENT> 1,854
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 19,438,329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,436,518)
<DISTRIBUTIONS-OF-GAINS> (1,854)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 465,453,549
<NUMBER-OF-SHARES-REDEEMED> (378,435,543)
<SHARES-REINVESTED> 19,438,372
<NET-CHANGE-IN-ASSETS> 106,456,335
<ACCUMULATED-NII-PRIOR> 65
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,927,552
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,003,682
<AVERAGE-NET-ASSETS> 385,510,329
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.051
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.051)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> MS/DW VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 514,350,009
<INVESTMENTS-AT-VALUE> 540,108,594
<RECEIVABLES> 7,879,222
<ASSETS-OTHER> 2,846
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 547,990,662
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407,881
<TOTAL-LIABILITIES> 407,881
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 538,007,357
<SHARES-COMMON-STOCK> 49,794,001
<SHARES-COMMON-PRIOR> 44,123,343
<ACCUMULATED-NII-CURRENT> (300)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,182,861)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25,758,585
<NET-ASSETS> 547,582,781
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34,017,757
<OTHER-INCOME> 0
<EXPENSES-NET> 2,632,654
<NET-INVESTMENT-INCOME> 31,385,103
<REALIZED-GAINS-CURRENT> 7,060,684
<APPREC-INCREASE-CURRENT> 3,370,100
<NET-CHANGE-FROM-OPS> 41,815,887
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31,385,551)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,356,857
<NUMBER-OF-SHARES-REDEEMED> (10,567,612)
<SHARES-REINVESTED> 2,881,413
<NET-CHANGE-IN-ASSETS> 72,593,273
<ACCUMULATED-NII-PRIOR> 148
<ACCUMULATED-GAINS-PRIOR> (23,243,545)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,514,720
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,632,654
<AVERAGE-NET-ASSETS> 504,165,173
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.68)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> MS/DW VARIABLE INVESTMENT SERIES - HIGH YIELD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 438,365,763
<INVESTMENTS-AT-VALUE> 356,688,690
<RECEIVABLES> 7,955,732
<ASSETS-OTHER> 3,892
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 364,648,314
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 569,410
<TOTAL-LIABILITIES> 569,410
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 485,415,754
<SHARES-COMMON-STOCK> 71,785,647
<SHARES-COMMON-PRIOR> 60,135,547
<ACCUMULATED-NII-CURRENT> 151,756
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39,811,533)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (81,677,073)
<NET-ASSETS> 364,078,904
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 49,800,195
<OTHER-INCOME> 0
<EXPENSES-NET> 2,053,439
<NET-INVESTMENT-INCOME> 47,746,756
<REALIZED-GAINS-CURRENT> (10,756,455)
<APPREC-INCREASE-CURRENT> (62,350,933)
<NET-CHANGE-FROM-OPS> (25,360,632)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,889,896)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,123,968
<NUMBER-OF-SHARES-REDEEMED> (22,927,167)
<SHARES-REINVESTED> 8,453,299
<NET-CHANGE-IN-ASSETS> (3,982,367)
<ACCUMULATED-NII-PRIOR> 294,896
<ACCUMULATED-GAINS-PRIOR> (63,345,466)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,946,259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,053,439
<AVERAGE-NET-ASSETS> 389,251,837
<PER-SHARE-NAV-BEGIN> 6.12
<PER-SHARE-NII> 0.71
<PER-SHARE-GAIN-APPREC> (1.05)
<PER-SHARE-DIVIDEND> (0.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.07
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> MS/DW VARIABLE INVESTMENT SERIES - UTILITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 336,459,982
<INVESTMENTS-AT-VALUE> 558,679,775
<RECEIVABLES> 2,657,356
<ASSETS-OTHER> 443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 561,337,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 534,741
<TOTAL-LIABILITIES> 534,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,439,436
<SHARES-COMMON-STOCK> 26,391,176
<SHARES-COMMON-PRIOR> 24,650,021
<ACCUMULATED-NII-CURRENT> 25
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,143,579
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 222,219,793
<NET-ASSETS> 560,802,833
<DIVIDEND-INCOME> 13,552,605
<INTEREST-INCOME> 3,768,540
<OTHER-INCOME> 0
<EXPENSES-NET> 3,256,528
<NET-INVESTMENT-INCOME> 14,064,617
<REALIZED-GAINS-CURRENT> 11,183,431
<APPREC-INCREASE-CURRENT> 81,869,637
<NET-CHANGE-FROM-OPS> 107,117,685
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,064,645)
<DISTRIBUTIONS-OF-GAINS> (24,274,238)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,490,004
<NUMBER-OF-SHARES-REDEEMED> (5,716,328)
<SHARES-REINVESTED> 1,967,479
<NET-CHANGE-IN-ASSETS> 102,668,577
<ACCUMULATED-NII-PRIOR> 53
<ACCUMULATED-GAINS-PRIOR> 24,234,386
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,160,139
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,256,528
<AVERAGE-NET-ASSETS> 487,109,335
<PER-SHARE-NAV-BEGIN> 18.59
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> (1.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.25
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 015
<NAME> MS/DW VARIABLE INVESTMENT SERIES - INCOME BUILDER
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 87,607,625
<INVESTMENTS-AT-VALUE> 87,015,641
<RECEIVABLES> 998,901
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,233
<TOTAL-ASSETS> 88,016,775
<PAYABLE-FOR-SECURITIES> 130,504
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,137
<TOTAL-LIABILITIES> 247,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,415,695
<SHARES-COMMON-STOCK> 7,657,710
<SHARES-COMMON-PRIOR> 4,711,055
<ACCUMULATED-NII-CURRENT> 14,879
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 930,544
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (591,984)
<NET-ASSETS> 87,769,134
<DIVIDEND-INCOME> 2,265,784
<INTEREST-INCOME> 2,415,707
<OTHER-INCOME> 0
<EXPENSES-NET> 643,830
<NET-INVESTMENT-INCOME> 4,037,661
<REALIZED-GAINS-CURRENT> 930,441
<APPREC-INCREASE-CURRENT> (3,662,539)
<NET-CHANGE-FROM-OPS> 1,311,563
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,033,908)
<DISTRIBUTIONS-OF-GAINS> (768,186)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,241,399
<NUMBER-OF-SHARES-REDEEMED> (1,710,560)
<SHARES-REINVESTED> 415,816
<NET-CHANGE-IN-ASSETS> 32,346,301
<ACCUMULATED-NII-PRIOR> 41
<ACCUMULATED-GAINS-PRIOR> 773,374
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 595,359
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 643,830
<AVERAGE-NET-ASSETS> 79,381,241
<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.19)
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 016
<NAME> MS/DW VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,911,693,284
<INVESTMENTS-AT-VALUE> 2,253,199,634
<RECEIVABLES> 5,305,026
<ASSETS-OTHER> 11,645
<OTHER-ITEMS-ASSETS> 26,860
<TOTAL-ASSETS> 2,258,543,165
<PAYABLE-FOR-SECURITIES> 6,609,369
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,007,017
<TOTAL-LIABILITIES> 8,616,386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,589,263,617
<SHARES-COMMON-STOCK> 101,647,547
<SHARES-COMMON-PRIOR> 88,256,107
<ACCUMULATED-NII-CURRENT> 154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 319,156,658
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 341,506,350
<NET-ASSETS> 2,249,926,779
<DIVIDEND-INCOME> 47,422,494
<INTEREST-INCOME> 2,526,630
<OTHER-INCOME> 0
<EXPENSES-NET> 11,099,589
<NET-INVESTMENT-INCOME> 38,849,535
<REALIZED-GAINS-CURRENT> 322,115,886
<APPREC-INCREASE-CURRENT> (89,389,463)
<NET-CHANGE-FROM-OPS> 271,575,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38,849,522)
<DISTRIBUTIONS-OF-GAINS> (187,973,609)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,516,674
<NUMBER-OF-SHARES-REDEEMED> (18,647,038)
<SHARES-REINVESTED> 10,521,804
<NET-CHANGE-IN-ASSETS> 344,021,021
<ACCUMULATED-NII-PRIOR> 141
<ACCUMULATED-GAINS-PRIOR> 185,014,381
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,828,424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,099,589
<AVERAGE-NET-ASSETS> 2,100,179,188
<PER-SHARE-NAV-BEGIN> 21,60
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 2.58
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (2.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.13
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 017
<NAME> MS/DW VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 109,140,721
<INVESTMENTS-AT-VALUE> 137,631,624
<RECEIVABLES> 1,140,034
<ASSETS-OTHER> 4,899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 138,776,557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,447
<TOTAL-LIABILITIES> 173,447
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,044,693
<SHARES-COMMON-STOCK> 6,806,997
<SHARES-COMMON-PRIOR> 6,947,418
<ACCUMULATED-NII-CURRENT> (424)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,067,938
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,490,903
<NET-ASSETS> 138,603,110
<DIVIDEND-INCOME> 316,623
<INTEREST-INCOME> 276,646
<OTHER-INCOME> 0
<EXPENSES-NET> 934,491
<NET-INVESTMENT-INCOME> (341,222)
<REALIZED-GAINS-CURRENT> 15,646,625
<APPREC-INCREASE-CURRENT> 6,997,899
<NET-CHANGE-FROM-OPS> 22,303,302
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,014)
<DISTRIBUTIONS-OF-GAINS> (10,080,542)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,431,494
<NUMBER-OF-SHARES-REDEEMED> (2,085,691)
<SHARES-REINVESTED> 513,776
<NET-CHANGE-IN-ASSETS> 11,503,034
<ACCUMULATED-NII-PRIOR> 9,662
<ACCUMULATED-GAINS-PRIOR> 8,843,005
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 862,257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 934,491
<AVERAGE-NET-ASSETS> 132,654,867
<PER-SHARE-NAV-BEGIN> 18.29
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 3.59
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.47)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.36
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 018
<NAME> MS/DW VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 437,456,748
<INVESTMENTS-AT-VALUE> 482,075,760
<RECEIVABLES> 2,196,656
<ASSETS-OTHER> 27,511
<OTHER-ITEMS-ASSETS> 565,563
<TOTAL-ASSETS> 484,865,490
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 637,926
<TOTAL-LIABILITIES> 637,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 414,618,546
<SHARES-COMMON-STOCK> 35,025,587
<SHARES-COMMON-PRIOR> 34,680,608
<ACCUMULATED-NII-CURRENT> 520,531
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,439,258
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,649,229
<NET-ASSETS> 484,227,564
<DIVIDEND-INCOME> 11,657,917
<INTEREST-INCOME> 734,562
<OTHER-INCOME> 0
<EXPENSES-NET> 4,119,267
<NET-INVESTMENT-INCOME> 8,273,212
<REALIZED-GAINS-CURRENT> 29,801,364
<APPREC-INCREASE-CURRENT> 16,207,523
<NET-CHANGE-FROM-OPS> 54,282,099
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,206,088)
<DISTRIBUTIONS-OF-GAINS> (52,205,069)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,251,149
<NUMBER-OF-SHARES-REDEEMED> (9,357,396)
<SHARES-REINVESTED> 4,451,226
<NET-CHANGE-IN-ASSETS> 2,614,104
<ACCUMULATED-NII-PRIOR> (74,436)
<ACCUMULATED-GAINS-PRIOR> 47,370,806
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,698,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,119,267
<AVERAGE-NET-ASSETS> 493,162,938
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (1.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.82
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 019
<NAME> MS/DW VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 376,597,847
<INVESTMENTS-AT-VALUE> 509,880,098
<RECEIVABLES> 1,349,436
<ASSETS-OTHER> 29,313
<OTHER-ITEMS-ASSETS> 471,147
<TOTAL-ASSETS> 511,729,994
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,092,397
<TOTAL-LIABILITIES> 1,092,397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 331,073,981
<SHARES-COMMON-STOCK> 18,785,057
<SHARES-COMMON-PRIOR> 16,628,832
<ACCUMULATED-NII-CURRENT> 3,134,104
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 43,112,022
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 133,317,490
<NET-ASSETS> 510,637,597
<DIVIDEND-INCOME> 7,644,102
<INTEREST-INCOME> 707,746
<OTHER-INCOME> 0
<EXPENSES-NET> 5,257,065
<NET-INVESTMENT-INCOME> 3,094,783
<REALIZED-GAINS-CURRENT> 43,252,405
<APPREC-INCREASE-CURRENT> 44,049,168
<NET-CHANGE-FROM-OPS> 90,396,356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,476,236)
<DISTRIBUTIONS-OF-GAINS> (30,256,754)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,118,106
<NUMBER-OF-SHARES-REDEEMED> (6,252,813)
<SHARES-REINVESTED> 1,290,932
<NET-CHANGE-IN-ASSETS> 119,196,344
<ACCUMULATED-NII-PRIOR> 5,394,724
<ACCUMULATED-GAINS-PRIOR> 30,237,207
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,705,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,257,065
<AVERAGE-NET-ASSETS> 472,970,716
<PER-SHARE-NAV-BEGIN> 23.54
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 5.53
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (1.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.18
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 020
<NAME> MS/DW VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 50,606,970
<INVESTMENTS-AT-VALUE> 52,538,411
<RECEIVABLES> 52,373
<ASSETS-OTHER> 126
<OTHER-ITEMS-ASSETS> 425,688
<TOTAL-ASSETS> 53,016,598
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 175,061
<TOTAL-LIABILITIES> 175,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,265,670
<SHARES-COMMON-STOCK> 10,269,558
<SHARES-COMMON-PRIOR> 11,264,299
<ACCUMULATED-NII-CURRENT> 411,637
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59,610,315)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,774,545
<NET-ASSETS> 52,841,537
<DIVIDEND-INCOME> 1,132,403
<INTEREST-INCOME> 212,841
<OTHER-INCOME> 0
<EXPENSES-NET> 840,501
<NET-INVESTMENT-INCOME> 504,743
<REALIZED-GAINS-CURRENT> (31,801,028)
<APPREC-INCREASE-CURRENT> 24,432,009
<NET-CHANGE-FROM-OPS> (6,864,276)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,947,935)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,473,730
<NUMBER-OF-SHARES-REDEEMED> (15,145,796)
<SHARES-REINVESTED> 677,325
<NET-CHANGE-IN-ASSETS> (16,062,000)
<ACCUMULATED-NII-PRIOR> 2,054,796
<ACCUMULATED-GAINS-PRIOR> (26,966,367)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 551,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 840,501
<AVERAGE-NET-ASSETS> 55,616,784
<PER-SHARE-NAV-BEGIN> 6.12
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.75)
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 5.15
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> MS/DW VARIABLE INVESTMENT SERIES - CAPITAL APPRECIATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 28,295,346
<INVESTMENTS-AT-VALUE> 32,536,300
<RECEIVABLES> 51,141
<ASSETS-OTHER> 21,037
<OTHER-ITEMS-ASSETS> 60,263
<TOTAL-ASSETS> 32,668,741
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,924
<TOTAL-LIABILITIES> 63,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,478,487
<SHARES-COMMON-STOCK> 3,147,999
<SHARES-COMMON-PRIOR> 2,854,685
<ACCUMULATED-NII-CURRENT> 386,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,501,098)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,240,954
<NET-ASSETS> 32,604,817
<DIVIDEND-INCOME> 86,097
<INTEREST-INCOME> 300,377
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 386,474
<REALIZED-GAINS-CURRENT> (6,243,234)
<APPREC-INCREASE-CURRENT> 2,856,814
<NET-CHANGE-FROM-OPS> (2,999,946)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (209,858)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,745,653
<NUMBER-OF-SHARES-REDEEMED> (1,470,199)
<SHARES-REINVESTED> 17,860
<NET-CHANGE-IN-ASSETS> 298,906
<ACCUMULATED-NII-PRIOR> 209,858
<ACCUMULATED-GAINS-PRIOR> (257,864)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 248,985
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288,081
<AVERAGE-NET-ASSETS> 33,198,012
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (1.01)
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> MS/DW VARIABLE INVESTMENT SERIES - EQUITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 979,326,065
<INVESTMENTS-AT-VALUE> 1,199,558,701
<RECEIVABLES> 10,409,806
<ASSETS-OTHER> 6,924
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,209,975,431
<PAYABLE-FOR-SECURITIES> 70,270,953
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,291,755
<TOTAL-LIABILITIES> 71,562,708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 757,548,016
<SHARES-COMMON-STOCK> 29,505,782
<SHARES-COMMON-PRIOR> 24,511,800
<ACCUMULATED-NII-CURRENT> (5,165)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 160,637,236
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 220,232,636
<NET-ASSETS> 1,138,412,723
<DIVIDEND-INCOME> 5,747,355
<INTEREST-INCOME> 6,083,933
<OTHER-INCOME> 0
<EXPENSES-NET> 4,906,563
<NET-INVESTMENT-INCOME> 6,924,725
<REALIZED-GAINS-CURRENT> 161,754,931
<APPREC-INCREASE-CURRENT> 89,582,262
<NET-CHANGE-FROM-OPS> 258,261,918
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,924,673)
<DISTRIBUTIONS-OF-GAINS> (114,146,703)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,421,841
<NUMBER-OF-SHARES-REDEEMED> (5,884,436)
<SHARES-REINVESTED> 3,456,577
<NET-CHANGE-IN-ASSETS> 315,322,441
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (23,243,545)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,753,680
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,906,563
<AVERAGE-NET-ASSETS> 951,302,944
<PER-SHARE-NAV-BEGIN> 33.58
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 9.47
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (4.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 38.58
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> MS/DW VARIABLE INVESTMENT SERIES - S & P 500 INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 44,667,149
<INVESTMENTS-AT-VALUE> 48,743,934
<RECEIVABLES> 434,743
<ASSETS-OTHER> 12,512
<OTHER-ITEMS-ASSETS> 96,318
<TOTAL-ASSETS> 49,287,507
<PAYABLE-FOR-SECURITIES> 503,347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,192
<TOTAL-LIABILITIES> 555,539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,127,014
<SHARES-COMMON-STOCK> 4,343,636
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 244,990
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 186,052
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,173,912
<NET-ASSETS> 48,731,968
<DIVIDEND-INCOME> 183,550
<INTEREST-INCOME> 61,440
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 244,990
<REALIZED-GAINS-CURRENT> 186,052
<APPREC-INCREASE-CURRENT> 4,173,912
<NET-CHANGE-FROM-OPS> 4,604,954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,974,649
<NUMBER-OF-SHARES-REDEEMED> (631,013)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 48,731,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78,579
<AVERAGE-NET-ASSETS> 21,207,897
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.22
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> MS/DW VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 34,462,517
<INVESTMENTS-AT-VALUE> 36,457,919
<RECEIVABLES> 27,444
<ASSETS-OTHER> 24,216
<OTHER-ITEMS-ASSETS> 60,532
<TOTAL-ASSETS> 36,570,111
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,331
<TOTAL-LIABILITIES> 31,331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,547,604
<SHARES-COMMON-STOCK> 3,722,740
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 267,028
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,271,376)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,995,524
<NET-ASSETS> 36,538,780
<DIVIDEND-INCOME> 153,010
<INTEREST-INCOME> 113,348
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 266,358
<REALIZED-GAINS-CURRENT> (1,270,706)
<APPREC-INCREASE-CURRENT> 1,995,524
<NET-CHANGE-FROM-OPS> 991,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,131,070
<NUMBER-OF-SHARES-REDEEMED> (1,408,330)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 36,538,780
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,771
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 140,174
<AVERAGE-NET-ASSETS> 24,572,513
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.25)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.82
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 025
<NAME> MS/DW VARIABLE INVESTMENT SERIES - STRATEGIST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 471,836,733
<INVESTMENTS-AT-VALUE> 632,185,804
<RECEIVABLES> 2,308,805
<ASSETS-OTHER> 90,081
<OTHER-ITEMS-ASSETS> 1,786
<TOTAL-ASSETS> 634,586,476
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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</TABLE>
