<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 29, 2000
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. 28 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 29 /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:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Post-Effective
Amendment becomes effective
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ on May 1, 2000 pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS - MAY 1, 2000
Morgan Stanley Dean Witter
VARIABLE INVESTMENT SERIES
CLASS X
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 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......... 32
The Competitive Edge "Best Ideas"
Portfolio........................... 35
The Aggressive Equity Portfolio..... 39
The Strategist Portfolio............ 41
Additional Investment
Strategy Information .................................... 44
Additional Risk Information .................................... 45
Portfolio Management .................................... 49
Shareholder Information 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 the following life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer (the Contracts):
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
------------------------------------------------------------------------------------
Northbrook Life Certain Flexible Premium Variable Annuity and Variable
Insurance Company Life Insurance Contracts
------------------------------------------------------------------------------------
Allstate Life Insurance Certain Flexible Premium Deferred Variable Annuity
Company Contracts
------------------------------------------------------------------------------------
Glenbrook Life and Certain Flexible Premium Deferred Variable Annuity
Annuity Company Contracts and Certain Flexible Premium Variable Life
Insurance Contracts
------------------------------------------------------------------------------------
Paragon Life Insurance Certain Flexible Premium Variable Life Insurance
Company 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>
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 Contract.
Class X shares of each Portfolio are available only to
holders of Contracts issued by Paragon Life Insurance
Company, and to holders of any other Contract issued before
May 1, 2000. All Portfolio shares issued prior to May 1,
2000 have been designated Class X shares.
Class Y shares of each Portfolio are offered through a
separate prospectus to holders of Contracts issued on or
after May 1, 2000 (except for Contracts issued by Paragon
Life Insurance Company).
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 Money Market Portfolio seeks high current income,
preservation of capital and liquidity.
[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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives.
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.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy.
An investment in the Portfolio is not a bank deposit and is
not guaranteed or insured by the FDIC or any other
government 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.
3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a comparable 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>
1990 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%
'99 4.80%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 1.94% (quarter ended
March 31, 1990) and the lowest return for a calendar quarter
was 0.66% (quarter ended June 30, 1993).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Money Market Portfolio 4.80% 5.20% 4.95%
---------------------------------------------------------------------------------------
3-month U.S. Treasury Bill 4.74% 5.11% 4.82%
---------------------------------------------------------------------------------------
</TABLE>
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 Short-Term Bond Portfolio seeks to provide a high level
of current income consistent with the preservation of
capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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.
In addition, 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 may 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
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.
5
<PAGE>
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.
[End Sidebar]
THE QUALITY INCOME PLUS PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Quality Income Plus Portfolio seeks as a primary
objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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 Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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>
1990 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%
'99 -4.32%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Quality Income Plus Portfolio -4.32% 7.84% 7.77%
------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index(1) -0.82% 7.73% 7.70%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
9
<PAGE>
[Sidebar]
INCOME
An investment objective having the goal of selecting securities to pay out
income.
[End Sidebar]
THE HIGH YIELD PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The High Yield Portfolio seeks as a primary objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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
10
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange 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 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>
1990 -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%
'99 -1.33%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
High Yield Portfolio -1.33% 5.91% 8.44%
------------------------------------------------------------------------------------------
Lehman Brothers High Yield
Index(1) 2.39% 9.31% 10.72%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
11
<PAGE>
THE UTILITIES PORTFOLIO
[SIDEBAR]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Utilities Portfolio seeks both capital appreciation and
current income.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in the securities of companies engaged in the
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
utilities industry if it derives at least 50% of its
revenues or earnings from that industry or it devotes at
least 50% of its assets to activities in that industry.
These may include companies involved in, among other things,
telecommunications, computers and other new or emerging
technologies, gas and electric energy, water distribution,
the Internet and Internet related services. The companies
may be traditionally regulated public utilities or fully or
partially deregulated utility companies as well as
unregulated utility companies.
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. The
Portfolio does not have any set policies to concentrate its
assets in any particular segment of the utilities industry
or any particular type of security. However, the Portfolio's
policy to concentrate its assets in the utilities industry
is fundamental, and may not be changed without shareholder
approval. 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 utilities industry. The Portfolio's investments in
the 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. These risks apply to all utility companies --
regulated, fully or partially deregulated and unregulated.
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 incur unexpected increases in fuel
and other operating costs. They are 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. In the case of the
water utility sector, the industry is highly fragmented, and
most water supply companies find themselves in mature
markets, although upgrading of fresh water and waste water
systems is an expanding business.
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.
13
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 9 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
The Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange 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 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%
'99 12.71%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Utilities Portfolio 12.71% 19.92% 14.25%
----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.19%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
14
<PAGE>
[Sidebar]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE INCOME BUILDER PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Income Builder Portfolio seeks as a primary objective
reasonable income. Growth of capital is the secondary
objective.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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 may 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange 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.
16
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 2 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 7.06%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 10.65% (quarter ended June 30,
1999) and the lowest return for a calendar quarter was
-10.46% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
--------------------------------------------------------------------------------------
Income Builder Portfolio 7.06% 10.81%
--------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 25.80%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
17
<PAGE>
THE DIVIDEND GROWTH PORTFOLIO
[SIDEBAR]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Dividend Growth Portfolio seeks to provide reasonable
current income and long term growth of income and capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will invest at least 70% of its total 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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 Class X shares has
varied from year to year over the past 9 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 -2.39%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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 -11.00% (quarter ended September 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Dividend Growth Portfolio -2.39% 18.82% 13.04%
------------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.19%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
19
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE CAPITAL GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Capital Growth Portfolio seeks long term capital growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Class X shares has
varied from year to year over the past 8 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 33.29%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 27.65% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -13.95% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Capital Growth Portfolio 33.29% 24.11% 15.34%
----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.62%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
21
<PAGE>
[Sidebar]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE GLOBAL DIVIDEND GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Global Dividend Growth Portfolio seeks to provide
reasonable current income and long term growth of income and
capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 14.65%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Global Dividend Growth Portfolio 14.65% 15.71% 13.33%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 16.79%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
23
<PAGE>
[Sidebar]
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE EUROPEAN GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The European Growth Portfolio seeks to maximize the capital
appreciation of its investments.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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 (which may include depository receipts or
convertible 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.
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
24
<PAGE>
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Portfolio is also subject to the risks of investing in
convertible securities. These securities may carry risks
associated with both common and fixed-income securities.
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 Class X shares has
varied from year to year over the past 8 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 29.11%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 25.18% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -15.72% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
European Growth Portfolio 29.11% 24.90% 19.68%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 13.95%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
26
<PAGE>
[Sidebar]
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE PACIFIC GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Pacific Growth Portfolio seeks to maximize the capital
appreciation of its investments.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in common stocks (including depository receipts) 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.
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.
27
<PAGE>
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 66.09%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Pacific Growth Portfolio 66.09% 0.37% -0.87%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 16.79%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. Net dividends reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
29
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price.
[End Sidebar]
THE EQUITY PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Equity Portfolio seeks as a primary objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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.
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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.
30
<PAGE>
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.
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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>
1990 -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%
'99 58.59%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 38.61% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -15.83% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Equity Portfolio 58.59% 35.42% 23.04%
---------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 18.20%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
31
<PAGE>
[Sidebar]
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE S&P 500 INDEX PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The S&P 500 Index Portfolio seeks to provide investment
results that before expenses, correspond to the total return
(I.E., the combination of capital changes and income) of the
Standard & Poor's-Registered Trademark- 500 Composite Stock
Price Index.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its total
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.
The Portfolio may purchase and sell stock index futures to
simulate investment in the S&P 500. Generally stock index
futures may 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.
-----------------------------------------
"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.)
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
32
<PAGE>
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.
33
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows the performance of the Portfolio's Class X shares over the past
calendar year.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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 S&P 500 Index 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>
1999 20.23%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 14.69% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -6.32% (quarter ended September 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 5/18/98)
<S> <C> <C>
--------------------------------------------------------------------------------------
S&P 500 Index Portfolio 20.23% 20.29%
--------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 20.77%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
34
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio seeks long-term
capital growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its total
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.
35
<PAGE>
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 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Competitive Edge "Best Ideas" List is not compiled with
any particular client or product in mind and is not, and
will not be, compiled with the Portfolio in mind. When
selecting the companies for the list, MSDW Equity Research
does not take into account country or currency risks, and
country or industry sector diversification concerns. MSDW
publishes other lists of recommended securities that could
be appropriate for Portfolio investors but which will not be
used by the Investment Manager for choosing securities for
the Portfolio. MSDW Equity Research could at any time cease
publishing the Competitive Edge "Best Ideas" List. In that
event the Board of Trustees will make a determination of how
to proceed in the best interest of shareholders of the
Portfolio consistent with the Portfolio's investment
objective.
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
36
<PAGE>
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 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]
ANNUAL TOTAL RETURNS
This chart shows the performance of the Portfolio's Class X shares over the past
calendar year.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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 Competitive Edge "Best Ideas"
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>
1999 26.88%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 18.60% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was 0.10% (quarter ended September 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 5/18/98)
<S> <C> <C>
--------------------------------------------------------------------------------------
Competitive Edge "Best Ideas" Portfolio 26.88% 14.46%
--------------------------------------------------------------------------------------
Morgan Stanley Capital International World
Index(1) 24.93% 20.93%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
38
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE AGGRESSIVE EQUITY PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Aggressive Equity Portfolio seeks long-term capital
growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in common stocks and other 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 Portfolio's
other equity securities may include preferred stocks,
securities convertible into common stock, 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").
39
<PAGE>
- 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.
- 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
seek higher returns 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange rates.
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.
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.
40
<PAGE>
[Sidebar]
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE STRATEGIST PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Strategist Portfolio seeks 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.
[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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
41
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
[End Sidebar]
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'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 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.
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>
1990 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%
'99 17.35%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
42
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures of market performance over time.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Strategist Portfolio 17.35% 16.27% 13.04%
------------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 18.20%
------------------------------------------------------------------------------------------
Lehman Brothers Government/
Corporate Bond Index(2) -2.15% 7.61% 7.65%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
43
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to
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. When a Portfolio takes a defensive
position, it may not achieve its investment objective(s).
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio apply at the time a Portfolio
acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage
changes that result from market fluctuations 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, other than the S&P 500
Index Portfolio and the Competitive Edge "Best Ideas"
Portfolio, may engage in active and frequent trading of its
portfolio securities. The Financial Highlights Table at the
end of this PROSPECTUS shows the portfolio turnover rates
for each Portfolio during recent fiscal years. A portfolio
turnover rate of 200%, for example, is equivalent to the
Portfolio buying and selling all of its securities two times
during the course of the year. A high portfolio turnover
rate (over 100%) could result in high brokerage costs and an
increase in taxable capital gains distributions to the
Portfolio's shareholders. See the section on
"Distributions."
44
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
* * *
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.
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 5.875% $ 951 $ 920 $1,018 $1,054
--------------------------------------------------------------------------------------------
10 years 6.00% $ 910 $ 853 $1,038 $1,110
--------------------------------------------------------------------------------------------
30 years 6.125% $ 841 $ 748 $1,093 $1,264
--------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of
December 31, 1999. 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
45
<PAGE>
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 or
Sub-Advisor (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 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 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.
46
<PAGE>
Foreign securities (including depository receipts) 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 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.
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 or the Sub-Advisor'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
47
<PAGE>
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 or Sub-Advisor employs a strategy that
does not correlate well with the Portfolio's investments or
the currencies in which the investments are denominated,
currency contracts could result in a loss. The contracts
also may increase the Portfolio's volatility and may involve
a significant risk.
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, had approximately $ billion in assets under
management as of March 31, 2000.
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
The Sub-Advisor, together with its institutional investment management
affiliates, managed more than $ billion as of March 31, 2000, 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
Growth and European Growth 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, 1999 each Portfolio accrued total
compensation to the Investment Manager as set forth in the
following table.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
NAME OF PORTFOLIO DAILY NET ASSETS
<S> <C>
-----------------------------------------------------------------------------------
The Money Market Portfolio 0.50%
-----------------------------------------------------------------------------------
The Short-Term Bond Portfolio 0.45%(1)
-----------------------------------------------------------------------------------
The Quality Income Plus Portfolio 0.50%
-----------------------------------------------------------------------------------
The High Yield Portfolio 0.50%
-----------------------------------------------------------------------------------
The Utilities Portfolio 0.64%
-----------------------------------------------------------------------------------
The Income Builder Portfolio 0.75%
-----------------------------------------------------------------------------------
The Dividend Growth Portfolio 0.51%
-----------------------------------------------------------------------------------
The Capital Growth Portfolio 0.65%
-----------------------------------------------------------------------------------
The Global Dividend Growth Portfolio 0.75%
-----------------------------------------------------------------------------------
The European Growth Portfolio 0.95%(2)
-----------------------------------------------------------------------------------
The Pacific Growth Portfolio 0.95%(2)
-----------------------------------------------------------------------------------
The Equity Portfolio 0.49%
-----------------------------------------------------------------------------------
The S&P 500 Index Portfolio 0.40%(3)
-----------------------------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio 0.65%
-----------------------------------------------------------------------------------
The Aggressive Equity Portfolio 0.75%(1)
-----------------------------------------------------------------------------------
The Strategist Portfolio 0.50%
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) Annualized (The Portfolio commenced operations on May 4,
1999.)
(2) 40% of the Investment Manager's compensation is paid to the
Sub-Advisor.
(3) 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>
49
<PAGE>
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, and has been assisted by
Ronald B. Silvestri, Vice President of the Investment
Manager, since May 2000.
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. Catherine Manuscalco, Vice President of
the Investment Manager, has been a primary portfolio manager
of the Portfolio since August 1999.
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 - Ashutosh Sinha, Principal of the
Sub-Advisor, has been a primary portfolio manager 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 June 1995, Mr. Sinha was an analyst at
SBI Funds Management Ltd. (1993-1995).
50
<PAGE>
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, with
respect to 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 Declared and paid at least
day the New York Stock once per calendar year,
Exchange is open to net short-term gains may
shareholders as of the be paid more frequently
close of business the
preceding business day
--------------------------------------------------------------------------------------
SHORT-TERM BOND, QUALITY Declared and paid monthly Declared and paid at least
INCOME PLUS AND HIGH once per year
YIELD PORTFOLIOS
--------------------------------------------------------------------------------------
UTILITIES, INCOME Declared and paid Declared and paid at least
BUILDER, DIVIDEND GROWTH, quarterly once per calendar year
GLOBAL DIVIDEND GROWTH,
EQUITY AND STRATEGIST
PORTFOLIOS
--------------------------------------------------------------------------------------
CAPITAL GROWTH, EUROPEAN Declared and paid at least Declared and paid at least
GROWTH, PACIFIC GROWTH, once per calendar year once per calendar year
S&P 500 INDEX,
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 the
financial performance of each Portfolio's Class X shares for the past
5 fiscal years of the Fund. Prior to May 1, 2000, the Fund issued one
Class of shares of each Portfolio, which, as of that date, have been
designated Class X shares. 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).
This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Fund's financial
statements, is included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $ 1.00 $0.055 -- $ 0.055 $(0.055) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1.00 0.050 -- 0.050 (0.050) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1.00 0.051 -- 0.051 (0.051) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1.00 0.051 -- 0.051 (0.051) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1.00 0.047 -- 0.047 (0.047) --
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) 10.00 0.27 $(0.12) 0.15 (0.27) --
- ---------------------------------------------------------------------------------------------------------------------------------
QUALITY INCOME PLUS
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.45 0.72 1.50 2.22 (0.71) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 10.96 0.71 (0.58) 0.13 (0.72) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 10.37 0.70 0.40 1.10 (0.70) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 10.77 0.68 0.23 0.91 (0.68) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.00 0.67 (1.14) (0.47) (0.67) --
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
1995 6.16 0.80 0.08 0.88 (0.78) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 6.26 0.77 (0.06) 0.71 (0.79) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 6.18 0.75 (0.06) 0.69 (0.75) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 6.12 0.71 (1.05) (0.34) (0.71) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 5.07 0.68 (0.74) (0.06) (0.68) --
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
1995 11.92 0.53 2.81 3.34 (0.58) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 14.68 0.55 0.70 1.25 (0.55) $(0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 15.34 0.57 3.46 4.03 (0.57) (0.21)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 18.59 0.57 3.68 4.25 (0.57) (1.02)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 21.25 0.55 2.08 2.63 (0.55) (0.43)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BUILDER
- ---------------------------------------------------------------------------------------------------------------------------------
1997(a) 10.00 0.44 1.76 2.20 (0.44) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 11.99 0.38 3.89 4.27 (0.41) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.59 0.41 3.22 3.63 (0.41) (0.41)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 18.40 0.41 4.20 4.61 (0.41) (1.00)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 21.60 0.41 2.58 2.99 (0.41) (2.05)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
Further information about the performance of the Portfolios of the Fund is
contained in the annual report. See the discussion under the caption "Charges
and Other Deductions" in the accompanying prospectus for either the Variable
Annuity Contracts or the Variable Life Contracts issued by the applicable
insurance company for a description of charges which are applicable thereto.
These charges are not reflected in the financial highlights below. Inclusion of
any of these charges would reduce the total return figures for all periods
shown.
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $(0.055) $ 1.00 5.66% $ 249,787 0.53% 5.52% N/A
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.050) 1.00 5.11 340,238 0.52 4.97 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.051) 1.00 5.23 335,578 0.52 5.10 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.051) 1.00 5.18 442,034 0.52 5.04 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.047) 1.00 4.80 435,643 0.52 4.68 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) (0.27) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) 56%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
QUALITY INCOME PLUS
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.71) 10.96 24.30 520,579 0.54 7.07 162
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.72) 10.37 1.56 474,660 0.53 6.84 182
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.70) 10.77 11.09 474,990 0.53 6.71 171
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.68) 11.00 8.67 547,583 0.52 6.23 152
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.67) 9.86 (4.32) 456,132 0.52 6.45 119
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.78) 6.26 14.93 154,310 0.54 12.67 58
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.79) 6.18 11.98 259,549 0.51 12.59 57
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.75) 6.12 11.87 368,061 0.53 12.44 95
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.71) 5.07 (6.20) 364,079 0.53 12.27 93
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.68) 4.33 (1.33) 279,683 0.53 14.05 48
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.58) 14.68 28.65 479,070 0.68 4.00 13
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.59) 15.34 8.68 440,662 0.67 3.61 9
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.78) 18.59 27.15 458,134 0.67 3.48 13
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.59) 21.25 23.76 560,803 0.67 2.89 7
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.98) 22.90 12.71 580,487 0.67 2.51 10
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BUILDER
- ---------------------------------------------------------------------------------------------------------------------------------
1997(a) (0.44) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) 41(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.67) 11.46 3.21 87,769 0.81 5.09 54
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.81) 11.44 7.06 81,616 0.81 4.98 43
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.67) 15.59 36.38 865,417 0.61 2.75 24
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.82) 18.40 23.96 1,288,404 0.57 2.46 23
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (1.41) 21.60 25.61 1,905,906 0.54 2.06 28
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (2.46) 22.13 14.28 2,249,927 0.53 1.85 45
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (3.65) 18.32 (2.39) 2,033,814 0.52 1.82 81
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET
VALUE INVESTMENT NET REALIZED TOTAL FROM
BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $11.52 $ 0.10 $ 3.68 $ 3.78 $(0.08) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.22 0.08 1.65 1.73 (0.03) $(0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 16.65 0.01 3.90 3.91 (0.08) (2.19)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 18.29 (0.05) 3.59 3.54 -- (1.47)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 20.36 -- 6.12 6.12 -- (2.75)
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.82 0.24 1.90 2.14 (0.26) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 11.69 0.24 1.75 1.99 (0.24) (0.31)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 13.13 0.22 1.37 1.59 (0.23) (0.60)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 13.89 0.24 1.45 1.69 (0.24) (1.52)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 13.82 0.27 1.71 1.98 (0.29) (1.07)
- ---------------------------------------------------------------------------------------------------------------------------------
EUROPEAN GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 14.56 0.20 3.50 3.70 (0.19)* (0.54)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 17.53 0.17 4.91 5.08 (0.04) (1.01)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 21.56 0.21 3.19 3.40 (0.24) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 23.54 0.15 5.53 5.68 (0.31) (1.73)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 27.18 0.25 6.91 7.16 (0.19) (2.68)
- ---------------------------------------------------------------------------------------------------------------------------------
PACIFIC GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.26 0.12 0.41 0.53 (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 9.70 0.05 0.32 0.37 (0.11) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 9.96 0.12 (3.82) (3.70) (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 6.12 0.06 (0.75) (0.69) (0.28) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 5.15 0.04 3.33 3.37 (0.06) --
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1995 19.25 0.22 7.92 8.14 (0.25) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 27.14 0.16 2.70 2.86 (0.16) (3.45)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 26.39 0.18 9.27 9.45 (0.18) (2.08)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 33.58 0.25 9.47 9.72 (0.25) (4.47)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 38.58 0.22 20.48 20.70 (0.22) (5.18)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME (LOSS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $(0.08) $15.22 32.92% $ 66,995 0.74% 0.70% 34%
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.30) 16.65 11.55 86,862 0.73 0.52 98
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (2.27) 18.29 24.54 127,100 0.71 0.01 139
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.47) 20.36 19.63 138,603 0.70 (0.26) 248
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (2.75) 23.73 33.29 171,251 0.72 0.02 575
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL DIVIDEND
GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.27) 11.69 22.14 205,739 0.88 2.23 55
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.55) 13.13 17.49 334,821 0.85 1.94 39
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.83) 13.89 12.04 481,613 0.84 1.61 48
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.76) 13.82 12.53 484,228 0.84 1.68 52
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (1.36) 14.44 14.65 506,929 0.83 1.90 43
- ---------------------------------------------------------------------------------------------------------------------------------
EUROPEAN GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.73) 17.53 25.89 188,119 1.17 1.25 69
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (1.05) 21.56 29.99 302,422 1.11 0.97 43
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (1.42) 23.54 16.07 391,441 1.12 1.04 45
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (2.04) 27.18 23.96 510,638 1.11 0.65 56
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (2.87) 31.47 29.11 579,705 1.04 0.87 55
- ---------------------------------------------------------------------------------------------------------------------------------
PACIFIC GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.09) 9.70 5.74 98,330 1.44 1.23 53
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.11) 9.96 3.89 144,536 1.37 1.01 50
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.14) 6.12 (37.70) 68,904 1.44 1.09 58
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.28) 5.15 (10.40) 52,842 1.51 0.91 112
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.06) 8.46 66.09 115.927 1.42 0.85 105
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.25) 27.14 42.53 359,779 0.54 0.97 269
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (3.61) 26.39 12.36 521,908 0.54 0.58 279
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (2.26) 33.58 37.43 823,090 0.52 0.61 145
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (4.72) 38.58 30.45 1,138,413 0.52 0.73 257
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (5.40) 53.88 58.59 2,083,071 0.51 0.54 323
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) $10.00 $0.06 $ 1.16 $ 1.22 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.22 0.06 2.21 2.27 $(0.03) $(0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
COMPETITIVE EDGE "BEST IDEAS"
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) 10.00 0.07 (0.25) (0.18) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 9.82 0.06 2.56 2.62 (0.07) --
- ---------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) 10.00 0.05 4.55 4.60 (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
STRATEGIST
- ---------------------------------------------------------------------------------------------------------------------------------
1995 12.45 0.62 0.49 1.11 (0.67) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 12.45 0.43 1.39 1.82 (0.43) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 13.72 0.45 1.40 1.85 (0.45) (0.32)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 14.80 0.36 3.40 3.76 (0.36) (1.56)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 16.64 0.40 2.46 2.86 (0.40) --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Commencement of operations:
(a) January 21, 1997.
(b) May 18, 1998.
(c) May 4, 1999.
+ Calculated based on the net asset value as of the last
business day of the period.
++ Includes distributions from paid-in-capital of $0.02.
* 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 January 21, 1997
through December 3, 1997 for Income Builder, the ratios of
expenses and net investment income to average net assets
would have been 0.99% and 4.89%, respectively.
(4) 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, 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" and
0.59% and 1.26%, respectively, for S&P 500 Index.
(5) If the Investment Manager had not assumed all expenses and
waived its management fee for the period January 1, 1999
through April 30, 1999 for Competitive Edge "Best Ideas" and
for the period May 4, 1999 through November 4, 1999 for
Short-Term Bond and Aggressive Equity and for the period
January 1, 1999 through January 5, 1999 for S&P 500 Index
and "capped" the expenses of S&P 500 Index at 0.50% of its
daily net assets for the period January 6, 1999 through
December 31, 1999, the ratio of expenses and net investment
income (loss) to average net assets would have been 0.77%
and 0.51%, respectively, for Competitive Edge "Best Ideas",
2.38% and 3.07%, respectively, for Short-Term Bond, 1.41%
and (0.02%), respectively, for Aggressive Equity and 0.48%
and 1.02%, respectively, for S&P 500 Index.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) $-- $11.22 12.20%(1) $ 48,732 --%(4) 1.85%(2)(4) 2%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.06) 13.43 20.23 185,963 0.48(5) 1.03(5) 1
- ---------------------------------------------------------------------------------------------------------------------------------
COMPETITIVE EDGE
"BEST IDEAS"
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) -- 9.82 (1.90)(1) 36,539 --4 1.74(2)(4) 31(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.07) 12.37 26.88 62,295 (0.56)(5) (0.72)(5) 54
- ---------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) (0.03) 14.57 46.08(1) 38,197 0.52(2)(5) 0.86(2)(5) 108(1)
- ---------------------------------------------------------------------------------------------------------------------------------
STRATEGIST
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (1.11) 12.45 9.48 388,579 0.52 5.03 329
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.55) 13.72 15.02 423,768 0.52 3.30 153
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.77) 14.80 13.71 497,028 0.52 3.09 159
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.92) 16.64 26.55 633,934 0.52 2.32 84
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.40) 19.10 17.35 729,701 0.52 2.24 120
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Commencement of operations:
(a) January 21, 1997.
(b) May 18, 1998.
(c) May 4, 1999.
+ Calculated based on the net asset value as of the last
business day of the period.
++ Includes distributions from paid-in-capital of $0.02.
* 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 January 21, 1997
through December 3, 1997 for Income Builder, the ratios of
expenses and net investment income to average net assets
would have been 0.99% and 4.89%, respectively.
(4) 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, 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" and
0.59% and 1.26%, respectively, for S&P 500 Index.
(5) If the Investment Manager had not assumed all expenses and
waived its management fee for the period January 1, 1999
through April 30, 1999 for Competitive Edge "Best Ideas" and
for the period May 4, 1999 through November 4, 1999 for
Short-Term Bond and Aggressive Equity and for the period
January 1, 1999 through January 5, 1999 for S&P 500 Index
and "capped" the expenses of S&P 500 Index at 0.50% of its
daily net assets for the period January 6, 1999 through
December 31, 1999, the ratio of expenses and net investment
income (loss) to average net assets would have been 0.77%
and 0.51%, respectively, for Competitive Edge "Best Ideas",
2.38% and 3.07%, respectively, for Short-Term Bond, 1.41%
and (0.02%), respectively, for Aggressive Equity and 0.48%
and 1.02%, respectively, for S&P 500 Index.
</TABLE>
59
<PAGE>
NOTES
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60
<PAGE>
NOTES
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61
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
Additional information about each Portfolio'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 each Portfolio'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
Portfolios, 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
(202) 942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the SEC's Internet
site at www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: public
[email protected], or by writing the Public Reference Section of
the SEC, Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-3692)
<PAGE>
PROSPECTUS - MAY 1, 2000
Morgan Stanley Dean Witter
VARIABLE INVESTMENT SERIES
CLASS Y
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 or Glenbrook Life and Annuity 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 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............. 13
The Income Builder Portfolio........ 16
The Dividend Growth Portfolio....... 19
The Capital Growth Portfolio........ 21
The Global Dividend Growth
Portfolio........................... 23
The European Growth Portfolio....... 25
The Pacific Growth Portfolio........ 28
The Equity Portfolio................ 31
The S&P 500 Index Portfolio......... 34
The Competitive Edge "Best Ideas"
Portfolio........................... 37
The Aggressive Equity Portfolio..... 41
The Strategist Portfolio............ 43
Additional Investment
Strategy Information .................................... 46
Additional Risk Information .................................... 47
Portfolio Management .................................... 51
Shareholder Information Pricing Fund Shares................. 54
Plan of Distribution................ 54
Distributions....................... 55
Tax Consequences.................... 55
Financial Highlights .................................... 56
</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 the following life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer (the "Contracts"):
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
------------------------------------------------------------------------------------
Northbrook Life Certain Flexible Premium Variable Annuity and Variable
Insurance Company Life Insurance Contracts
------------------------------------------------------------------------------------
Allstate Life Insurance Certain Flexible Premium Deferred Variable Annuity
Company Contracts
------------------------------------------------------------------------------------
Glenbrook Life and Certain Flexible Premium Deferred Variable Annuity
Annuity Company Contracts and Certain Flexible Premium Variable Life
Insurance Contracts
------------------------------------------------------------------------------------
</TABLE>
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 Contract.
Class Y shares of each Portfolio are available to holders of
Contracts issued on or after May 1, 2000.
Class X shares are offered through a separate prospectus and
are available only to Contracts issued before May 1, 2000,
and to holders of certain variable life insurance contracts
issued by Paragon Life Insurance Company. All Portfolio
shares issued prior to May 1, 2000 have been designated
Class X shares.
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 Money Market Portfolio seeks high current income,
preservation of capital and liquidity.
[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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives.
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.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy.
An investment in the Portfolio is not a bank deposit and is
not guaranteed or insured by the FDIC or any other
government 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.
3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a comparable 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>
1990 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%
'99 4.80%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 1.94% (quarter ended
March 31, 1990) and the lowest return for a calendar quarter
was 0.66% (quarter ended June 30, 1993).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Money Market Portfolio 4.80% 5.20% 4.95%
---------------------------------------------------------------------------------------
3-Month U.S. Treasury Bill 4.74 5.11 4.82
---------------------------------------------------------------------------------------
</TABLE>
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 Short-Term Bond Portfolio seeks to provide a high level
of current income consistent with the preservation of
capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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.
In addition, 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 may 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
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.
5
<PAGE>
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.
[End Sidebar]
THE QUALITY INCOME PLUS PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Quality Income Plus Portfolio seeks as a primary
objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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 Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table
compares the average annual returns of the Portfolio's Class X shares 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>
1990 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%
'99 -4.32%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Quality Income Plus Portfolio -4.32% 7.84% 7.77%
---------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index(1) -0.82% 7.73% 7.70%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
9
<PAGE>
[Sidebar]
INCOME
An investment objective having the goal of selecting securities to pay out
income.
[End Sidebar]
THE HIGH YIELD PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The High Yield Portfolio seeks as a primary objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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
10
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
[End Sidebar]
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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange 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 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>
1990 -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%
'99 -1.33%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
11
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
High Yield Portfolio -1.33% 5.91% 8.44%
------------------------------------------------------------------------------------------
Lehman Brothers High Yield
Index(1) 2.39% 9.31% 10.72%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
12
<PAGE>
THE UTILITIES PORTFOLIO
[SIDEBAR]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Utilities Portfolio seeks both capital appreciation and
current income.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in the securities of companies engaged in the
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
utilities industry if it derives at least 50% of its
revenues or earnings from that industry or it devotes at
least 50% of its assets to activities in that industry.
These may include companies involved in, among other things,
telecommunications, computers and other new or emerging
technologies, gas and electric energy, water distribution,
the Internet and Internet related services. The companies
may be traditionally regulated public utilities or fully or
partially deregulated utility companies as well as
unregulated utility companies.
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. The
Portfolio does not have any set policies to concentrate its
assets in any particular segment of the utilities industry
or any particular type of security. However, the Portfolio's
policy to concentrate its assets in the utilities industry
is fundamental, and may not be changed without shareholder
approval. 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.
13
<PAGE>
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 utilities industry. The Portfolio's investments in
the 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. These risks apply to all utility companies --
regulated, fully or partially deregulated and unregulated.
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 incur unexpected increases in fuel
and other operating costs. They are 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. In the case of the
water utility sector, the industry is highly fragmented, and
most water supply companies find themselves in mature
markets, although upgrading of fresh water and waste water
systems is an expanding business.
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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange rates.
14
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 9 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
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 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%
'99 12.71%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Utilities Portfolio 12.71% 19.92% 14.25%
----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.19%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
15
<PAGE>
[Sidebar]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE INCOME BUILDER PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Income Builder Portfolio seeks as a primary objective
reasonable income. Growth of capital is the secondary
objective.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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 may 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.
16
<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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange 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.
17
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 2 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 7.06%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 10.65% (quarter ended June 30,
1999) and the lowest return for a calendar quarter was
-10.46% (quarter ended September 30, 1998).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
--------------------------------------------------------------------------------------
Income Builder Portfolio 7.06% 10.81%
--------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 25.80%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
18
<PAGE>
THE DIVIDEND GROWTH PORTFOLIO
[SIDEBAR]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Dividend Growth Portfolio seeks to provide reasonable
current income and long term growth of income and capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will invest at least 70% of its total 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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.
19
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 9 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 -2.39%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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
-11.00% (quarter ended September 30, 1999).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/90)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Dividend Growth Portfolio -2.39% 18.82% 13.04%
----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.19%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
20
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE CAPITAL GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Capital Growth Portfolio seeks long term capital growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
21
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 8 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 33.29%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 27.65% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -13.95% (quarter ended September 30, 1998).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Capital Growth Portfolio 33.29% 24.11% 15.34%
----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 19.62%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
22
<PAGE>
[Sidebar]
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potental to rise in price and pay out income.
[End Sidebar]
THE GLOBAL DIVIDEND GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Global Dividend Growth Portfolio seeks to provide
reasonable current income and long term growth of income and
capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
23
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 14.65%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent
the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------- LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Global Dividend Growth Portfolio 14.65% 15.71% 13.33%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 16.79%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
24
<PAGE>
[Sidebar]
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE EUROPEAN GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The European Growth Portfolio seeks to maximize the capital
appreciation of its investments.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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 (which may include depository receipts or
convertible 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.
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
25
<PAGE>
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Portfolio is also subject to the risks of investing in
convertible securities. These securities may carry risks
associated with both common and fixed-income securities.
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.
26
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 8 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 29.11%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 25.18% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -15.72% (quarter ended September 30, 1998).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 3/1/91)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
European Growth Portfolio 29.11% 24.90% 19.68%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 13.95%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
27
<PAGE>
[Sidebar]
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE PACIFIC GROWTH PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Pacific Growth Portfolio seeks to maximize the capital
appreciation of its investments.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in common stocks (including depository receipts) 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.
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.
28
<PAGE>
The Portfolio may invest in warrants and acquire warrants
attached to other securities.
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
29
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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%
'99 66.09%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------- LIFE OF THE
PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 2/23/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Pacific Growth Portfolio 66.09% 0.37% -0.87%
----------------------------------------------------------------------------------------
Morgan Stanley Capital
International World Index(1) 24.93% 19.76% 16.79%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
30
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price.
[End Sidebar]
THE EQUITY PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Equity Portfolio seeks as a primary objective 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.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
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.
31
<PAGE>
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objectives. 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.
32
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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>
1990 -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%
'99 58.59%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 38.61% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -15.83% (quarter ended September 30, 1990).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Equity Portfolio 58.59% 35.42% 23.04%
---------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 18.20%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
33
<PAGE>
[Sidebar]
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE S&P 500 INDEX PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The S&P 500 Index Portfolio seeks to provide investment
results that before expenses, correspond to the total return
(I.E., the combination of capital changes and income) of the
Standard & Poor's-Registered Trademark- 500 Composite Stock
Price Index.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its total
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.
The Portfolio may purchase and sell stock index futures to
simulate investment in the S&P 500. Generally stock index
futures may 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.
-----------------------------------------
"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.)
[ICON] SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
34
<PAGE>
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.
35
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows the performance of the Portfolio's Class X shares over the past
calendar year.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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 S&P 500 Index 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>
1999 20.23%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 14.69% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -6.32% (quarter ended September 30, 1999).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 5/18/98)
<S> <C> <C>
--------------------------------------------------------------------------------------
S&P 500 Index Portfolio 20.23% 20.29%
--------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 20.77%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
36
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE COMPETITIVE EDGE "BEST IDEAS" PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio seeks long-term
capital growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 80% of its total
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.
37
<PAGE>
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 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Competitive Edge "Best Ideas" List is not compiled with
any particular client or product in mind and is not, and
will not be, compiled with the Portfolio in mind. When
selecting the companies for the list, MSDW Equity Research
does not take into account country or currency risks, and
country or industry sector diversification concerns. MSDW
publishes other lists of recommended securities that could
be appropriate for Portfolio investors but which will not be
used by the Investment Manager for choosing securities for
the Portfolio. MSDW Equity Research could at any time cease
publishing the Competitive Edge "Best Ideas" List. In that
event the Board of Trustees will make a determination of how
to proceed in the best interest of shareholders of the
Portfolio consistent with the Portfolio's investment
objective.
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
38
<PAGE>
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 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.
39
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows the performance of the Portfolio's Class X shares over the past
calendar year.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
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 Competitive Edge "Best Ideas"
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>
1999 26.88%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the period shown in the bar chart, the highest return
for a calendar quarter was 18.60% (quarter ended December
31, 1999) and the lowest return for a calendar quarter was
0.10% (quarter ended September 30, 1999).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------------
LIFE OF THE
PORTFOLIO
PAST 1 YEAR (SINCE 5/18/98)
<S> <C> <C>
--------------------------------------------------------------------------------------
Competitive Edge "Best Ideas" Portfolio 26.88% 14.46%
--------------------------------------------------------------------------------------
Morgan Stanley Capital International World
Index(1) 24.93% 20.93%
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
40
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE AGGRESSIVE EQUITY PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Aggressive Equity Portfolio seeks long-term capital
growth.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio will normally invest at least 65% of its total
assets in common stocks and other 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 Portfolio's
other equity securities may include preferred stocks,
securities convertible into common stock, 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").
41
<PAGE>
- 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.
- 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
seek higher returns 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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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 Portfolio is subject to the risks associated with
foreign securities. These risks include, among other things,
the possibility that the Portfolio could be adversely
affected by changes in currency exchange rates.
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.
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.
42
<PAGE>
[Sidebar]
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
[End Sidebar]
THE STRATEGIST PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Strategist Portfolio seeks 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.
[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
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its
investment objective. 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.
43
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 10 calendar years.
[End Sidebar]
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'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 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.
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>
1990 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%
'99 17.35%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
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).
* The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for
Class Y shares would differ from those of Class X to the
extent the Classes have different expenses.
44
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures of market performance over time.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Strategist Portfolio 17.35% 16.27% 13.04%
---------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 18.20%
---------------------------------------------------------------------------------------
Lehman Brothers Government/
Corporate Bond Index(2) -2.15% 7.61% 7.65%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
45
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to
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. When a Portfolio takes a defensive
position, it may not achieve its investment objective(s).
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio apply at the time a Portfolio
acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage
changes that result from market fluctuations 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, other than the S&P 500
Index Portfolio and the Competitive Edge "Best Ideas"
Portfolio, may engage in active and frequent trading of its
portfolio securities. The Financial Highlights Table at the
end of this PROSPECTUS shows the portfolio turnover rates
for each Portfolio during recent fiscal years. A portfolio
turnover rate of 200%, for example, is equivalent to the
Portfolio buying and selling all of its securities two times
during the course of the year. A high portfolio turnover
rate (over 100%) could result in high brokerage costs and an
increase in taxable capital gains distributions to the
Portfolio's shareholders. See the section on
"Distributions".
46
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
* * *
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.
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 5.875% $ 951 $ 920 $1,018 $1,054
-------------------------------------------------------------------------------------------
10 years 6.00% $ 910 $ 853 $1,038 $1,110
-------------------------------------------------------------------------------------------
30 years 6.125% $ 841 $ 748 $1,093 $1,264
-------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of
December 31, 1999. 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
47
<PAGE>
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 or
Sub-Advisor (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 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 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.
48
<PAGE>
Foreign securities (including depository receipts) 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 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.
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 or the Sub-Advisor'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
49
<PAGE>
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 or Sub-Advisor employs a strategy that
does not correlate well with the Portfolio's investments or
the currencies in which the investments are denominated,
currency contracts could result in a loss. The contracts
also may increase the Portfolio's volatility and may involve
a significant risk.
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.
50
<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, had approximately $ billion in assets under
management as of March 31, 2000.
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
The Sub-Advisor, together with its institutional investment management
affiliates, managed more than $ billion as of March 31, 2000, 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
Growth and European Growth 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, 1999 each Portfolio accrued total
compensation to the Investment Manager as set forth in the
following table.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
NAME OF PORTFOLIO DAILY NET ASSETS
<S> <C>
-----------------------------------------------------------------------------------
The Money Market Portfolio 0.50%
-----------------------------------------------------------------------------------
The Short-Term Bond Portfolio 0.45%(1)
-----------------------------------------------------------------------------------
The Quality Income Plus Portfolio 0.50%
-----------------------------------------------------------------------------------
The High Yield Portfolio 0.50%
-----------------------------------------------------------------------------------
The Utilities Portfolio 0.64%
-----------------------------------------------------------------------------------
The Income Builder Portfolio 0.75%
-----------------------------------------------------------------------------------
The Dividend Growth Portfolio 0.51%
-----------------------------------------------------------------------------------
The Capital Growth Portfolio 0.65%
-----------------------------------------------------------------------------------
The Global Dividend Growth Portfolio 0.75%
-----------------------------------------------------------------------------------
The European Growth Portfolio 0.95%(2)
-----------------------------------------------------------------------------------
The Pacific Growth Portfolio 0.95%(2)
-----------------------------------------------------------------------------------
The Equity Portfolio 0.49%
-----------------------------------------------------------------------------------
The S&P 500 Index Portfolio 0.40%(3)
-----------------------------------------------------------------------------------
The Competitive Edge "Best Ideas" Portfolio 0.65%
-----------------------------------------------------------------------------------
The Aggressive Equity Portfolio 0.75%(1)
-----------------------------------------------------------------------------------
The Strategist Portfolio 0.50%
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) Annualized (The Portfolio commenced operations on May 4,
1999.)
(2) 40% of the Investment Manager's compensation is paid to the
Sub-Advisor.
(3) 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>
51
<PAGE>
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, and has been assisted by
Ronald B. Silvestri, Vice President of the Investment
Manager, since May 2000.
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. Catherine Manuscalco, Vice President of
the Investment Manager, has been a primary portfolio manager
of the Portfolio since August 1999.
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 - Ashutosh Sinha, Principal of the
Sub-Advisor, has been a primary portfolio manager 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 June 1995, Mr. Sinha was an analyst at
SBI Funds Management Ltd. (1993-1995).
52
<PAGE>
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.
53
<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, with
respect to 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.
[ICON] PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
Each Portfolio has adopted a Plan of Distribution in
accordance with Rule 12b-1 under the Investment Company Act
of 1940. Class Y shares of each Portfolio are subject to a
distribution (12b-1) fee of 0.25% of the average daily net
assets of the Class. The Plan allows Class Y shares of each
Portfolio to bear distribution fees in connection with the
sale and distribution of Class Y shares. It also allows each
Portfolio to pay for services to Class Y shareholders.
Because these fees are paid out of the assets of each
Portfolio's Class Y shares on an ongoing basis, over time
these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
54
<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 Declared and paid at least
day the New York Stock once per calendar year,
Exchange is open to net short-term gains may
shareholders as of the be paid more frequently
close of business the
preceding business day
--------------------------------------------------------------------------------------
SHORT-TERM BOND, QUALITY Declared and paid monthly Declared and paid at least
INCOME PLUS AND HIGH once per year
YIELD PORTFOLIOS
--------------------------------------------------------------------------------------
UTILITIES, INCOME Declared and paid Declared and paid at least
BUILDER, DIVIDEND GROWTH, quarterly once per calendar year
GLOBAL DIVIDEND GROWTH,
EQUITY AND STRATEGIST
PORTFOLIOS
--------------------------------------------------------------------------------------
CAPITAL GROWTH, EUROPEAN Declared and paid at least Declared and paid at least
GROWTH, PACIFIC GROWTH, once per calendar year once per calendar year
S&P 500 INDEX,
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.
55
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of each Portfolio's Class X shares for the past
5 fiscal years of the Fund. The Fund commenced offering Class Y shares
of each Portfolio on May 1, 2000. Prior to that date, the Fund issued
one Class of shares of each Portfolio, which, as of May 1, 2000, have
been designated Class X shares. 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).
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $ 1.00 $0.055 -- $ 0.055 $(0.055) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1.00 0.050 -- 0.050 (0.050) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1.00 0.051 -- 0.051 (0.051) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1.00 0.051 -- 0.051 (0.051) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1.00 0.047 -- 0.047 (0.047) --
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) 10.00 0.27 $(0.12) 0.15 (0.27) --
- ---------------------------------------------------------------------------------------------------------------------------------
QUALITY INCOME PLUS
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.45 0.72 1.50 2.22 (0.71) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 10.96 0.71 (0.58) 0.13 (0.72) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 10.37 0.70 0.40 1.10 (0.70) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 10.77 0.68 0.23 0.91 (0.68) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.00 0.67 (1.14) (0.47) (0.67) --
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
1995 6.16 0.80 0.08 0.88 (0.78) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 6.26 0.77 (0.06) 0.71 (0.79) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 6.18 0.75 (0.06) 0.69 (0.75) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 6.12 0.71 (1.05) (0.34) (0.71) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 5.07 0.68 (0.74) (0.06) (0.68) --
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
1995 11.92 0.53 2.81 3.34 (0.58) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 14.68 0.55 0.70 1.25 (0.55) $(0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 15.34 0.57 3.46 4.03 (0.57) (0.21)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 18.59 0.57 3.68 4.25 (0.57) (1.02)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 21.25 0.55 2.08 2.63 (0.55) (0.43)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BUILDER
- ---------------------------------------------------------------------------------------------------------------------------------
1997(a) 10.00 0.44 1.76 2.20 (0.44) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 11.76 0.56 (0.19) 0.37 (0.56) (0.11)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 11.99 0.38 3.89 4.27 (0.41) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.59 0.41 3.22 3.63 (0.41) (0.41)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 18.40 0.41 4.20 4.61 (0.41) (1.00)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 21.60 0.41 2.58 2.99 (0.41) (2.05)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
Further information about the performance of the Portfolios of the Fund is
contained in the annual report. See the discussion under the caption "Charges
and Other Deductions" in the accompanying prospectus for either the Variable
Annuity Contracts or the Variable Life Contracts issued by the applicable
insurance company for a description of charges which are applicable thereto.
These charges are not reflected in the financial highlights below. Inclusion of
any of these charges would reduce the total return figures for all periods
shown.
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31, DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ----------------------------------------------------------------------------------------------------------------------------------
1995 $(0.055) $ 1.00 5.66% $ 249,787 0.53% 5.52% N/A
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (0.050) 1.00 5.11 340,238 0.52 4.97 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (0.051) 1.00 5.23 335,578 0.52 5.10 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (0.051) 1.00 5.18 442,034 0.52 5.04 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (0.047) 1.00 4.80 435,643 0.52 4.68 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND
- ----------------------------------------------------------------------------------------------------------------------------------
1999(c) (0.27) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) 56%(1)
- ----------------------------------------------------------------------------------------------------------------------------------
QUALITY INCOME PLUS
- ----------------------------------------------------------------------------------------------------------------------------------
1995 (0.71) 10.96 24.30 520,579 0.54 7.07 162
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (0.72) 10.37 1.56 474,660 0.53 6.84 182
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (0.70) 10.77 11.09 474,990 0.53 6.71 171
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (0.68) 11.00 8.67 547,583 0.52 6.23 152
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (0.67) 9.86 (4.32) 456,132 0.52 6.45 119
- ----------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD
- ----------------------------------------------------------------------------------------------------------------------------------
1995 (0.78) 6.26 14.93 154,310 0.54 12.67 58
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (0.79) 6.18 11.98 259,549 0.51 12.59 57
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (0.75) 6.12 11.87 368,061 0.53 12.44 95
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (0.71) 5.07 (6.20) 364,079 0.53 12.27 93
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (0.68) 4.33 (1.33) 279,683 0.53 14.05 48
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
1995 (0.58) 14.68 28.65 479,070 0.68 4.00 13
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (0.59) 15.34 8.68 440,662 0.67 3.61 9
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (0.78) 18.59 27.15 458,134 0.67 3.48 13
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (1.59) 21.25 23.76 560,803 0.67 2.89 7
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (0.98) 22.90 12.71 580,487 0.67 2.51 10
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BUILDER
- ----------------------------------------------------------------------------------------------------------------------------------
1997(a) (0.44) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) 41(1)
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (0.67) 11.46 3.21 87,769 0.81 5.09 54
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (0.81) 11.44 7.06 81,616 0.81 4.98 43
- ----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ----------------------------------------------------------------------------------------------------------------------------------
1995 (0.67) 15.59 36.38 865,417 0.61 2.75 24
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (0.82) 18.40 23.96 1,288,404 0.57 2.46 23
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (1.41) 21.60 25.61 1,905,906 0.54 2.06 28
- ----------------------------------------------------------------------------------------------------------------------------------
1998 (2.46) 22.13 14.28 2,249,927 0.53 1.85 45
- ----------------------------------------------------------------------------------------------------------------------------------
1999 (3.65) 18.32 (2.39) 2,033,814 0.52 1.82 81
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET
VALUE INVESTMENT NET REALIZED TOTAL FROM
BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $11.52 $ 0.10 $ 3.68 $ 3.78 $(0.08) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.22 0.08 1.65 1.73 (0.03) $(0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 16.65 0.01 3.90 3.91 (0.08) (2.19)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 18.29 (0.05) 3.59 3.54 -- (1.47)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 20.36 -- 6.12 6.12 -- (2.75)
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.82 0.24 1.90 2.14 (0.26) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 11.69 0.24 1.75 1.99 (0.24) (0.31)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 13.13 0.22 1.37 1.59 (0.23) (0.60)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 13.89 0.24 1.45 1.69 (0.24) (1.52)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 13.82 0.27 1.71 1.98 (0.29) (1.07)
- ---------------------------------------------------------------------------------------------------------------------------------
EUROPEAN GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 14.56 0.20 3.50 3.70 (0.19)* (0.54)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 17.53 0.17 4.91 5.08 (0.04) (1.01)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 21.56 0.21 3.19 3.40 (0.24) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 23.54 0.15 5.53 5.68 (0.31) (1.73)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 27.18 0.25 6.91 7.16 (0.19) (2.68)
- ---------------------------------------------------------------------------------------------------------------------------------
PACIFIC GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 9.26 0.12 0.41 0.53 (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 9.70 0.05 0.32 0.37 (0.11) --
- ---------------------------------------------------------------------------------------------------------------------------------
1997 9.96 0.12 (3.82) (3.70) (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------------
1998 6.12 0.06 (0.75) (0.69) (0.28) --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 5.15 0.04 3.33 3.37 (0.06) --
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1995 19.25 0.22 7.92 8.14 (0.25) --
- ---------------------------------------------------------------------------------------------------------------------------------
1996 27.14 0.16 2.70 2.86 (0.16) (3.45)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 26.39 0.18 9.27 9.45 (0.18) (2.08)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 33.58 0.25 9.47 9.72 (0.25) (4.47)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 38.58 0.22 20.48 20.70 (0.22) (5.18)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME (LOSS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $(0.08) $15.22 32.92% $ 66,995 0.74% 0.70% 34%
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.30) 16.65 11.55 86,862 0.73 0.52 98
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (2.27) 18.29 24.54 127,100 0.71 0.01 139
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.47) 20.36 19.63 138,603 0.70 (0.26) 248
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (2.75) 23.73 33.29 171,251 0.72 0.02 575
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL DIVIDEND
GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.27) 11.69 22.14 205,739 0.88 2.23 55
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.55) 13.13 17.49 334,821 0.85 1.94 39
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.83) 13.89 12.04 481,613 0.84 1.61 48
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.76) 13.82 12.53 484,228 0.84 1.68 52
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (1.36) 14.44 14.65 506,929 0.83 1.90 43
- ---------------------------------------------------------------------------------------------------------------------------------
EUROPEAN GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.73) 17.53 25.89 188,119 1.17 1.25 69
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (1.05) 21.56 29.99 302,422 1.11 0.97 43
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (1.42) 23.54 16.07 391,441 1.12 1.04 45
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (2.04) 27.18 23.96 510,638 1.11 0.65 56
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (2.87) 31.47 29.11 579,705 1.04 0.87 55
- ---------------------------------------------------------------------------------------------------------------------------------
PACIFIC GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.09) 9.70 5.74 98,330 1.44 1.23 53
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.11) 9.96 3.89 144,536 1.37 1.01 50
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.14) 6.12 (37.70) 68,904 1.44 1.09 58
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (0.28) 5.15 (10.40) 52,842 1.51 0.91 112
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.06) 8.46 66.09 115,927 1.42 0.85 105
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (0.25) 27.14 42.53 359,779 0.54 0.97 269
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (3.61) 26.39 12.36 521,908 0.54 0.58 279
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (2.26) 33.58 37.43 823,090 0.52 0.61 145
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (4.72) 38.58 30.45 1,138,413 0.52 0.73 257
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (5.40) 53.88 58.59 2,083,071 0.51 0.54 323
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) $10.00 $0.06 $ 1.16 $ 1.22 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.22 0.06 2.21 2.27 $(0.03) $(0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
COMPETITIVE EDGE "BEST IDEAS"
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) 10.00 0.07 (0.25) (0.18) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1999 9.82 0.06 2.56 2.62 (0.07) --
- ---------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) 10.00 0.05 4.55 4.60 (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
STRATEGIST
- ---------------------------------------------------------------------------------------------------------------------------------
1995 12.45 0.62 0.49 1.11 (0.67) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 12.45 0.43 1.39 1.82 (0.43) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------------
1997 13.72 0.45 1.40 1.85 (0.45) (0.32)
- ---------------------------------------------------------------------------------------------------------------------------------
1998 14.80 0.36 3.40 3.76 (0.36) (1.56)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 16.64 0.40 2.46 2.86 (0.40) --
- ---------------------------------------------------------------------------------------------------------------------------------
Commencement of operations:
</TABLE>
<TABLE>
<S> <C>
(a) January 21, 1997.
(b) May 18, 1998.
(c) May 4, 1999.
+ Calculated based on the net asset value as of the last
business day of the period.
++ Includes distributions from paid-in-capital of $0.02.
* 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 January 21, 1997
through December 3, 1997 for Income Builder, the ratios of
expenses and net investment income to average net assets
would have been 0.99% and 4.89%, respectively.
(4) 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, 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" and
0.59% and 1.26%, respectively, for S&P 500 Index.
(5) If the Investment Manager had not assumed all expenses and
waived its management fee for the period January 1, 1999
through April 30, 1999 for Competitive Edge "Best Ideas" and
for the period May 4, 1999 through November 4, 1999 for
Short-Term Bond and Aggressive Equity and for the period
January 1, 1999 through January 5, 1999 for S&P 500 Index
and "capped" the expenses of S&P 500 Index at 0.50% of its
daily net assets for the period January 6, 1999 through
December 31, 1999, the ratio of expenses and net investment
income (loss) to average net assets would have been 0.77%
and 0.51%, respectively, for Competitive Edge "Best Ideas",
2.38% and 3.07%, respectively, for Short-Term Bond, 1.41%
and (0.02%), respectively, for Aggressive Equity and 0.48%
and 1.02%, respectively, for S&P 500 Index.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT RATIOS TO AVERAGE NET ASSETS
TOTAL END OF ----------------------------- PORTFOLIO
DIVIDENDS AND NET ASSET VALUE PERIOD NET INVESTMENT TURNOVER
YEAR ENDED DECEMBER 31 DISTRIBUTIONS END OF PERIOD TOTAL RETURN (000'S) EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) -- $11.22 12.20%(1) $ 48,732 --(4) 1.85%(2)(4) 2%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.06) 13.43 20.23 185,963 0.48%(5) 1.03(5) 1
- ---------------------------------------------------------------------------------------------------------------------------------
COMPETITIVE EDGE
"BEST IDEAS"
- ---------------------------------------------------------------------------------------------------------------------------------
1998(b) -- 9.82 (1.90)(1) 36,539 --(4) 1.74(2)(4) 31(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.07) 12.37 26.88 62,295 0.56(5) 0.72(5) 54
- ---------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1999(c) (0.03) 14.57 46.08(1) 38,197 0.52(2)(5) 0.86(2)(5) 108(1)
- ---------------------------------------------------------------------------------------------------------------------------------
STRATEGIST
- ---------------------------------------------------------------------------------------------------------------------------------
1995 (1.11) 12.45 9.48 388,579 0.52 5.03 329
- ---------------------------------------------------------------------------------------------------------------------------------
1996 (0.55) 13.72 15.02 423,768 0.52 3.30 153
- ---------------------------------------------------------------------------------------------------------------------------------
1997 (0.77) 14.80 13.71 497,028 0.52 3.09 159
- ---------------------------------------------------------------------------------------------------------------------------------
1998 (1.92) 16.64 26.55 633,934 0.52 2.32 84
- ---------------------------------------------------------------------------------------------------------------------------------
1999 (0.40) 19.10 17.35 729,701 0.52 2.24 120
- ---------------------------------------------------------------------------------------------------------------------------------
Commencement of
operations:
</TABLE>
61
<PAGE>
NOTES
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62
<PAGE>
NOTES
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63
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE INVESTMENT SERIES
Additional information about each Portfolio'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 each Portfolio'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
Portfolios, 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
(202) 942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the SEC's Internet
site at www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee by electronic
request at the following e-mail address: [email protected],
or by writing the Public Reference Section of the SEC,
Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-3692)
<PAGE>
MORGAN STANLEY DEAN WITTER
VARIABLE
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
MAY 1 , 2000 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 for the Morgan Stanley Dean Witter
Variable Investment Series (the "Fund") is not a PROSPECTUS. The Fund's Class X
PROSPECTUS and the Fund's Class Y PROSPECTUS (each dated May 1, 2000) provide
the basic information you should know before allocating your investment under
your variable annuity contract or your variable life contract. Either 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.......................................... 21
III. Management of the Fund........................................... 21
A. Board of Trustees........................................... 21
B. Management Information...................................... 21
C. Compensation................................................ 26
IV. Control Persons and Principal Holders of Securities.............. 28
V. Investment Management and Other Services......................... 28
A. Investment Manager and Sub-Advisor.......................... 28
B. Principal Underwriter....................................... 30
C. Services Provided by the Investment Manager and
Sub-Advisor................................................. 30
D. Rule 12b-1 Plan............................................. 31
E. Other Service Providers..................................... 32
VI. Brokerage Allocation and Other Practices......................... 33
A. Brokerage Transactions...................................... 33
B. Commissions................................................. 33
C. Brokerage Selection......................................... 36
D. Directed Brokerage.......................................... 37
E. Regular Broker-Dealers...................................... 38
VII. Capital Stock and Other Securities............................... 40
VIII. Purchase, Redemption and Pricing of Shares....................... 41
A. Purchase of Shares.......................................... 41
B. Offering Price.............................................. 41
IX. Taxation of the Portfolios and Shareholders...................... 44
X. Underwriters..................................................... 44
XI. Calculation of Performance Data.................................. 44
XII. Financial Statements............................................. 48
Appendix--Ratings of Corporate Debt Instruments Investments...... 157
</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.
"FINANCIAL ADVISOR"--Morgan Stanley Dean Witter authorized financial services
representatives.
"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 each of the Class X and Class Y PROSPECTUSES, 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.
When the Fund's Investment Manager believes that a particular foreign
currency may experience a substantial movement against the U.S. dollar, it may
enter into a forward contract to purchase or sell, for a fixed amount of dollars
or other currency, the amount of foreign currency approximating the value of
some or all of a Portfolio's portfolio securities denominated in such foreign
currency. The Portfolios will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign currency
in excess of the value of the Portfolio's portfolio securities or other assets
denominated in that currency.
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 PORTFOLIO, the CAPITAL GROWTH
PORTFOLIO, the GLOBAL DIVIDEND GROWTH PORTFOLIO, the EUROPEAN GROWTH
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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.
A call option is "covered" if the Portfolio owns the underlying security
subject to the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional consideration
(in cash, Treasury bills or other liquid portfolio securities) held in a
segregated account on the Portfolio's books) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if the
Portfolio holds a call on the same security as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written or (ii) greater than the exercise price of the call written
if the difference is maintained by the Portfolio in cash, Treasury bills or
other liquid portfolio securities in a segregated account on the Portfolio's
books.
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. A writer of a covered put option
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). A put option is
"covered" if the Portfolio maintains cash, Treasury bills or other liquid
portfolio securities with a value equal to the exercise price in a segregated
account on the Portfolio's books, or holds a put on the same security as the put
written where the exercise price of
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the put held is equal to or greater than the exercise price of the put written.
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 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
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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.
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
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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 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.
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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 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
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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. The
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 also 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.
If a Portfolio maintains a short position in a futures contract or has sold
a call option in a futures contract, it will cover this position by holding, in
a segregated account maintained on the books of the Portfolio, cash, U.S.
government securities or other liquid portfolio securities equal in value (when
added to any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Portfolio to purchase the same contract at a price no
higher than the price at which the short position was established.
In addition, if a Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained on the books
of the Portfolio. Alternatively, the Portfolio could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Portfolio.
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
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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 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 IBCA, 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
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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 or in the
determination or calculation of the equation by which shares of the Portfolio
are to be converted into cash. 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 15, 2000, the companies in the "Best Ideas" subgroup of "Global
Investing: The Competitive Edge" were as follows: America Online, American
Express, American Home Products, AXA-UAP, Bank of New York, BMW, British
Telecom, Cisco Systems, Clear Channel Comm., Coca-Cola Enterprises, Danone,
Diageo, DuPont, EMC Corp., Emerson Electric, Federal Express, Fujitsu, General
Electric, Halliburton, Heineken, Holderbank, HSBC Holdings, Intel, Invensys,
Lucent, MCI Worldcom, Medtronic, Microsoft, News Corp., Schlumberger, Shin-etsu,
Skandia International, Sony, Tel-Mex, Time Warner, Tokyo Electron, Total,
UPM-Kymmene and Wal-Mart.
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
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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 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.
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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, 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
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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.
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
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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
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.
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-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 were designed in such a way that they may not be able to 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.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. Corporate and government data processing errors could result
in production problems for individual companies and overall economic
uncertainties. Operations ran smoothly from the last week in December through
the first few weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including issuers
whose securities are contained in the Portfolios.
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.
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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
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
18
<PAGE>
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.
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
19
<PAGE>
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.
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.
20
<PAGE>
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.
E. PORTFOLIO TURNOVER
For the fiscal years ended December 31, 1998 and 1999, the portfolio
turnover rates of the Capital Growth Portfolio were 248% and 575.04%,
respectively. These variations resulted form the portfolio manager's responses
to varying market conditions during these periods.
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.
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 Morgan Stanley Dean Witter Funds, are shown
below. There were 93 such Funds as of the calendar year ended December 31, 1999.
<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; formerly Chairman and
c/o Kmart Corporation Chief Executive Officer of Levitz Furniture Corporation (November
3100 West Big Beaver Road 1995-November 1998) and President and Chief Executive Officer of Hills
Troy, Michigan 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 Weirton Steel Corporation.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------- ----------------------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (66)....... Chairman, Director or Trustee and Chief Executive Officer of the
Chairman of the Board, Morgan Stanley Dean Witter Funds; formerly Chairman, Chief Executive
Chief Executive Officer Officer and Director of the Investment Manager, the Distributor and
and Trustee MSDW Services Company; Executive Vice President and Director of Dean
Two World Trade Center Witter Reynolds; Chairman and Director of the Transfer Agent; formerly
New York, New York Director and/or officer of various MSDW subsidiaries (until June
1998).
Edwin J. Garn (67) ................ Director or Trustee of the Morgan Stanley Dean Witter Funds; formerly
Trustee United States Senator (R-Utah)(1974-1992) and Chairman, Senate Banking
c/o Huntsman Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19,
Salt Lake City, Utah 1985); Vice Chairman, Huntsman Corporation (chemical company);
Director of Franklin Covey (time management systems), BMW Bank of
North America, Inc. (industrial loan corporation), 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
Trustee Funds; Director of The PMI Group, Inc. (private mortgage insurance);
c/o Mayer, Brown & Platt Trustee and Vice Chairman of The Field Museum of Natural History;
Counsel to the formerly associated with the Allstate Companies (1966-1994), most
Independent Trustees recently as Chairman of The Allstate Corporation (March 1993-December
1675 Broadway 1994) and Chairman and Chief Executive Officer of its wholly-owned
New York, New York subsidiary, Allstate Insurance Company (July 1989-December 1994);
director of various other business and charitable organizations.
Dr. Manuel H. Johnson (50)......... Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Co-Chairman and a founder of the Group of Seven Council (G7C),
c/o Johnson Smick an international economic commission; Chairman of the Audit Committee
International, Inc. and Director or Trustee of the Morgan Stanley Dean Witter Funds;
1133 Connecticut Avenue, N.W. Director of Greenwich Capital Markets, Inc. (broker-dealer) and
Washington, D.C. 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 (63)............. General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership; Chairman of the Insurance Committee and Director or Trustee
c/o Triumph Capital, L.P. of the Morgan Stanley Dean Witter Funds; formerly Vice President,
237 Park Avenue Bankers Trust Company and BT Capital Corporation (1984-1988); director
New York, New York of various business organizations.
Philip J. Purcell* (56)............ Chairman of the Board of Directors and Chief Executive Officer of
Trustee MSDW, Dean Witter Reynolds and Novus Credit Services Inc.; Director of
1585 Broadway the Distributor; Director or Trustee of the Morgan Stanley Dean Witter
New York, New York Funds; Director of American Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various MSDW subsidiaries.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------- ----------------------------------------------------------------------
<S> <C>
John L. Schroeder (69)............. Retired; Chairman of the Derivatives Committee and Director or
Trustee Trustee of the Morgan Stanley Dean Witter Funds; Director of Citizens
c/o Mayer, Brown & Platt Utilities Company (telecommunications, gas, electric and water
Counsel to the Independent utilities company); formerly Executive Vice President and Chief
Trustees Investment Officer of the Home Insurance Company (August,
1675 Broadway 1991-September, 1995).
New York, New York
Mitchell M. Merin (46)............. President and Chief Operating Officer of Asset Management of
President MSDW (since December 1998); President and Director (since April 1997)
Two World Trade Center and Chief Executive Officer (since June 1998) of the Investment
New York, New York Manager 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 (since May 1999);
Trustee of various Van Kampen investment companies (since December
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 (May 1997-April 1999), and Executive Vice
President of Dean Witter, Discover & Co.
Barry Fink (44) ................... Executive Senior Vice President (since December 1999) and Secretary
Vice President, and General Counsel (since February 1997) and Director (since July
Secretary and General Counsel 1998) of the Investment Manager and MSDW Services Company; Executive
Two World Trade Center Vice President (since December 1999) and Assistant Secretary and
New York, New York Assistant General 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 (since February 1997); previously Senior Vice President
(March 1997-December 1999), First Vice President (June 1993-February
1997), Vice President and Assistant Secretary and Assistant General
Counsel of the Investment Manager and MSDW Services Company, Senior
Vice President of the Distributor (March 1997-December 1999) and
Assistant Secretary of the Morgan Stanley Dean Witter Funds.
Peter M. Avelar (41)............... Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Mark Bavoso (39)................... Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (58).............. Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------- ----------------------------------------------------------------------
<S> <C>
Rajesh K. Gupta (39)............... Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Matthew Haynes (34)................ 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 (40) ................ 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 (34) ................... 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
Michelle Kaufman (35).............. 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 (44)............. Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paula LaCosta (48) ................ 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
Catherine Maniscalco (36).......... Vice President (since June 1997) and a portfolio manager (since
Vice President March 1995) of the Investment Manager; formerly a portfolio management
Two World Trade Center software product specialist at National Investor Data Services (April
New York, New York 1994-March 1995).
Jonathan R. Page (53).............. Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Guy G. Rutherfurd, Jr. (60)........ Senior Vice President of the Investment Manager (since Febru-
Vice President ary 1997); Vice President of various Morgan Stanley Dean Witter Funds;
Two World Trade Center formerly Executive Vice President and Chief Investment Officer of
New York, New York Nomura Asset Management (U.S.A.) Inc. (May 1992-February 1997).
Rochelle G. Siegel (51)............ Senior Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Ronald B. Silvestri (34)........... Vice President of the Investment Manager (since December 1999);
Vice President Vice President of various Morgan Stanley Dean Witter Funds; formerly
Two World Trade Center Senior Research Analyst with the Investment Manager.
New York, New York
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------- ----------------------------------------------------------------------
<S> <C>
Paul D. Vance (64)................. Senior Vice President of the Investment Manager; Vice President
Vice President of 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
Treasurer Manager, the Distributor and MSDW Services Company; Treasurer of the
Two World Trade Center Morgan Stanley Dean Witter Funds.
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, Chief
Administrative Officer and Director 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. HINCHLIFFE and KEVIN HURLEY, 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, MARILYN K. CRANNEY, TODD LEBO, 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 NATASHA KASSIAN, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/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.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing
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 independent directors/trustees are required to select and nominate
individuals to fill any independent director/trustee vacancy on the board of any
Fund that has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean
Witter Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of 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.
25
<PAGE>
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 DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/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 directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/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 directors/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
directors/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
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/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.
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, 1999.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic............................................... $1,550
Edwin J. Garn............................................... 1,600
Wayne E. Hedien............................................. 1,600
Dr. Manuel H. Johnson....................................... 2,100
Michael E. Nugent........................................... 1,933
John L. Schroeder........................................... 1,933
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1999.
26
<PAGE>
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION FOR
SERVICES TO 93
MORGAN STANLEY
NAME OF INDEPENDENT TRUSTEE DEAN WITTER FUNDS
- --------------------------- -----------------
<S> <C>
Michael Bozic............................................... $134,600
Edwin J. Garn............................................... 138,700
Wayne E. Hedien............................................. 138,700
Dr. Manuel H. Johnson....................................... 208,638
Michael E. Nugent........................................... 193,324
John L. Schroeder........................................... 193,324
</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 director/ 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/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 independent director/trustee referred to as an "ELIGIBLE TRUSTEE")
is entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 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/ 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 accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended December 31,
1999 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the
year ended December 31, 1999, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1999.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT
----------------------------- BENEFITS ESTIMATED ANNUAL
ESTIMATED ACCRUED AS BENEFITS
CREDITED EXPENSES UPON RETIREMENT(2)
YEARS ESTIMATED ------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- ------------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic................. 10 60.44% $404 $20,933 $ 967 $50,588
Edwin J. Garn................. 10 60.44 601 31,737 967 50,675
Wayne E. Hedien............... 9 51.37 757 39,566 822 43,000
Dr. Manuel H. Johnson......... 10 60.44 246 13,129 1,420 75,520
Michael E. Nugent............. 10 60.44 429 23,175 1,269 67,209
John L. Schroeder............. 8 50.37 805 41,558 987 52,994
</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 Eligible Trustee's elections described in Footnote
(1) above.
27
<PAGE>
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 Class X 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 Class X 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, NY 10048. The Investment 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, NY 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
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME OF PORTFOLIO INVESTMENT MANAGEMENT FEE RATES
- ----------------- --------------------------------------------------------
<S> <C>
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
The S&P 500 Index Portfolio 0.40% of net assets
The Competitive Edge "Best Ideas" 0.65% of net assets
Portfolio
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>
With respect to each Portfolio, the management fee is allocated among the
Classes pro rata based on the net assets of the Portfolio attributable to each
Class.
For the fiscal years ended December 31, 1997, 1998 and 1999, 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 1997 1998 1999
- ----------------- ------------ ------------ ------------
<S> <C> <C> <C>
The Money Market Portfolio.......................... $ 1,764,304 $ 1,927,552 $ 2,177,536
The Short-Term Bond Portfolio....................... N/A N/A 2,134
The Quality Income Plus Portfolio................... 2,301,725 2,514,720 2,519,733
The High Yield Portfolio............................ 1,539,080 1,946,259 1,657,944
The Utilities Portfolio............................. 2,710,383 3,160,139 3,606,185
The Income Builder Portfolio........................ 30,071 595,359 632,479
The Dividend Growth Portfolio....................... 8,563,208 10,828,424 11,638,694
The Capital Growth Portfolio........................ 698,171 862,257 922,721
The Global Dividend Growth Portfolio................ 3,183,049 3,698,722 3,669,864
The European Growth Portfolio....................... 3,589,371 4,705,416 4,749,793
The Pacific Growth Portfolio........................ 1,195,454 551,718 754,955
The Equity Portfolio................................ 3,306,222 4,753,680 7,156,661
The S&P 500 Index Portfolio......................... N/A -0- 457,843
The Competitive Edge "Best Ideas" Portfolio......... N/A -0- 206,828
The Aggressive Equity Portfolio..................... N/A N/A 28,471
The Strategist Portfolio............................ 2,361,054 2,762,516 3,399,095
----------- ----------- -----------
Total........................................... $31,242,092 $38,306,762 $43,580,936
=========== =========== ===========
</TABLE>
29
<PAGE>
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.
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 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
Portfolios or their shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND SUB-ADVISOR
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: expenses of the Plan of
Distribution pursuant to Rule 12b-1; 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 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. The 12b-1 fees relating to Class Y will be allocated directly to
Class Y. In addition, other expenses associated with a particular Class (except
advisory or custodial fees) may be allocated directly to that Class, provided
that
30
<PAGE>
such expenses are reasonably identified as specifically attributable to that
Class and the direct allocation to that Class is approved by the Trustees.
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 each affected
Portfolio, or by the Trustees; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees, including a
majority of the Independent Trustees.
D. RULE 12B-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "Plan"). Under the Plan, Class Y shares of each
Portfolio bear a distribution fee paid to the Distributor which is accrued daily
and payable monthly at the annual rate of 0.25% of the average daily net assets
of the Class.
The Plan provides that each Portfolio's distribution fee shall compensate
the Distributor, Dean Witter Reynolds and its affiliates, and other selected
broker-dealers for expenses they incur in connection with the distribution of
the Portfolio's Class Y shares. These expenses may include: (i) cost incurred in
providing personal services to shareholders; (ii) overhead and other branch
office distribution-related expenses including, but not limited to, expenses of
operating the Distributor's or other broker-dealers' offices used for selling
Portfolio shares (E.G., lease and utility costs, salaries and employee benefits
of operations and sales support personnel, costs related to client sales
seminars and telephone expenses); (iii) printing and mailing costs relating to
prospectuses and reports (for new shareholders); and (iv) costs incurred in
connection with advertising materials and sales literature.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the distribution expenses incurred on behalf
of each Portfolio during such calendar quarter, which report includes (1) an
itemization of the types of expenses and the purposes therefor; (2) the amounts
of such expenses; and (3) a description of the benefits derived by the Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
Plan, the Trustees requested and received from the Distributor and reviewed all
the information which they deemed necessary to arrive at an informed
determination. In making their determination, the Trustees considered: (1) the
benefits each Portfolio would be likely to obtain under the Plan, including that
without the compensation to individual
31
<PAGE>
brokers and the reimbursement of distribution and account maintenance expenses
of Dean Witter Reynolds's branch offices made possible by the 12b-1 fees, Dean
Witter Reynolds could not establish and maintain a competitive and effective
system for distribution and servicing of Contract Owners and maintenance of
their accounts; and (2) what services would be provided under the Plan to
Contract Owners. Based upon their review, the Trustees, including each of the
Independent Trustees, determined that approval of the Plan would be in the best
interests of each Portfolio and would have a reasonable likelihood of continuing
to benefit the Portfolio and Contract Owners. In the Trustees' quarterly review
of the Plan, they will consider its continued appropriateness and the level of
compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the Class Y shareholders
of each affected Portfolio, and all material amendments to the Plan must also be
approved by the Trustees. The Plan may be terminated as to a Portfolio at any
time, without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities of the
Portfolio (as defined in the Investment Company Act) on not more than thirty
days' written notice to any other party to the Plan. So long as the Plan is in
effect, the election and nomination of Independent Trustees shall be committed
to the discretion of the Independent Trustees.
No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Portfolios.
E. 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, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007, 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, NY 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, NY 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.
32
<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, 1997, 1998 and 1999, 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 12/31/97 ENDED 12/31/98 ENDED 12/31/99
- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Money Market Portfolio.................... -0- -0- -0-
Short-Term Bond Portfolio................. N/A N/A -0-
Quality Income Plus Portfolio............. -0- -0- -0-
High Yield Portfolio...................... -0- -0- $ 10,500
Utilities Portfolio....................... $ 110,773 $ 58,322 87,152
Income Builder Portfolio.................. 39,789 63,997 90,868
Dividend Growth Portfolio................. 1,267,591 2,028,310 4,248,651
Capital Growth Portfolio.................. 265,450 557,556 1,199,740
Global Dividend Growth Portfolio.......... 1,244,001 1,288,309 996,294
European Growth Portfolio................. 783,716 1,087,616 1,316,726
Pacific Growth Portfolio.................. 670,101 422,494 555,870
Equity Portfolio.......................... 1,573,295 3,639,562 5,790,009
S&P 500 Index Portfolio................... N/A 30,177 60,008
Competitive Edge "Best Ideas" Portfolio... N/A 36,526 47,170
Aggressive Equity Portfolio............... N/A N/A 29,426
Strategist Portfolio...................... 455,450 281,844 697,388
---------- ---------- -----------
Total................................. $6,410,166 $9,494,713 $15,129,802
========== ========== ===========
</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, 1997, 1998 and 1999, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
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
33
<PAGE>
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 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, 1997 and 1998 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 12/31/97 12/31/98
- ----------------- -------- --------
<S> <C> <C>
Money Market Portfolio...................................... -0- -0-
Short-Term Bond Portfolio................................... N/A N/A
Quality Income Plus Portfolio............................... -0- -0-
High Yield Portfolio........................................ -0- -0-
Utilities Portfolio......................................... $ 35,250 $ 6,675
Income Builder Portfolio.................................... 24,982 29,334
Dividend Growth Portfolio................................... 229,890 111,865
Capital Growth Portfolio.................................... 45,335 44,940
Global Dividend Growth Portfolio............................ 54,004 38,325
European Growth Portfolio................................... -0- -0-
Pacific Growth Portfolio.................................... -0- -0-
Equity Portfolio............................................ 158,587 248,435
S&P 500 Index Portfolio..................................... N/A -0-
Competitive Edge "Best Ideas" Portfolio..................... N/A -0-
Aggressive Equity Portfolio................................. N/A N/A
Strategist Portfolio........................................ 73,880 18,566
-------- --------
Total................................................... $621,928 $498,140
======== ========
</TABLE>
34
<PAGE>
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage
commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
EXECUTED TRADES
BROKERAGE PERCENTAGE OF ON WHICH
COMMISSIONS PAID AGGREGATE BROKERAGE BROKERAGE
TO DEAN WITTER COMMISSIONS FOR COMMISSIONS WERE
REYNOLDS FOR FISCAL FISCAL YEAR ENDED PAID FOR FISCAL YEAR
NAME OF PORTFOLIO YEAR ENDED 12/31/99 12/31/99 ENDED 12/31/99
- ----------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
Money Market Portfolio................... -0- -0- -0-
Short-Term Bond Portfolio................ -0- -0- -0-
Quality Income Plus Portfolio............ -0- -0- -0-
High Yield Portfolio..................... $ 10,498 99.98% 99.98%
Utilities Portfolio...................... 8,450 9.70 8.17
Income Builder Portfolio................. 30,496 33.56 44.89
Dividend Growth Portfolio................ 167,890 3.95 1.91
Capital Growth Portfolio................. 120,251 10.02 14.56
Global Dividend Growth Portfolio......... 30,930 3.10 7.75
European Growth Portfolio................ -0- -0- -0-
Pacific Growth Portfolio................. -0- -0- -0-
Equity Portfolio......................... 218,335 3.77 4.44
S&P 500 Index Portfolio.................. -0- -0- -0-
Competitive Edge "Best Ideas"
Portfolio............................... 25 0.05 0.08
Aggressive Equity Portfolio.............. 21,397 72.71 79.13
Strategist Portfolio..................... 27,241 3.91 8.23
--------
Total................................ $635,513
========
</TABLE>
During the period June 1 through December 31, 1997 and during the fiscal
year ended December 31, 1998, 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 YEAR ENDED
-------------------------
NAME OF PORTFOLIO 12/31/97 12/31/98
- ----------------- -------- --------
<S> <C> <C>
Money Market Portfolio...................................... -0- -0-
Short-Term Bond Portfolio................................... N/A N/A
Quality Income Plus Portfolio............................... -0- -0-
High Yield Portfolio........................................ -0- -0-
Utilities Portfolio......................................... $ 1,000 -0-
Income Builder Portfolio.................................... 710 $ 970
Dividend Growth Portfolio................................... 73,920 294,795
Capital Growth Portfolio.................................... 10,305 57,785
Global Dividend Growth Portfolio............................ 123,860 242,135
European Growth Portfolio................................... 4,655 29,622
Pacific Growth Portfolio.................................... 13,927 11,373
Equity Portfolio............................................ 69,900 432,631
S&P 500 Index Portfolio..................................... N/A -0-
Competitive Edge "Best Ideas" Portfolio..................... N/A 26,356
Aggressive Equity Portfolio................................. N/A N/A
Strategist Portfolio........................................ 34,140 29,875
-------- ----------
Total................................................... $332,417 $1,125,542
======== ==========
</TABLE>
35
<PAGE>
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage
commissions to Morgan Stanley & Co. as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
PERCENTAGE OF TRADES ON WHICH
BROKERAGE COMMISSIONS AGGREGATE BROKERAGE BROKERAGE
PAID TO MORGAN COMMISSIONS FOR COMMISSIONS WERE
STANLEY & CO. FOR FISCAL FISCAL YEAR ENDED PAID FOR FISCAL YEAR
NAME OF PORTFOLIO YEAR ENDED 12/31/99 12/31/99 ENDED 12/31/99
- ----------------- ------------------------- ------------------- --------------------
<S> <C> <C> <C>
Money Market Portfolio............ -0- -0- -0-
Short-Term Bond Portfolio......... -0- -0- -0-
Quality Income Plus Portfolio..... -0- -0- -0-
High Yield Portfolio.............. -0- -0- -0-
Utilities Portfolio............... -0- -0- -0-
Income Builder Portfolio.......... $ 2,555 2.81% 2.73%
Dividend Growth Portfolio......... 255,110 6.00 6.57
Capital Growth Portfolio.......... 83,995 7.00 7.93
Global Dividend Growth
Portfolio........................ 145,785 14.63 13.40
European Growth Portfolio......... -0- -0- -0-
Pacific Growth Portfolio.......... 55,994 10.07 12.54
Equity Portfolio.................. 637,848 11.02 12.13
S&P 500 Index Portfolio........... -0- -0- -0-
Competitive Edge "Best Ideas"
Portfolio........................ 39,371 83.47 93.95
Aggressive Equity Portfolio....... 671 2.28 1.62
Strategist Portfolio.............. 26,580 3.81 5.59
----------
Total......................... $1,247,909
==========
</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, 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.
The Fund anticipates that certain Portfolio transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement 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
36
<PAGE>
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.
D. DIRECTED BROKERAGE
During the fiscal year ended December 31, 1999, the Portfolios paid
brokerage commissions to brokers because of research services provided as
follows:
<TABLE>
<CAPTION>
AGGREGATE DOLLAR AMOUNT
BROKERAGE COMMISSIONS OF TRANSACTIONS FOR WHICH
DIRECTED IN CONNECTION WITH SUCH COMMISSIONS WERE
RESEARCH SERVICES PROVIDED FOR PAID FOR FISCAL YEAR ENDED
NAME OF PORTFOLIO FISCAL YEAR ENDED 12/31/99 12/31/99
- ----------------- ------------------------------ --------------------------
<S> <C> <C>
Money Market Portfolio.................... -0- -0-
Short-Term Bond Portfolio................. -0- -0-
Quality Income Plus Portfolio............. -0- -0-
High Yield Portfolio...................... -0- -0-
Utilities Portfolio....................... $ 76,852 $ 44,579,972
Income Builder Portfolio.................. 57,134 24,011,003
Dividend Growth Portfolio................. 3,726,534 2,616,155,331
Capital Growth Portfolio.................. 978,050 842,426,113
Global Dividend Growth Portfolio.......... 778,954 325,024,122
European Growth Portfolio................. -0- -0-
Pacific Growth Portfolio.................. 75,012 34,082,928
Equity Portfolio.......................... 4,892,734 4,497,652,637
S&P 500 Index Portfolio................... -0- -0-
Competitive Edge "Best Ideas" Portfolio... 4,161 1,632,807
Aggressive Equity Portfolio............... 6,967 4,898,929
Strategist Portfolio...................... 633,267 357,189,666
----------- --------------
Total................................. $11,229,665 $8,747,653,508
=========== ==============
</TABLE>
37
<PAGE>
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1999, 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 Goldman, Sachs & Co. discount note, commercial
paper
Lehman Brothers Inc. discount note, commercial
paper
Merrill Lynch & Co., Inc. commercial paper
Morgan (J.P.) Securities Inc. discount note, commercial
paper
CS First Boston Corporation discount note, commercial
paper
Chase Securities Inc. commercial paper,
certificate of deposit
Banc of America Securities LLC discount note, commercial
paper, bank note
General Motors Acceptance commercial paper
Corp.
Deutsche Bank Securities Corp. commercial paper
Sears Roebuck Acceptance Corp. commercial paper
Short-Term Bond Portfolio none N/A
Quality Income Plus Portfolio Merrill Lynch & Co., Inc. corporate note/bond
Morgan (J.P.) Securities Inc. corporate note/bond
Lehman Brothers Holdings Inc. corporate note/bond
Goldman, Sachs Group, Inc. corporate note/bond
Donaldson, Lufkin & Jenrette, corporate note/bond
Inc.
Bear, Stearns & Co. Inc. corporate note/bond
NationsBank, N.A. corporate note/bond
The Chase Manhattan Bank corporate note/bond
High Yield Portfolio none N/A
Utilities Portfolio none N/A
Income Builder Portfolio Merrill Lynch & Co., Inc. convertible preferred stock
Dividend Growth Portfolio Bank of America common stock
Morgan (J.P.) & Co. Inc. common stock
Capital Growth Portfolio BankAmerica Corp. common stock
Bank of New York Inc. common stock
Donaldson Lufkin & Jenrette, common stock
Inc.
Goldman Sachs Group Inc. common stock
Lehman Brothers Holdings Inc. common stock
Global Dividend Growth Portfolio none N/A
European Growth Portfolio none N/A
Pacific Growth Portfolio none N/A
Equity Portfolio Bank of New York Co., Inc. common stock
Morgan (J.P.) Securities Inc. common stock
Goldman Sachs Group, Inc. common stock
Lehman Brothers Holdings Inc. common stock
Merrill Lynch & Co., Inc. common stock
S&P 500 Index Portfolio Merrill Lynch & Co., Inc. common stock
Bank of New York Co., Inc. common stock
BankAmerica Corp. common stock
Morgan (J.P.) & Co., Inc. common stock
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY
- ----------------- ------------------------------ ---------------------------
<S> <C> <C>
Competitive Edge "Best Ideas" Portfolio Bank of New York Co., Inc. common stock
Aggressive Equity Portfolio Donaldson, Lufkin & Jenrette, common stock
Inc.
Goldman Sachs Group, Inc. common stock
Lehman Brothers Holdings, Inc. common stock
Bank of New York Co., Inc. common stock
Merrill Lynch & Co., Inc. common stock
Strategist Portfolio BankAmerica bonds
Bank One bonds
CS First Boston Corporation bond
Merrill Lynch & Co., Inc. bonds/common stock
PaineWebber Group bonds
The Chase Manhattan Bank common stock
</TABLE>
At December 31, 1999, 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 12/31/99
- ----------------- ------------------------------ --------------------------- ------------
<S> <C> <C> <C>
Money Market Portfolio Goldman, Sachs & Co commercial paper $18,895,520
Morgan (J.P.) Securities Inc. commercial paper 18,891,038
Chase Securities Inc. certificate of deposit 14,000,000
Bank of American Securities commercial paper 10,412,461
LLC
General Motors Acceptance commercial paper 5,986,900
Corp.
Deutsche Bank Securities Corp. commercial paper 5,947,800
Short-Term Bond Portfolio none N/A N/A
Quality Income Plus Lehman Brothers Inc. corporate notes/bonds 9,018,463
Portfolio
Bear Stearns & Co. corporate notes/bonds 5,031,830
NationsBank, N.A. corporate note/bond 5,001,800
High Yield Portfolio none N/A N/A
Utilities Portfolio none N/A N/A
Income Builder Portfolio Merrill Lynch & Co., Inc. convertible preferred stock 284,928
Dividend Growth Portfolio Bank of America common stock 19,573,125
Morgan (J.P.) & Co. Inc. common stock 20,260,000
Capital Growth Portfolio Lehman Brothers Holdings Inc. common stock 1,016,250
Global Dividend Growth none N/A N/A
Portfolio
European Growth Portfolio none N/A N/A
Pacific Growth Portfolio none N/A N/A
Equity Portfolio Bank of New York Co., Inc. common stock 800,000
Goldman Sachs Group, Inc. common stock 26,278,312
Lehman Brothers Holdings Inc. common stock 18,140,063
Merrill Lynch & Co. Inc. common stock 12,191,000
S&P 500 Index Portfolio Merrill Lynch & Co. Inc. common stock 448,228
Bank of New York, Inc. common stock 426,560
BankAmerica common stock 1,240,736
Morgan (J.P.) & Co. Inc. common stock 317,449
Competitive Edge "Best Bank of New York Co., Inc. common stock 1,312,000
Ideas" Portfolio
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
NAME OF PORTFOLIO ISSUER TYPE OF SECURITY AT 12/31/99
- ----------------- ------------------------------ --------------------------- ------------
<S> <C> <C> <C>
Aggressive Equity Portfolio Donaldson, Lufkin & Jenrette, common stock $ 111,746
Inc.
Goldman Sachs Group, Inc. common stock 268,434
Lehman Brothers Holdings, Inc. common stock 194,781
Bank of New York Co., Inc. common stock 100,000
Merrill Lynch & Co., Inc. common stock 66,800
Strategist Portfolio PaineWebber Group bonds 2,012,360
The Chase Manhattan Bank common stock 6,176,156
Merrill Lynch & Co., Inc. common stock 6,997,300
</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 Portfolios. All shares of beneficial
interest of the Fund are equal as to earnings, assets and voting privileges
except that each Class will have exclusive voting privileges with respect to
matters relating to distribution expenses borne by such Class (if any) or any
other matter in which the interests of one Class differ from the interests of
any other Class.
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 Trustees have not presently authorized any such additional series
or Classes of shares other than as set forth in the Prospectus for each Class.
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 the actions
of the Trustees. In addition, under certain circumstances the shareholders may
call a meeting to remove Trustees and the Fund is required to provide assistance
in communicating with shareholders about such a meeting.
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. Under certain circumstances the
40
<PAGE>
Trustees may be removed by action of the Trustees. In addition, under certain
circumstances, the shareholders may call a meeting to remove Trustees and the
Fund is required to provide assistance in communicating with shareholders about
such a meeting. 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.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios, but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
With respect to the submission to shareholder vote of a matter requiring
separate voting by Portfolio, the matter shall have been effectively acted upon
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio votes for the approval of the matter, notwithstanding that:
(1) the matter has not been approved by a majority of the outstanding voting
securities of any other Portfolio; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE OF SHARES
Information concerning how Portfolio shares are offered (and how they are
redeemed) is provided in each of the Fund's Class X and Class Y PROSPECTUSES.
B. OFFERING PRICE
The price of each Portfolio shares, called "net asset value," is based on
the value of the Portfolio's securities. Net asset value per share of each of
Class X and Class Y shares is calculated by dividing the value of the portion of
each Portfolio's securities and other assets attributable to each Class,
respectively, less the liabilities attributable to each Class, respectively, by
the number of shares of the Class outstanding. The assets of each Class of
shares are invested in a single portfolio. The net asset value of each Class,
however, will differ because the Classes have different ongoing fees.
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
41
<PAGE>
Rule including: (a) the Trustees are obligated, as a particular responsibility
within the overall duty of care owed to the Portfolio's shareholders, to
establish procedures reasonably designed, taking into account current market
conditions and the Portfolio's investment objectives, to stabilize the net asset
value per share as computed for the purpose of distribution and redemption at
$1.00 per share; (b) the procedures include (i) calculation, at such intervals
as the Trustees determine are appropriate and as are reasonable in light of
current market conditions, of the deviation, if any, between net asset value per
share using amortized cost to value portfolio securities and net asset value per
share based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust, reducing the number of outstanding shares of the MONEY
MARKET PORTFOLIO) to eliminate or reduce to the extent reasonably practicable
material dilution or other unfair results to investors or existing shareholders
which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the MONEY MARKET PORTFOLIO'S capital the necessary
shares that represent the amount of excess upon such determination. Each
Contract Owner will be deemed to have agreed to such contribution in these
circumstances by allocating investment under his or her Contract to the MONEY
MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which the MONEY MARKET
PORTFOLIO'S interest in the instrument is subject to market action) until the
date on which in accordance with the terms of the security the principal amount
must unconditionally be paid, or in the case of a security called for
redemption, the date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. A floating rate security that is subject to a demand
feature is deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
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
42
<PAGE>
determine which securities present minimal credit risks and which unrated
securities are comparable in quality to rated securities.
Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and
(ii) no more than the greater of 1% of total assets, or $1 million, in the
securities on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
The Rule further requires that the Money Market Portfolio limit its
investments to U.S. dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are Eligible Securities. The Rule also
requires the Portfolio to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and precludes the purchase of any instrument with
a remaining maturity of more than 397 days. (An Investment Restriction of the
Fund further precludes the Portfolio from investing in securities maturing more
than one year from the date of purchase.) Should the disposition of a portfolio
security result in a dollar-weighted average portfolio maturity of more than 90
days, the Portfolio will invest its available cash in such a manner as to reduce
such maturity to 90 days or less 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,
43
<PAGE>
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 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 and the compensation the Distributor receives are described above in
the sections titled "Principal Underwriter" and "Rule 12b-1 Plan."
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,
44
<PAGE>
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.
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 each of the Class X
PROSPECTUS and the Class Y PROSPECTUS for the Fund.)
The current yield of the MONEY MARKET PORTFOLIO for the seven days ending
December 31, 1999 was 5.44%. The effective annual yield on 5.44% is 5.59%,
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, 1999, the yield of the
SHORT-TERM BOND PORTFOLIO, calculated pursuant to this formula, was 4.48%, the
yield of the QUALITY INCOME PLUS PORTFOLIO, calculated pursuant to this formula,
was 7.11%, the yield of the HIGH YIELD PORTFOLIO, calculated pursuant to this
formula, was 18.86%, and the yield of the UTILITIES PORTFOLIO, calculated
pursuant to this formula, was 2.33%.
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
45
<PAGE>
percentage obtained by dividing the ending redeemable value by the amount of the
initial investment, taking a root of the quotient (where the root is equivalent
to the number of years in the period) and subtracting 1 from the result.
The average annual total returns of the MONEY MARKET PORTFOLIO, the 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 and the STRATEGIST PORTFOLIO for the
one, five and ten year periods (or for the period from the date of commencement
of the Portfolio's operations, if shorter than any of the foregoing) ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN FOR
PERIOD FROM
AVERAGE ANNUAL AVERAGE ANNUAL COMMENCEMENT
TOTAL RETURN FOR TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS
DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED THROUGH
NAME OF PORTFOLIO (IF APPLICABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
- ----------------- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Money Market
Portfolio........... N/A 4.80% 5.20% 4.95% N/A
Quality Income Plus
Portfolio........... N/A -4.32% 7.84% 7.77 N/A
High Yield
Portfolio........... N/A -1.33% 5.91% 8.44 N/A
Utilities
Portfolio........... 3/1/90 12.71% 19.92% N/A 14.25%
Income Builder
Portfolio........... 1/21/97 7.06% N/A N/A 10.81%
Dividend Growth
Portfolio........... 3/1/90 -2.39% 18.82% N/A 13.04
Capital Growth
Portfolio........... 3/1/91 33.29% 24.11% N/A 15.34%
Global Dividend
Growth Portfolio.... 2/23/94 14.65% 15.71% N/A 13.33%
European Growth
Portfolio........... 3/1/91 29.11% 24.90% N/A 19.68%
Pacific Growth
Portfolio........... 2/23/94 66.09% 0.37% N/A -0.87%
Equity Portfolio..... N/A 58.59% 35.42% 23.04% N/A
S&P 500 Index
Portfolio........... 5/18/98 20.23% N/A N/A 20.29%
Competitive Edge
"Best Ideas"
Portfolio........... 5/18/98 26.88% N/A N/A 14.46%
Strategist
Portfolio........... N/A 17.35% 16.27% 13.04% N/A
</TABLE>
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 SHORT-TERM BOND PORTFOLIO and the
AGGRESSIVE EQUITY PORTFOLIO (which commenced operations on May 3, 1999) 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 SHORT-TERM BOND PORTFOLIO and
the AGGRESSIVE EQUITY PORTFOLIO for the period May 3, 1999 through December 31,
1999 were 1.56% and 46.08%, respectively. The Investment Manager assumed all
operating expenses of each of the SHORT-TERM BOND PORTFOLIO and the AGGRESSIVE
EQUITY PORTFOLIO until November 5, 1999. Without the waiver of fees and
assumption of expenses by the Investment Manager, the total returns of the
SHORT-TERM BOND and the AGGRESSIVE EQUITY PORTFOLIO would have been 0.94% and
45.88%, respectively.
46
<PAGE>
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
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 and the STRATEGIST PORTFOLIO for the one, five and ten year periods
(or for the period from the date of commencement of the Portfolio's operations,
if shorter than any of the foregoing) ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
TOTAL RETURN FOR
PERIOD FROM
COMMENCEMENT
TOTAL RETURN FOR TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS
DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED THROUGH
NAME OF PORTFOLIO (IF APPLCABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
- ----------------- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Money Market......... N/A 4.80% 28.83% 62.16% N/A
Quality Income Plus
Portfolio.......... N/A -4.32% 45.82% 111.31% N/A
High Yield
Portfolio.......... N/A -1.33% 33.25% 124.80% N/A
Utilities
Portfolio.......... 3/1/90 12.71% 148.00% N/A 270.51%
Income Builder
Portfolio.......... 1/21/97 7.06% N/A N/A 35.24%
Dividend Growth
Portfolio.......... 3/1/90 -2.39% 136.87% N/A 233.75%
Capital Growth
Portfolio.......... 3/1/91 33.29% 194.45% N/A 252.87%
Global Dividiend
Growth Portfolio... 2/23/94 14.65% 107.44% N/A 107.99%
European Growth
Portfolio.......... 3/1/91 29.11% 204.02% N/A 389.13%
Pacific Growth
Portfolio.......... 2/23/94 66.09% 1.85% N/A -5.00%
Equity Portfolio..... N/A 58.59% 355.36% 695.04% N/A
S&P 500 Index
Portfolio.......... 5/18/98 20.23% N/A N/A 34.90%
Competitive Edge
"Best Ideas"
Portfolio.......... 5/18/98 26.88% N/A N/A 24.47%
Strategist
Portfolio.......... N/A 17.35% 112.49% 240.52% N/A
</TABLE>
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
47
<PAGE>
$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, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT OF
OPERATIONS OF
----------------------------------
NAME OF PORTFOLIO $10,000 $50,000 $100,000
- ----------------- --------- --------- ----------
<S> <C> <C> <C>
Money Market Portfolio.................................... $ 24,891 $124,455 $ 248,910
Short-Term Bond Portfolio................................. 10,156 50,780 101,560
Quality Income Plus Portfolio............................. 26,247 131,235 262,470
High Yield Portfolio...................................... 35,663 178,315 356,630
Utilities Portfolio....................................... 37,051 185,255 370,510
Income Builder Portfolio.................................. 13,524 67,620 135,240
Dividend Growth Portfolio................................. 33,375 166,875 333,750
Capital Growth Portfolio.................................. 35,287 176,435 352,870
Global Dividend Growth Portfolio.......................... 20,799 103,995 207,990
European Growth Portfolio................................. 48,913 244,565 489,130
Pacific Growth Portfolio.................................. 9,500 47,500 95,000
Equity Portfolio.......................................... 156,447 782,235 1,564,470
S&P 500 Index Portfolio................................... 13,490 67,450 134,900
Competitive Edge "Best Ideas" Portfolio................... 12,447 62,235 124,470
Aggressive Equity Portfolio............................... 14,608 73,040 146,080
Strategist Portfolio...................................... 43,031 215,155 430,310
</TABLE>
All the foregoing yields and returns are for Class X only. As of
December 31, 1999, the Fund had not yet offered Class Y shares for any
Portfolio.
The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
recognized organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1999 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in each of the Class X and Class Y PROSPECTUSES 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 each of the Class X and
Class Y PROSPECTUSES 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.
48
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (71.1%)
BANKING (12.1%)
$ 10,500 Bank of America Corp........................................ 6.04-6.08 % 01/05/00-04/12/00 $ 10,412,461
11,500 Citicorp.................................................... 5.85-5.88 02/04/00-02/10/00 11,432,169
19,000 Morgan (J.P.) & Co. Inc..................................... 5.91-6.06 01/25/00-02/23/00 18,891,038
12,000 Northern Trust Corp......................................... 5.89-6.38 02/07/00-02/16/00 11,917,814
------------
52,653,482
------------
DIVERSIFIED FINANCIAL SERVICES (8.6%)
5,500 Associates Corp. of North America........................... 5.87 01/31/00 5,473,692
10,820 Associates First Capital Corp............................... 6.04-6.06 01/07/00-03/10/00 10,753,848
21,500 General Electric Capital Corp............................... 5.04-5.80 01/18/00-02/01/00 21,422,684
------------
37,650,224
------------
FINANCE - AUTOMOTIVE (5.7%)
19,000 DaimlerChrylser North America Holding Corp.................. 5.93-6.08 01/21/00-03/07/00 18,873,442
6,000 General Motors Acceptance Corp.............................. 6.57 01/13/00 5,986,900
------------
24,860,342
------------
FINANCE - CONSUMER (8.3%)
5,000 American Express Credit Corp................................ 6.07 02/09/00 4,967,771
19,500 New Center Asset Trust...................................... 5.90-6.04 03/03/00-03/21/00 19,328,633
12,000 Norwest Financial Inc....................................... 5.93-6.10 02/08/00-02/18/00 11,915,110
------------
36,211,514
------------
FINANCE - CORPORATE (1.2%)
5,030 Ciesco, L.P................................................. 5.93 02/14/00 4,994,036
------------
INSURANCE (6.5%)
20,700 American General Corp....................................... 5.99-6.01 02/15/00-03/08/00 20,509,717
7,950 Prudential Funding Corp..................................... 5.57 02/16/00 7,893,824
------------
28,403,541
------------
INTERNATIONAL BANKS (23.0%)
18,000 ANZ (DE) Inc................................................ 6.07-6.08 01/12/00-03/23/00 17,894,313
18,000 Abbey National North America Corp........................... 5.98-6.03 01/04/00-03/13/00 17,920,945
6,500 Canadian Imperial Holdings Inc.............................. 6.50 01/03/00 6,497,659
5,000 CBA (Delaware) Finance Inc.................................. 5.91 02/14/00 4,964,433
11,000 Cregem North America Inc.................................... 5.91-5.98 01/10/00-01/19/00 10,976,515
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 6,000 Deutsche Bank Financial Inc................................. 5.89 % 02/24/00 $ 5,947,800
6,000 Dresdner U.S. Finance Inc................................... 6.25 01/05/00 5,995,860
7,000 KFW International Finance Inc............................... 5.99 04/05/00 6,891,568
13,460 National Australia Funding (DE) Inc......................... 5.86-6.68 01/14/00-01/26/00 13,416,633
5,000 UBS Finance (Delaware) LLC.................................. 6.07 05/19/00 4,885,711
5,000 WestPac Capital Corp........................................ 6.14 01/27/00 4,978,189
------------
100,369,626
------------
INVESTMENT BANKERS/BROKERS/SERVICES (4.3%)
19,000 Goldman Sachs Group Inc..................................... 6.06-6.51 01/13/00-02/25/00 18,895,520
------------
UTILITIES (1.4%)
6,000 Duke Energy Corp............................................ 5.87 02/14/00 5,957,613
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $309,995,898).................................................................. 309,995,898
------------
U.S. GOVERNMENT AGENCIES (16.6%)
17,000 Federal Farm Credit Bank.................................... 4.99-6.16 03/17/00-11/17/00 16,605,790
30,220 Federal Home Loan Banks..................................... 4.97-6.14 02/25/00-12/21/00 29,597,102
4,500 Federal Home Loan Mortgage Corp............................. 6.02 09/01/00 4,323,710
22,519 Federal National Mortgage Assoc............................. 5.76-6.05 04/06/00-12/05/00 21,629,248
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $72,155,850)................................................................... 72,155,850
------------
CERTIFICATES OF DEPOSIT (10.6%)
14,000 Chase Manhattan Bank (USA) N.A.............................. 5.83-5.85 01/19/00-01/20/00 14,000,000
6,000 First Union National Bank................................... 5.84 01/11/00 6,000,000
6,000 Fleet National Bank......................................... 6.08 02/22/00 6,000,000
20,000 U.S. Bank, N.A.............................................. 5.92-6.04 01/28/00-04/17/00 20,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $46,000,000)................................................................... 46,000,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTE (1.6%)
$ 7,000 First USA Bank, N.A.
(AMORTIZED COST $7,000,000)............................... 5.88 % 02/11/00 $ 7,000,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $435,151,748) (a)......................................................... 99.9% 435,151,748
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 491,363
------ ------------
NET ASSETS................................................................................ 100.0% $435,643,111
------ ------------
------ ------------
</TABLE>
- ---------------------
<TABLE>
<S> <C>
(a) Cost is the same for federal income tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - SHORT-TERM BOND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (83.8%)
$ 575 Federal Home Loan Banks........................... 4.88-5.38% 03/02/01-01/22/02 $ 565,822
500 Federal Home Loan Mortgage Corp................... 5.75 06/15/01 495,210
200 Federal National Mortgage Assoc................... 6.31 07/17/02 196,880
1,400 U.S. Treasury Notes............................... 5.88-6.50 09/30/00-10/31/01 1,402,237
----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $2,677,195)............................................................ 2,660,149
----------
SHORT-TERM INVESTMENT (a) (15.1%)
U.S. GOVERNMENT AGENCY
480 Federal Home Loan Mortgage Corp.
(AMORTIZED COST $479,960)....................... 1.50 01/03/00 479,960
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $3,157,155) (b)............................................................ 98.9% 3,140,109
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 1.1 34,480
------ ----------
NET ASSETS.................................................................................. 100.0% $3,174,589
------ ----------
------ ----------
</TABLE>
- ---------------------
(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 and net unrealized depreciation is $17,046.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (62.8%)
ACCIDENT & HEALTH INSURANCE (0.6%)
$ 3,000 Jackson National Life Insurance Co. - 144A*........................... 8.15 % 03/15/27 $ 2,952,990
------------
AEROSPACE (2.2%)
5,000 Boeing Co............................................................. 7.95 08/15/24 5,139,700
5,000 United Technologies Corp.............................................. 7.50 09/15/29 4,886,450
------------
10,026,150
------------
AIR FREIGHT/DELIVERY SERVICES (1.0%)
4,887 Federal Express Corp.................................................. 7.50 01/15/18 4,662,234
------------
AIRLINES (1.6%)
4,729 America West Airlines (Class A)....................................... 6.85 07/02/09 4,416,871
3,000 Continental Airlines, Inc............................................. 7.056 09/15/09 2,850,780
------------
7,267,651
------------
ALUMINUM (0.9%)
5,000 Aluminum Co. of America............................................... 6.75 01/15/28 4,332,900
------------
AUTO PARTS: O.E.M. (0.6%)
3,000 Eaton Corp............................................................ 7.65 11/15/29 2,860,020
------------
BEVERAGES - NON-ALCOHOLIC (0.5%)
2,000 Coca-Cola Enterprises Inc............................................. 8.50 02/01/22 2,143,000
------------
BUILDING MATERIALS/DIY CHAINS (1.0%)
5,000 Home Depot Real Estate Funding Corp. II - 144A*....................... 5.95 10/15/08 4,464,750
------------
BUILDING PRODUCTS (0.6%)
3,000 Armstrong World Industries, Inc....................................... 7.45 05/15/29 2,677,470
------------
CELLULAR TELEPHONE (1.1%)
5,000 360 DEG. Communications Co............................................ 7.60 04/01/09 5,007,500
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/
TRUCKS (0.7%)
3,000 Caterpillar, Inc...................................................... 9.375 08/15/11 3,369,810
------------
CONSUMER ELECTRONICS/APPLIANCES (0.2%)
1,000 Maytag Corp........................................................... 9.75 05/15/02 1,052,530
------------
CONSUMER SUNDRIES (1.0%)
5,000 CPC International, Inc................................................ 7.25 12/15/26 4,748,800
------------
CONTRACT DRILLING (0.8%)
3,000 Transocean Offshore Inc............................................... 8.00 04/15/27 3,018,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DEPARTMENT STORES (1.3%)
$ 5,000 May Department Stores Co.............................................. 7.625% 08/15/13 $ 4,970,500
1,000 Penney (J.C.) Co., Inc................................................ 9.75 06/15/21 1,043,280
------------
6,013,780
------------
DISCOUNT CHAINS (1.2%)
2,745 Wal-Mart Stores, Inc.................................................. 7.49 06/21/07 2,748,994
3,000 Wal-Mart Stores, Inc.................................................. 6.875 08/10/09 2,922,030
------------
5,671,024
------------
DIVERSIFIED FINANCIAL SERVICES (0.7%)
3,000 Abbey National PLC (United Kingdom)................................... 7.95 10/26/29 2,994,630
------------
DIVERSIFIED MANUFACTURING (2.0%)
5,000 Dresser Industries, Inc............................................... 7.60 08/15/96 4,752,950
5,000 Tyco International Group S.A. (Luxembourg)............................ 6.875 01/15/29 4,258,650
------------
9,011,600
------------
E.D.P. SERVICES (0.5%)
2,500 Electronic Data Systems............................................... 7.125 10/15/09 2,438,075
------------
ELECTRIC UTILITIES (6.6%)
1,000 Chugach Electric Co................................................... 9.14 03/15/22 1,074,300
5,000 Duke Capital Corp..................................................... 8.00 10/01/19 5,036,500
1,000 FPL Group Capital, Inc................................................ 7.375 06/01/09 985,340
2,500 FPL Group Capital, Inc................................................ 7.625 09/15/06 2,508,750
5,000 Israel Electric Co., Ltd. - 144A*..................................... 7.75 03/01/09 4,826,950
2,732 Oglethorpe Power Co................................................... 6.974 06/30/11 2,583,569
3,500 Oklahoma Gas & Electric Co............................................ 6.50 07/15/17 3,399,060
5,000 Potomac Electric Power Co............................................. 7.25 07/01/23 4,511,150
4,000 Public Service Electric & Gas Co...................................... 7.375 03/01/14 3,807,920
1,000 Tampa Electric Co..................................................... 7.75 11/01/22 939,640
------------
29,673,179
------------
ELECTRONIC PRODUCTION EQUIPMENT (1.0%)
5,000 Applied Materials, Inc................................................ 7.125 10/15/17 4,603,750
------------
FARMING/SEEDS/MILLING (0.9%)
5,000 Archer Daniels Midland Co............................................. 6.625 05/01/29 4,278,450
------------
FINANCE COMPANIES (3.8%)
5,000 Aristar Inc........................................................... 5.85 01/27/04 4,717,250
3,000 Ford Capital B.V...................................................... 9.50 06/01/10 3,371,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Ford Motor Credit Corp................................................ 7.75 % 03/15/05 $ 5,074,500
4,000 Norwest Financial Inc................................................. 7.875 02/15/02 4,068,560
------------
17,231,560
------------
FINANCIAL SERVICES (1.0%)
5,000 Allamerica Financial Corp............................................. 7.625 10/15/25 4,670,350
------------
INTEGRATED OIL COMPANIES (3.0%)
3,000 Atlantic Richfield Co................................................. 9.00 05/01/31 3,440,880
5,000 Kerr McGee Corp....................................................... 7.125 10/15/27 4,392,300
76 Mobil Corp............................................................ 9.17 02/29/00 76,123
5,000 Murphy Oil Corp....................................................... 7.05 05/01/29 4,478,250
1,000 Texaco Capital, Inc................................................... 9.75 03/15/20 1,202,950
------------
13,590,503
------------
INTERNATIONAL BANKS (1.7%)
5,000 Dresdner Funding Trust - 144A*........................................ 8.151 06/30/31 4,683,650
3,242 Swiss Bank Corp....................................................... 7.375 07/15/15 3,092,738
------------
7,776,388
------------
INVESTMENT BANKERS/BROKERS/SERVICES (3.1%)
2,000 Bear Stearns Companies, Inc........................................... 8.75 03/15/04 2,088,980
3,000 Bear Stearns Companies, Inc........................................... 7.625 12/07/09 2,942,850
3,750 Lehman Brothers Holdings, Inc......................................... 8.75 03/15/05 3,907,912
5,000 Lehman Brothers Holdings, Inc......................................... 8.50 08/01/15 5,110,550
------------
14,050,292
------------
LIFE INSURANCE (0.9%)
5,000 American General Corp................................................. 6.625 02/15/29 4,305,100
------------
MAJOR BANKS (5.5%)
5,000 First Bank N.A........................................................ 8.35 11/01/04 5,177,150
5,000 First Bank System Inc................................................. 7.625 05/01/05 5,009,900
3,000 Mellon Bank N.A....................................................... 7.625 09/15/07 3,013,440
5,000 NationsBank Corp...................................................... 7.80 09/15/16 5,001,800
5,000 State Street Boston Corp.............................................. 5.95 09/15/03 4,795,900
2,000 Wachovia Corp......................................................... 6.375 04/15/03 1,957,420
------------
24,955,610
------------
MAJOR PHARMACEUTICALS (1.3%)
5,000 Johnson & Johnson..................................................... 8.72 11/01/24 5,210,750
519 Marion Merrell Corp................................................... 9.11 08/01/05 540,647
------------
5,751,397
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAJOR U.S. TELECOMMUNICATIONS (2.2%)
$ 5,000 AT&T Corp............................................................. 8.35 % 01/15/25 $ 4,935,700
5,000 GTE Corp.............................................................. 7.90 02/01/27 4,788,200
------------
9,723,900
------------
MANAGED HEALTH CARE (0.2%)
1,000 Kaiser Foundation Health Plan, Inc.................................... 9.55 07/15/05 1,074,730
------------
MEDICAL SPECIALTIES (1.8%)
5,000 Baxter International, Inc............................................. 6.625 02/15/28 4,247,400
4,000 Becton Dickinson & Co................................................. 8.70 01/15/25 4,043,080
------------
8,290,480
------------
MID-SIZED BANKS (0.7%)
3,000 Old Kent Financial Corp............................................... 6.625 11/15/05 2,858,640
------------
MOTOR VEHICLES (1.1%)
5,000 DaimlerChrysler North American Holdings Corp.......................... 7.20 09/01/09 4,909,450
------------
MULTI-LINE INSURANCE (1.0%)
5,000 Nationwide Financial Services, Inc.................................... 8.00 03/01/27 4,639,450
------------
OIL & GAS PRODUCTION (1.0%)
2,000 Anadarko Petroleum Corp............................................... 7.73 09/15/96 1,926,800
3,000 Burlington Resources, Inc............................................. 7.375 03/01/29 2,806,770
------------
4,733,570
------------
OTHER TELECOMMUNICATIONS (0.6%)
2,500 Electric Lightwave, Inc. - 144A*...................................... 6.05 05/15/04 2,357,475
------------
PACKAGE GOODS/COSMETICS (0.7%)
3,500 Avon Products Inc. - 144A*............................................ 7.15 11/15/09 3,364,760
------------
PRECIOUS METALS (1.1%)
5,000 Barrick Gold Corp..................................................... 7.50 05/01/07 4,940,100
------------
RAILROADS (1.9%)
4,183 Burlington Northern Santa Fe Corp..................................... 7.33 06/23/10 4,098,223
4,437 Burlington Northern Santa Fe Corp..................................... 7.97 01/01/15 4,488,093
------------
8,586,316
------------
RESTAURANTS (0.2%)
1,000 McDonald's Corp....................................................... 8.875 04/01/11 1,109,080
------------
SPECIALTY CHEMICALS (1.0%)
5,000 Great Lakes Chemicals Corp............................................ 7.00 07/15/09 4,784,650
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS EQUIPMENT (0.9%)
$ 5,000 Motorola Inc.......................................................... 6.50 % 11/15/28 $ 4,306,100
------------
TOBACCO (1.1%)
5,000 Philip Morris Companies, Inc.......................................... 7.125 10/01/04 4,799,600
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $298,508,615)..................................................................... 286,077,794
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (29.3%)
5 Federal Home Loan Mortgage Corp....................................... 11.50 05/01/19 5,164
4,414 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.00 10/01/23-11/01/27 4,044,167
1,076 Federal Home Loan Mortgage Corp. PC Gold.............................. 8.50 01/01/22-12/01/24 1,104,185
12,519 Federal National Mortgage Assoc....................................... 6.00 07/01/27-03/01/29 11,458,556
15,317 Federal National Mortgage Assoc....................................... 6.50 03/01/26-08/01/29 14,435,988
20,146 Federal National Mortgage Assoc....................................... 7.00 03/01/17-07/01/29 19,478,712
9,434 Federal National Mortgage Assoc....................................... 7.50 08/01/27-09/01/29 9,330,676
282 Federal National Mortgage Assoc....................................... 9.00 06/01/21-02/01/25 293,747
9,687 Government National Mortgage Assoc.................................... 6.00 04/15/28-12/15/28 8,818,397
16,081 Government National Mortgage Assoc.................................... 6.50 08/15/27-02/15/29 15,101,425
11,516 Government National Mortgage Assoc.................................... 7.00 03/15/26-01/01/30 11,123,781
5,000 Government National Mortgage Assoc.................................... 7.00 (a) 4,829,688
18 Government National Mortgage Assoc.................................... 7.50 04/15/24-09/15/27 18,125
13,239 Government National Mortgage Assoc.................................... 8.00 10/15/24-11/15/29 13,366,958
1,767 Government National Mortgage Assoc.................................... 8.50 01/15/17-03/01/28 1,816,725
1,298 Government National Mortgage Assoc.................................... 9.00 08/15/24-12/15/24 1,357,587
129 Government National Mortgage Assoc.................................... 10.00 05/15/16-04/15/19 139,932
5,000 Tennessee Valley Authority............................................ 7.85 06/15/44 5,033,550
5,000 U.S. Treasury Note.................................................... 6.00 08/15/09 4,842,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - QUALITY INCOME PLUS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 U.S. Treasury Bond.................................................... 6.125% 08/15/29 $ 4,766,400
10,000 U.S. Treasury Note Strips............................................. 0.00 08/15/19 2,638,200
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $139,600,543)..................................................................... 134,004,163
------------
FOREIGN GOVERNMENT OBLIGATIONS (4.6%)
5,000 Hydro-Quebec.......................................................... 9.50 11/15/30 5,922,950
5,000 Province of New Brunswick............................................. 7.625 06/29/04 5,065,250
5,000 Province of Manitoba.................................................. 7.75 07/17/16 5,110,350
5,000 Province of Quebec.................................................... 7.50 07/15/23 4,852,800
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $20,919,200)...................................................................... 20,951,350
------------
SHORT-TERM INVESTMENTS (b) (2.7%)
U.S. GOVERNMENT AGENCY
12,550 Federal Home Loan Mortgage Corp. (AMORTIZED COST $12,548,954)......... 1.50 01/03/00 12,548,954
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $471,577,312) (c)........................................................ 99.4% 453,582,261
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.6 2,549,590
------ ------------
NET ASSETS................................................................................ 100.0% $456,131,851
------ ------------
------ ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
PC Participation Certificate.
(a) Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date; the actual principal amount
and maturity date will be determined upon settlement.
(b) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,150,347 and the
aggregate gross unrealized depreciation is $20,145,398, resulting in net
unrealized depreciation of $17,995,051.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (93.4%)
BEVERAGES - NON-ALCOHOLIC (1.4%)
$ 5,000 Sparkling Spring Water (Canada)................... 11.50 % 11/15/07 $ 3,950,000
------------
BROADCAST/MEDIA (3.5%)
8,000 Brill Media Co., LLC (Series B)................... 7.50++ 12/15/07 4,400,000
5,329 Mentus Media Corp. (Series B)..................... 12.00+ 02/01/03 532,900
4,890 Tri-State Outdoor Media Group..................... 11.00 05/15/08 4,816,650
------------
9,749,550
------------
CABLE TELEVISION (6.7%)
7,000 21st Century Telecom Group, Inc................... 12.25++ 02/15/08 4,690,000
3,750 Australis Holdings Ltd.
(Australia) (a)................................. 15.00++ 11/01/02 56,250
2,000 James Cable Partners L.P. (Series B).............. 10.75 08/15/04 2,040,000
3,000 Knology Holdings Inc.............................. 11.875++ 10/15/07 2,010,000
1,500 Optel Inc. (Series B) (a)......................... 13.00 02/15/05 1,110,000
12,250 Optel Inc. (a)(b)................................. 11.50 07/01/08 8,820,000
------------
18,726,250
------------
CASINO/GAMBLING (3.7%)
12,250 Aladdin Gaming Holdings/Capital Corp. LLC
(Series B)...................................... 13.50++ 03/01/10 4,961,250
9,915 Fitzgeralds Gaming Corp. (Series B) (b)........... 12.25 12/15/04 5,453,250
------------
10,414,500
------------
CELLULAR TELEPHONE (5.0%)
1,800 American Cellular Corp............................ 10.50 05/15/08 1,984,500
800 Clearnet Communications Inc. (Canada)............. 14.75++ 12/15/05 788,000
1,800 Dobson/Sygnet Communications...................... 12.25 12/15/08 1,980,000
3,500 Dolphin Telecom PLC (United Kingdom).............. 14.00++ 05/15/09 1,610,000
7,920 McCaw International Ltd........................... 13.00++ 04/15/07 5,535,763
1,500 Tritel PCS Inc. - 144A*........................... 12.75++ 05/15/09 945,000
1,500 Triton PCS Inc.................................... 11.00++ 05/01/08 1,065,000
------------
13,908,263
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (1.0%)
3,000 J.B. Poindexter & Co., Inc........................ 12.50 05/15/04 2,865,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER ELECTRONICS/APPLIANCES (1.1%)
$ 12,000 International Semi-Tech Microelectronics, Inc.
(Canada)(a)..................................... 11.50++% 08/15/03 $ 600,000
2,500 Windmere-Durable Holdings, Inc.................... 10.00 07/31/08 2,437,500
------------
3,037,500
------------
CONSUMER SPECIALTIES (0.8%)
2,500 Samsonite Corp.................................... 10.75 06/15/08 2,187,500
------------
CONSUMER/BUSINESS SERVICES (4.9%)
1,800 Anacomp, Inc. (Series B).......................... 10.875 04/01/04 1,795,500
8,288 Comforce Corp. (Series B)......................... 15.00+ 12/01/09 5,387,119
3,250 Comforce Operating, Inc........................... 12.00 12/01/07 2,112,500
7,700 Entex Information Services, Inc................... 12.50 08/01/06 3,465,000
1,000 MDC Communication Corp. (Canada).................. 10.50 12/01/06 987,500
------------
13,747,619
------------
CONTAINERS/PACKAGING (2.5%)
300 Berry Plastics Corp............................... 12.25 04/15/04 307,500
1,500 Berry Plastics Corp. - 144A*...................... 11.00 07/15/07 1,522,500
6,330 Envirodyne Industries, Inc........................ 10.25 12/01/01 3,544,800
1,800 Impac Group Inc. (Series B)....................... 10.125 03/15/08 1,638,000
------------
7,012,800
------------
CONTRACT DRILLING (1.0%)
4,600 Northern Offshore ASA (Series B) (Norway)......... 10.00 05/15/05 2,806,000
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.9%)
3,000 High Voltage Engineering, Inc..................... 10.75++ 08/15/04 2,565,000
------------
DIVERSIFIED MANUFACTURING (2.9%)
1,800 Eagle-Picher Industries, Inc...................... 9.375 03/01/08 1,575,000
1,800 Jordan Industries, Inc. (Series D)................ 10.375 08/01/07 1,800,000
7,200 Jordan Industries, Inc. (Series B)................ 11.75++ 04/01/09 4,824,000
------------
8,199,000
------------
ELECTRONIC DISTRIBUTORS (0.3%)
6,000 CHS Electronics, Inc.............................. 9.875 04/15/05 720,000
------------
FOOD CHAINS (0.5%)
2,515 Pueblo Xtra International, Inc. (Series C)........ 9.50 08/01/03 1,509,000
------------
FOOD DISTRIBUTORS (0.8%)
2,500 Fleming Companies, Inc. (Series B)................ 10.625 07/31/07 2,256,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HOTELS/RESORTS (4.4%)
$ 9,000 Epic Resorts LLC (Series B)....................... 13.00 % 06/15/05 $ 7,200,000
7,210 Resort At Summerlin (Series B).................... 13.00+ 12/15/07 5,047,035
------------
12,247,035
------------
INDUSTRIAL SPECIALTIES (1.7%)
1,325 Indesco International Inc......................... 9.75 04/15/08 596,250
1,500 International Wire Group, Inc..................... 11.75 06/01/05 1,548,750
3,000 Outsourcing Services Group, Inc. (Series B)....... 10.875 03/01/06 2,670,000
------------
4,815,000
------------
MEDICAL SPECIALTIES (2.0%)
5,100 Mediq Inc./PRN Life Support Services Inc.......... 11.00 06/01/08 2,040,000
3,000 Universal Hospital Services, Inc. (issued
02/25/98)....................................... 10.25 03/01/08 2,085,000
2,000 Universal Hospital Services, Inc. (issued
02/26/99)....................................... 10.25 03/01/08 1,340,000
------------
5,465,000
------------
MEDICAL/NURSING SERVICES (0.4%)
2,500 Pediatric Services of America, Inc. (Series A).... 10.00 04/15/08 1,150,000
------------
MILITARY/GOV'T/TECHNICAL (0.6%)
1,800 Loral Space & Communications Ltd.................. 9.50 01/15/06 1,638,000
------------
OFFICE EQUIPMENT/SUPPLIES (1.4%)
6,500 Mosler, Inc....................................... 11.00 04/15/03 3,835,000
------------
OIL REFINING/MARKETING (0.0%)
3,000 Transamerican Refining Corp. (Series B) (b)....... 16.00 06/30/03 45,000
------------
OTHER TELECOMMUNICATIONS (11.9%)
6,500 Birch Telecom Inc................................. 14.00 06/15/08 6,565,000
3,000 DTI Holdings Inc. - (Series B).................... 12.50++ 03/01/08 1,110,000
1,800 Esprit Telecom Group PLC (United Kingdom)......... 11.50 12/15/07 1,827,000
16,520 Firstworld Communications, Inc.................... 13.00++ 04/15/08 9,912,000
1,800 Globenet Comm Group Ltd. - 144A* (Bermuda)........ 13.00 07/15/07 1,827,000
1,500 Pac-West Telecom Inc. (Series B).................. 13.50 02/01/09 1,552,500
2,500 Primus Telecommunication Group, Inc.
(Series B)...................................... 9.875 05/15/08 2,300,000
1,800 Versatel Telecom International NV (Netherlands)... 13.25 05/15/08 1,917,000
5,000 World Access, Inc. (c)............................ 13.25 01/15/08 4,500,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,800 Worldwide Fiber Inc. (Canada) - 144A*............. 12.00 % 08/01/09 $ 1,858,500
------------
33,369,000
------------
PACKAGE GOODS/COSMETICS (1.1%)
3,000 J.B. Williams Holdings, Inc....................... 12.00 03/01/04 3,003,750
------------
PRINTING/FORMS (0.6%)
2,500 Premier Graphics Inc.............................. 11.50 12/01/05 1,750,000
------------
RESTAURANTS (3.9%)
20,351 American Restaurant Group Holdings, Inc. - 144A*
(c)............................................. 0.00 12/15/05 6,715,929
5,000 FRD Acquisition Corp. (Series B).................. 12.50 07/15/04 2,550,000
1,800 Friendly Ice Cream Corp........................... 10.50 12/01/07 1,548,000
------------
10,813,929
------------
RETAIL - SPECIALTY (1.0%)
2,875 Pantry, Inc....................................... 10.25 10/15/07 2,803,125
------------
SPECIALTY FOODS/CANDY (2.3%)
43,678 SFAC New Holdings Inc. (c)........................ 13.00++ 06/15/09 6,551,723
------------
TELECOMMUNICATIONS (12.4%)
1,800 Caprock Communications Corp. (Series B)........... 12.00 07/15/08 1,863,000
1,500 Covad Communications Group, Inc................... 12.50 02/15/09 1,560,000
5,000 e. Spire Communications, Inc...................... 13.75 07/15/07 3,550,000
2,500 Focal Communications, Corp. (Series B)............ 12.125++ 02/15/08 1,650,000
1,800 GST Equipment Funding, Inc........................ 13.25 05/01/07 1,782,000
1,800 Hyperion Telecommunication, Inc. (Series B)....... 12.25 09/01/04 1,948,500
28,500 In-Flight Phone Corp. (Series B) (b).............. 14.00 05/15/02 3,135,000
1,800 Level 3 Communications, Inc....................... 9.125 05/01/08 1,703,250
1,800 NEXTLINK Communications, Inc...................... 9.00 03/15/08 1,714,500
4,000 Onepoint Communications Corp...................... 14.50 06/01/08 2,600,000
5,400 Rythms Netconnections, Inc........................ 12.75 04/15/09 5,211,000
4,000 Startec Global Communications Corp................ 12.00 05/15/08 3,240,000
3,000 Talton Holdings, Inc. - (Series B)................ 11.00 06/30/07 2,850,000
1,800 Viatel Inc........................................ 11.25 04/15/08 1,809,000
------------
34,616,250
------------
TELECOMMUNICATIONS EQUIPMENT (1.8%)
10,500 FWT, Inc. (b)..................................... 9.875 11/15/07 840,000
3,500 SBA Communications Corp........................... 12.00++ 03/01/08 2,135,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,500 Spectrasite Holdings, Inc......................... 12.00++% 07/15/08 $ 2,082,500
------------
5,057,500
------------
WIRELESS COMMUNICATIONS (10.9%)
11,375 Advanced Radio Telecom Corp....................... 14.00 02/15/07 10,351,250
1,800 AMSC Acquisition Co., Inc. (Series B)............. 12.25 04/01/08 1,417,500
900 Arch Escrow Corp.................................. 13.75 04/15/08 729,000
19,000 Cellnet Data Systems Inc.......................... 14.00++ 10/01/07 2,280,000
1,100 Cellnet Data Systems Inc.......................... 15.00 01/07/00 1,100,000
3,000 Globalstar LP/Capital Corp........................ 10.75 11/01/04 1,995,000
3,300 Orbcomm Global LP/Capital Corp. (Series B)........ 14.00 08/15/04 2,277,000
5,040 Paging Network, Inc............................... 10.125 08/01/07 1,562,400
6,400 Paging Network, Inc............................... 10.00 10/15/08 1,984,000
1,000 Star Choice Communications, Inc. (Canada)......... 13.00 12/15/05 1,010,000
4,500 USA Mobile Communications Holdings, Inc........... 14.00 11/01/04 4,095,000
1,500 Winstar Equipment Corp............................ 12.50 03/15/04 1,620,000
------------
30,421,150
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $362,178,459)............................................ 261,235,694
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
COMMON STOCKS (d) (0.8%)
CASINO/GAMBLING (0.0%)
2,000 Fitzgerald Gaming Corp...................................... 2
------------
CLOTHING/SHOE/ACCESSORY STORES (0.0%)
1,310,596 County Seat Store Corp. (c)................................. 11,795
------------
HOTELS/RESORTS (0.6%)
2,000 Motels of America, Inc. - 144A*............................. 500
444,351 Premier Holdings Inc. (c)................................... 1,499,685
71,890 Vagabond Inns, Inc. (Class D) (a)........................... 72
------------
1,500,257
------------
MEDICAL/NURSING SERVICES (0.1%)
418,663 Raintree Healthcare Corp. (c)............................... 376,797
------------
MOTOR VEHICLES (0.0%)
87 Northern Holdings Industrial Corp. * (c).................... --
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (0.0%)
7,750 American Restaurant Group Holdings, Inc. - 144A*............ $ 1,937
------------
SPECIALTY FOODS/CANDY (0.0%)
2,375 SFAC New Holdings Inc. (c).................................. 594
120,000 Specialty Foods Acquisition Corp. - 144A*................... 30,000
------------
30,594
------------
TELECOMMUNICATIONS EQUIPMENT (0.1%)
15,711 World Access, Inc. (c)...................................... 304,401
------------
TEXTILES (0.0%)
298,461 U.S. Leather, Inc. (c)...................................... 2,686
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $29,856,249)............................... 2,228,469
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ---------- --------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS (0.1%)
HOTELS/RESORTS (0.1%)
$ 370 Premier Cruises Ltd. (IDENTIFIED COST $370,000)............. 7.00% 8/15/05 362,600
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C>
PREFERRED STOCKS (0.5%)
OIL REFINING/MARKETING (0.0%)
5,266 Transamerica Refining Corp. (Conv.) (Class B)*.............. 53
2,896 Transamerica Refining Corp. (Conv.) (Class C)*.............. 29
7,635 Transamerica Refining Corp. (Conv.) (Class D)*.............. 76
15,797 Transamerica Refining Corp. (Conv.) (Class E)*.............. 158
------------
316
------------
RESTAURANTS (0.5%)
1,780 American Restaurant Group Holdings, Inc. (Series B)......... 1,424,000
------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $1,781,863)................................ 1,424,316
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (d) (1.4%)
AEROSPACE (0.0%)
1,500 Sabreliner Corp. - 144A*.................................... 04/15/03 $ 15,000
------------
BROADCAST/MEDIA (0.0%)
12,524 Mentus Media Corp. - 144A*.................................. 02/01/08 125
------------
CASINO/GAMBLING (0.0%)
100,000 Aladdin Gaming Enterprises, Inc. - 144A*................... 03/01/10 1,000
------------
CONSUMER/BUSINESS SERVICES (0.0%)
42,250 Comforce Corp. - 144A*...................................... 12/01/09 10,563
------------
HOTELS/RESORTS (0.0%)
9,000 Epic Resorts LLC - 144A*.................................... 06/15/05 90
6,000 Resort At Summerlin - 144A*................................. 12/15/07 60
------------
150
------------
OIL & GAS PRODUCTION (0.0%)
39,665 Gothic Energy Corp. - 144A*................................. 05/01/05 40
------------
OIL REFINING/MARKETING (0.0%)
3,000 Transamerican Refining Corp. - 144A*........................ 06/30/03 3
------------
OTHER TELECOMMUNICATIONS (1.2%)
6,500 Birch Telecom Inc. - 144A*.................................. 06/15/08 357,500
15,000 DTI Holdings Inc. - 144A*................................... 03/01/08 150
16,520 Firstworld Communications, Inc. - 144A*..................... 04/15/08 1,982,400
2,500 Versatel Telecom - 144A* (Netherlands)...................... 05/15/08 1,000,000
------------
3,340,050
------------
RESTAURANTS (0.0%)
1,500 American Restaurant Group Holdings, Inc. - 144A*........... 08/15/08 15
------------
TELECOMMUNICATIONS (0.0%)
4,000 Onepoint Communications Corp. - 144A*....................... 06/01/08 40,000
4,000 Startec Global Communications Corp. - 144A*................. 05/15/08 40,000
------------
80,000
------------
WIRELESS COMMUNICATIONS (0.2%)
1,800 American Mobile Satellite Corp. - 144A*..................... 04/01/08 72,000
92,640 Star Choice Communications, Inc. - 144A* (Canada)........... 12/15/05 324,240
------------
396,240
------------
TOTAL WARRANTS
(IDENTIFIED COST $489,771)............................................. 3,843,186
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.6%)
U.S. GOVERNMENT AGENCY (e) (1.4%)
$ 3,900 Federal Home Loan Mortgage Corp. (AMORTIZED COST
$3,899,675)............................................... 1.50% 01/03/00 $ 3,899,675
------------
REPURCHASE AGREEMENT (0.2%)
574 The Bank of New York (dated 12/31/99; proceeds $573,787) (f)
(IDENTIFIED COST $573,715)................................ 1.50 01/03/00 573,715
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,473,390).......................................................... 4,473,390
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $399,149,732) (g)........................................................ 97.8% 273,567,655
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 2.2 6,115,817
------ ------------
NET ASSETS................................................................................ 100.0% $279,683,472
------ ------------
------ ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ 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 securities
(e) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) Collateralized by $402,420 U.S. Treasury Bond 11.25% due 02/15/15 valued
at $585,646.
(g) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $8,763,793 and the
aggregate gross unrealized depreciation is $134,345,870, resulting in net
unrealized depreciation of $125,582,077.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (90.0%)
ELECTRIC UTILITIES (31.2%)
115,000 AES Corp.*............................................................................. $ 8,596,250
135,000 Carolina Power & Light Co.............................................................. 4,109,062
110,000 Central & South West Corp.............................................................. 2,200,000
215,865 Cinergy Corp........................................................................... 5,207,743
205,000 CMS Energy Corp........................................................................ 6,393,437
130,000 Consolidated Edison, Inc............................................................... 4,485,000
200,000 Constellation Energy Group............................................................. 5,800,000
337,500 DPL, Inc............................................................................... 5,842,969
232,500 DQE, Inc............................................................................... 8,050,312
130,000 DTE Energy Co.......................................................................... 4,078,750
141,216 Duke Energy Corp....................................................................... 7,078,452
140,000 Edison International................................................................... 3,666,250
220,000 Energy East Corp....................................................................... 4,578,750
200,000 Entergy Corp........................................................................... 5,150,000
150,000 FPL Group, Inc......................................................................... 6,421,875
140,000 GPU, Inc............................................................................... 4,191,250
120,000 Hawaiian Electric Industries, Inc...................................................... 3,465,000
215,000 Illinova Corp.......................................................................... 7,471,250
420,000 IPALCO Enterprises, Inc................................................................ 7,166,250
115,000 Kansas City Power & Light Co........................................................... 2,537,187
315,000 Montana Power Co....................................................................... 11,359,687
195,000 New Century Energies, Inc.............................................................. 5,923,125
115,000 New England Electric System............................................................ 5,951,250
280,000 NiSource Inc........................................................................... 5,005,000
100,000 OGE Energy Corp........................................................................ 1,900,000
195,000 Pinnacle West Capital Corp............................................................. 5,959,687
55,000 Potomac Electric Power Co.............................................................. 1,261,562
200,000 Public Service Company of New Mexico................................................... 3,250,000
115,000 Public Service Enterprise Group, Inc................................................... 4,003,437
200,000 Reliant Energy, Inc.................................................................... 4,575,000
215,000 SCANA Corp............................................................................. 5,778,125
130,500 Scottish Power PLC (ADR) (United Kingdom).............................................. 3,654,000
275,000 Southern Co............................................................................ 6,462,500
161,500 Texas Utilities Co..................................................................... 5,743,344
200,000 Wisconsin Energy Corp.................................................................. 3,850,000
------------
181,166,504
------------
ENERGY (7.8%)
153,625 Burlington Resources, Inc.............................................................. 5,079,227
50,000 Columbia Energy Group.................................................................. 3,162,500
230,460 El Paso Energy Corp.................................................................... 8,944,729
311,500 Enron Corp............................................................................. 13,822,812
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
245,000 Questar Corp........................................................................... $ 3,675,000
100,000 Sempra Energy*......................................................................... 1,737,500
290,000 Williams Companies, Inc................................................................ 8,863,125
------------
45,284,893
------------
TELECOMMUNICATIONS (51.0%)
161,932 ALLTEL Corp............................................................................ 13,389,752
278,177 AT&T Corp.............................................................................. 14,117,483
185,000 BCE, Inc. (Canada)..................................................................... 16,684,688
154,320 Bell Atlantic Corp..................................................................... 9,500,325
110,000 Broadwing Inc.......................................................................... 4,056,250
190,000 Cable & Wireless PLC (ADR) (United Kingdom)............................................ 10,058,125
288,750 CenturyTel, Inc........................................................................ 13,679,531
240,000 Ericsson (L.M.) Telefonaktiebolaqet (ADR) (Sweden)..................................... 15,750,000
91,100 Esat Telecom Group PLC (ADR) (Ireland)*................................................ 8,335,650
333,250 Global Crossing Ltd. (Bermuda)*........................................................ 16,641,672
110,000 Global Telesystems Group, Inc.*........................................................ 3,808,750
140,000 GTE Corp............................................................................... 9,878,750
67,968 Lucent Technologies Inc................................................................ 5,084,856
246,163 MCI WorldCom, Inc.*.................................................................... 13,046,666
125,000 MediaOne Group, Inc.*.................................................................. 9,601,563
30,000 Nextel Communications, Inc. (Class A)*................................................. 3,091,875
331,508 Qwest Communications International, Inc.*.............................................. 14,234,125
205,000 RCN Corp.*............................................................................. 9,929,688
298,946 SBC Communications, Inc................................................................ 14,573,618
215,000 Sprint Corp. (FON Group)............................................................... 14,472,188
50,000 Sprint Corp. (PCS Group)*.............................................................. 5,125,000
130,000 Tele Danmark AS (ADR) (Denmark)........................................................ 4,907,500
120,000 Telecom Corp. of New Zealand Ltd. (ADR) (New Zealand).................................. 4,620,000
80,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)..................................... 9,000,000
100,000 Telephone & Data Systems, Inc.......................................................... 12,600,000
206,000 Telstra Corp. Ltd. (ADR) (Australia)................................................... 5,613,500
112,867 U.S. West, Inc......................................................................... 8,126,424
245,000 Vodafone AirTouch PLC (ADR) (United Kingdom)........................................... 12,127,500
55,000 Voicestream Wireless Corp.*............................................................ 7,803,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
82,700 WinStar Communications, Inc.*.......................................................... $ 6,212,838
------------
296,071,442
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $277,628,153)......................................................... 522,522,839
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (6.9%)
ELECTRIC UTILITIES (4.0%)
$ 2,250 Consumers Energy Co. 6.875% due 03/01/18....................................... 1,952,707
2,000 Empresa Nacional de Electricidad Chile, (Chile)
8.125% due 02/01/97.......................................................... 1,617,640
3,000 Indianapolis Power Co.
7.05% due 02/01/24........................................................... 2,627,340
2,500 Niagara Mohawk Power Corp. 8.00% due 06/01/04.................................. 2,549,825
1,500 Northern States Power Co. 6.50% due 03/01/28................................... 1,284,165
2,125 Public Service Electric & Gas Co. 6.75% due 01/01/16........................... 1,915,178
3,000 Public Service Electric & Gas Co. 7.00% due 09/01/24........................... 2,710,140
2,000 South Carolina Electric & Gas Co. 7.625% due 06/01/23.......................... 1,862,500
2,000 Southwestern Public Service
8.50% due 02/15/25........................................................... 1,970,320
5,000 Wisconsin Electric Power Co.
7.125% due 03/15/16.......................................................... 4,629,600
------------
23,119,415
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENERGY (1.3%)
500 CMS Panhandle Holding Co. 7.00% due 07/15/29................................... 438,860
3,000 Coastal Corp.
7.75% due 10/15/35........................................................... 2,846,010
$ 2,000 Northern Border Pipeline 7.75% due 09/01/09**.................................. $ 1,993,660
2,000 Panhandle Eastern Corp. 8.625% due 04/15/25.................................... 1,985,500
------------
7,264,030
------------
TELECOMMUNICATIONS (1.6%)
2,000 360 DEG. Communications Co. 6.65% due 01/15/08................................. 1,890,240
2,000 GTE Corp.
7.90% due 02/01/27........................................................... 1,915,280
2,000 GTE North Inc.
5.65% due 11/15/08........................................................... 1,769,960
500 LCI International, Inc.
7.25% due 06/15/07........................................................... 481,545
1,000 Sprint Capital Corp.
6.875% due 11/15/28.......................................................... 889,730
2,000 Sprint Corp.
9.25% due 04/15/22........................................................... 2,281,860
------------
9,228,615
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $42,396,993).................................................. 39,612,060
U.S. GOVERNMENT AGENCY (0.2%)
50 Tennessee Valley Authority 8.00% due 03/31/45 (IDENTIFIED COST $1,250,000)..... 1,228,125
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT (a) (2.8%)
U.S. GOVERNMENT AGENCY
<C> <S> <C> <C>
$ 16,300 Federal Home Loan Mortgage Corp.
1.50% due 01/03/00 (AMORTIZED COST $16,298,642).............................. $ 16,298,642
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $337,573,788) (b)........................................................ 99.9% 579,661,666
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 825,286
------ ------------
NET ASSETS................................................................................ 100.0% $580,486,952
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $254,648,918 and the
aggregate gross unrealized depreciation is $12,561,040, resulting in net
unrealized appreciation of $242,087,878.
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (42.3%)
AUTO PARTS: O.E.M. (1.8%)
45,500 Delphi Automotive Systems Corp.......................................................... $ 716,625
13,300 Johnson Controls, Inc................................................................... 756,437
-----------
1,473,062
-----------
BUILDING MATERIALS (0.8%)
17,000 Vulcan Materials Co..................................................................... 678,937
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.9%)
16,800 Limited (The), Inc...................................................................... 727,650
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.9%)
11,300 Whirlpool Corp.......................................................................... 735,206
-----------
CONTAINERS/PACKAGING (0.9%)
32,000 Crown Cork & Seal Co., Inc.............................................................. 716,000
-----------
ELECTRIC UTILITIES (2.4%)
20,200 Public Service Enterprise Group, Inc.................................................... 703,212
28,000 Reliant Energy, Inc..................................................................... 640,500
34,000 TECO Energy, Inc........................................................................ 631,125
-----------
1,974,837
-----------
ELECTRICAL PRODUCTS (0.9%)
12,500 Emerson Electric Co..................................................................... 717,187
-----------
ENGINEERING & CONSTRUCTION (0.9%)
16,600 Fluor Corp.............................................................................. 761,525
-----------
FINANCE COMPANIES (2.4%)
22,200 Associates First Capital Corp. (Class A)................................................ 609,112
10,900 Fannie Mae.............................................................................. 680,569
15,200 SLM Holding Corp........................................................................ 642,200
-----------
1,931,881
-----------
FOOD CHAINS (0.9%)
22,000 Albertson's, Inc........................................................................ 709,500
-----------
FOOD DISTRIBUTORS (0.9%)
38,500 Supervalu, Inc.......................................................................... 770,000
-----------
INVESTMENT MANAGERS (0.2%)
967 Waddell & Reed Financial, Inc. (Class A)................................................ 26,230
4,163 Waddell & Reed Financial, Inc. (Class B)................................................ 104,595
-----------
130,825
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE (1.7%)
10,500 Jefferson-Pilot Corp.................................................................... $ 716,625
17,700 Lincoln National Corp................................................................... 708,000
-----------
1,424,625
-----------
MAJOR BANKS (0.9%)
14,300 Bank of America Corp.................................................................... 717,681
-----------
MAJOR CHEMICALS (2.8%)
5,500 Dow Chemical Co......................................................................... 734,937
28,500 Hercules Inc............................................................................ 794,437
19,000 Rohm & Haas Co.......................................................................... 773,062
-----------
2,302,436
-----------
MAJOR PHARMACEUTICALS (0.8%)
16,200 Schering-Plough Corp.................................................................... 683,437
-----------
MAJOR U.S. TELECOMMUNICATIONS (2.4%)
13,200 AT&T Corp............................................................................... 669,900
10,400 Bell Atlantic Corp...................................................................... 640,250
9,000 GTE Corp................................................................................ 635,063
-----------
1,945,213
-----------
MARINE TRANSPORTATION (0.9%)
20,300 Tidewater, Inc.......................................................................... 730,800
-----------
MEAT/POULTRY/FISH (1.7%)
30,000 ConAgra, Inc............................................................................ 676,875
16,500 Hormel Foods Corp....................................................................... 670,313
-----------
1,347,188
-----------
MOTOR VEHICLES (1.7%)
13,500 Ford Motor Co........................................................................... 721,406
9,000 General Motors Corp..................................................................... 654,188
-----------
1,375,594
-----------
NATURAL GAS (0.8%)
10,500 Consolidated Natural Gas Co............................................................. 681,844
-----------
NEWSPAPERS (0.4%)
24,002 Hollinger International, Inc. (Class A)................................................. 310,526
-----------
OFFICE EQUIPMENT/SUPPLIES (0.8%)
30,500 Xerox Corp.............................................................................. 691,969
-----------
OIL REFINING/MARKETING (1.7%)
21,500 Ashland, Inc............................................................................ 708,156
29,000 Ultramar Diamond Shamrock Corp.......................................................... 657,938
-----------
1,366,094
-----------
PAINTS/COATINGS (0.9%)
11,500 PPG Industries, Inc..................................................................... 719,469
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS (5.9%)
12,200 Avalonbay Communities, Inc.............................................................. $ 418,613
17,500 Boston Properties, Inc.................................................................. 544,688
10,000 Camden Property Trust................................................................... 273,750
21,200 Duke-Weeks Realty Corp.................................................................. 413,400
18,500 Equity Office Properties Trust.......................................................... 455,563
30,000 Equity One, Inc......................................................................... 313,125
14,000 First Industrial Realty Trust, Inc...................................................... 384,125
22,000 Healthcare Realty Trust, Inc............................................................ 343,750
22,300 JDN Realty Corp......................................................................... 359,588
16,600 Meditrust Corp. (Paired Stock).......................................................... 91,300
26,780 MeriStar Hospitality Corp............................................................... 428,480
21,000 Reckson Associates Realty Corp.......................................................... 430,500
18,000 Tanger Factory Outlet Centers, Inc...................................................... 373,500
-----------
4,830,382
-----------
RENTAL/LEASING COMPANIES (0.9%)
29,100 Ryder System, Inc....................................................................... 711,131
-----------
SAVINGS & LOAN ASSOCIATIONS (0.8%)
26,500 Washington Mutual, Inc.................................................................. 689,000
-----------
SPECIALTY CHEMICALS (0.9%)
22,600 Air Products & Chemicals, Inc........................................................... 758,513
-----------
STEEL/IRON ORE (1.0%)
25,000 USX-U.S. Steel Group.................................................................... 825,000
-----------
TOBACCO (1.4%)
29,000 Philip Morris Companies, Inc............................................................ 672,438
17,200 UST, Inc................................................................................ 433,225
-----------
1,105,663
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $35,230,670)........................................................... 34,543,175
-----------
CONVERTIBLE PREFERRED STOCKS (22.3%)
APPAREL (0.3%)
10,000 Designer Financial Trust $3.00.......................................................... 245,000
-----------
AUTO PARTS: O.E.M. (0.0%)
12,000 BTI Capital Trust $3.25 - 144A*......................................................... 1,500
-----------
BOOKS/MAGAZINES (0.8%)
25,000 Reader's Digest Association, Inc. $1.93................................................. 678,125
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONTAINERS/PACKAGING (1.2%)
20,000 Sealed Air Corp. (Series A) $2.00....................................................... $ 1,010,000
-----------
HOME FURNISHINGS (0.6%)
12,000 Newell Financial Trust I $2.63.......................................................... 461,244
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.9%)
28,000 Ingersoll-Rand Co. $1.69................................................................ 714,000
-----------
INTERNATIONAL BANKS (1.8%)
30,200 National Australia Bank, Ltd. $1.97 (Australia) (Units)++............................... 834,275
19,500 WBK Strypes Trust $3.14................................................................. 625,219
-----------
1,459,494
-----------
INVESTMENT BANKERS/BROKERS/
SERVICES (0.3%)
15,940 Merrill Lynch & Co., Inc. $2.39 (exchangeable into IMC Global, Inc. common stock)....... 284,927
-----------
LIFE INSURANCE (0.7%)
2,500 American Heritage Life Investment Corp. $4.25........................................... 216,719
15,000 AmerUs Life Holdings, Inc. $2.21........................................................ 341,250
-----------
557,969
-----------
MILITARY/GOV'T/TECHNICAL (0.6%)
7,530 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda)............................ 468,742
-----------
MOVIES/ENTERTAINMENT (0.9%)
14,000 Premier Parks, Inc. $4.05............................................................... 756,000
-----------
OIL REFINING/MARKETING (1.0%)
50,000 Tesoro Petroleum Corp. $1.16............................................................ 600,000
35,000 USX Corp. $1.44 (exchangeable into RTI International Metals, Inc. common stock)......... 262,500
-----------
862,500
-----------
OTHER CONSUMER SERVICES (0.7%)
15,500 Cendant Corp. $3.75..................................................................... 579,312
-----------
PACKAGE GOODS/COSMETICS (1.4%)
13,000 Estee Lauder Co. $3.80.................................................................. 1,125,313
-----------
RAILROADS (0.6%)
11,400 Union Pacific Capital Trust $3.13....................................................... 468,848
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS (2.1%)
20,000 Apartment Investment & Management Co. (Series K) $2.00.................................. $ 490,000
9,000 Equity Residential Properties Trust (Series E) $1.75.................................... 212,625
1,085 Equity Residential Properties Trust (Series J) $2.15.................................... 28,278
40,000 SL Green Realty Corp. $2.00............................................................. 950,000
-----------
1,680,903
-----------
SMALLER BANKS (1.3%)
30,000 CNB Capital Trust I $1.50............................................................... 1,042,500
-----------
TELECOMMUNICATION EQUIPMENT (5.0%)
4,000 Qualcomm Financial Trust $2.875......................................................... 4,080,000
-----------
TOOLS/HARDWARE (0.7%)
19,400 Metromedia International Group, Inc. $3.63.............................................. 582,000
-----------
UNREGULATED POWER GENERATION (0.9%)
19,000 CalEnergy Capital Trust III $3.25....................................................... 731,500
-----------
WIRELESS COMMUNICATIONS (0.5%)
4,000 Globalstar Telecommunications Ltd. $4.00................................................ 405,500
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $16,274,882)........................................................... 18,195,377
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (26.9%)
CONVERTIBLE BONDS (11.0%)
ASSISTED LIVING SERVICES (0.1%)
$ 220 Emeritus Corp. - 144A* 6.25% due 01/01/06............................................... 88,000
-----------
AUTO PARTS: O.E.M. (1.4%)
1,000 Magna International, Inc. 4.875% due 02/15/05........................................... 854,240
350 MascoTech, Inc. 4.50% due 12/15/03...................................................... 256,812
-----------
1,111,052
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CABLE TELEVISION (2.1%)
$ 1,400 EchoStar Communications - 144A* 4.875% due 01/01/07..................................... $ 1,706,082
-----------
CELLULAR TELEPHONE (0.5%)
400 U.S. Cellular Corp. 0.00% due 06/15/15.................................................. 384,756
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.9%)
890 Genesco Inc. 5.50% due 04/15/05......................................................... 753,100
-----------
ELECTRONIC COMPONENTS (0.9%)
610 Photronics Inc. 6.00% due 06/01/04...................................................... 712,938
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.3%)
200 Thermo Fibertek, Inc. - 144A* 4.50% due 07/15/04........................................ 160,156
100 Thermo Optek Inc. - 144A* 5.00% due 10/15/00............................................ 97,186
-----------
257,342
-----------
MAJOR U.S. TELECOMMUNICATIONS (2.8%)
800 Bell Atlantic Financial Service - 144A* (exchangeable into Cable & Wireless
Communications common stock) 4.25% due 09/15/05....................................... 994,384
1,300 Bell Atlantic Financial Service - 144A* (exchangeable into Telecom Corporation of New
Zealand common stock) 5.75% due 04/01/03.............................................. 1,313,650
-----------
2,308,034
-----------
REAL ESTATE INVESTMENT TRUSTS (0.9%)
305 Capstar Hotel Corp. 4.75% due 10/15/04.................................................. 223,413
575 Healthcare Realty Trust 6.55% due 03/14/02.............................................. 492,660
-----------
716,073
-----------
RENTAL/LEASING COMPANIES (1.1%)
1,000 Financial Federal Corp. 4.50% due 05/01/05.............................................. 946,460
-----------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $8,817,394)............................................................ 8,983,837
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - INCOME BUILDER
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NON-CONVERTIBLE BONDS (15.9%)
BROADCASTING (2.1%)
$ 600 EZ Communications, Inc. 9.75% due 12/01/05.............................................. $ 641,262
1,000 Young Broadcasting Corp. 11.75% due 11/15/04............................................ 1,043,750
-----------
1,685,012
-----------
BUILDING MATERIALS (0.6%)
500 USG Corp. (Series B) 9.25% due 09/15/01................................................. 513,055
-----------
ELECTRONIC DATA PROCESSING (2.3%)
1,750 Unisys Corp. (Series B) 12.00% due 04/15/03............................................. 1,868,125
-----------
MANAGED HEALTH CARE (0.9%)
700 Healthsouth Corp. 9.50% due 04/01/01.................................................... 693,000
-----------
METALS FABRICATIONS (0.8%)
600 Ivaco, Inc. (Canada) 11.50% due 09/15/05................................................ 649,500
-----------
OTHER METALS/MINERALS (3.2%)
2,500 Cyprus Amax Minerals Inc. 10.125% due 04/01/02.......................................... 2,610,325
-----------
OTHER TELECOMMUNICATIONS (1.6%)
1,150 Sprint Spectrum L.P. 11.00% due 08/15/06................................................ 1,269,807
-----------
PAPER (1.0%)
800 SD Warren Co. (Series B) 12.00% due 12/15/04............................................ 837,000
-----------
SPECIALTY CHEMICALS (2.4%)
1,875 Huntsman Polymers Corp. 11.75% due 12/01/04............................................. 1,959,375
-----------
TEXTILES (1.0%)
862 Dan River, Inc. 10.125% due 12/15/03.................................................... 844,760
-----------
TOTAL NON-CONVERTIBLE BONDS
(IDENTIFIED COST $13,494,020)........................................................... 12,929,959
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $22,311,414)........................................................... 21,913,796
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (11.8%)
U.S. GOVERNMENT AGENCY
$ 9,650 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $9,649,196)......... $ 9,649,196
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $83,466,162) (b).......................................................... 103.3% 84,301,544
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (3.3) (2,685,208)
------ -----------
NET ASSETS................................................................................. 100.0% $81,616,336
------ -----------
------ -----------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consist 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) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $8,794,892 and the
aggregate gross unrealized depreciation is $7,959,510, resulting in net
unrealized appreciation of $835,382.
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.3%)
AEROSPACE (3.4%)
830,000 Goodrich (B.F.) Co. (The)........................................................... $ 22,825,000
1,050,000 Lockheed Martin Corp................................................................ 22,968,750
350,000 United Technologies Corp............................................................ 22,750,000
--------------
68,543,750
--------------
ALUMINUM (2.2%)
555,000 Alcan Aluminium Ltd. (Canada)....................................................... 22,859,062
272,500 Alcoa, Inc.......................................................................... 22,617,500
--------------
45,476,562
--------------
APPAREL (1.0%)
695,500 VF Corp............................................................................. 20,865,000
--------------
AUTO PARTS: O.E.M. (4.2%)
750,000 Dana Corp........................................................................... 22,453,125
1,380,000 Delphi Automotive Systems Corp...................................................... 21,735,000
375,000 Johnson Controls, Inc............................................................... 21,328,125
405,000 TRW Inc............................................................................. 21,034,687
--------------
86,550,937
--------------
AUTOMOTIVE AFTERMARKET (1.0%)
715,000 Goodyear Tire & Rubber Co........................................................... 20,154,062
--------------
BEVERAGES - NON-ALCOHOLIC (2.0%)
343,000 Coca Cola Co........................................................................ 19,979,750
580,000 PepsiCo, Inc........................................................................ 20,445,000
--------------
40,424,750
--------------
BUILDING PRODUCTS (1.1%)
673,500 Armstrong World Industries, Inc..................................................... 22,478,062
--------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.1%)
435,000 Caterpillar, Inc.................................................................... 20,472,187
523,000 Deere & Co.......................................................................... 22,685,125
--------------
43,157,312
--------------
CONSUMER ELECTRONICS/APPLIANCES (1.1%)
335,000 Whirlpool Corp...................................................................... 21,795,937
--------------
CONTAINERS/PACKAGING (1.1%)
1,020,000 Crown Cork & Seal Co., Inc.......................................................... 22,822,500
--------------
DEPARTMENT STORES (2.1%)
665,000 May Department Stores Co............................................................ 21,446,250
682,000 Sears, Roebuck & Co................................................................. 20,758,375
--------------
42,204,625
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISCOUNT CHAINS (1.0%)
275,000 Dayton Hudson Corp.................................................................. $ 20,195,312
--------------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
240,000 Providian Financial Corp............................................................ 21,855,000
--------------
DIVERSIFIED MANUFACTURING (3.3%)
369,375 Honeywell International Inc......................................................... 21,308,320
220,000 Minnesota Mining & Manufacturing Co................................................. 21,532,500
650,000 Tyco International Ltd. (Bermuda)................................................... 25,268,750
--------------
68,109,570
--------------
ELECTRIC UTILITIES (5.0%)
490,000 Dominion Resources, Inc............................................................. 19,232,500
475,000 FPL Group, Inc...................................................................... 20,335,937
685,000 GPU, Inc............................................................................ 20,507,187
860,000 Reliant Energy, Inc................................................................. 19,672,500
620,000 Unicom Corp......................................................................... 20,770,000
--------------
100,518,124
--------------
ELECTRONIC DATA PROCESSING (2.1%)
185,000 Hewlett-Packard Co.................................................................. 21,078,437
190,000 International Business Machines Corp................................................ 20,520,000
--------------
41,598,437
--------------
ENGINEERING & CONSTRUCTION (1.1%)
495,000 Fluor Corp.......................................................................... 22,708,125
--------------
FINANCE COMPANIES (2.9%)
690,000 Associates First Capital Corp. (Class A)............................................ 18,931,875
335,500 Fannie Mae.......................................................................... 20,947,781
525,000 Household International, Inc........................................................ 19,556,250
--------------
59,435,906
--------------
FOOD CHAINS (2.0%)
645,000 Albertson's, Inc.................................................................... 20,801,250
845,000 Winn-Dixie Stores, Inc.............................................................. 20,227,188
--------------
41,028,438
--------------
FOOD DISTRIBUTORS (2.2%)
1,145,000 Supervalu, Inc...................................................................... 22,900,000
575,000 SYSCO Corp.......................................................................... 22,748,438
--------------
45,648,438
--------------
FOREST PRODUCTS (1.1%)
300,000 Weyerhaeuser Co..................................................................... 21,543,750
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOME FURNISHINGS (1.0%)
680,000 Newell Rubbermaid, Inc.............................................................. $ 19,720,000
--------------
INTEGRATED OIL COMPANIES (4.1%)
345,000 BP Amoco PLC (ADR) (United Kingdom)................................................. 20,462,813
251,073 Exxon Mobil Corp.................................................................... 20,227,069
345,000 Kerr-McGee Corp..................................................................... 21,390,000
349,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)....................................... 21,092,688
--------------
83,172,570
--------------
LIFE INSURANCE (3.1%)
217,500 Aegon N.V. (ARS) (Netherlands)...................................................... 20,771,250
315,000 Jefferson-Pilot Corp................................................................ 21,498,750
505,000 Lincoln National Corp............................................................... 20,200,000
--------------
62,470,000
--------------
MAJOR BANKS (2.9%)
390,000 Bank of America Corp................................................................ 19,573,125
900,000 KeyCorp............................................................................. 19,912,500
160,000 Morgan (J.P.) & Co., Inc............................................................ 20,260,000
--------------
59,745,625
--------------
MAJOR CHEMICALS (4.2%)
160,000 Dow Chemical Co..................................................................... 21,380,000
320,000 Du Pont (E.I.) de Nemours & Co., Inc................................................ 21,080,000
830,000 Hercules, Inc....................................................................... 23,136,250
535,000 Monsanto Co......................................................................... 19,059,375
--------------
84,655,625
--------------
MAJOR PHARMACEUTICALS (3.8%)
560,000 Abbott Laboratories................................................................. 20,335,000
460,000 American Home Products Corp......................................................... 18,141,250
310,000 Bristol-Myers Squibb Co............................................................. 19,898,125
460,000 Schering-Plough Corp................................................................ 19,406,250
--------------
77,780,625
--------------
MAJOR U.S. TELECOMMUNICATIONS (1.9%)
312,000 Bell Atlantic Corp.................................................................. 19,207,500
277,000 GTE Corp............................................................................ 19,545,813
--------------
38,753,313
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MANAGED HEALTH CARE (1.1%)
381,500 Aetna Inc........................................................................... $ 21,292,469
--------------
MEAT/POULTRY/FISH (1.0%)
920,000 ConAgra, Inc........................................................................ 20,757,500
--------------
MILITARY/GOV'T/TECHNICAL (1.0%)
730,000 Raytheon Co. (Class B).............................................................. 19,390,625
--------------
MOTOR VEHICLES (3.1%)
285,000 DaimlerChrysler AG (Germany)........................................................ 22,301,250
395,000 Ford Motor Co....................................................................... 21,107,813
280,000 General Motors Corp................................................................. 20,352,500
--------------
63,761,563
--------------
MULTI-SECTOR COMPANIES (1.0%)
130,000 General Electric Co................................................................. 20,117,500
--------------
NATURAL GAS (1.1%)
355,000 Consolidated Natural Gas Co......................................................... 23,052,813
--------------
OFFICE EQUIPMENT/SUPPLIES (2.1%)
460,000 Pitney Bowes, Inc................................................................... 22,223,750
900,000 Xerox Corp.......................................................................... 20,418,750
--------------
42,642,500
--------------
OIL & GAS PRODUCTION (1.1%)
665,000 Burlington Resources, Inc........................................................... 21,986,563
--------------
OIL REFINING/MARKETING (2.0%)
865,000 Sunoco, Inc......................................................................... 20,327,500
810,000 USX-Marathon Group.................................................................. 19,996,875
--------------
40,324,375
--------------
OIL/GAS TRANSMISSION (2.1%)
545,000 El Paso Energy Corp................................................................. 21,152,813
515,000 Enron Corp.......................................................................... 22,853,125
--------------
44,005,938
--------------
OTHER METALS/MINERALS (1.2%)
350,000 Phelps Dodge Corp................................................................... 23,493,750
--------------
PACKAGE GOODS/COSMETICS (5.1%)
630,000 Avon Products, Inc.................................................................. 20,790,000
490,000 Gillette Co......................................................................... 20,181,875
560,000 International Flavors & Fragrances, Inc............................................. 21,140,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
330,000 Kimberly-Clark Corp................................................................. $ 21,532,500
190,000 Procter & Gamble Co................................................................. 20,816,875
--------------
104,461,250
--------------
PACKAGED FOODS (1.0%)
320,000 Quaker Oats Company (The)........................................................... 21,000,000
--------------
PAINTS/COATINGS (1.1%)
355,000 PPG Industries, Inc................................................................. 22,209,688
--------------
PAPER (2.2%)
385,000 International Paper Co.............................................................. 21,728,438
524,000 Mead Corp........................................................................... 22,761,250
--------------
44,489,688
--------------
PHOTOGRAPHIC PRODUCTS (1.1%)
323,000 Eastman Kodak Co.................................................................... 21,398,750
--------------
RAILROADS (1.9%)
770,000 Burlington Northern Santa Fe Corp................................................... 18,672,500
645,000 CSX Corp............................................................................ 20,236,875
--------------
38,909,375
--------------
RECREATIONAL PRODUCTS/TOYS (1.0%)
950,000 Brunswick Corp...................................................................... 21,137,500
--------------
RENTAL/LEASING COMPANIES (1.0%)
860,000 Ryder System, Inc................................................................... 21,016,250
--------------
SEMICONDUCTORS (1.0%)
250,000 Intel Corp.......................................................................... 20,562,500
--------------
TOBACCO (1.0%)
810,000 UST, Inc............................................................................ 20,401,875
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $2,079,697,541).................................................... 1,979,824,827
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.6%)
U.S. GOVERNMENT AGENCY
$ 52,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $52,395,633).... $ 52,395,633
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $2,132,093,174) (b).................................................... 99.9% 2,032,220,460
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.1 1,593,467
------ --------------
NET ASSETS.............................................................................. 100.0% $2,033,813,927
------ --------------
------ --------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
ARS American Registered Shares.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $161,022,014 and the
aggregate gross unrealized depreciation is $260,894,728, resulting in net
unrealized depreciation of $99,872,714.
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.0%)
ADVERTISING (1.3%)
10,000 Omnicom Group, Inc..................................................................... $ 1,000,000
28,000 True North Communications, Inc......................................................... 1,251,250
------------
2,251,250
------------
ALUMINUM (1.9%)
40,000 Alcoa, Inc............................................................................. 3,320,000
------------
BEVERAGES - NON-ALCOHOLIC (0.6%)
30,000 PepsiCo, Inc........................................................................... 1,057,500
------------
BIOTECHNOLOGY (0.9%)
25,000 Amgen Inc.*............................................................................ 1,500,000
------------
BROADCASTING (5.7%)
40,500 CBS Corp.*............................................................................. 2,589,469
30,000 Clear Channel Communications, Inc.*.................................................... 2,677,500
55,000 Infinity Broadcasting Corp. (Series A)*................................................ 1,990,312
10,000 Radio One, Inc.*....................................................................... 920,000
15,000 Univision Communications, Inc. (Class A)*.............................................. 1,532,812
------------
9,710,093
------------
BUILDING MATERIALS/D I Y CHAINS (1.5%)
37,500 Home Depot, Inc. (The)................................................................. 2,571,094
------------
CABLE TELEVISION (2.8%)
50,000 Comcast Corp. (Class A Special)*....................................................... 2,525,000
45,000 Cox Communications, Inc. (Class A)*.................................................... 2,317,500
------------
4,842,500
------------
COMPUTER COMMUNICATIONS (3.0%)
30,000 Cisco Systems, Inc.*................................................................... 3,211,875
25,000 Xircom, Inc.*.......................................................................... 1,875,000
------------
5,086,875
------------
COMPUTER SOFTWARE (9.5%)
3,000 Check Point Software Technologies Ltd. (Israel)*....................................... 595,875
5,000 Citrix Systems, Inc.*.................................................................. 614,687
15,000 Computer Associates International, Inc................................................. 1,049,062
50,000 Compuware Corp.*....................................................................... 1,859,375
35,000 Documentum, Inc.*...................................................................... 2,095,625
7,000 Legato Systems, Inc.*.................................................................. 481,250
6,000 Mercury Interactive Corp.*............................................................. 647,625
32,000 Microsoft Corp.*....................................................................... 3,734,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,500 Oracle Corp.*.......................................................................... $ 840,000
90,000 Saga Systems, Inc.*.................................................................... 1,794,375
15,000 Symantec Corp.*........................................................................ 879,375
5,000 Veritas Software Corp.*................................................................ 715,312
25,000 Wind River Systems, Inc.*.............................................................. 915,625
------------
16,222,186
------------
CONTRACT DRILLING (0.9%)
50,000 Noble Drilling Corp.*.................................................................. 1,637,500
------------
DISCOUNT CHAINS (4.0%)
32,000 BJ's Wholesale Club, Inc.*............................................................. 1,168,000
15,000 Costco Wholesale Corp.*................................................................ 1,367,812
22,000 Dayton Hudson Corp.*................................................................... 1,615,625
40,000 Wal-Mart Stores, Inc................................................................... 2,765,000
------------
6,916,437
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.6%)
6,000 JDS Uniphase Corp.*.................................................................... 967,500
------------
DIVERSIFIED FINANCIAL SERVICES (2.9%)
10,000 American Express Co.................................................................... 1,662,500
60,000 Citigroup, Inc......................................................................... 3,333,750
------------
4,996,250
------------
DIVERSIFIED MANUFACTURING (2.2%)
50,000 Dover Corp............................................................................. 2,268,750
25,000 Honeywell International Inc............................................................ 1,442,187
------------
3,710,937
------------
E.D.P. PERIPHERALS (3.1%)
25,000 Advanced Digital Information Corp.*.................................................... 1,215,625
15,000 EMC Corp.*............................................................................. 1,638,750
10,000 Network Appliance, Inc.*............................................................... 830,000
10,000 QLogic Corp.*.......................................................................... 1,598,750
------------
5,283,125
------------
E.D.P. SERVICES (0.3%)
15,000 CSG Systems International, Inc.*....................................................... 589,687
------------
ELECTRIC UTILITIES (1.5%)
40,000 Calpine Corp.*......................................................................... 2,560,000
------------
ELECTRONIC COMPONENTS (2.2%)
5,000 CTS Corp............................................................................... 376,875
55,000 Kemet Corp.*........................................................................... 2,478,437
30,000 Vishay Intertechnology, Inc.*.......................................................... 948,750
------------
3,804,062
------------
ELECTRONIC DATA PROCESSING (2.5%)
40,000 Compaq Computer Corp................................................................... 1,082,500
25,000 Dell Computer Corp.*................................................................... 1,273,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
25,000 Sun Microsystems, Inc.*................................................................ $ 1,934,375
------------
4,290,313
------------
ELECTRONIC PRODUCTION EQUIPMENT (5.5%)
12,000 Applied Materials, Inc.*............................................................... 1,519,500
30,000 Celestica, Inc.*....................................................................... 1,665,000
25,000 Cognex Corp.*.......................................................................... 973,438
15,000 Lam Research Corp.*.................................................................... 1,673,438
20,000 Orbotech, Ltd.*........................................................................ 1,550,000
30,000 PRI Automation, Inc.*.................................................................. 1,998,750
------------
9,380,126
------------
FOOD DISTRIBUTORS (0.7%)
30,000 SYSCO Corp............................................................................. 1,186,875
------------
GENERIC DRUGS (0.7%)
50,000 Ivax Corp.*............................................................................ 1,287,500
------------
HOSPITAL/NURSING MANAGEMENT (0.7%)
40,000 Columbia/HCA Healthcare Corp........................................................... 1,172,500
------------
INSURANCE BROKERS/SERVICES (1.1%)
20,000 Marsh & McLennan Companies, Inc........................................................ 1,913,750
------------
INTEGRATED OIL COMPANIES (2.4%)
30,000 Exxon Mobil Corp....................................................................... 2,416,875
30,000 Murphy Oil Corp........................................................................ 1,721,250
------------
4,138,125
------------
INTERNET SERVICES (2.0%)
30,000 America Online, Inc.*.................................................................. 2,263,125
2,500 Yahoo! Inc.*........................................................................... 1,081,719
------------
3,344,844
------------
INVESTMENT BANKERS/BROKERS/SERVICES (1.3%)
12,000 Edwards (A.G.), Inc.................................................................... 384,750
12,000 Lehman Brothers Holdings, Inc.......................................................... 1,016,250
10,000 Merrill Lynch & Co., Inc............................................................... 835,000
------------
2,236,000
------------
MAJOR BANKS (1.0%)
500 Chase Manhattan Corp. (The)............................................................ 38,844
40,000 Wells Fargo & Co....................................................................... 1,617,500
------------
1,656,344
------------
MAJOR PHARMACEUTICALS (2.2%)
14,000 Johnson & Johnson...................................................................... 1,303,750
30,000 Warner-Lambert Co...................................................................... 2,458,125
------------
3,761,875
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR U.S. TELECOMMUNICATIONS (0.8%)
7,500 ALLTEL Corp............................................................................ $ 620,156
15,000 MCI WorldCom, Inc.*.................................................................... 795,000
------------
1,415,156
------------
MARINE TRANSPORTATION (0.8%)
40,000 Tidewater, Inc......................................................................... 1,440,000
------------
MEDIA CONGLOMERATES (1.1%)
25,000 Time Warner Inc........................................................................ 1,810,938
------------
MEDICAL SPECIALTIES (0.7%)
7,000 Bard (C.R.), Inc....................................................................... 371,000
30,000 Cooper Companies, Inc.................................................................. 903,750
------------
1,274,750
------------
MULTI-LINE INSURANCE (1.3%)
20,000 American International Group, Inc...................................................... 2,162,500
------------
MULTI-SECTOR COMPANIES (1.8%)
20,000 General Electric Co.................................................................... 3,095,000
------------
OIL & GAS PRODUCTION (1.0%)
75,000 Marine Drilling Company, Inc.*......................................................... 1,682,813
------------
OILFIELD SERVICES/EQUIPMENT (1.5%)
27,000 Cooper Cameron Corp.*.................................................................. 1,321,313
30,000 Weatherford International, Inc.*....................................................... 1,198,125
------------
2,519,438
------------
OTHER PHARMACEUTICALS (0.5%)
31,280 Shire Pharmaceuticals Group PLC (ADR) (United Kingdom)*................................ 903,210
------------
OTHER SPECIALTY STORES (1.3%)
15,000 Tiffany & Co........................................................................... 1,338,750
19,000 Zale Corp.*............................................................................ 919,125
------------
2,257,875
------------
OTHER TELECOMMUNICATIONS (2.6%)
85,000 Broadwing Inc.......................................................................... 3,134,375
10,000 Telephone & Data Systems, Inc.......................................................... 1,260,000
------------
4,394,375
------------
PACKAGE GOODS/COSMETICS (1.6%)
25,000 Procter & Gamble Co.................................................................... 2,739,063
------------
RESTAURANTS (0.2%)
15,000 Starbucks Corp.*....................................................................... 363,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - CAPITAL GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (6.9%)
13,000 Analog Devices, Inc.*.................................................................. $ 1,209,000
54,000 Atmel Corp.*........................................................................... 1,596,375
60,000 Cypress Semiconductor Corp.*........................................................... 1,942,500
50,000 Integrated Device Technology, Inc.*.................................................... 1,446,875
50,000 International Rectifier Corp.*......................................................... 1,300,000
30,000 Lattice Semiconductor Corp.*........................................................... 1,415,625
20,000 LSI Logic Corp.*....................................................................... 1,350,000
10,000 STMicroelectronics NV (Netherlands).................................................... 1,514,375
------------
11,774,750
------------
SPECIALTY INSURERS (0.7%)
20,000 MGIC Investment Corp................................................................... 1,203,750
------------
TELECOMMUNICATIONS EQUIPMENT (7.2%)
33,000 Advanced Fibre Communications, Inc.*................................................... 1,476,750
15,000 Antec Corp.*........................................................................... 547,500
6,000 Comverse Technology, Inc.*............................................................. 868,125
10,000 Corning Inc............................................................................ 1,289,375
30,000 General Instrument Corp.*.............................................................. 2,550,000
15,000 Lucent Technologies Inc................................................................ 1,122,188
10,000 Nokia Corp. (ADR) (Finland)............................................................ 1,900,000
25,000 Nortel Networks Corp. (Canada)......................................................... 2,525,000
------------
12,278,938
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $125,555,703)......................................................... 162,711,554
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (5.0%)
U.S. GOVERNMENT AGENCY
$ 8,500 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $8,499,292)........ $ 8,499,292
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $134,054,995) (b)........................................................ 100.0% 171,210,846
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.0 40,570
------ ------------
NET ASSETS................................................................................ 100.0% $171,251,416
------ ------------
------ ------------
</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 $37,757,636 and the
aggregate gross unrealized depreciation is $601,785, resulting in net
unrealized appreciation of $37,155,851.
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (97.2%)
AUSTRALIA (1.4%)
BUILDING MATERIALS
500,000 Pioneer International Ltd............................................................. $ 1,505,520
------------
CONTAINERS/PACKAGING
235,000 Amcor Ltd............................................................................. 1,099,778
------------
INTERNATIONAL BANKS
250,000 Australia & New Zealand Banking Group Ltd............................................. 1,817,284
------------
OIL & GAS PRODUCTION
550,000 Santos Ltd............................................................................ 1,497,320
------------
PRECIOUS METALS
2,000,000 Normandy Mining Ltd................................................................... 1,416,960
------------
TOTAL AUSTRALIA....................................................................... 7,336,862
------------
BELGIUM (0.7%)
DIVERSIFIED FINANCIAL SERVICES
105,000 Fortis (B)............................................................................ 3,782,914
------------
CANADA (2.2%)
ALUMINUM
63,000 Alcan Aluminium Ltd................................................................... 2,586,536
------------
CANADIAN OIL & GAS
93,000 Imperial Oil Ltd...................................................................... 1,992,673
------------
INTERNATIONAL BANKS
92,000 Toronto-Dominion Bank................................................................. 2,464,059
------------
MULTI-SECTOR COMPANIES
145,000 EdperBrascan Corp. (Class A).......................................................... 1,914,224
------------
OIL/GAS TRANSMISSION
108,400 Enbridge Inc.......................................................................... 2,146,572
------------
TOTAL CANADA.......................................................................... 11,104,064
------------
FRANCE (7.7%)
AUTOMOTIVE AFTERMARKET
75,000 Compagnie Generale des Etablissements Michelin (B Shares)............................. 2,941,965
------------
BUILDING MATERIALS
34,500 Lafarge S.A........................................................................... 4,011,332
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONTAINERS/PACKAGING
66,000 Compagnie Generale d'Industrie et de Participations................................... $ 4,314,882
------------
DIVERSIFIED MANUFACTURING
20,000 Compagnie de Saint Gobain............................................................. 3,755,657
------------
FARMING/SEEDS/MILLING
27,500 Eridania Beghin-Say S.A............................................................... 2,954,035
------------
INTERNATIONAL BANKS
40,000 Banque Nationale de Paris............................................................. 3,685,251
15,000 Societe Generale (Series A)........................................................... 3,485,097
------------
7,170,348
------------
MULTI-LINE INSURANCE
62,000 Assurances Generales de France........................................................ 3,354,946
------------
MULTI-SECTOR COMPANIES
5,250 Societe Eurafrance S.A................................................................ 3,157,709
------------
OIL REFINING/MARKETING
26,000 Total S.A. (B Shares)................................................................. 3,464,981
------------
TELECOMMUNICATION EQUIPMENT
17,000 Alcatel............................................................................... 3,898,481
------------
TOTAL FRANCE.......................................................................... 39,024,336
------------
GERMANY (7.6%)
APPAREL
22,000 Hugo Boss AG (Pref.).................................................................. 2,810,205
------------
DIVERSIFIED ELECTRONIC PRODUCTS
31,000 Siemens AG (Registered Shares)........................................................ 3,938,009
------------
DIVERSIFIED MANUFACTURING
105,000 MAN AG................................................................................ 3,939,216
------------
INTERNATIONAL BANKS
100,000 Commerzbank AG........................................................................ 3,666,141
------------
MAJOR CHEMICALS
70,000 BASF AG............................................................................... 3,590,706
80,000 Bayer AG.............................................................................. 3,781,808
------------
7,372,514
------------
MOTOR VEHICLES
45,000 DaimlerChrysler AG.................................................................... 3,494,149
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-SECTOR COMPANIES
80,000 RWE AG................................................................................ $ 3,130,050
110,000 Thyssen Krupp AG...................................................................... 3,346,799
75,000 VEBA AG............................................................................... 3,639,739
------------
10,116,588
------------
SHOE MANUFACTURING
45,000 Adidas-Salomon AG..................................................................... 3,371,944
------------
TOTAL GERMANY......................................................................... 38,708,766
------------
HONG KONG (2.5%)
DIVERSIFIED FINANCIAL SERVICES
199,800 HSBC Holdings PLC..................................................................... 2,801,415
------------
REAL ESTATE
220,000 Cheung Kong (Holdings) Ltd............................................................ 2,780,422
400,000 Henderson Land Development Co., Ltd................................................... 2,572,678
------------
5,353,100
------------
TELECOMMUNICATIONS
900,000 Cable & Wireless HKT Ltd.............................................................. 2,599,048
------------
UTILITIES
475,000 CLP Holdings Ltd...................................................................... 2,187,420
------------
TOTAL HONG KONG....................................................................... 12,940,983
------------
ITALY (2.7%)
INTEGRATED OIL COMPANIES
550,000 Ente Nazionale Idrocarburi SpA........................................................ 3,020,417
------------
INTERNATIONAL BANKS
257,000 Istituto Bancario San Paolo di Torino SpA............................................. 3,487,038
------------
SPECIALTY FOODS/CANDY
2,000,000 Montedison SpA........................................................................ 3,268,850
------------
TELECOMMUNICATIONS
620,000 Telecom Italia SpA.................................................................... 3,772,756
------------
TOTAL ITALY........................................................................... 13,549,061
------------
JAPAN (16.6%)
AIR FREIGHT/DELIVERY SERVICES
145,000 Yamato Transport Co., Ltd............................................................. 5,617,296
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ALCOHOLIC BEVERAGES
425,000 Kirin Brewery Co., Ltd................................................................ $ 4,469,526
------------
CONSUMER ELECTRONICS/APPLIANCES
215,000 Sharp Corp............................................................................ 5,500,147
25,000 Sony Corp............................................................................. 7,410,487
------------
12,910,634
------------
DIVERSIFIED ELECTRONIC PRODUCTS
31,000 Kyocera Corp.......................................................................... 8,036,588
180,000 Matsushita Electric Industrial Co., Ltd............................................... 4,983,369
195,000 NEC Corp.............................................................................. 4,645,128
------------
17,665,085
------------
ELECTRICAL PRODUCTS
460,000 Matsushita Electric Works, Ltd........................................................ 4,545,099
------------
ELECTRONIC COMPONENTS
34,000 TDK Corp.............................................................................. 4,693,211
------------
FINANCE COMPANIES
42,000 Acom Co., Ltd......................................................................... 4,112,894
------------
HOME BUILDING
450,000 Sekisui House Ltd..................................................................... 3,984,054
------------
MAJOR PHARMACEUTICALS
80,000 Takeda Chemical Industries, Ltd....................................................... 3,952,260
------------
MOTOR VEHICLES
120,000 Honda Motor Co........................................................................ 4,460,966
115,000 Toyota Motor Corp..................................................................... 5,568,871
------------
10,029,837
------------
OTHER PHARMACEUTICALS
135,000 Taisho Pharmaceutical Co., Ltd........................................................ 3,962,043
------------
RECREATIONAL PRODUCTS/TOYS
26,500 Nintendo Co., Ltd..................................................................... 4,401,976
------------
TOBACCO
506 Japan Tobacco, Inc.................................................................... 3,870,984
------------
TOTAL JAPAN........................................................................... 84,214,899
------------
NETHERLANDS (4.2%)
AIRLINES
110,000 Koninklijke Luchtvaart Maatschappi NV................................................. 2,821,269
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED ELECTRONIC PRODUCTS
26,500 Koninklijke (Royal) Philips Electronics NV............................................ $ 3,598,249
------------
DIVERSIFIED FINANCIAL SERVICES
55,000 ING Groep NV.......................................................................... 3,315,821
------------
INTERNATIONAL BANKS
150,000 ABN-AMRO Holding NV................................................................... 3,741,576
------------
SPECIALTY CHEMICALS
93,000 DSM NV................................................................................ 3,722,868
------------
TELECOMMUNICATIONS
40,000 KPN NV................................................................................ 3,898,481
------------
TOTAL NETHERLANDS..................................................................... 21,098,264
------------
PORTUGAL (0.7%)
TELECOMMUNICATIONS
325,000 Portugal Telecom S.A. (Registered Shares)............................................. 3,559,778
------------
SPAIN (1.3%)
ELECTRIC UTILITIES
250,000 Iberdrola S.A......................................................................... 3,459,952
------------
INTERNATIONAL BANKS
50,000 Banco Popular Espanol S.A............................................................. 3,256,278
------------
TOTAL SPAIN........................................................................... 6,716,230
------------
SWEDEN (1.6%)
CONSUMER ELECTRONICS/APPLIANCES
95,000 Electrolux AB (Series B).............................................................. 2,385,982
------------
ENGINEERING & CONSTRUCTION
52,000 Skanska AB (B Shares)................................................................. 1,934,606
------------
INDUSTRIAL MACHINERY/COMPONENTS
60,000 Sandvik AB (B Shares)................................................................. 1,908,316
------------
INTERNATIONAL BANKS
300,000 Nordbanken Holding AB................................................................. 1,760,440
------------
TOTAL SWEDEN.......................................................................... 7,989,344
------------
SWITZERLAND (5.9%)
INTERNATIONAL BANKS
17,500 UBS AG (Registered Shares)............................................................ 4,723,792
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR PHARMACEUTICALS
3,300 Novartis AG (Registered Shares)....................................................... $ 4,843,314
------------
OTHER TELECOMMUNICATIONS
13,000 Swisscom AG (Registered Shares)....................................................... 5,255,493
------------
PACKAGED FOODS
2,700 Nestle S.A. (Registered Shares)....................................................... 4,944,068
------------
PROPERTY - CASUALTY INSURERS
2,400 Schweizerische Rueckversicherungs-Gesellschaft (Registered Shares).................... 4,928,060
------------
TOBACCO
2,100 Compagnie Financiere Richemont AG (Series A).......................................... 5,009,416
------------
TOTAL SWITZERLAND..................................................................... 29,704,143
------------
UNITED KINGDOM (12.7%)
AEROSPACE
1,000,000 Rolls-Royce PLC....................................................................... 3,454,388
------------
AIRLINES
560,000 British Airways PLC................................................................... 3,651,966
------------
ALCOHOLIC BEVERAGES
330,000 Bass PLC.............................................................................. 4,104,346
------------
BUILDING MATERIALS
450,000 Hanson PLC............................................................................ 3,769,964
------------
CLOTHING/SHOE/ACCESSORY STORES
400,000 Next PLC.............................................................................. 3,835,339
------------
DIVERSIFIED FINANCIAL SERVICES
220,000 Abbey National PLC.................................................................... 3,515,728
------------
ELECTRONIC COMPONENTS
975,000 Cookson Group PLC..................................................................... 3,934,612
------------
INTERNATIONAL BANKS
160,000 National Westminster Bank PLC......................................................... 3,435,018
185,000 Royal Bank of Scotland Group PLC...................................................... 3,278,924
------------
6,713,942
------------
MOVIES/ENTERTAINMENT
1,050,000 Rank Group PLC........................................................................ 3,322,024
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NON - U.S. UTILITIES
550,000 National Power PLC.................................................................... $ 3,182,799
455,000 PowerGen PLC.......................................................................... 3,268,351
370,000 United Utilities PLC.................................................................. 3,843,329
------------
10,294,479
------------
PAPER
1,150,000 Arjo Wiggins Appleton PLC............................................................. 4,176,743
------------
SPECIALTY STEELS
1,500,000 Corus Group PLC....................................................................... 3,898,293
------------
TOBACCO
575,000 British American Tobacco PLC.......................................................... 3,264,820
------------
WATER SUPPLY
619,500 Hyder PLC............................................................................. 2,899,991
121,500 Hyder PLC (Pref.)..................................................................... 172,100
327,000 Severn Trent PLC...................................................................... 3,246,237
------------
6,318,328
------------
TOTAL UNITED KINGDOM.................................................................. 64,254,972
------------
UNITED STATES (29.4%)
AEROSPACE
90,000 Northrop Grumman Corp................................................................. 4,865,625
------------
ALUMINUM
66,000 Alcoa, Inc............................................................................ 5,478,000
------------
AUTOMOTIVE AFTERMARKET
165,000 Goodyear Tire & Rubber Co............................................................. 4,650,937
------------
CONSTRUCTION/AGRICULTURAL
EQUIPMENT/TRUCKS
120,000 Deere & Co............................................................................ 5,205,000
------------
CONTAINERS/PACKAGING
220,000 Crown Cork & Seal Co., Inc............................................................ 4,922,500
------------
DEPARTMENT STORES
150,000 Sears, Roebuck & Co................................................................... 4,565,625
------------
DISCOUNT CHAINS
72,000 Dayton-Hudson Corp.................................................................... 5,287,500
------------
DIVERSIFIED MANUFACTURING
50,000 Minnesota Mining & Manufacturing Co................................................... 4,893,750
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC UTILITIES
110,000 FPL Group, Inc........................................................................ $ 4,709,375
156,800 GPU, Inc.............................................................................. 4,694,200
------------
9,403,575
------------
ELECTRONIC DATA PROCESSING
50,000 Hewlett-Packard Co.................................................................... 5,696,875
43,500 International Business Machines Corp.................................................. 4,698,000
------------
10,394,875
------------
ENGINEERING & CONSTRUCTION
120,000 Fluor Corp............................................................................ 5,505,000
------------
FINANCE COMPANIES
160,000 Associates First Capital Corp. (Class A).............................................. 4,390,000
------------
FOOD CHAINS
150,000 Albertson's, Inc...................................................................... 4,837,500
------------
INTEGRATED OIL COMPANIES
55,000 Chevron Corp.......................................................................... 4,764,375
------------
LIFE INSURANCE
250,000 Conseco, Inc.......................................................................... 4,468,750
------------
MAJOR BANKS
90,000 Bank of America Corp.................................................................. 4,516,875
215,000 KeyCorp............................................................................... 4,756,875
------------
9,273,750
------------
MAJOR CHEMICALS
40,000 Dow Chemical Co....................................................................... 5,345,000
------------
MAJOR PHARMACEUTICALS
68,000 Bristol-Myers Squibb Co............................................................... 4,364,750
------------
MOTOR VEHICLES
93,500 Ford Motor Co......................................................................... 4,996,406
------------
NATURAL GAS
80,000 Consolidated Natural Gas Co........................................................... 5,195,000
------------
OIL REFINING/MARKETING
150,000 Ashland, Inc.......................................................................... 4,940,625
------------
OTHER METALS/MINERALS
90,000 Phelps Dodge Corp..................................................................... 6,041,250
------------
PAPER
95,000 International Paper Co................................................................ 5,361,563
------------
PHOTOGRAPHIC PRODUCTS
77,000 Eastman Kodak Co...................................................................... 5,101,250
------------
SAVINGS & LOAN COMPANIES
185,000 Washington Mutual, Inc................................................................ 4,810,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS
65,000 Intel Corp............................................................................ $ 5,346,250
------------
TOBACCO
190,000 Philip Morris Companies, Inc.......................................................... 4,405,625
------------
TOTAL UNITED STATES................................................................... 148,814,481
------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $433,137,625)........................................................ 492,799,097
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.6%)
U.S. GOVERNMENT AGENCY
$ 12,900 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $12,898,925)...... 12,898,925
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST
$446,036,550) (b)......................................................................... 99.8% 505,698,022
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 1,231,468
------ ------------
NET ASSETS................................................................................ 100.0% $506,929,490
------ ------------
------ ------------
</TABLE>
- ---------------------
(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 $103,718,643 and the
aggregate gross unrealized depreciation is $44,057,171, resulting in net
unrealized appreciation of $59,661,472.
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - GLOBAL DIVIDEND GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Aerospace......................................................................... $ 8,320,013 1.6%
Air Freight/Delivery Services..................................................... 5,617,296 1.1
Airlines.......................................................................... 6,473,235 1.3
Alcoholic Beverages............................................................... 8,573,872 1.7
Aluminum.......................................................................... 8,064,536 1.6
Apparel........................................................................... 2,810,205 0.6
Automotive Aftermarket............................................................ 7,592,902 1.5
Building Materials................................................................ 9,286,816 1.8
Canadian Oil & Gas................................................................ 1,992,673 0.4
Clothing/Shoe/Accessory Stores.................................................... 3,835,339 0.8
Construction/Agricultural Equipment/Trucks........................................ 5,205,000 1.0
Consumer Electronics/Appliances................................................... 15,296,616 3.0
Containers/Packaging.............................................................. 10,337,159 2.0
Department Stores................................................................. 4,565,625 0.9
Discount Chains................................................................... 5,287,500 1.0
Diversified Electronic Products................................................... 25,201,343 5.0
Diversified Financial Services.................................................... 13,415,878 2.6
Diversified Manufacturing......................................................... 12,588,623 2.5
Electric Utilities................................................................ 12,863,527 2.5
Electrical Products............................................................... 4,545,099 0.9
Electronic Components............................................................. 8,627,823 1.7
Electronic Data Processing........................................................ 10,394,875 2.1
Engineering & Construction........................................................ 7,439,606 1.5
Farming/Seeds/Milling............................................................. 2,954,035 0.6
Finance Companies................................................................. 8,502,894 1.7
Food Chains....................................................................... 4,837,500 1.0
Home Building..................................................................... 3,984,054 0.8
Industrial Machinery/Components................................................... 1,908,316 0.4
Integrated Oil Companies.......................................................... 7,784,792 1.5
International Banks............................................................... 38,800,897 7.6
Life Insurance.................................................................... 4,468,750 0.9
Major Banks....................................................................... 9,273,750 1.8
Major Chemicals................................................................... 12,717,514 2.5
Major Pharmaceuticals............................................................. 13,160,324 2.6
Motor Vehicles.................................................................... 18,520,393 3.7
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Movies/Entertainment.............................................................. $ 3,322,024 0.7%
Multi-Line Insurance.............................................................. 3,354,946 0.7
Multi-Sector Companies............................................................ 15,188,521 3.0
Natural Gas....................................................................... 5,195,000 1.0
Non-U.S. Utilities................................................................ 10,294,480 2.0
Oil & Gas Production.............................................................. 1,497,320 0.3
Oil Refining/Marketing............................................................ 8,405,606 1.7
Oil/Gas Transmission.............................................................. 2,146,572 0.4
Other Metals/Minerals............................................................. 6,041,250 1.2
Other Pharmaceuticals............................................................. 3,962,043 0.8
Other Telecommunications.......................................................... 5,255,493 1.0
Packaged Foods.................................................................... 4,944,068 1.0
Paper............................................................................. 9,538,305 1.9
Photographic Products............................................................. 5,101,250 1.0
Precious Metals................................................................... 1,416,960 0.3
Property - Casualty Insurers...................................................... 4,928,060 1.0
Real Estate....................................................................... 5,353,100 1.1
Recreational Products/Toys........................................................ 4,401,976 0.9
Savings & Loan Companies.......................................................... 4,810,000 0.9
Semiconductors.................................................................... 5,346,250 1.1
Shoe Manufacturing................................................................ 3,371,945 0.7
Specialty Chemicals............................................................... 3,722,868 0.7
Specialty Foods/Candy............................................................. 3,268,850 0.6
Specialty Steels.................................................................. 3,898,293 0.8
Telecommunication Equipment....................................................... 3,898,481 0.8
Telecommunications................................................................ 13,830,062 2.7
Tobacco........................................................................... 16,550,846 3.2
U.S. Government Agency............................................................ 12,898,925 2.5
Utilities......................................................................... 2,187,420 0.4
Water Supply...................................................................... 6,318,328 1.2
------------ ----------
$505,698,022 99.8%
------------ ----------
------------ ----------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $489,816,792 96.6%
Preferred Stocks.................................................................. 2,982,305 0.6
Short-Term Investment............................................................. 12,898,925 2.6
------------ ----------
$505,698,022 99.8%
------------ ----------
------------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND BONDS (93.2%)
FINLAND (3.9%)
TELECOMMUNICATION EQUIPMENT
123,900 Nokia Oyj (A Shares)............................................................... $ 22,431,352
------------
FRANCE (19.5%)
BROADCASTING
9,485 Societe Television Francaise 1..................................................... 4,960,807
------------
BUILDING MATERIALS/DIY CHAINS
15,000 Castorama Dubois Investissement.................................................... 4,556,274
------------
CONSUMER ELECTRONICS/APPLIANCES
70,340 Thomson Multimedia*................................................................ 3,785,016
------------
E.D.P. SERVICES
29,640 Cap Gemini S.A..................................................................... 7,512,602
------------
FOOD CHAINS
58,000 Carrefour S.A...................................................................... 10,681,395
------------
INTERNATIONAL BANKS
120,420 Banque Nationale de Paris.......................................................... 11,094,449
------------
MAJOR PHARMACEUTICALS
165,026 Aventis S.A........................................................................ 9,544,031
67,400 Sanofi-Synthelabo S.A.*............................................................ 2,802,477
------------
12,346,508
------------
MOTOR VEHICLES
85,840 Renault S.A........................................................................ 4,132,130
------------
MULTI-LINE INSURANCE
53,200 AXA................................................................................ 7,405,585
------------
MULTI-SECTOR COMPANIES
73,350 Vivendi............................................................................ 6,613,967
------------
OIL REFINING/MARKETING
115,862 Total S.A. (B Shares).............................................................. 15,440,755
------------
OTHER TELECOMMUNICATIONS
83,800 France Telecom S.A................................................................. 11,066,757
------------
TELECOMMUNICATION EQUIPMENT
58,205 Alcatel............................................................................ 13,347,710
------------
TOTAL FRANCE....................................................................... 112,943,955
------------
GERMANY (9.5%)
APPAREL
37,506 Hugo Boss AG (Pref.)............................................................... 4,790,889
------------
COMPUTER SOFTWARE
19,620 SAP AG............................................................................. 9,649,826
42,153 Software AG*....................................................................... 2,565,048
------------
12,214,874
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTERNATIONAL BANKS
80,460 Deutsche Bank AG (Registered Shares)............................................... $ 6,785,701
------------
OTHER TELECOMMUNICATIONS
61,735 Mannesmann AG (Germany)............................................................ 14,871,289
------------
SHOE MANUFACTURING
30,400 Adidas-Salomon AG.................................................................. 2,277,936
------------
SPECIALTY FOODS/CANDY
9,647 Kamps AG........................................................................... 664,652
15,102 Kamps AG (New)*.................................................................... 1,005,551
------------
1,670,203
------------
TELECOMMUNICATIONS
177,530 Deutsche Telekom AG................................................................ 12,624,169
------------
TOTAL GERMANY...................................................................... 55,235,061
------------
ITALY (3.2%)
BROADCASTING
343,650 Mediaset SpA....................................................................... 5,336,731
------------
INTERNATIONAL BANKS
434,900 Unicredito Italiano SpA............................................................ 2,134,621
------------
PRINTING/FORMS
795,860 Seat-Pagine Gialle SpA............................................................. 2,609,552
------------
TELECOMMUNICATIONS
609,460 Telecom Italia SpA................................................................. 8,581,928
------------
TOTAL ITALY........................................................................ 18,662,832
------------
NETHERLANDS (6.3%)
ALCOHOLIC BEVERAGES
52,800 Heineken NV........................................................................ 2,571,404
------------
DIVERSIFIED ELECTRONIC PRODUCTS
95,365 Koninklijke (Royal) Philips Electronics NV......................................... 12,948,946
------------
DIVERSIFIED FINANCIAL SERVICES
145,800 Fortis (NL) NV..................................................................... 5,242,582
------------
E.D.P. SERVICES
90,200 Getronics NV....................................................................... 7,185,274
------------
FINANCIAL PUBLISHING/SERVICES
172,600 Wolters Kluwer NV.................................................................. 5,832,996
------------
FOOD CHAINS
163,100 Laurus NV.......................................................................... 2,936,423
------------
TOTAL NETHERLANDS.................................................................. 36,717,625
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPAIN (6.4%)
ADVERTISING
53,700 Telefonica Publicidad e Informacion, S.A.*......................................... $ 2,606,053
------------
INTERNATIONAL BANKS
205,200 Argentaria, Caja Postal y Banco Hipotecario de Espana, S.A......................... 4,815,083
53,342 Banco Popular Espanol S.A.......................................................... 3,473,927
------------
8,289,010
------------
INTERNET SERVICES
17,900 Terra Networks, S.A.*.............................................................. 976,707
------------
OIL REFINING/MARKETING
163,000 Repsol-YPF, S.A.................................................................... 3,774,023
------------
OTHER CONSUMER SERVICES
298,600 Amadeus Global Travel Distribution S.A. (A Shares)*................................ 4,730,227
------------
TELECOMMUNICATIONS
662,903 Telefonica S.A.*................................................................... 16,535,346
------------
TOTAL SPAIN........................................................................ 36,911,366
------------
SWEDEN (6.8%)
CLOTHING/SHOE/ACCESSORY STORES
94,920 Hennes & Mauritz AB (B Shares)..................................................... 3,174,917
------------
DIVERSIFIED COMMERCIAL SERVICES
498,990 Securitas AB (Series "B" Free)..................................................... 9,018,668
------------
INDUSTRIAL MACHINERY/COMPONENTS
490,900 Assa Abloy AB (Series B)........................................................... 6,884,791
------------
INTERNATIONAL BANKS
807,200 Nordbanken Holding AB.............................................................. 4,736,755
------------
LIFE INSURANCE
102,400 Skandia Forsakrings AB............................................................. 3,088,609
------------
TELECOMMUNICATIONS EQUIPMENT
194,110 Ericsson (L.M.) Telephone Co. AB (Series "B" Free)................................. 12,461,349
------------
TOTAL SWEDEN....................................................................... 39,365,089
------------
SWITZERLAND (8.9%)
DIVERSIFIED COMMERCIAL SERVICES
6,790 Adecco S.A. (Registered Shares).................................................... 5,285,373
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTERNATIONAL BANKS
25,060 UBS AG (Registered Shares)......................................................... $ 6,764,470
------------
MAJOR PHARMACEUTICALS
3,400 Novartis AG (Registered Shares).................................................... 4,990,082
1,208 Roche Holdings AG.................................................................. 14,332,203
------------
19,322,285
------------
PACKAGED FOODS
5,757 Nestle S.A......................................................................... 10,541,851
------------
TOBACCO
3,990 Compagnie Financiere Richemont AG (Series A)....................................... 9,517,891
------------
TOTAL SWITZERLAND.................................................................. 51,431,870
------------
UNITED KINGDOM (28.1%)
ADVERTISING
550,300 Aegis Group PLC.................................................................... 1,998,662
------------
AEROSPACE
996,800 British Aerospace PLC.............................................................. 6,597,042
107,801 British Aerospace PLC (Loan Stock)................................................. 169,662
572,400 Marconi PLC........................................................................ 10,122,070
352,407 Smiths Industries PLC.............................................................. 5,261,912
------------
22,150,686
------------
ALCOHOLIC BEVERAGES
885,400 Allied Domecq PLC.................................................................. 4,373,391
58,500 Bass PLC........................................................................... 727,588
------------
5,100,979
------------
AUTO PARTS: O.E.M.
620,138 BBA Group PLC...................................................................... 5,005,134
------------
BOOKS/MAGAZINES
344,120 EMAP PLC........................................................................... 7,110,125
895,900 Reed International PLC............................................................. 6,702,960
------------
13,813,085
------------
CABLE TELEVISION
187,526 TeleWest Communications PLC*....................................................... 999,681
------------
CATALOG/SPECIALTY DISTRIBUTION
501,400 Great Universal Stores PLC......................................................... 2,929,883
------------
CELLULAR TELEPHONE
1,597,900 Vodafone AirTouch PLC.............................................................. 7,912,095
------------
DIVERSIFIED FINANCIAL SERVICES
394,100 HSBC Holdings PLC.................................................................. 5,490,028
286,300 Lloyds TSB Group PLC............................................................... 3,579,317
------------
9,069,345
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTEGRATED OIL COMPANIES
1,772,290 BP Amoco PLC....................................................................... $ 17,808,670
------------
INTERNATIONAL BANKS
307,100 Barclays PLC....................................................................... 8,833,745
------------
INTERNET SERVICES
143,100 Freeserve PLC*..................................................................... 1,362,853
189,300 Thus PLC*.......................................................................... 1,194,771
------------
2,557,624
------------
LIFE INSURANCE
675,400 Prudential Corp.................................................................... 13,300,814
------------
MAJOR PHARMACEUTICALS
193,774 AstraZeneca PLC.................................................................... 8,187,057
144,300 Glaxo Wellcome PLC................................................................. 4,076,259
416,949 SmithKline Beecham PLC............................................................. 5,317,009
------------
17,580,325
------------
MOVIES/ENTERTAINMENT
171,600 Flextech PLC*...................................................................... 3,185,462
------------
OIL/GAS TRANSMISSION
1,037,866 BG Group PLC....................................................................... 6,701,293
GBP 148,000 BG Transco Holdings PLC 7.06% due 12/14/09......................................... 240,192
GBP 148,000 BG Transco Holdings PLC 4.19% due 12/14/22......................................... 239,738
GBP 148,000 BG Transco Holdings PLC 7.00% due 12/16/24......................................... 232,380
------------
7,413,603
------------
OTHER SPECIALTY STORES
296,800 Kingfisher PLC..................................................................... 3,291,380
------------
RESTAURANTS
889,556 Granada Group PLC.................................................................. 9,010,406
------------
TELECOMMUNICATIONS
447,200 British Telecommunications PLC..................................................... 10,921,897
------------
TOTAL UNITED KINGDOM............................................................... 162,883,476
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (0.6%)
OTHER TELECOMMUNICATIONS
28,200 NTL Inc.*.......................................................................... $ 3,510,900
------------
TOTAL COMMON AND PREFERRED STOCKS AND BONDS
(IDENTIFIED COST $367,376,100)..................................................... 540,093,526
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (6.5%)
U.S. GOVERNMENT AGENCY
$ 37,900 Federal Home Loan Mortgage Corp. 1.50% due
01/03/00 (AMORTIZED COST $37,896,842)...... 37,896,842
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $405,272,942) (b)........................................................ 99.7% 577,990,368
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.3 1,714,399
------ ------------
NET ASSETS................................................................................ 100.0% $579,704,767
------ ------------
------ ------------
</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 $180,597,802 and the
aggregate gross unrealized depreciation is $7,880,376, resulting in net
unrealized appreciation of $172,717,426.
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EUROPEAN GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Advertising....................................................................... $ 4,604,715 0.8%
Aerospace......................................................................... 22,150,686 3.8
Alcoholic Beverages............................................................... 7,672,384 1.3
Apparel........................................................................... 4,790,889 0.8
Auto Parts: O.E.M................................................................. 5,005,134 0.9
Books/Magazines................................................................... 13,813,085 2.4
Broadcasting...................................................................... 10,297,537 1.8
Building Materials/DIY Chains..................................................... 4,556,274 0.8
Cable Television.................................................................. 999,682 0.2
Catalog/Specialty Distribution.................................................... 2,929,883 0.5
Cellular Telephone................................................................ 7,912,095 1.4
Clothing/Shoe/Accessory Stores.................................................... 3,174,917 0.5
Computer Software................................................................. 12,214,874 2.1
Consumer Electronics/Appliances................................................... 3,785,017 0.7
Diversified Commercial Services................................................... 14,304,041 2.5
Diversified Electronic Products................................................... 12,948,946 2.2
Diversified Financial Services.................................................... 14,311,926 2.5
E.D.P. Services................................................................... 14,697,876 2.5
Financial Publishing/Services..................................................... 5,832,996 1.0
Food Chains....................................................................... 13,617,818 2.3
Industrial Machinery/Components................................................... 6,884,791 1.2
Integrated Oil Companies.......................................................... 17,808,670 3.1
International Banks............................................................... 48,638,751 8.4
Internet Services................................................................. 3,534,331 0.6
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Life Insurance.................................................................... $ 16,389,423 2.8%
Major Pharmaceuticals............................................................. 49,249,117 8.5
Motor Vehicles.................................................................... 4,132,131 0.7
Movies/Entertainment.............................................................. 3,185,462 0.5
Multi-Line Insurance.............................................................. 7,405,585 1.3
Multi-Sector Companies............................................................ 6,613,967 1.1
Oil Refining/Marketing............................................................ 19,214,778 3.3
Oil/Gas Transmission.............................................................. 7,413,602 1.3
Other Consumer Services........................................................... 4,730,227 0.8
Other Specialty Stores............................................................ 3,291,380 0.6
Other Telecommunications.......................................................... 29,448,946 5.1
Packaged Foods.................................................................... 10,541,851 1.8
Printing/Forms.................................................................... 2,609,552 0.5
Restaurants....................................................................... 9,010,406 1.6
Shoe Manufacturing................................................................ 2,277,936 0.4
Specialty Foods/Candy............................................................. 1,670,203 0.3
Telecommunication Equipment....................................................... 48,240,411 8.3
Telecommunications................................................................ 48,663,340 8.4
Tobacco........................................................................... 9,517,891 1.6
U.S. Government Agency............................................................ 37,896,842 6.5
------------ ----------
$577,990,368 99.7%
------------ ----------
------------ ----------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $534,590,327 92.2%
Corporate Bonds................................................................... 712,310 0.2
Preferred Stocks.................................................................. 4,790,889 0.8
Short-Term Investment............................................................. 37,896,842 6.5
------------ ----------
$577,990,368 99.7%
------------ ----------
------------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS AND WARRANTS (96.2%)
AUSTRALIA (8.6%)
AIRLINES
116,000 Quantas Airways Ltd.................................................................... $ 289,165
------------
ALCOHOLIC BEVERAGES
166,400 Fosters Brewing Group Ltd.............................................................. 477,022
------------
BEVERAGES - NON-ALCOHOLIC
57,400 Coca-Cola Amatil Ltd................................................................... 156,642
------------
DIVERSIFIED COMMERCIAL SERVICES
13,600 Brambles Industries Ltd................................................................ 375,805
------------
INTERNATIONAL BANKS
58,100 Commonwealth Bank of Australia......................................................... 999,720
46,500 National Australia Bank Ltd............................................................ 710,743
109,800 Westpac Banking Corp., Ltd............................................................. 756,807
------------
2,467,270
------------
MEDIA CONGLOMERATES
109,900 News Corp., Ltd. (The)................................................................. 1,066,276
------------
MULTI-SECTOR COMPANIES
82,762 Broken Hill Proprietary Co., Ltd....................................................... 1,085,892
------------
OTHER METALS/MINERALS
75,850 Rio Tinto Ltd.......................................................................... 1,628,118
------------
OTHER TELECOMMUNICATIONS
88,400 Aapt Ltd.*............................................................................. 302,130
180,300 Telstra Corp. Ltd...................................................................... 979,332
81,400 Telstra Corp. Ltd. (New)*.............................................................. 286,749
------------
1,568,211
------------
PRECIOUS METALS
311,200 Normandy Mining Ltd.................................................................... 220,479
------------
REAL ESTATE
30,650 Lend Lease Corp., Ltd.................................................................. 429,071
------------
TELECOMMUNICATIONS
127,500 Macquarie Corporate Telecommunications Holdings Ltd.*.................................. 207,427
------------
TOTAL AUSTRALIA........................................................................ 9,971,378
------------
CHINA (0.4%)
COAL MINING
634,000 Yanzhou Coal Mining Co. Ltd. (Class H)................................................. 175,341
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC UTILITIES
234,000 Huaneng Power International, Inc. (Class H)............................................ $ 55,685
------------
ELECTRONIC COMPONENTS
135,000 Great Wall Technology Co. (Class H)*................................................... 131,110
------------
OTHER TRANSPORTATION
412,000 Zhejiang Expressway Co. Ltd............................................................ 62,537
------------
TOTAL CHINA............................................................................ 424,673
------------
HONG KONG (10.3%)
AIRLINES
115,000 Cathay Pacific Airways................................................................. 204,882
------------
BROADCASTING
61,000 Television Broadcasts Ltd.............................................................. 415,873
------------
CELLULAR TELEPHONE
150,200 China Telecom Ltd.*.................................................................... 937,060
23,500 SmarTone Telecommunications Holdings Ltd............................................... 113,359
------------
1,050,419
------------
DIVERSIFIED MANUFACTURING
33,600 Johnson Electric Holdings, Ltd......................................................... 215,673
------------
E.D.P. SERVICES
174,000 Timeless Software Ltd.*................................................................ 99,601
------------
INTERNATIONAL BANKS
28,000 Hang Seng Bank Ltd..................................................................... 319,655
61,000 Wing Hang Bank Ltd..................................................................... 208,721
------------
528,376
------------
MULTI-SECTOR COMPANIES
189,000 Hutchison Whampoa, Ltd................................................................. 2,747,234
94,700 New World Development Co., Ltd......................................................... 213,179
85,700 Swire Pacific Ltd. (Class A)........................................................... 505,998
------------
3,466,411
------------
NATURAL GAS
227,000 Hong Kong & China Gas Co., Ltd......................................................... 310,979
------------
OTHER SPECIALTY STORES
89,000 Jardine International Motor Holdings Ltd............................................... 44,649
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER TELECOMMUNICATIONS
75,000 Asia Satellite Telecommunications Holdings Ltd......................................... $ 236,847
------------
PACKAGE GOODS/COSMETICS
281,800 Hengan International Group Co. Ltd..................................................... 77,935
------------
REAL ESTATE
157,000 Cheung Kong (Holdings) Ltd............................................................. 1,984,210
71,000 Hong Kong Land Holdings Ltd............................................................ 105,080
73,000 Kerry Properties Ltd................................................................... 102,354
454,000 New World China Land Ltd.*............................................................. 167,899
360,000 Sino Land Co., Ltd..................................................................... 207,229
114,100 Sun Hung Kai Properties Ltd............................................................ 1,188,848
------------
3,755,620
------------
SHOE MANUFACTURING
38,000 Yue Yuen Industrial Holdings........................................................... 90,919
------------
TELECOMMUNICATIONS
374,400 Cable & Wireless HKT Ltd............................................................... 1,081,204
------------
WHOLESALE DISTRIBUTORS
139,800 Li & Fung Ltd.......................................................................... 350,669
------------
TOTAL HONG KONG........................................................................ 11,930,057
------------
INDIA (6.5%)
ALUMINUM
12,500 Hindalco Industries Ltd................................................................ 231,269
------------
BUILDING MATERIALS
28,498 Gujarat Ambuja Cements Ltd............................................................. 213,522
------------
COMPUTER SOFTWARE
12,700 Aptech Ltd............................................................................. 515,764
4,250 HCL Technologies Ltd.*................................................................. 56,654
600 Leading Edge Systems Ltd............................................................... 25,506
3,650 NIIT Ltd............................................................................... 278,137
18,200 Software Solution Integrated Ltd....................................................... 923,344
------------
1,799,405
------------
CONSTRUCTION/AGRICULTURAL
EQUIPMENT/TRUCKS
36,200 Larsen & Toubro Ltd.................................................................... 462,505
20,000 Mahindra & Mahindra Ltd................................................................ 193,059
6,650 Punjab Tractors Ltd.................................................................... 158,814
------------
814,378
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED ELECTRONIC PRODUCTS
200 Satyam Computer Service Ltd............................................................ $ 10,108
------------
DIVERSIFIED MANUFACTURING
26,000 Grasim Industries Ltd.................................................................. 243,806
4,050 Grasim Industries Ltd. (Bonus Shares)*................................................. 37,349
------------
281,155
------------
E.D.P. PERIPHERALS
21,500 Moser-Baer India Ltd................................................................... 172,455
------------
E.D.P. SERVICES
1,500 Infosys Technologies Ltd............................................................... 500,445
------------
ELECTRICAL PRODUCTS
54,274 Bharat Heavy Electricals Ltd........................................................... 261,952
------------
GENERIC DRUGS
7,000 Dr. Reddy's Laboratories Ltd........................................................... 231,993
------------
HOTELS/RESORTS
13,500 Indian Hotels Co., Ltd................................................................. 98,357
------------
INTERNATIONAL BANKS
68,272 Bank of Baroda......................................................................... 100,188
41,600 Corporation Bank....................................................................... 106,127
29,500 State Bank of India.................................................................... 152,382
------------
358,697
------------
MAJOR PHARMACEUTICALS
6,450 Hoechst Marion Roussel Ltd............................................................. 153,616
------------
MOTOR VEHICLES
7,500 Hero Honda Motors Ltd.................................................................. 194,610
------------
MULTI-SECTOR COMPANIES
3,650 Wipro Ltd.............................................................................. 218,178
------------
NATURAL GAS
20,000 Gas Authority of India Ltd. (GDR)*..................................................... 185,000
------------
OIL REFINING/MARKETING
17,000 Hindustan Petroleum Corp., Ltd......................................................... 71,501
------------
OTHER PHARMACEUTICALS
9,500 Glaxo India Ltd........................................................................ 159,552
2,400 Wockhardt Life Sciences Ltd............................................................ 52,959
------------
212,511
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER TELECOMMUNICATIONS
43,100 Mahanagar Telephone Nigam Ltd.......................................................... $ 191,181
7,390 Videsh Sanchar Nigam Ltd............................................................... 307,251
------------
498,432
------------
PACKAGE GOODS/COSMETICS
4,950 Hindustan Lever Ltd.................................................................... 255,976
10,000 Reckitt & Coleman of India Ltd......................................................... 73,546
------------
329,522
------------
SPECIALTY CHEMICALS
129,600 Indo Gulf Corp. Ltd.................................................................... 187,653
36,500 Reliance Industries Ltd................................................................ 196,048
------------
383,701
------------
TOBACCO
17,500 ITC Ltd................................................................................ 267,467
------------
TOTAL INDIA............................................................................ 7,488,274
------------
INDONESIA (0.5%)
BUILDING MATERIALS
36,300 PT Semen Gresik (Persero) Tbk.......................................................... 57,432
------------
MUTUAL FUNDS
500,000 Batavia Investment Fund Ltd.*.......................................................... --
------------
SPECIALTY FOODS/CANDY
88,000 PT Indofood Sukses Makmur Tbk.......................................................... 110,000
------------
TELECOMMUNICATIONS
28,684 PT Telekomunikasi Indonesia (ADR)...................................................... 315,524
------------
TOBACCO
40,500 PT Gudang Garam Tbk.................................................................... 108,771
------------
TOTAL INDONESIA........................................................................ 591,727
------------
JAPAN (44.4%)
BUILDING PRODUCTS
81,000 Sanwa Shutter Corp..................................................................... 301,115
------------
CONSUMER ELECTRONICS/APPLIANCES
15,200 Aiwa Co., Ltd.......................................................................... 315,242
20,700 Rinnai Corp............................................................................ 384,758
11,700 Sony Corp.............................................................................. 3,468,108
------------
4,168,108
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SPECIALTIES
66,000 Casio Computer Co., Ltd................................................................ $ 548,816
------------
DIVERSIFIED ELECTRONIC PRODUCTS
106,000 Hitachi Ltd............................................................................ 1,700,646
10,700 Kyocera Corp........................................................................... 2,773,919
59,000 Matsushita Electric Industrial Co., Ltd................................................ 1,633,438
84,000 NEC Corp............................................................................... 2,000,978
178,000 Toshiba Corp........................................................................... 1,358,247
------------
9,467,228
------------
E.D.P. PERIPHERALS
38,000 Mitsumi Electric Co., Ltd.............................................................. 1,189,591
------------
ELECTRICAL PRODUCTS
66,000 Furukawa Electric Co................................................................... 1,000,783
------------
ELECTRONIC COMPONENTS
11,000 TDK Corp............................................................................... 1,518,392
------------
ELECTRONIC DATA PROCESSING
60,000 Fujitsu Ltd............................................................................ 2,735,277
------------
ELECTRONIC DISTRIBUTORS
20,000 Ryosan Co., Ltd........................................................................ 496,967
------------
FINANCE COMPANIES
39,600 Hitachi Credit Corp.................................................................... 803,854
------------
FOOD CHAINS
12,900 FamilyMart Co., Ltd.................................................................... 858,149
------------
HOME BUILDING
75,000 Sekisui Chemical Co., Ltd.............................................................. 332,371
67,000 Sekisui House Ltd...................................................................... 593,181
------------
925,552
------------
HOME FURNISHINGS
6,000 Sangetsu Co., Ltd...................................................................... 126,198
------------
INDUSTRIAL MACHINERY/COMPONENTS
73,000 Amada Co., Ltd......................................................................... 399,208
62,000 Daifuku Co., Ltd....................................................................... 357,856
71,000 Daikin Industries, Ltd................................................................. 965,467
24,000 Fuji Machine Manufacturing Co., Ltd.................................................... 1,934,651
61,000 Minebea Co., Ltd....................................................................... 1,046,106
188,000 Mitsubishi Heavy Industries, Ltd....................................................... 627,157
82,000 Tsubakimoto Chain Co................................................................... 300,822
------------
5,631,267
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SPECIALTIES
46,000 Fujitec Co., Ltd....................................................................... $ 461,260
42,000 Lintec Corp............................................................................ 456,075
------------
917,335
------------
INTERNATIONAL BANKS
16,000 Bank of Tokyo-Mitsubishi, Ltd.......................................................... 222,892
------------
MAJOR PHARMACEUTICALS
44,000 Sankyo Co., Ltd........................................................................ 903,933
------------
MARINE TRANSPORTATION
15,000 Mitsubishi Logistic Corp............................................................... 95,676
------------
MEAT/POULTRY/FISH
17,000 Nippon Meat Packers, Inc............................................................... 220,358
------------
MOTOR VEHICLES
150,000 Nissan Motor Co., Ltd.................................................................. 589,904
45,000 Suzuki Motor Corp...................................................................... 656,378
26,000 Toyota Motor Corp...................................................................... 1,259,049
------------
2,505,331
------------
OFFICE EQUIPMENT/SUPPLIES
43,000 Canon, Inc............................................................................. 1,707,885
77,000 Ricoh Co., Ltd......................................................................... 1,450,812
------------
3,158,697
------------
OTHER PHARMACEUTICALS
22,000 Ono Pharmaceutical Co., Ltd............................................................ 589,708
26,000 Yamanouchi Pharmaceutical Co., Ltd..................................................... 908,042
------------
1,497,750
------------
PHOTOGRAPHIC PRODUCTS
31,000 Fuji Photo Film Co..................................................................... 1,131,188
------------
POLLUTION CONTROL EQUIPMENT
28,000 Kurita Water Industries Ltd............................................................ 444,844
------------
PRINTING/FORMS
42,000 Dai Nippon Printing Co., Ltd........................................................... 669,732
24,000 Nissha Printing Co., Ltd............................................................... 143,221
------------
812,953
------------
REAL ESTATE
48,000 Mitsubishi Estate Co., Ltd............................................................. 468,167
------------
RECREATIONAL PRODUCTS/TOYS
10,900 Nintendo Co., Ltd...................................................................... 1,810,624
57,000 Yamaha Corp............................................................................ 370,260
------------
2,180,884
------------
SEMICONDUCTORS
4,000 Rohm Co. Ltd........................................................................... 1,643,514
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY CHEMICALS
110,000 Daicel Chemical Industries, Ltd........................................................ $ 306,691
93,000 Kaneka Corp............................................................................ 1,189,112
101,000 Mitsubishi Chemical Corp............................................................... 355,703
41,000 NIFCO Inc.............................................................................. 489,337
69,000 Shin-Etsu Polymer Co., Ltd............................................................. 405,009
------------
2,745,852
------------
SPECIALTY FOODS/CANDY
15,000 House Foods Corp....................................................................... 227,451
------------
TELECOMMUNICATIONS
107 Nippon Telegraph & Telephone Corp...................................................... 1,831,833
------------
UTILITIES
15,900 Tokyo Electric Power Co................................................................ 426,198
------------
WHOLESALE DISTRIBUTORS
18,000 Nissei Sangyo Co., Ltd................................................................. 248,288
------------
TOTAL JAPAN............................................................................ 51,454,441
------------
MALAYSIA (2.4%)
ALCOHOLIC BEVERAGES
75,000 Carlsberg Brewery (Malaysia) Berhad.................................................... 230,909
------------
CASINO/GAMBLING
97,000 Tanjong PLC............................................................................ 214,410
------------
INTERNATIONAL BANKS
144,000 Malayan Banking Berhad................................................................. 511,552
533,000 Public Bank Berhad..................................................................... 465,649
------------
977,201
------------
TELECOMMUNICATIONS
102,000 Telekom Malaysia Berhad................................................................ 394,558
------------
TOBACCO
76,400 British American Tobacco............................................................... 583,022
------------
WHOLESALE DISTRIBUTORS
320,000 Sime Darby Berhad...................................................................... 405,873
------------
TOTAL MALAYSIA......................................................................... 2,805,973
------------
NEW ZEALAND (0.4%)
AIRLINES
91,500 Air New Zealand Ltd. (Class B)......................................................... 134,044
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
73,600 Telecom Corporation of New Zealand Ltd................................................. $ 346,568
------------
TOTAL NEW ZEALAND...................................................................... 480,612
------------
PHILIPPINES (0.4%)
ALCOHOLIC BEVERAGES
92,770 San Miguel Corp. (Class B)............................................................. 130,888
------------
BROADCASTING
98,400 ABS-CBN Broadcasting Corp.*............................................................ 121,782
------------
TELECOMMUNICATIONS
8,520 Philippine Long Distance Telephone Co.................................................. 216,164
------------
TOTAL PHILIPPINES...................................................................... 468,834
------------
SINGAPORE (4.9%)
AEROSPACE
149,000 Singapore Technologies Engineering Ltd................................................. 230,606
------------
AIRLINES
56,000 Singapore Airlines Ltd................................................................. 634,913
------------
DIVERSIFIED ELECTRONIC PRODUCTS
66,100 Natsteel Electronics Ltd............................................................... 348,938
------------
ELECTRONIC COMPONENTS
137,000 Gul Technologies....................................................................... 151,218
74,000 Omni Industries Ltd.................................................................... 134,061
36,600 Venture Manufacturing Ltd.............................................................. 419,352
------------
704,631
------------
INTERNATIONAL BANKS
49,182 DBS Group Holdings Ltd................................................................. 805,440
75,086 Overseas - Chinese Banking Corp., Ltd.................................................. 689,152
44,544 Overseas Union Bank Ltd................................................................ 260,530
36,632 United Overseas Bank Ltd............................................................... 323,030
------------
2,078,152
------------
MARINE TRANSPORTATION
85,000 Neptune Orient Lines Ltd............................................................... 113,707
54,500 Sembcorp Logistics Ltd................................................................. 220,681
------------
334,388
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NEWSPAPERS
22,019 Singapore Press Holdings Ltd........................................................... $ 476,836
------------
REAL ESTATE
36,400 City Developments Ltd.................................................................. 212,898
55,000 DBS Land Ltd........................................................................... 108,218
------------
321,116
------------
SEMICONDUCTORS
44,000 Chartered Semiconductor Manufacturing Ltd.*............................................ 240,192
------------
TELECOMMUNICATIONS
174,000 Singapore Telecommunications Ltd....................................................... 359,064
------------
TOTAL SINGAPORE........................................................................ 5,728,836
------------
SOUTH KOREA (8.4%)
CELLULAR TELEPHONE
4,880 Pantech Co., Ltd....................................................................... 109,542
26,600 SK Telecom Co., Ltd. (ADR)............................................................. 1,020,775
------------
1,130,317
------------
COMPUTER COMMUNICATIONS
2,620 Insung Information*.................................................................... 89,486
------------
COMPUTER SOFTWARE
7,190 Dae Duck Electronics Co................................................................ 85,445
------------
DIVERSIFIED ELECTRONIC PRODUCTS
14,267 Samsung Electronics Co................................................................. 3,340,688
------------
DIVERSIFIED FINANCIAL SERVICES
5,760 Korea Technology Banking Co............................................................ 55,775
------------
ELECTRIC UTILITIES
42,690 Korea Electric Power Corp. (ADR)....................................................... 715,057
------------
ELECTRONIC COMPONENTS
14,590 Mirae Co............................................................................... 113,406
3,986 Samsung Electro-Mechanics Co........................................................... 264,915
------------
378,321
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SPECIALTIES
3,300 Hankuk Glass Industry Co. Ltd.......................................................... $ 62,456
------------
INTERNATIONAL BANKS
12,310 Hana Bank.............................................................................. 95,901
11,800 H & cb................................................................................. 373,944
27,558 Kookmin Bank........................................................................... 431,807
------------
901,652
------------
INVESTMENT BANKERS/BROKERS/SERVICES
5,170 Dongwon Securities Co.................................................................. 111,501
21,990 Good Morning Securities Co. Ltd........................................................ 105,111
------------
216,612
------------
MOTOR VEHICLES
53,760 Hyundai Motor Co., Ltd. (GDR) - 144A*+................................................. 581,952
------------
PAINTS/COATINGS
1,720 Korea Chemical Co., Ltd................................................................ 112,042
------------
SEMICONDUCTORS
9,439 Hyundai Electronics Industries Co...................................................... 200,246
------------
SPECIALTY CHEMICALS
7,610 L.G. Chemical Ltd...................................................................... 240,492
------------
SPECIALTY FOODS/CANDY
2,040 Cheil Jedang Corp...................................................................... 235,246
------------
STEEL/IRON ORE
18,000 Pohang Iron & Steel Co., Ltd. (ADR).................................................... 630,000
------------
TELECOMMUNICATIONS
9,280 Korea Telecom Corp. (ADR)*............................................................. 693,680
------------
TELECOMMUNICATIONS EQUIPMENT
6,180 Humax Co., Ltd.*....................................................................... 104,451
------------
TOTAL SOUTH KOREA...................................................................... 9,773,918
------------
TAIWAN (7.6%)
DIVERSIFIED COMMERCIAL SERVICES
38,960 ASE Test Ltd.*......................................................................... 920,430
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS
8,832 Acer Peripherals - 144A*+.............................................................. $ 365,733
------------
ELECTRONIC COMPONENTS
13,700 Ritek Corp. (GDR)*..................................................................... 158,578
------------
ELECTRONIC DATA PROCESSING
47,437 Acer Inc. (GDR)*....................................................................... 675,977
56,540 Asustek Computer Inc. (GDR)............................................................ 787,319
67 Asustek Computer Inc. (GDR) - 144A*+................................................... 933
11,800 Hon Hai Precision Industry Co., Ltd. (GDR)*............................................ 228,035
------------
1,692,264
------------
ELECTRONIC PRODUCTION EQUIPMENT
38,314 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)*..................................... 1,724,130
------------
MUTUAL FUNDS
299 Taipei Fund*........................................................................... 2,992,093
------------
STEEL/IRON ORE
6,300 China Steel Corp. (GDR)................................................................ 94,343
------------
TEXTILES
32,600 Far East Textile Ltd. (GDR) - 144A*+................................................... 787,290
------------
TOTAL TAIWAN........................................................................... 8,734,861
------------
THAILAND (1.4%)
BUILDING MATERIALS
28,566 Siam City Cement Co. PCL............................................................... 153,466
------------
CELLULAR TELEPHONE
30,000 Advanced Info Service PCL.............................................................. 504,255
------------
ELECTRONIC COMPONENTS
19,530 Delta Electronics, Inc................................................................. 232,698
------------
INTERNATIONAL BANKS
192,100 Siam Commercial Bank (Warrants due 05/10/02)*.......................................... 89,408
188,200 Thai Farmers Bank PCL.................................................................. 315,335
------------
404,743
------------
MOVIES/ENTERTAINMENT
24,000 BEC World PCL.......................................................................... 159,575
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
301,800 Golden Land Property Development Company Ltd........................................... $ 156,519
------------
TOTAL THAILAND......................................................................... 1,611,256
------------
TOTAL COMMON STOCKS AND WARRANTS
(IDENTIFIED COST $81,085,475).......................................................... 111,464,840
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.7%)
U.S. GOVERNMENT AGENCY
$ 4,300 Federal Home Loan Mortgage Corp. 1.50% due
01/03/00 (AMORTIZED COST $4,299,642)....... 4,299,642
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $85,385,117) (b)......................................................... 99.9% 115,764,482
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 162,902
------ ------------
NET ASSETS................................................................................ 100.0% $115,927,384
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
+ Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $33,093,961 and the
aggregate gross unrealized depreciation is $2,714,596, resulting in net
unrealized appreciation of $30,379,365.
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - PACIFIC GROWTH
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Aerospace......................................................................... $ 230,606 0.2%
Airlines.......................................................................... 1,263,003 1.1
Alcoholic Beverages............................................................... 838,820 0.7
Aluminum.......................................................................... 231,269 0.2
Beverages - Non-Alcoholic......................................................... 156,642 0.1
Broadcasting...................................................................... 537,656 0.5
Building Materials................................................................ 424,420 0.4
Building Products................................................................. 301,115 0.3
Casino/Gambling................................................................... 214,410 0.2
Cellular Telephone................................................................ 2,684,991 2.3
Coal Mining....................................................................... 175,341 0.2
Computer Communications........................................................... 89,486 0.1
Computer Software................................................................. 1,884,849 1.6
Construction/Agricultural Equipment/Trucks........................................ 814,378 0.7
Consumer Electronics/Appliances................................................... 4,168,108 3.6
Consumer Specialties.............................................................. 548,816 0.5
Diversified Commercial Services................................................... 1,296,235 1.1
Diversified Electronic Products................................................... 13,166,962 11.4
Diversified Financial Services.................................................... 55,775 0.0
Diversified Manufacturing......................................................... 496,828 0.4
E.D.P. Peripherals................................................................ 1,727,779 1.5
E.D.P. Services................................................................... 600,047 0.5
Electric Utilities................................................................ 770,743 0.7
Electrical Products............................................................... 1,262,735 1.1
Electronic Components............................................................. 3,123,729 2.7
Electronic Data Processing........................................................ 4,427,542 3.8
Electronic Distributors........................................................... 496,967 0.4
Electronic Production Equipment................................................... 1,724,130 1.5
Finance Companies................................................................. 803,854 0.7
Food Chains....................................................................... 858,149 0.7
Generic Drugs..................................................................... 231,993 0.2
Home Building..................................................................... 925,553 0.8
Home Furnishings.................................................................. 126,198 0.1
Hotels/Resorts.................................................................... 98,357 0.1
Industrial Machinery/Components................................................... 5,631,266 4.9
Industrial Specialties............................................................ 979,791 0.8
International Banks............................................................... 7,938,982 6.8
Investment Bankers/Brokers/Services............................................... 216,612 0.2
Major Pharmaceuticals............................................................. 1,057,548 0.9
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marine Transportation............................................................. $ 430,064 0.4%
Meat/Poultry/Fish................................................................. 220,358 0.2
Media Conglomerates............................................................... 1,066,276 0.9
Motor Vehicles.................................................................... 3,281,894 2.8
Movies/Entertainment.............................................................. 159,574 0.1
Multi-Sector Companies............................................................ 4,770,481 4.1
Mutual Funds...................................................................... 2,992,093 2.6
Natural Gas....................................................................... 495,979 0.4
Newspapers........................................................................ 476,836 0.4
Office Equipment/Supplies......................................................... 3,158,697 2.7
Oil Refining/Marketing............................................................ 71,501 0.1
Other Metals/Minerals............................................................. 1,628,118 1.4
Other Pharmaceuticals............................................................. 1,710,261 1.5
Other Specialty Stores............................................................ 44,649 0.0
Other Telecommunications.......................................................... 2,303,491 2.0
Other Transportation.............................................................. 62,537 0.1
Package Goods/Cosmetics........................................................... 407,458 0.3
Paints/Coatings................................................................... 112,042 0.1
Photographic Products............................................................. 1,131,188 1.0
Pollution Control Equipment....................................................... 444,844 0.4
Precious Metals................................................................... 220,479 0.2
Printing/Forms.................................................................... 812,952 0.7
Real Estate....................................................................... 5,130,492 4.4
Recreational Products/Toys........................................................ 2,180,884 1.9
Semiconductors.................................................................... 2,083,952 1.8
Shoe Manufacturing................................................................ 90,918 0.1
Specialty Chemicals............................................................... 3,370,046 2.9
Specialty Foods/Candy............................................................. 572,697 0.5
Steel/Iron Ore.................................................................... 724,343 0.6
Telecommunications................................................................ 5,446,022 4.7
Telecommunications Equipment...................................................... 104,451 0.1
Textiles.......................................................................... 787,290 0.7
Tobacco........................................................................... 959,260 0.8
U.S. Government Agency............................................................ 4,299,642 3.7
Utilities......................................................................... 426,198 0.4
Wholesale Distributors............................................................ 1,004,830 0.9
------------ ----------
$115,764,482 99.9%
------------ ----------
------------ ----------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $111,375,432 96.2%
Short-Term Investment............................................................. 4,299,642 3.7
Warrants.......................................................................... 89,408 0.0
------------ ----------
$115,764,482 99.9%
------------ ----------
------------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.2%)
ADVERTISING (2.9%)
70,000 DoubleClick Inc.*................................. $ 17,714,375
230,400 Interpublic Group of Companies, Inc............... 13,291,200
51,700 True North Communications, Inc.................... 2,310,344
11,850 Valassis Communications, Inc.*.................... 500,662
246,000 WPP Group PLC (ADR) (United Kingdom).............. 20,325,750
100,000 Young & Rubicam, Inc.............................. 7,075,000
--------------
61,217,331
--------------
ALCOHOLIC BEVERAGES (0.5%)
99,000 LVMH (Louis Vuitton Moet Hennessy) (ADR)
(France)........................................ 8,835,750
--------------
ALUMINUM (1.7%)
244,900 Alcan Aluminium, Ltd. (Canada).................... 10,086,819
280,000 Alcoa, Inc........................................ 23,240,000
--------------
33,326,819
--------------
BIOTECHNOLOGY (2.2%)
350,000 Amgen Inc.*....................................... 21,000,000
125,000 Chiron Corp.*..................................... 5,289,062
23,000 COR Therapeutics, Inc.*........................... 618,125
84,000 Genentech, Inc.*.................................. 11,298,000
10,000 Genset (ADR) (France)*............................ 191,250
30,000 Human Genome Sciences, Inc.*...................... 4,575,000
20,000 MedImmune, Inc.*.................................. 3,315,000
--------------
46,286,437
--------------
BROADCASTING (4.1%)
26,800 AMFM, Inc.*....................................... 2,097,100
325,000 CBS Corp.*........................................ 20,779,687
140,000 Citadel Communications Corp.*..................... 9,065,000
290,000 Clear Channel Communications, Inc.*............... 25,882,500
75,000 Grupo Televisa S.A. (GDR) (Mexico)*............... 5,118,750
64,200 Hispanic Broadcasting Corp.*...................... 5,906,400
68,600 Univision Communications, Inc. (Class A)*......... 7,010,062
185,000 USA Networks, Inc.*............................... 10,209,687
--------------
86,069,186
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
BUILDING MATERIALS/D I Y CHAINS (1.0%)
307,500 Home Depot, Inc. (The)............................ $ 21,082,969
--------------
CABLE TELEVISION (3.8%)
255,800 AT&T Corp. - Liberty Media Group (Class A)*....... 14,516,650
375,000 Comcast Corp. (Class A Special)*.................. 18,937,500
350,000 Cox Communications, Inc. (Class A)*............... 18,025,000
217,000 EchoStar Communications Corp. (Class A)*.......... 21,103,250
40,400 United Pan-Europe Communications NV (ADR)
(Netherlands)*.................................. 5,130,800
--------------
77,713,200
--------------
CASINO/GAMBLING (0.1%)
100,000 Mirage Resorts, Inc.*............................. 1,531,250
--------------
CATALOG/SPECIALTY DISTRIBUTION (0.2%)
53,500 eToys, Inc.*...................................... 1,404,375
18,500 ShopNow.com Inc.*................................. 349,187
123,500 Webvan Group Inc.*................................ 1,999,156
--------------
3,752,718
--------------
CELLULAR TELEPHONE (2.6%)
180,000 Nextel Communications, Inc. (Class A)*............ 18,551,250
115,000 Sprint Corp. (PCS Group)*......................... 11,787,500
200,000 Vodafone AirTouch PLC (ADR) (United Kingdom)...... 9,900,000
85,000 Voicestream Wireless Corp.*....................... 12,059,375
34,000 Western Wireless Corp. (Class A)*................. 2,265,250
--------------
54,563,375
--------------
CLOTHING/SHOE/ACCESSORY STORES (0.7%)
100,000 Ann Taylor Stores Corp.*.......................... 3,443,750
240,000 Gap, Inc. (The)................................... 11,040,000
--------------
14,483,750
--------------
COMPUTER COMMUNICATIONS (2.7%)
120,000 Applied Micro Circuits Corp.*..................... 15,240,000
6,600 CacheFlow Inc.*................................... 862,537
196,000 Cisco Systems, Inc.*.............................. 20,984,250
40,000 Emulex Corp.*..................................... 4,517,500
34,000 Extreme Networks, Inc.*........................... 2,839,000
14,300 Finisar Corp.*.................................... 1,274,487
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
34,000 Juniper Networks, Inc.*........................... $ 11,534,500
--------------
57,252,274
--------------
COMPUTER SOFTWARE (7.3%)
51,700 Check Point Software Technologies Ltd.
(Israel)*....................................... 10,268,912
50,000 Citrix Systems, Inc.*............................. 6,146,875
82,000 Computer Associates International, Inc............ 5,734,875
31,600 E.piphany, Inc.*.................................. 7,031,000
95,900 Great Plains Software, Inc.*...................... 7,168,525
145,000 Intuit Inc.*...................................... 8,681,875
107,000 Macromedia, Inc.*................................. 7,824,375
58,000 Mercury Interactive Corp.*........................ 6,260,375
5,000 Micromuse Inc.*................................... 850,000
80,000 Microsoft Corp.*.................................. 9,335,000
570,000 Oracle Corp.*..................................... 63,840,000
200,000 Parametric Technology Corp.*...................... 5,400,000
10,000 Red Hat, Inc.*.................................... 2,110,625
85,000 Sapient Corp.*.................................... 11,974,375
--------------
152,626,812
--------------
CONSUMER ELECTRONICS/APPLIANCES (0.5%)
33,200 Sony Corp. (ADR) (Japan).......................... 9,453,700
--------------
CONTRACT DRILLING (0.7%)
364,340 Rowan Companies, Inc.*............................ 7,901,624
195,000 Transocean Sedco Forex Inc........................ 6,569,062
--------------
14,470,686
--------------
DISCOUNT CHAINS (3.4%)
135,000 Costco Wholesale Corp.*........................... 12,310,312
250,000 Dayton Hudson Corp................................ 18,359,375
580,000 Wal-Mart Stores, Inc.............................. 40,092,500
--------------
70,762,187
--------------
DIVERSIFIED COMMERCIAL SERVICES (0.8%)
131,500 CheckFree Holdings Corp.*......................... 13,741,750
6,000 Freemarkets, Inc.*................................ 2,047,875
13,000 Wireless Facilities, Inc.*........................ 565,500
--------------
16,355,125
--------------
DIVERSIFIED ELECTRONIC PRODUCTS (1.2%)
40,000 Gemstar International Group Ltd.*................. 2,845,000
100,000 JDS Uniphase Corp.*............................... 16,125,000
45,000 Koninklijke (Royal) Philips Electronics NV
(Netherlands)................................... 6,075,000
--------------
25,045,000
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED FINANCIAL SERVICES (2.9%)
110,000 American Express Co............................... $ 18,287,500
748,000 Citigroup, Inc.................................... 41,560,750
--------------
59,848,250
--------------
DIVERSIFIED MANUFACTURING (0.4%)
79,000 Minnesota Mining & Manufacturing Co............... 7,732,125
--------------
E.D.P. PERIPHERALS (0.1%)
10,600 QLogic Corp.*..................................... 1,694,675
--------------
E.D.P. SERVICES (1.1%)
77,000 Automatic Data Processing, Inc.................... 4,148,375
119,000 BEA Systems, Inc.*................................ 8,330,000
20,000 Razorfish, Inc.*.................................. 1,900,000
160,000 Whittman-Hart, Inc.*.............................. 8,580,000
--------------
22,958,375
--------------
ELECTRONIC COMPONENTS (0.3%)
45,300 E-Tek Dynamics, Inc.*............................. 6,081,525
--------------
ELECTRONIC DATA PROCESSING (2.0%)
79,500 Apple Computer, Inc.*............................. 8,168,625
445,000 Sun Microsystems, Inc.*........................... 34,431,875
--------------
42,600,500
--------------
ELECTRONIC PRODUCTION EQUIPMENT (2.2%)
132,400 Applied Materials, Inc.*.......................... 16,765,150
159,100 ASM Lithography Holding NV (Netherlands)*......... 17,958,413
35,000 KLA-Tencor Corp.*................................. 3,895,937
15,950 Rudolph Technologies, Inc.*....................... 526,350
153,370 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)
(Taiwan)........................................ 6,901,650
--------------
46,047,500
--------------
FLUID CONTROLS (0.2%)
94,300 Parker-Hannifin Corp.............................. 4,838,769
--------------
FOREST PRODUCTS (0.3%)
90,100 Weyerhaeuser Co................................... 6,470,306
--------------
GENERIC DRUGS (0.0%)
5,000 Watson Pharmaceuticals, Inc.*..................... 179,062
--------------
INTEGRATED OIL COMPANIES (0.1%)
21,300 Kerr-McGee Corp................................... 1,320,600
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
INTERNATIONAL BANKS (0.8%)
150,000 Asahi Bank, Ltd. (ADR) (Japan).................... $ 9,243,750
111,990 Sakura Bank, Ltd. (ADR) (Japan)................... 6,488,421
--------------
15,732,171
--------------
INTERNET SERVICES (11.1%)
24,300 Agency.com, Inc.*................................. 1,248,412
17,000 Akamai Technologies, Inc.*........................ 5,569,625
31,000 Allaire Corp.*.................................... 4,535,687
172,000 America Online, Inc.*............................. 12,975,250
62,000 AppNet, Inc.*..................................... 2,708,625
30,000 Art Technology Group, Inc.*....................... 3,901,875
125,938 BroadVision, Inc.*................................ 21,417,331
11,600 C-Bridge Internet Solutions, Inc.*................ 574,200
84,100 Calico Commerce, Inc.*............................ 4,446,787
40,000 Inktomi Corp.*.................................... 3,545,000
42,000 Kana Communications, Inc.*........................ 8,581,125
152,300 Lycos, Inc.*...................................... 12,117,369
99,000 NBC Internet, Inc. (Class A)*..................... 7,647,750
20,000 OnDisplay, Inc.*.................................. 1,810,000
47,000 Portal Software, Inc.*............................ 4,817,500
50,000 RealNetworks, Inc.*............................... 6,015,625
50,000 Scient Corp.*..................................... 4,287,500
210,000 USWeb Corp.*...................................... 9,331,875
230,000 VeriSign, Inc.*................................... 43,958,750
147,200 Vignette Corp.*................................... 23,984,400
108,000 Yahoo! Inc.*...................................... 46,730,250
--------------
230,204,936
--------------
INVESTMENT BANKERS/BROKERS/SERVICES (3.8%)
440,000 Donaldson, Lufkin & Jenrette, Inc................. 21,285,000
279,000 Goldman Sachs Group, Inc. (The)................... 26,278,312
35,000 Legg Mason, Inc................................... 1,268,750
214,200 Lehman Brothers Holdings, Inc..................... 18,140,063
146,000 Merrill Lynch & Co., Inc.......................... 12,191,000
--------------
79,163,125
--------------
LIFE INSURANCE (0.1%)
70,000 ReliaStar Financial Corp.......................... 2,743,125
--------------
MAJOR BANKS (1.4%)
20,000 Bank of New York Co., Inc......................... 800,000
190,000 Chase Manhattan Corp. (The)....................... 14,760,625
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
10,000 First Union Corp.................................. $ 328,125
321,900 Wells Fargo & Co.................................. 13,016,831
--------------
28,905,581
--------------
MAJOR PHARMACEUTICALS (1.3%)
85,000 Johnson & Johnson................................. 7,915,625
25,000 Merck & Co., Inc.................................. 1,676,563
5,000 Pharmacia & Upjohn, Inc........................... 225,000
6,000 Schering-Plough Corp.............................. 253,125
215,000 Warner-Lambert Co................................. 17,616,563
--------------
27,686,876
--------------
MAJOR U.S. TELECOMMUNICATIONS (0.7%)
270,000 MCI WorldCom, Inc.*............................... 14,310,000
--------------
MARINE TRANSPORTATION (0.1%)
80,400 Tidewater, Inc.................................... 2,894,400
--------------
MEAT/POULTRY/FISH (0.0%)
15,000 ConAgra, Inc...................................... 338,438
--------------
MEDIA CONGLOMERATES (0.7%)
115,300 Fox Entertainment Group, Inc. (Series A)*......... 2,875,294
145,465 News Corporation Ltd. (The) (ADR) (Australia)..... 5,564,036
10,000 Viacom, Inc. (Class A)*........................... 604,375
108,600 Viacom, Inc. (Class B)*........................... 6,563,513
--------------
15,607,218
--------------
MEDICAL EQUIPMENT & SUPPLIES (0.0%)
16,514 Medtronic, Inc.................................... 601,729
--------------
MEDICAL SPECIALTIES (0.2%)
75,000 Cytyc Corp.*...................................... 4,584,375
--------------
MEDICAL/DENTAL DISTRIBUTORS (0.0%)
11,250 Cardinal Health, Inc.............................. 538,594
--------------
METALS FABRICATIONS (0.0%)
8,000 Coflexip, S.A. (ADR) (France)..................... 300,000
--------------
MID-SIZED BANKS (0.8%)
304,600 Northern Trust Corp............................... 16,258,025
--------------
MILITARY/GOV'T/TECHNICAL (1.1%)
230,000 General Motors Corp. (Class H)*................... 22,080,000
--------------
MOVIES/ENTERTAINMENT (0.3%)
70,000 Westwood One, Inc.*............................... 5,320,000
--------------
MULTI-LINE INSURANCE (1.0%)
197,000 American International Group, Inc................. 21,300,625
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
100
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
MULTI-SECTOR COMPANIES (1.7%)
233,000 General Electric Co............................... $ 36,056,750
--------------
NEWSPAPERS (1.0%)
54,505 Knight-Ridder, Inc................................ 3,243,048
130,000 New York Times Co. (The) (Class A)................ 6,386,250
200,000 Tribune Co........................................ 11,012,500
--------------
20,641,798
--------------
OFFICE EQUIPMENT/SUPPLIES (0.2%)
43,100 Avery Dennison Corp............................... 3,140,913
--------------
OIL & GAS PRODUCTION (0.4%)
70,000 Devon Energy Corp................................. 2,301,250
225,000 EOG Resources, Inc................................ 3,951,563
145,000 Union Pacific Resources Group, Inc................ 1,848,750
--------------
8,101,563
--------------
OIL/GAS TRANSMISSION (0.6%)
300,000 Enron Corp........................................ 13,312,500
--------------
OILFIELD SERVICES/EQUIPMENT (0.7%)
130,000 BJ Services Co.*.................................. 5,435,625
100,000 Cooper Cameron Corp.*............................. 4,893,750
79,320 Smith International, Inc.*........................ 3,941,213
--------------
14,270,588
--------------
OTHER CONSUMER SERVICES (1.1%)
275,000 Preview Travel, lnc.*............................. 14,334,375
245,000 Ticketmaster Online-CitySearch, Inc.
(Series B)*..................................... 9,417,188
--------------
23,751,563
--------------
OTHER METALS/MINERALS (0.2%)
194,220 Inco Ltd. (Canada)*............................... 4,564,170
--------------
OTHER PHARMACEUTICALS (1.0%)
100,000 Biovail Corporation International (Canada)*....... 9,375,000
12,000 Elan Corp. PLC (ADR) (Ireland)*................... 354,000
65,000 Forest Laboratories, Inc.*........................ 3,993,438
100,000 Teva Pharmaceutical Industries Ltd. (ADR)
(Israel)........................................ 7,150,000
--------------
20,872,438
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
OTHER SPECIALTY STORES (0.6%)
113,000 Tiffany & Co...................................... $ 10,085,250
58,200 Zale Corp.*....................................... 2,815,425
--------------
12,900,675
--------------
OTHER TELECOMMUNICATIONS (4.6%)
26,700 COLT Telecom Group PLC (ADR) (United Kingdom)*.... 5,443,463
70,000 Japan Telecom Co., Ltd. (ADR) (Japan)*............ 5,617,500
70,000 Mannesmann AG (ADR) (Germany)..................... 16,940,000
150,000 McLeodUSA, Inc. (Class A)*........................ 8,812,500
260,000 Nippon Telegraph & Telephone Corp. (ADR)
(Japan)......................................... 22,392,500
50,000 NTL Inc.*......................................... 6,225,000
70,000 PanAmSat Corp.*................................... 4,134,375
100,000 RCN Corp.*........................................ 4,843,750
170,000 Sonera Corp. (ADR) (Finland)*..................... 11,772,500
90,000 Telefonos de Mexico S.A. (Series L) (ADR)
(Mexico)........................................ 10,125,000
--------------
96,306,588
--------------
PACKAGE GOODS/COSMETICS (1.3%)
238,600 Colgate-Palmolive Co.............................. 15,509,000
110,000 Procter & Gamble Co............................... 12,051,875
--------------
27,560,875
--------------
PACKAGED FOODS (0.0%)
15,000 Aurora Foods, Inc.*............................... 139,688
--------------
PAPER (0.6%)
47,030 Champion International Corp....................... 2,912,921
160,000 International Paper Co............................ 9,030,000
--------------
11,942,921
--------------
PRECISION INSTRUMENTS (0.2%)
40,000 PE Corporation-PE Biosystems Group................ 4,812,500
--------------
SEMICONDUCTORS (2.3%)
80,000 Broadcom Corp. (Class A)*......................... 21,785,000
250,000 Conexant Systems, Inc.*........................... 16,515,625
10,000 Intel Corp........................................ 822,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
101
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
30,000 SDL, Inc.*........................................ $ 6,540,000
16,000 TriQuint Semiconductor, Inc....................... 1,777,000
--------------
47,440,125
--------------
SERVICES TO THE HEALTH INDUSTRY (0.0%)
10,000 MedQuist Inc.*.................................... 256,250
--------------
TELECOMMUNICATIONS EQUIPMENT (8.3%)
81,752 Alcatel (ADR) (France)............................ 3,678,840
40,000 CIENA Corp.*...................................... 2,300,000
201,500 Comverse Technology, Inc.*........................ 29,154,531
150,000 Corning Inc....................................... 19,340,625
381,024 Ericsson (L.M.) Telefonaktiebolaqet (ADR)
(Sweden)........................................ 25,004,700
115,000 General Instrument Corp.*......................... 9,775,000
152,100 Motorola, Inc..................................... 22,396,725
12,300 Next Level Communications, Inc.*.................. 921,731
120,000 Nokia Corp. (ADR) (Finland)....................... 22,800,000
106,800 Nortel Networks Corp. (Canada).................... 10,786,800
198,800 RF Micro Devices, Inc.*........................... 13,568,100
160,900 Scientific-Atlanta, Inc........................... 8,950,063
14,000 Sycamore Networks, Inc.*.......................... 4,250,750
--------------
172,927,865
--------------
TOBACCO (0.0%)
5,000 Philip Morris Companies, Inc...................... 115,938
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $1,305,761,518).................. 1,962,285,182
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (5.8%)
U.S. GOVERNMENT AGENCY (a) (5.8%)
$ 121,200 Federal Home Loan Mortgage Corp. 1.50% due
01/03/00 (AMORTIZED COST $121,189,900).......... 121,189,900
--------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.0%)
$ 160 The Bank of New York 1.50% due 01/03/00 (dated
12/31/99; proceeds $160,119) (b) (IDENTIFIED
COST $160,099).................................. $ 160,099
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $121,349,999).................... 121,349,999
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,427,111,517) (c).................................................... 100.0% 2,083,635,181
LIABILITIES IN EXCESS OF OTHER ASSETS................................................... 0.0 (563,796)
------ --------------
NET ASSETS.............................................................................. 100.0% $2,083,071,385
------ --------------
------ --------------
</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 $112,298 U.S. Treasury Bond 11.25% due 02/15/15 valued at
$163,429.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $673,009,775 and the
aggregate gross unrealized depreciation is $16,486,111, resulting in net
unrealized appreciation of $656,523,664.
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.9%)
ACCIDENT & HEALTH INSURANCE (0.2%)
3,854 AFLAC, Inc........................................................................... $ 181,861
1,905 Torchmark Corp....................................................................... 55,364
3,476 UNUMProvident Corp................................................................... 111,449
------------
348,674
------------
ADVERTISING (0.3%)
4,064 Interpublic Group of Companies, Inc.................................................. 234,442
2,570 Omnicom Group, Inc................................................................... 257,000
------------
491,442
------------
AEROSPACE (0.7%)
13,533 Boeing Co............................................................................ 562,465
1,595 Goodrich (B.F.) Co. (The)............................................................ 43,862
5,734 Lockheed Martin Corp................................................................. 125,432
1,006 Northrop Grumman Corp................................................................ 54,387
6,933 United Technologies Corp............................................................. 450,645
------------
1,236,791
------------
AIR FREIGHT/DELIVERY SERVICES (0.1%)
4,324 FDX Corp.*........................................................................... 177,014
------------
AIRLINES (0.2%)
2,144 AMR Corp.*........................................................................... 143,648
1,923 Delta Air Lines, Inc................................................................. 95,789
7,305 Southwest Airlines Co................................................................ 118,250
1,035 US Airways Group Inc.*............................................................... 33,185
------------
390,872
------------
ALCOHOLIC BEVERAGES (0.3%)
6,738 Anheuser-Busch Companies, Inc........................................................ 477,556
992 Brown-Forman Corp. (Class B)......................................................... 56,792
534 Coors (Adolph) Co. (Class B)......................................................... 28,035
------------
562,383
------------
ALUMINUM (0.4%)
3,174 Alcan Aluminium, Ltd. (Canada)....................................................... 130,729
5,306 Alcoa, Inc........................................................................... 440,398
916 Reynolds Metals Co................................................................... 70,188
------------
641,315
------------
APPAREL (0.1%)
856 Liz Claiborne, Inc................................................................... 32,207
479 Russell Corp......................................................................... 8,023
1,711 VF Corp.............................................................................. 51,330
------------
91,560
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTO PARTS: O.E.M. (0.2%)
2,382 Dana Corp............................................................................ $ 71,311
8,182 Delphi Automotive Systems Corp....................................................... 128,866
1,066 Eaton Corp........................................................................... 77,418
1,236 Johnson Controls, Inc................................................................ 70,297
1,761 TRW Inc.............................................................................. 91,462
------------
439,354
------------
AUTOMOTIVE AFTERMARKET (0.1%)
1,098 Cooper Tire & Rubber Co.............................................................. 17,088
2,575 Genuine Parts Co..................................................................... 63,892
2,264 Goodyear Tire & Rubber Co............................................................ 63,816
------------
144,796
------------
BEVERAGES - NON-ALCOHOLIC (1.6%)
35,769 Coca-Cola Co......................................................................... 2,083,544
6,161 Coca-Cola Enterprises Inc............................................................ 123,990
21,080 PepsiCo, Inc......................................................................... 743,070
------------
2,950,604
------------
BIOTECHNOLOGY (0.5%)
14,793 Amgen Inc.*.......................................................................... 887,580
------------
BOOKS/MAGAZINES (0.0%)
1,030 Harcourt General, Inc................................................................ 41,457
748 Meredith Corp........................................................................ 31,182
------------
72,639
------------
BROADCASTING (0.6%)
11,040 CBS Corp.*........................................................................... 705,870
4,902 Clear Channel Communications, Inc.*.................................................. 437,503
------------
1,143,373
------------
BUILDING MATERIALS (0.0%)
794 Owens Corning........................................................................ 15,334
1,449 Vulcan Materials Co.................................................................. 57,869
------------
73,203
------------
BUILDING MATERIALS/D I Y CHAINS (1.4%)
33,341 Home Depot, Inc. (The)............................................................... 2,285,908
5,534 Lowe's Companies, Inc................................................................ 330,656
------------
2,616,564
------------
BUILDING PRODUCTS (0.1%)
580 Armstrong World Industries, Inc...................................................... 19,357
6,473 Masco Corp........................................................................... 164,252
------------
183,609
------------
</TABLE>
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103
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CABLE TELEVISION (0.7%)
10,885 Comcast Corp. (Class A Special)*..................................................... $ 549,692
8,862 MediaOne Group, Inc.*................................................................ 680,712
------------
1,230,404
------------
CASINO/GAMBLING (0.1%)
1,862 Harrah's Entertainment, Inc.*........................................................ 49,227
2,798 Mirage Resorts, Inc.*................................................................ 42,844
------------
92,071
------------
CELLULAR TELEPHONE (0.6%)
5,263 Nextel Communications, Inc. (Class A)*............................................... 542,418
6,241 Sprint Corp. (PCS Group)*............................................................ 639,702
------------
1,182,120
------------
CLOTHING/SHOE/ACCESSORY STORES (0.5%)
12,399 Gap, Inc. (The)...................................................................... 570,354
3,109 Limited (The), Inc................................................................... 134,659
2,006 Nordstrom, Inc....................................................................... 52,532
4,490 TJX Companies, Inc................................................................... 91,764
------------
849,309
------------
COMPUTER COMMUNICATIONS (2.9%)
4,996 3Com Corp.*.......................................................................... 234,500
1,479 Adaptec, Inc.*....................................................................... 73,673
2,615 Cabletron Systems, Inc.*............................................................. 67,990
47,368 Cisco Systems, Inc.*................................................................. 5,071,336
------------
5,447,499
------------
COMPUTER SOFTWARE (6.8%)
1,741 Adobe Systems, Inc................................................................... 117,082
883 Autodesk, Inc........................................................................ 29,746
3,510 BMC Software, Inc.*.................................................................. 280,361
1,298 Citrix Systems, Inc.*................................................................ 159,573
7,806 Computer Associates International, Inc............................................... 545,932
5,182 Compuware Corp.*..................................................................... 192,706
74,724 Microsoft Corp.*..................................................................... 8,719,357
4,823 Novell, Inc.*........................................................................ 192,317
20,617 Oracle Corp.*........................................................................ 2,309,104
3,899 Parametric Technology Corp.*......................................................... 105,273
3,557 PeopleSoft, Inc.*.................................................................... 75,586
------------
12,727,037
------------
COMPUTER/VIDEO CHAINS (0.2%)
2,973 Best Buy Co., Inc.*.................................................................. 149,207
2,945 Circuit City Stores, Inc.-Circuit City Group......................................... 132,709
2,799 Tandy Corp........................................................................... 137,676
------------
419,592
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.3%)
5,149 Caterpillar, Inc..................................................................... $ 242,325
600 Cummins Engine Co., Inc.............................................................. 28,987
3,384 Deere & Co........................................................................... 146,781
118 NACCO Industries, Inc. (Class A)..................................................... 6,556
921 Navistar International Corp.*........................................................ 43,632
1,134 PACCAR, Inc.......................................................................... 50,179
------------
518,460
------------
CONSUMER ELECTRONICS/APPLIANCES (0.1%)
1,223 Maytag Corp.......................................................................... 58,704
1,078 Whirlpool Corp....................................................................... 70,137
------------
128,841
------------
CONSUMER SPECIALTIES (0.0%)
483 Jostens, Inc......................................................................... 11,743
------------
CONSUMER SUNDRIES (0.0%)
934 American Greetings Corp. (Class A)................................................... 22,066
------------
CONTAINERS/PACKAGING (0.2%)
438 Ball Corp............................................................................ 17,246
758 Bemis Company, Inc................................................................... 26,435
1,765 Crown Cork & Seal Co., Inc........................................................... 39,492
2,174 Owens-Illinois, Inc.*................................................................ 54,486
2,481 Pactiv Corp.......................................................................... 26,361
1,209 Sealed Air Corp.*.................................................................... 62,641
809 Temple-Inland, Inc................................................................... 53,343
------------
280,004
------------
CONTRACT DRILLING (0.0%)
717 Helmerich & Payne, Inc............................................................... 15,640
1,206 Rowan Companies, Inc.*............................................................... 26,155
------------
41,795
------------
DEPARTMENT STORES (0.4%)
1,555 Dillard's, Inc. (Class A)............................................................ 31,392
3,040 Federated Department Stores, Inc.*................................................... 153,710
2,360 Kohl's Corp.*........................................................................ 170,362
4,839 May Department Stores Co............................................................. 156,058
3,768 Penney (J.C.) Co., Inc............................................................... 75,124
5,473 Sears, Roebuck & Co.................................................................. 166,584
------------
753,230
------------
DISCOUNT CHAINS (2.9%)
1,603 Consolidated Stores Corp.*........................................................... 26,049
3,212 Costco Wholesale Corp.*.............................................................. 292,894
6,381 Dayton Hudson Corp................................................................... 468,605
</TABLE>
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104
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PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
3,852 Dollar General Corp.................................................................. $ 87,633
7,149 Kmart Corp.*......................................................................... 71,937
64,444 Wal-Mart Stores, Inc................................................................. 4,454,691
------------
5,401,809
------------
DIVERSIFIED COMMERCIAL SERVICES (0.1%)
3,571 Paychex, Inc......................................................................... 142,617
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.1%)
2,755 Rockwell International Corp.......................................................... 131,896
------------
DIVERSIFIED FINANCIAL SERVICES (2.0%)
6,483 American Express Co.................................................................. 1,077,799
48,826 Citigroup, Inc....................................................................... 2,712,895
------------
3,790,694
------------
DIVERSIFIED MANUFACTURING (1.4%)
1,364 Cooper Industries, Inc............................................................... 55,157
2,061 Danaher Corp......................................................................... 99,443
2,949 Dover Corp........................................................................... 133,811
11,464 Honeywell International Inc.......................................................... 661,329
1,273 ITT Industries, Inc.................................................................. 42,566
5,812 Minnesota Mining & Manufacturing Co.................................................. 568,849
2,291 Thermo Electron Corp.*............................................................... 34,365
24,455 Tyco International Ltd. (Bermuda).................................................... 950,688
------------
2,546,208
------------
DRUGSTORE CHAINS (0.4%)
5,675 CVS Corp............................................................................. 226,645
569 Longs Drug Stores Corp............................................................... 14,687
3,750 Rite Aid Corp........................................................................ 41,953
14,532 Walgreen Co.......................................................................... 425,061
------------
708,346
------------
E.D.P. PERIPHERALS (1.1%)
14,735 EMC Corp.*........................................................................... 1,609,799
1,850 Lexmark International Group, Inc. (Class A)*......................................... 167,425
2,162 Network Appliance, Inc.*............................................................. 179,446
3,051 Seagate Technology, Inc.*............................................................ 142,062
------------
2,098,732
------------
E.D.P. SERVICES (0.8%)
9,052 Automatic Data Processing, Inc....................................................... 487,676
2,095 Ceridian Corp.*...................................................................... 45,173
2,411 Computer Sciences Corp.*............................................................. 228,141
6,818 Electronic Data Systems Corp......................................................... 456,380
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,069 First Data Corp...................................................................... $ 299,278
------------
1,516,648
------------
ELECTRIC UTILITIES (1.5%)
2,989 AES Corp. (The)*..................................................................... 223,428
1,987 Ameren Corp.......................................................................... 65,074
2,811 American Electric Power Co........................................................... 90,303
2,311 Carolina Power & Light Co............................................................ 70,341
3,079 Central & South West Corp............................................................ 61,580
2,301 Cinergy Corp......................................................................... 55,512
1,677 CMS Energy Corp...................................................................... 52,301
3,201 Consolidated Edison, Inc............................................................. 110,434
2,166 Constellation Energy Group, Inc...................................................... 62,814
2,763 Dominion Resources, Inc.............................................................. 108,448
2,100 DTE Energy Co........................................................................ 65,887
5,296 Duke Energy Corp..................................................................... 265,462
5,028 Edison International................................................................. 131,671
3,574 Entergy Corp......................................................................... 92,030
3,374 FirstEnergy Corp..................................................................... 76,548
1,422 Florida Progress Corp................................................................ 60,168
2,596 FPL Group, Inc....................................................................... 111,141
1,719 GPU, Inc............................................................................. 51,463
1,673 New Century Energies, Inc............................................................ 50,817
2,712 Niagara Mohawk Holdings Inc.......................................................... 37,798
2,242 Northern States Power Co............................................................. 43,719
2,690 PECO Energy Co....................................................................... 93,477
5,561 PG & E Corp.......................................................................... 114,000
1,227 Pinnacle West Capital Corp........................................................... 37,500
2,161 PP&L Resources, Inc.................................................................. 49,433
3,165 Public Service Enterprise Group, Inc................................................. 110,182
4,282 Reliant Energy, Inc.................................................................. 97,951
9,747 Southern Co.......................................................................... 229,054
4,003 Texas Utilities Co................................................................... 142,357
3,150 Unicom Corp.......................................................................... 105,525
------------
2,866,418
------------
ELECTRICAL PRODUCTS (0.3%)
6,292 Emerson Electric Co.................................................................. 361,003
2,270 Molex Inc............................................................................ 128,539
837 Thomas & Betts Corp.................................................................. 26,679
------------
516,221
------------
ELECTRONIC COMPONENTS (0.2%)
1,188 Andrew Corp.*........................................................................ 22,423
4,242 Solectron Corp.*..................................................................... 403,520
------------
425,943
------------
</TABLE>
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105
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC DATA PROCESSING (5.1%)
2,330 Apple Computer, Inc.*................................................................ $ 239,407
24,618 Compaq Computer Corp................................................................. 666,225
36,795 Dell Computer Corp.*................................................................. 1,874,245
4,584 Gateway, Inc......................................................................... 330,334
14,756 Hewlett-Packard Co................................................................... 1,681,262
26,104 International Business Machines Corp................................................. 2,819,232
2,662 Silicon Graphics, Inc.*.............................................................. 26,121
22,621 Sun Microsystems, Inc.*.............................................................. 1,750,300
4,488 Unisys Corp.*........................................................................ 143,335
------------
9,530,461
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.5%)
5,480 Applied Materials, Inc.*............................................................. 693,905
1,303 KLA-Tencor Corp.*.................................................................... 145,040
2,476 Teradyne, Inc.*...................................................................... 163,416
------------
1,002,361
------------
ENGINEERING & CONSTRUCTION (0.0%)
1,100 Fluor Corp........................................................................... 50,462
590 Foster Wheeler Corp.................................................................. 5,236
------------
55,698
------------
ENVIRONMENTAL SERVICES (0.1%)
8,973 Waste Management, Inc................................................................ 154,223
------------
FARMING/SEEDS/MILLING (0.1%)
8,810 Archer-Daniels-Midland Co............................................................ 107,372
------------
FINANCE COMPANIES (1.4%)
10,546 Associates First Capital Corp. (Class A)............................................. 289,356
2,855 Capital One Financial Corp........................................................... 137,575
1,639 Countrywide Credit Industries, Inc................................................... 41,385
14,843 Fannie Mae........................................................................... 926,760
10,067 Freddie Mac.......................................................................... 473,778
6,808 Household International, Inc......................................................... 253,598
11,611 MBNA Corp............................................................................ 316,400
2,304 SLM Holding Corp..................................................................... 97,344
------------
2,536,196
------------
FINANCIAL PUBLISHING/SERVICES (0.2%)
2,330 Dun & Bradstreet Corp................................................................ 68,735
2,048 Equifax, Inc......................................................................... 48,256
2,840 McGraw-Hill Companies, Inc........................................................... 175,015
------------
292,006
------------
FLUID CONTROLS (0.1%)
1,622 Parker-Hannifin Corp................................................................. 83,229
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD CHAINS (0.4%)
6,134 Albertson's, Inc..................................................................... $ 197,821
556 Great Atlantic & Pacific Tea Co., Inc................................................ 15,498
12,048 Kroger Co.*.......................................................................... 227,406
7,368 Safeway Inc.*........................................................................ 262,024
2,152 Winn-Dixie Stores, Inc............................................................... 51,514
------------
754,263
------------
FOOD DISTRIBUTORS (0.1%)
2,022 Supervalu, Inc....................................................................... 40,440
4,770 SYSCO Corp........................................................................... 188,713
------------
229,153
------------
FOREST PRODUCTS (0.2%)
2,476 Georgia-Pacific Corp................................................................. 125,657
1,541 Louisiana-Pacific Corp............................................................... 21,959
3,401 Weyerhaeuser Co...................................................................... 244,234
------------
391,850
------------
GENERIC DRUGS (0.0%)
1,390 Watson Pharmaceuticals, Inc.*........................................................ 49,779
------------
HOME BUILDING (0.0%)
858 Centex Corp.......................................................................... 21,182
473 Fleetwood Enterprises, Inc........................................................... 9,756
691 Kaufman & Broad Home Corp............................................................ 16,714
626 Pulte Corp........................................................................... 14,085
------------
61,737
------------
HOME FURNISHINGS (0.1%)
2,842 Leggett & Platt, Inc................................................................. 60,925
4,084 Newell Rubbermaid, Inc............................................................... 118,436
835 Tupperware Corp...................................................................... 14,143
------------
193,504
------------
HOSPITAL/NURSING MANAGEMENT (0.2%)
8,157 Columbia/HCA Healthcare Corp......................................................... 239,102
1,492 Manor Care, Inc...................................................................... 23,872
4,509 Tenet Healthcare Corp.*.............................................................. 105,962
------------
368,936
------------
HOTELS/RESORTS (0.3%)
8,934 Carnival Corp. (Class A)............................................................. 427,157
5,341 Hilton Hotels Corp................................................................... 51,407
3,603 Marriott International, Inc. (Class A)............................................... 113,720
------------
592,284
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL MACHINERY/COMPONENTS (0.2%)
4,351 Illinois Tool Works Inc.............................................................. $ 293,964
2,369 Ingersoll-Rand Co.................................................................... 130,443
536 Milacron, Inc........................................................................ 8,241
------------
432,648
------------
INDUSTRIAL SPECIALTIES (0.1%)
1,876 Ecolab, Inc.......................................................................... 73,399
655 Millipore Corp....................................................................... 25,299
1,798 Pall Corp............................................................................ 38,769
------------
137,467
------------
INSURANCE BROKERS/SERVICES (0.3%)
3,716 AON Corp............................................................................. 148,640
3,864 Marsh & McLennan Companies, Inc...................................................... 369,737
------------
518,377
------------
INTEGRATED OIL COMPANIES (4.4%)
1,313 Amerada Hess Corp.................................................................... 74,513
4,674 Atlantic Richfield Co................................................................ 404,301
9,504 Chevron Corp......................................................................... 823,284
9,069 Conoco, Inc. (Class B)............................................................... 225,591
50,012 Exxon Mobil Corp..................................................................... 4,029,092
1,252 Kerr-McGee Corp...................................................................... 77,624
3,668 Phillips Petroleum Co................................................................ 172,396
31,052 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................ 1,876,705
8,009 Texaco, Inc.......................................................................... 434,989
3,511 Unocal Corp.......................................................................... 117,838
------------
8,236,333
------------
INTERNET SERVICES (2.2%)
32,373 America Online, Inc.*................................................................ 2,442,138
3,812 Yahoo! Inc.*......................................................................... 1,649,405
------------
4,091,543
------------
INVESTMENT BANKERS/BROKERS/SERVICES (1.3%)
1,726 Bear Stearns Companies, Inc.......................................................... 73,787
1,738 Lehman Brothers Holdings, Inc........................................................ 147,187
5,368 Merrill Lynch & Co., Inc............................................................. 448,228
8,066 Morgan Stanley Dean Witter & Co. (Note 3)............................................ 1,151,422
2,067 Paine Webber Group, Inc.............................................................. 80,225
11,874 Schwab (Charles) Corp................................................................ 455,665
------------
2,356,514
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT MANAGERS (0.1%)
3,651 Franklin Resources, Inc.............................................................. $ 117,060
1,733 Price (T.) Rowe Associates, Inc...................................................... 63,796
------------
180,856
------------
LIFE INSURANCE (0.3%)
3,579 American General Corp................................................................ 271,557
4,737 Conseco, Inc......................................................................... 84,674
1,517 Jefferson-Pilot Corp................................................................. 103,535
2,831 Lincoln National Corp................................................................ 113,240
------------
573,006
------------
MAJOR BANKS (4.1%)
24,722 Bank of America Corp................................................................. 1,240,735
10,664 Bank of New York Co., Inc............................................................ 426,560
16,608 Bank One Corp........................................................................ 532,494
4,793 BB&T Corp............................................................................ 131,208
11,944 Chase Manhattan Corp. (The).......................................................... 927,900
2,265 Comerica, Inc........................................................................ 105,747
14,304 First Union Corp..................................................................... 469,350
13,259 FleetBoston Financial Corp........................................................... 461,579
3,327 Huntington Bancshares, Inc........................................................... 79,224
6,478 KeyCorp.............................................................................. 143,326
7,366 Mellon Financial Corp................................................................ 250,904
2,507 Morgan (J.P.) & Co., Inc............................................................. 317,449
8,929 National City Corp................................................................... 211,506
4,257 PNC Bank Corp........................................................................ 189,437
1,517 Republic New York Corp............................................................... 109,224
2,430 SouthTrust Corp...................................................................... 91,733
2,317 State Street Corp.................................................................... 169,286
2,531 Summit Bancorp....................................................................... 77,512
4,634 SunTrust Banks, Inc.................................................................. 318,877
10,537 U.S. Bancorp......................................................................... 250,912
2,936 Wachovia Corp........................................................................ 199,648
23,783 Wells Fargo & Co..................................................................... 961,725
------------
7,666,336
------------
MAJOR CHEMICALS (1.1%)
3,176 Dow Chemical Co...................................................................... 424,393
15,126 Du Pont (E.I.) de Nemours & Co., Inc................................................. 996,425
1,133 Eastman Chemical Co.................................................................. 54,030
1,540 Hercules Inc......................................................................... 42,928
9,190 Monsanto Co.......................................................................... 327,394
3,170 Rohm & Haas Co....................................................................... 128,979
1,938 Union Carbide Corp................................................................... 129,362
------------
2,103,511
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
107
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR PHARMACEUTICALS (6.8%)
22,262 Abbott Laboratories.................................................................. $ 808,389
18,909 American Home Products Corp.......................................................... 745,724
28,726 Bristol-Myers Squibb Co.............................................................. 1,843,850
20,137 Johnson & Johnson.................................................................... 1,875,258
15,792 Lilly (Eli) & Co..................................................................... 1,050,168
33,849 Merck & Co., Inc.*................................................................... 2,269,999
56,061 Pfizer, Inc.......................................................................... 1,818,479
7,509 Pharmacia & Upjohn, Inc.............................................................. 337,905
21,274 Schering-Plough Corp................................................................. 897,497
12,435 Warner-Lambert Co.................................................................... 1,018,893
------------
12,666,162
------------
MAJOR U.S. TELECOMMUNICATIONS (6.6%)
4,546 ALLTEL Corp.......................................................................... 375,897
46,273 AT&T Corp............................................................................ 2,348,355
22,486 Bell Atlantic Corp................................................................... 1,384,294
27,258 BellSouth Corp....................................................................... 1,276,015
14,073 GTE Corp............................................................................. 993,026
41,103 MCI WorldCom, Inc.*.................................................................. 2,178,459
49,401 SBC Communications, Inc.............................................................. 2,408,299
12,620 Sprint Corp. (FON Group)............................................................. 849,484
7,317 U.S. West, Inc....................................................................... 526,824
------------
12,340,653
------------
MANAGED HEALTH CARE (0.2%)
2,167 Aetna Inc............................................................................ 120,946
2,426 Humana, Inc.*........................................................................ 19,863
2,458 United HealthCare Corp............................................................... 130,581
922 Wellpoint Health Networks, Inc.*..................................................... 60,794
------------
332,184
------------
MEAT/POULTRY/FISH (0.1%)
7,129 ConAgra, Inc......................................................................... 160,848
------------
MEDIA CONGLOMERATES (1.5%)
29,865 Disney (Walt) Co..................................................................... 873,551
18,630 Time Warner, Inc..................................................................... 1,349,511
10,093 Viacom, Inc. (Class B)*.............................................................. 609,996
------------
2,833,058
------------
MEDICAL EQUIPMENT & SUPPLIES (0.3%)
17,309 Medtronic, Inc....................................................................... 630,697
------------
MEDICAL SPECIALTIES (0.5%)
1,479 ALZA Corp. (Class A)*................................................................ 51,210
741 Bard (C.R.), Inc..................................................................... 39,273
836 Bausch & Lomb, Inc................................................................... 57,214
4,213 Baxter International, Inc............................................................ 264,629
3,625 Becton, Dickinson & Co............................................................... 96,969
1,634 Biomet, Inc.......................................................................... 65,258
6,005 Boston Scientific Corp.*............................................................. 131,359
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,451 Guidant Corp......................................................................... $ 209,197
1,008 Mallinckrodt, Inc.................................................................... 32,067
1,219 St. Jude Medical, Inc.*.............................................................. 37,408
------------
984,584
------------
MEDICAL/DENTAL DISTRIBUTORS (0.2%)
4,058 Cardinal Health, Inc................................................................. 194,277
4,078 McKesson HBOC, Inc................................................................... 92,010
------------
286,287
------------
MEDICAL/NURSING SERVICES (0.0%)
5,685 Healthsouth Corp.*................................................................... 30,557
------------
METALS FABRICATIONS (0.0%)
897 Timken Co. (The)..................................................................... 18,332
------------
MID-SIZED BANKS (0.7%)
5,663 AmSouth Bancorporation............................................................... 109,367
4,470 Fifth Third Bancorp.................................................................. 327,707
14,194 Firstar Corp......................................................................... 299,848
3,223 Northern Trust Corp.................................................................. 172,028
1,705 Old Kent Financial Corp.............................................................. 60,314
3,166 Regions Financial Corp............................................................... 79,348
4,052 Synovus Financial Corp............................................................... 80,534
2,042 Union Planters Corp.................................................................. 80,531
------------
1,209,677
------------
MILITARY/GOV'T/TECHNICAL (0.2%)
2,910 General Dynamics Corp................................................................ 153,503
669 PerkinElmer, Inc..................................................................... 27,889
4,901 Raytheon Co. (Class B)............................................................... 130,183
------------
311,575
------------
MOTOR VEHICLES (0.9%)
17,492 Ford Motor Co........................................................................ 934,729
9,271 General Motors Corp.................................................................. 673,886
------------
1,608,615
------------
MOVIES/ENTERTAINMENT (0.2%)
6,278 Seagram Co. Ltd. (Canada)............................................................ 282,118
------------
MULTI-LINE INSURANCE (1.7%)
11,663 Allstate Corp. (Note 3).............................................................. 279,912
22,421 American International Group, Inc.................................................... 2,424,271
2,728 CIGNA Corp........................................................................... 219,775
3,209 Hartford Financial Services Group, Inc............................................... 152,026
1,883 SAFECO Corp.......................................................................... 46,722
------------
3,122,706
------------
MULTI-SECTOR COMPANIES (4.1%)
954 Crane Co............................................................................. 18,961
2,376 Fortune Brands, Inc.................................................................. 78,557
47,513 General Electric Co.**............................................................... 7,352,637
862 McDermott International, Inc......................................................... 7,812
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
108
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
589 National Service Industries, Inc..................................................... $ 17,376
2,154 Textron, Inc......................................................................... 165,185
------------
7,640,528
------------
NATURAL GAS (0.1%)
1,389 Consolidated Natural Gas Co.......................................................... 90,198
391 Eastern Enterprises.................................................................. 22,458
681 Nicor Inc............................................................................ 22,133
458 ONEOK, Inc........................................................................... 11,507
514 Peoples Energy Corp.................................................................. 17,219
3,481 Sempra Energy*....................................................................... 60,482
------------
223,997
------------
NEWSPAPERS (0.5%)
1,296 Dow Jones & Co., Inc................................................................. 88,128
4,037 Gannett Co., Inc..................................................................... 329,268
1,216 Knight-Ridder, Inc................................................................... 72,352
2,480 New York Times Co. (The) (Class A)................................................... 121,830
869 Times Mirror Co. (Class A)........................................................... 58,223
3,441 Tribune Co........................................................................... 189,470
------------
859,271
------------
OFFICE EQUIPMENT/SUPPLIES (0.3%)
1,632 Avery Dennison Corp.................................................................. 118,932
3,841 Pitney Bowes, Inc.................................................................... 185,568
9,619 Xerox Corp........................................................................... 218,231
------------
522,731
------------
OIL & GAS PRODUCTION (0.2%)
1,847 Anardarko Petroleum Corp............................................................. 63,029
1,652 Apache Corp.......................................................................... 61,021
3,150 Burlington Resources, Inc............................................................ 104,147
5,323 Occidental Petroleum Corp............................................................ 115,110
3,650 Union Pacific Resources Group, Inc................................................... 46,538
------------
389,845
------------
OIL REFINING/MARKETING (0.1%)
1,045 Ashland, Inc......................................................................... 34,420
1,307 Sunoco Inc........................................................................... 30,715
2,088 Tosco Corp........................................................................... 56,768
4,500 USX-Marathon Group................................................................... 111,094
------------
232,997
------------
OIL/GAS TRANSMISSION (0.5%)
3,093 Coastal Corp......................................................................... 109,608
1,177 Columbia Energy Group, Inc........................................................... 74,445
3,306 El Paso Energy Corp.................................................................. 128,314
10,363 Enron Corp........................................................................... 459,858
6,296 Williams Companies, Inc.............................................................. 192,422
------------
964,647
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OILFIELD SERVICES/EQUIPMENT (0.5%)
4,767 Baker Hughes Inc..................................................................... $ 100,405
6,397 Halliburton Co....................................................................... 257,479
7,962 Schlumberger Ltd..................................................................... 447,863
1,541 Transocean Sedco Forex Inc........................................................... 51,927
------------
857,674
------------
OTHER CONSUMER SERVICES (0.2%)
1,417 Block (H.&R.), Inc................................................................... 61,994
10,297 Cendant Corp.*....................................................................... 273,514
3,940 Service Corp. International.......................................................... 27,334
------------
362,842
------------
OTHER METALS/MINERALS (0.2%)
1,355 Allegheny Technologies Inc........................................................... 30,403
2,780 Inco Ltd. (Canada)................................................................... 65,330
1,208 Phelps Dodge Corp.................................................................... 81,087
2,056 Providian Financial Corp............................................................. 187,225
------------
364,045
------------
OTHER PHARMACEUTICALS (0.1%)
1,904 Allergan, Inc........................................................................ 94,724
------------
OTHER SPECIALTY STORES (0.2%)
2,090 AutoZone, Inc.*...................................................................... 67,533
2,025 Bed Bath & Beyond Inc.*.............................................................. 70,116
5,135 Office Depot, Inc.*.................................................................. 56,164
762 Pep Boys-Manny, Moe & Jack........................................................... 6,953
6,726 Staples, Inc.*....................................................................... 138,724
3,545 Toys 'R' Us, Inc.*................................................................... 50,738
------------
390,228
------------
OTHER TELECOMMUNICATIONS (0.3%)
2,023 CenturyTel, Inc...................................................................... 95,840
10,990 Global Crossing Ltd. (Bermuda)*...................................................... 548,813
------------
644,653
------------
PACKAGE GOODS/COSMETICS (2.2%)
808 Alberto-Culver Co. (Class B)......................................................... 20,857
3,573 Avon Products, Inc................................................................... 117,909
3,423 Clorox Co............................................................................ 172,434
8,437 Colgate-Palmolive Co................................................................. 548,405
15,533 Gillette Co.......................................................................... 639,765
1,522 International Flavors & Fragrances, Inc.............................................. 57,456
7,883 Kimberly-Clark Corp.................................................................. 514,366
19,031 Procter & Gamble Co.................................................................. 2,085,084
------------
4,156,276
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
109
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGED FOODS (1.1%)
4,039 BestFoods............................................................................ $ 212,300
6,196 Campbell Soup Co..................................................................... 239,708
4,400 General Mills, Inc................................................................... 157,300
5,190 Heinz (H.J.) Co...................................................................... 206,627
5,871 Kellogg Co........................................................................... 180,900
1,937 Quaker Oats
Company (The)...................................................................... 127,116
4,684 Ralston-Ralston Purina Group......................................................... 130,567
13,159 Sara Lee Corp........................................................................ 290,320
8,277 Unilever N.V.
(Netherlands)...................................................................... 450,579
------------
1,995,417
------------
PAINTS/COATINGS (0.1%)
2,517 PPG Industries, Inc.................................................................. 157,470
2,402 Sherwin-Williams Co.................................................................. 50,442
------------
207,912
------------
PAPER (0.4%)
827 Boise Cascade Corp................................................................... 33,494
1,393 Champion International Corp.......................................................... 86,279
3,133 Fort James Corp...................................................................... 85,766
5,996 International Paper Co............................................................... 338,399
1,486 Mead Corp............................................................................ 64,548
419 Potlatch Corp........................................................................ 18,698
1,453 Westavaco Corp....................................................................... 47,404
1,616 Willamette Industries, Inc........................................................... 75,043
------------
749,631
------------
PHOTOGRAPHIC PRODUCTS (0.2%)
4,570 Eastman Kodak Co..................................................................... 302,763
645 Polaroid Corp........................................................................ 12,134
------------
314,897
------------
POLLUTION CONTROL EQUIPMENT (0.0%)
2,735 Allied Waste Industries, Inc.*....................................................... 24,102
------------
PRECIOUS METALS (0.2%)
5,710 Barrick Gold Corp. (Canada).......................................................... 100,996
2,367 Freeport-McMoran Copper & Gold, Inc. (Class B)....................................... 50,003
3,769 Homestake Mining Co.................................................................. 29,445
2,427 Newmont Mining Corp.................................................................. 59,462
4,715 Placer Dome Inc. (Canada)............................................................ 50,686
------------
290,592
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PRECISION INSTRUMENTS (0.1%)
1,493 PE Corporation-PE Biosystems Group................................................... $ 179,627
684 Tektronix, Inc....................................................................... 26,591
------------
206,218
------------
PRINTING/FORMS (0.0%)
1,063 Deluxe Corp.......................................................................... 29,166
1,831 Donnelley (R.R.) & Sons Co........................................................... 45,432
------------
74,598
------------
PROPERTY - CASUALTY INSURERS (0.3%)
2,548 Chubb Corp........................................................................... 143,484
2,377 Cincinnati Financial Corp............................................................ 73,687
1,536 Loews Corp........................................................................... 93,216
1,059 Progressive Corp..................................................................... 77,439
3,291 St. Paul Companies, Inc.............................................................. 110,866
------------
498,692
------------
RAILROADS (0.3%)
6,617 Burlington Northern Santa Fe Corp.................................................... 160,462
3,162 CSX Corp............................................................................. 99,208
1,601 Kansas City Southern Industries, Inc................................................. 119,475
5,512 Norfolk Southern Corp................................................................ 112,996
3,600 Union Pacific Corp................................................................... 157,050
------------
649,191
------------
RECREATIONAL PRODUCTS/TOYS (0.1%)
1,330 Brunswick Corp....................................................................... 29,593
2,806 Hasbro, Inc.......................................................................... 53,489
6,093 Mattel, Inc.......................................................................... 79,971
------------
163,053
------------
RENTAL/LEASING COMPANIES (0.0%)
930 Ryder System, Inc.................................................................... 22,727
------------
RESTAURANTS (0.5%)
1,903 Darden Restaurants, Inc.............................................................. 34,492
19,608 McDonald's Corp...................................................................... 790,448
2,223 Tricon Global Restaurants, Inc.*..................................................... 85,863
1,732 Wendy's International, Inc........................................................... 35,723
------------
946,526
------------
SAVINGS & LOAN ASSOCIATIONS (0.2%)
2,340 Golden West Financial Corp........................................................... 78,390
8,360 Washington Mutual, Inc............................................................... 217,360
------------
295,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
110
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (3.3%)
2,132 Advanced Micro Devices, Inc.*........................................................ $ 61,695
2,526 Analog Devices, Inc.*................................................................ 234,918
48,382 Intel Corp........................................................................... 3,979,420
2,154 LSI Logic Corp.*..................................................................... 145,395
3,908 Micron Technology, Inc.*............................................................. 303,847
2,484 National Semiconductor Corp.*........................................................ 106,346
11,614 Texas Instruments, Inc............................................................... 1,125,106
4,618 Xilinx, Inc.*........................................................................ 209,830
------------
6,166,557
------------
SERVICES TO THE HEALTH INDUSTRY (0.1%)
4,459 IMS Health Inc....................................................................... 121,229
1,665 Quintiles Transnational Corp.*....................................................... 31,011
390 Shared Medical Systems Corp.......................................................... 19,866
------------
172,106
------------
SHOE MANUFACTURING (0.1%)
4,055 Nike, Inc. (Class B)................................................................. 200,976
815 Reebok International Inc. (United Kingdom)*.......................................... 6,673
------------
207,649
------------
SPECIALTY CHEMICALS (0.2%)
3,321 Air Products & Chemicals, Inc........................................................ 111,461
1,822 Engelhard Corp....................................................................... 34,390
443 FMC Corp.*........................................................................... 25,389
1,040 Grace (W. R.) & Co................................................................... 14,430
833 Great Lakes Chemical Corp............................................................ 31,810
2,302 Praxair, Inc......................................................................... 115,819
1,461 Sigma-Aldrich Corp................................................................... 43,830
------------
377,129
------------
SPECIALTY FOODS/CANDY (0.1%)
2,004 Hershey Foods Corp................................................................... 95,190
1,676 Wrigley (Wm.) Jr. Co. (Class A)...................................................... 139,003
------------
234,193
------------
SPECIALTY INSURERS (0.1%)
1,442 MBIA, Inc............................................................................ 76,156
1,531 MGIC Investment Corp................................................................. 92,147
------------
168,303
------------
SPECIALTY STEELS (0.0%)
1,263 Nucor Corp........................................................................... 69,228
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL/IRON ORE (0.0%)
1,899 Bethlehem Steel Corp.*............................................................... $ 15,904
1,280 USX-U.S. Steel Group................................................................. 42,240
1,290 Worthington Industries, Inc.......................................................... 21,285
------------
79,429
------------
TELECOMMUNICATIONS EQUIPMENT (5.2%)
2,166 ADC Telecommunications, Inc.*........................................................ 157,035
1,032 Comverse Technology, Inc.*........................................................... 149,318
3,545 Corning Inc.......................................................................... 457,083
2,520 General Instrument Corp.*............................................................ 214,200
45,371 Lucent Technologies Inc.............................................................. 3,394,318
8,820 Motorola, Inc........................................................................ 1,298,745
19,341 Nortel Networks Corp. (Canada)....................................................... 1,953,441
9,556 QUALCOMM Inc.*....................................................................... 1,682,453
1,138 Scientific-Atlanta, Inc.............................................................. 63,301
5,825 Tellabs, Inc.*....................................................................... 373,528
------------
9,743,422
------------
TEXTILES (0.0%)
259 Springs Industries, Inc. (Class A)................................................... 10,344
------------
TOBACCO (0.5%)
4,723 Nabisco Group Holdings Corp.......................................................... 50,182
34,265 Philip Morris Companies, Inc......................................................... 794,520
2,478 UST, Inc............................................................................. 62,415
------------
907,117
------------
TOOLS/HARDWARE (0.1%)
1,258 Black & Decker Corp.................................................................. 65,731
335 Briggs & Stratton Corp............................................................... 17,964
899 Snap-On, Inc......................................................................... 23,880
1,295 Stanley Works........................................................................ 39,012
------------
146,587
------------
WHOLESALE DISTRIBUTORS (0.0%)
1,352 Grainger (W.W.), Inc................................................................. 64,643
2,160 IKON Office Solutions, Inc........................................................... 14,715
------------
79,358
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $153,630,667)....................................................... 178,324,358
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
111
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - S&P 500 INDEX
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.9%)
U.S. GOVERNMENT AGENCY
$ 7,200 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $7,199,400)...... $ 7,199,400
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $160,830,067) (b)........................................................ 99.8% 185,523,758
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 439,062
------ ------------
NET ASSETS................................................................................ 100.0% $185,962,820
------ ------------
------ ------------
</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 $34,695,817 and the
aggregate gross unrealized depreciation is $10,002,126, resulting in net
unrealized appreciation of $24,693,691.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 1999:
<TABLE>
<CAPTION>
DESCRIPTION, UNDERLYING
DELIVERY FACE
NUMBER OF MONTH, AMOUNT UNREALIZED
CONTRACTS AND YEAR AT VALUE GAIN
- ------------------------------------------------------------
<S> <C> <C> <C>
18 S&P 500 Index
March/2000
$6,678,900 $ 170,263
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
112
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (92.8%)
AUSTRALIA (2.1%)
MEDIA CONGLOMERATES
157,600 News Corporation Ltd. (Pref.)........................................................... $ 1,349,182
-----------
FINLAND (2.6%)
PAPER
40,300 UPM-Kymmene Oyj......................................................................... 1,621,350
-----------
FRANCE (6.2%)
MULTI-LINE INSURANCE
9,205 Axa*.................................................................................... 1,281,361
-----------
OIL REFINING/MARKETING
10,500 Total S.A. (B Shares)................................................................... 1,399,319
-----------
PACKAGED FOODS
5,000 Groupe Danone........................................................................... 1,176,786
-----------
TOTAL FRANCE............................................................................ 3,857,466
-----------
GERMANY (2.3%)
MOTOR VEHICLES
46,660 Bayerische Motoren Werke (BMW) AG....................................................... 1,421,998
-----------
HONG KONG (2.2%)
DIVERSIFIED FINANCIAL SERVICES
99,670 HSBC Holdings PLC....................................................................... 1,397,483
-----------
JAPAN (13.7%)
CONSUMER ELECTRONICS/APPLIANCES
7,410 Sony Corp............................................................................... 2,196,469
-----------
DIVERSIFIED ELECTRONIC PRODUCTS
60,000 Matsushita Electric Industrial Co., Ltd................................................. 1,661,123
-----------
ELECTRONIC DATA PROCESSING
35,900 Fujitsu Ltd............................................................................. 1,636,607
14,000 Tokyo Electron Ltd...................................................................... 1,917,433
-----------
3,554,040
-----------
SPECIALTY CHEMICALS
26,050 Shin-Etsu Chemical Co., Ltd............................................................. 1,121,307
-----------
TOTAL JAPAN............................................................................. 8,532,939
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEXICO (2.6%)
TELECOMMUNICATIONS
14,700 Telefonos de Mexico S.A. (Series L) (ADR)............................................... $ 1,653,750
-----------
NETHERLANDS (2.0%)
ALCOHOLIC BEVERAGES
25,100 Heineken N.V............................................................................ 1,222,391
-----------
SWEDEN (3.0%)
LIFE INSURANCE
61,700 Skandia Forsakrings AB.................................................................. 1,861,007
-----------
SWITZERLAND (2.4%)
BUILDING MATERIALS
1,080 Holderbank Financiere Glarus AG (B Shares).............................................. 1,477,966
-----------
UNITED KINGDOM (6.7%)
ALCOHOLIC BEVERAGES
120,600 Diageo PLC.............................................................................. 969,469
-----------
INDUSTRIAL MACHINERY/COMPONENTS
264,400 Invensys PLC............................................................................ 1,438,297
-----------
TELECOMMUNICATIONS
71,500 British Telecommunications PLC.......................................................... 1,746,234
-----------
TOTAL UNITED KINGDOM.................................................................... 4,154,000
-----------
UNITED STATES (47.0%)
AIR FREIGHT/DELIVERY SERVICES
26,100 FDX Corp.*.............................................................................. 1,068,469
-----------
BEVERAGES - NON-ALCOHOLIC
46,700 Coca-Cola Enterprises Inc............................................................... 939,837
-----------
BROADCASTING
17,600 Clear Channel Communications, Inc.*..................................................... 1,570,800
-----------
COMPUTER COMMUNICATIONS
19,390 Cisco Systems, Inc.*.................................................................... 2,075,942
-----------
COMPUTER SOFTWARE
13,500 Microsoft Corp.*........................................................................ 1,575,281
-----------
CONTRACT DRILLING
3,678 Transocean Sedco Forex Inc.............................................................. 123,916
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
113
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISCOUNT CHAINS
24,500 Wal-Mart Stores, Inc.................................................................... $ 1,693,562
-----------
DIVERSIFIED FINANCIAL SERVICES
9,080 American Express Co..................................................................... 1,509,550
-----------
E.D.P. PERIPHERALS
19,500 EMC Corp.*.............................................................................. 2,130,375
-----------
ELECTRICAL PRODUCTS
19,500 Emerson Electric Co..................................................................... 1,118,813
-----------
INTERNET SERVICES
23,800 America Online, Inc.*................................................................... 1,795,413
-----------
MAJOR BANKS
32,800 Bank of New York Co., Inc............................................................... 1,312,000
-----------
MAJOR CHEMICALS
16,700 Du Pont (E.I.) de Nemours & Co., Inc.................................................... 1,100,113
-----------
MAJOR PHARMACEUTICALS
25,200 American Home Products Corp............................................................. 993,825
-----------
MAJOR U.S. TELECOMMUNICATIONS
22,545 MCI WorldCom, Inc.*..................................................................... 1,194,885
-----------
MEDIA CONGLOMERATES
18,300 Time Warner Inc......................................................................... 1,325,606
-----------
MEDICAL EQUIPMENT & SUPPLIES
34,000 Medtronic, Inc.......................................................................... 1,238,875
-----------
MULTI-SECTOR COMPANIES
11,000 General Electric Co..................................................................... 1,702,250
-----------
OILFIELD SERVICES/EQUIPMENT
27,500 Halliburton Co.......................................................................... 1,106,875
19,000 Schlumberger Ltd........................................................................ 1,068,750
-----------
2,175,625
-----------
SEMICONDUCTORS
15,040 Intel Corp.............................................................................. 1,237,040
-----------
TELECOMMUNICATIONS EQUIPMENT
18,700 Lucent Technologies Inc................................................................. 1,398,994
-----------
TOTAL UNITED STATES..................................................................... 29,281,171
-----------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $43,993,480)........................................................... 57,830,703
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (7.1%)
U.S. GOVERNMENT AGENCY
$ 4,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,399,633)......... $ 4,399,633
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $48,393,113) (b).......................................................... 99.9% 62,230,336
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.1 64,466
------ -----------
NET ASSETS................................................................................. 100.0% $62,294,802
------ -----------
------ -----------
</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 $15,281,970 and the
aggregate gross unrealized depreciation is $1,444,747, resulting in net
unrealized appreciation of $13,837,223.
SEE NOTES TO FINANCIAL STATEMENTS
114
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - COMPETITIVE EDGE "BEST
IDEAS"
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Air Freight/Delivery Services...................................................... $ 1,068,469 1.7%
Alcoholic Beverages................................................................ 2,191,860 3.5
Beverages - Non-Alcoholic.......................................................... 939,837 1.5
Broadcasting....................................................................... 1,570,800 2.5
Building Materials................................................................. 1,477,966 2.4
Computer Communications............................................................ 2,075,942 3.3
Computer Software.................................................................. 1,575,281 2.5
Consumer Electronics/Appliances.................................................... 2,196,469 3.5
Contract Drilling.................................................................. 123,916 0.2
Discount Chains.................................................................... 1,693,562 2.7
Diversified Electronic Products.................................................... 1,661,123 2.7
Diversified Financial Services..................................................... 2,907,033 4.7
E.D.P. Peripherals................................................................. 2,130,375 3.4
Electrical Products................................................................ 1,118,813 1.8
Electronic Data Processing......................................................... 3,554,040 5.7
Industrial Machinery/Components.................................................... 1,438,297 2.3
Internet Services.................................................................. 1,795,413 2.9
Life Insurance..................................................................... 1,861,007 3.0
Major Banks........................................................................ 1,312,000 2.1
Major Chemicals.................................................................... 1,100,113 1.8
Major Pharmaceuticals.............................................................. 993,825 1.6
Major U.S. Telecommunications...................................................... 1,194,885 1.9
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media Conglomerates................................................................ $ 2,674,788 4.3%
Medical Equipment & Supplies....................................................... 1,238,875 2.0
Motor Vehicles..................................................................... 1,421,998 2.3
Multi-Line Insurance............................................................... 1,281,361 2.1
Multi-Sector Companies............................................................. 1,702,250 2.7
Oil Refining/Marketing............................................................. 1,399,319 2.2
Oilfield Services/Equipment........................................................ 2,175,625 3.5
Packaged Foods..................................................................... 1,176,786 1.9
Paper.............................................................................. 1,621,350 2.6
Semiconductors..................................................................... 1,237,040 2.0
Specialty Chemicals................................................................ 1,121,307 1.8
Telecommunications................................................................. 3,399,984 5.5
Telecommunications Equipment....................................................... 1,398,994 2.2
U.S. Government Agency............................................................. 4,399,633 7.1
----------- ----------
$62,230,336 99.9%
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks...................................................................... $56,481,521 90.7%
Preferred Stocks................................................................... 1,349,182 2.2
Short-Term Investment.............................................................. 4,399,633 7.1
----------- ----------
$62,230,336 99.9%
----------- ----------
----------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
115
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (86.0%)
ADVERTISING (3.0%)
700 DoubleClick Inc.*................................. $ 177,144
3,400 Interpublic Group of Companies, Inc............... 196,137
900 Lamar Advertising Co.*............................ 54,337
3,800 Omnicom Group, Inc................................ 380,000
600 True North Communications, Inc.................... 26,812
1,940 WPP Group PLC (ADR) (United Kingdom).............. 160,292
2,300 Young & Rubicam, Inc.............................. 162,725
------------
1,157,447
------------
ALCOHOLIC BEVERAGES (1.0%)
350 Anheuser-Busch Companies, Inc..................... 24,806
3,000 Coors (Adolph) Co. (Class B)...................... 157,500
2,300 LVMH (Louis Vuitton Moet Hennessy) (ADR)
(France)........................................ 205,275
------------
387,581
------------
ALUMINUM (1.8%)
7,800 Alcan Aluminium, Ltd. (Canada).................... 321,262
4,300 Alcoa, Inc........................................ 356,900
------------
678,162
------------
BIOTECHNOLOGY (2.3%)
2,000 Alkermes, Inc.*................................... 98,000
4,000 Amgen Inc.*....................................... 240,000
600 COR Therapeutics, Inc.*........................... 16,125
2,400 Genentech, Inc.*.................................. 322,800
500 Human Genome Sciences, Inc.*...................... 76,250
700 MedImmune, Inc.*.................................. 116,025
------------
869,200
------------
BROADCASTING (4.2%)
6,500 CBS Corp.*........................................ 415,594
2,700 Citadel Communications Corp.*..................... 174,825
3,500 Clear Channel Communications, Inc.*............... 312,375
600 Cox Radio, Inc. (Class A)*........................ 59,850
1,500 Entercom Communications Corp.*.................... 99,000
1,375 Hispanic Broadcasting Corp.*...................... 126,500
1,850 Infinity Broadcasting Corp. (Series A)*........... 66,947
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
400 Radio One, Inc.*.................................. $ 36,800
2,000 Univision Communications, Inc. (Class A)*......... 204,375
1,750 USA Networks, Inc.*............................... 96,578
------------
1,592,844
------------
BUILDING MATERIALS/D I Y CHAINS (1.2%)
6,450 Home Depot, Inc. (The)............................ 442,228
------------
CABLE TELEVISION (2.9%)
3,000 AT&T Corp. - Liberty Media Group (Class A)*....... 170,250
3,025 Comcast Corp. (Class A Special)*.................. 152,762
6,500 Cox Communications, Inc. (Class A)*............... 334,750
4,000 EchoStar Communications Corp. (Class A)*.......... 389,000
400 United Pan-Europe Communications NV (ADR)
(Netherlands)*.................................. 50,800
------------
1,097,562
------------
CASINO/GAMBLING (0.6%)
1,200 MGM Grand, Inc.................................... 60,375
6,000 Mirage Resorts, Inc.*............................. 91,875
5,000 Park Place Entertainment Corp.*................... 62,500
------------
214,750
------------
CELLULAR TELEPHONE (1.9%)
1,000 Crown Castle International Corp.*................. 32,000
2,300 Nextel Communications, Inc. (Class A)*............ 237,044
800 Sprint Corp. (PCS Group)*......................... 82,000
600 United States Cellular Corp.*..................... 60,562
1,900 Vodafone AirTouch PLC (ADR) (United Kingdom)...... 94,050
1,000 Voicestream Wireless Corp.*....................... 141,875
1,000 Western Wireless Corp. (Class A)*................. 66,625
------------
714,156
------------
CLOTHING/SHOE/ACCESSORY STORES (0.8%)
3,310 Gap, Inc. (The)................................... 152,260
3,600 Talbot's, Inc. (The).............................. 160,650
------------
312,910
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
116
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER COMMUNICATIONS (2.0%)
300 Brocade Communications Systems, Inc.*............. $ 52,725
100 CacheFlow Inc.*................................... 13,069
3,100 Cisco Systems, Inc.*.............................. 331,894
140 Cobalt Networks, Inc.*............................ 14,980
800 Emulex Corp.*..................................... 90,350
300 Finisar Corp.*.................................... 26,737
200 Foundry Networks, Inc.*........................... 60,300
200 Juniper Networks, Inc.*........................... 67,850
500 Redback Networks, Inc.*........................... 88,344
------------
746,249
------------
COMPUTER SOFTWARE (9.1%)
950 Check Point Software Technologies Ltd.
(Israel)*....................................... 188,694
600 Citrix Systems, Inc.*............................. 73,762
100 Digimarc Corp.*................................... 5,000
550 E.piphany, Inc.*.................................. 122,375
1,100 i2 Technologies, Inc.*............................ 214,087
4,200 Intuit Inc.*...................................... 251,475
900 Legato Systems, Inc.*............................. 61,875
1,800 Macromedia, Inc.*................................. 131,625
1,100 Mercury Interactive Corp.*........................ 118,731
100 Metasolv Software, Inc.*.......................... 8,225
4,000 Microsoft Corp.*.................................. 466,750
400 MicroStrategy Inc.*............................... 84,000
600 OpenTV Corp.*..................................... 48,150
6,000 Oracle Corp.*..................................... 672,000
5,300 Parametric Technology Corp.*...................... 143,100
1,000 Rational Software Corp.*.......................... 49,125
100 Red Hat, Inc.*.................................... 21,106
600 Remedy Corp.*..................................... 28,500
1,600 Sapient Corp.*.................................... 225,400
2,000 Siebel Systems, Inc.*............................. 168,500
900 TSI International Software Ltd.*.................. 50,850
2,400 Veritas Software Corp.*........................... 343,350
------------
3,476,680
------------
CONSUMER ELECTRONICS/APPLIANCES (0.3%)
400 Sony Corp. (ADR) (Japan).......................... 113,900
------------
CONTRACT DRILLING (2.3%)
14,500 ENSCO International Inc........................... 331,687
1,900 Nabors Industries, Inc.*.......................... 58,781
10,500 R&B Falcon Corp.*................................. 139,125
5,460 Rowan Companies, Inc.*............................ 118,414
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
850 Santa Fe International Corp....................... $ 21,994
5,761 Transocean Sedco Forex Inc........................ 194,089
------------
864,090
------------
DISCOUNT CHAINS (3.4%)
3,200 Costco Wholesale Corp.*........................... 291,800
4,100 Dayton Hudson Corp................................ 301,094
10,000 Wal-Mart Stores, Inc.............................. 691,250
------------
1,284,144
------------
DIVERSIFIED COMMERCIAL SERVICES (0.7%)
1,600 CheckFree Holdings Corp.*......................... 167,200
2,000 Concord EFS, Inc.*................................ 51,375
100 Freemarkets, Inc.*................................ 34,131
300 Jupiter Communications, Inc.*..................... 9,037
300 Wireless Facilities, Inc.*........................ 13,050
------------
274,793
------------
DIVERSIFIED ELECTRONIC PRODUCTS (1.1%)
2,000 JDS Uniphase Corp.*............................... 322,500
750 Koninklijke (Royal) Philips Electronics NV
(Netherlands)................................... 101,250
------------
423,750
------------
DIVERSIFIED FINANCIAL SERVICES (2.0%)
2,075 American Express Co............................... 344,969
1,600 AXA Financial, Inc................................ 54,200
6,905 Citigroup, Inc.................................... 383,659
------------
782,828
------------
E.D.P. PERIPHERALS (0.6%)
1,600 Network Appliance, Inc.*.......................... 132,800
210 QLogic Corp.*..................................... 33,574
1,400 Seagate Technology, Inc.*......................... 65,187
------------
231,561
------------
E.D.P. SERVICES (0.9%)
770 Amdocs Ltd.*...................................... 26,565
3,270 BEA Systems, Inc.*................................ 228,900
420 Razorfish, Inc.*.................................. 39,900
1,200 Whittman-Hart, Inc.*.............................. 64,350
------------
359,715
------------
ELECTRIC UTILITIES (0.3%)
1,500 Calpine Corp.*.................................... 96,000
------------
ELECTRONIC COMPONENTS (0.2%)
500 E-Tek Dynamics, Inc.*............................. 67,125
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
117
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC DATA PROCESSING (1.5%)
850 Apple Computer, Inc.*............................. $ 87,337
6,200 Sun Microsystems, Inc.*........................... 479,725
------------
567,062
------------
ELECTRONIC PRODUCTION EQUIPMENT (1.4%)
1,820 Applied Materials, Inc.*.......................... 230,457
2,400 ASM Lithography Holding NV (Netherlands)*......... 270,900
310 Lam Research Corp.*............................... 34,584
250 Rudolph Technologies, Inc.*....................... 8,250
------------
544,191
------------
FLUID CONTROLS (0.2%)
1,800 Parker-Hannifin Corp.............................. 92,362
------------
FOOD DISTRIBUTORS (0.1%)
1,100 SYSCO Corp........................................ 43,519
------------
FOREST PRODUCTS (0.9%)
5,000 Weyerhaeuser Co................................... 359,062
------------
GENERIC DRUGS (0.2%)
2,500 Mylan Laboratories, Inc........................... 62,969
------------
HOTELS/RESORTS (0.2%)
1,500 Royal Caribbean Cruises Ltd....................... 73,969
------------
INTEGRATED OIL COMPANIES (1.9%)
4,850 BP Amoco PLC (ADR) (United Kingdom)............... 287,666
3,510 Exxon Mobil Corp.................................. 282,774
210 Kerr-McGee Corp................................... 13,020
2,500 Royal Dutch Petroleum Co. (ADR) (Netherlands)..... 151,094
------------
734,554
------------
INTERNATIONAL BANKS (0.3%)
650 Asahi Bank, Ltd. (ADR) (Japan)*................... 40,056
300 Fuji Bank, Ltd. (ADR) (Japan)..................... 29,147
900 Sakura Bank, Ltd. (ADR) (Japan)*.................. 52,144
------------
121,347
------------
INTERNET SERVICES (9.1%)
300 Agency.com, Inc.*................................. 15,412
300 Akamai Technologies, Inc.*........................ 98,287
500 Allaire Corp.*.................................... 73,156
3,300 America Online, Inc.*............................. 248,944
800 Ariba, Inc.*...................................... 141,600
700 Art Technology Group, Inc.*....................... 91,044
550 Broadbase Software, Inc.*......................... 61,050
1,400 BroadVision, Inc.*................................ 238,087
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
100 C-Bridge Internet Solutions, Inc.*................ $ 4,950
800 Calico Commerce, Inc.*............................ 42,300
400 iManage, Inc.*.................................... 13,050
600 Inktomi Corp.*.................................... 53,175
80 Internet Capital Group, Inc.*..................... 13,565
700 Kana Communications, Inc.*........................ 143,019
100 Liberate Technologies, Inc.*...................... 25,625
1,641 Lycos, Inc.*...................................... 130,562
300 OnDisplay, Inc.*.................................. 27,150
1,000 Portal Software, Inc.*............................ 102,500
380 Preview Systems, Inc.*............................ 24,320
600 Quest Software, Inc.*............................. 59,775
650 RealNetworks, Inc.*............................... 78,203
800 Scient Corp.*..................................... 68,600
2,050 USWeb Corp.*...................................... 91,097
3,400 VeriSign, Inc.*................................... 649,825
2,000 Vignette Corp.*................................... 325,875
1,500 Yahoo! Inc.*...................................... 649,031
------------
3,470,202
------------
INVESTMENT BANKERS/BROKERS/SERVICES (1.8%)
2,310 Donaldson, Lufkin & Jenrette, Inc................. 111,746
2,850 Goldman Sachs Group, Inc. (The)................... 268,434
2,300 Lehman Brothers Holdings, Inc..................... 194,781
800 Merrill Lynch & Co., Inc.......................... 66,800
875 Paine Webber Group, Inc........................... 33,961
------------
675,722
------------
LIFE INSURANCE (0.1%)
700 Lincoln National Corp............................. 28,000
------------
MAJOR BANKS (0.8%)
2,500 Bank of New York Co., Inc......................... 100,000
2,800 Chase Manhattan Corp. (The)....................... 217,525
------------
317,525
------------
MAJOR PHARMACEUTICALS (1.3%)
3,150 American Home Products Corp....................... 124,228
1,300 Merck & Co., Inc.*................................ 87,181
3,575 Warner-Lambert Co................................. 292,927
------------
504,336
------------
MAJOR U.S. TELECOMMUNICATIONS (0.1%)
1,050 MCI WorldCom, Inc.*............................... 55,650
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
118
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
MARINE TRANSPORTATION (0.3%)
2,800 Tidewater, Inc.................................... $ 100,800
------------
MEDIA CONGLOMERATES (0.6%)
2,000 News Corporation Ltd. (The) (ADR) (Australia)..... 76,500
125 Viacom, Inc. (Class A)*........................... 7,555
2,375 Viacom, Inc. (Class B)*........................... 143,539
------------
227,594
------------
MEDICAL SPECIALTIES (0.7%)
1,400 Cytyc Corp.*...................................... 85,575
4,500 Inhale Therapeutic Systems, Inc.*................. 191,531
------------
277,106
------------
MEDICAL/DENTAL DISTRIBUTORS (0.1%)
300 SciQuest.com, Inc.*............................... 23,850
------------
MID - SIZED BANKS (0.1%)
1,060 Northern Trust Corp............................... 56,577
------------
MILITARY/GOV'T/TECHNICAL (0.6%)
2,200 General Motors Corp. (Class H)*................... 211,200
------------
MOVIES/ENTERTAINMENT (0.3%)
1,500 Westwood One, Inc.*............................... 114,000
------------
MULTI-LINE INSURANCE (0.7%)
2,550 American International Group, Inc................. 275,719
------------
NEWSPAPERS (0.6%)
1,270 Dow Jones & Co., Inc.............................. 86,360
2,000 New York Times Co. (The) (Class A)................ 98,250
1,050 Tribune Co........................................ 57,816
------------
242,426
------------
OFFICE EQUIPMENT/SUPPLIES (0.5%)
2,400 Avery Dennison Corp............................... 174,900
------------
OIL & GAS PRODUCTION (0.4%)
1,900 Devon Energy Corp................................. 62,463
3,100 EOG Resources, Inc................................ 54,444
2,930 Union Pacific Resources Group, Inc................ 37,358
------------
154,265
------------
OIL/GAS TRANSMISSION (0.5%)
4,000 Enron Corp........................................ 177,500
------------
OILFIELD SERVICES/EQUIPMENT (2.3%)
3,500 BJ Services Co.*.................................. 146,344
2,800 Cooper Cameron Corp.*............................. 137,025
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
4,200 Halliburton Co.................................... $ 169,050
2,900 Schlumberger Ltd.................................. 163,125
2,380 Smith International, Inc.*........................ 118,256
3,800 Weatherford International, Inc.*.................. 151,763
------------
885,563
------------
OTHER CONSUMER SERVICES (0.4%)
1,600 Preview Travel, lnc.*............................. 83,400
1,400 Ticketmaster Online-CitySearch, Inc.
(Series B)*..................................... 53,813
------------
137,213
------------
OTHER METALS/MINERALS (0.4%)
6,470 Inco Ltd. (Canada)*............................... 152,045
------------
OTHER PHARMACEUTICALS (1.1%)
700 Biovail Corporation International (Canada)*....... 65,625
4,240 Forest Laboratories, Inc.*........................ 260,495
1,500 Teva Pharmaceutical Industries Ltd. (ADR)
(Israel)........................................ 107,250
------------
433,370
------------
OTHER SPECIALTY STORES (0.8%)
2,600 Tiffany & Co...................................... 232,050
1,820 Zale Corp.*....................................... 88,043
------------
320,093
------------
OTHER TELECOMMUNICATIONS (2.9%)
1,100 Aerial Communications, Inc.*...................... 66,894
1,000 COLT Telecom Group PLC (ADR) (United Kingdom)*.... 203,875
1,550 Covad Communications Group, Inc.*................. 86,219
600 Mannesmann AG (ADR) (Germany)..................... 145,200
3,000 McLeodUSA, Inc. (Class A)*........................ 176,250
125 NTL Inc.*......................................... 15,563
2,900 PanAmSat Corp.*................................... 171,281
600 Qwest Communications International, Inc.*......... 25,763
1,400 RCN Corp.*........................................ 67,813
1,975 Sonera Corp. (ADR) (Finland)*..................... 136,769
------------
1,095,627
------------
PACKAGE GOODS/COSMETICS (0.3%)
2,000 Colgate-Palmolive Co.............................. 130,000
------------
PAPER (0.3%)
1,900 Champion International Corp....................... 117,681
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
119
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - AGGRESSIVE EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
PRECISION INSTRUMENTS (0.2%)
600 PE Corporation-PE Biosystems Group................ $ 72,188
------------
RECREATIONAL PRODUCTS/TOYS (0.4%)
2,000 Electronic Arts Inc.*............................. 168,000
------------
SEMICONDUCTORS (1.4%)
700 Broadcom Corp. (Class A)*......................... 190,619
2,380 Conexant Systems, Inc.*........................... 157,229
418 SDL, Inc.*........................................ 91,124
520 STMicroelectronics NV (Netherlands)............... 78,748
------------
517,720
------------
TELECOMMUNICATIONS (0.8%)
500 Japan Telecom Co., Ltd. (ADR) (Japan)............. 40,125
2,050 Nippon Telegraph & Telephone Corp. (ADR)
(Japan)......................................... 176,556
850 Telefonos de Mexico S.A. (Series L) (ADR)
(Mexico)........................................ 95,625
------------
312,306
------------
TELECOMMUNICATIONS EQUIPMENT (6.8%)
1,700 Alcatel (ADR) (France)............................ 76,500
2,000 American Tower Corp. (Class A)*................... 61,125
710 CIENA Corp.*...................................... 40,825
1,400 Comverse Technology, Inc.*........................ 202,563
2,800 Corning Inc....................................... 361,025
5,300 Ericsson (L.M.) Telefonaktiebolaqet (ADR)
(Sweden)........................................ 347,813
1,050 General Instrument Corp.*......................... 89,250
1,400 Harmonic, Inc.*................................... 132,650
2,600 Motorola, Inc..................................... 382,850
100 Next Level Communications, Inc.*.................. 7,494
2,300 Nokia Corp. (ADR) (Finland)....................... 437,000
1,600 Nortel Networks Corp. (Canada).................... 161,600
2,400 RF Micro Devices, Inc.*........................... 163,800
2,100 Scientific-Atlanta, Inc........................... 116,813
200 Sycamore Networks, Inc.*.......................... 60,726
------------
2,642,034
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $25,476,009)..................... $ 32,857,922
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (12.8%)
U.S. GOVERNMENT AGENCY (a) (12.3%)
$ 4,700 Federal Home Mortgage Corp. 1.50% due 01/03/00
(AMORTIZED COST $4,699,608)..................... $ 4,699,608
------------
REPURCHASE AGREEMENT (0.5%)
185 The Bank of New York 1.50% due 01/03/00 (dated
12/31/99; proceeds $185,292) (b)
(IDENTIFIED COST $185,269)...................... 185,269
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,884,877)...................... 4,884,877
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $30,360,886) (c).......................................................... 98.8% 37,742,799
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 1.2 454,577
------ -----------
NET ASSETS................................................................................. 100.0% $38,197,376
------ -----------
------ -----------
</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 $129,953 U.S. Treasury Bond 11.25% due 02/15/15 valued
at $189,122.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $7,598,493 and the
aggregate gross unrealized depreciation is $216,580, resulting in net
unrealized appreciation of $7,381,913.
SEE NOTES TO FINANCIAL STATEMENTS
120
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (67.0%)
ADVERTISING (1.4%)
140,000 Young & Rubicam, Inc................................................................... $ 9,905,000
------------
BIOTECHNOLOGY (0.1%)
7,500 PE Corp-Celera Genomics Group*......................................................... 1,117,500
------------
BUILDING MATERIALS/D I Y CHAINS (1.5%)
162,150 Home Depot, Inc. (The)................................................................. 11,117,409
------------
CABLE TELEVISION (1.0%)
94,300 MediaOne Group, Inc.*.................................................................. 7,243,419
------------
CASINO/GAMBLING (0.5%)
322,000 Park Place Entertainment Corp.*........................................................ 4,025,000
------------
CATALOG/SPECIALTY DISTRIBUTION (0.1%)
56,400 Webvan Group Inc.*..................................................................... 912,975
------------
CLOTHING/SHOE/ACCESSORY STORES (1.2%)
192,825 Gap, Inc. (The)........................................................................ 8,869,950
------------
COMPUTER COMMUNICATIONS (1.5%)
105,500 Cisco Systems, Inc.*................................................................... 11,295,094
------------
COMPUTER SOFTWARE (4.0%)
140,000 Adobe Systems, Inc..................................................................... 9,415,000
78,500 Microsoft Corp.*....................................................................... 9,159,969
260,100 Novell, Inc.*.......................................................................... 10,371,487
------------
28,946,456
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.7%)
120,000 PACCAR, Inc............................................................................ 5,310,000
------------
CONSUMER ELECTRONICS/
APPLIANCES (1.5%)
100,100 Maytag Corp............................................................................ 4,804,800
94,200 Whirlpool Corp......................................................................... 6,128,887
------------
10,933,687
------------
CONTRACT DRILLING (0.7%)
169,000 Diamond Offshore Drilling, Inc......................................................... 5,165,062
------------
DISCOUNT CHAINS (1.1%)
84,500 Costco Wholesale Corp.*................................................................ 7,705,344
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.7%)
109,000 Rockwell International Corp............................................................ 5,218,375
------------
DIVERSIFIED FINANCIAL SERVICES (3.1%)
48,400 American Express Co.................................................................... 8,046,500
210,600 AXA Financial, Inc..................................................................... 7,134,075
141,200 Citigroup, Inc......................................................................... 7,845,425
------------
23,026,000
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED MANUFACTURING (1.5%)
107,250 Honeywell International Inc............................................................ $ 6,186,984
129,400 Tyco International Ltd. (Bermuda)...................................................... 5,030,425
------------
11,217,409
------------
E.D.P. PERIPHERALS (1.7%)
110,800 EMC Corp.*............................................................................. 12,104,900
------------
ELECTRONIC DATA PROCESSING (2.9%)
148,000 Dell Computer Corp.*................................................................... 7,538,750
178,200 Sun Microsystems, Inc.*................................................................ 13,788,225
------------
21,326,975
------------
ELECTRONIC PRODUCTION EQUIPMENT (1.6%)
160,700 Jabil Circuit, Inc.*................................................................... 11,731,100
------------
ENVIRONMENTAL SERVICES (0.2%)
126,500 Allied Waste Industries, Inc.*......................................................... 1,114,781
------------
INTEGRATED OIL COMPANIES (3.5%)
71,800 Atlantic Richfield Co.................................................................. 6,210,700
82,245 Exxon Mobil Corp....................................................................... 6,625,863
114,000 Kerr-McGee Corp........................................................................ 7,068,000
160,700 Unocal Corp............................................................................ 5,393,494
------------
25,298,057
------------
INTERNET SERVICES (2.8%)
135,800 America Online, Inc.*.................................................................. 10,244,412
115,200 Inktomi Corp.*......................................................................... 10,209,600
------------
20,454,012
------------
INVESTMENT BANKERS/BROKERS/
SERVICES (1.0%)
83,800 Merrill Lynch & Co., Inc............................................................... 6,997,300
------------
MAJOR BANKS (2.7%)
79,500 Chase Manhattan Corp. (The)............................................................ 6,176,156
197,500 Mellon Financial Corp.................................................................. 6,727,344
159,700 Wells Fargo & Co....................................................................... 6,457,869
------------
19,361,369
------------
MAJOR CHEMICALS (1.8%)
51,900 Dow Chemical Co........................................................................ 6,935,138
92,700 Du Pont (E.I.) de Nemours & Co., Inc................................................... 6,106,613
------------
13,041,751
------------
MAJOR PHARMACEUTICALS (4.4%)
156,800 Abbott Laboratories.................................................................... 5,693,800
121,437 Johnson & Johnson...................................................................... 11,308,821
101,200 Merck & Co., Inc....................................................................... 6,786,725
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
121
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
102,800 Warner-Lambert Co...................................................................... $ 8,423,175
------------
32,212,521
------------
MAJOR U.S. TELECOMMUNICATIONS (1.9%)
136,100 AT&T Corp.............................................................................. 6,907,075
128,850 MCI WorldCom, Inc.*.................................................................... 6,829,050
------------
13,736,125
------------
MANAGED HEALTH CARE (1.3%)
300,000 Oxford Health Plans, Inc.*............................................................. 3,806,250
85,600 Wellpoint Health Networks, Inc.*....................................................... 5,644,250
------------
9,450,500
------------
MEDIA CONGLOMERATES (1.4%)
341,500 Disney (Walt) Co....................................................................... 9,988,875
------------
MULTI-LINE INSURANCE (1.0%)
70,000 American International Group, Inc...................................................... 7,568,750
------------
MULTI-SECTOR COMPANIES (1.3%)
59,200 General Electric Co.................................................................... 9,161,200
------------
OFFICE EQUIPMENT/SUPPLIES (0.4%)
132,000 Xerox Corp............................................................................. 2,994,750
------------
OILFIELD SERVICES/EQUIPMENT (0.9%)
136,000 Smith International, Inc.*............................................................. 6,757,500
------------
OTHER SPECIALTY STORES (1.8%)
219,800 Bed Bath & Beyond Inc.*................................................................ 7,610,575
120,000 Williams-Sonoma, Inc.*................................................................. 5,520,000
------------
13,130,575
------------
PACKAGE GOODS/COSMETICS (1.2%)
134,700 Colgate-Palmolive Co................................................................... 8,755,500
------------
PACKAGED FOODS (0.8%)
158,800 General Mills, Inc..................................................................... 5,677,100
------------
PAPER (2.5%)
161,200 Boise Cascade Corp..................................................................... 6,528,600
111,100 Champion International Corp............................................................ 6,881,256
110,000 Willamette Industries, Inc............................................................. 5,108,125
------------
18,517,981
------------
PRECIOUS METALS (1.8%)
251,000 Barrick Gold Corp. (Canada)............................................................ 4,439,563
216,000 Homestake Mining Co.................................................................... 1,687,500
150,000 Newmont Mining Corp.................................................................... 3,675,000
293,000 Placer Dome Inc. (Canada).............................................................. 3,149,750
------------
12,951,813
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PRECISION INSTRUMENTS (2.8%)
170,000 PE Corp. PE Biosystems Group........................................................... $ 20,453,125
------------
SAVINGS & LOAN ASSOCIATIONS (0.9%)
203,700 Golden West Financial Corp............................................................. 6,823,950
------------
SEMICONDUCTORS (2.0%)
84,600 Intel Corp............................................................................. 6,958,350
46,700 PMC - Sierra, Inc. (Canada)*........................................................... 7,483,675
------------
14,442,025
------------
TELECOMMUNICATIONS EQUIPMENT (1.8%)
60,000 General Instrument Corp.*.............................................................. 5,100,000
104,300 Lucent Technologies Inc................................................................ 7,802,944
------------
12,902,944
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $315,890,283)......................................................... 488,964,159
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (6.9%)
AEROSPACE (0.3%)
$ 2,000 Lockheed Martin Corp.
8.20% due 12/01/09................................................................... 1,992,380
------------
DISCOUNT CHAINS (0.3%)
2,500 Wal-Mart Stores, Inc.
6.875% due 08/10/09.................................................................. 2,435,025
------------
DIVERSIFIED FINANCIAL SERVICES (0.5%)
1,000 General Electric Capital Corp.
6.52% due 10/08/02................................................................... 988,670
1,000 General Motors Acceptance Corp.
6.75% due 12/10/02................................................................... 988,670
1,000 IBM Credit Corp.
6.64% due 10/29/01................................................................... 996,640
1,000 Textron Financial Corp.
7.125% due 12/09/04.................................................................. 987,640
------------
3,961,620
------------
ELECTRIC UTILITIES (0.4%)
1,000 FPL Group Capital, Inc.
7.375% due 06/01/09.................................................................. 985,340
1,000 Public Service Electric & Gas Co.
6.00% due 05/01/00................................................................... 998,260
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
122
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 1,000 Utilicorp United Inc.
7.00% due 07/15/04................................................................... $ 963,750
------------
2,947,350
------------
FINANCE COMPANIES (0.8%)
1,000 Finova Capital Corp.
7.625% due 09/21/09.................................................................. 981,790
1,000 Ford Motor Credit Co.
6.375% due 11/05/08.................................................................. 924,240
1,000 Heller Financial Inc.
5.75% due 09/25/01................................................................... 978,410
2,000 Household Finance Corp.
6.50% due 11/15/08................................................................... 1,850,760
1,500 Norwest Financial, Inc.
6.375% due 07/16/02.................................................................. 1,478,610
------------
6,213,810
------------
FOOD DISTRIBUTORS (0.2%)
1,460 Shoppers Food Warehouse Corp.
9.75% due 06/15/04................................................................... 1,563,835
------------
INTEGRATED OIL COMPANIES (0.4%)
1,000 Amerada Hess Corp.
7.875% due 10/01/29.................................................................. 977,480
2,000 Conoco Inc.
6.95% due 04/15/29................................................................... 1,801,940
------------
2,779,420
------------
INVESTMENT BANKERS/BROKERS/ SERVICES (0.3%)
1,000 Paine Webber Group, Inc.
8.875% due 03/15/05.................................................................. 1,038,740
1,000 Paine Webber Group, Inc.
7.625% due 12/01/09.................................................................. 973,620
------------
2,012,360
------------
MAJOR BANKS (0.9%)
1,000 Banc One Corp.
8.74% due 09/15/03................................................................... 1,041,640
1,000 BankAmerica Institutional-144A**
8.07% due 12/31/26................................................................... 940,320
1,000 Fleet Boston Corp.
7.375% due 12/01/09.................................................................. 978,750
1,000 Keycorp Capital III
7.75% due 07/15/29................................................................... 928,970
1,000 Society Corp.
8.125% due 06/15/02.................................................................. 1,019,850
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 1,500 U.S. Bancorp
6.75% due 10/15/05................................................................... $ 1,448,850
------------
6,358,380
------------
MAJOR CHEMICALS (0.1%)
1,000 Du Pont (E.I.) De Nemours & Co., Inc.
6.875% due 10/15/09.................................................................. 967,540
------------
MAJOR PHARMACEUTICALS (0.3%)
1,000 Abbott Laboratories
6.40% due 12/01/06................................................................... 960,950
1,000 Johnson & Johnson
6.95% due 09/01/29................................................................... 943,350
------------
1,904,300
------------
MAJOR U.S. TELECOMMUNICATIONS (0.4%)
1,000 MCI WorldCom, Inc.
6.125% due 08/15/01.................................................................. 987,910
1,000 MCI WorldCom, Inc.
7.55% due 04/01/04................................................................... 1,013,250
1,000 Sprint Capital Corp.
6.875% due 11/15/28.................................................................. 889,730
------------
2,890,890
------------
MID-SIZED BANKS (0.1%)
1,000 Compass Bank
8.10% due 08/15/09................................................................... 1,010,200
------------
OIL/GAS TRANSMISSION (0.4%)
1,000 Enron Corp.
7.125% due 05/15/07.................................................................. 964,520
1,000 Williams Companies, Inc. (The)
7.625% due 07/15/19.................................................................. 959,980
1,000 Yosemite Securities Trust I - 144A**
8.25% due 11/15/04................................................................... 985,890
------------
2,910,390
------------
OTHER TELECOMMUNICATIONS (0.3%)
1,000 U.S. West Capital Funding, Inc.
6.875% due 07/15/28.................................................................. 875,930
1,000 U.S. West Capital Funding, Inc.- 144A**
6.875% due 08/15/01.................................................................. 995,840
------------
1,871,770
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
123
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGE GOODS/COSMETICS (0.3%)
$ 1,000 Proctor & Gamble Co.
6.60% due 12/15/04................................................................... $ 985,000
1,000 Proctor & Gamble Co.
6.45% due 01/15/26................................................................... 881,170
------------
1,866,170
------------
RAILROADS (0.6%)
1,000 Norfolk Southern Corp.
6.70% due 05/01/00................................................................... 1,000,570
1,909 Southern Pacific Transportation Co. (Series B)
7.28% due 04/30/15................................................................... 1,821,789
1,000 Union Pacific Corp.
6.34% due 11/25/03................................................................... 958,700
1,000 Union Pacific Corp.
6.79% due 11/09/07................................................................... 946,220
------------
4,727,279
------------
UTILITIES (0.3%)
2,000 Arizona Public Service Co.
5.875% due 02/15/04.................................................................. 1,894,120
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $51,354,835).......................................................... 50,306,839
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (13.1%)
2,500 Federal Farm Credit Bank
6.00% due 10/01/01................................................................... 2,479,225
3,000 Federal Home Loan Banks
4.875% due 01/22/02.................................................................. 2,903,730
4,000 Federal Home Loan Mortgage Corp.
5.125% due 10/15/08.................................................................. 3,494,680
4,000 Federal Home Loan Mortgage Corp.
6.625% due 09/15/09.................................................................. 3,878,880
4,000 Federal Home Loan Mortgage Corp.
6.75% due 09/15/29................................................................... 3,784,880
3,000 Federal National Mortgage Assoc.
5.625% due 05/14/04.................................................................. 2,860,680
4,500 Federal National Mortgage Assoc.
6.16% due 08/07/28................................................................... 3,906,000
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 20,100 U.S. Treasury Bond
6.25% due 08/15/23................................................................... $ 18,950,481
2,500 U.S. Treasury Bond
7.25% due 05/15/16................................................................... 2,610,500
18,500 U.S. Treasury Note
4.00% due 10/31/00................................................................... 18,200,300
7,000 U.S. Treasury Note
5.375% due 02/15/01.................................................................. 6,942,810
1,000 U.S. Treasury Note
5.625% due 11/30/00.................................................................. 996,010
1,000 U.S. Treasury Note
6.00% due 08/15/09................................................................... 968,440
2,000 U.S. Treasury Note
6.25% due 01/31/02................................................................... 1,999,820
1,000 U.S. Treasury Note
6.25% due 08/31/02................................................................... 998,830
1,000 U.S. Treasury Note
6.25% due 02/15/03................................................................... 997,070
1,000 U.S. Treasury Note
6.375% due 08/15/02.................................................................. 1,001,220
5,000 U.S. Treasury Note
6.50% due 08/15/05................................................................... 4,998,100
3,000 U.S. Treasury Note
6.50% due 10/15/06................................................................... 2,988,300
1,000 U.S. Treasury Note
6.625% due 05/15/07.................................................................. 1,003,570
3,300 U.S. Treasury Note
7.00% due 07/15/06................................................................... 3,377,121
1,000 U.S. Treasury Note
7.25% due 05/15/04................................................................... 1,030,070
2,000 U.S. Treasury Note
7.25% due 08/15/04................................................................... 2,062,160
3,000 U.S. Treasury Note
7.875% due 11/15/04.................................................................. 3,170,880
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $97,183,055).......................................................... 95,603,757
------------
SHORT-TERM INVESTMENTS (a) (12.6%)
U.S. GOVERNMENT AGENCIES
17,300 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00.................................... 17,298,558
25,000 Federal Home Loan Mortgage Corp. 4.75% due 01/21/00.................................... 24,934,028
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
124
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - STRATEGIST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 50,000 Federal Home Loan Mortgage Corp. 5.75% due 01/14/00.................................... $ 49,896,181
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $92,128,767).......................................................... 92,128,767
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $556,556,940) (b)........................................................ 99.6% 727,003,522
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.4 2,697,154
------ ------------
NET ASSETS................................................................................ 100.0% $729,700,676
------ ------------
------ ------------
</TABLE>
- ---------------------
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $186,481,408 and the
aggregate gross unrealized depreciation is $16,034,826, resulting in net
unrealized appreciation of $170,446,582.
SEE NOTES TO FINANCIAL STATEMENTS
125
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MONEY SHORT-TERM QUALITY HIGH
MARKET BOND INCOME PLUS YIELD
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value*...................... $435,151,748 $3,140,109 $453,582,261 $ 273,567,655
Cash.......................... 26,264 14,682 61,775 --
Receivable for:
Shares of beneficial
interest sold........... 616,881 -- 72,932 95,427
Dividends................. -- -- -- --
Interest.................. 922,000 26,482 7,681,690 6,603,942
Foreign withholding taxes
reclaimed............... -- -- -- --
Prepaid expenses and other
assets...................... 3,770 13 5,356 10,946
Receivable from affiliate..... -- 14,713 -- --
------------ ---------- ------------ -------------
TOTAL ASSETS............. 436,720,663 3,195,999 461,404,014 280,277,970
------------ ---------- ------------ -------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- 4,899,896 --
Shares of beneficial
interest repurchased.... 846,256 126 116,747 192,582
Investment management
fee..................... 184,663 1,230 196,851 119,307
Foreign taxes............. -- -- -- --
Payable to bank............... -- -- -- 240,010
Accrued expenses and other
payables.................... 46,633 20,054 58,669 42,599
------------ ---------- ------------ -------------
TOTAL LIABILITIES........ 1,077,552 21,410 5,272,163 594,498
------------ ---------- ------------ -------------
NET ASSETS:
Paid-in-capital............... 435,642,922 3,194,562 502,150,505 444,739,170
Accumulated undistributed net
investment income (loss).... 189 -- 47,349 21,347
Accumulated undistributed net
realized gain (loss)........ -- (2,927) (28,070,952) (39,494,968)
Net unrealized appreciation
(depreciation).............. -- (17,046) (17,995,051) (125,582,077)
------------ ---------- ------------ -------------
NET ASSETS............... $435,643,111 $3,174,589 $456,131,851 $ 279,683,472
============ ========== ============ =============
*IDENTIFIED COST......... $435,151,748 $3,157,155 $471,577,312 $ 399,149,732
============ ========== ============ =============
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 435,642,922 321,327 46,275,518 64,650,109
============ ========== ============ =============
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $1.00 $9.88 $9.86 $4.33
============ ========== ============ =============
- ------------------
</TABLE>
<TABLE>
<C> <S>
** Includes foreign cash of $231,474.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
126
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at
value*...................... $579,661,666 $84,301,544 $2,032,220,460 $171,210,846 $505,698,022 $577,990,368 $115,764,482
Cash.......................... 78,696 63,133 34,463 94,005 115,446 147,307 402,221**
Receivable for:
Shares of beneficial
interest sold........... 326,622 3,415 322,849 92,832 294,277 1,257,928 187,713
Dividends................. 925,047 178,599 3,236,760 37,100 910,755 165,349 69,576
Interest.................. 934,167 354,409 -- -- 8,370 7,625 8,593
Foreign withholding taxes
reclaimed............... -- -- -- -- 418,952 742,120 --
Prepaid expenses and other
assets...................... 4,972 2,976 10,454 866 3,635 3,202 1,621
Receivable from affiliate..... -- -- -- -- -- -- --
------------ ----------- -------------- ------------ ------------ ------------ ------------
TOTAL ASSETS............. 581,931,170 84,904,076 2,035,824,986 171,435,649 507,449,457 580,313,899 116,434,206
------------ ----------- -------------- ------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased..... -- -- -- -- -- -- --
Shares of beneficial
interest repurchased.... 1,086,854 3,218,681 1,025,158 60,327 157,168 111,920 138,588
Investment management
fee..................... 309,984 50,249 888,267 88,628 312,366 444,550 90,029
Foreign taxes............. -- -- -- -- -- -- 227,152
Payable to bank............... -- -- -- -- -- -- --
Accrued expenses and other
payables.................... 47,380 18,810 97,634 35,278 50,433 52,662 51,053
------------ ----------- -------------- ------------ ------------ ------------ ------------
TOTAL LIABILITIES........ 1,444,218 3,287,740 2,011,059 184,233 519,967 609,132 506,822
------------ ----------- -------------- ------------ ------------ ------------ ------------
NET ASSETS:
Paid-in-capital............... 304,719,624 81,516,823 1,797,142,512 103,542,597 415,510,169 318,747,452 129,299,287
Accumulated undistributed net
investment income (loss).... (19) 107,871 112 31,127 900,043 3,279,390 503,902
Accumulated undistributed net
realized gain (loss)........ 33,679,469 (843,740) 336,544,017 30,521,841 30,870,449 84,991,832 (44,030,449)
Net unrealized appreciation
(depreciation).............. 242,087,878 835,382 (99,872,714) 37,155,851 59,648,829 172,686,093 30,154,644
------------ ----------- -------------- ------------ ------------ ------------ ------------
NET ASSETS............... $580,486,952 $81,616,336 $2,033,813,927 $171,251,416 $506,929,490 $579,704,767 $115,927,384
============ =========== ============== ============ ============ ============ ============
*IDENTIFIED COST......... $337,573,788 $83,466,162 $2,132,093,174 $134,054,995 $446,036,550 $405,272,942 $ 85,385,117
============ =========== ============== ============ ============ ============ ============
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 25,350,647 7,134,358 111,002,887 7,216,296 35,107,218 18,423,170 13,698,224
============ =========== ============== ============ ============ ============ ============
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $22.90 $11.44 $18.32 $23.73 $14.44 $31.47 $8.46
============ =========== ============== ============ ============ ============ ============
<CAPTION>
EQUITY
<S> <C>
--------------
- ------------------------------
ASSETS:
Investments in securities, at
value*...................... $2,083,635,181
Cash.......................... --
Receivable for:
Shares of beneficial
interest sold........... 1,187,700
Dividends................. 331,468
Interest.................. --
Foreign withholding taxes
reclaimed............... 61,903
Prepaid expenses and other
assets...................... 2,921
Receivable from affiliate..... --
--------------
TOTAL ASSETS............. 2,085,219,173
--------------
LIABILITIES:
Payable for:
Investments purchased..... --
Shares of beneficial
interest repurchased.... 1,287,923
Investment management
fee..................... 793,561
Foreign taxes............. --
Payable to bank............... --
Accrued expenses and other
payables.................... 66,304
--------------
TOTAL LIABILITIES........ 2,147,788
--------------
NET ASSETS:
Paid-in-capital............... 1,138,756,520
Accumulated undistributed net
investment income (loss).... 2
Accumulated undistributed net
realized gain (loss)........ 287,791,199
Net unrealized appreciation
(depreciation).............. 656,523,664
--------------
NET ASSETS............... $2,083,071,385
==============
*IDENTIFIED COST......... $1,427,111,517
==============
SHARES OF BENEFICIAL
INTEREST OUTSTANDING..... 38,662,789
==============
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES
OF $.01 PAR VALUE)............ $53.88
==============
</TABLE>
127
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMPETITIVE
S&P 500 EDGE AGGRESSIVE
INDEX "BEST IDEAS" EQUITY STRATEGIST
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value*.................. $185,523,758 $ 62,230,336 $ 37,742,799 $727,003,522
Cash.................................................. 71,453 35,873 -- 48,473
Receivable for:
Investments sold.................................. -- -- 39,938 --
Shares of beneficial interest sold................ 300,216 47,209 1,503,178 221,642
Dividends......................................... 154,605 28,354 2,957 613,893
Interest.......................................... -- -- -- 2,496,816
Foreign withholding taxes reclaimed............... -- 19,874 130 --
Variation margin.................................. 15,300 -- -- --
Prepaid expenses and other assets..................... 936 722 80 7,731
Receivable from affiliate............................. -- 325 20,144 --
------------ ------------ ------------ ------------
TOTAL ASSETS..................................... 186,066,268 62,362,693 39,309,226 730,392,077
------------ ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments purchased............................. -- -- 1,050,031 --
Shares of beneficial interest repurchased......... 8,946 10,224 16,634 338,659
Investment management fee......................... 59,690 31,938 18,555 302,423
Accrued expenses and other payables................... 34,812 25,729 26,630 50,319
------------ ------------ ------------ ------------
TOTAL LIABILITIES................................ 103,448 67,891 1,111,850 691,401
------------ ------------ ------------ ------------
NET ASSETS:
Paid-in-capital....................................... 159,038,798 49,642,862 30,947,469 482,451,455
Accumulated undistributed net investment income....... 1,179,906 316,203 49,886 36
Accumulated undistributed net realized gain (loss).... 880,162 (1,500,684) (181,892) 76,802,603
Net unrealized appreciation........................... 24,863,954 13,836,421 7,381,913 170,446,582
------------ ------------ ------------ ------------
NET ASSETS....................................... $185,962,820 $ 62,294,802 $ 38,197,376 $729,700,676
============ ============ ============ ============
*IDENTIFIED COST................................. $160,830,067 $ 48,393,113 $ 30,360,886 $556,556,940
============ ============ ============ ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING........ 13,846,751 5,036,100 2,621,778 38,207,752
============ ============ ============ ============
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED SHARES OF $.01 PAR VALUE)....... $13.43 $12.37 $14.57 $19.10
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
128
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
QUALITY
MONEY SHORT-TERM INCOME HIGH
MARKET BOND* PLUS YIELD
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME:
INTEREST INCOME............................................ $22,650,441 $65,414 $ 35,251,264 $48,360,043
----------- ------- ------------ -----------
EXPENSES
Investment management fee.................................. 2,177,536 5,402 2,519,733 1,657,944
Professional fees.......................................... 30,313 20,698 33,243 43,946
Custodian fees............................................. 22,449 1,462 50,636 15,838
Shareholder reports and notices............................ 12,057 91 30,115 27,656
Trustees' fees and expenses................................ 580 -- 1,477 895
Transfer agent fees and expenses........................... 500 500 500 500
Other...................................................... 4,960 390 12,288 11,664
----------- ------- ------------ -----------
TOTAL EXPENSES........................................ 2,248,395 28,543 2,647,992 1,758,443
Less: amounts waived/reimbursed............................ -- (21,062) -- --
----------- ------- ------------ -----------
NET EXPENSES.......................................... 2,248,395 7,481 2,647,992 1,758,443
----------- ------- ------------ -----------
NET INVESTMENT INCOME................................. 20,402,046 57,933 32,603,272 46,601,600
----------- ------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss)................................... 1,751 (2,927) (11,840,632) (7,019,312)
Net change in unrealized appreciation/depreciation......... -- (17,046) (43,753,636) (43,905,004)
----------- ------- ------------ -----------
NET GAIN (LOSS)....................................... 1,751 (19,973) (55,594,268) (50,924,316)
----------- ------- ------------ -----------
NET INCREASE (DECREASE).................................... $20,403,797 $37,960 $(22,990,996) $(4,322,716)
=========== ======= ============ ===========
- ------------------
</TABLE>
<TABLE>
<C> <S>
* For the period May 4, 1999 (commencement of operations)
through December 31, 1999.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
129
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCOME DIVIDEND CAPITAL
UTILITIES BUILDER GROWTH GROWTH
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME:
INCOME
Interest...................... $ 4,197,616 $2,216,605 $ 1,620,114 $ 316,122
Dividends..................... 13,715,767** 2,662,275** 51,906,938** 737,148**
----------- ---------- ------------ ------------
TOTAL INCOME............. 17,913,383 4,878,880 53,527,052 1,053,270
----------- ---------- ------------ ------------
EXPENSES
Investment management fee..... 3,606,185 632,479 11,638,694 922,721
Professional fees............. 37,192 21,699 32,059 31,298
Custodian fees................ 29,490 11,604 125,753 48,770
Shareholder reports and
notices..................... 74,712 10,619 112,969 17,205
Trustees' fees and expenses... 1,608 93 4,979 224
Transfer agent fees and
expenses.................... 500 500 500 500
Other......................... 6,430 2,631 18,157 1,001
----------- ---------- ------------ ------------
TOTAL EXPENSES........... 3,756,117 679,625 11,933,111 1,021,719
Less: amounts
waived/reimbursed........... -- -- -- --
----------- ---------- ------------ ------------
NET EXPENSES............. 3,756,117 679,625 11,933,111 1,021,719
----------- ---------- ------------ ------------
NET INVESTMENT INCOME.... 14,157,266 4,199,255 41,593,941 31,551
----------- ---------- ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 33,719,313 (99,594) 346,534,889 34,213,226
Futures contracts......... -- -- -- --
Foreign exchange
transactions............ -- -- -- --
----------- ---------- ------------ ------------
NET GAIN (LOSS).......... 33,719,313 (99,594) 346,534,889 34,213,226
----------- ---------- ------------ ------------
Net change in unrealized
appreciation/depreciation
on:
Investments............... 19,868,085 1,427,366 (441,379,064) 8,664,948
Futures contracts......... -- -- -- --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- -- -- --
----------- ---------- ------------ ------------
NET APPRECIATION
(DEPRECIATION)........... 19,868,085 1,427,366 (441,379,064) 8,664,948
----------- ---------- ------------ ------------
NET GAIN (LOSS).......... 53,587,398 1,327,772 (94,844,175) 42,878,174
----------- ---------- ------------ ------------
NET INCREASE (DECREASE)....... $67,744,664 $5,527,027 $(53,250,234) $ 42,909,725
=========== ========== ============ ============
- ------------------
</TABLE>
<TABLE>
<C> <S>
* For the period May 4, 1999 (commencement of operations) through
December 31, 1999.
** Net of $145,166, $1,961, $233,289, $2,398, $1,105,036, $1,072,606, $74,707,
$132,091, $13,202, $31,377, $323 and $29,389 foreign withholding tax,
respectively.
+ Net of foreign taxes of $358,642.
++ Net of deferred foreign taxes of $227,152.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
130
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
GLOBAL COMPETITIVE
DIVIDEND EUROPEAN PACIFIC S&P 500 EDGE
GROWTH GROWTH GROWTH EQUITY INDEX "BEST IDEAS"
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME:
INCOME
Interest...................... $ 393,946 $ 783,163 $ 297,147 $ 6,885,294 $ 335,970 $ 162,274
Dividends..................... 12,957,288** 8,803,062** 1,507,032** 8,369,145** 1,387,842** 405,489**
----------- ------------ ----------- ------------ ----------- -----------
TOTAL INCOME............. 13,351,234 9,586,225 1,804,179 15,254,439 1,723,812 567,763
----------- ------------ ----------- ------------ ----------- -----------
EXPENSES
Investment management fee..... 3,669,864 4,749,793 754,955 7,156,661 457,843 287,991
Professional fees............. 36,132 39,384 39,988 30,846 31,673 31,701
Custodian fees................ 273,291 365,495 287,368 88,088 34,275 17,597
Shareholder reports and
notices..................... 53,451 60,724 23,033 81,064 1,511 1,254
Trustees' fees and expenses... 1,075 1,187 130 3,214 111 30
Transfer agent fees and
expenses.................... 500 500 500 500 688 687
Other......................... 14,949 12,487 24,278 9,136 24,701 2,447
----------- ------------ ----------- ------------ ----------- -----------
TOTAL EXPENSES........... 4,049,262 5,229,570 1,130,252 7,369,509 550,802 341,707
Less: amounts
waived/reimbursed........... -- -- -- -- (6,902) (92,742)
----------- ------------ ----------- ------------ ----------- -----------
NET EXPENSES............. 4,049,262 5,229,570 1,130,252 7,369,509 543,900 248,965
----------- ------------ ----------- ------------ ----------- -----------
NET INVESTMENT INCOME.... 9,301,972 4,356,655 673,927 7,884,930 1,179,912 318,798
----------- ------------ ----------- ------------ ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... 42,478,449 89,548,742 15,660,462+ 301,936,561 213,568 (229,308)
Futures contracts......... -- -- -- -- 763,726 --
Foreign exchange
transactions............ (43,846) (534,144) 115,262 (335) -- (2,474)
----------- ------------ ----------- ------------ ----------- -----------
NET GAIN (LOSS).......... 42,434,603 89,014,598 15,775,724 301,936,226 977,294 (231,782)
----------- ------------ ----------- ------------ ----------- -----------
Net change in unrealized
appreciation/depreciation
on:
Investments............... 15,042,460 39,435,175 28,220,772++ 429,853,712 20,616,906 11,841,821
Futures contracts......... -- -- -- -- 73,136 --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. (42,860) (66,572) 159,327 -- -- (924)
----------- ------------ ----------- ------------ ----------- -----------
NET APPRECIATION
(DEPRECIATION)........... 14,999,600 39,368,603 28,380,099 429,853,712 20,690,042 11,840,897
----------- ------------ ----------- ------------ ----------- -----------
NET GAIN (LOSS).......... 57,434,203 128,383,201 44,155,823 731,789,938 21,667,336 11,609,115
----------- ------------ ----------- ------------ ----------- -----------
NET INCREASE (DECREASE)....... $66,736,175 $132,739,856 $44,829,750 $739,674,868 $22,847,248 $11,927,913
=========== ============ =========== ============ =========== ===========
<CAPTION>
AGGRESSIVE
EQUITY* STRATEGIST
<S> <C> <C>
---------------------------
- ------------------------------
NET INVESTMENT INCOME:
INCOME
Interest...................... $ 76,001 $ 14,632,265
Dividends..................... 16,939** 4,109,970**
---------- ------------
TOTAL INCOME............. 92,940 18,742,235
---------- ------------
EXPENSES
Investment management fee..... 50,317 3,399,095
Professional fees............. 22,186 31,063
Custodian fees................ 19,370 41,206
Shareholder reports and
notices..................... 1,438 32,466
Trustees' fees and expenses... -- 1,210
Transfer agent fees and
expenses.................... 500 500
Other......................... 459 9,499
---------- ------------
TOTAL EXPENSES........... 94,270 3,515,039
Less: amounts
waived/reimbursed........... (59,313) --
---------- ------------
NET EXPENSES............. 34,957 3,515,039
---------- ------------
NET INVESTMENT INCOME.... 57,983 15,227,196
---------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized gain (loss) on:
Investments............... (181,892) 83,843,891
Futures contracts......... -- --
Foreign exchange
transactions............ -- --
---------- ------------
NET GAIN (LOSS).......... (181,892) 83,843,891
---------- ------------
Net change in unrealized
appreciation/depreciation
on:
Investments............... 7,381,913 10,097,511
Futures contracts......... -- --
Translation of forward
foreign currency
contracts, other assets
and liabilities
denominated in foreign
currencies.............. -- --
---------- ------------
NET APPRECIATION
(DEPRECIATION)........... 7,381,913 10,097,511
---------- ------------
NET GAIN (LOSS).......... 7,200,021 93,941,402
---------- ------------
NET INCREASE (DECREASE)....... $7,258,004 $109,168,598
========== ============
</TABLE>
131
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT-TERM
MONEY MARKET BOND
------------------------------- -------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999*
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 20,402,046 $ 19,436,475 $ 57,933
Net realized gain (loss)...... 1,751 1,854 (2,927)
Net change in unrealized
appreciation/depreciation... -- -- (17,046)
------------- ------------- ------------
NET INCREASE
(DECREASE)............... 20,403,797 19,438,329 37,960
------------- ------------- ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (20,401,879) (19,436,518) (57,933)
Net realized gain............. (1,751) (1,854) --
Paid-in-capital............... -- -- --
------------- ------------- ------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (20,403,630) (19,438,372) (57,933)
------------- ------------- ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 560,245,244 465,453,549 5,606,552
Reinvestment of dividends and
distributions............... 20,403,630 19,438,372 57,933
Cost of shares repurchased.... (587,040,414) (378,435,543) (2,469,923)
------------- ------------- ------------
NET INCREASE
(DECREASE)............... (6,391,540) 106,456,378 3,194,562
------------- ------------- ------------
TOTAL INCREASE
(DECREASE)............... (6,391,373) 106,456,335 3,174,589
NET ASSETS:
Beginning of period........... 442,034,484 335,578,149 --
------------- ------------- ------------
END OF PERIOD............ $ 435,643,111 $ 442,034,484 $ 3,174,589
============= ============= ============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 189 $ 22 $ --
============= ============= ============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 560,245,244 465,453,549 564,039
Issued in reinvestment of
dividends and
distributions............... 20,403,630 19,438,372 5,845
Repurchased................... (587,040,414) (378,435,543) (248,557)
------------- ------------- ------------
NET INCREASE (DECREASE)....... (6,391,540) 106,456,378 321,327
============= ============= ============
</TABLE>
- ------------------
<TABLE>
<S> <C>
* For the period May 4, 1999 (commencement of operations) through
December 31, 1999.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
132
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
QUALITY INCOME PLUS HIGH YIELD UTILITIES
------------------------------- ------------------------------ -----------------------------
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,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 32,603,272 $ 31,385,103 $ 46,601,600 $ 47,746,756 $ 14,157,266 $ 14,064,617
Net realized gain (loss)...... (11,840,632) 7,060,684 (7,019,312) (10,756,455) 33,719,313 11,183,431
Net change in unrealized
appreciation/depreciation... (43,753,636) 3,370,100 (43,905,004) (62,350,933) 19,868,085 81,869,637
------------- ------------- ------------- ------------ ------------ ------------
NET INCREASE
(DECREASE)............... (22,990,996) 41,815,887 (4,322,716) (25,360,632) 67,744,664 107,117,685
------------- ------------- ------------- ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (32,603,082) (31,385,551) (46,732,009) (47,889,896) (14,157,310) (14,064,645)
Net realized gain............. -- -- -- -- (11,183,423) (24,274,238)
Paid-in-capital............... -- -- -- -- -- --
------------- ------------- ------------- ------------ ------------ ------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (32,603,082) (31,385,551) (46,732,009) (47,889,896) (25,340,733) (38,338,883)
------------- ------------- ------------- ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 62,145,724 145,861,267 69,363,729 150,152,649 75,775,422 107,347,532
Reinvestment of dividends and
distributions............... 32,603,082 31,385,551 46,732,009 47,889,896 25,340,733 38,338,883
Cost of shares repurchased.... (130,605,658) (115,083,881) (149,436,445) (128,774,384) (123,835,967) (111,796,640)
------------- ------------- ------------- ------------ ------------ ------------
NET INCREASE
(DECREASE)............... (35,856,852) 62,162,937 (33,340,707) 69,268,161 (22,719,812) 33,889,775
------------- ------------- ------------- ------------ ------------ ------------
TOTAL INCREASE
(DECREASE)............... (91,450,930) 72,593,273 (84,395,432) (3,982,367) 19,684,119 102,668,577
NET ASSETS:
Beginning of period........... 547,582,781 474,989,508 364,078,904 368,061,271 560,802,833 458,134,256
------------- ------------- ------------- ------------ ------------ ------------
END OF PERIOD............ $ 456,131,851 $ 547,582,781 $ 279,683,472 $364,078,904 $580,486,952 $560,802,833
============= ============= ============= ============ ============ ============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 47,349 $ (300) $ 21,347 $ 151,756 $ (19) $ 25
============= ============= ============= ============ ============ ============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 5,941,824 13,356,857 14,733,336 26,123,968 3,501,422 5,490,004
Issued in reinvestment of
dividends and
distributions............... 3,166,433 2,881,413 9,920,699 8,453,299 1,169,927 1,967,479
Repurchased................... (12,626,740) (10,567,612) (31,789,573) (22,927,167) (5,711,878) (5,716,328)
------------- ------------- ------------- ------------ ------------ ------------
NET INCREASE (DECREASE)....... (3,518,483) 5,670,658 (7,135,538) 11,650,100 (1,040,529) 1,741,155
============= ============= ============= ============ ============ ============
<CAPTION>
INCOME BUILDER
-----------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
- ------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 4,199,255 $ 4,037,661
Net realized gain (loss)...... (99,594) 936,441
Net change in unrealized
appreciation/depreciation... 1,427,366 (3,662,539)
------------ ------------
NET INCREASE
(DECREASE)............... 5,527,027 1,311,563
------------ ------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (4,106,298) (4,033,908)
Net realized gain............. (1,674,655) (768,186)
Paid-in-capital............... (120,208) --
------------ ------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (5,901,161) (4,802,094)
------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 17,298,775 50,649,400
Reinvestment of dividends and
distributions............... 5,901,161 4,802,094
Cost of shares repurchased.... (28,978,600) (19,614,662)
------------ ------------
NET INCREASE
(DECREASE)............... (5,778,664) 35,836,832
------------ ------------
TOTAL INCREASE
(DECREASE)............... (6,152,798) 32,346,301
NET ASSETS:
Beginning of period........... 87,769,134 55,422,833
------------ ------------
END OF PERIOD............ $ 81,616,336 $ 87,769,134
============ ============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 107,871 $ 14,879
============ ============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 1,493,695 4,241,399
Issued in reinvestment of
dividends and
distributions............... 512,121 415,816
Repurchased................... (2,529,168) (1,710,560)
------------ ------------
NET INCREASE (DECREASE)....... (523,352) 2,946,655
============ ============
</TABLE>
- ------------------
133
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
DIVIDEND GROWTH CAPITAL GROWTH
------------------------------ -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 41,593,941 $ 38,849,535 $ 31,551 $ (341,222)
Net realized gain (loss)...... 346,534,889 322,115,886 34,213,226 15,646,625
Net change in unrealized
appreciation/depreciation... (441,379,064) (89,389,463) 8,664,948 6,997,899
------------- ------------ ------------- -------------
NET INCREASE
(DECREASE)............... (53,250,234) 271,575,958 42,909,725 22,303,302
------------- ------------ ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (41,593,983) (38,849,522) -- (10,014)
Net realized gain............. (329,147,530) (187,973,609) (17,791,828) (10,080,542)
------------- ------------ ------------- -------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (370,741,513) (226,823,131) (17,791,828) (10,090,556)
------------- ------------ ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 280,502,535 479,551,623 25,586,183 28,039,255
Reinvestment of dividends and
distributions............... 370,741,513 226,823,131 17,791,828 10,090,556
Cost of shares repurchased.... (443,365,153) (407,106,560) (35,847,602) (38,839,523)
------------- ------------ ------------- -------------
NET INCREASE
(DECREASE)............... 207,878,895 299,268,194 7,530,409 (709,712)
------------- ------------ ------------- -------------
TOTAL INCREASE
(DECREASE)............... (216,112,852) 344,021,021 32,648,306 11,503,034
NET ASSETS:
Beginning of period........... 2,249,926,779 1,905,905,758 138,603,110 127,100,076
------------- ------------ ------------- -------------
END OF PERIOD............ $2,033,813,927 $2,249,926,779 $ 171,251,416 $ 138,603,110
============= ============ ============= =============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 112 $ 154 $ 31,127 $ (424)
============= ============ ============= =============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 13,098,987 21,516,674 1,226,447 1,431,494
Issued in reinvestment of
dividends and
distributions............... 17,950,387 10,521,804 929,562 513,776
Repurchased................... (21,694,034) (18,647,038) (1,746,710) (2,085,691)
------------- ------------ ------------- -------------
NET INCREASE (DECREASE)....... 9,355,340 13,391,440 409,299 (140,421)
============= ============ ============= =============
</TABLE>
- ------------------
SEE NOTES TO FINANCIAL STATEMENTS
134
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL DIVIDEND GROWTH EUROPEAN GROWTH PACIFIC GROWTH
------------------------------- ------------------------------- -------------------------------
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,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 9,301,972 $ 8,273,212 $ 4,356,655 $ 3,094,783 $ 673,927 $ 504,743
Net realized gain (loss)...... 42,434,603 29,801,364 89,014,598 43,252,405 15,775,724 (31,801,028)
Net change in unrealized
appreciation/depreciation... 14,999,600 16,207,523 39,368,603 44,049,168 28,380,099 24,432,009
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 66,736,175 54,282,099 132,739,856 90,396,356 44,829,750 (6,864,276)
------------- ------------- ------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (9,852,158) (8,206,088) (3,407,759) (5,476,236) (770,896) (2,947,935)
Net realized gain............. (35,181,150) (52,205,069) (47,147,183) (30,256,754) -- --
------------- ------------- ------------- ------------- ------------- -------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (45,033,308) (60,411,157) (50,554,942) (35,732,990) (770,896) (2,947,935)
------------- ------------- ------------- ------------- ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 52,898,642 75,090,455 151,803,640 190,691,042 233,462,939 65,895,854
Reinvestment of dividends and
distributions............... 45,033,308 60,411,157 50,554,942 35,732,990 770,896 2,947,935
Cost of shares repurchased.... (96,932,891) (126,758,450) (215,476,326) (161,891,054) (215,206,842) (75,093,578)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 999,059 8,743,162 (13,117,744) 64,532,978 19,026,993 (6,249,789)
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE)............... 22,701,926 2,614,104 69,067,170 119,196,344 63,085,847 (16,062,000)
NET ASSETS:
Beginning of period........... 484,227,564 481,613,460 510,637,597 391,441,253 52,841,537 68,903,537
------------- ------------- ------------- ------------- ------------- -------------
END OF PERIOD............ $ 506,929,490 $ 484,227,564 $ 579,704,767 $ 510,637,597 $ 115,927,384 $ 52,841,537
============= ============= ============= ============= ============= =============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 900,043 $ 520,531 $ 3,279,390 $ 3,134,104 $ 503,902 $ 411,637
============= ============= ============= ============= ============= =============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 3,735,961 5,251,149 5,542,879 7,118,106 37,338,181 13,473,730
Issued in reinvestment of
dividends and
distributions............... 3,214,043 4,451,226 2,023,007 1,290,932 115,750 677,325
Repurchased................... (6,868,373) (9,357,396) (7,927,773) (6,252,813) (34,025,265) (15,145,796)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE)....... 81,631 344,979 (361,887) 2,156,225 3,428,666 (994,741)
============= ============= ============= ============= ============= =============
</TABLE>
- ------------------
135
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
EQUITY S&P 500 INDEX
------------------------------ -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998*
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income......... $ 7,884,930 $ 6,924,725 $ 1,179,912 $ 244,990
Net realized gain (loss)...... 301,936,226 161,754,931 977,294 186,052
Net change in unrealized
appreciation/depreciation... 429,853,712 89,582,262 20,690,042 4,173,912
------------- ------------ ------------- -------------
NET INCREASE............. 739,674,868 258,261,918 22,847,248 4,604,954
------------- ------------ ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (7,879,428) (6,924,673) (244,996) --
Net realized gain............. (168,434,937) (114,146,703) (283,184) --
------------- ------------ ------------- -------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (176,314,365) (121,071,376) (528,180) --
------------- ------------ ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 428,695,184*** 262,726,068 140,040,634 50,279,637
Reinvestment of dividends and
distributions............... 176,314,365 121,071,376 528,180 --
Cost of shares repurchased.... (223,711,390) (205,665,545) (25,657,030) (6,152,623)
------------- ------------ ------------- -------------
NET INCREASE............. 381,298,159 178,131,899 114,911,784 44,127,014
------------- ------------ ------------- -------------
TOTAL INCREASE........... 944,658,662 315,322,441 137,230,852 48,731,968
NET ASSETS:
Beginning of period........... 1,138,412,723 823,090,282 48,731,968 --
------------- ------------ ------------- -------------
END OF PERIOD............ $2,083,071,385 $1,138,412,723 $ 185,962,820 $ 48,731,968
============= ============ ============= =============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 2 $ (5,165) $ 1,179,906 $ 244,990
============= ============ ============= =============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 10,020,241*** 7,421,841 11,576,170 4,974,649
Issued in reinvestment of
dividends and
distributions............... 4,406,556 3,456,577 42,255 --
Repurchased................... (5,269,790) (5,884,436) (2,115,310) (631,013)
------------- ------------ ------------- -------------
NET INCREASE.................. 9,157,007 4,993,982 9,503,115 4,343,636
============= ============ ============= =============
</TABLE>
- ------------------
<TABLE>
<S> <C>
* For the period May 18, 1998 (commencement of operations) through
December 31, 1998.
** For the period May 4, 1999 (commencement of operations) through
December 31, 1999.
*** Includes acquisition of Capital Appreciation of 824,458 shares and
$35,291,368.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
136
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
COMPETITIVE EDGE AGGRESSIVE
"BEST IDEAS" EQUITY STRATEGIST
------------------------------- -------------- -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998* 1999** 1999 1998
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss)...................... $ 318,798 $ 266,358 $ 57,983 $ 15,227,196 $ 12,820,064
Net realized gain (loss)...... (231,782) (1,270,706) (181,892) 83,843,891 (7,041,288)
Net change in unrealized
appreciation/depreciation... 11,840,897 1,995,524 7,381,913 10,097,511 125,871,829
------------- ------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 11,927,913 991,176 7,258,004 109,168,598 131,650,605
------------- ------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income......... (267,149) -- (8,097) (15,227,618) (12,819,604)
Net realized gain............. -- -- -- -- (52,303,444)
------------- ------------- ------------- ------------- -------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS............ (267,149) -- (8,097) (15,227,618) (65,123,048)
------------- ------------- ------------- ------------- -------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from sales....... 25,976,215 48,814,147 41,217,608 110,695,004 120,982,104
Reinvestment of dividends and
distributions............... 267,149 -- 8,097 15,227,618 65,123,048
Cost of shares repurchased.... (12,148,106) (13,266,543) (10,278,236) (124,097,206) (115,726,574)
------------- ------------- ------------- ------------- -------------
NET INCREASE
(DECREASE)............... 14,095,258 35,547,604 30,947,469 1,825,416 70,378,578
------------- ------------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE)............... 25,756,022 36,538,780 38,197,376 95,766,396 136,906,135
NET ASSETS:
Beginning of period........... 36,538,780 -- -- 633,934,280 497,028,145
------------- ------------- ------------- ------------- -------------
END OF PERIOD............ $ 62,294,802 $ 36,538,780 $ 38,197,376 $ 729,700,676 $ 633,934,280
============= ============= ============= ============= =============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)................. $ 316,203 $ 267,028 $ 49,886 $ 36 $ 458
============= ============= ============= ============= =============
SHARES ISSUED AND REPURCHASED:
Sold.......................... 2,453,400 5,131,070 3,507,417 6,274,928 7,783,951
Issued in reinvestment of
dividends and
distributions............... 25,638 -- 794 851,314 4,189,589
Repurchased................... (1,165,678) (1,408,330) (886,433) (7,016,894) (7,464,531)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE)....... 1,313,360 3,722,740 2,621,778 109,348 4,509,009
============= ============= ============= ============= =============
</TABLE>
- ------------------
137
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Variable Investment Series ("the Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. Investments in the Fund may be made only by
(1) Northbrook Life Insurance Company to fund the benefits under variable
annuity contracts and variable life insurance contracts it issues; (2) Allstate
Life Insurance Company of New York to fund the benefits under variable annuity
contracts it issues; (3) Glenbrook Life and Annuity Company to fund the benefits
under variable annuity contracts and variable life insurance contracts it
issues; and (4) Paragon Life Insurance Company to fund the benefits under
variable life insurance contracts it issues to certain employees of Morgan
Stanley Dean Witter & Co., the parent company of Morgan Stanley Dean Witter
Advisors Inc. ("the Investment Manager").
The Fund, organized on February 25, 1983 as a Massachusetts business trust,
consists of sixteen Portfolios ("Portfolios") which commenced operations as
follows:
<TABLE>
<CAPTION>
COMMENCEMENT OF COMMENCEMENT OF
PORTFOLIO OPERATIONS PORTFOLIO OPERATIONS
- --------- ----------------- --------- -----------------
<S> <C> <C> <C>
Money Market.................. March 9, 1984 Global Dividend Growth.............. February 23, 1994
Short-Term Bond............... May 4, 1999 European Growth..................... March 1, 1991
Quality Income Plus........... March 1, 1987 Pacific Growth...................... February 23, 1994
High Yield.................... March 9, 1984 Equity.............................. March 9, 1984
Utilities..................... March 1, 1990 S&P 500 Index....................... May 18, 1998
Income Builder................ January 21, 1997 Competitive Edge "Best Ideas"....... May 18, 1998
Dividend Growth............... March 1, 1990 Aggressive Equity................... May 4, 1999
Capital Growth................ March 1, 1991 Strategist.......................... March 1, 1987
</TABLE>
The investment objectives of each Portfolio are as follows:
<TABLE>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Money Market Seeks high current income, preservation of capital and liquidity
by investing in short-term money market instruments.
Short-Term Bond Seeks to provide a high level of current income consistent with
the preservation of capital, by investing primarily in bonds
issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities and investment
grade corporate and other types of bonds.
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.
</TABLE>
138
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Utilities* Seek both capital appreciation and current income by investing in
equity and fixed income securities of companies engaged in the
utilities industry. Prior to August 5, 1999 the investment
objective was 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.
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.
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.
Aggressive Equity Seeks long-term capital growth by investing primarily in the
equity securities of companies covered by Morgan Stanley Dean
Witter Equity Research that offer the potential for superior
earnings growth.
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>
* ON AUGUST 4, 1999, SHAREHOLDERS APPROVED A CHANGE IN THE INVESTMENT OBJECTIVE.
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
139
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
that exchange prior to the time when assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation; (3) listed options are valued at the
latest sale price on the exchange on which they are listed unless no sales of
such options have taken place that day, in which case they are valued at the
mean between their latest bid and asked price; (4) when market quotations are
not readily available, including circumstances under which it is determined by
the Investment Manager (or, in the case of 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
140
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
subsequently marked-to-market to reflect the current market value of the option
written. If a written option either expires or the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss without regard to any
unrealized gain or loss on the underlying security or currency and the liability
related to such option is extinguished. If a written call option is exercised,
the Fund realizes a gain or loss from the sale of the underlying security or
currency and the proceeds from such sale are increased by the premium originally
received. If a put option which the Fund has written is exercised, the amount of
the premium originally received reduces the cost of the security which the Fund
purchases upon exercise of the option; (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 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; and
(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,
141
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
sales, income and expenses are translated at the exchange rates prevailing on
the respective dates of such transactions. The resultant exchange gains and
losses are included in the Statement of Operations as realized and unrealized
gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes. The Portfolios do not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
forward exchange rates. The resultant unrealized exchange gains and losses are
included in the Statement of Operations as unrealized gain/ loss on foreign
exchange transactions. The Portfolios record realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually
for each Portfolio with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its taxable income to
its shareholders. Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax 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.
142
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement (the "Agreement"), the Fund pays
the Investment Manager a management fee, accrued daily and payable monthly, by
applying the following annual rates to each Portfolios' net assets determined at
the close of each business day:
Money Market -- 0.50% to the portion of daily net assets not exceeding $500
million and effective May 1, 1999 the Agreement was amended to reduce the annual
rate to 0.425% of the portion of daily net assets exceeding $500 million but not
exceeding $750 million and 0.375% of the portion of daily net assets exceeding
$750 million.
Short-Term Bond -- 0.45%.
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.
High Yield -- 0.50% to the portion of daily net assets not exceeding $500
million and 0.425% of the portion of daily net assets exceeding $500 million.
Utilities -- 0.65% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion and effective May 1, 1999 the Agreement was amended to
reduce the annual rate to 0.525% of the portion of daily net assets exceeding $1
billion.
Income Builder -- 0.75%.
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; 0.45% of the portion of daily net assets
exceeding $2 billion but not exceeding $3 billion and effective May 1, 1999 the
Agreement was amended to reduce the annual rate to 0.425% of the portion of
daily net assets exceeding $3 billion.
Capital Growth -- 0.65%.
Global Dividend Growth -- 0.75% to the portion of daily net assets not exceeding
$1 billion and effective May 1, 1999 the Agreement was amended to reduce the
annual rate to 0.725% of the portion of daily net assets exceeding $1 billion.
European Growth -- 0.95% to the portion of daily net assets not exceeding $500
million and 0.90% of the portion of daily net assets exceeding $500 million.
Pacific Growth -- 0.95%.
143
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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.
S&P 500 Index -- 0.40%.
Competitive Edge "Best Ideas" -- 0.65%.
Aggressive Equity -- 0.75%.
Strategist -- 0.50% to the portion of daily net assets not exceeding $1.5
billion and effective May 1, 1999 the Agreement was amended to reduce the annual
rate to 0.475% of the portion of daily net assets exceeding $1.5 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
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.
For the period May 4, 1999 through November 4, 1999, the Investment Manager
reimbursed all operating expenses and waived the compensation provided for in
its Investment Management Agreement with Short-Term Bond and Aggressive Equity.
For the period May 18, 1998 through April 30, 1999, the Investment Manager
waived its compensation and reimbursed all operating expenses for Competitive
Edge "Best Ideas". For the period May 18, 1998 through January 5, 1999, the
Investment Manager waived its compensation and reimbursed all operating expenses
for S&P 500 Index. Commencing January 6, 1999, the Investment Manager has agreed
to assume all operating expenses and to waive its compensation to the extent
such expenses and compensation on an annualized basis exceed 0.50% of the daily
net assets of S&P 500 Index. At December 31, 1999, included in the Statements of
Assets and Liabilities are receivables from an affiliate which represent expense
reimbursements due to the Portfolios.
144
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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, 1999 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
------------------------------ --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
------------ ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Money Market............................ $180,807,008 $205,802,906 $3,304,320,547 $3,305,653,918
Short-Term Bond......................... 3,552,804 872,682 -- --
Quality Income Plus..................... 364,503,475 385,304,831 228,268,039 248,623,785
High Yield.............................. -- -- 152,296,394 199,457,484
Utilities............................... -- -- 52,513,585 75,015,937
Income Builder.......................... 132,453 314,579 35,568,239 45,350,590
Dividend Growth......................... -- -- 1,775,253,646 1,935,479,726
Capital Growth.......................... -- -- 780,344,500 795,863,613
Global Dividend Growth.................. -- -- 203,585,769 239,363,299
European Growth......................... -- -- 266,663,796 323,799,920
Pacific Growth.......................... -- -- 94,005,220 77,396,625
Equity.................................. 56,476,250 56,242,188 4,320,348,355 4,204,777,181
S&P 500 Index........................... -- -- 114,611,734 1,414,471
Competitive Edge "Best Ideas"........... -- -- 34,434,155 22,624,654
Aggressive Equity....................... -- -- 36,673,196 11,015,296
Strategist.............................. 206,541,469 173,358,861 440,335,201 485,401,288
</TABLE>
Included in the aforementioned purchases of portfolio securities of S&P 500
Index are purchases of Morgan Stanley Dean Witter & Co., an affiliate of the
Investment Manager, of $538,154 and purchases of Allstate Corp., an affiliate of
the Fund, of $277,160.
Included in the payable for investments purchased at December 31, 1999 for
Aggressive Equity is $864,031 for unsettled trades with Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Investment Manager.
For the year ended December 31, 1999, the following Portfolios incurred
brokerage commissions with DWR for portfolio transactions executed on behalf of
the Portfolio:
<TABLE>
<CAPTION>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND COMPETIVE EDGE AGGRESIVE
UTILITIES BUILDER GROWTH GROWTH GROWTH "BEST IDEAS" EQUITY EQUITY STRATEGIST
----------- ------------ -------------- ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,450 $ 30,496 $ 167,890 $ 120,251 $ 30,930 $ 25 $ 218,335 $ 21,397 $ 27,241
========== =========== ============= =========== =========== ============= =========== =========== ===========
<CAPTION>
HIGH
UTILITIES YIELD
----------- ------------
<S> <C>
$ 8,450 $ 10,498
========== ===========
</TABLE>
For the year ended December 31, 1999, 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>
GLOBAL
INCOME DIVIDEND CAPITAL DIVIDEND PACIFIC COMPETITIVE EDGE AGGRESSIVE
BUILDER GROWTH GROWTH GROWTH GROWTH EQUITY "BEST IDEAS" EQUITY STRATEGIST
------- -------- ------- -------- ------- -------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,555 $255,110 $83,995 $145,785 $55,994 $637,848 $39,371 $671 $26,580
====== ======== ======= ======== ======= ======== ======= ==== =======
</TABLE>
145
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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, 1999
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
QUALTY GLOBAL
MONEY INCOME HIGH INCOME DIVIDEND CAPITAL DIVIDEND EUROPEAN PACIFIC
MARKET PLUS YIELD UTILITIES BUILDER GROWTH GROWTH GROWTH GROWTH GROWTH EQUITY S&P 500 INDEX STRATEGIST
------- ------- ------ --------- ------- -------- ------- -------- -------- ------- ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 329 $ 654 $ 224 $ 687 $28 $ 935 $106 $280 $ 342 $106 $ 999 $49 $ 88
======= ====== ====== ====== === ====== ==== ==== ====== ==== ====== === ======
ACCRUED PENSION LIABILITY
$10,966 $7,716 $3,786 $5,253 $88 $9,215 $449 $955 $1,246 $264 $6,260 $35 $7,917
======= ====== ====== ====== === ====== ==== ==== ====== ==== ====== === ======
</TABLE>
4. FEDERAL INCOME TAX STATUS
At December 31, 1999, 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, 2000 2001 2002 2003 2004 2005 2006 2007 TOTAL
- ---------------------------------------- ------- ------ ------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Bond......................... -- -- -- -- -- -- -- $ 3 $ 3
Quality Income Plus..................... -- -- $12,983 -- $2,491 -- -- 10,571 26,045
High Yield.............................. $3,057 $4,736 3,256 $ 2,984 5,521 -- $ 2,735 10,786 33,075
Income Builder.......................... -- -- -- -- -- -- -- 229 229
Pacific Growth.......................... -- -- -- -- -- $9,352 33,536 -- 42,888
Equity.................................. -- -- -- -- -- 5,006 14 -- 5,020
Competitive Edge "Best Ideas"........... -- -- -- -- -- -- 853 544 1,397
Aggressive Equity....................... -- -- -- -- -- -- -- 68 68
</TABLE>
As part of the Equity's acquisition of the assets of the Capital Appreciation
Portfolio ("Capital Appreciation"), Equity obtained a net capital loss carryover
of approximately $6,329,000 from Capital Appreciation. Utilization of this
carryover is subject to limitations imposed by the Internal Revenue Code and
Treasury Regulations. During the year ended December 31, 1999, Equity utilized
approximately $1,309,000 of this carryover. The following Portfolios also
utilized approximate net capital loss carryovers: Pacific Growth - $8,180,000;
Strategist - $6,900,000.
Net capital and net foreign currency losses incurred after October 31
("post-October losses") within the taxable year are deemed to arise on the first
business day of the Portfolios' next taxable year.
146
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
The following Portfolios incurred and will elect to defer post-October losses
during fiscal 1999: Quality Income Plus - $1,864,000; High Yield - $4,391,000;
Income Builder - $197,000; Competitive Edge "Best Ideas" - $1,000; Strategist -
$8,855,000.
At December 31, 1999, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
--------------------------- ----------------------------
POST- LOSS FOREIGN EXPIRED
OCTOBER DEFERRALS FROM CURRENCY CAPITAL LOSS
LOSSES WASH SALES GAINS/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.......................... - -
Equity.................................. -
S&P 500 Index........................... -
Competitive Edge "Best Ideas"........... - - -
Aggressive Equity....................... -
Strategist.............................. - -
</TABLE>
Additionally, Global Dividend Growth and Pacific Growth had temporary
differences attributable to income from the mark-to-market of passive foreign
investment companies ("PFICs"), S&P 500 Index had temporary differences
attributable to the mark-to-market of futures contracts and High Yield had
temporary differences attributable to interest on bonds in default. Global
Dividend Growth and Pacific Growth had permanent differences attributable to tax
adjustments on PFICs sold by the Portfolios.
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) PAID-IN-CAPITAL
---------------------------- ------------------------- ---------------
<S> <C> <C> <C>
Quality Income Plus..................... $ 47,459 $ (47,459) --
High Yield.............................. -- 7,335,877 $(7,335,877)
Global Dividend Growth.................. 929,698 (822,262) (107,436)
European Growth......................... (803,610) 12,395 791,215
Pacific Growth.......................... 189,234 (195,858) 6,624
Equity.................................. (18) 335 (317)
Competitive Edge "Best Ideas"........... (2,474) 2,474 --
</TABLE>
147
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Global Dividend Growth, European Growth, Pacific Growth and Competitive Edge
"Best Ideas" may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities. Such Portfolios may also purchase and write put
options on foreign currencies ("options") in which the Portfolios' securities
are denominated to protect against a decline in value of such securities due to
currency devaluations.
Forward contracts and options 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 forward
contracts and options from the potential inability of the counterparties to meet
the terms of their contracts.
S&P 500 Index may purchase and sell stock index futures ("futures contacts") 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, 1999, European Growth's investments in securities of issuers in
the United Kingdom represented 28.1% of the Portfolio's net assets. Pacific
Growth's investments in securities of issuers in Japan represented 44.4% of the
Portfolio's net assets. These investments, which involve risks and
considerations not present with respect to U.S. securities, may be affected by
economic or political developments in these regions.
At December 31, 1999, 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.
148
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
6. PORTFOLIO MERGER
As of the close of business on March 19, 1999, Equity acquired all the net
assets of Morgan Stanley Dean Witter Variable Investment Series - Capital
Appreciation ("Capital Appreciation") pursuant to a plan of reorganization
approved by the shareholders of Capital Appreciation on February 24, 1999. The
acquisition was accomplished by a tax-free exchange of 824,458 shares of Equity
at a net asset value of $42.80 per share for 3,210,810 shares of Capital
Appreciation. The net assets of Equity and Capital Appreciation immediately
before the acquisition were $1,300,120,916 and $35,291,368, respectively,
including unrealized appreciation of $6,437,316 for Capital Appreciation.
Immediately after the acquisition the combined net assets of Equity amounted to
$1,335,412,284.
149
<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
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)
1999 1.00 0.047 -- 0.047 (0.047) -- (0.047)
SHORT-TERM BOND
1999(c) 10.00 0.27 $(0.12) 0.15 (0.27) -- (0.27)
QUALITY INCOME PLUS
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)
1999 11.00 0.67 (1.14) (0.47) (0.67) -- (0.67)
HIGH YIELD
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)
1999 5.07 0.68 (0.74) (0.06) (0.68) -- (0.68)
UTILITIES
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)
1999 21.25 0.55 2.08 2.63 (0.55) (0.43) (0.98)
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)
1999 11.46 0.58 0.21 0.79 (0.56) (0.25)++ (0.81)
DIVIDEND GROWTH
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)
1999 22.13 0.39 (0.55) (0.16) (0.39) (3.26) (3.65)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
150
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET ASSET NET ASSETS 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
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
1999 1.00 4.80 435,643 0.52 4.68 N/A
SHORT-TERM BOND
1999(c) 9.88 1.56(1) 3,175 0.62(2)(5) 4.83(2)(5) 56%(1)
QUALITY INCOME PLUS
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
1999 9.86 (4.32) 456,132 0.52 6.45 119
HIGH YIELD
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
1999 4.33 (1.33) 279,683 0.53 14.05 48
UTILITIES
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
1999 22.90 12.71 580,487 0.67 2.51 10
INCOME BUILDER
1997(a) 11.76 22.38(1) 55,423 0.15(2)(3) 5.73(2)(3) 41(1)
1998 11.46 3.21 87,769 0.81 5.09 54
1999 11.44 7.06 81,616 0.81 4.98 43
DIVIDEND GROWTH
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
1999 18.32 (2.39) 2,033,814 0.52 1.82 81
</TABLE>
151
<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
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)
1999 20.36 -- 6.12 6.12 -- (2.75) (2.75)
GLOBAL DIVIDEND GROWTH
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)
1999 13.82 0.27 1.71 1.98 (0.29) (1.07) (1.36)
EUROPEAN GROWTH
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)
1999 27.18 0.25 6.91 7.16 (0.19) (2.68) (2.87)
PACIFIC GROWTH
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)
1999 5.15 0.04 3.33 3.37 (0.06) -- (0.06)
EQUITY
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)
1999 38.58 0.22 20.48 20.70 (0.22) (5.18) (5.40)
S&P 500 INDEX
1998(b) 10.00 0.06 1.16 1.22 -- -- --
1999 11.22 0.06 2.21 2.27 (0.03) (0.03) (0.06)
COMPETITIVE EDGE "BEST IDEAS"
1998(b) 10.00 0.07 (0.25) (0.18) -- -- --
1999 9.82 0.06 2.56 2.62 (0.07) -- (0.07)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
152
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET
NET ASSET NET ASSETS 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
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
1999 23.73 33.29 171,251 0.72 0.02 575
GLOBAL DIVIDEND GROWTH
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
1999 14.44 14.65 506,929 0.83 1.90 43
EUROPEAN GROWTH
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
1999 31.47 29.11 579,705 1.04 0.87 55
PACIFIC GROWTH
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
1999 8.46 66.09 115,927 1.42 0.85 105
EQUITY
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
1999 53.88 58.59 2,083,071 0.51 0.54 323
S&P 500 INDEX
1998(b) 11.22 12.20(1) 48,732 --(4) 1.85(2)(4) 2(1)
1999 13.43 20.23 185,963 0.48(5) 1.03(5) 1
COMPETITIVE EDGE "BEST
IDEAS"
1998(b) 9.82 (1.90)(1) 36,539 --(4) 1.74(2)(4) 31(1)
1999 12.37 26.88 62,295 0.56(5) 0.72(5) 54
</TABLE>
153
<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 OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE EQUITY
1999(c) $ 10.00 $ 0.05 $ 4.55 $ 4.60 $ (0.03) -- $ (0.03)
STRATEGIST
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)
1999 16.64 0.40 2.46 2.86 (0.40) -- (0.40)
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Commencement of operations:
(a) January 21, 1997.
(b) May 18, 1998.
(c) May 4, 1999.
+ Calculated based on the net asset value as of the last business day of the
period.
++ Includes distributions from paid-in-capital of $0.02.
* 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 January 21, 1997 through December 3, 1997 for
Income Builder, the ratios of expenses and net investment income to average
net assets would have been 0.99% and 4.89%, respectively.
(4) 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, 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" and 0.59% and 1.26%,
respectively, for S&P 500 Index.
(5) If the Investment Manager had not assumed all expenses and waived its
management fee for the period January 1, 1999 through April 30, 1999 for
Competitive Edge "Best Ideas" and for the period May 4, 1999 through
November 4, 1999 for Short-Term Bond and Aggressive Equity and for the
period January 1, 1999 through January 5, 1999 for S&P 500 Index and
"capped" the expenses of S&P 500 Index at 0.50% of its daily net assets for
the period January 6, 1999 through December 31, 1999, the ratio of expenses
and net investment income (loss) to average net assets would have been
0.77% and 0.51%, respectively, for Competitive Edge "Best Ideas", 2.38% and
3.07%, respectively, for Short-Term Bond, 1.41% and (0.02%), respectively,
for Aggressive Equity and 0.48% and 1.02%, respectively, for S&P 500 Index.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
154
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
-----------------------
NET ASSET NET ASSETS 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>
AGGRESSIVE EQUITY
1999(c) $ 14.57 46.08%(1) $ 38,197 0.52%(2)(5) 0.86%(2)(5) 108%(1)
STRATEGIST
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
1999 19.10 17.35 729,701 0.52 2.24 120
</TABLE>
155
<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 Equity Portfolio, the
S&P 500 Index Portfolio, the Competitive Edge "Best Ideas" Portfolio, the
Strategist Portfolio, the Aggressive Equity Portfolio and the Short-Term Bond
Portfolio (constituting Morgan Stanley Dean Witter Variable Investment Series,
hereafter referred to as the "Fund") at December 31, 1999, the results of each
of their operations for the year or period then ended, the changes in each of
their net assets and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the United States,
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, 1999 by correspondence with the
custodians and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 18, 2000
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APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be
of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Fixed-income securities which are rated A possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Fixed-income securities which are rated Baa are considered
as medium grade obligations; I.E., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Such fixed-income securities lack outstanding investment
characteristics and in fact have speculative characteristics
as well.
Fixed-income securities rated Aaa, Aa, A and Baa are
considered investment grade.
Ba Fixed-income securities which are rated Ba are judged to
have speculative elements; their future cannot be considered
as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times in the
future. Uncertainty of position characterizes bonds in this
class.
B Fixed-income securities which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
Caa Fixed-income securities which are rated Caa are of poor
standing. Such issues may be in default or there may be
present elements of danger with respect to principal or
interest.
Ca Fixed-income securities which are rated Ca present
obligations which are speculative in a high degree. Such
issues are often in default or have other marked
shortcomings.
C Fixed-income securities which are rated C are the lowest
rated class of fixed-income securities, and issues so rated
can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
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COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong
capacity to pay interest and repay principal and differs
from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to
pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than fixed-income
securities in higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having
an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest
and repay principal for fixed-income securities in this
category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are
considered investment grade.
BB Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposures to adverse business, financial or
economic conditions which could lead to inadequate capacity
or willingness to pay interest and repay principal.
B Fixed-income securities rated "B" have a greater
vulnerability to default but presently have the capacity to
meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay
principal.
</TABLE>
158
<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>
FITCH IBCA, INC. ("FITCH")
BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer
159
<PAGE>
and any guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
<TABLE>
<S> <C>
AAA Bonds 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 Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A Bonds 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 Bonds 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 have adverse impact on these
bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
Plus (+) or Plus and minus signs are used with a rating symbol to
Minus (-) indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in
the"AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is
called or refinanced and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
</TABLE>
160
<PAGE>
<TABLE>
<S> <C>
Ratings Outlook An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a
designation indicates a stable outlook.
</TABLE>
SPECULATIVE GRADE BOND RATINGS: Fitch speculative grade bond ratings provide
a guide to investors in determining the credit risk associated with a particular
security. The ratings ("BB" to "C") represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating ("DDD" to "D") is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
<TABLE>
<S> <C>
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time
by adverse economic changes. However, business and finan-
cial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD Bonds are in default on interest and/or principal payments.
DD and D Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus(+) or Plus and minus signs are used with a rating symbol to
Minus(-) indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
"DDD," "DD," or "D" categories.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch short-term ratings are as follows:
<TABLE>
<S> <C>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
</TABLE>
161
<PAGE>
<TABLE>
<S> <C>
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated "F-1+."
F-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 for issues assigned
"F-1+" and "F-1" ratings.
F-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
changes could cause these securities to be rated below in
investment grade.
F-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 The 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.
AA+ High credit quality. Protection factors are strong. Risk is
AA modest, but may vary slightly from time to time because of
AA- economic conditions.
A+ Protection factors are average but adequate. However, risk
A factors are more variable and greater in periods of economic
A- stress.
BBB+ Below average protection factors but still considered
BBB sufficient for prudent investment. Considerable variability
BBB- in risk during economic cycles.
</TABLE>
162
<PAGE>
<TABLE>
<S> <C>
BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection
BB- factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down
frequently within this category.
B+ Below investment grade and possessing risk that obligations
B will not be met when due. Financial protection factors will
B- fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent 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.
C. Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
D. Category 4: Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
E. Category 5: Default
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
</TABLE>
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
PART C OTHER INFORMATION
Item 23. EXHIBITS
1(a). Declaration of Trust, dated February 24, 1983, and all amendments
thereto dated June 8, 1983, May 18, 1984, December 18, 1984 and
February 23, 1988, and all Instruments Establishing and Designating
Additional Series of Shares dated December 15, 1986, October 26, 1989,
November 15, 1990 and October 22, 1993, are incorporated by reference
to Exhibit 1 of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A, filed on December 1, 1993.
1(b). Amendment to the Declaration of Trust of the Registrant dated
August 24, 1995, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A, filed on April 19, 1996.
1(c). Instrument Establishing and Designating Additional Series of Shares
dated October 15, 1996, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 20 to the Registration Statement on Form
N-1A, filed on October 17, 1996.
1(d). Instrument Establishing and Designating Additional Series of Shares
dated January 29, 1998, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A, filed on February 10, 1998.
1(e). Amendment to the Declaration of Trust of the Registrant dated
June 22, 1998, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A, filed on August 31, 1998.
1(f). Instrument Establishing and Designating Additional Series of Shares,
dated February 8, 1999, is incorporated by reference to Exhibit 1
of Post-Effective Amendment No. 25 to the Registration Statement on
Form N-1A, filed on February 10, 1999.
1(g). Form of Instrument Establishing and Designating Additional Classes of
Shares, filed herein.
2. Amended and Restated By-laws of the Registrant, dated May 1, 1999, is
incorporated by reference to Exhibit 2 of Post-Effective Amendment No.
26 to the Registration Statement on Form N-1A, filed on April 27,
1999.
3. Not Applicable.
4(a). Amended Investment Management Agreement, dated May 1, 1999, is
incorporated by reference to Exhibit 4 of Post-Effective Amendment No.
26 to the Registration Statement on Form N-1A, filed on April 27,
1999.
1
<PAGE>
4(b). Sub-Advisory Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Investment Management Inc., dated
November 1, 1998, is incorporated by reference to Exhibit 5(b) of
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A, filed on August 31, 1998.
5(a). Amended Distribution Agreement, dated February 24, 2000, between the
Registrant and Morgan Stanley Dean Witter Distributors Inc., filed
herein.
5(b). Participation Agreement, dated May 31, 1997, between Northbrook Life
Insurance Company, Allstate Life Insurance Company of New York,
Glenbrook Life and Annuity Company and Morgan Stanley Dean Witter
Distributors Inc., and the Registrant is incorporated by reference to
Exhibit 6(b) of Post-Effective Amendment No. 22 to the Registration
Statement on Form N-1A, filed on February 10, 1998.
5(c). Participation Agreement, dated May 31, 1997, between Paragon Life
Insurance Company and Morgan Stanley Dean Witter Distributors Inc.,
and the Registrant is incorporated by reference to Exhibit 6(c) of
Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A, filed on February 10, 1998.
6. Retirement Plan for Non-Interested Trustees or Directors is
incorporated by reference to Exhibit 6 of Post-Effective Amendment No.
26 to the Registration Statement on Form N-1A, filed on April 27,
1999.
7(a). Custody Agreement, dated September 20, 1991, between The Bank of
New York and the Registrant is incorporated by reference to Exhibit
9(a) of the Registration Statement on Form N-14, filed on November 5,
1998.
7(b). Amendment to the Custody Agreement, dated April 17, 1996, between The
Bank of New York and the Registrant is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 19 to the Registration
Statement on Form N-1A, filed on April 19, 1996.
7(c). Custody Agreement between The Chase Manhattan Bank and the
Registrant is incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A, filed on
April 21, 1997.
8(a). Amended and Restated Transfer Agency and Service Agreement is
incorporated by reference to Exhibit 8 of Post-Effective Amendment No.
24 to the Registration Statement on Form N-1A, filed on August 31,
1998.
8(b). Amended Services Agreement is incorporated by reference to Exhibit
8(b) of Post-Effective Amendment No. 26 to the Registration Statement
on Form N-1A, filed on April 27, 1999.
9. Opinion of Sheldon Curtis, Esq., Registrant's Counsel, dated
June 29, 1993, is incorporated by reference to Exhibit 9 of
Post-Effective Amendment No. 27 to the Registration Statement on Form
N-1A, filed on June 4, 1999.
2
<PAGE>
10. Consent of Independent Accountants, filed herein.
11. Not Applicable.
12. Not Applicable.
13. Form of Plan of Distribution pursuant to Rule 12b-1, filed herein.
15. Amended and Restated Multi-Class Plan pursuant to Rule 18f-3, filed
herein.
Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Post-Effective Amendment No. 18 and Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A (filed on
April 18, 1995 and February 10, 1998, respectively).
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 against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the
3
<PAGE>
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 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
(21) Morgan Stanley Dean Witter Prime Income Trust
4
<PAGE>
(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 Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
5
<PAGE>
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Real Estate Fund
(51) Morgan Stanley Dean Witter S&P 500 Index Fund
(52) Morgan Stanley Dean Witter S&P 500 Select Fund
(53) Morgan Stanley Dean Witter Select Dimensions Investment Series
(54) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(55) Morgan Stanley Dean Witter Short-Term Bond Fund
(56) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(57) Morgan Stanley Dean Witter Small Cap Growth Fund
(58) Morgan Stanley Dean Witter Special Value Fund
(59) Morgan Stanley Dean Witter Strategist Fund
(60) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(61) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(62) Morgan Stanley Dean Witter Total Market Index Fund
(63) Morgan Stanley Dean Witter Total Return Trust
(64) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(65) Morgan Stanley Dean Witter U.S. Government Securities Trust
(66) Morgan Stanley Dean Witter Utilities Fund
(67) Morgan Stanley Dean Witter Value-Added Market Series
(68) Morgan Stanley Dean Witter Value Fund
(69) Morgan Stanley Dean Witter Variable Investment Series
(70) Morgan Stanley Dean Witter World Wide Income Trust
<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>
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; Executive Vice President and Director
of Dean Witter Reynolds Inc. ("DWR"); Director of various
MSDW subsidiaries; Trustee of various Van Kampen
investment companies.
Barry Fink Assistant Secretary of DWR; Executive Vice President,
Executive Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Executive Vice President, Assistant Secretary
Counsel and Director and Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds.
6
<PAGE>
<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 Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds.
Officer and Director
Edward C. Oelsner, III
Executive Vice President
Joseph R. Arcieri Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group
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
Sheila A. Finnerty Vice President of Morgan Stanley Dean Witter Prime
Senior Vice President Income Trust.
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.
7
<PAGE>
<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>
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
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.
and Director of Sector
Rotation
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Money
Market Group
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.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
8
<PAGE>
<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>
Katherine H. Stromberg 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.
and Director of the Growth
and Income Group
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.
and Director of the
Tax-Exempt Fixed
Income Group
Raymond A. Basile
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.
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 and the Morgan Stanley
Dean Witter Funds.
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.
9
<PAGE>
<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>
David Johnson
First Vice President
Stanley Kapica
First Vice President
Douglas J. Ketterer
First Vice President
Todd Lebo First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carl F. Sadler
First Vice President
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz Vice President of Morgan Stanley Dean Witter Global
Vice President Utilities Fund.
Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
10
<PAGE>
<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>
Maurice Bendrihem
Vice President and
Assistant Controller
Thomas A. Bergeron
Vice President
Philip Bernstein
Vice President
Dale Boettcher
Vice President
Michelina Calandrella
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Annette Celenza
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
Michael J. Davey
Vice President
David Dineen Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Glen H. Frey Vice President of Morgan Stanley Dean Witter Information
Vice President Fund.
11
<PAGE>
<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>
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity-Burke
Vice President
Peter Gewirtz
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Laury A. Haskamp
Vice President
Matthew T. 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
Thomas G. Hudson II
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
12
<PAGE>
<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>
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Cameron J. Livingstone
Vice President
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter R. McDowell
Vice President
Albert McGarity
Vice President
Teresa McRoberts Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
13
<PAGE>
<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>
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
Hilary A. O'Neill
Vice President
Anne Pickrell
Vice President
Mori Paulson
Vice President
Frances Roman
Vice President
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 Morgan Stanley Dean Witter Competitive
Vice President Edge Fund.
Sally Sancimino
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
14
<PAGE>
<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>
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Alison M. Sharkey
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Ronald B. Silvestri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
William Stevens
Vice President
Michael Strayhorn
Vice President
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW Distributors,
DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade Center, New
York, New York 10048. The principal address of MSDW is 1585 Broadway, New York,
New York 10036. The
15
<PAGE>
principal address of MSDW Trust is 2 Harborside Financial
Center, Jersey City, New Jersey 07311.
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 Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
16
<PAGE>
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Prime Income Trust
(51) Morgan Stanley Dean Witter Real Estate Fund
(52) Morgan Stanley Dean Witter S&P 500 Index Fund
(53) Morgan Stanley Dean Witter S&P 500 Select Fund
(54) Morgan Stanley Dean Witter Short-Term Bond Fund
(55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(56) Morgan Stanley Dean Witter Small Cap Growth Fund
(57) Morgan Stanley Dean Witter Special Value Fund
(58) Morgan Stanley Dean Witter Strategist Fund
(59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(61) Morgan Stanley Dean Witter Total Market Index Fund
(62) Morgan Stanley Dean Witter Total Return Trust
(63) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(64) Morgan Stanley Dean Witter U.S. Government Securities Trust
(65) Morgan Stanley Dean Witter Utilities Fund
(66) Morgan Stanley Dean Witter Value-Added Market Series
(67) Morgan Stanley Dean Witter Value Fund
(68) Morgan Stanley Dean Witter Variable Investment Series
(69) Morgan Stanley Dean Witter World Wide Income 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
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
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
17
<PAGE>
shown in the prospectus.
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 30. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post -Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 28th day of February, 2000.
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. 28 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 Chief Executive Officer,
Trustee and Chairman
By: /s/ Charles A. Fiumefreddo 02/28/00
------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 02/28/00
------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 02/28/00
------------------------
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 02/28/00
------------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
EXHIBIT INDEX
1(g). Form of Instrument Establishing and Designating Additional Classes of
Shares.
5(a). Amended Distribution Agreement dated February 24, 2000 between the
Registrant and Morgan Stanley Dean Witter Distributors, Inc.
10. Consent of Independent Accountants
13. Form of Plan of Distribution pursuant to Rule 12b-1.
15. Multi-Class Plan pursuant to Rule 18f-3.
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Morgan Stanley
Dean Witter Variable Investment Series (the "Trust"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, that
annexed hereto is an Instrument Establishing and Designating Additional Class of
Shares of the Trust unanimously adopted by the Trustees of the Trust on
February 24, 2000, as provided in Section 6.9(h) of the said Declaration, said
Instrument to take effect on May 1, 2000, and I do hereby further certify that
such Instrument has not been amended and is on the date hereof in full force and
effect.
Dated this day of , 2000.
--------------------------------------
Barry Fink
Secretary
(SEAL)
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
INSTRUMENT ESTABLISHING AND DESIGNATING
ADDITIONAL CLASS OF SHARES
WHEREAS, Morgan Stanley Dean Witter Variable Investment Series (the "Trust") was
established by the Declaration of Trust dated February 24, 1983, as amended from
time to time (the "Declaration"), under the laws of the Commonwealth of
Massachusetts;
WHEREAS, Section 6.9(h) of the Declaration provides that the establishment and
designation of any additional class of shares shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights, preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of such class, or as otherwise provided in such instrument, which
instrument shall have the status of an amendment to the Declaration; and
WHEREAS, the Trustees of the Trust have deemed it advisable to establish and
designate an additional class of shares and to designate a class for the
existing shares held prior to May 1, 2000 ("Existing Class") as provided herein.
NOW, THEREFORE, BE IT RESOLVED, pursuant to Section 6.9(h) of the Declaration,
there is hereby established and designated an additional class of shares, to be
known as: Class Y (the "Additional Class"), which shall be subject to the
relative rights, preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption set forth in
the Declaration with respect to the Existing Class, except to the extent the
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES AND MORGAN
STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES MULTIPLE CLASS PLAN PURSUANT TO
RULE 18F-3 attached hereto as Exhibit A sets forth differences among each of the
Existing Class and the Additional Class; and be it further
RESOLVED, pursuant to Section 6.9(h) of the Declaration, all shares of the Trust
held prior to May 1, 2000 are hereby designated as Class X shares of the Trust.
This instrument may be executed in more than one counterpart, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 24th day of February, 2000.
- ----------------------------------------
Michael Bozic, as Trustee
and not individually
c/o Kmart Corporation
3100 West Big Beaver Road
Troy, MI 48084
- ----------------------------------------
Charles A. Fiumefreddo, as Trustee
and not individually
Two World Trade Center
New York, NY 10048
- ----------------------------------------
Edwin J. Garn, as Trustee
and not individually
c/o Huntsman Corporation
500 Huntsman Way
Salt Lake City, UT 84111
- ----------------------------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Mayer Brown & Platt
Counsel to the Independent Trustees
1675 Broadway
New York, NY 10019
- ----------------------------------------
Manuel H. Johnson, as Trustee
and not individually
c/o Johnson Smick International Inc.
1133 Connecticut Avenue, NW
Washington, D.C. 20036
- ----------------------------------------
Michael E. Nugent, as Trustee
and not individually
c/o Triumph Capital, L.P.
237 Park Avenue
New York, NY 10017
- ----------------------------------------
Philip J. Purcell, as Trustee
and not individually
1585 Broadway
New York, NY 10036
- ----------------------------------------
John L. Schroeder, as Trustee
and not individually
c/o Mayer Brown & Platt
Counsel to the Independent Trustees
1675 Broadway
New York, NY 10019
<PAGE>
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK }
On this 24th day of February, 2000, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL E. NUGENT, PHILIP J.
PURCELL and JOHN L. SCHROEDER, known to me to be the individuals described in
and who executed the foregoing instrument, personally appeared before me and
they severally acknowledged the foregoing instrument to be their free act and
deed.
--------------------------------------
Notary Public
My Commission Expires:
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of February
24, 2000, between Morgan Stanley Dean Witter Variable Investment Series, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust"), and Morgan Stanley Dean Witter Distributors Inc.,
a Delaware corporation (the "Distributor"):
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end investment company and
it is in the interest of the Trust to offer its shares for sale continuously,
and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of each Portfolio of
the Trust's transferable shares of beneficial interest, of $.01 par value (the
"Shares"), in order to promote the growth of the Trust and facilitate the
distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. (a) APPOINTMENT OF THE DISTRIBUTOR. The Trust hereby appoints
the Distributor as the principal underwriter of the Trust to sell Shares to
Northbrook Life Insurance Company ("Northbrook") for allocation to Northbrook
Variable Annuity Account and Northbrook Variable Annuity Account II, to
Allstate Life Insurance Company of New York ("Allstate New York") for
allocation to Allstate Life Insurance Company of New York Variable Annuity
Separate Account and Allstate Life Insurance Company of New York Variable
Annuity Separate Account II, and such other separate accounts and affiliated
entities of Northbrook or Allstate New York as may be determined, in accordance
with the Trust's Prospectus (defined below), and to Paragon Life Insurance
Company ("Paragon") for allocation to Separate Account B of Paragon Life
Insurance Company, on the terms set forth in this Agreement and the Trust's
Prospectus, and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Trust, during the term of this Agreement, shall sell Shares
to the Distributor upon the terms and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Trust and to sell Shares as principal to Northbrook, Allstate
New York and Paragon, upon the terms described herein and in the Trust's
prospectus (the "Prospectus") included in the Trust's registration statement
(the "Registration Statement") most recently filed from time to time with the
Securities and Exchange Commission (the "SEC") and effective under the
Securities Act of 1933, as amended (the "1933 Act"), and 1940 Act or as said
Prospectus may be otherwise amended or supplemented and filed with the SEC
pursuant to Rule 424 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of the Trust, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by the Trust: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Trust or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Trust; or
(ii) pursuant to reinvestment of dividends or capital gains distributions; or
(iii) pursuant to the reinstatement privilege afforded redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM THE TRUST. (a) The Distributor shall
have the right to buy from the Trust the Shares needed, but not more than the
Shares needed (except for clerical errors in transmission), to fill
unconditional orders for Shares placed with the Distributor by Northbrook,
Allstate New York and Paragon. The price which the Distributor shall pay for
the Shares so purchased from the Trust shall be the net asset value, determined
as set forth in the Prospectus.
(b) The Shares are to be resold by the Distributor at the same net asset
value to Northbrook, Allstate New York and Paragon for which the Distributor
paid to the Trust for such Shares and at cost, as set forth in the Prospectus.
<PAGE>
(c) The Trust shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(b) hereof. The Trust shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of the Trust, makes it impracticable to sell the Shares.
(d) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Shares received by
the Distributor. The Distributor will confirm orders upon their receipt, and
the Trust (or its agent) upon receipt of payment therefor and instructions will
deliver such Shares or a statement confirming the issuance of Shares. Payment
shall be made to the Trust in New York Clearing House funds. The Distributor
agrees to cause such payment and such instructions to be delivered promptly to
the Trust (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Trust agrees to
redeem the Shares so tendered in accordance with the applicable provisions set
forth in the Prospectus. The price to be paid to redeem the Shares shall be
equal to the net asset value determined as set forth in the Prospectus. All
payments by the Trust hereunder shall be made in the manner set forth below.
The proceeds of any redemption of Shares shall be paid to Northbrook,
Allstate New York or Paragon in accordance with applicable provisions of the
Prospectus in New York Clearing House funds.
(b) Redemption of Shares or payment by the Trust may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Trust
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.
SECTION 5. DUTIES OF THE TRUST. (a) The Trust shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Trust and examined by
independent accountants. The Trust shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the Prospectus as
the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of shares as investors may
reasonably be expected to purchase.
(c) The Trust shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Trust.
SECTION 6. DUTIES OF THE DISTRIBUTOR. (a) The Distributor shall sell
shares of the Trust to Northbrook, Allstate New York and Paragon as orders from
Northbrook, Allstate New York and Paragon are received, but shall not be
obligated to sell any specific number of Shares. The services of the
Distributor hereunder are not exclusive and it is understood that the
Distributor acts as principal underwriter for other registered investment
companies and intends to do so in the future.
(b) The Distributor shall not give any information or make any
representations, other than those contained in the Registration Statement or
related Prospectus and any sales literature specifically approved by the Trust.
(c) The Distributor agrees that it will comply with the terms and
limitations of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
SECTION 7. PAYMENT OF EXPENSES. (a) The Distributor shall bear all
expenses incurred by it in connection with its duties and activities under this
Agreement (except such expenses as are specifically
2
<PAGE>
undertaken herein by the Trust). It is understood and agreed that, so long as
the Trust's Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1 Plan") continues in effect, any expenses incurred by the
Distributor hereunder may be paid in accordance with the terms of such Rule
12b-1 Plan.
(b) The Trust shall bear all costs and expenses of the Trust, including
fees and disbursements of its counsel and independent accountants, in
connection with the preparation and filing of any required Registration
Statements and Prospectuses and all amendments and supplements thereto, and the
expense of preparing, printing, mailing and otherwise distributing
prospectuses, annual or interim reports or proxy materials to contract owners
of the variable annuity contracts issued by Northbrook and Allstate New York
and contract owners of the flexible premium variable life insurance contracts
issued by Paragon.
(c) If deemed necessary or advisable to qualify the Shares for sale under
state securities laws, the Trust shall bear the cost and expenses of
qualification and, if necessary or advisable in connection therewith, of
qualifying the Trust as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Trust and the Distributor
pursuant to Section 5(c) hereof and the cost and expenses payable to each such
state for continuing qualification therein until the Trust decides to
discontinue such qualification pursuant to Section 5(c) hereof.
SECTION 8. INDEMNIFICATION. (a) The Trust shall indemnify and hold
harmless the Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage
or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, which may be based upon
the 1933 Act, or on any other statute or at common law, on the ground that the
Registration Statement or related Prospectus, as from time to time amended and
supplemented, or the annual or interim reports to shareholders of the Trust,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Trust in connection
therewith by or on behalf of the Distributor; provided, however, that in no
case (i) is the indemnity of the Trust in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Trust or its security
holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is the Trust to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have
notified the Trust in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Trust of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Trust will be entitled to
participate at its own expense in the defense, or if it so elects, to assume
the defense, of any suit brought to enforce any such liability, but if the
Trust elects to assume the defense, such defense shall be conducted by counsel
chosen by it and satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the Trust elects to
assume the defense of any such suit and retain such counsel, the Distributor or
such controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Trust does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of the Shares.
(b)(i) The Distributor shall indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage, or expense
3
<PAGE>
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Trust in writing by
or on behalf of the Distributor for use in connection with the Registration
Statement or related Prospectus, as from time to time amended, or the annual or
interim reports to shareholders; and as the result of willful misfeasance, bad
faith or negligence of the Distributor in the performance of its duties or by
reason of the reckless disregard of its obligations and duties under this
Agreement.
(ii) The Distributor shall indemnify and hold harmless the Trust, the
Trust's transfer agent, individually and in its capacity as the Trust's
transfer agent, and the Trust's investment manager from and against any claims,
damages and liabilities which arise as a result of actions taken pursuant to
instructions from, or on behalf of, the Distributor to: (1) redeem all or a
part of shareholder accounts in the Trust and pay the proceeds to, or as
directed by, the Distributor for the account of each shareholder whose Shares
are so redeemed and (2) register Shares in the names of investors, confirm the
issuance thereof and receive payment therefor.
(iii) In case any action shall be brought against the Trust or any person
so indemnified by this subsection 8(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to the Trust, and the Trust and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 8.
SECTION 9. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 2000 and from year to year thereafter,
provided such continuance is approved at least annually by (i) the Trustees of
the Trust, or by the vote of a majority of the outstanding voting securities of
the Trust, cast in person or by proxy, and (ii) a majority of those Trustees
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any agreement related thereto, cast in person at a meeting called for the
purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Board of Trustees of the Trust, by a majority of the Trustees
of the Trust who are not interested persons of the Trust and who have no direct
or indirect financial interest in this Agreement or any agreement related
thereto, or by vote of a majority of the outstanding voting securities of the
Trust, or by the Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 10. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Trustees
of the Trust, or by the vote of a majority of outstanding voting securities of
the Trust, and (ii) a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party and who have
no direct or indirect financial interest in this Agreement or in any agreement
related thereto, cast in person at a meeting called for the purpose of voting
on such approval.
SECTION 11. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
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 1940 Act,
the latter shall control.
SECTION 12. PERSONAL LIABILITY. 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.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed on February 24, 2000.
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
By:
--------------------------------------------------
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
By:
--------------------------------------------------
5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of
our report dated February 18, 2000, relating to the financial statements and
financial highlights of Morgan Stanley Dean Witter Variable Investment
Series, which appears in such Registration Statement. We also consent to the
references to us under the headings "Custodian and Independent Accountants,"
"Experts" and "Financial Highlights" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 2000
<PAGE>
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
WHEREAS, Morgan Stanley Dean Witter Variable Investment Series (the "Fund")
engages 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 Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act, on behalf of each separate portfolio of the Fund (each
referred to herein as a "Portfolio", collectively, the "Portfolios") and the
Trustees have determined that there is a reasonable likelihood that adoption of
the Plan of Distribution will benefit each Portfolio and its shareholders; and
NOW, THEREFORE, the Fund hereby adopts, on behalf of each Portfolio, and
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") hereby agree to
this Plan of Distribution (the "Plan") in accordance with Rule 12b-1 under the
Act, on the following terms and conditions.
1. Each Portfolio shall pay monthly to the Distributor an amount equal to a
payment at the annual rate of .25% of the average net assets of the Portfolio,
attributable to its Class Y Shares during the month. Such amount shall be paid
to compensate the Distributor, Dean Witter Reynolds Inc., ("DWR") its affiliates
and other broker-dealers for distribution related expenses incurred by them,
including personal services to shareholders with respect to their holdings of
Portfolio shares, and may be spent by the Distributor, DWR, its affiliates and
such broker-dealers on any activities or expenses related to the distribution of
the Class Y shares or services to Class Y shareholders, including, but not
limited to: compensation to, and expenses of, financial advisors or other
employees of the Distributor, DWR, its affiliates or other broker-dealers;
overhead and other branch office distribution-related expenses and telephone
expenses of persons who engage in or support distribution of shares or who
provide personal services to shareholders; printing of prospectuses and reports
for other than existing shareholders; preparation, printing and distribution of
sales literature and advertising materials. The overhead and other branch office
distribution-related expenses referred to in this paragraph 2 may include:
(a) the expenses of operating the branch offices of the Distributor or other
broker-dealers, including DWR, in connection with the sale of Portfolio shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies; and (b) the costs of client sales seminars.
2. This Plan shall not take effect, with respect to a Portfolio, until it
has been approved, together with any related agreements, by votes of a majority
of the Board of Trustees of the Fund and of the Trustees who are not "interested
persons" of the Fund (as defined in the Act) and have no direct financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting (or meetings) called for the
purpose of voting on this Plan and such related agreements.
3. This Plan shall continue, with respect to a Portfolio, until April 30,
2000 and from year to year thereafter, provided such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2 hereof.
4. The Distributor shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended with respect to each Portfolio and the purposes for which such
expenditures were made.
5. This Plan may be terminated at any time by a Portfolio by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding
voting securities of Class Y Shares of the Portfolio.
6. This Plan may not be amended to increase materially the amount payable
hereunder by a Portfolio unless such amendment is approved by a vote of at least
a majority (as defined in the Act) of the
1
<PAGE>
outstanding voting securities of Class Y Shares of the Portfolio, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
8. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 4 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
9. 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 Fund and the Distributor have executed this Plan of
Distribution as of the day and year set forth below in New York, New York.
<TABLE>
<S> <C>
Date: February 24, 2000
Attest: MORGAN STANLEY DEAN WITTER VARIABLE
INVESTMENT SERIES
- --------------------- By: -------------------------------------------------------
Attest: MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
- --------------------- By: -------------------------------------------------------
</TABLE>
2
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT
SERIES ("SELECT DIMENSIONS")
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
("VARIABLE INVESTMENT")
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and will be
effective as of February 24, 2000 (the "Effective Date"). The Plan relates to
shares of Select Dimensions and Variable Investment. Each separate portfolio of
Select Dimensions and Variable Investment, respectively, is referred to herein
as a Fund (collectively, the "Portfolios"). The Portfolios are distributed
pursuant to a system (the "Multiple Class System") in which each class of shares
(each, a "Class" and collectively, the "Classes") of a Portfolio represents a
pro rata interest in the same portfolio of investments of the Portfolio and
differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
Two Classes of shares of the Portfolios are offered for purchase by separate
accounts established by insurance companies to fund the benefits under certain
individual variable life insurance policies and individual and group variable
annuity contracts (the "Contracts"). Pursuant to Rule 12b-1 under the 1940 Act,
the Portfolios have each adopted a Plan of Distribution (the "12b-1 Plan") under
which shares of one of the Classes are subject to the service and/or
distribution fees ("12b-1 fees") described below.
1. X CLASS SHARES
X Class Shares are offered at net asset value per share without the
imposition of any sales charge. All shares of the Portfolios held prior to
the Effective Date have been designated as X Class Shares. X Class Shares
are available for purchase only by: (1) holders of a Contract on the
Effective Date; or (ii) holders of Contracts issued by Paragon Life
Insurance Company in connection with an employer sponsored insurance program
offered to certain employees of Morgan Stanley Dean Witter & Co.
2. Y CLASS SHARES
Y Class Shares are offered at net asset value per share without a
front-end sales charge. Y Class Shares are subject to a fee under each
Portfolio's respective 12b-1 Plan assessed at the annual rate of 0.25% of
the average daily net assets of the Portfolio attributable to the Y Class
Shares..
3. ADDITIONAL CLASS OF SHARES
The Board of Directors/Trustees of Select Dimensions and/or Variable
Investment have the authority to create additional Classes, or change
existing Classes, from time to time, in accordance with Rule 18f-3 under the
1940 Act.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Portfolio are allocated among the various Classes of
shares PRO RATA based on the net assets of the Portfolio attributable to each
Class, except that 12b-1 fees relating to a particular Class are allocated
directly to that Class. In addition, other expenses associated with a particular
Class (except
00nyc2689
<PAGE>
II. EXPENSE ALLOCATIONS (CONTINUED)
advisory or custodial fees), may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class, and the direct allocation to that Class is approved by the Fund's
Board of Directors/Trustees.
III. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan. In addition, each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class.
