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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1994
SECURITIES ACT FILE NO. 33-54047
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 1 /X/
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DEAN WITTER SELECT DIMENSIONS 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
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after effective date of this Pre-Effective Amendment.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
CROSS-REFERENCE SHEET
FORM N-1A
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ITEM CAPTION
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PART A PROSPECTUS
1. ......................................... Cover Page
2. ......................................... Prospectus Summary
3. ......................................... Not applicable
4. ......................................... Investment Objectives and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary
5. ......................................... The Fund and Its Management; Investment Objectives and Policies
6. ......................................... Dividends, Distributions and Taxes; Additional Information
7. ......................................... Purchase of Fund Shares; Prospectus Summary
8. ......................................... Redemption of Fund Shares
9. ......................................... Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ......................................... Cover Page
11. ......................................... Table of Contents
12. ......................................... The Fund and Its Management
13. ......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. ......................................... The Fund and Its Management; Trustees and Officers
15. ......................................... The Fund and Its Management; Trustees and Officers
16. ......................................... The Fund and Its Management; Custodian and Transfer Agent;
Independent Accountants
17. ......................................... Portfolio Transactions and Brokerage
18. ......................................... Description of Shares of the Fund
19. ......................................... Purchase and Redemption of Fund Shares; Financial Statements
20. ......................................... Dividends, Distributions and Taxes
21. ......................................... Purchase and Redemption of Fund Shares
22. ......................................... Performance Information
23. ......................................... Experts; Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS DATED OCTOBER __, 1994
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550 OR (800) 526-3143
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES (the "Fund") is an open-end
diversified investment company which is intended to provide a broad range of
investment alternatives with its twelve separate Portfolios, each of which has
distinct investment objectives and policies.
- THE MONEY MARKET PORTFOLIO
-THE NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO
- THE DIVERSIFIED INCOME PORTFOLIO
- THE BALANCED PORTFOLIO
- THE UTILITIES PORTFOLIO
- THE DIVIDEND GROWTH PORTFOLIO
- THE VALUE-ADDED MARKET PORTFOLIO
- THE CORE EQUITY PORTFOLIO
- THE AMERICAN VALUE PORTFOLIO
- THE GLOBAL EQUITY PORTFOLIO
- THE DEVELOPING GROWTH PORTFOLIO
- THE EMERGING MARKETS PORTFOLIO
There can be no assurance that the investment objectives of the Portfolios
will be achieved. SEE "Prospectus Summary" and "Investment Objectives and
Policies."
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE EMERGING MARKETS PORTFOLIO MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN
HIGH RISK DEBT SECURITIES WHICH ARE UNRATED OR RATED BELOW INVESTMENT GRADE
(SUCH SECURITIES ARE COMMONLY KNOWN AS "JUNK BONDS"). IN ADDITION, INVESTORS IN
THE EMERGING MARKETS PORTFOLIO SHOULD BE COGNIZANT OF THE FACT THAT INVESTMENTS
IN EMERGING MARKET COUNTRIES INVOLVE CERTAIN SPECIAL RISK FACTORS AND THEREFORE
MAY NOT BE SUITABLE FOR ALL INVESTORS.
SHARES OF THE PORTFOLIOS OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
Currently, shares of the Fund will be sold only to (1) Hartford Life
Insurance Company to fund the benefits under certain flexible premium deferred
variable annuity contracts it issues, and to (2) ITT Hartford Life and Annuity
Insurance Company to fund the benefits under certain flexible premium deferred
variable annuity contracts it issues. The variable annuity contracts issued by
Hartford Life Insurance Company and ITT Hartford Life and Annuity Insurance
Company (the "Companies") are sometimes referred to as the "Variable Annuity
Contracts" or the "Contracts." In the future, shares may be sold to affiliated
or non-affiliated entities of the Companies. The Companies will invest in shares
of the Fund in accordance with allocation instructions received from Contract
Owners, which allocation rights are further described in the Prospectus for the
Variable Annuity Contracts. The Companies will redeem shares to the extent
necessary to provide benefits under the Contracts.
This Prospectus sets forth concisely the information you should know before
allocating your investment under your Contract to the Fund. It should be read
and retained for future reference. Additional information about the Fund is
contained in the Statement of Additional Information, dated October __, 1994,
which has been filed with the Securities and Exchange Commission, and which is
available at no charge upon request of the Fund at the address or telephone
numbers listed above. The Statement of Additional Information is incorporated
herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
DEAN WITTER INTERCAPITAL INC. -- Investment Manager
This Prospectus must be accompanied by a current Prospectus for the Variable
Annuity Contracts issued by Hartford Life Insurance Company or ITT Hartford Life
and Annuity Insurance Company. Both Prospectuses should be read and retained for
future reference.
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TABLE OF CONTENTS
Prospectus Summary/2
The Fund and its Management/7
Investment Objectives and Policies/8
The Money Market Portfolio/8
The North American Government Securities Portfolio/9
The Diversified Income Portfolio/13
The Balanced Portfolio/16
The Utilities Portfolio/17
The Dividend Growth Portfolio/19
The Value-Added Market Portfolio/20
The Core Equity Portfolio/21
The American Value Portfolio/22
The Global Equity Portfolio/24
The Developing Growth Portfolio/25
The Emerging Markets Portfolio/26
General Portfolio Techniques/30
Investment Restrictions/47
Determination of Net Asset Value/48
Purchase of Fund Shares/49
Redemption of Fund Shares/50
Dividends, Distributions and Taxes/50
Performance Information/51
Additional Information/52
Appendix--Ratings of Investments/53
PROSPECTUS SUMMARY
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The The Fund is organized as a Massachusetts business trust and is an open-end
Fund diversified management investment company. The Fund is comprised of twelve
separate portfolios: the MONEY MARKET PORTFOLIO, the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO,
the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the VALUE-ADDED MARKET
PORTFOLIO, the CORE EQUITY PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO, the DEVELOPING GROWTH PORTFOLIO and the EMERGING MARKETS
PORTFOLIO (see pages 8 through 30). The Trustees of the Fund may establish
additional Portfolios at any time. To the extent that shares are sold to the
Companies in order to fund the benefits under Contracts, the structure of the
Fund permits Contract Owners, within the limitations described in the Contracts,
to allocate the investments underlying the Contracts in response to or in
anticipation of changes in market or economic conditions. See the Prospectus for
the Variable Annuity Contracts for a description of the relationship between
increases or decreases in the net asset value of Fund shares and any
distributions on such shares, and benefits provided under a Contract.
Each Portfolio is managed for investment purposes as if it were a separate fund
issuing a separate class of shares of beneficial interest, with $.01 par value.
The assets of each Portfolio are segregated, so that an interest in the Fund is
limited to the assets of the Portfolio in which shares are held and
shareholders, such as the Companies, are each entitled to a pro rata share of
all dividends and distributions arising from the net investment income and
capital gains, if any, of such Portfolio (see pages 50 and 52).
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Investment Each Portfolio has distinct investment objectives and policies, and is subject
Objectives and to various investment restrictions, some of which apply to all the Portfolios.
Policies The MONEY MARKET PORTFOLIO seeks high current income, preservation of capital
and liquidity by investing in the following money market instruments: U.S.
Government securities, obligations of U.S. regulated banks and savings
institutions having total assets of more than $1 billion, or less than $1
billion if such are fully federally insured as to principal (the interest may
not be insured), and high grade corporate debt obligations maturing in thirteen
months or less (see pages 8-9). The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO seeks to earn a high level of current income while maintaining
relatively low volatility of principal, by investing primarily in investment
grade fixed-income securities issued or guaranteed by the U.S., Canadian or
Mexican governments (see pages 9-13). The DIVERSIFIED INCOME PORTFOLIO seeks, as
a primary objective, to earn a high level of current income and, as a secondary
objective, to maximize total return, but only to the extent consistent with its
primary objective, by equally allocating its assets among three separate
groupings of fixed-income securities. Up to one-third of the
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securities in which the DIVERSIFIED INCOME PORTFOLIO may invest will include
securities rated Baa/BBB or lower (such securities are commonly known as "junk
bonds") (see pages 13-16). The BALANCED PORTFOLIO seeks to achieve high total
return through a combination of income and capital appreciation, by investing in
a diversified portfolio of common stocks and investment grade fixed-income
securities (see pages 16-17). The UTILITIES PORTFOLIO seeks to provide current
income and long-term growth of income and capital by investing in equity and
fixed-income securities of companies in the public utilities industry (see pages
17-19). The DIVIDEND GROWTH PORTFOLIO seeks to provide reasonable current income
and long-term growth of income and capital by investing primarily in common
stock of companies with a record of paying dividends and the potential for
increasing dividends (see pages 19-20). The VALUE-ADDED MARKET PORTFOLIO seeks
to achieve a high level of total return on its assets through a combination of
capital appreciation and current income, by investing, on an equally-weighted
basis, in a diversified portfolio of common stocks of the companies which are
represented in the Standard & Poor's 500 Composite Stock Price Index (see pages
20-21). The CORE EQUITY PORTFOLIO seeks long-term growth of capital by investing
primarily in common stocks and securities convertible into common stocks issued
by domestic and foreign companies (see pages 21-22). The AMERICAN VALUE
PORTFOLIO seeks long-term capital growth consistent with an effort to reduce
volatility, by investing principally in common stock of companies in industries
which, at the time of the investment, are believed to be undervalued in the
marketplace (see pages 22-23). The GLOBAL EQUITY PORTFOLIO seeks a high level of
total return on its assets primarily through long-term capital growth and, to a
lesser extent, from income, through investments in all types of common stocks
and equivalents (such as convertible securities and warrants), preferred stocks
and bonds and other debt obligations of domestic and foreign companies and
governments and international organizations (see pages 24-25). The DEVELOPING
GROWTH PORTFOLIO seeks long-term capital growth by investing primarily in common
stocks of smaller and medium-sized companies that, in the opinion of the
Investment Manager, have the potential for growing more rapidly than the economy
and which may benefit from new products or services, technological developments
or changes in management (see pages 25-26). The EMERGING MARKETS PORTFOLIO seeks
long-term capital appreciation by investing primarily in equity securities of
companies in emerging market countries. The EMERGING MARKETS PORTFOLIO may
invest up to 35% of its total assets in high risk fixed-income securities that
are rated below investment grade or are unrated (commonly referred to as "junk
bonds") (see pages 26-30).
Contract Owners should review the investment objectives and policies of the
Portfolios carefully to consider their ability to assume the risks involved in
allocating the investments underlying the Contracts (see pages 8-47 and "Special
Risk Considerations" below).
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Special The MONEY MARKET PORTFOLIO invests solely in U.S. Government securities, high
Risk quality corporate debt obligations and obligations of banks and savings and loan
Considerations associations having assets of $1 billion or more and certificates of deposit
which are fully insured as to principal; consequently, the portfolio securities
of the Portfolio are subject to minimal risk of loss of income and principal.
The Portfolio may enter into repurchase agreements and reverse repurchase
agreements. Although the MONEY MARKET PORTFOLIO will attempt to maintain a
constant net asset value per share of $1.00, there can be no assurance that the
$1.00 net asset value can be maintained. The net asset value of the shares of
each of the other Portfolios will fluctuate with changes in the market value of
its portfolio holdings. Dividends payable by each Portfolio will vary in
relation to the amounts of dividends and/or interest paid by its securities
holdings. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED PORTFOLIO may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities are subject to prepayments
or refinancings of the
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mortgage pools underlying such securities which may have an impact upon the
yield and the net asset value of the Portfolio's shares. Asset-backed securities
involve risks resulting from the fact that such securities do not usually
contain the complete benefit of a security interest in the related collateral.
Each Portfolio other than the MONEY MARKET PORTFOLIO may invest, to a different
extent, in foreign securities. The foreign securities markets in which the
Portfolios may invest pose different and generally greater risks than those
risks customarily associated with domestic securities and markets including
fluctuations in foreign currency exchange rates, foreign tax rates and foreign
securities exchange controls. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
may invest a significant portion of its assets in securities issued and
guaranteed by the governments of Canada and Mexico. The Canadian mortgage-backed
securities market is of recent origin and is less well developed and less liquid
than the U.S. market. It should be recognized that the Canadian and Mexican debt
securities in which the Portfolio will invest pose different and greater risks
than those customarily associated with U.S. debt securities, including (i) the
risks associated with international investments generally, such as fluctuations
in foreign currency exchange rates, (ii) the risks of investing in Canada and
Mexico, which have smaller, less liquid debt markets, such as limited liquidity,
price volatility, custodial and settlement issues, and (iii) specific risks
associated with the Mexican economy, including high levels of inflation, large
amounts of debt and political and social uncertainties. The NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO may employ the use of interest only and inverse
floater classes of collateralized mortgage obligations. These securities exhibit
greater price volatility, and may be less liquid, than the majority of mortgage
pass-through securities or CMOs. Each Portfolio may enter into repurchase
agreements. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED PORTFOLIO may utilize the speculative
technique known as leverage through the use of reverse repurchase agreements and
dollar rolls, which entail additional risks; the DEVELOPING GROWTH PORTFOLIO may
seek to enhance its capital appreciation by leveraging its investments through
purchasing securities with borrowed funds. Certain of the high yield, high risk
fixed-income securities in which the DIVERSIFIED INCOME PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may invest are subject to greater risk of loss of
income and principal than higher-rated lower yielding fixed-income securities;
investors in these Portfolios should carefully consider the relative risks of
investing in high yield securities (commonly referred to as "junk bonds") and
should be cognizant of the fact that such securities are not generally meant for
short-term investing. The UTILITIES PORTFOLIO will concentrate its investments
in utilities securities. The public utilities industry has certain
characteristics and risks, and developments within that industry will have an
impact on the UTILITIES PORTFOLIO. The value of public utility debt securities
(and, to a lesser extent, equity securities) tends to have an inverse
relationship to the movement of interest rates. The AMERICAN VALUE PORTFOLIO's
emphasis on "undervalued" industries reflects investment views frequently
contrary to general market assessments and may involve risks associated with
departure from general investment opinions. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO,
the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may enter into
forward foreign currency exchange contracts. The investment by the EMERGING
MARKETS PORTFOLIO in emerging market country securities involves certain risks
not typically associated with investing in securities of United States issuers,
including (i) potential price volatility and reduced liquidity of securities
traded on emerging market country securities markets, (ii) in some cases, lack
of satisfactory custodial arrangements and delays in settlement of securities
transactions in emerging market countries, (iii) generally higher brokerage
commissions and other transaction costs on securities exchanges in emerging
market countries, (iv) political and economic risks, including the risk of
nationalization or expropriation of assets, higher rates of inflation and the
risk of war, (v) currency
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fluctuations and devaluations in the value of the foreign currency in which the
Portfolio's investments are denominated, (vi) the cost of converting foreign
currency into U.S. dollars and (vii) restrictions on foreign investment and on
repatriation of capital invested in emerging market countries. In addition,
accounting, auditing, financial and other reporting standards in emerging market
countries are not equivalent to U.S. standards and, therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in emerging market countries than in the United
States. There is also generally less governmental regulation of the securities
industry in emerging market countries than in the United States. Moreover, it
may be more difficult to obtain a judgment in a court outside the United States.
Many of the emerging market countries in which the EMERGING MARKETS PORTFOLIO
may invest may be subject to a greater degree of economic, political and social
instability than is the case in the United States and Western European
countries. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may enter into
various options and futures transactions; each of these Portfolios and the
VALUE-ADDED MARKET PORTFOLIO may write call options on securities held in its
portfolio without limit. Certain of the Portfolios of the Fund may experience
high portfolio turnover rates with corresponding higher transaction expenses.
Contract Owners are directed to the discussion of repurchase agreements (page
39), reverse repurchase agreements and dollar rolls (page 40), mortgage-backed
securities (page 30), asset-backed securities (page 33), foreign securities
(page 35), Canadian government securities (page 11), Mexican government
securities (page 12), leveraging (page 26), lower-rated securities (page 38),
public utilities securities (page 19), forward foreign currency exchange
contracts (page 36), emerging market country securities (page 28), portfolio
trading (page 46), options and futures transactions (page 42), warrants (page
42), zero coupon securities (page 41), when-issued and delayed delivery
securities and forward commitments (page 40) and "when, as and if issued"
securities (page 41), concerning risks associated with such securities and
management techniques. The Fund is a single diversified investment company,
consisting of twelve Portfolios, and each Portfolio itself is diversified.
Diversification does not eliminate investment risk.
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Investment Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its
Manager wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various
investment management, advisory, management and administrative capacities to
ninety investment companies and other portfolios with assets of approximately
$71.3 billion at August 31, 1994 (see page 7).
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Management The Investment Manager receives monthly fees at the following annual rates of
Fee the daily net assets of the respective Portfolios of the Fund: MONEY MARKET
PORTFOLIO -- 0.50%; NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO -- 0.65%;
DIVERSIFIED INCOME PORTFOLIO -- 0.40%; BALANCED PORTFOLIO -- 0.75%; UTILITIES
PORTFOLIO-- 0.65%; DIVIDEND GROWTH PORTFOLIO-- 0.625%; VALUE-ADDED MARKET
PORTFOLIO -- 0.50%; CORE EQUITY PORTFOLIO -- 0.85%; AMERICAN VALUE PORTFOLIO --
0.625%; GLOBAL EQUITY PORTFOLIO -- 1.0%; DEVELOPING GROWTH PORTFOLIO -- 0.50%;
and EMERGING MARKETS PORTFOLIO -- 1.25%. The management fees for the BALANCED
PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CORE
EQUITY PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and
the EMERGING MARKETS PORTFOLIO are higher than those paid by most investment
companies (see page 7).
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Sub-Adviser TCW Funds Management, Inc. (the "Sub-Adviser") has been retained by the
Investment Manager to provide investment advice and manage the portfolios of the
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NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, subject to the overall
supervision of the Investment Manager. The Sub-Adviser also serves as adviser to
thirteen investment companies for which Dean Witter Services Company Inc. serves
as manager, and, at June 30, 1994, had approximately $50 billion under
management or committed to management in various fiduciary or advisory
capacities, primarily from institutional investors (see page 7).
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Sub-Advisory The Sub-Adviser receives monthly fees from the Investment Manager equal to 40%
Fee of the Investment Manager's monthly fee in respect of each of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO (see page 8).
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Shareholders Currently, shares are sold only to (1) Hartford Life Insurance Company for
allocation to certain of its separate accounts to fund the benefits under
certain flexible premium deferred variable annuity contracts it issues, and to
(2) ITT Hartford Life and Annuity Insurance Company for allocation to certain of
its separate accounts to fund the benefits under certain flexible premium
deferred variable annuity contracts it issues. Such separate accounts are
sometimes referred to individually as an "Account" and collectively as the
"Accounts." The variable annuity contracts issued by Hartford Life Insurance
Company and ITT Hartford Life and Annuity Insurance Company (the "Companies")
are somtimes referred to as the "Variable Annuity Contracts" or the "Contracts".
Accordingly, the interest of the Contract Owner with respect to the Fund is
subject to the terms of the Contract and is described in the Prospectus for the
Contracts, which should be reviewed carefully by a person considering the
purchase of a Contract. The Prospectus for the Contracts describes the
relationship between increases or decreases in the net asset value of Fund
shares and any distributions on such shares, and the benefits provided under a
Contract. The rights of the Companies as shareholders of the Fund should be
distinguished from the rights of a Contract Owner which are described in the
Contract. In the future, shares may be allocated to certain other separate
accounts or sold to affiliated or non-affiliated entities of the Companies. ITT
Hartford Life and Annuity Insurance Company is a wholly-owned indirect
subsidiary of Hartford Life Insurance Company. As long as shares of the Fund are
sold only to the Companies, the term "shareholder" or "shareholders" in this
Prospectus shall refer to the Companies (see page 49).
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Purchases and Shares of the Fund are sold and redeemed at net asset value, I.E., without sales
Redemptions charge (see pages 49 and 50).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION, AND THE
PROSPECTUS FOR THE VARIABLE ANNUITY CONTRACTS.
6
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THE FUND AND ITS MANAGEMENT
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Dean Witter Select Dimensions Investment Series (the "Fund") is an open-end
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on June 2, 1994.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of $69.3 at
August 31, 1994. The Investment Manager also manages portfolios of pension
plans, other institutions and individuals which aggregated approximately $2.0
billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
With regard to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO, under a Sub-Advisory Agreement between TCW Funds Management, Inc.
(the "Sub-Adviser") and the Investment Manager, the Sub-Adviser provides these
Portfolios with investment advice and portfolio management, in each case subject
to the overall supervision of the Investment Manager. The Sub-Adviser, whose
address is 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017,
also serves as investment adviser to thirteen investment companies for which
Dean Witter Services Company Inc. serves as manager. The Sub-Adviser, which was
organized in 1987, is a wholly-owned subsidiary of The TCW Group, Inc., whose
subsidiaries provide a variety of trust, investment management and investment
advisory services. Robert A. Day, who is Chairman of the Board of Directors of
the Sub-Adviser, may be deemed to be a control person of the Sub-Adviser by
virtue of the aggregate ownership by Mr. Day and his family of more than 25% of
the outstanding voting stock of The TCW Group, Inc. The Sub-Adviser in turn has
entered into further sub-advisory agreements with two other wholly-owned
subsidiaries of The TCW Group, Inc., TCW Asia Limited and TCW London
International, Limited, to assist it in performing its sub-advisory functions in
respect of the EMERGING MARKETS PORTFOLIO. The address of TCW Asia Limited is
One Pacific Place, 88 Queensway, Hong Kong, and the address of TCW London
International, Limited is 27 Albemarle Street, London W1X 3FA. As of June 30,
1994, the Sub-Adviser and its affiliates had approximately $50 billion under
management or committed to management, primarily from institutional investors.
The Fund's Board of Trustees reviews the various services provided by the
Investment Manager (and, for the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO, by the Sub-Adviser) to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund currently
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.50% to the net assets of the MONEY MARKET PORTFOLIO; 0.65%
to the net assets of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO; 0.40%
to the net assets of the DIVERSIFIED INCOME PORTFOLIO; 0.75% to the net assets
of the BALANCED PORTFOLIO; 0.65% to the net assets of the UTILITIES PORTFOLIO;
0.625% to the net assets of the DIVIDEND GROWTH PORTFOLIO; 0.50% to the net
assets of the VALUE-ADDED MARKET PORTFOLIO; 0.85% to the net assets of the CORE
EQUITY PORTFOLIO; 0.625% to the net assets of the AMERICAN VALUE PORTFOLIO; 1.0%
to the net assets of the GLOBAL EQUITY PORTFOLIO; 0.50% to the net assets of the
DEVELOPING GROWTH PORTFOLIO; and 1.25% to the net assets of the EMERGING MARKETS
PORTFOLIO, in each case determined as of the close of each business day. As
compensation for its services provided to the NORTH
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AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO pursuant to the Sub-Advisory
Agreement in respect of those Portfolios, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation in
respect of each of those Portfolios.
The Fund's expenses include: the fee of the Investment Manager; taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Fund's operations which are not expressly assumed
by the Investment Manager under its Investment Management Agreement with the
Fund. The Investment Manager has undertaken to assume all operating expenses of
each Portfolio (except for any brokerage fees and a portion of organizational
expenses) and waive the compensation provided for each Portfolio in its
Management Agreement with the Fund until such time as the pertinent Portfolio
has $50 million of net assets or until six months from the date of the
Portfolio's commencement of operations, whichever occurs first.
INVESTMENT OBJECTIVES AND POLICIES
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THE MONEY MARKET PORTFOLIO
The investment objectives of the Money Market Portfolio are high current
income, preservation of capital and liquidity. The investment objectives may not
be changed without approval of the shareholders of the MONEY MARKET PORTFOLIO.
The Portfolio seeks to achieve its objectives by investing in the following
money market instruments:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal Land
Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit, bank
notes 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;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 10% or less of the Portfolio's total assets in all such
obligations and in all illiquid assets, in the aggregate;
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS. Commercial paper and corporate
debt obligations maturing in thirteen months or less which are rated in one of
the two highest rating categories for short-term debt obligations, or, if not
rated, have been issued by issuers which have another short-term debt obligation
that is comparable in priority and security to such non-rated securities and is
so rated, by at least two nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the instrument was rated by only one such
organization) or which, if unrated, are of comparable quality as determined in
accordance with procedures established by the Trustees. The NRSROs currently
rating instruments of the type the Portfolio may purchase are Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Duff and
Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc., and
Thomson BankWatch, Inc. Their rating criteria are described in the Appendix to
the Fund's Statement of Additional Information. See the Appendix to this
Prospectus for an explanation of Moody's and S&P ratings.
The foregoing rating limitations apply at the time of acquisition of a
security. Any subsequent change in any rating by a rating service will not
require elimination of any security from the portfolio. However, in accordance
with procedures adopted by the Fund's Trustees pursuant to federal securities
regulations governing money market funds, if the Investment Manager becomes
aware that a portfolio security has received a new rating from an NRSRO that is
below the second highest rating, then, unless the security is disposed of within
five days, the Investment Manager will perform a creditworthiness analysis of
any such
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downgraded securities, which analysis will be reported to the Trustees who will,
in turn, determine whether the securities continue to present minimal credit
risks to the MONEY MARKET PORTFOLIO.
The ratings assigned by the NRSROs represent their opinions as to the
quality of the securities they undertake to rate. It should be emphasized,
however, that the ratings are general and not absolute standards of quality.
Subject to the foregoing requirements, the MONEY MARKET PORTFOLIO may invest
in commercial paper which has been issued pursuant to the "private placement"
exemption afforded by Section 4(2) of the Securities Act of 1933 (the
"Securities Act") and which may be sold to institutional investors pursuant to
Rule 144A under the Securities Act. Management considers such legally
restricted, but readily marketable, commercial paper to be liquid. However,
pursuant to procedures approved by the Trustees of the Fund, if a particular
investment in such commercial paper is determined to be illiquid, that
investment will be included within the 10% limitation on illiquid investments.
If at any time the MONEY MARKET PORTFOLIO's investments in illiquid securities
exceed 10% of the Portfolio's total assets, the Portfolio will dispose of
illiquid securities in an orderly fashion to reduce the Portfolio's holdings in
such securities to less than 10% of its total assets.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Certain of the types of
investments described above may be variable rate or floating rate obligations.
The interest rates payable on variable rate or floating rate obligations are not
fixed and may fluctuate based upon changes in market rates. The interest rate
payable on a variable rate obligation may be adjusted at predesignated periodic
intervals and on a floating rate obligation whenever there is a change in the
market rate of interest on which the interest rate payable is based.
Although the MONEY MARKET PORTFOLIO will generally not seek profits through
short-term trading, it may dispose of any portfolio security prior to its
maturity if, on the basis of a revised credit evaluation of the issuer or other
circumstances or considerations, it believes such disposition advisable.
The MONEY MARKET PORTFOLIO may enter into repurchase agreements and reverse
repurchase agreements, in accordance with the description of those investments
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
The MONEY MARKET PORTFOLIO will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of varying
maturities and risks. The MONEY MARKET PORTFOLIO will not, however, invest in
securities that mature in more than thirteen months from the date of purchase.
The amounts invested in obligations of various maturities of thirteen months or
less will depend on management's evaluation of the risks involved. Longer-term
issues, while generally paying higher interest rates, are subject, as a result
of general changes in interest rates, to greater fluctuations in value than
shorter-term issues. Thus, when rates on new debt securities increase, the value
of outstanding securities may decline, and vice versa. Such changes may also
occur, but to a lesser degree, with short-term issues. These changes, if
realized, may cause fluctuations in the amount of daily dividends and, in
extreme cases, could cause the net asset value per share to decline (see
"Determination of Net Asset Value"). Longer-term issues also increase the risk
that the issuer may be unable to pay an installment of interest or principal at
maturity. Also, in the event of unusually large redemption demands, such
securities may have to be sold at a loss prior to maturity, or the MONEY MARKET
PORTFOLIO might have to borrow money and incur interest expense. Either
occurrence would adversely impact the amount of daily dividend and could result
in a decline in the daily net asset value per share. The MONEY MARKET PORTFOLIO
will attempt to minimize these risks by investing in longer-term securities when
it appears to management that interest rates on such securities are not likely
to increase substantially during the period of expected holding, and then only
in securities of high quality which are readily marketable. However, there can
be no assurance that the Portfolio will be successful in achieving this or its
other objectives.
The foregoing investment policies are not fundamental and may be changed by
the Trustees without shareholder vote.
THE NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
The investment objective of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO is to earn a high level of current income while maintaining relatively
low volatility of principal. This objective may not be changed without the
approval of the shareholders of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO. There is no assurance that the objective will be achieved. The
following investment policies may be
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changed by the Trustees of the Fund without shareholder approval:
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO seeks to achieve its
investment objective by investing under normal circumstances at least 65% of its
total assets in investment grade fixed-income securities issued or guaranteed by
the U.S., Canadian or Mexican governments or their subdivisions, or the agencies
or instrumentalities of any of the foregoing ("Government Securities"). Such
securities may include U.S. Treasury securities, U.S. Mortgage-Backed
Securities, the sovereign debt of Canada or any of its Provinces, Canadian
Mortgage-Backed Securities, and the sovereign debt of Mexico or any of its
government agencies. See the discussion of sovereign debt obligations in the
Statement of Additional Information. In the case of the United States and
Canada, a substantial portion of such investments will be fixed rate and
adjustable rate mortgage-backed securities ("Mortgage-Backed Securities"). The
term investment grade consists of fixed-income securities rated Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Corporation ("S&P") or, if not rated, determined to be of comparable
quality by the Sub-Adviser (see "General Portfolio Techniques" below for a
discussion of the characteristics and risks of investments in fixed-income
securities rated Baa or BBB). A portion of the Government Securities purchased
by the Portfolio may be zero coupon securities. The Portfolio intends to limit
its use of zero coupon securities (other than Treasury bills with one year or
less to maturity) to 10% of its total assets (see "General Portfolio Techniques"
below for a discussion of the characteristics and risks of investments in zero
coupon securities). The Portfolio will invest in zero coupon securities only
when the Sub-Adviser believes that there will be cash in the portfolio
representing return of principal on portfolio securities of the Portfolio at
least equal to the imputed income on the zero coupon securities.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO may invest up to 35% of
its total assets in securities which are not Government Securities, including
corporate debt securities and securities backed by other assets, such as
automobile or credit card receivables and home equity loans ("Asset-Backed
Securities") (see "General Portfolio Techniques" below and in the Statement of
Additional Information for a discussion of the characteristics and risks of
investments in Asset-Backed Securities) and money market instruments, which are
short-term (maturities of up to thirteen months) fixed-income securities, issued
by private institutions. Such securities (except for Eurodollar certificates of
deposit) must be issued by U.S., Canadian or Mexican issuers and (except for
money market instruments) must be rated at least Aa by Moody's or AA by S&P or,
if not rated, determined to be of comparable quality by the Sub-Adviser. Money
market instruments in which the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
may invest are set forth under "General Portfolio Techniques" below.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO expects that under normal
circumstances the market value dollar weighted average life (or period until the
next reset date) of the Portfolio's portfolio securities will be no greater than
three years. In addition, the Portfolio will purchase only Mexican Government
Securities with remaining maturities of one year or less. The Portfolio seeks to
achieve low volatility by investing in a portfolio of securities which the
Sub-Adviser believes will, in the aggregate, be resistant to significant
fluctuations in market value. Although the values of fixed-income securities
generally increase during periods of declining interest rates and decrease
during periods of increasing interest rates, the extent of these fluctuations
has historically generally been smaller for short term securities than for
securities with longer maturities. Conversely, the yield available on shorter
term securities has also historically been lower on average than those available
from longer term securities.
Under normal circumstances the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO will invest at least 50% of its total assets in U.S. Government
Securities. The Portfolio will invest no more than 25% of its total assets in
Canadian Government Securities and no more than 20% of its total assets in
Mexican Government Securities. Subject to the foregoing guidelines, the
Sub-Adviser will invest the Portfolio's assets, and allocate its investments
from time to time among U.S., Canadian and Mexican Government Securities, based
on its analysis of market conditions and changes in general economic conditions
in the United States, Canada and Mexico. In such analysis, the Sub-Adviser will
consider various factors, including its expectations regarding interest rate
changes and changes in currency exchange rates among the U.S. dollar, the
Canadian dollar and the Mexican peso, as well as general market, economic and
political factors, to attempt to take advantage of favorable investment
opportunities in each country.
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There may be periods during which, in the opinion of the Sub-Adviser, market
conditions warrant reduction of some or all of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO's securities holdings. During such periods, the Portfolio
may adopt a temporary "defensive" posture in which greater than 35% of its total
assets are invested in U.S. money market instruments or cash.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO may enter into repurchase
agreements, reverse repurchase agreements, dollar rolls and forward foreign
currency exchange contracts, engage in futures contracts and options
transactions, purchase securities which are issued in private placements or are
otherwise not readily marketable, and purchase securities on a when-issued or
delayed delivery basis or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of these investments and techniques (and subject to the risks) set
forth under "General Portfolio Techniques" below and in the Statement of
Additional Information. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies (see "Canadian Government Securities," "Mexican Government
Securities," "Canadian Mortgage-Backed Securities" and "Risks of Investing in
Canadian and Mexican Securities" below and see "General Portfolio Techniques"
below for a discussion of the characteristics and risks of investments in
foreign securities).
UNITED STATES GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities include: (i) U.S. Treasury
obligations, all of which are backed by the full faith and credit of the United
States and which differ only in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years); and (ii) obligations issued or guaranteed
by U.S. Government agencies or instrumentalities, including government
guaranteed Mortgage-Backed Securities, some of which are backed by the full
faith and credit of the U.S. Treasury (e.g., Government National Mortgage
Association direct pass-through certificates), some of which are supported by
the right of the issuer to borrow from the U.S. Government (e.g., obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself (e.g., obligations of the Student Loan Marketing Association). The
U.S. Government may also guarantee other debt obligations of special purpose
borrowers.
CANADIAN GOVERNMENT SECURITIES. Canadian Government Securities include
securities issued or guaranteed by the Government of Canada, the Government of a
Province of Canada or their agencies and Crown corporations. These securities
may be denominated or payable in U.S. dollars or Canadian dollars.
The Bank of Canada, acting on behalf of the federal government, is
responsible for the distribution of Government of Canada Treasury bills and
federal bond issues. The Bank of Canada holds weekly auctions of Treasury bills
(maturities of one year or less) and offers new issues of federal bonds through
investment dealers and banks. An offering of Government of Canada bonds
frequently consists of several different issues with various maturity dates,
representing different segments of the yield curve and generally having
maturities ranging from three to 25 years. The Bank of Canada usually purchases
a previously announced amount of each offering of bonds. NHA Mortgage-Backed
Securities, described below, are also Canadian Government Securities because
they benefit from a guarantee by the Canada Mortgage and Housing Corporation,
but are not distributed by the Bank of Canada.
All Canadian Provinces have outstanding bond issues and several Provinces
also guarantee bond issues of Provincial authorities, agencies and provincial
Crown corporations. Spreads in the marketplace are determined by various
factors, including the relative supply and the rating assigned by the rating
agencies. Most Provinces also issue treasury bills.
Many municipalities and municipal financial authorities in Canada raise
funds through the bond market in order to finance capital expenditures. Unlike
U.S. municipal securities, which have special tax status, Canadian municipal
securities have the same tax status as other Canadian Government Securities and
trade similarly to such securities. The Canadian municipal market may be less
liquid than the Provincial bond market.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO will only invest in
Canadian Government Securities which are rated at least A by Moody's or S&P or,
if not rated, are determined to be of comparable quality by the Sub-Adviser.
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MEXICAN GOVERNMENT SECURITIES. Mexican Government Securities include those
securities which are issued or guaranteed by the Mexican Treasury or by Mexican
government agencies or instrumentalities. These securities may be denominated
and payable in Mexican pesos or U.S. dollars.
The debt market in Mexico began to develop rapidly after the promulgation of
the Securities Market Law in 1975. Since 1975, the government has authorized a
range of Mexican government issued debt securities, all of which are traded on
the Mexican Stock Exchange: (i) CETES -- peso-denominated discount debt
securities having maturities of two years or less sold through auctions
regulated by Banco de Mexico; (ii) BONDES -- peso-denominated long-term
development bonds sold through auctions regulated by Banco de Mexico; (iii)
AJUSTABONOS -- peso-denominated bonds with a fixed coupon rate on a variable
face amount which is adjusted in proportion to fluctuations in the Mexican
consumer price index; and (iv) TESOBONOS -- U.S. dollar-denominated securities
sold at auctions which are paid in pesos equal to the value of the U.S. dollar
calculated at the prevailing exchange rate.
In addition, a variety of other special purpose bonds are issued by the
Mexican federal government or its agencies, such as development bonds, bank
indemnity bonds and urban renovation bonds, as well as bank development bonds
and industrial development bonds.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO will only invest in
Mexican Government Securities which are rated at least Baa by Moody's or BBB by
S&P or, if not rated, are determined to be of comparable quality by the
Sub-Adviser.
MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. The term Mortgage-Backed
Securities as used herein includes adjustable rate mortgage securities and
derivative mortgage products such as collateralized mortgage obligations,
stripped Mortgage-Backed Securities and other products described below.
U.S. MORTGAGE-BACKED SECURITIES. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO's investments in U.S. Mortgage-Backed Securities are subject to
certain risks (see the description of U.S. Mortgage-Backed Securities and the
risks associated with investments in such securities set forth under "General
Portfolio Techniques" below and in the Statement of Additional Information).
CANADIAN MORTGAGE-BACKED SECURITIES. Canadian Mortgage-Backed Securities may
be issued in several ways, the most common of which is a modified pass-through
vehicle issued pursuant to the program established under the National Housing
Act of Canada ("NHA"). Certficates issued pursuant to this program ("NHA
Mortgage-Backed Securities") have some structural similarities to GNMA
securities and benefit from the guarantee of the Canada Mortgage and Housing
Corporation, a federal Crown corporation that is (except for certain limited
purposes) an agent of the Government of Canada.
Canadian private issuers such as banks and trust companies also issue
Mortgage-Backed Securities backed by private insurance or other forms of credit
support. Such Mortgage-Backed Securities are not considered Government
Securities for purposes of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO.
While most Canadian Mortgage-Backed Securities are subject to voluntary
prepayments, some pools are not subject to such prepayments and thus have yield
characteristics similar to bonds.
RISKS OF INVESTING IN CANADIAN AND MEXICAN SECURITIES. The Canadian debt
securities market is significantly smaller than the U.S. debt securities market.
In particular, the Canadian Mortgage-Backed Securities market is of recent
origin, and, although continued growth is anticipated, is less well developed
and less liquid than its U.S. counterpart.
Because the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO intends to invest
in Mexican debt instruments, investors in the Portfolio should be aware of
certain special considerations associated with investing in debt obligations of
the Mexican government.
The Mexican government has exercised and continues to exercise a significant
influence over many aspects of the private sector in Mexico. Mexican government
actions concerning the economy could have a significant effect on market
conditions and prices and yields of Mexican debt obligations, including those in
which the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO invests. Mexico is
currently the second largest debtor nation (among developing countries) to
commercial banks and foreign governments.
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The value of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO's
investments may be affected by changes in oil prices, interest rates, taxation
and other political or economic developments in Mexico, including recent rates
of inflation which have exceeded the rates of inflation in the U.S. and Canada.
The Fund can provide no assurance that future developments in the Mexican
economy will not impair the North American Government Income Portfolio's
investment flexibility, operations or ability to achieve its investment
objective.
In September, 1982, Mexico imposed foreign exchange controls and maintained
a dual foreign exchange rate system, with a "controlled" rate and a "free
market" rate. Under economic policy initiatives implemented since December,
1987, the Mexican government introduced a schedule of gradual devaluation of the
controlled rate which initially amounted to an average depreciation of the
Mexican peso against the U.S. dollar of one Mexican peso per day. The extended
initiatives include an adjustment in the scheduled devaluation rate of the
Mexican peso against the U.S. dollar. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO's net asset value and its computation and distribution of income to
its shareholders will be adversely affected by continued reductions in the value
of the Mexican peso relative to the U.S. dollar because all Portfolio assets
must be converted to U.S. dollars prior to any distributions to shareholders.
Risks of investing in foreign securities are discussed further under
"General Portfolio Techniques" below.
THE DIVERSIFIED INCOME PORTFOLIO
The primary investment objective of the DIVERSIFIED INCOME PORTFOLIO is to
provide a high level of current income. As a secondary objective the DIVERSIFIED
INCOME PORTFOLIO seeks to maximize total return but only to the extent
consistent with its primary objective. The investment objectives of the
DIVERSIFIED INCOME PORTFOLIO may not be changed without the approval of the
shareholders of the Portfolio. There is no assurance that the objectives will be
achieved. The following investment policies may be changed by the Trustees of
the Fund without shareholder approval:
The DIVERSIFIED INCOME PORTFOLIO will seek to achieve its investment
objectives by investing at least 65% of its total assets in fixed-income
securities and by equally allocating, under normal circumstances, an
approximately one-third portion of its total assets among three separate
groupings of various types of fixed-income securities. The Investment Manager
will adjust the DIVERSIFIED INCOME PORTFOLIO's assets not less than quarterly to
reflect any changes in the relative values of the securities in each grouping so
that following the adjustment the value of the Portfolio's investments in each
grouping will be equal to the extent practicable.
The three groupings in which the DIVERSIFIED INCOME PORTFOLIO will invest
its total assets are as follows:
(1) High quality fixed-income securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or high quality fixed income
securities issued or guaranteed by a foreign government or supranational
organization or any of their political subdivisions, authorities, agencies or
instrumentalities or fixed-income securities issued by a corporation, all of
which are rated AAA or AA by Standard & Poor's Corporation ("S&P") or Aaa or Aa
by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are determined by
the Investment Manager to be of equivalent quality; in certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, banks (including foreign branches of U.S. banks or U.S. or foreign branches
of foreign banks) having total assets of more than $500 million and determined
by the Investment Manager to be of high creditworthiness; commercial paper rated
A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's or Duff 1 or Duff 2 by Duff &
Phelps Inc. or, if unrated, issued by U.S. or foreign companies having
outstanding debt securities rated A or higher by S&P or Moody's; and in loan
participation interests having a remaining term not exceeding one year in loans
extended by banks to such companies. Certain foreign securities purchased by the
Portfolio will not have received ratings by a recognized U.S. rating agency. In
such cases the Investment Manager will review the issuers of such securities
with respect to the quality of their management, balance sheet and financial
ratios, cash flows and earnings to establish that the securities purchased by
the Portfolio are of a comparable quality to issuers receiving high quality
ratings by a recognized U.S. rating agency. All of the securities described
above will have remaining maturities, at the time of purchase, of not more than
three years.
The Investment Manager will actively manage the assets of the DIVERSIFIED
INCOME PORTFOLIO in this grouping in accordance with a global market strategy
(see "Portfolio Trading" below). Consistent with such a strategy, the Investment
Manager intends to
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allocate the Portfolio's investments among securities denominated in the
currencies of a number of foreign countries and, within each such country, among
different types of debt securities. The Investment Manager will adjust the
Portfolio's exposure to different currencies based on its perception of the most
favorable markets and issuers. In allocating the DIVERSIFIED INCOME PORTFOLIO's
assets among various markets, the Investment Manager will assess the relative
yield and anticipated direction of interest rates in particular markets, the
level of inflation, liquidity and financial soundness of each market, and the
general market and economic conditions existing in each market as well as the
relationship of currencies of various countries to the U.S. dollar and to each
other. In its evaluations, the Investment Manager will utilize its internal
financial, economic and credit analysis resources as well as information
obtained from other sources.
A portion of the DIVERSIFIED INCOME PORTFOLIO's investments in securities of
U.S. issuers is likely to be in commercial paper, bankers' acceptances and other
short-term debt instruments issued by U.S. corporations. However, at times
during which there exists large-scale political or economic uncertainty, the
Portfolio is likely to increase its investments in U.S. Government securities.
In such cases, the securities which the Portfolio is most likely to purchase are
U.S. Treasury bills and U.S. Treasury notes with remaining maturities of under
three years, both of which are direct obligations of the U.S. Government. The
DIVERSIFIED INCOME PORTFOLIO may also purchase securities issued by various
agencies and instrumentalities of the U.S. Government. These will include
obligations backed by the full faith and credit of the United States (such as
those issued by the Government National Mortgage Association); obligations whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury (such as
those issued by the Federal National Mortgage Association); and obligations
backed by the credit of the issuing agency or instrumentality (such as those
issued by the Federal Farm Credit System).
The securities in which the DIVERSIFIED INCOME PORTFOLIO will be investing
may be denominated in any currency or multinational currency, including the U.S.
dollar. In addition to the U.S. dollar, such currencies will include, among
others; the Australian dollar; Deutsche mark; Japanese yen; French franc;
British pound; Canadian dollar; Swiss franc; Dutch guilder; Austrian schilling;
Spanish peseta; Swedish krona; and European Currency Unit ("ECU").
The DIVERSIFIED INCOME PORTFOLIO may invest, without limitation in this
grouping, in notes and commercial paper, the principal amount of which is
indexed to certain specific foreign currency exchange rates. Indexed notes and
commercial paper typically provide that their principal amount is adjusted
upwards or downwards (but not below zero) at maturity to reflect fluctuations in
the exchange rate between two currencies during the period the obligation is
outstanding, depending on the terms of the specific security. In selecting the
two currencies, the Investment Manager will consider the correlation and
relative yields of various currencies.The Portfolio will purchase an indexed
obligation using the currency in which it is denominated and, at maturity, will
receive interest and principal payments thereon in that currency. The amount of
principal payable by the issuer at maturity, however, will vary (i.e., increase
or decrease) in response to the change (if any) in the exchange rates between
the two specified currencies during the period from the date the instrument is
issued to its maturity date. The potential for realizing gains as a result of
changes in foreign currency exchange rates may enable the DIVERSIFIED INCOME
PORTFOLIO to hedge the currency in which the obligation is denominated (or to
effect cross-hedges against other currencies) against a decline in the U.S.
dollar value of investments denominated in foreign currencies, while providing
an attractive money market rate of return. The Portfolio will purchase such
indexed obligations to generate current income or for hedging purposes and will
not speculate in such obligations.
As indicated above, the DIVERSIFIED INCOME PORTFOLIO may invest in
securities denominated in a multi-national currency unit. An illustration of a
multi-national currency unit is the ECU, which is a "basket" consisting of
specified amounts of the currencies of the member states of the European
Community, a Western European economic cooperative organization that includes,
among other countries, France, West Germany, The Netherlands and the United
Kingdom. The specific amounts of currencies comprising the ECU may be adjusted
by the Council of Ministers of the European Community to reflect changes in
relative values of the underlying currencies. The Investment Manager does not
believe that such adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European
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supranational entities, in particular, issue ECU-denominated obligations. The
Portfolio may invest in securities denominated in the currency of one nation
although issued by a governmental entity, corporation or financial institution
of another nation. For example, the Portfolio may invest in a British
pound-denominated obligation issued by a United States corporation. Such
investments involve credit risks associated with the issuer and currency risks
associated with the currency in which the obligation is denominated.
(2) (i) Fixed-rate and adjustable rate mortgage-backed securities
("Mortgage-Backed Securities") which are issued or guaranteed by the United
States Government, its agencies or instrumentalities or by private issuers which
are rated Aaa by Moody's or AAA by S&P or, if not rated, are determined to be of
comparable quality by the Investment Manager and (ii) securities backed by other
assets such as automobile or credit card receivables and home equity loans
("Asset-Backed Securities") which are rated Aaa by Moody's or AAA by S&P or, if
not rated, are determined to be of comparable quality by the Investment Manager.
See "General Portfolio Techniques" below and in the Statement of Additional
Information for a discussion of Mortgage-Backed Securities and Asset-Backed
Securities and the risks of investments in such securities. The term
Mortgage-Backed Securities as used herein includes adjustable rate mortgage
securities and derivative mortgage products such as collateralized mortgage
obligations and stripped mortgage-backed securities, all as described under
"General Portfolio Techniques" below and in the Statement of Additional
Information.
(3) High yield, high risk fixed-income securities rated Baa or lower by
Moody's or BBB or lower by S&P or, if not rated, are determined by the
Investment Manager to be of comparable quality. The high yield, high risk
fixed-income securities in this grouping may include both convertible and
nonconvertible debt securities and preferred stock. Fixed-income securities
rated Baa by Moody's or BBB by S&P have speculative characteristics greater than
those of more highly rated bonds, while fixed-income securities rated Ba or BB
or lower by Moody's and S&P, respectively, are considered to be speculative
investments. Furthermore, the DIVERSIFIED INCOME PORTFOLIO does not have any
minimum quality rating standard for its investments. As such, the Portfolio may
invest in securities rated as low as Caa, Ca or C by Moody's or CCC, CC, C or C1
by S&P. Fixed-income securities rated Caa or Ca by Moody's may already be in
default on payment of interest or principal, while bonds rated C by Moody's,
their lowest bond rating, can be regarded as having extremely poor prospects of
ever attaining any real investment standing. Bonds rated C1 by S&P are no longer
making interest payments. See "Special Investment Considerations" and "General
Portfolio Techniques" below.
A description of Moody's and S&P ratings is contained in the Appendix.
Non-rated securities will also be considered for investment by the DIVERSIFIED
INCOME PORTFOLIO when the terms of the securities themselves makes them
appropriate investments for the Portfolio.
The ratings of fixed-income securities by Moody's and S&P are a generally
accepted barometer of credit risk. However, as the creditworthiness of issuers
of lower-rated fixed-income securities is more problematical than that of
issuers of higher-rated fixed-income securities, the achievement of the
investment objectives of the DIVERSIFIED INCOME PORTFOLIO will be more dependent
upon the Investment Manager's own credit analysis than would be the case with a
mutual fund investing primarily in higher quality bonds. The Investment Manager
will utilize a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any security
currently held by the DIVERSIFIED INCOME PORTFOLIO or potentially purchasable by
the Portfolio. See "General Portfolio Techniques" below for a discussion of
credit risk and interest rate risk, to which risks all fixed-income securities
are subject, and a discussion of the actions to be taken if a security held by
grouping (1) or (2) of the Portfolio is downgraded by a rating agency to a
rating of below Baa or BBB, as well as a discussion of the characteristics and
risks of investments in fixed-income securities rated Baa or BBB.
A portion of the fixed-income securities purchased by the Portfolio may be
zero coupon securities (see "General Portfolio Techniques" below).
The DIVERSIFIED INCOME PORTFOLIO may enter into repurchase agreements,
reverse repurchase agreements, dollar rolls and forward foreign currency
exchange contracts, engage in futures contracts and options transactions,
purchase securities which are issued in private placements or are otherwise not
readily marketable, purchase securities on a when-issued or delayed delivery
basis or a "when, as and if issued" basis, and purchase or sell securities on a
forward commitment basis, in each case in
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accordance with the description of these investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information. Investors should carefully consider the
risks of investing in securities of foreign issuers and securities denominated
in non-U.S. currencies (see "General Portfolio Techniques" below for a
discussion of the characteristics and risks of investments in foreign
securities).
COMMON STOCKS. The DIVERSIFIED INCOME PORTFOLIO may invest in common stocks
in an amount up to 20% of its total assets in the circumstances described below
when consistent with the Portfolio's investment objectives.
The DIVERSIFIED INCOME PORTFOLIO may acquire common stocks when attached to
or included in a unit with fixed-income securities, or when acquired upon
conversion of fixed-income securities or upon exercise of warrants attached to
fixed-income securities and may purchase common stocks directly when such
acquisitions are determined by the Investment Manager to further the Portfolio's
investment objectives (see the discussions of warrants and convertible
securities under "General Portfolio Techniques" below).
For example, the DIVERSIFIED INCOME PORTFOLIO may purchase the common stock
of companies involved in takeovers or recapitalizations where the issuer, or a
controlling stockholder, has offered, or pursuant to a "going private"
transaction is effecting, an exchange of its common stock for newly-issued
fixed-income securities. By purchasing the common stock of the company issuing
the fixed-income securities prior to the consummation of the transaction or
exchange offer, the DIVERSIFIED INCOME PORTFOLIO will be able to obtain the
fixed-income securities directly from the issuer at their face value,
eliminating the payment of a dealer's mark-up otherwise payable when
fixed-income securities are acquired from third parties, thereby increasing the
net yield to the shareholders of the Portfolio. While the Portfolio will incur
brokerage commissions in connection with its purchase of common stocks, it is
anticipated that the amount of such commissions will be significantly less than
the amount of such mark-up.
Fixed-income securities acquired by the DIVERSIFIED INCOME PORTFOLIO through
the purchase of common stocks under the circumstances described in the preceding
paragraph are subject to the general credit risks and interest rate risks to
which all fixed-income securities purchased by the Portfolio are subject. Such
securities generally will be rated Baa/ BBB or lower as are the other high
yield, high risk fixed-income securities in which the Portfolio may invest. In
addition, since corporations involved in take-over situations are often highly
leveraged, that factor will be evaluated by the Investment Manager as part of
its credit risk determination with respect to the purchase of particular common
stocks for the Portfolio's investment portfolio. In the event the Portfolio
purchases common stock of a corporation in anticipation of a transaction
(pursuant to which the common stock is to be exchanged for fixed-income
securities) which fails to take place, the Investment Manager will continue to
hold such common stock for the Portfolio only if it determines that continuing
to hold such common stock under those circumstances is consistent with the
Portfolio's investment objectives.
SPECIAL INVESTMENT CONSIDERATIONS. Because of the special nature of the
DIVERSIFIED INCOME PORTFOLIO's investment in high yield securities, commonly
known as "junk bonds," the Investment Manager must take account of certain
special considerations in assessing the risks associated with such investments.
Investors should carefully consider the risks of investing in high yield
securities (see "General Portfolio Techniques" below and in the Statement of
Additional Information for a discussion of the risks of investments in high
yield securities).
THE BALANCED PORTFOLIO
The investment objective of the BALANCED PORTFOLIO is to achieve high total
return through a combination of income and capital appreciation. This objective
may not be changed without the approval of the shareholders of the BALANCED
PORTFOLIO. There is no assurance that the objective will be achieved. The
following investment policies may be changed by the Trustees of the Fund without
shareholder approval:
The BALANCED PORTFOLIO seeks to obtain its objective by investing in a
diversified portfolio of common stocks and investment grade fixed-income
securities. The percentage of assets allocated between equity and fixed-income
securities will vary from time to time depending on the judgment of the
Sub-Adviser as to general economic and market conditions, changes in fiscal or
monetary policies and trends in yields and interest rates. However, under normal
circumstances, it is expected that common stocks will represent approximately
60-70% of the BALANCED PORTFOLIO's total assets. In
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addition, the BALANCED PORTFOLIO under normal circumstances will maintain at
least 25% of its total assets in fixed-income securities.
Investments in the equity portion of the portfolio of the BALANCED PORTFOLIO
will be determined pursuant to a "top down" investment process ranging from the
overall economic outlook, to the development of industry/sector preferences, and
last, to specific stock selections. The following disciplines generally apply
with regard to stock selection of the equity component of the Portfolio: (i) any
industry group (as determined by the Adviser) with at least a 1% position in the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") will in most
cases be represented in the Portfolio; (ii) industry groups within the equity
component of the Portfolio may be underweighted up to 50% or overweighted up to
200% compared with the weightings of those industries in the S&P 500, in
accordance with the discretion of the Sub-Adviser; (iii) no single issuer's
equity securities will represent at the time of purchase more than 5% of the
BALANCED PORTFOLIO's total assets; and (iv) at least 95% of the companies
represented will have minimum market capitalizations at the time of purchase in
excess of $1.5 billion. Subject to the BALANCED PORTFOLIO's investment
objective, the Sub-Adviser may modify the foregoing disciplines without notice.
The fixed-income portion of the portfolio of the BALANCED PORTFOLIO may
consist of securities issued or guaranteed by the U.S. Government (Treasury
bills, notes and bonds), investment grade corporate debt securities (including
convertible securities), mortgage-backed and asset-backed securities and money
market securities (as set forth under "General Portfolio Techniques" below). A
portion of the fixed-income securities purchased by the Portfolio may be zero
coupon securities (see "General Portfolio Techniques" below). All fixed-income
securities in which the BALANCED PORTFOLIO invests will be either issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or rated at
least BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's Investors
Service, Inc. ("Moody's") or, if not rated, determined by the Sub-Adviser to be
of comparable quality.
The BALANCED PORTFOLIO will invest primarily in equity securities and
fixed-income corporate debt securities. Under normal circumstances, no more than
10% of the fixed-income portion of the portfolio of the BALANCED PORTFOLIO will
be rated BBB by S&P or Baa by Moody's (see "General Portfolio Techniques" below
for a description of the characteristics and risks of investments in
fixed-income securities rated Baa or BBB and for a discussion of credit risk and
interest rate risk, to which risks all fixed-income securities are subject).
The BALANCED PORTFOLIO may invest in securities convertible into common
stock and warrants, invest up to 25% of the value of its total assets in foreign
securities (including up to 5% in a type of Mexican government money market
securities known as Cetes, which are described above under "The North American
Government Securities Portfolio," if such investments meet the rating standard
for the fixed-income portion of the portfolio of the BALANCED PORTFOLIO), enter
into repurchase a greements, reverse repurchase agreements, dollar rolls and
forward foreign currency exchange contracts, purchase securities which are
issued in private placements or are otherwise not readily marketable, purchase
securities on a when-issued or delayed delivery basis or a "when, as and if
issued" basis, and purchase or sell securities on a forward commitment basis, in
each case in accordance with the description of these investments and techniques
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
The BALANCED PORTFOLIO is authorized to engage in transactions involving
options and futures contracts that would be eligible for use by the UTILITIES
PORTFOLIO, as described under "Options and Futures Transactions" under "General
Portfolio Techniques" below and in the Statement of Additional Information. The
BALANCED PORTFOLIO does not, however, presently intend to engage in such options
and futures transactions and will not do so unless and until the Fund's
prospectus has been revised to reflect this.
THE UTILITIES PORTFOLIO
The investment objective of the UTILITIES PORTFOLIO is to provide current
income and long-term growth of income and capital, by investing primarily in
equity and fixed-income securities of companies engaged in the public utilities
industry. The investment objective of the UTILITIES PORTFOLIO may not be changed
without the approval of the shareholders of the Portfolio. There can be no
assurance that the objective will be achieved. The term "public utilities
industry" consists of companies engaged in the manufacture, production,
generation, transmission, sale and distribution of gas and electric energy, as
well as companies engaged in the communications field, including telephone,
telegraph, satellite,
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microwave and other companies providing communication facilities for the public,
but excluding public broadcasting companies. For purposes of the UTILITIES
PORTFOLIO, a company will be considered to be in the public utilities industry
if, during the most recent twelve month period, at least 50% of the company's
gross revenues, on a consolidated basis, is derived from the public utilities
industry. The following investment policies may be changed by the Trustees of
the Fund without shareholder approval:
In seeking to achieve its objective, the UTILITIES PORTFOLIO will normally
invest at least 65% of its total assets in securities of companies in the public
utilities industry. The Investment Manager believes the UTILITIES PORTFOLIO's
investment policies are suited to benefit from certain characteristics and
historical performance of the securities of public utility companies. Many of
these companies have historically set a pattern of paying regular dividends and
increasing their common stock dividends over time, and the average common stock
dividend yield of utilities historically has substantially exceeded that of
industrial stocks. The Investment Manager believes that these factors may not
only provide current income but also generally tend to moderate risk and thus
may enhance the opportunity for appreciation of securities owned by the
UTILITIES PORTFOLIO, although the potential for capital appreciation has
historically been lower for many utility stocks compared with most industrial
stocks. There can be no assurance that the historical investment performance of
the public utilities industry will be indicative of future events and
performance.
The UTILITIES PORTFOLIO will invest in both equity securities (common stocks
and securities convertible into common stock) (see "General Portfolio
Techniques" below) and fixed-income securities (bonds and preferred stock) in
the public utilities industry. The UTILITIES PORTFOLIO does not have any set
policies to concentrate within any particular segment of the utilities industry.
The UTILITIES PORTFOLIO will shift its asset allocation without restriction
between types of utilities and between equity and fixed-income securities based
upon the Investment Manager's determination of how to achieve the UTILITIES
PORTFOLIO's investment objective in light of prevailing market, economic and
financial conditions. For example, at a particular time the Investment Manager
may choose to allocate up to 100% of the UTILITIES PORTFOLIO's assets in a
particular type of security (for example, equity securities) or in a specific
utility industry segment (for example, electric utilities).
Criteria to be utilized by the Investment Manager in the selection of equity
securities include the following screens: earnings and dividend growth; book
value; dividend discount; and price/earnings relationships. In addition, the
Investment Manager makes continuing assessments of management, the prevailing
regulatory framework and industry trends such as an increasing emphasis on
competition. The Investment Manager may also utilize computer-based equity
selection models in connection with stock allocation in the equity portion of
the portfolio. In keeping with the UTILITIES PORTFOLIO's objective, if in the
opinion of the Investment Manager favorable conditions for capital growth of
equity securities are not prevalent at a particular time, the UTILITIES
PORTFOLIO may allocate its assets predominantly or exclusively in debt
securities with the aim of obtaining current income as well as preserving
capital and thus benefiting long term growth of capital.
The UTILITIES PORTFOLIO may purchase equity securities sold on the New York,
American and other stock exchanges and in the over-the-counter market.
Fixed-income securities in which the UTILITIES PORTFOLIO may invest are debt
securities and preferred stocks which are rated at the time of purchase Baa or
better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P") or which, if unrated, are deemed to be of
comparable quality by the Investment Manager (see "General Portfolio Techniques"
below for a discussion of the characteristics and risks of investments in
fixed-income securities rated Baa or BBB and a discussion of credit risk and
interest rate risk, to which risks all fixed-income securities are subject).
Under normal circumstances the average weighted maturity of the debt portion of
the portfolio is expected to be in excess of seven years. A description of
Moody's and S&P ratings is contained in the Appendix.
While the UTILITIES PORTFOLIO will invest primarily in the securities of
public utility companies, under ordinary circumstances it may invest up to 35%
of its total assets in U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies and
instrumentalities, including zero coupon securities), money market instruments,
repurchase agreements, options and futures (see "General Portfolio Techniques"
below and in the Statement of Additional Information). The UTILITIES PORTFOLIO
may acquire warrants attached to other securities
pur-
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chased by the Portfolio (see "General Portfolio Techniques" below).
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the UTILITIES PORTFOLIO's
securities holdings. During such periods, the UTILITIES PORTFOLIO may adopt a
temporary "defensive" posture in which greater than 35% of its total assets are
invested in cash or money market instruments.
The UTILITIES PORTFOLIO may enter into repurchase agreements, invest in
foreign securities (including American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers), purchase securities which are issued in private
placements or are otherwise not readily marketable, purchase securities on a
when-issued or delayed delivery basis or a "when, as and if issued" basis, and
purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of those investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
PUBLIC UTILITIES INDUSTRY. The public utilities industry as a whole has
certain characteristics and risks particular to that industry. Unlike industrial
companies, the rates which utility companies may charge their customers
generally are subject to review and limitation by governmental regulatory
commissions. Although rate changes of a utility usually fluctuate in approximate
correlation with financing costs, due to political and regulatory factors rate
changes ordinarily occur only following a delay after the changes in financing
costs. This factor will tend to favorably affect a utility company's earnings
and dividends in times of decreasing costs, but conversely will tend to
adversely affect earnings and dividends when costs are rising. In addition, the
value of public utility debt securities (and, to a lesser extent, equity
securities) tends to have an inverse relationship to the movement of interest
rates.
Among the risks affecting the utilities industry are the following: risks of
increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and the effects of
regulatory changes, such as the possible adverse effects of profits on recent
increased competition within the telecommunications, electric and natural gas
industries and the uncertainties resulting from companies within these
industries diversifying into new domestic and international businesses, as well
as from agreements by many such companies linking future rate increases to
inflation or other factors not directly related to the actual operating profits
of the enterprise.
THE DIVIDEND GROWTH PORTFOLIO
The investment objective of the DIVIDEND GROWTH PORTFOLIO is to provide
reasonable current income and long-term growth of income and capital. There is
no assurance that the objective will be achieved. The DIVIDEND GROWTH PORTFOLIO
seeks to achieve its investment objective primarily through investments in
common stock of companies with a record of paying dividends and the potential
for increasing dividends. The net asset value of the DIVIDEND GROWTH PORTFOLIO'S
shares will fluctuate with changes in market values of portfolio securities. The
DIVIDEND GROWTH PORTFOLIO will attempt to avoid speculative securities or those
with speculative characteristics.
The investment objective of the DIVIDEND GROWTH PORTFOLIO may not be changed
without the approval of the shareholders of the DIVIDEND GROWTH PORTFOLIO. The
following policies may be changed by the Trustees of the Fund without
shareholder approval:
(1) Up to 30% of the value of the DIVIDEND GROWTH PORTFOLIO's total assets
may be invested in: (a) convertible debt securities (see "General Portfolio
Techniques" below), convertible preferred securities, warrants (see "General
Portfolio Techniques" below), U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies and
instrumentalities, including zero coupon securities), corporate debt securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. or BBB or better by Standard & Poor's Corporation or which, if
unrated, are deemed to be of comparable quality by the Investment Manager (see
"General Portfolio Techniques" below for a discus-
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sion of the characteristics and risks of investments in zero coupon securities
and fixed-income securities rated Baa or BBB and a discussion of credit risk and
interest rate risk, to which risks all fixed-income securities are subject)
and/or money market instruments (see "General Portfolio Techniques" below) when,
in the opinion of the Investment Manager, the projected total return on such
securities is equal to or greater than the expected total return on equity
securities or when such holdings might be expected to reduce the volatility of
the portfolio (for purposes of this provision, the term "total return" means the
difference between the cost of a security and the aggregate of its market value
and dividends received); or (b) in money market instruments under any one or
more of the following circumstances: (i) pending investment of proceeds of sale
of the DIVIDEND GROWTH PORTFOLIO'S shares or of portfolio securities; (ii)
pending settlement of purchases of portfolio securities; or (iii) to maintain
liquidity for the purpose of meeting anticipated redemptions.
(2) Notwithstanding any of the foregoing limitations, the DIVIDEND GROWTH
PORTFOLIO may invest more than 30% of the value of its total assets in money
market instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions.
The DIVIDEND GROWTH PORTFOLIO may enter into repurchase agreements, invest
in American Depository Receipts (ADRs), purchase securities which are issued in
private placements or are otherwise not readily marketable, purchase securities
on a when-issued or delayed delivery basis or a "when, as and if issued" basis,
and purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of those investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
The DIVIDEND GROWTH PORTFOLIO is authorized to engage in transactions
involving options and futures contracts which would be eligible for use by the
UTILITIES PORTFOLIO, as described under "Options and Futures Transactions" under
"General Portfolio Techniques" below and in the Statement of Additional
Information. The DIVIDEND GROWTH PORTFOLIO does not, however, presently intend
to engage in such options and futures transactions and will not do so unless and
until the Fund's prospectus has been revised to reflect this.
THE VALUE-ADDED MARKET PORTFOLIO
The investment objective of the VALUE-ADDED MARKET PORTFOLIO is to achieve a
high level of total return on its assets through a combination of capital
appreciation and current income. The investment objective of the VALUE-ADDED
MARKET PORTFOLIO may not be changed without the approval of the shareholders of
the Portfolio. There can be no assurance that the objective will be achieved.
The investment policies discussed below may be changed by the Trustees of the
Fund without shareholder approval:
The VALUE-ADDED MARKET PORTFOLIO will seek to attain its investment
objective by investing, on an equally-weighted basis, in a diversified portfolio
of common stocks of the companies which are included in the Standard & Poor's
500 Composite Stock Price Index (the "S&P Index"). Standard & Poor's 500 is a
trademark of Standard & Poor's Corporation ("S&P") and has been licensed for use
by the Fund. The VALUE-ADDED MARKET PORTFOLIO is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representation regarding the advisability of
investing in the VALUE-ADDED MARKET PORTFOLIO. The S&P Index consists of 500
common stocks selected by S&P, most of which are listed on the New York Stock
Exchange. Inclusion of a stock in the S&P Index implies no opinion by S&P as to
the quality of the stock as an investment. The S&P Index is determined, composed
and calculated by S&P without regard to the VALUE-ADDED MARKET PORTFOLIO. S&P is
neither a sponsor of, nor in any way affiliated with, the VALUE-ADDED MARKET
PORTFOLIO, and S&P makes no representation or warranty, express or implied, on
the advisability of investing in the VALUE-ADDED MARKET PORTFOLIO or as to the
ability of the S&P Index to track general stock market performance, and S&P
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P Index or any data included therein. S&P has no
connection with the VALUE-ADDED MARKET PORTFOLIO other than the licensing to the
Investment Manager of the use of the S&P Index in connection with the
VALUE-ADDED MARKET PORTFOLIO.
The VALUE-ADDED MARKET PORTFOLIO invests in the stocks included in the S&P
Index on an equally-weighted basis; that is, to the extent practicable and
subject to the specific investment policies and restrictions described below, an
equal portion of the VALUE-ADDED MARKET PORTFOLIO's assets is invested in each
of the 500 securities in the S&P Index. This differs from the S&P Index and
nearly all other major
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indexes, which generally are weighted on a market-capitalization basis. For
example, the 50 largest capitalization issuers in the S&P Index represent
approximately 45% of the S&P Index. However, in accordance with its investment
policies, the VALUE-ADDED MARKET PORTFOLIO will strive to maintain each stock
holding equally, so that, subject to the specific investment policies and
investment restrictions described below, approximately 0.20 of 1% of the
VALUE-ADDED MARKET PORTFOLIO's total invested assets will be invested in each of
the 500 companies included in the S&P Index. The equal weighting technique is
based on the Investment Manager's statistical analysis that most portfolio
performance is usually generated by only one-quarter to one-third of the
portfolio. Since there is no certainty that any specific company or industry
selection, even within a broad-based index such as the S&P Index, will achieve
superior performance, the Investment Manager believes equal-weighting may
benefit the VALUE-ADDED MARKET PORTFOLIO in seeking to attain its investment
objective.
The holdings of the VALUE-ADDED MARKET PORTFOLIO will be adjusted by the
Investment Manager not less than quarterly to reflect changes in the VALUE-ADDED
MARKET PORTFOLIO's asset levels and in the relative values of the common stocks
held by the VALUE-ADDED MARKET PORTFOLIO so that following each adjustment the
value of the VALUE-ADDED MARKET PORTFOLIO's investment in each security will be
equal to the extent practicable. In addition, whenever a company is eliminated
from or added to the S&P Index, the VALUE-ADDED MARKET PORTFOLIO will sell or
purchase the stock of such company, as the case may be, as soon as practicable.
Accordingly, securities may be purchased and sold by the VALUE-ADDED MARKET
PORTFOLIO when such purchases and sales would not be made under traditional
investment criteria.
In addition, while the Investment Manager will not actively manage the
portfolio other than to follow the guidelines set forth above for following an
equally-weighted S&P Index, it may eliminate one or more securities (or elect
not to increase the VALUE-ADDED MARKET PORTFOLIO's position in such securities),
notwithstanding the continued listing of such securities in the S&P Index, in
the following circumstances: (a) the stock is no longer publicly traded, such as
in the case of a leveraged buyout or merger; (b) an unexpected adverse
development with respect to a company, such as bankruptcy or insolvency; (c) in
the view of the Investment Manager, there is a high degree of risk with respect
to a company that bankruptcy or insolvency will occur; or (d) in the view of the
Investment Manager, based on its consideration of the price of a company's
securities, the depth of the market in those securities and the amount of those
securities held or to be held by the VALUE-ADDED MARKET PORTFOLIO, retaining
shares of a company or making any additional purchases would be inadvisable
because of liquidity risks. The Investment Manager will monitor on an ongoing
basis all companies falling within any of the circumstances described in this
paragraph, and will return such company's shares to the VALUE-ADDED MARKET
PORTFOLIO's holdings, or recommence purchases, when and if those conditions
cease to exist.
The VALUE-ADDED MARKET PORTFOLIO may purchase futures contracts on stock
indexes at a time when it is not fully invested on account of additional cash
invested in the Portfolio or income received by the Portfolio. Purchase of a
futures contract in those circumstances serves as a temporary substitute for the
purchase of individual stocks which may then be purchased in orderly fashion.
The VALUE-ADDED MARKET PORTFOLIO may enter into repurchase agreements and may
purchase common stock, including American Depository Receipts (ADRs), of foreign
corporations represented in the S&P Index (such common stock and ADRs are listed
on the New York Stock Exchange, the American Stock Exchange or the NASDAQ Market
System) (see "General Portfolio Techniques" below and in the Statement of
Additional Information).
A portion of the VALUE-ADDED MARKET PORTFOLIO's assets, not exceeding 25% of
its total assets, may be invested temporarily in money market instruments (see
"General Portfolio Techniques" below) under any one or more of the following
circumstances: (a) pending investment of proceeds of sale of shares of the
VALUE-ADDED MARKET PORTFOLIO; (b) pending settlement of purchases of portfolio
securities; or (c) to maintain liquidity for the purposes of meeting anticipated
redemptions.
THE CORE EQUITY PORTFOLIO
The investment objective of the CORE EQUITY PORTFOLIO is long-term growth of
capital. This objective may not be changed without the approval of the
shareholders of the CORE EQUITY PORTFOLIO. There is no assurance that the
objective will be achieved. The following investment policies may be changed by
the Trustees of the Fund without shareholder approval:
The CORE EQUITY PORTFOLIO invests primarily in common stocks and securities
convertible into common stocks of companies which offer the
pros-
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<PAGE>
pect for growth of earnings. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 65% of its total
assets in common stocks and convertible securities, including warrants (see
"General Portfolio Techniques" below). There are no minimum rating or quality
requirements with respect to convertible securities in which the Portfolio may
invest and, thus, all or some of such securities may be below investment grade
(see "General Portfolio Techniques" below). See the Appendix for a discussion of
ratings of fixed-income securities.
The Sub-Adviser invests the assets of the CORE EQUITY PORTFOLIO by pursuing
its "top down sector rotational core equity" philosophy. That strategy involves
a three-step process to achieve value for the Portfolio's shareholders by taking
advantage of unrecognized appreciation potential created by changes in the
economic, social and political environments. Pursuant to its approach, the Sub-
Adviser first determines those market sectors,and the industries within those
sectors, that the Sub-Adviser believes offer opportunities for capital
appreciation. The Sub-Adviser makes this determination by utilizing an industry
matrix to divide the stock market by economic sectors and industries, and then
by continuously reviewing those industries. Following the identification of
those specific industries, individual companies within those industries are
chosen for investment by the CORE EQUITY PORTFOLIO, based on factors including
but not limited to: potential growth in earnings and dividends; quality of
management; new products and/or new markets; research and development
capabilities; historical rate of return on equity and invested capital; cash
flow and balance sheet strength; and forcing value through company initiatives
such as cost reduction or share repurchase. As the third step, the Sub-Adviser
determines the weightings that the selected industries and companies will have
in the portfolio.
The CORE EQUITY PORTFOLIO intends to invest primarily, but not exclusively,
in companies having stock market capitalizations (calculated by multiplying the
number of outstanding shares of a company by the current market price) of at
least $1 billion. The Sub-Adviser anticipates that the CORE EQUITY PORTFOLIO
will focus its investments in a relatively limited number of companies, although
the Sub-Adviser continuously monitors up to 250 companies for possible
investment by the Portfolio. The Portfolio's holdings are changed by the
Sub-Adviser as warranted based on changes in the overall market or economic
environment, as well as factors specific to particular companies.
While the CORE EQUITY PORTFOLIO invests primarily in common stocks and
securities convertible into common stock, under ordinary circumstances it may
invest up to 35% of its total assets in money market instruments, which are
short-term (maturities of up to thirteen months) fixed-income securities issued
by private and governmental institutions. Money market instruments in which the
CORE EQUITY PORTFOLIO may invest are set forth under "General Portfolio
Techniques" below.
There may be periods during which, in the opinion of the Sub-Adviser, market
conditions warrant reduction of some or all of the CORE EQUITY PORTFOLIO's
securities holdings. During such periods, the Portfolio may adopt a temporary
"defensive" posture in which greater than 35% of its total assets is invested in
money market instruments or cash.
The CORE EQUITY PORTFOLIO may enter into repurchase agreements, invest in
foreign securities (including American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers), purchase securities which are issued in private
placements or are otherwise not readily marketable, purchase securities on a
when-issued or delayed delivery basis or a "when, as and if issued" basis, and
purchase or sell securities on a forward commitment basis, in each case in
accordance with the description of these investments and techniques (and subject
to the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
The CORE EQUITY PORTFOLIO is authorized to engage in transactions involving
options and futures contracts that would be eligible for use by the UTILITIES
PORTFOLIO, as described under "Options and Futures Transactions" under "General
Portfolio Techniques" below and in the Statement of Additional Information. The
CORE EQUITY PORTFOLIO does not, however, presently intend to engage in such
options and futures transactions and will not do so unless and until the Fund's
prospectus has been revised to reflect this.
THE AMERICAN VALUE PORTFOLIO
The investment objective of the AMERICAN VALUE PORTFOLIO is long-term
capital growth consistent with an effort to reduce volatility. This objective
may not be changed without the approval of the shareholders of the AMERICAN
VALUE PORTFOLIO. There is no
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<PAGE>
assurance that the objective will be achieved. The investment policies discussed
below may be changed by the Trustees of the Fund without shareholder approval:
The AMERICAN VALUE PORTFOLIO seeks to achieve its investment objective by
investing in a diversified portfolio of securities consisting principally of
common stocks. The AMERICAN VALUE PORTFOLIO utilizes an investment process that
places primary emphasis on seeking to identify industries, rather than
individual companies, as prospects for capital appreciation and whereby the
Investment Manager seeks to invest assets of the AMERICAN VALUE PORTFOLIO in
industries it considers to be undervalued at the time of purchase and to sell
those it considers overvalued.
After selection of the AMERICAN VALUE PORTFOLIO's target industries,
specific company investments are selected. In this process, the Investment
Manager seeks to identify companies whose prospects are deemed attractive on the
basis of an evaluation of valuation screens and prospective company
fundamentals.
Following selection of the AMERICAN VALUE PORTFOLIO's specific investments,
the Investment Manager will attempt to allocate the assets of the AMERICAN VALUE
PORTFOLIO so as to reduce the volatility of its portfolio. In doing so, the
AMERICAN VALUE PORTFOLIO may hold a portion of its portfolio in fixed-income
securities in an effort to moderate extremes of price fluctuations. The AMERICAN
VALUE PORTFOLIO may invest up to 35% of its total assets in common stocks of
non-U.S. companies including American Depository Receipts (see "General
Portfolio Techniques" below), in companies in industries which have not been
determined to be undervalued by the Investment Manager, and in convertible debt
securities and warrants (see "General Portfolio Techniques" below), convertible
preferred securities, U.S. Government securities (securities issued or
guaranteed as to principal and interest by the United States or its agencies and
instrumentalities, including zero coupon securities) (see "General Portfolio
Techniques" below) and investment grade corporate debt securities when, in the
opinion of the Investment Manager, the projected total return on such securities
is equal to or greater than the expected total return on common stocks, or when
such holdings might be expected to reduce the volatility of the portfolio, and
in money market instruments (see "General Portfolio Techniques" below) under any
one or more of the following circumstances: (i) pending investment of proceeds
of sale of shares of the AMERICAN VALUE PORTFOLIO or of portfolio securities;
(ii) pending settlement of purchases of portfolio securities; or (iii) to
maintain liquidity for the purpose of meeting anticipated redemptions. Greater
than 35% of the AMERICAN VALUE PORTFOLIO's total assets may be invested in money
market instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of economic
or market conditions. The term investment grade consists of fixed-income
securities rated Baa or higher by Moody's Investors Service Inc. or BBB or
higher by Standard & Poor's Corporation or, if not rated, determined to be of
comparable quality by the Investment Manager (see "General Portfolio Techniques"
below for a discussion of the characteristics and risks of investments in
fixed-income securities rated Baa or BBB and a discussion of credit risk and
interest rate risk, to which risks all fixed-income securities are subject).
Because prices of stocks fluctuate from day to day, the value of an
investment in the AMERICAN VALUE PORTFOLIO will vary based upon the Portfolio's
investment performance. The AMERICAN VALUE PORTFOLIO's emphasis on "undervalued"
industries reflects investment views which are frequently contrary to general
market assessments and which may involve risks associated with departure from
general investment opinions.
Under normal circumstances, at least 65% of the AMERICAN VALUE PORTFOLIO's
total assets will be invested in common stocks of U.S. companies which, at the
time of purchase, were in undervalued or moderately valued industries as
determined by the Investment Manager.
The foregoing limitations apply at the time of acquisition based on the last
determined market value of the assets of the AMERICAN VALUE PORTFOLIO, and any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total assets will not require elimination of
any security from the portfolio.
Since the investment strategy of the AMERICAN VALUE PORTFOLIO involves an
ongoing process of determination by the Investment Manager of undervalued
industries and appropriate specific company selections within those industries,
it is anticipated that the Portfolio will have more frequent purchase and sale
transactions than most other Portfolios. Therefore, as noted below under
"General Portfolio Techniques -- Portfolio Trading," the annual portfolio
turnover rate of the AMERICAN VALUE PORTFOLIO may exceed 400%.
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<PAGE>
The AMERICAN VALUE PORTFOLIO may enter into repurchase agreements, engage in
futures contracts and options transactions, purchase securities which are issued
in private placements or are otherwise not readily marketable, and purchase
securities on a when-issued or delayed delivery basis or a "when, as and if
issued" basis, and purchase or sell securities on a forward commitment basis, in
each case in accordance with the description of these investments and techniques
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
THE GLOBAL EQUITY PORTFOLIO
The investment objective of the GLOBAL EQUITY PORTFOLIO is to seek to obtain
total return on its assets primarily through long-term capital growth and to a
lesser extent from income. There can be no assurance that the GLOBAL EQUITY
PORTFOLIO will achieve its objective. The investment objective cannot be changed
without the approval of the shareholders of the GLOBAL EQUITY PORTFOLIO. The
investment policies discussed below may be changed by the Trustees of the Fund
without shareholder approval:
The GLOBAL EQUITY PORTFOLIO will invest at least 65% of its total assets in
equity securities issued by issuers located in various countries, around the
world. The Portfolio's investment portfolio will normally be invested in at
least five separate countries. With the exception of Australia, Canada, France,
Japan, The United Kingdom and Germany, no more than 20% of the value of the
Portfolio's net assets may be invested in securities of issuers located in any
one foreign country.
The GLOBAL EQUITY PORTFOLIO will seek to achieve its investment objective
through investments in all types of common stocks and equivalents (such as
convertible debt securities and warrants) (see "General Portfolio Techniques"
below), preferred stocks and bonds and other investment grade debt obligations
of domestic and foreign companies and governments and international
organizations. There is no limitation on the percentage or amount of the GLOBAL
EQUITY PORTFOLIO's assets which may be invested for growth or income. The term
investment grade consists of fixed-income securities rated Baa or higher by
Moody's Investors Service Inc. or BBB or higher by Standard & Poor's Corporation
or, if not rated, determined to be of comparable quality by the Investment
Manager (see "General Portfolio Techniques" below for a discussion of the
characteristics and risks of investments in fixed-income securities rated Baa or
BBB and a discussion of credit risk and interest rate risk, to which risks all
fixed-income securities are subject).
The GLOBAL EQUITY PORTFOLIO will maintain a flexible investment policy and,
based on a worldwide investment strategy, will invest in a diversified portfolio
of securities of companies and governments located throughout the world. Such
securities will generally be those with a record of paying dividends and the
potential for increasing dividends. The percentage of the GLOBAL EQUITY
PORTFOLIO's assets invested in particular geographic sectors will shift from
time to time in accordance with the judgment of the Investment Manager.
The GLOBAL EQUITY PORTFOLIO may also invest in securities of foreign issuers
in the form of American Depository Receipts (ADRs), European Depository Receipts
(EDRs) or other similar securities convertible into securities of foreign
issuers, and invest up to 10% of its total assets in securities issued by other
investment companies (see the discussion of these securities under "General
Portfolio Techniques" below).
Notwithstanding the GLOBAL EQUITY PORTFOLIO's investment objective of
seeking total return, the GLOBAL EQUITY PORTFOLIO may, for defensive purposes,
without limitation, invest in: obligations of the United States Government, its
agencies or instrumentalities, including zero coupon securities (see "General
Portfolio Techniques" below); cash and cash equivalents in major currencies;
repurchase agreements (see "General Portfolio Techniques" below) and money
market instruments. Money market instruments in which the GLOBAL EQUITY
PORTFOLIO may invest are set forth under "General Portfolio Techniques" below.
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies (see "General
Portfolio Techniques" below for a discussion of the characteristics and risks of
investments in foreign securities).
The GLOBAL EQUITY PORTFOLIO may enter into forward foreign currency exchange
contracts, engage in futures contracts and options transactions, purchase
securities which are issued in private placements or are otherwise not readily
marketable, purchase securities on a when-issued or delayed delivery basis or a
"when, as and if issued" basis, and purchase or sell securities on a forward
commitment basis, in each case in accordance with the description of those
investments and techniques
24
<PAGE>
(and subject to the risks) set forth under "General Portfolio Techniques" below
and in the Statement of Additional Information.
THE DEVELOPING GROWTH PORTFOLIO
The investment objective of the DEVELOPING GROWTH PORTFOLIO is long-term
capital growth. This objective may not be changed without the approval of the
shareholders of the DEVELOPING GROWTH PORTFOLIO. There is no assurance that the
objective will be achieved. The following policies may be changed by the
Trustees of the Fund without shareholder approval:
The DEVELOPING GROWTH PORTFOLIO seeks to achieve capital growth which
significantly exceeds the historical total return of common stocks as measured
by the Standard & Poor's 500 index. The primary emphasis is on the securities of
smaller and medium-sized companies that, in the opinion of the Investment
Manager, have the potential to grow much more rapidly than the economy; at
times, investments may also be made in the securities of larger, established
companies which also have such growth potential. The DEVELOPING GROWTH PORTFOLIO
will normally invest at least 65% of its total assets in the securities of such
companies. In addition to common stock, this portion of the portfolio may also
include convertible securities (see "General Portfolio Techniques" below),
preferred stocks and warrants (see "General Portfolio Techniques" below).
The Investment Manager attempts to identify companies whose earnings growth
will be significantly higher than the average. Dividend income is not generally
a consideration in the selection of stocks for purchase.
The Investment Manager focuses its stock selection for the DEVELOPING GROWTH
PORTFOLIO upon a diversified group of emerging growth companies which have moved
beyond the difficult and extremely risky "start-up" phase and which at the time
of selection show positive earnings with the prospects of achieving significant
further profit gains in at least the next two-to-three years after acquisition.
New technologies, techniques, products or services, cost-reducing measures,
changes in management, capitalization or asset deployment, changes in government
regulations or favorable shifts in other external circumstances may all
contribute to the anticipated phase of growth.
The application of the DEVELOPING GROWTH PORTFOLIO's investment policies is
basically dependent upon the judgment of the Investment Manager. The proportions
of the Portfolio's assets invested in particular industries will shift from time
to time in accordance with the judgment of the Investment Manager.
The DEVELOPING GROWTH PORTFOLIO may invest up to 35% of its total assets in
corporate debt securities which are rated at the time of purchase Baa or better
by Moody's Investors Service Inc. or BBB or better by Standard & Poor's
Corporation or which, if unrated, are deemed to be of comparable quality by the
Investment Manager (see "General Portfolio Techniques" below for a discussion of
the characteristics and risks of investments in fixed-income securities rated
Baa or BBB and a discussion of credit risk and interest rate risk, to which
risks all fixed-income securities are subject) and money market instruments.
Money market instruments in which the Portfolio may invest are set forth under
"General Portfolio Techniques" below. There may be periods during which, in the
opinion of the Investment Manager, general market conditions warrant reduction
of some or all of the DEVELOPING GROWTH PORTFOLIO's securities holdings. During
such periods, the Portfolio may adopt a temporary "defensive" posture in which
greater than 35% of its total assets are invested in cash or money market
instruments.
The securities in which the DEVELOPING GROWTH PORTFOLIO invests may or may
not be listed on a national stock exchange, but if they are not so listed, will
generally have an established over-the-counter market.
Since the investment strategy of the DEVELOPING GROWTH PORTFOLIO involves an
ongoing process of determination by the Investment Manager of emerging growth
companies that meet the stock selection process discussed above, it is
anticipated that the Portfolio will have more frequent purchase and sale
transactions than most other Portfolios. Therefore, as noted below under
"General Portfolio Techniques -- Portfolio Trading," the annual portfolio
turnover rate of the DEVELOPING GROWTH PORTFOLIO may exceed 300%.
The DEVELOPING GROWTH PORTFOLIO may also enter into repurchase agreements,
invest in foreign securities, including American Depository Receipts (ADRs) and
European Depository Receipts (EDRs) or similar securities convertible into
securities of foreign issuers, purchase securities which are issued in private
placements or which are not otherwise readily marketable, purchase securities on
a when-issued or delayed delivery basis or a "when, as and if issued" basis, and
purchase or sell securities on a forward commitment basis, in each case in
accor-
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dance with the description of those investments and techniques (and subject to
the risks) set forth under "General Portfolio Techniques" below and in the
Statement of Additional Information.
The DEVELOPING GROWTH PORTFOLIO is authorized to engage in transactions
involving options and futures contracts that would be eligible for use by the
UTILITIES PORTFOLIO, as described under "Options and Futures Transactions" under
"General Portfolio Techniques" below and in the Statement of Additional
Information. The DEVELOPING GROWTH PORTFOLIO does not, however, presently intend
to engage in such options and futures transactions and will not do so unless and
until the Fund's prospectus has been revised to reflect this.
LEVERAGING. The DEVELOPING GROWTH PORTFOLIO may borrow money, but only from
a bank and in an amount up to 25% of the value of the Portfolio's total assets,
taken at the lower of market value or cost, not including the amount borrowed.
When the Portfolio borrows it will be because it seeks to enhance capital
appreciation by leveraging its investments through purchasing securities with
the borrowed funds. Any investment gains (and/or investment income) made with
the additional monies in excess of interest paid will cause the net asset value
of the Portfolio's shares (and/or the Portfolio's net income per share) to rise
to a greater extent than would otherwise be the case. Conversely, if the
investment performance of the additional monies fails to cover their cost to the
Portfolio, net asset value (and/or net income per share) will decrease to a
greater extent than would otherwise be the case. This is the speculative factor
involved in leverage. The Portfolio will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Investment Company Act of
1940, as amended (the "Act"). The investment policy also provides that the
Portfolio may not purchase or sell a security on margin.
THE EMERGING MARKETS PORTFOLIO
The investment objective of the EMERGING MARKETS PORTFOLIO is long-term
capital appreciation. This objective may not be changed without the approval of
the shareholders of the EMERGING MARKETS PORTFOLIO. There can be no assurance
that the objective will be achieved. The following policies may be changed by
the Trustees of the Fund without shareholder approval:
The EMERGING MARKETS PORTFOLIO will seek to achieve its investment objective
by investing at least 65% of its total assets at all times, except for temporary
and defensive purposes, in equity securities of companies in emerging market
countries. For the purposes of this Portfolio, an "emerging market country" is
any country that is considered an emerging or developing country by the
International Bank of Reconstruction and Development (the "World Bank"), as well
as Hong Kong and Singapore. Presently, there are approximately 130 countries
considered to be emerging market countries, approximately 40 of which currently
have established securities markets. These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand, most nations located in Western Europe and certain other nations
located in Asia. A list of the countries not falling within the World Bank
definition of an emerging market country is set forth in the Statement of
Additional Information.
Under current market conditions, the EMERGING MARKETS PORTFOLIO expects that
its investments in equity securities of companies in emerging market countries
initially will consist primarily of equity securities of "Asian Companies" (as
defined below) and, to a lesser extent, equity securities of "Latin American
Companies" (as defined below). Under normal circumstances, the Portfolio will
invest in at least five emerging market countries. The EMERGING MARKETS
PORTFOLIO may not invest more than 20% of its total assets in the securities of
issuers located in any one emerging market country or in any one developed
foreign country other than Australia, Canada, France, Japan, the United Kingdom
and Germany. Substantially all of the Portfolio's investments may be denominated
in currencies other than the U.S. dollar.
The EMERGING MARKETS PORTFOLIO will invest primarily in equity securities of
companies that (i) are organized under the laws of emerging market countries;
(ii) regardless of where organized, derive at least 50% of their revenues from
goods produced or sold, investments made, or services performed in emerging
market countries; (iii) maintain at least 50% of their assets in emerging market
countries; or (iv) have securities which are traded principally on a stock
exchange in an emerging market country. As used herein, "Asian Companies" and
"Latin American Companies" include any companies meeting the foregoing
requirements with respect to Asian emerging market countries or Latin American
emerging market countries, respectively. See "Risks of Investing in Emerging
Market Countries" below.
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The EMERGING MARKETS PORTFOLIO may invest up to 35% of its total assets in
(i) convertible and non-convertible fixed-income securities of government or
corporate issuers located in emerging market countries; (ii) equity and
fixed-income securities of issuers in developed countries; and (iii) cash and
money market instruments. See "General Portfolio Techniques" below for a
discussion of investments in convertible securities and money market
instruments.
There may be periods during which, in the opinion of the Sub-Adviser, market
conditions warrant reduction of some or all of the EMERGING MARKETS PORTFOLIO's
securities holdings. During such periods, the Portfolio may adopt a temporary
"defensive" posture in which any amount of its total assets may be invested in
obligations of the United States government, its agencies or instrumentalities,
including zero coupon securities (see "General Portfolio Techniques" below),
money market instruments and cash.
The equity securities in which the EMERGING MARKETS PORTFOLIO may invest
include common and preferred stock (including convertible preferred stock),
stock purchase warrants and rights, equity interests in trusts and partnerships
and American or other types of Depository Receipts. These securities may be
listed on securities exchanges, traded in various over-the-counter markets or
have no organized market. See "General Portfolio Techniques" below for a
discussion of investments in warrants, other investment companies and American
or other types of Depository Receipts.
The fixed-income securities (including convertible securities) of government
or corporate issuers located in emerging market countries, the United States or
other developed countries in which the EMERGING MARKETS PORTFOLIO may invest may
consist of fixed-income securities that are unrated or rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by Standard & Poor's
Corporation ("S&P"), including zero coupon securities. There is no limit on the
percentage of the Portfolio's total assets which may be invested in fixed-income
securities which are unrated or rated below investment grade. Since the EMERGING
MARKETS PORTFOLIO does not have any minimum quality rating standard for such
investments, the Portfolio may invest in fixed-income securities rated as low as
C by Moody's or D by S&P. See "General Portfolio Techniques" below for a
discussion of the special investment considerations involved in investment in
lower-rated securities, commonly known as "junk bonds," a discussion of zero
coupon securities, and a discussion of credit risk and interest rate risk, to
which risks all fixed-income securities are subject. The Portfolio is not
subject to any restrictions on the maturities of the fixed-income securities it
holds. A description of Moody's and S&P ratings is set forth in the Appendix.
The EMERGING MARKETS PORTFOLIO's investments in debt obligations of
government issuers in emerging market countries will consist of: (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in emerging
market countries (including participations in loans between governments and
financial institutions), (ii) debt securities or obligations issued by
government owned, controlled or sponsored entities located in emerging market
countries, and (iii) interests in issuers organized and operated for the purpose
of restructuring the investment characteristics of instruments issued by any of
the entities described above ("Sovereign Debt"). The Sovereign Debt held by the
Portfolio will take the form of bonds (including Brady Bonds), notes, bills,
debentures, warrants, short-term paper, loan participations, loan assignments
and securities or interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of such Sovereign Debt.
Certain Sovereign Debt held by the Portfolio will not be traded on any
securities exchange. See the discussion of Sovereign Debt and Brady Bonds below
and in the Statement of Additional Information.
U.S. and non-U.S. corporate fixed-income securities in which the EMERGING
MARKETS PORTFOLIO may invest include debt securities, convertible securities and
preferred stocks of corporate issuers.
The EMERGING MARKETS PORTFOLIO may also enter into repurchase agreements and
forward foreign currency exchange contracts, engage in various futures and
options transactions, purchase securities which are issued in private placements
or are otherwise not readily marketable, purchase securities on a when-issued or
delayed delivery basis or a "when, as and if issued" basis, and purchase or sell
securities on a forward commitment basis, in each case in accordance with the
description of these investments and techniques (and subject to the risks) set
forth under "General Portfolio Techniques" below and in the Statement of
Additional Information.
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In its investment strategy, the Sub-Adviser primarily adopts a top-down
approach, beginning with an evaluation of the country in which the proposed
investment is to be made, including relevant external developments and their
implications. Following the country level of review, investments in specific
securities will be made after completion of a fundamental analysis of
securities, industries and companies by the Sub-Adviser, including consideration
of liquidity, market capitalization, a company's existing and expected future
financial position, relative competitive position in the domestic and export
markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations include management expertise,
government regulation and costs of labor and raw materials. The EMERGING MARKETS
PORTFOLIO's investments will be allocated among emerging market countries in
accordance with the Sub-Adviser's judgment as to where the best investment
opportunities exist.
RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. Investors should carefully
consider the risks of investing in securities of foreign issuers and securities
denominated in non-U.S. currencies. See "General Portfolio Techniques" below for
a discussion of the characteristics and risks of investments in foreign
securities. Investors should recognize that investing in securities of emerging
market countries involves certain risks, and special considerations, including
those set forth below, which are not typically associated with investing in
securities of U.S. companies or issuers located in foreign developed countries.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the United States. The limited size of many emerging securities
markets and limited trading volume in issuers compared to volume of trading in
U.S. securities could cause prices to be erratic for reasons apart from factors
that affect the quality of the securities. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of portfolio
securities, especially in these markets.
In addition, emerging market countries' exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and regulation than
their American counterparts. Brokerage commissions, dealer concessions,
custodial expenses and other transaction costs may be higher on foreign markets
than in the U.S. Thus, the EMERGING MARKETS PORTFOLIO's operating expenses are
expected to be higher than those of investment companies investing primarily in
domestic or other more established market regions. Also, differences in
clearance and settlement procedures on foreign markets may occasion delays in
settlements of Portfolio trades effected in such markets. Inability to dispose
of portfolio securities due to settlement delays could result in losses to the
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments.
Many of the emerging market countries may be subject to a greater degree of
economic, political and social instability than is the case in the United States
and Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the EMERGING
MARKETS PORTFOLIO invests and adversely affect the value of the Portfolio's
assets.
The economies of most of the emerging market countries are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners, principally, the
United States, Japan, China and the European Economic Community. The enactment
by the United States or other principal trading partners of protectionist trade
legislation, reduction of foreign investment in the local economies and general
declines in the international securities markets could have a significant
adverse effect upon the securities markets of emerging market countries. In
addition, the economies of some of the emerging market countries such as
Indonesia, Malaysia, Mexico and Venezuela, for example, are vulnerable to
weakness in world prices for their commodity exports, including crude oil. There
may be the possibility of expropriations, confiscatory taxation, political,
economic or social instability or
dip-
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lomatic developments which would adversely affect assets of the Portfolio held
in foreign countries.
Governments in certain emerging market countries participate to a
significant degree, through ownership interests or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. Trading in Sovereign Debt involves a
high degree of risk, since the governmental entity that controls the repayment
of Sovereign Debt may not be willing or able to repay the principal and/or
interest of such debt obligations when they become due, due to factors such as
debt service burden, political constraints, cash flow situation and other
national economic factors. As a result, governments of emerging market countries
may default on their Sovereign Debt, which may require holders of such Sovereign
Debt to participate in debt rescheduling or additional lending to defaulting
governments. There is no bankruptcy proceeding by which defaulted Sovereign Debt
may be collected in whole or in part. Currently, Brazil is the largest debtor
among developing countries, Mexico is the second largest and Argentina the
third. At times certain emerging market countries have declared moratoria on the
payment of principal and/or interest on external debt.
"Brady Bonds," which were issued under the "Brady Plan" in exchange for
loans and cash in connection with restructurings in various emerging market
countries' external debt markets in 1990, have been issued in various
currencies, primarily the U.S. dollar, and are actively traded in the over-
the-counter secondary market for the debt of emerging market countries. In the
case of U.S. dollar denominated collateralized Brady Bonds, the bonds are
collateralized in full as to principal by U.S. Treasury zero coupon bonds of the
same maturity. In addition, at least one year of rolling interest payments are
collateralized by cash or other investments.
The governments of some emerging market countries, to varying degrees, have
been engaged in programs of selling part or all of their stakes in
government-owned or government-controlled enterprises ("privatizations"). The
Sub-Adviser believes that privatizations may offer investors opportunities for
significant capital appreciation and intends to invest assets of the EMERGING
MARKETS PORTFOLIO in privatizations in appropriate circumstances. In certain
emerging market countries, the ability of foreign persons, such as the
Portfolio, to participate in privatizations may be limited by local law, or the
terms on which the Portfolio may be permitted to participate may be less
advantageous than those for local investors. There can be no assurance that
privatization programs will continue or be successful.
Most emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging market
countries.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or the companies with the most
actively traded securities. Also, the Act limits the Portfolio's investments in
any equity security of an issuer which, in its most recent fiscal year, derived
more than 15% of its revenues from "securities related activities," as defined
by the rules thereunder.
Many of the currencies of emerging market countries have experienced steady
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the currencies
in which portfolio securities are denominated may have a detrimental impact on
the EMERGING MARKETS PORTFOLIO.
Some emerging market countries also may have managed currencies which are
not free floating against the U.S. dollar. In addition, there is risk that
certain emerging market countries may restrict the free conversion of their
currencies into other currencies. Further, certain emerging market currencies
may not be internationally traded.
Currently, only a limited market, if any, exists for hedging transactions
relating to currencies in most emerging markets or to securities of issuers
domiciled or principally engaged in business in emerging markets. This may limit
the Portfolio's ability to effectively hedge its investments in emerging
markets. Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currencies should rise. In addition, it may
not be possible for the Portfolio to hedge against a
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devaluation that is so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation level it
anticipates.
As a result of the absence of established securities markets and
publicly-owned corporations in certain emerging market countries, as well as
restrictions on direct investment by foreign entities, the Portfolio may be able
to invest in such countries solely or primarily through American Depository
Receipts ("ADRs") (See "General Portfolio Techniques" below) or similar
securities and government approved investment vehicles. For example, due to
Chile's current investment restrictions (in most cases capital invested directly
in Chile cannot be repatriated for at least one year), the Portfolio's
investments in Chile primarily will be through investment in ADRs and
established Chilean investment companies not subject to repatriation
restrictions.
The EMERGING MARKETS PORTFOLIO may not invest more than 15% of its net
assets in illiquid securities. The Portfolio will treat any emerging market
country's securities that are subject to restrictions on repatriation for more
than seven days, as well as any securities issued in connection with an emerging
market country's debt conversion programs that are restricted as to remittance
of invested capital or profits, as illiquid securities for purposes of this
limitation.
Certain emerging market countries may impose unusually high withholding
taxes on dividends payable to the EMERGING MARKETS PORTFOLIO, thereby
effectively reducing the Portfolio's investment income.
GENERAL PORTFOLIO TECHNIQUES
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED PORTFOLIO may
invest in fixed-rate and adjustable rate United States mortgage-backed
securities ("Mortgage-Backed Securities"). There are currently three basic types
of U.S. Mortgage-Backed Securities: (i) those issued or guaranteed by the United
States Government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
(securities issued by GNMA, but not those issued by FNMA or FHLMC, are backed by
the "full faith and credit" of the United States); (ii) those issued by private
issuers that represent an interest in or are collateralized by Mortgage-Backed
Securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities; and (iii) those issued by private issuers that
represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement. (The latter category or Mortgage-Backed
Securities are not considered Government Securities for purposes of the
investment policies of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO.
Canadian Mortgage-Backed Securities, in which that Portfolio may also invest,
are described above under "The North American Government Securities Portfolio.")
The Portfolios will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders such as banks, broker-dealers and
financing corporations and guaranteed, to the extent provided in such
securities, by the United States Government or one of its agencies or
instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually semi-
annually) 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 (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Portfolios may
invest include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA
certificates are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. FNMA is a federally
chartered, privately owned corporation and FHLMC is a corporate instrumentality
of the United States. FNMA and FHLMC certificates are not backed by the full
faith and credit of the United States, but the issuing agency or instrumentality
has the right to borrow, to meet its obligations, from an existing line of
credit with the U.S. Treasury. The U.S. Treasury has no legal obligation to
provide such line of credit and may choose not to do so.
Certificates for Mortgage-Backed Securities evidence an interest in a
specific pool of mortgages.
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These certificates are, in most cases, "modified pass-through" instruments,
wherein the issuing agency guarantees the payment of principal and interest on
mortgages underlying the certificates, whether or not such amounts are collected
by the issuer on the underlying mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED
PORTFOLIO may also invest in adjustable rate mortgage securities ("ARMs"), which
are pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates. ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve or thirteen scheduled monthly payments. Thereafter, the
interest rates are subject to periodic adjustment based on changes to a
designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED
PORTFOLIO may invest in private mortgage pass-through securities, which are
structured similarly to the GNMA, FNMA and FHLMC mortgage pass-through
securities and are issued by originators of and investors in mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. These
securities usually are backed by a pool of conventional fixed rate or adjustable
rate mortgage loans. Since private mortgage pass-through securities typically
are not guaranteed by an entity having the credit status of GNMA, FNMA and
FHLMC, such securities generally are structured with one or more types of credit
enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED PORTFOLIO may invest in collateralized
mortgage obligations or "CMOs," which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. The BALANCED PORTFOLIO does
not intend to invest more than 5% of its total assets in CMOs. Typically, CMOs
are collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit ("REMIC"). REMICs include governmental and/or private
entities that issue a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Portfolio from investing in CMOs issued by entities that have elected to be
treated as REMICs, and all future references to CMOs shall also be deemed to
include REMICs. In addition, in reliance upon an interpretation by the staff of
the Securities and Exchange Commission, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED PORTFOLIO may
invest without limitation in CMOs and other Mortgage-Backed Securities which are
not by definition excluded from the provisions of the Act, and which have
obtained
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exemptive orders from such provisions from the Securities and Exchange
Commission.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on Mortgage-Backed Securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing market yields on Mortgage-Backed Securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO may invest up to 10% of
its total assets, and the BALANCED PORTFOLIO may invest up to 5% of its total
assets, in inverse floaters. Inverse floaters constitute a class of CMOs with a
coupon rate that moves inversely to a designated index, such as the LIBOR
(London Inter-Bank Offered Rate) Index. Inverse floaters have coupon rates that
typically change at a multiple of the changes of the relevant index rate. Any
rise in the index rate (as a consequence of an increase in interest rates)
causes a drop in the coupon rate of an inverse floater while any drop in the
index rate causes an increase in the coupon of an inverse floater. In addition,
like most other fixed-income securities, the value of inverse floaters will
decrease as interest rates increase. Inverse floaters exhibit greater price
volatility than the majority of mortgage pass-through securities or CMOs. In
addition, some inverse floaters exhibit sensitivity to changes in prepayments.
As a result, the yield to maturity of an inverse floater is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying Mortgage Assets. The Sub-Adviser believes that,
notwithstanding the fact that inverse floaters exhibit price volatility, the use
of inverse floaters as a component of the Portfolio's overall portfolio, in
light of the Portfolio's anticipated portfolio composition in the aggregate, is
compatible with the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO's objective
to earn a high level of current income while maintaining relatively low
volatility of principal.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO and the BALANCED PORTFOLIO also may invest in, among other things,
parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel
pay CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date. PAC
Bonds always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO and the DIVERSIFIED INCOME PORTFOLIO may invest in Stripped
Mortgage-Backed Securities, which are derivative multiclass mortgage securities.
Stripped Mortgage-Backed Securities may be issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
Stripped Mortgage-Backed Securities usually are structured with two classes
that receive different proportions of the interest and principal distribution on
a pool of Mortgage Assets. A common type of Stripped Mortgage-Backed Securities
will have one class receiving some of the interest and most of the
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principal from the Mortgage Assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). PO classes generate income through the accretion of the deep discount at
which such securities are purchased, and, while PO classes do not receive
periodic payments of interest, they receive monthly payments associated with
scheduled amortization and principal prepayment from the Mortgage Assets
underlying the PO class. The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal repayments may
have a material adverse effect on the Portfolio's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated Aaa by Moody's or AAA by S&P.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the DIVERSIFIED
INCOME PORTFOLIO may purchase Stripped Mortgage-Backed Securities for income, or
for hedging purposes to protect the Portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge against a decrease in value of
other fixed-income securities in a rising interest rate environment. The Fund's
management understands that the staff of the Securities and Exchange Commission
considers privately issued Stripped Mortgage-Backed Securities representing
interest only or principal only components of U.S. Government or other debt
securities to be illiquid securities. The Fund will treat such securities as
illiquid so long as the staff maintains such a position. Stripped
Mortgage-Backed Securities issued by the U.S. Government or its agencies, and
which are backed by fixed-rate mortgages, will be treated as liquid provided
they are so determined by, or under procedures approved by, the Trustees of the
Fund. Each Portfolio may not invest more than 15% of its total assets in
illiquid securities.
TYPES OF CREDIT ENHANCEMENT. Mortgage-Backed Securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least a
portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in a security. The Portfolios will not pay any fees for credit
support, although the existence of credit support may increase the price of a
security.
ASSET-BACKED SECURITIES. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED PORTFOLIO may
invest in Asset-Backed Securities. Asset-Backed Securities represent the
securitization techniques used to develop Mortgage-Backed Securities applied to
a broad range of other assets. Through the use of trusts and special purpose
corporations, 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 described above or in
a pay-through structure similar to the CMO structure.
RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-Backed and
Asset-Backed Securities have certain different characteristics than traditional
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Portfolio purchases such
a security at a premium, a prepayment rate that is faster than expected may
reduce yield to maturity, while a prepayment rate that is slower than expected
may have the opposite effect of increasing yield to maturity. Alternatively, if
a Portfolio purchases these securities at a discount, faster than expected
prepayments will increase,
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while slower than expected prepayments may reduce, yield to maturity. Each of
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the DIVERSIFIED INCOME
PORTFOLIO may invest a portion of its assets in derivative Mortgage-Backed
Securities such as Stripped Mortgage-Backed Securities which are highly
sensitive to changes in prepayment and interest rates. The Investment Manager
and/or the Sub-Adviser will seek to manage these risks (and potential benefits)
by investing in a variety of such securities and through hedging techniques.
Mortgage-Backed and Asset-Backed Securities, like all fixed-income
securities, generally decrease in value as a result of increases in interest
rates. In addition, although generally the value of fixed-income securities
increases during periods of falling interest rates and decreases during periods
of rising interest rates, as a result of prepayments and other factors, this is
not always the case with respect to Mortgage-Backed and Asset-Backed Securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by a Portfolio are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates. Asset-Backed
Securities, although less likely to experience the same prepayment rates as
Mortgage-Backed Securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors, such as changes
in credit use and payment patterns resulting from social, legal and economic
factors, will predominate. Mortgage-Backed and Asset-Backed Securities generally
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO will invest in CMOs issued by private entities only if the CMOs are
rated Aa or higher by Moody's or AA or higher by S&P, the BALANCED PORTFOLIO
will invest in such CMOs only if the CMOs are rated Baa or higher by Moody's or
BBB or higher by S&P, and the DIVERSIFIED INCOME PORTFOLIO will invest in such
CMOs only if the CMOs are rated Aaa by Moody's or AAA by S&P, or, if unrated,
such CMOs are determined to be of comparable quality to the permitted rated
investments. Also, a number of different factors, including the extent of
prepayment of principal of the Mortgage Assets, affect the availability of cash
for principal payments by the CMO issuer on any payment date and, accordingly,
affect the timing of principal payments on each CMO class.
Part of the investment strategy of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO may involve combining two classes of CMOs: IOs and inverse floaters.
Both of these classes are highly sensitive to changes in interest and prepayment
rates. As a result each individually is highly volatile. The Sub-Adviser
believes that in combination, IOs and inverse floaters may produce higher yields
than more traditional securities such as U.S. Treasuries or Mortgage-Backed
Securities while maintaining a relatively low degree of volatility. This results
from the fact that changes in the value of inverse floaters tend to be inversely
proportional to the direction of interest rates as is the case with traditional
fixed-income securities, while the value of IOs often is directly proportional
to the direction of interest rates, so when used in combination, inverse
floaters and IOs can serve as a hedging device for the Portfolio. However,
effective use of this hedging technique is dependent upon the Sub-Adviser's
ability to correctly hedge the securities by forecasting interest rate
volatility and corresponding prepayment rates. In the event that assumptions are
erroneous the Portfolio's yield may be reduced.
Asset-Backed Securities involve certain risks that are not posed by
Mortgage-Backed Securities, resulting mainly from the fact that Asset-Backed
Securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
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New instruments and variations of existing Mortgage-Backed Securities and
Asset-Backed Securities continue to be developed. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED
PORTFOLIO, following revision to the Fund's Prospectus, may invest in any such
instruments or variations as may be developed, to the extent consistent with
their investment objectives and policies and applicable regulatory requirements.
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FOREIGN SECURITIES. The EMERGING MARKETS PORTFOLIO will invest primarily in
foreign securities. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO and the GLOBAL EQUITY PORTFOLIO will invest
extensively in foreign securities. The CORE EQUITY PORTFOLIO may invest up to
25% of the value of its total assets, and each of the UTILITIES PORTFOLIO and
the DEVELOPING GROWTH PORTFOLIO may invest up to 10% of the value of its total
assets, in each case at the time of purchase, in foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts ("ADRs") (described below), on which there
is no such limit). The BALANCED PORTFOLIO may invest up to 25% of the value of
its total assets, at the time of purchase, in non-U.S. dollar denominated
foreign securities (other than securities of Canadian issuers registered under
the Securities Exchange Act of 1934 or ADRs, on which there is no such limit).
Investments in certain Canadian issuers may be speculative due to certain
political risks and may be subject to substantial price fluctuations. The
AMERICAN VALUE PORTFOLIO may invest up to 35% of the value of its total assets,
and the UTILITIES PORTFOLIO may invest up to 10% of the value of its total
assets, in each case at the time of purchase, in foreign securities. The
DIVIDEND GROWTH PORTFOLIO may invest in ADRs. The VALUE-ADDED MARKET PORTFOLIO
may purchase common stock, including ADRs, of foreign corporations represented
in the S&P Index (such securities are listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ Market System). Each Portfolio other than
the MONEY MARKET PORTFOLIO may invest in Eurodollar certificates of deposit.
Each Portfolio's investments in unlisted foreign securities, if any, are subject
to the Portfolio's overall policy limiting its investments in illiquid
securities to 15% or less of net assets.
Investors should carefully consider the risks of investing in securities of
foreign issuers and securities denominated in non-U.S. currencies. Fluctuations
in the relative rates of exchange among the currencies of the United States and
foreign countries will affect the value of a Portfolio's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Portfolio's assets denominated in that currency and thereby
impact upon the Portfolio's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of a
Portfolio will be conducted on a spot basis or, in the case of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the
BALANCED PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO, through forward foreign currency exchange contracts (described below)
or futures contracts (described below under "Options and Futures Transactions").
A Portfolio will incur certain costs in connection with these currency
transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Portfolio assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe, especially as they
relate to changes in the structure of the European Union and the anticipated
development of a unified common market, may have profound effects upon the value
of a large segment of the GLOBAL EQUITY PORTFOLIO, in particular. Continued
progress in the evolution of, for example, a united European common market may
be slowed by unanticipated political or social events and may, therefore,
adversely affect the value of certain of the securities held by a Portfolio.
Foreign companies are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available information about
such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
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Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Portfolio trades effected in such markets. Inability to dispose
of portfolio securities due to settlement delays could result in losses to a
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments. To the extent a Portfolio purchases Eurodollar
certificates of deposit, consideration will be given to their domestic
marketability, the lower reserve requirements normally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal or
interest.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO,
the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may engage in
transactions involving forward foreign currency exchange contracts ("forward
contracts"). A forward contract involves an obligation to purchase or sell a
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These Portfolios may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
Currently, only a limited market exists for hedging transactions relating to
the Mexican peso. This may limit the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO's ability to effectively hedge its investments in Mexico. Hedging
against a decline in the value of a currency does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Such transactions also limit the opportunity for gain if the
value of the hedged currency should rise. Moreover, it may not be possible for
the Portfolio to hedge against a devaluation that is so generally anticipated
that the Portfolio is not able to contract to sell the currency at a price above
the devaluation level it anticipates.
The Portfolios will enter into forward contracts under various
circumstances. When a Portfolio enters into a contract for the purchase or sale
of a security denominated in a foreign currency, it may, for example, desire to
"lock in" the price of the security in U.S. dollars or some other foreign
currency which the Portfolio is temporarily holding in its portfolio. By
entering into a forward contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency involved in the
underlying security transactions, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar or other currency which is being used for the security
purchase and the foreign currency in which the security is denominated during
the period between the date on which the security is purchased or sold and the
date on which payment is made or received.
At other times, when, for example, it is believed that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, a Portfolio may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities (or securities which the Portfolio has purchased for its portfolio)
denominated in such foreign currency. Under identical circumstances, the
Portfolio may enter into a forward contract to sell, for a fixed amount of U.S.
dollars or other currency, an amount of foreign currency other than the currency
in which the securities to be hedged are denominated approximating the value of
some or all of the portfolio securities to be hedged. This method of hedging,
called "cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when a Portfolio anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the currency
in which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all
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of the value of the anticipated purchase, for a fixed amount of U.S. dollars or
other currency.
Lastly, the Portfolios are permitted to enter into forward contracts with
respect to currencies in which certain of their portfolio securities are
denominated and on which options have been written (see "Options and Futures
Transactions" below and in the Statement of Additional Information).
In all of the above circumstances, if the currency in which portfolio
securities (or anticipated portfolio securities) are denominated rises in value
with respect to the currency which is being purchased (or sold), then the
Portfolio will have realized fewer gains than had the Portfolio not entered into
the forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the
BALANCED PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO are not required to enter into such transactions with regard to their
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Investment Manager or the Sub-Adviser. The Portfolios
generally will not enter into a forward contract with a term of greater than one
year, although they may enter into forward contracts for periods of up to five
years. The Portfolios may be limited in their ability to enter into hedging
transactions involving forward contracts by the Internal Revenue Code
requirements relating to qualification as a regulated investment company (see
"Dividends, Distributions and Taxes").
AMERICAN DEPOSITORY RECEIPTS AND EUROPEAN DEPOSITORY RECEIPTS. The
DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO, the UTILITIES PORTFOLIO,
the CORE EQUITY PORTFOLIO, the GLOBAL EQUITY PORTFOLIO, the DEVELOPING GROWTH
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also invest in securities of
foreign issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers, including ADRs sponsored by persons other than
the underlying issuers ("unsponsored ADRs"). In addition, the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the VALUE-ADDED
MARKET PORTFOLIO and the AMERICAN VALUE PORTFOLIO may invest in ADRs. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets. Generally, issuers of the stock of unsponsored ADRs are not
obligated to distribute material information in the United States and,
therefore, there may not be a correlation between such information and the
market value of such ADRs.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each of the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may invest up to 10% of its total
assets in securities issued by other investment companies. Such investments are
necessary in order to participate in certain foreign markets where foreigners
are prohibited from investing directly in the securities of individual issuers.
The Portfolio will incur any indirect expenses incurred through investment in an
investment company, such as the payment of a management fee (which may result in
the payment of an additional advisory fee). Furthermore, it should be noted that
foreign investment companies are not subject to the U.S. securities laws and may
be subject to fewer or less stringent regulations than U.S. investment
companies.
INVESTMENTS IN FIXED-INCOME SECURITIES. Each Portfolio may invest in
fixed-income securities. All fixed-income securities are subject to two types of
risks: the credit risk and the interest rate risk. The credit risk relates to
the ability of the issuer to meet interest or principal payments or both as they
come due. Generally, higher yielding fixed-income securities are subject to a
credit risk to a greater extent than lower yielding fixed-income securities (see
below). The interest rate risk refers to the fluctuations in the net asset value
of any portfolio of fixed-income securities resulting from the inverse
relationship between price and yield of fixed-income securities; that is, when
the general level of interest rates rises, the prices of outstanding
fixed-income securities decline, and when interest rates fall, prices rise.
INVESTMENTS IN SECURITIES RATED BAA BY MOODY'S OR BBB BY S&P. The NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the UTILITIES
PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the
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AMERICAN VALUE PORTFOLIO, the DEVELOPING GROWTH PORTFOLIO and the GLOBAL EQUITY
PORTFOLIO may invest a portion of their assets in fixed-income securities rated
at the time of purchase Baa or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Corporation ("S&P").
Investments in fixed-income securities rated either Baa by Moody's or BBB by S&P
(the lowest credit ratings designated "investment grade") may have speculative
characteristics and, therefore, changes in economic conditions or other
circumstances are more likely to weaken their capacity to make principal and
interest payments than would be the case with investments in securities with
higher credit ratings. If a bond held by any of these Portfolios is downgraded
by a rating agency to a rating below Baa or BBB, the Portfolio will retain such
security in its portfolio until the Investment Manager or, in the case of the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the BALANCED PORTFOLIO, the
Sub-Adviser determines that it is practicable to sell the security without undue
market or tax consequences to the Portfolio. In the event that such downgraded
securities constitute 5% or more of the Portfolio's assets, the Investment
Manager or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
and the BALANCED PORTFOLIO, the Sub-Adviser will seek to sell immediately
sufficient securities to reduce the total to below 5%. The risks of holding
lower-rated securities are described below. See the Appendix for an explanation
of Moody's and S&P ratings.
Groupings (1) and (2) of the DIVERSIFIED INCOME PORTFOLIO may continue to
hold fixed-income securities which have been downgraded by a rating agency to a
rating as low as Baa or BBB. However, if a bond held by either of these
groupings is downgraded by a rating agency to a rating below Baa or BBB, the
Portfolio will seek to sell such security immediately.
SPECIAL CONSIDERATIONS FOR INVESTMENTS IN HIGH YIELD SECURITIES. Because of
the special nature of the DIVERSIFIED INCOME PORTFOLIO's and the EMERGING
MARKETS PORTFOLIO's investments in high yield securities, commonly known as
"junk bonds," the Investment Manager or, in the case of the EMERGING MARKETS
PORTFOLIO, the Sub-Adviser must take account of certain special considerations
in assessing the risks associated with such investments. Although the growth of
the high yield securities market in the 1980s had paralleled a long economic
expansion, recently many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or increase
in interest rates is likely to have a negative effect on the high yield bond
market and on the value of the high yield securities held by the Portfolios, as
well as on the ability of the securities' issuers to repay principal and
interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by a
Portfolio defaults, the Portfolio may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of high yield
securities and a concomitant volatility in the net asset value of a share of the
Portfolio. Moreover, the market prices of certain of the securities which are
structured as zero coupon and payment-in-kind securities are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash (see "Dividends,
Distributions and Taxes" for a discussion of the tax ramifications of
investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain high yield securities at certain times and could make it
difficult for the Portfolios to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on the
market for high yield bonds. For example, present legislation requires
federally-insured savings and loan associations to divest their investments in
high yield bonds. This legislation and other proposed legislation may have an
adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the DIVERSIFIED INCOME
PORTFOLIO and the EMERGING MARKETS PORTFOLIO.
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CONVERTIBLE SECURITIES. The DIVERSIFIED IN-
COME PORTFOLIO, the BALANCED PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND
GROWTH PORTFOLIO, the CORE EQUITY PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO, the DEVELOPING GROWTH PORTFOLIO and the EMERGING
MARKETS PORTFOLIO may invest a portion of their assets in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. Convertible securities rank
senior to common stocks in a corporation's capital structure and, therefore,
entail less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's worth
if it were to be exchanged for the underlying security, at market value,
pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
Because of the special nature of the permitted investments of the
DIVERSIFIED INCOME PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO in lower rated convertible securities, the Investment Manager or, in
the case of the CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the
Sub-Adviser must take account of certain special considerations in assessing the
risks associated with such investments. The prices of lower rated securities
have been found to be less sensitive to changes in prevailing interest rates
than higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the issuer
of a fixed-income security owned by the Portfolio defaults, the Portfolio may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility of
market prices of lower rated securities and a corresponding volatility in the
net asset value of a share of the Portfolio.
MONEY MARKET INSTRUMENTS. Money market instruments in which each Portfolio
other than the MONEY MARKET PORTFOLIO and the DIVERSIFIED INCOME PORTFOLIO may
invest are securities issued or guaranteed by the U.S. Government (Treasury
bills, notes and bonds); obligations of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more; Eurodollar
certificates of deposit; obligations of savings banks and savings and loan
associations having total assets of $1 billion or more; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's, and which mature
within thirteen months from the date of purchase. Money market instruments in
which the MONEY MARKET PORTFOLIO and the DIVERSIFIED INCOME PORTFOLIO may invest
are described above under "The Money Market Portfolio" and "The Diversified
Income Portfolio."
REPURCHASE AGREEMENTS. Each Portfolio of the Fund may enter into repurchase
agreements, which may be viewed as a type of secured lending by the Portfolio,
and which typically involve the acquisition by the Portfolio of debt securities,
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Portfolio will
sell back to the institution, and that the institution will repurchase, the
underlying security at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, each 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
contin-
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ually monitored by the Investment Manager or, in the case of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser, subject to
procedures established by the Trustees of the Fund. 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 event of a default or bankruptcy by selling a
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 15% (10% in the case of the MONEY MARKET
PORTFOLIO) of its net assets.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each of the MONEY MARKET
PORTFOLIO, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED PORTFOLIO may also use reverse repurchase
agreements, and each of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO and the BALANCED PORTFOLIO may also use dollar
rolls, as part of its investment strategy. Reverse repurchase agreements involve
sales by the Portfolio of portfolio assets concurrently with an agreement by the
Portfolio to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Portfolio continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that the Portfolio can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
A Portfolio may enter into dollar rolls in which the Portfolio sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type and coupon) securities on a
specified future date. During the roll period, the Portfolio forgoes 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.
The Portfolio will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government securities or other liquid high
grade debt obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Portfolio is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll 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. Reverse repurchase agreements and
dollar rolls are speculative techniques involving leverage, and are considered
borrowings by the Portfolio. Under the requirements of the Act, each Portfolio
is required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED
PORTFOLIO do not expect to engage in reverse repurchase agreements and dollar
rolls with respect to greater than 25% of the Portfolio's total assets. For
purposes other than meeting redemptions, reverse repurchase agreements may not
exceed 5% of the MONEY MARKET PORTFOLIO's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, each Portfolio (other than the
VALUE-ADDED MARKET PORTFOLIO) may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment can take place a month or
more after the date of the commitment. While a Portfolio will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, a Portfolio may sell the securities
before the settlement date, if it is deemed advisable. The
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securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time a Portfolio
makes the commitment to purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis, it will record the transaction and
thereafter reflect the value, each day, of such security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. At the
time of delivery of the securities, their value may be more or less than the
purchase or sale price. A Portfolio will also establish a segregated account
with its custodian bank in which it will continually maintain cash, U.S.
Government securities or other liquid high grade debt portfolio securities equal
in value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis. An increase in the percentage of a
Portfolio's assets committed to the purchase of securities on a when-issued,
delayed delivery or forward commitment basis may increase the volatility of the
Portfolio's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio (other than the MONEY
MARKET PORTFOLIO and the VALUE-ADDED MARKET PORTFOLIO) may purchase securities
on a "when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio until the
Investment Manager or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the Sub-Adviser determines that the issuance of the security
is probable, whereupon the accounting treatment for such commitment will be the
same as for a commitment to purchase a security on a when-issued, delayed
delivery or forward commitment basis, described above and in the Statement of
Additional Information. An increase in the percentage of a Portfolio's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. Each of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED
PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the CORE
EQUITY PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO, the
DEVELOPING GROWTH PORTFOLIO and the EMERGING MARKETS PORTFOLIO may invest up to
15% of its total assets in securities for which there is no readily available
market including certain of those which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act") or which are otherwise not readily marketable.
(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 limitation.) These
securities are generally referred to as private placements or restricted
securities. Limitations on the resale of such securities may have an adverse
effect on their marketability, and may prevent the Portfolio from disposing of
them promptly at reasonable prices. The Portfolio may have to bear the expense
of registering such securities for resale and the risk of substantial delays in
effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Portfolios to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager or, in
the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED
PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the
Sub-Adviser, pursuant to procedures adopted by the Trustees of the Fund, will
make a determination as to the liquidity of each restricted security purchased
by the Portfolio. If a restricted security is determined to be "liquid," such
security will not be included within the category "illiquid securities," which
under current policy may not exceed 15% of a Portfolio's total assets.
Restricted securities in which the MONEY MARKET PORTFOLIO may invest are
described above under "The Money Market Portfolio."
ZERO COUPON SECURITIES. A portion of the Government Securities purchased by
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, a portion of the U.S.
Government securities purchased by the UTILITIES PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the AMERICAN VALUE PORTFOLIO and the GLOBAL EQUITY PORTFOLIO, and a
portion of the fixed-income securities purchased by the DIVERSIFIED INCOME
PORTFOLIO, the BALANCED PORTFOLIO and the EMERGING MARKETS PORTFOLIO may be zero
coupon securities. Such securities are purchased at a discount from their face
amount, giving the purchaser the right to receive their full value at maturity.
The interest earned on such securities is, implicitly, automatically compounded
and paid out at maturity. While such compounding at a constant rate eliminates
the risk of receiving lower
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yields upon reinvestment of interest if prevailing interest rates decline, the
owner of a zero coupon security will be unable to participate in higher yields
upon reinvestment of interest received on interest-paying securities if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater price fluctuations during periods of changing
prevailing interest rates than are comparable securities which pay interest on a
current basis.
The zero coupon securities in which the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO may invest are primarily Canadian Government Securities with remaining
maturities of two years or less issued by Canadian provinces. Such securities
generally are currently readily available only in the form of zero coupon
securities.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent a Portfolio invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. Management
believes that a limited use of zero coupon securities by a Portfolio may enable
the Portfolio to increase the income available to shareholders (as a result of
the yield premium often obtainable on such securities) without significantly
increasing the volatility of the Portfolio's net asset value, although there is
no assurance this can be achieved.
WARRANTS. Each Portfolio (other than the MONEY MARKET PORTFOLIO, the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the VALUE-ADDED MARKET PORTFOLIO)
may acquire warrants attached to other securities and, in addition, each
Portfolio other than the MONEY MARKET PORTFOLIO, the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO
and the VALUE-ADDED MARKET PORTFOLIO may invest up to 5% of the value of its
total assets in warrants not attached to other securities, including up to 2% of
such assets in warrants not listed on either the New York or American Stock
Exchange. Warrants are, in effect, an option to purchase equity securities at a
specific price, generally valid for a specific period of time, and have no
voting rights, pay no dividends and have no rights with respect to the
corporation issuing them. If warrants remain unexercised at the end of the
exercise period, they will lapse and the Portfolio's investment in them will be
lost. The prices of warrants do not necessarily move parallel to the prices of
the underlying securities.
OPTIONS AND FUTURES TRANSACTIONS
Each of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may write covered
call options against securities held in its portfolio and covered put options on
eligible portfolio securities (the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO and the GLOBAL EQUITY PORTFOLIO may also write covered put and call
options on stock indexes) and purchase options of the same or similar series to
effect closing transactions, and may hedge against potential changes in the
market value of its investments (or anticipated investments) by purchasing put
and call options on securities which it holds (or has the right to acquire) in
its portfolio and engaging in transactions involving interest rate futures
contracts and bond index futures contracts and options on such contracts. The
UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO
and the EMERGING MARKETS PORTFOLIO may also hedge against such changes by
entering into transactions involving stock index futures contracts and options
thereon and (except for the EMERGING MARKETS PORTFOLIO) options on stock
indexes. The VALUE-ADDED MARKET PORTFOLIO may purchase futures contracts on
stock indexes such as the S&P Index and the New York Stock Exchange Composite
Index and may sell such futures contracts to effect closing transactions. The
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may
also hedge against potential changes in the market value of the currencies in
which their investments (or anticipated investments) are denominated by
purchasing put and call options on currencies and engaging in transactions
involving currencies futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on Exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Portfolio the right to buy from the OCC (in the
U.S.) or other clearing corporation or exchange the underlying security covered
by the option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration of the
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option. The writer (seller) of the option would then have the obligation to sell
to the OCC (in the U.S.) or other clearing corporation or exchange the
underlying security at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed put
option would give the Portfolio the right to sell the underlying security to the
OCC (in the U.S.) or other clearing corporation or exchange at the stated
exercise price. Upon notice of exercise of the put option, the writer of the put
would have the obligation to purchase the underlying security from the OCC (in
the U.S.) or other clearing corporation or exchange at the exercise price.
Exchange-listed options are issued by the OCC (in the U.S.) or other
clearing corporation or exchange which assures that all transactions in such
options are properly executed. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Portfolio. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Portfolio and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities (or,
in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the currency) underlying an option it has written, in
accordance with the terms of that option, the Portfolio would lose the premium
paid for the option as well as any anticipated benefit of the transaction. The
Portfolios will engage in OTC option transactions only with member banks of the
Federal Reserve System or primary dealers in U.S. Government securities or with
affiliates of such banks or dealers which have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least $50
million.
COVERED CALL WRITING. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO are
permitted to write covered call options on portfolio securities, without limit,
in order to aid them in achieving their investment objectives. In the case of
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, such
options may be denominated in either U.S. dollars or foreign currencies and may
be on the U.S. dollar and foreign currencies. As a writer of a call option, the
Portfolio has the obligation, upon notice of exercise of the option, to deliver
the security (or amount of currency) underlying the option prior to the
expiration date of the option (certain listed and OTC put options written by a
Portfolio will be exercisable by the purchaser only on a specific date).
COVERED PUT WRITING. As a writer of covered put options, the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO or the
EMERGING MARKETS PORTFOLIO incurs an obligation to buy the security underlying
the option from the purchaser of the put, at the option's exercise price at any
time during the option period, at the purchaser's election (certain listed and
OTC put options written by a Portfolio will be exercisable by the purchaser only
on a specific date). The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will
write put options for three purposes: (1) to receive the income derived from the
premiums paid by purchasers; (2) when the Portfolio's management wishes to
purchase the security underlying the option at a price lower than its current
market price, in which case the Portfolio will write the covered put at an
exercise price reflecting the lower purchase price sought; and (3) to close out
a long put option position. The aggregate value of the obligations underlying
the puts determined as of the date the options are sold will not exceed 50% of a
Portfolio's net assets.
PURCHASING CALL AND PUT OPTIONS. The EMERGING MARKETS PORTFOLIO may
purchase listed and OTC call and put options in amounts equaling up to 10% of
its total assets, and each of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
and the DIVERSIFIED INCOME PORTFOLIO may purchase such call and put options in
amounts equalling up to 5% of its total assets. Each of the UTILITIES PORTFOLIO,
the AMERICAN VALUE PORTFOLIO and the GLOBAL EQUITY PORTFOLIO may purchase such
call and put options and options on stock indexes in amounts equalling up to 10%
of its total assets, with a maximum of 5% of its total assets invested in the
purchase of stock index options. These Portfolios may purchase call options
either to close out a covered call position or to protect against an increase in
the price of a security a Portfolio anticipates purchasing or, in the case of
call options on a foreign currency, to hedge against an adverse exchange rate
change of the currency in which the security the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL
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EQUITY PORTFOLIO or the EMERGING MARKETS PORTFOLIO anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The Portfolio may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. Similarly, each of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may purchase put options on
currencies in which securities it holds are denominated only to protect itself
against a decline in value of such currency vis-a-vis the currency in which the
exercise price is denominated. The Portfolios may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on the ability of these
Portfolios to purchase call and put options.
STOCK INDEX OPTIONS. The UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO
and the GLOBAL EQUITY PORTFOLIO may invest in options on stock indexes, which
are similar to options on stock except that, rather than the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or lesser than, in the case of a put, the
exercise price of the option. See "Risks of Options on Indexes," in the
Statement of Additional Information.
FUTURES CONTRACTS. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may
purchase and sell interest rate futures contracts that are currently traded, or
may in the future be traded, on U.S. commodity exchanges on such underlying
securities as U.S. Treasury bonds, notes, and bills and GNMA Certificates and
bond index futures contracts that are traded on U.S. commodity exchanges on such
indexes as the Moody's Investment-Grade Corporate Bond Index. The UTILITIES
PORTFOLIO, the VALUE-ADDED MARKET PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also purchase and
sell stock index futures contracts that are currently traded, or may in the
future be traded, on U.S. commodity exchanges on such indexes as the S&P 500
Index and the New York Stock Exchange Composite Index. The GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also purchase and sell futures
contracts that are currently traded, or may in the future be traded, on foreign
commodity exchanges on such underlying securities as common stocks and on such
indexes of foreign equity securities as may exist or come into being, such as
the Financial Times Equity Index. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may also purchase and sell futures contracts that are
currently traded, or may in the future be traded, on foreign commodity exchanges
on such underlying securities as foreign government fixed-income securities, on
various currencies ("currency futures") and on such indexes of foreign
fixed-income securities as may exist or come into being. As a futures contract
purchaser, a Portfolio incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. As a seller of a futures contract, a Portfolio
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will purchase or sell
interest rate futures contracts and bond index futures contracts for the purpose
of hedging their fixed-income portfolio (or anticipated portfolio) securities
against changes in prevailing interest rates or, in the case of the UTILITIES
PORTFOLIO, to facilitate asset reallocations into and out of the fixed-income
area. The UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO will purchase or sell stock index
futures contracts for the purpose of hedging their equity portfolio (or
anticipated portfolio) securities against changes in their prices or, in the
case of the UTILITIES PORTFOLIO, to facilitate asset reallocations into and out
of the equity area. The VALUE-ADDED MARKET PORTFOLIO will purchase stock index
futures contracts as a temporary substitute for the purchase of individual
stocks which may then be purchased in orderly fashion, and may sell such
contracts to effect closing transactions. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO will purchase or sell currency
futures on currencies in which their portfolio securities (or anticipated
portfolio securities) are denominated for the purposes of hedging against
anticipated changes in currency exchange rates.
OPTIONS ON FUTURES CONTRACTS. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the
AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY
PORT-
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FOLIO and the EMERGING MARKETS PORTFOLIO may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. The NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the
UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO
and the EMERGING MARKETS PORTFOLIO will only purchase and write options on
futures contracts for identical purposes to those set forth above for the
purchase of a futures contract (purchase of a call option or sale of a put
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or to close out a long or short position in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. A Portfolio may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges limit the amount by which the price of a futures contract may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased.
The extent to which a Portfolio may enter into transactions involving
options and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification of each Portfolio as a regulated investment
company and the Fund's intention to qualify each Portfolio as such. See
"Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO for the purpose of hedging
their portfolio securities are not speculative in nature, there are risks
inherent in the use of such instruments. One such risk is that the Portfolio's
management could be incorrect in its expectations as to the direction or extent
of various interest rate movements or the time span within which the movements
take place. For example, if a Portfolio sold interest rate futures contracts for
the sale of securities in anticipation of an increase in interest rates, and
then interest rates went down instead, causing bond prices to rise, the
Portfolio would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the portfolio securities (and, in the case of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the securities'
denominated currencies). Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Portfolio seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term traders
seeking to profit from the difference between a contract or security price
objective and their cost of borrowed funds. Such distortions are generally minor
and would diminish as the contract approached maturity.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, by
entering into transactions in foreign futures and options markets, will incur
risks similar to those discussed above under "Foreign Securities."
New options and futures contracts and other financial products and various
combinations thereof continue to be developed. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO,
the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO may invest in any such options, futures and products as may be
developed to the extent consistent with their investment objectives and
applicable regulatory requirements, and the Fund will make any and all pertinent
disclosures relating to such investments in its Prospectus and/ or Statement of
Additional Information. Except as otherwise noted above, there are no
limitations on the ability of any of these Portfolios to invest in options,
futures and options on futures.
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PORTFOLIO TRADING
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving the investment objectives of the
respective Portfolios, each Portfolio may sell portfolio securities without
regard to the length of time they have been held whenever such sale will in the
opinion of the Investment Manager (or, in the case of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser) strengthen the
Portfolio's position and contribute to its investment objectives. In determining
which securities to purchase for the Portfolios or hold in a Portfolio, the
Investment Manager and, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the Sub-Adviser will rely on information from various
sources, including research, analysis and appraisals of brokers and dealers, the
views of Trustees of the Fund and others regarding economic developments and
interest rate trends, and the Investment Manager's and, in the case of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser's own
analysis of factors they deem relevant.
Personnel of the Investment Manager and, in the case of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Brokerage commissions are not normally charged on the purchase or sale of
money market instruments and U.S. Government obligations, or on currency
conversions, but such transactions will involve costs in the form of spreads
between bid and asked prices. Orders for transactions in portfolio securities
and commodities may be placed for the Fund with a number of brokers and dealers,
including Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of
InterCapital. Pursuant to an order of the Securities and Exchange Commission,
the Fund may effect principal transactions in certain money market instruments
with DWR. In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR.
The MONEY MARKET PORTFOLIO is expected to have a high portfolio turnover due
to the short maturities of securities purchased, but this should not affect
income or net asset value as brokerage commissions are not normally charged on
the purchase or sale of money market instruments. It is not anticipated that the
portfolio turnover rates of the Portfolios will exceed the following percentages
in any year: NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO: 100%; DIVERSIFIED
INCOME PORTFOLIO: 150%; BALANCED PORTFOLIO: 100%; UTILITIES PORTFOLIO: 100%;
DIVIDEND GROWTH PORTFOLIO: 90%; VALUE-ADDED MARKET PORTFOLIO: 100%; CORE EQUITY
PORTFOLIO: 100%; AMERICAN VALUE PORTFOLIO: 400%; GLOBAL EQUITY PORTFOLIO: 100%;
DEVELOPING GROWTH PORTFOLIO: 300%; and EMERGING MARKETS PORTFOLIO: 100%. A
portfolio turnover rate exceeding 100% in any one year is greater than that of
many other investment companies. Each Portfolio of the Fund will incur
underwriting discount costs (on underwritten securities) and/or brokerage costs
commensurate with its portfolio turnover rate. The expenses of the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO relating to their portfolio
management are likely to be greater than those incurred by other investment
companies investing primarily in securities issued by domestic issuers as
custodial costs, brokerage commissions and other transaction charges related to
investing in foreign markets are generally higher than in the United States.
Short-term gains and losses may result from portfolio transactions. See
"Dividends, Distributions and Taxes" for a discussion of the tax implications of
the Portfolios' trading policies. A more extensive discussion of the Portfolios'
brokerage policies is set forth in the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The following individuals have been designated as the primary portfolio
managers of the Portfolios of the Fund (other than the MONEY MARKET PORTFOLIO):
Philip A. Barach, James M. Goldberg, Jeffrey E. Gundlach and Douglas R. Metcalf,
Managing Directors of the Sub-Adviser, are the primary portfolio managers of the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO. Messrs. Barach, Gundlach and
Goldberg have been portfolio managers with affiliates of The TCW Group, Inc. for
over five years. Mr. Metcalf has been a portfolio manager with affiliates of The
TCW Group, Inc. since March, 1990, prior to which time he was Managing Director
of First Interstate Bank Ltd. Peter M. Avelar and Rajesh K. Gupta, Senior Vice
Presidents of InterCapital, and Vinh Q. Tran, Vice President of
Inter-
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Capital, are the primary portfolio managers of the DIVERSIFIED INCOME PORTFOLIO.
Mr. Avelar has been a portfolio manager with InterCapital since December, 1990,
prior to which time he was affiliated with PaineWebber Asset Management as a
First Vice President and Portfolio Manager. Messrs. Gupta and Tran have been
portfolio managers with InterCapital for over five years. James A. Tilton,
Managing Director of the Sub-Adviser, is the primary portfolio manager of the
equity portion of the BALANCED PORTFOLIO and has been a portfolio manager with
affiliates of The TCW Group, Inc. for over five years. James M. Goldberg (see
above) is the primary portfolio manager of the fixed-income portion of the
BALANCED PORTFOLIO. Edward F. Gaylor, Senior Vice President of InterCapital, is
the primary portfolio manager of the UTILITIES PORTFOLIO and has been a
portfolio manager with InterCapital for over five years. Paul D. Vance, Senior
Vice President of InterCapital, is the primary portfolio manager of the DIVIDEND
GROWTH PORTFOLIO and has been a portfolio manager with InterCapital for over
five years. Robert M. Hanisee, Managing Director of the Sub-Adviser, is the
primary portfolio manager of the CORE EQUITY PORTFOLIO and has been a portfolio
manager with affiliates of The TCW Group, Inc. since April, 1990, prior to which
time he was President and Director of Research for Seidler Amdec Securities.
Kenton J. Hinchliffe, Senior Vice President of InterCapital, is the primary
portfolio manager of the VALUE-ADDED MARKET PORTFOLIO and has been a portfolio
manager with InterCapital for over five years. Anita H. Kolleeny, Senior Vice
President of InterCapital, is the primary portfolio manager of the AMERICAN
VALUE PORTFOLIO and has been a portfolio manager with InterCapital for over five
years. Thomas H. Connelly, Senior Vice President of InterCapital, is the primary
portfolio manager of the GLOBAL EQUITY PORTFOLIO and has been a portfolio
manager with InterCapital for over five years. Ronald J. Worobel, Senior Vice
President of InterCapital, is the primary portfolio manager of the DEVELOPING
GROWTH PORTFOLIO and has been a portfolio manager with InterCapital since June,
1992, prior to which time he was a portfolio manager at MacKay Shields Financial
Corp. Shaun C.K. Chan, Managing Director of TCW Asia Ltd., Robert J.M. Rawe,
President, Managing Director, Chief Executive Officer and Director of TCW London
International, Limited, and Paul G. Wargnier, Managing Director of the
Sub-Adviser, are the primary portfolio managers of the EMERGING MARKETS
PORTFOLIO. Mr. Chan has been a portfolio manager with affiliates of The TCW
Group, Inc. since 1993, prior to which time he was Director of Wardley
Investment Services (Hong Kong) Ltd. Mr. Rawe has been a portfolio manager with
TCW London International, Limited since August, 1993, prior to which time he was
President and Chief Executive Officer of Dillon, Read International Asset
Management Co. Mr. Wargnier has been a portfolio manager with affiliates of The
TCW Group, Inc. since June, 1990, prior to which time he was Vice President and
Director of Research for D.A. Campbell Co., Inc., an institutional brokerage
firm.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted as fundamental policies of each Portfolio other than the MONEY
MARKET PORTFOLIO. In addition, the MONEY MARKET PORTFOLIO has adopted
restrictions two and five as fundamental policies. Under the Investment Company
Act of 1940, as amended (the "Act"), a fundamental policy may not be changed
with respect to a Portfolio without the vote of a majority of the outstanding
voting securities of that Portfolio, as defined in the Act.
Each Portfolio of the Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any one issuer (other than obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer.
(All of the Portfolios of the Fund may, collectively, purchase more than 10%
of all outstanding voting securities or any class of securities of any one
issuer.)
3. With the exception of the UTILITIES PORTFOLIO, invest 25% or more of
the value of its total assets in securities of issuers in any one industry.
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 NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the
DIVERSIFIED INCOME PORTFOLIO, to Mortgage-Backed Securities.
4. 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
47
<PAGE>
restriction shall not apply to any obligation issued or guaranteed by the
United States Government, its agencies or instrumentalities or, in the case
of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the DIVERSIFIED
INCOME PORTFOLIO, to Mortgage-Backed Securities and Asset-Backed Securities.
5. Borrow money (except insofar as the MONEY MARKET PORTFOLIO, the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO and the BALANCED PORTFOLIO may be deemed to have borrowed by
entrance into a reverse repurchase agreement or the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the
BALANCED PORTFOLIO may be deemed to have borrowed by entrance into a dollar
roll), 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 DEVELOPING
GROWTH PORTFOLIO, not for investment or leveraging, provided that borrowing
in the aggregate (other than, in the case of the DEVELOPING GROWTH
PORTFOLIO, for investment or leveraging) may not exceed 5% (taken at the
lower of cost or current value) of the value of the Portfolio's total assets
(not including the amount borrowed).
The MONEY MARKET PORTFOLIO has also adopted the following restrictions as
fundamental policies:
1. With respect to 75% of its total assets, purchase any securities,
other than obligations of the U.S. Government, or its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of the MONEY MARKET PORTFOLIO's total assets would be invested in
securities of any one issuer. However, as a non-fundamental policy, the
MONEY MARKET PORTFOLIO will not invest more than 10% of its total assets in
the securities of any one issuer. Furthermore, pursuant to current
regulatory requirements, the MONEY MARKET PORTFOLIO may only invest more
than 5% of its total assets in the securities of a single issuer (and only
with respect to one issuer at a time) for a period of not more than three
business days and only if the securities have received the highest quality
rating by at least two NRSROs.)
2. Purchase any securities, other than obligations of domestic banks or
of the U.S. Government, or its agencies or instrumentalities, if,
immediately after such purchase, more than 25% of the value of the MONEY
MARKET PORTFOLIO's total assets would be invested in the securities of
issuers in the same industry; however, there is no limitation as to
investments in domestic bank obligations or in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
In addition, as a non-fundamental policy, each Portfolio of the Fund may not
invest more than 15% (10% in the case of the MONEY MARKET PORTFOLIO) 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. For purposes of this policy, securities eligible for
sale pursuant to Rule 144A under the Securities Act are not considered illiquid
if they are determined to be liquid under procedures adopted by the Trustees of
the Fund. As another non-fundamental policy, each Portfolio of the Fund may not
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 EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, in accordance
with the provisions of Section 12(d) of the Act and any Rules promulgated
thereunder (e.g., each of these Portfolios may not invest in more than 3% of the
outstanding voting securities of any investment company). For this purpose,
Mortgage-Backed Securities and Asset-Backed Securities are not deemed to be
investment companies.
All percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total assets does not
require elimination of any security from the Portfolio.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share is calculated separately for each Portfolio.
In general, the net asset value per share is computed by taking the value of all
the assets of the Portfolio, subtracting all liabilities, dividing by the number
of shares outstanding and adjusting the result to the nearest cent. The Fund
will compute the net asset value per share of each Portfolio once daily at 4:00
p.m., New York time, on days the New York Stock Exchange is open for trading.
The net asset value per share will not be
48
<PAGE>
determined on Good Friday and on such other Federal and non-Federal holidays as
are observed by the New York Stock Exchange.
The MONEY MARKET PORTFOLIO utilizes the amortized cost method in valuing its
portfolio securities, which method involves valuing a security at its cost
adjusted by a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00. However, there can
be no assurance that the $1.00 net asset value will be maintained.
In the calculation of the net asset value of the Portfolios other than the
MONEY MARKET PORTFOLIO: (1) an equity portfolio security listed or traded on the
New York or American Stock Exchange or other domestic or foreign stock exchange
is valued at its latest sale price on that exchange prior to the time when
assets are valued (if there were no sales that day, the security is valued at
the latest bid price) (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by the Trustees); and (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price prior to the time of valuation. In either (1) or (2) above,
when market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager (or, in the case of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, by the Sub-Adviser) that
sale or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's Board
of Trustees. Valuation of securities for which market quotations are not readily
available may also be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates as of the morning of valuation. Dividends receivable are accrued as of the
ex-dividend date except for certain dividends from foreign securities which are
accrued as soon as the Fund is informed of such dividends after the ex-dividend
date.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the portfolio securities of each Portfolio other than the MONEY
MARKET PORTFOLIO may be valued by an outside pricing service approved by the
Fund's Trustees. The pricing service utilizes a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research evaluations by its staff, including review of broker-dealer market
price quotations, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
Investments in the Fund may be made only by (1) Hartford Life Insurance
Company for allocation to certain separate accounts it established and maintains
for the purpose of funding variable annuity contracts it issues, and by (2) ITT
Hartford Life and Annuity Insurance Company for allocation to certain separate
accounts it established and maintains for the purpose of funding variable
annuity contracts it issues. Persons desiring to purchase annuity contracts
funded by any Portfolio of the Fund should read this Prospectus in conjunction
with the Prospectus of the flexible premium deferred annuity contracts issued by
Hartford Life Insurance Company or ITT Hartford Life and Annuity Insurance
Company (the "Companies").
In the future, shares of the Portfolios of the Fund may be allocated to
certain other separate accounts or sold to affiliated and/or non-affiliated
entities of the Companies in connection with variable annuity contracts or
variable life insurance contracts. It is conceivable that in the future it may
become disadvantageous for both variable life and variable annuity contract
separate accounts to invest in the same underlying fund. Although the Companies
and the Fund do not currently foresee any such disadvantage, if the shares of
the Fund are offered in connection with variable life insurance contracts, the
Fund's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflict between the interests of variable annuity
con-
49
<PAGE>
tract owners and variable life insurance contract owners and to determine what
action, if any, should be taken in response thereto.
Shares of each Portfolio of the Fund are offered to the Companies for
allocation to the Accounts without sales charge at the respective net asset
values of the Portfolios next determined after receipt by the Fund of the
purchase payment in the manner set forth above under "Determination of Net Asset
Value." In the interest of economy and convenience, certificates representing
the Fund's shares will not be physically issued.
REDEMPTION OF FUND SHARES
- --------------------------------------------------------------------------------
Shares of any Portfolio of the Fund can be redeemed by the Companies at any
time for cash, without sales charge, at the net asset value next determined
after receipt of the redemption request. (For information regarding charges
which may be imposed upon the Contracts by the applicable Account, see the
Prospectus for the Variable Annuity Contracts.)
The Fund reserves the right to suspend the right of redemption or to
postpone the date of payment upon redemption of the shares of any Portfolio for
any period during which the New York Stock Exchange is closed (other than
weekend and holiday closings) or trading on that Exchange is restricted, or
during which an emergency exists (as determined by the Securities and Exchange
Commission) as a result of which disposal of the portfolio securities owned by
the Portfolio is not reasonably practicable or it is not reasonably practicable
for the Portfolio to determine the value of its net assets, or for such other
period as the Securities and Exchange Commission may by order permit for the
protection of shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to distribute substantially
all of the net investment income and net realized capital gains, if any, of each
Portfolio. Dividends from net investment income and any distributions of
realized capital gains will be paid in additional shares of the Portfolio paying
the dividend or making the distribution and credited to the shareholder's
account.
MONEY MARKET PORTFOLIO. Dividends from net income on the MONEY MARKET
PORTFOLIO will be declared, payable on each day the New York Stock Exchange is
open for business to shareholders of record as of the close of business the
preceding business day. Net income, for dividend purposes, includes accrued
interest and accretion of original issue and market discount, less the
amortization of market premium and the estimated expenses of the MONEY MARKET
PORTFOLIO. The amount of dividend may fluctuate from day to day and may be
omitted on some days if realized losses on portfolio securities exceed the MONEY
MARKET PORTFOLIO's net investment income. Dividends are automatically reinvested
daily in additional shares of the MONEY MARKET PORTFOLIO at the net asset value
per share at the close of business that day. Any net realized capital gains will
be declared and paid at least once per calendar year; net short-term gains may
be paid more frequently, with the distribution of dividends from net investment
income.
OTHER PORTFOLIOS. Dividends from net investment income, if any, on the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the BALANCED PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH
PORTFOLIO, the VALUE-ADDED MARKET PORTFOLIO, the CORE EQUITY PORTFOLIO, the
AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO, the DEVELOPING GROWTH
PORTFOLIO and the EMERGING MARKETS PORTFOLIO will be declared and paid monthly,
and any net realized capital gains will be declared and paid at least once per
calendar year.
TAXES. Because the Fund intends to distribute substantially all of the net
investment income and capital gains of each Portfolio and otherwise qualify each
Portfolio as a regulated investment company under Subchapter M of the Internal
Revenue Code (the "Code"), it is not expected that any Portfolio of the Fund
will be required to pay any Federal income tax on such income and capital gains.
Gains or losses on a Portfolio's transactions in certain listed options and
on futures and options on futures generally are treated as 60% long-term and 40%
short-term. When a Portfolio engages in options and futures transactions,
various tax regulations applicable to the Portfolio may have the effect of
causing the Portfolio to recognize a gain or loss for tax purposes before that
gain or loss is realized, or to defer recognition of a realized loss for tax
purposes. Recognition, for tax purposes, of an unrealized loss may result in a
lesser amount of the realized net short-term gains of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the VALUE-ADDED
MAR-
50
<PAGE>
KET PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO being available for distribution. These Portfolios
intend to make certain elections which may minimize the impact of these rules
but which could also result in a higher portion of the Portfolio's gains being
treated as short-term capital gains.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of a Portfolio's gross income be derived from the sale or
other disposition of securities held for less than three months. This
requirement may limit the ability of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the
VALUE-ADDED MARKET PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO to engage in options and futures
transactions.
With respect to investments by the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO, the
UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO in
zero coupon bonds and investment by the DIVERSIFIED INCOME PORTFOLIO and the
EMERGING MARKETS PORTFOLIO in payment-in-kind bonds, the Portfolios accrue
income prior to any actual cash payments by their issuers. In order to continue
to comply with Subchapter M of the Code and remain able to forego payment of
Federal income tax on their income and capital gains, each Portfolio must
distribute all of its net investment income, including income accrued from zero
coupon and payment-in-kind bonds. As such, these Portfolios may be required to
dispose of some of their portfolio securities under disadvantageous
circumstances to generate the cash required for distribution.
Dividends, interest and capital gains received by a Portfolio on investments
in foreign issuers or which are denominated in foreign currency may give rise to
withholding and other taxes imposed by foreign countries, which may or may not
be refunded to the Portfolio.
Since the Companies are the only shareholders of the Fund, no discussion is
stated herein as to the Federal income tax consequences at the shareholder
level. For information concerning the Federal income tax consequences to holders
of variable annuity contracts, see the Prospectus for the Variable Annuity
Contracts.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the "yield" and "effective yield" of
the MONEY MARKET PORTFOLIO. Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the MONEY
MARKET PORTFOLIO refers to the income generated by an investment in the
Portfolio over a given period (which period will be stated in the
advertisement). This income is then annualized. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in the MONEY MARKET PORTFOLIO is assumed to be reinvested each
week within a 365-day period. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
MONEY MARKET PORTFOLIO's "yield" and "effective yield" do not reflect the
deduction of any charges which may be imposed on the Contracts by the Account
and are therefore not equivalent to total return under a Contract (for a
description of such charges, see the Prospectus for the Contracts).
From time to time the Fund may quote the "total return" of each Portfolio in
advertisements and sales literature. The total return of a Portfolio is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of a Portfolio refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in the Portfolio of $1,000 over the life of the Portfolio. Average
annual total return reflects all income earned by the Portfolio, any
appreciation or depreciation of the Portfolio's assets and all expenses incurred
by the Portfolio for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Portfolio. However, average annual total
return does not reflect the deduction of any charges which may be imposed on the
Contracts by the Account which, if reflected, would reduce the performance
quoted.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by the Account. The Fund may also advertise the growth of hypothetical
investments of $10,000, $50,000 and $100,000 in shares of a Portfolio. The Fund
from time to time may also advertise
51
<PAGE>
the performance of the Portfolios relative to certain performance rankings and
indexes compiled by independent organizations, such as Lipper Analytical
Services, Inc.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The shares of beneficial interest of the Fund, with $0.01 par value, are
divided into twelve separate Portfolios, and the shares of each Portfolio are
equal as to earnings, assets and voting privileges with all other shares of that
Portfolio. There are no conversion, pre-emptive or other subscription rights.
Upon liquidation of the Fund or any Portfolio, shareholders of a Portfolio are
entitled to share pro rata in the net assets of that Portfolio available for
distribution to shareholders after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
The assets received by the Fund on the sale of shares of each Portfolio and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are allocated to each Portfolio, and constitute the assets of such
Portfolio. The assets of each Portfolio are required to be segregated on the
Fund's books of account.
Additional Portfolios (the proceeds of which would be invested in separate,
independently managed portfolios with distinct investment objectives, policies
and restrictions) may be offered in the future, but such additional offerings
would not affect the interests of the current shareholders in the existing
Portfolios.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio. To the extent required by law, Hartford Life Insurance Company and
ITT Hartford Life and Annuity Insurance Company, which are the only shareholders
of the Fund, will vote the shares of the Fund held in each Account in accordance
with instructions from Contract Owners, as more fully described under the
caption "Voting Rights" in the Prospectus for the Variable Annuity Contracts.
The Trustees of the Fund have been elected by Hartford Life Insurance Company.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Dean Witter Trust Company, an
affiliate of the Investment Manager, whose address is Harborside Financial
Center, Plaza Two, Jersey City, NJ 07311, is the Transfer Agent of the Fund's
shares and Dividend Disbursing Agent for payments of dividends and distributions
on Fund shares.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
INITIAL SHAREHOLDER. Hartford Life Insurance Company purchased 100 shares
of the MONEY MARKET PORTFOLIO and 10 shares of each of the other eleven
Portfolios on August 31, 1994, for an aggregate purchase price of $1,200, and
has undertaken to purchase 99,900 additional shares of the MONEY MARKET
PORTFOLIO and 9,990 additional shares of each of the other Portfolios prior to
the commencement of the Fund's operations, for an aggregate purchase price,
inclusive of the August 31, 1994 purchase price, of $1,200,000. Hartford Life
Insurance Company may redeem such shares at any time after the net assets of the
Portfolios have attained a sufficient level so that such redemption will not
cause disruption of the operations of the affected Portfolio.
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APPENDIX -- RATINGS OF INVESTMENTS
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Moody's Investors Service Inc. ("Moody's")
Bond Ratings
<TABLE>
<S> <C>
Aaa Bonds 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 Bonds 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 bonds. They are
rated lower than the best bonds 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 Bonds 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 Bonds 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 bonds lack
outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds 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
over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments.
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 Bonds 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 Bonds 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 Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
CONDITIONAL RATING: Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond 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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<PAGE>
Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. 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")
Bond Ratings
A Standard & Poor's bond 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 Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated A has 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 debt in higher-rated categories.
BBB Debt rated BBB is 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 debt in this category than for debt in
higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative grade
debt. However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has 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>
54
<PAGE>
<TABLE>
<S> <C>
CCC Debt rated CCC has a current identifiable vulnerability to default, and is 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, it is not likely to have the capacity to pay interest and repay
principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is assigned
an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes that such payments will
be made during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
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.
Bonds 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 debt 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 ratings 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.
The foregoing ratings are sometimes followed by a "p" which indicates that the rating
is provisional. A provisional rating assumes the successful completion of the project
being financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely completion
of the project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood or risk of default upon
failure of such completion.
</TABLE>
Commercial Paper Ratings
Standard and 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>
55
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER , 1994 [LOGO]
- --------------------------------------------------------------------------------
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES (the "Fund") is an open-end
diversified management investment company which is intended to provide a broad
range of investment alternatives with its twelve separate Portfolios, each of
which has distinct investment objectives and policies:
-THE MONEY MARKET PORTFOLIO
-THE NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
-THE DIVERSIFIED INCOME PORTFOLIO
-THE BALANCED PORTFOLIO
-THE UTILITIES PORTFOLIO
-THE DIVIDEND GROWTH PORTFOLIO
-THE VALUE-ADDED MARKET PORTFOLIO
-THE CORE EQUITY PORTFOLIO
-THE AMERICAN VALUE PORTFOLIO
-THE GLOBAL EQUITY PORTFOLIO
-THE DEVELOPING GROWTH PORTFOLIO
-THE EMERGING MARKETS PORTFOLIO
There can be no assurance that the investment objectives of the Portfolios
will be achieved. See "Investment Practices and Policies."
A Prospectus for the Fund dated October , 1994, which provides the basic
information you should know before allocating your investment under your
Variable Annuity Contract to the Fund, may be obtained without charge from the
Fund at its address or telephone number listed below or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus for the Fund. It is intended to
provide you additional information regarding the activities and operations of
the Fund, and should be read in conjunction with the Prospectuses for the Fund
and for the Variable Annuity Contracts.
Dean Witter
Select Dimensions Investment Series
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 7
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 44
Portfolio Transactions and Brokerage................................................... 45
Purchase and Redemption of Fund Shares................................................. 47
Dividends, Distributions and Taxes..................................................... 49
Performance Information................................................................ 52
Description of Shares of the Fund...................................................... 53
Custodian and Transfer Agent........................................................... 54
Independent Accountants................................................................ 54
Reports to Shareholders................................................................ 54
Legal Counsel.......................................................................... 55
Experts................................................................................ 55
Registration Statement................................................................. 55
Report of Independent Accountants...................................................... 55
Statement of Assets and Liabilities at September 6, 1994............................... 56
Appendix -- Ratings.................................................................... 58
</TABLE>
------------------------
Currently, the shares of the Fund will be sold only to (1) Hartford Life
Insurance Company for allocation to certain of its separate accounts to fund the
benefits under certain flexible premium deferred variable annuity contracts it
issues, and to (2) ITT Hartford Life and Annuity Insurance Company for
allocation to certain of its separate accounts to fund the benefits under
certain flexible premium deferred variable annuity contracts it issues. Such
separate accounts are sometimes referred to individually as an "Account" and
collectively as the "Accounts." The variable annuity contracts issued by
Hartford Life Insurance Company and ITT Hartford Life and Annuity Insurance
Company (the "Companies") are sometimes referred to as the "Variable Annuity
Contracts" or the "Contracts." ITT Hartford Life and Annuity Insurance Company
is a wholly-owned subsidiary of Hartford Life Insurance Company. In the future,
shares may be allocated to certain other separate accounts or sold to affiliated
and/or non-affiliated entities of the Companies in connection with variable
annuity contracts or variable life insurance contracts. The Companies will
invest in shares of the Fund in accordance with allocation instructions received
from Contract Owners, which allocation rights are further described in the
Prospectus for the Variable Annuity Contracts issued by Hartford Life Insurance
Company or ITT Hartford Life and Annuity Insurance Company. The Companies will
redeem shares to the extent necessary to provide benefits under the Contracts.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying fund. Although the Companies and the Fund do not
currently foresee any such disadvantage, if the shares of the Fund are offered
in connection with variable life insurance contracts, the Fund's Board of
Trustees intends to monitor events in order to identify any material
irreconcilable conflict between the interests of variable annuity contract
owners and variable life insurance contract owners and to determine what action,
if any, should be taken in response thereto.
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was organized under the laws of the Commonwealth of Massachusetts
on June 2, 1994 and is a trust of the type commonly known as a "Massachusetts
Business Trust."
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation. In
an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the internal
reorganization and Dean Witter InterCapital Inc. thereafter.) The daily
management of the Fund and research relating to the Fund's portfolios are
conducted by or under the direction of officers of the Fund and of the
Investment Manager, subject to periodic review by the Fund's Board of Trustees.
In addition, Trustees of the Fund provide guidance on economic factors and
interest rate trends. Information as to these Trustees and officers is contained
under the caption, "Trustees and Officers."
The Investment Manager is also the investment manager or investment adviser
of the following investment companies: Dean Witter Liquid Asset Fund Inc., Dean
Witter High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean
Witter Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities
Trust, Dean Witter Natural Resource Development Securities Inc., Dean Witter
Dividend Growth Securities Inc., Dean Witter American Value Fund, Dean Witter
U.S. Government Money Market Trust, Dean Witter World Wide Investment Trust,
Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S. Government
Securities Trust, Dean Witter California Tax-Free Income Fund, Dean Witter New
York Tax-Free Income Fund, Dean Witter Convertible Securities Trust, Dean Witter
Federal Securities Trust, Dean Witter Value-Added Market Series, Dean Witter
Utilities Fund, Dean Witter Managed Assets Trust, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter Strategist Fund, Dean Witter World Wide
Income Trust, Dean Witter Intermediate Income Securities, Dean Witter Capital
Growth Securities, Dean Witter New York Municipal Money Market Trust, Dean
Witter European Growth Fund Inc., Dean Witter Precious Metals and Minerals
Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter Pacific
Growth Fund Inc., Dean Witter Multi-State Municipal Series Trust, Dean Witter
Premier Income Trust, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Health Sciences Trust, Dean Witter Retirement Series, Dean Witter Global
Dividend Growth Securities, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Global Utilities Fund, Dean Witter High
Income Securities, Dean Witter National Municipal Trust, Dean Witter
International SmallCap Fund, Dean Witter Mid-Cap Growth Fund, InterCapital
Income Securities Inc., High Income Advantage Trust, High Income Advantage Trust
II, High Income Advantage Trust III, Dean Witter Government Income Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal Trust,
InterCapital Insured Municipal Income Trust, InterCapital Insured Municipal
Securities, InterCapital California Insured Municipal Income Trust, InterCapital
Insured California Municipal Securities, InterCapital Quality Municipal
Investment Trust, InterCapital Quality Municipal Income Trust, InterCapital
Quality Municipal Securities, InterCapital California Quality Municipal
Securities, InterCapital New York Quality Municipal Securities, Active Assets
Money Trust, Active Assets Tax-Free Trust, Active Assets California Tax-Free
Trust, Active Assets Government Securities Trust, Municipal Income Trust,
Municipal Income Trust II, Municipal Income Trust III, Municipal Income
Opportunities Trust, Municipal Income Opportunities Trust II, Municipal Income
Opportunities Trust III, Municipal Premium Income Trust and Prime Income Trust.
The foregoing investment companies, together with the Fund, are collectively
referred to as the Dean Witter Funds.
3
<PAGE>
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc., the Sub-Adviser of various
Portfolios of the Fund, is the investment adviser: TCW/DW Core Equity Trust,
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW North
American Intermediate Income Trust, TCW/DW Global Convertible Trust, TCW/DW
Total Return Trust, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Balanced
Fund, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003
(the "TCW/DW Funds"). InterCapital also serves as: (i) sub-adviser to Templeton
Global Opportunities Trust, an open-end investment company; (ii) administrator
of The BlackRock Strategic Term Trust Inc., a closed-end investment company; and
(iii) sub-administrator of MassMutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which are not available for purchase in the United States
or by American citizens outside the United States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
manage the investment of the assets of each Portfolio, including the placing of
orders for the purchase and sale of portfolio securities. The Investment Manager
obtains and evaluates such information and advice relating to the economy,
securities markets, and specific securities as it considers necessary or useful
to continuously manage the assets of the Portfolios of the Fund in a manner
consistent with their investment objectives and policies.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund. The Investment Manager has retained DWSC to perform its administrative
services under the Management Agreement.
Under the terms of the Management Agreement, the Investment Manager is
authorized to retain a sub-adviser and, pursuant to a Sub-Advisory Agreement
between the Investment Manager and TCW Funds Management, Inc. (the
"Sub-Adviser"), the Investment Manager has retained the Sub-Adviser to provide
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the
CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO of the Fund with
investment advice and portfolio management, in each case subject to the overall
supervision of the Investment Manager. The Sub-Adviser is a wholly-owned
subsidiary of The TCW Group, Inc., whose direct and indirect subsidiaries,
including Trust Company of the West and TCW Asset Management Company, provide a
variety of trust, investment management and investment advisory services. As of
June 30, 1994, the Sub-Adviser and its affiliates had approximately $50 billion
under management or committed to management. Trust Company of the West and its
affiliates have managed securities portfolios for institutional investors since
1971. The Sub-Adviser is headquartered at 865 South Figueroa Street, Suite 1800,
Los Angeles, California 90017 and is registered as an investment adviser under
the Investment Advisers Act of 1940. The Sub-Adviser serves as investment
adviser to the eleven TCW/DW Funds named above and also serves as investment
adviser to TCW Convertible Securities Fund, Inc., a closed-end investment
company traded on the New York Stock Exchange, and to TCW Funds, Inc., open-end
investment companies, and acts as adviser or sub-adviser to other investment
companies.
4
<PAGE>
Robert A. Day, who is Chairman of the Board of Directors of the Sub-Adviser,
may be deemed to be a control person of the Sub-Adviser by virtue of the
aggregate ownership by Mr. Day and his family of more than 25% of the
outstanding voting stock of The TCW Group, Inc.
The Sub-Adviser in turn has entered into further sub-advisory agreements
(the "Secondary Sub-Advisory Agreements") with two of its affiliates, TCW Asia
Limited, a Hong Kong corporation, and TCW London International, Limited, a
California corporation (the "Secondary Sub-Advisers"), pursuant to which the
Secondary Sub-Advisers will assist the Sub-Adviser in providing services under
the Sub-Advisory Agreement in respect of the EMERGING MARKETS PORTFOLIO. Each of
the Secondary Sub-Advisers is a wholly-owned subsidiary of The TCW Group, Inc.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Sub-Adviser of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO pursuant to the Sub-Advisory Agreement (see below)
will be paid by the Fund. Each Portfolio pays all other expenses incurred in its
operation and a portion of the Fund's general administration expenses allocated
on the basis of the asset size of the respective Portfolios. Expenses that are
borne directly by a Portfolio include, but are not limited to: charges and
expenses of any registrar, custodian, share transfer and dividend disbursing
agent; brokerage commissions; certain taxes; registration costs of the Portfolio
and its shares under federal and state securities laws; shareholder servicing
costs; charges and expenses of any outside service used for pricing of the
shares of the Portfolio; interest on borrowings by the Portfolio; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (or the Sub-Adviser)
(not including compensation or expenses of attorneys who are employees of the
Investment Manager (or the Sub-Adviser)) and independent accountants; and all
other expenses attributable to a particular Portfolio. Expenses which are
allocated on the basis of size of the respective Portfolios include the costs
and expenses of printing, including typesetting, and distributing prospectuses
and statements of additional information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager (or the
Sub-Adviser) or any corporate affiliate of the Investment Manager (or the
Sub-Adviser); state franchise taxes; Securities and Exchange Commission fees;
membership dues of industry associations; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Fund which inure
to its benefit; and all other costs of the Fund's operations properly payable by
the Fund and allocable on the basis of size of the respective Portfolios.
Depending on the nature of a legal claim, liability or lawsuit, litigation
costs, payment of legal claims or liabilities and any indemnification relating
thereto may be directly applicable to the Portfolio or allocated on the basis of
the size of the respective Portfolios. The Trustees have determined that this is
an appropriate method of allocation of expenses.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.50% to the net assets of the MONEY MARKET PORTFOLIO; 0.65% to the net
assets of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO; 0.40% to the net
assets of the DIVERSIFIED INCOME PORTFOLIO; 0.75% to the net assets of the
BALANCED PORTFOLIO; 0.65% to the net assets of the UTILITIES PORTFOLIO; 0.625%
to the net assets of the DIVIDEND GROWTH PORTFOLIO; 0.50% to the net assets of
the VALUE-ADDED MARKET PORTFOLIO; 0.85% to the net assets of the CORE EQUITY
PORTFOLIO; 0.625% to the net assets of the AMERICAN VALUE PORTFOLIO; 1.0% to the
net assets of the GLOBAL EQUITY PORTFOLIO; 0.50% to the net assets of the
DEVELOPING GROWTH PORTFOLIO; and 1.25% to the net assets of the EMERGING MARKETS
PORTFOLIO, in each case determined as of the close of each business day. The
Investment Manager has undertaken to assume all operating expenses of each
Portfolio (except for any brokerage fees and a portion of organizational
expenses) and waive the compensation provided for each Portfolio in its
Management Agreement with the Fund until such time as the pertinent Portfolio
has $50 million of net assets or until six months from the date of the
Portfolio's commencement of operations, whichever occurs first. The Management
Agreement also provides that if the total operating expenses of a Portfolio,
exclusive of taxes, interest, brokerage fees and certain legal claims and
liabilities and litigation and
5
<PAGE>
indemnification expenses, as described in the Management Agreement, for the
fiscal year exceed 2.5% of the first $30,000,000 of average daily net assets of
the Portfolio, 2% of the next $70,000,000 and 1.5% of any excess over
$100,000,000, the Investment Manager will reimburse the Portfolio for the amount
of such excess, up to the amount of the management fee for such Portfolio for
that year. Such amount, if any, will be calculated daily and credited on a
monthly basis.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
thereunder, the Investment Manager is not liable to the Fund or any of its
investors for any act or omission by the Investment Manager or for any losses
sustained by the Fund or its investors. The Management Agreement in no way
restricts the Investment Manager from acting as investment manager or adviser to
others.
The Investment Manager will pay the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund will reimburse the
Investment Manager for such expenses, in an amount of up to a maximum of
$250,000. The Fund will defer and will amortize the reimbursed expenses on the
straight line method over a period not to exceed five years from the date of
commencement of the Fund's operations.
Both the Investment Manager and the Sub-Adviser have authorized any of their
directors, officers and employees who have been elected as Trustees or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED
PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO by the
Investment Manager and the Sub-Adviser may be furnished by directors, officers
and employees of the Investment Manager and the Sub-Adviser. In connection with
the services rendered by the Sub-Adviser, the Sub-Adviser bears the following
expenses: (a) the salaries and expenses of its personnel; and (b) all expenses
incurred by it in connection with performing the services provided by it as
Sub-Adviser, as described above.
As full compensation for the services and facilities furnished to the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO, the EMERGING MARKETS PORTFOLIO and the Investment Manager, and
the expenses of these Portfolios and the Investment Manager assumed by the
Sub-Adviser, the Investment Manager pays the Sub-Adviser monthly compensation
equal to 40% of the Investment Manager's monthly compensation payable under the
Management Agreement in respect of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO. Pursuant to the Sub-Advisory Agreement, if any reimbursement
is made by the Investment Manager to the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO as a result of the Portfolio exceeding the expense limitation,
the Investment Manager will be reimbursed for 40% of such payment by the
Sub-Adviser. For the services to be provided to the Sub-Adviser by the Secondary
Sub-Advisers under the Secondary Sub-Advisory Agreements, the Sub-Adviser pays a
portion of its compensation under the Sub-Advisory Agreement to the Secondary
Sub-Advisers, which portion shall vary from time to time.
The Management Agreement, the Sub-Advisory Agreement in respect of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, and the Secondary
Sub-Advisory Agreements in respect of the EMERGING MARKETS PORTFOLIO were
initially approved by the Trustees of the Fund on August 25, 1994 and by
Hartford Life Insurance Company (the "Company") as the then sole shareholder on
August 31, 1994. The Management Agreement, the Sub-Advisory Agreement and the
Secondary Sub-Advisory Agreements are sometimes herein referred to as the
"Agreements." The Agreements may be terminated at any time, without penalty, on
thirty days' notice by the Trustees of the Fund, by the holders of a majority,
as defined in the Investment Company Act of 1940, as amended (the "Act"), of the
outstanding shares of the Fund, or by the other party or parties to the
Agreements. Each Agreement will automatically terminate in the event of its
assignment (as defined in the Act). Under their terms, each Agreement will
continue in effect until April 30, 1996, and from year to year thereafter,
provided continuance of the Agreement is approved at least annually by the vote
of the holders of a majority, as defined in the Act, of the outstanding shares
of
6
<PAGE>
each Portfolio (or, in the case of the Sub-Advisory Agreement in respect of the
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the outstanding shares of
each of those Portfolios, or, in the case of the Secondary Sub-Advisory
Agreements in respect of the EMERGING MARKETS PORTFOLIO, the outstanding shares
of that Portfolio), or by the Trustees of the Fund; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees of the Fund who are not parties to the Agreement or "interested
persons" (as defined in the Act) of any such party (the "Independent Trustees"),
which vote must be cast in person at a meeting called for the purpose of voting
on such approval. If the question of continuance of the Management Agreement,
the Sub-Advisory Agreement or the Secondary Sub-Advisory Agreements (or adoption
of any new Management, Sub-Advisory or Secondary Sub-Advisory Agreement) is
presented to shareholders, continuance (or adoption) with respect to a Portfolio
shall be effective only if approved by a majority vote of the outstanding voting
securities of that Portfolio. If the shareholders of any one or more of the
Portfolios should fail to approve the Management Agreement, the Sub-Advisory
Agreement or a Secondary Sub-Advisory Agreement, the Investment Manager may
nonetheless serve as Investment Manager with respect to any Portfolio whose
shareholders approved the Management Agreement, and the Sub-Adviser and the
Secondary Sub-Advisers may nonetheless serve as Sub-Adviser or Secondary
Sub-Adviser, as the case may be, with respect to any Portfolio whose
shareholders have approved the Management Agreement, the Sub-Advisory Agreement
and the Secondary Sub-Advisory Agreements. To the extent required by law, the
Companies, which are the only shareholders of the Fund, will vote the shares of
the Fund held by it in accordance with instructions from Contract Owners, as
more fully described under the caption "Voting Rights" in the Prospectus for the
Contracts.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the Management Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and TCW Funds Management, Inc. and with the Dean Witter Funds and
the TCW/DW Funds are shown below.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Jack F. Bennett Retired; Director or Trustee of the Dean Witter Funds; formerly Senior
Trustee Vice President and Director of Exxon Corporation (1975-January, 1989)
141 Taconic Road and Under Secretary of the U.S. Treasury for Monetary Affairs
Greenwich, Connecticut (1974-1975); Director of Philips Electronics N.V., Tandem Computers
Inc. and Massachusetts Mutual Insurance Co.; director or trustee of
various other not-for-profit and business organizations.
Michael Bozic President and Chief Executive Officer of Hills Department Stores (since
Trustee May, 1991); formerly Chairman and Chief Executive Officer (January,
c/o Hills Stores Inc. 1987-August, 1990) and President and Chief Operating Officer (August,
15 Dan Road 1990-February, 1991) of the Sears Merchandise Group of Sears, Roebuck
Canton, Massachusetts and Co.; Director or Trustee of the Dean Witter Funds; Director of
Harley Davidson Credit Inc., the United Negro College Fund and Domain
Inc. (home decor retailer).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* Chairman and Chief Executive Officer and Director of InterCapital, DWSC
Chairman of the Board, and Dean Witter Distributors Inc. ("Distributors"); Executive Vice
President and Chief Executive President and Director of DWR; Chairman, Director or Trustee, President
Officer and Trustee and Chief Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman and
New York, New York Director of Dean Witter Trust Company ("DWTC"); Director and/or officer
of various DWDC subsidiaries.
Edwin J. Garn Director or Trustee of the Dean Witter Funds; formerly United States
Trustee Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
2000 Eagle Gate Tower (1980-1986); formerly Mayor of Salt Lake City, Utah (1972-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January, 1993); Member
of the board of various civic and charitable organizations.
John R. Haire Chairman of the Audit Committee and Chairman of the Committee of the
Trustee Independent Directors or Trustees and Director or Trustee of the Dean
439 East 51st Street Witter Funds; Trustee of the TCW/DW Funds; formerly President, Council
New York, New York for Aid to Education (1978-October, 1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an Investment Adviser
(1964-1978); Director of Washington National Corporation (insurance)
and Bowne & Co., Inc. (printing).
Dr. John E. Jeuck Retired; Director or Trustee of the Dean Witter Funds; formerly Robert
Trustee Law Professor of Business Administration, Graduate School of Business,
70 East Cedar Street University of Chicago (until July, 1989); Business Consultant.
Chicago, Illinois
Dr. Manuel H. Johnson Senior Partner, Johnson Smick International, Inc., a consulting firm
Trustee (since June, 1985); Koch Professor of International Economics and
7521 Old Dominion Drive Director of the Center for Global Market Studies at George Mason
Maclean, Virginia University (since September, 1990); Co-Chairman and a founder of the
Group of Seven Council (G7C), an international economic commission
(since September, 1990); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/ DW Funds; Director of Greenwich Capital Markets
Inc. (broker-dealer); formerly Vice Chairman of the Board of Governors
of the Federal Reserve System (February, 1986-August, 1990) and
Assistant Secretary of the U.S. Treasury (1982-1986).
Paul Kolton Director or Trustee of the Dean Witter Funds; Chairman of the Audit
Trustee Committee and Chairman of the Committee of the Independent Trustees and
9 Hunting Ridge Road Trustee of the TCW/DW Funds; formerly Chairman of the Financial
Stamford, Connecticut Accounting Standards Advisory Council; formerly Chairman and Chief
Executive Officer of the American Stock Exchange; Director of UCC
Investors Holding Inc. (Uniroyal Chemical Company Inc.); director or
trustee of various not-for-profit organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michael E. Nugent General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership (since 1988); Director or Trustee of the Dean Witter Funds;
237 Park Avenue, Trustee of the TCW/DW Funds; formerly Vice President, Bankers Trust
New York, New York Company and BT Capital Corporation (September, 1984-March, 1988);
director of various business organizations.
Philip J. Purcell* Chairman of the Board of Directors and Chief Executive Officer of DWDC,
Trustee DWR and Novus Credit Services Inc.; Director of InterCapital, DWSC and
Two World Trade Center Distributors; Director or Trustee of the Dean Witter Funds; Director
New York, New York and/or officer of various DWDC subsidiaries.
John L. Schroeder Executive Vice President and Chief Investment Officer of the Home
Trustee Insurance Company (since August, 1991); Director or Trustee of the Dean
Northgate 3A Witter Funds; Director of Citizens Utilities Company; formerly Chairman
Alger Court and Chief Investment Officer of Axe-Houghton Management and the
Bronxville, New York Axe-Houghton Funds (April, 1983-June, 1991) and President of USF&G
Financial Services, Inc. (June, 1990-June, 1991).
Edward R. Telling* Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Chairman of the Board of Directors and Chief Executive Officer (until
Sears Tower December 31, 1985) and President (from January, 1981-March, 1982 and
Chicago, Illinois from February, 1984-August, 1984) of Sears, Roebuck and Co.; formerly
Director of Sears, Roebuck and Co.
Sheldon Curtis Senior Vice President, Secretary and General Counsel of InterCapital
Vice President, Secretary and DWSC; Senior Vice President, Assistant Secretary and Assistant
and General Counsel General Counsel of Distributors; Senior Vice President and Secretary of
Two World Trade Center DWTC; Assistant Secretary of DWDC and DWR and Vice President, Secretary
New York, New York and General Counsel of the Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital (December, 1990-April, 1992) and Senior Portfolio Manager,
New York, New York First Vice President of PaineWebber Asset Management (March,
1989-December, 1990).
Thomas H. Connelly Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Patricia A. Cuddy Vice President of InterCapital (since June, 1994); Vice President of
Vice President various Dean Witter Funds; formerly Senior Vice President of Dreyfus
Two World Trade Center Corporation.
New York, New York
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Edward F. Gaylor Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Rajesh K. Gupta Senior Vice President of InterCapital (since May, 1991); Vice President
Vice President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Kenton J. Hinchliffe Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Anita H. Kolleeny Senior Vice President of InterCapital (since April, 1992); Vice
Vice President President of various Dean Witter Funds; previously Vice President of
Two World Trade Center InterCapital.
New York, New York
Jonathan R. Page Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Vinh Q. Tran Vice President of InterCapital; Vice President of various Dean Witter
Vice President Funds.
Two World Trade Center
New York, New York
Paul D. Vance Senior Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds.
Two World Trade Center
New York, New York
Ronald J. Worobel Senior Vice President of InterCapital (since June 1993); Vice President
Vice President of various Dean Witter Funds; formerly Vice President of InterCapital
Two World Trade Center (June, 1992-June, 1993) and Managing Director, MacKay-Shields Financial
New York, New York Corp. (February, 1989-June, 1992).
Paula LaCosta Vice President of InterCapital (since April, 1992); Vice President of
Vice President various Dean Witter Funds; previously Assistant Vice President of
Two World Trade Center InterCapital.
New York, New York
Philip A. Barach Managing Director of TCW Funds Management, Inc.; Managing Director,
Vice President Mortgage-Backed Securities of Trust Company of the West and TCW Asset
865 South Figueroa Street Management Company; Vice President of various TCW/DW Funds.
Los Angeles, California
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
James M. Goldberg Managing Director of TCW Funds Management, Inc.; Managing Director and
Vice President Chairman of the Fixed Income Policy Committee of Trust Company of the
865 South Figueroa Street West and TCW Asset Management Company; Vice President of various TCW/DW
Los Angeles, California Funds.
Jeffrey E. Gundlach Managing Director of TCW Funds Management, Inc.; Managing Director,
Vice President Mortgage-Backed Securities of Trust Company of the West and TCW Asset
865 South Figueroa Street Management Company; Vice President of various TCW/DW Funds.
Los Angeles, California
Douglas R. Metcalf Managing Director of TCW Funds Management, Inc., Trust Company of the
Vice President West and TCW Asset Management Company (since March, 1990); previously
865 South Figueroa Street Managing Director of First Interstate Bank Ltd.; Vice President of
Los Angeles, California various TCW/DW Funds.
James A. Tilton Managing Director of TCW Funds Management, Inc.; Managing Director and
Vice President member of the Equity Policy Committee of Trust Company of the West and
865 South Figueroa Street TCW Asset Management Company; Chairman of the Board of Verdugo Hills
Los Angeles, California Hospital and Chairman of the Board of Councilors of the University of
Southern California School of Public Administration; director of
various other business organizations; Vice President of various TCW/DW
Funds.
Robert M. Hanisee Managing Director of TCW Funds Management, Inc. (since April, 1990);
Vice President Managing Director, Director of Research and Chairman of the Equity
865 South Figueroa Street Policy Committee of Trust Company of the West and TCW Asset Management
Los Angeles, California Company (since April, 1990); previously President and Director of
Research for Seidler Amdec Securities.
Paul G. Wargnier Managing Director of TCW Funds Management, Inc. (since June, 1990);
Vice President Managing Director of Trust Company of the West and TCW Asset Management
865 South Figueroa Street Company (since June, 1990); previously Vice President and Director of
Los Angeles, California Research for D.A. Campbell Co., Inc. (institutional brokerage firm).
Thomas F. Caloia First Vice President (since May, 1991) and Assistant Treasurer (since
Treasurer April, 1988) of InterCapital; First Vice President and Treasurer of
Two World Trade Center DWSC; Treasurer of the Dean Witter Funds and the TCW/DW Funds;
New York, New York previously Vice President of InterCapital.
- ---------
<FN>
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Investment Company Act of 1940, as amended.
</TABLE>
11
<PAGE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, and Edmund C. Puckhaber, Executive Vice President of InterCapital, are
Vice Presidents of the Fund, and Marilyn K. Cranney and Barry Fink, First Vice
Presidents and Assistant General Counsels of InterCapital and DWSC, and Lawrence
Lafer, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, are Assistant Secretaries of the Fund.
The Fund pays each Trustee who is not an employee or retired employee of the
Investment Manager or the Sub-Adviser, or an affiliated company of either of
them, an annual fee of $1,200 plus $50 for each meeting of the Board of Trustees
or of any committee of the Board of Trustees attended by the Trustee in person
(the Fund pays the Chairman of the Audit Committee an additional annual fee of
$1,000 and pays the Chairman of the Committee of the Independent Trustees an
additional annual fee of $2,400, in each case inclusive of the Committee meeting
fees). 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.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
The Fund is an open-end diversified management investment company which is
intended to provide a broad range of investment alternatives with its twelve
separate Portfolios, each of which has distinct investment objectives and
policies, as set forth below and in the Prospectus:
-THE MONEY MARKET PORTFOLIO seeks high current income, preservation of
capital and liquidity by investing in short-term money market instruments.
-THE NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO seeks to earn a high
level of current income while maintaining relatively low volatility of
principal, by investing primarily in investment grade fixed-income
securities issued or guaranteed by the U.S., Canadian or Mexican
governments.
-THE DIVERSIFIED INCOME PORTFOLIO seeks, as a primary objective, to earn a
high level of current income and, as a secondary objective, to maximize
total return, but only to the extent consistent with its primary objective,
by equally allocating its assets among three separate groupings of
fixed-income securities. Up to one-third of the securities in which the
DIVERSIFIED INCOME PORTFOLIO may invest will include securities rated
Baa/BBB or lower (such securities are commonly known as "junk bonds").
-THE BALANCED PORTFOLIO seeks to achieve high total return through a
combination of income and capital appreciation, by investing in a
diversified portfolio of common stocks and investment grade fixed-income
securities.
-THE UTILITIES PORTFOLIO seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and
fixed-income securities of companies engaged in the public utilities
industry.
-THE DIVIDEND GROWTH PORTFOLIO seeks to provide reasonable current income
and long-term growth of income and capital by investing primarily in common
stock of companies with a record of paying dividends and the potential for
increasing dividends.
-THE VALUE-ADDED MARKET PORTFOLIO seeks to achieve a high level of total
return on its assets through a combination of capital appreciation and
current income by investing, on an equally weighted basis, in a diversified
portfolio of common stocks of the companies which are represented in the
Standard & Poor's 500 Composite Stock Price Index.
-THE CORE EQUITY PORTFOLIO seeks long-term growth of capital by investing
primarily in common stocks and securities convertible into common stocks
issued by domestic and foreign companies.
12
<PAGE>
-THE AMERICAN VALUE PORTFOLIO seeks long-term growth consistent with an
effort to reduce volatility by investing principally in common stock of
companies in industries which, at the time of the investment, are believed
to be undervalued in the marketplace.
-THE GLOBAL EQUITY PORTFOLIO seeks a high level of total return on its
assets, primarily through long-term capital growth and, to a lesser extent,
from income. It seeks to achieve this objective through investments in all
types of common stocks and equivalents, preferred stocks and bonds and
other debt obligations of domestic and foreign companies and governments
and international organizations.
-THE DEVELOPING GROWTH PORTFOLIO seeks long-term capital growth by by
investing primarily in common stocks of smaller and medium-sized companies
that, in the opinion of the Investment Manager, have the potential for
growing more rapidly than the economy and which may benefit from new
products or services, technological developments or changes in management.
-THE EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of companies in emerging market
countries. The EMERGING MARKETS PORTFOLIO may invest up to 35% of its total
assets in high risk fixed-income securities that are rated below investment
grade or are unrated.
There can be no assurance that the Portfolios' investment objectives will be
achieved.
Each Portfolio of the Fund is subject to the diversification requirements of
Section 817(h) of the Internal Revenue Code relating to the favorable tax
treatment of variable annuity contracts. Regulations issued under such section
require each Portfolio to invest no more than 55% of its assets in any one
investment; no more than 70% of its assets in any two investments; no more than
80% of its total assets in any three investments; and no more than 90% of its
total assets in any four investments. For purposes of the regulations, all
securities of the same issuer are treated as a single investment. In addition,
the Portfolios are subject to the diversification requirements of the Act, as
described under the heading "Investment Restrictions" below and in the
Prospectus.
THE MONEY MARKET PORTFOLIO
VARIABLE AND FLOATING RATE OBLIGATIONS. As stated in the Prospectus, the
MONEY MARKET PORTFOLIO may invest in variable and floating rate obligations. The
interest rate payable on a variable rate obligation is adjusted at predesignated
periodic intervals and, on floating rate obligations, whenever there is a change
in the market rate of interest on which the interest rate payable is based.
Other features may include the right whereby the MONEY MARKET PORTFOLIO may
demand prepayment of the principal amount of the obligation prior to its stated
maturity (a "demand feature") and the right of the issuer to prepay the
principal amount prior to maturity. The principal benefit of a variable rate
obligation is that the interest rate adjustment minimizes changes in the market
value of the obligation. As a result, the purchase of variable rate and floating
rate obligations should enhance the ability of the MONEY MARKET PORTFOLIO to
maintain a stable net asset value per share (see "How Net Asset Value is
Determined") and to sell obligations prior to maturity at a price approximating
the full principal amount of the obligations. The principal benefits to the
MONEY MARKET PORTFOLIO of purchasing obligations with a demand feature are that
liquidity and the ability of the MONEY MARKET PORTFOLIO to obtain repayment of
the full principal amount of an obligation prior to maturity are enhanced. The
payment of principal and interest by issuers of certain obligations purchased by
the MONEY MARKET PORTFOLIO may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether an obligation meets the
MONEY MARKET PORTFOLIO's investment quality requirements.
PRIVATE PLACEMENTS. As discussed in the Prospectus, the MONEY MARKET
PORTFOLIO may invest in commercial paper issued in reliance on the so-called
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act") and which may be sold to other
institutional investors pursuant to Rule 144A under the Securities Act. The
adoption by the Securities and Exchange Commission of Rule 144A, which permits
the resale of certain restricted securities to institutional investors, had the
effect of broadening and increasing the liquidity of the
13
<PAGE>
institutional trading market for securities subject to restrictions on resale to
the general public. Section 4(2) commercial paper sold pursuant to Rule 144A is
restricted in that is can be resold only to qualified institutional investors.
However, since institutions constitute virtually the entire market for such
commercial paper, the market for such Section 4(2) commercial paper is, in
reality, as liquid as that for other commercial paper. While the MONEY MARKET
PORTFOLIO generally holds to maturity commercial paper in its portfolio, the
advent of Rule 144A has greatly simplified the ability to sell Section 4(2)
commercial paper to other institutional investors.
Open-end investment companies are not permitted to hold over 15% (10% for
money market funds) of their net assets in securities for which there is no
established market ("illiquid securities"). However, under procedures adopted by
the Trustees of the Fund, the MONEY MARKET PORTFOLIO may purchase Section 4(2)
commercial paper without being subject to the limitation on illiquid investments
and will be able to utilize Rule 144A to sell that paper to other institutional
investors. The procedures require that the Investment Manager consider the
following factors in determining that any restricted security eligible for sale
pursuant to Rule 144A be considered liquid: (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (3) dealer
undertakings to make a market in the security, and (4) the nature of the
security and the nature of the marketplace trades (i.e., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The Investment Manager will report to the Trustees on a quarterly
basis on all restricted securities held by the MONEY MARKET PORTFOLIO with
regard to their ongoing liquidity. In the event any Section 4(2) commercial
paper or other restricted security held by the MONEY MARKET PORTFOLIO is
determined to be illiquid by the Trustees and the Investment Manager, that
investment would be included as an illiquid security subject to the limitation
on illiquid investments referred to above.
THE AMERICAN VALUE PORTFOLIO
As discussed in the Prospectus, the AMERICAN VALUE PORTFOLIO offers
investors an opportunity to participate in a diversified portfolio of
securities, consisting principally of common stocks. The portfolio reflects an
investment decision-making process developed by the Investment Manager.
INDUSTRY VALUATION APPROACH. As stated in the Prospectus, in managing the
AMERICAN VALUE PORTFOLIO, the Investment Manager generally seeks to identify
industries, rather than individual companies, as prospects for capital
appreciation. This approach is designed to capitalize on four basic assumptions:
(1) industry trends are a primary force governing company earnings; (2)
conventional forecasts by security analysts of company earnings do not fully
reflect underlying industry conditions or changing economic cycles; (3) the
market's perception of industry trends is often transitory or exaggerated; and
(4) distortions in relative valuations beyond their normal ranges provide
significant buying or selling opportunities.
The Investment Manager generally seeks to invest assets of the AMERICAN
VALUE PORTFOLIO in industries it considers to be "undervalued" at the time of
purchase and to sell those it considers "overvalued". In so doing, the
Investment Manager utilizes a record of historical price/earnings ratios for
each of more than sixty industry groups (which may be increased or decreased,
from time to time) relative to the Standard & Poor's Index of 500 stocks ("S&P
Index"). From this record a range or band is established in which variations in
an industry's price/earnings multiple, relative to the S&P Index, are considered
normal. Based upon a forecast of industry earnings, an industry is considered
"undervalued", "moderately valued" or "overvalued" depending upon whether the
relative price/earnings multiple is below, within or above the normalized
channel.
The Investment Manager also uses models which utilize economic indicators or
other financial variables to evaluate the relative attractiveness of industries.
Economic indicators considered would be specific to particular industries.
Financial variables may include cash flow, asset value, historical and projected
earnings, absolute and relative price/earnings ratios, dividend discount values,
as well as other factors.
14
<PAGE>
A basic tenet of the industry valuation approach is that there is no
certainty of superior performance in any specific industry selection, but rather
that approximately equal weighting of investments in a group of industries, each
of which has been identified as undervalued, can benefit from the performance
probabilities of the total group. The Investment Manager believes that
subjective judgment enters into every investment process no matter how
sophisticated or systematized, but that any adverse impact on investment
performance resulting from errors of judgment may be mitigated by approximately
equal weighting of both the industries and companies within those industries
acquired for the portfolio.
The foregoing represents the main outlines of the industry valuation
approach. The following describes its key features, all of which are subject to
modification as described below or as result of applying the asset allocation
disciplines described later.
1. Equal Industry Weightings.
After determining the industries that it considers to be undervalued, the
Investment Manager generally attempts to invest approximately equal amounts of
the equity portion of the portfolio in securities of companies in each of such
industries, subject to adjustment for company weightings as set forth in the
next paragraph.
2. Equal Company Weightings.
From the total of all companies included in the industry valuation process,
the Investment Manager selects a limited number from each industry as
representative of that industry. Such selections are made on the basis of
various criteria, including size and quality of a company, the consistency of
its earnings and various valuation parameters. Valuation screens may include
dividend discount model values, price-to-book ratios, price-to-cashflow values,
relative and absolute price-to-earnings ratios and ratios of price-earnings
multiples to earnings growth. Price and earnings momentum ratings derived from
external sources are also factored into the stock selection decision. Those
companies which are in undervalued industries and which the Investment Manager
believes to be attractive investments are finally selected for inclusion in the
portfolio. When final selections are made, approximately equal amounts of the
equity portion of the portfolio are invested in each of such companies. This may
vary depending on whether the Investment Manager is in the process of building
or reducing a stock position. Consideration will also be given to earnings
visibility and valuation. Stock in industries not identified as undervalued may
not be equally weighted. Also, smaller capitalization issues may not be equally
weighted due to liquidity considerations.
3. Relative Industry Values.
Industry valuation only attempts to identify industries whose securities
might be expected to perform relatively better than the market as represented by
the S&P Index. It does not seek to identify securities which will experience an
absolute increase in value notwithstanding market conditions. However, the
process assumes that, despite interim fluctuations in stock market prices, the
long-term trend in equity security values will be up.
4. Industry Coverage.
Industry valuation presently covers securities classified by the Investment
Manager in approximately sixty industries. The classification of industries in
the S&P Index and in the industry valuation group are not identical and the
universe of industry-valued securities includes some which are not contained in
the S&P Index. To provide flexibility for taking advantage of investment
opportunities in "non-classified" industries, that is, the industries not
included in the Investment Manager's industry valuation, the Investment Manager
may invest a portion of the AMERICAN VALUE PORTFOLIO'S assets in a limited
number of securities in such non-classified industries which the Investment
Manager identifies as attractive investments. Also, the Investment Manager may
invest, on a selective basis, in stocks of moderately valued industries.
15
<PAGE>
5. Continuity of Industry Trends.
Industry valuation assumes that the trend of industry price/earnings ratios
relative to the price/ earnings ratios of all the companies in the S&P Index
will be substantially continuous. It is possible, however, that certain changes
in industry trends may result in a discontinuity that will not be signaled in
advance by the industry valuation process and that, at times, the company
analysis may provide a useful corrective mechanism.
6. Practical Applications.
In applying the industry valuation approach to management of the AMERICAN
VALUE PORTFOLIO, the Investment Manager will make adjustments in the portfolio
which reflect modifications of the underlying concepts whenever, in its opinion,
such adjustments are necessary or desirable to achieve the AMERICAN VALUE
PORTFOLIO's objectives. Such adjustments may include, for example, weighting
some industries or companies more or less than others, based upon the Investment
Manager's judgment as to the investment merits of specific companies. In
addition, without specific action by the Investment Manager, adjustments may
result from fluctuations in market prices which distort previously established
industry and company weightings. The portfolio may, at times, include securities
of industries which are considered overvalued due to consideration of the
relative stage of the economic cycle (e.g., certain industries perform better in
inflationary times than other industries) or may not include representation in
industries considered undervalued due to considerations such as valuation
criteria, stage-of-cycle analysis or lack of earnings visibility, balance sheet
viability or management quality. Also, independent of the application of the
industry valuation process, the AMERICAN VALUE PORTFOLIO continuously sells and
redeems its own shares, and, as a result, securities may have to be sold at
times from the portfolio to meet redemptions and monies received upon sale of
the AMERICAN VALUE PORTFOLIO's shares must be used to purchase portfolio
securities. Such sales and purchases of portfolio securities will result in a
portfolio that does not completely reflect equal weighting of investment in
industries or companies.
ASSET ALLOCATION. Common stocks, particularly those sought for possible
capital appreciation, have historically experienced a great amount of price
fluctuation. The Investment Manager believes it is desirable to attempt to
reduce the risks of extreme price fluctuations even if such an attempt results,
as it likely will at times, in reducing the probabilities of obtaining greater
capital appreciation. Accordingly, the Investment Managers's investment process
incorporates elements which may reduce, although certainly not eliminate, the
volatility of its holdings. The AMERICAN VALUE PORTFOLIO may hold a portion of
its assets in fixed-income securities in an effort to moderate extremes of price
fluctuation. The determination of the appropriate asset allocation as between
equity and fixed-income investments will be made by the Investment Manager in
its discretion, based upon its evaluation of economic and market conditions.
THE DEVELOPING GROWTH PORTFOLIO
LEVERAGING. As discussed in the Prospectus, the DEVELOPING GROWTH PORTFOLIO
may borrow money, but only from a bank and in an amount up to 25% of the
Portfolio's total assets taken at the lower of market value or cost, not
including the amount borrowed, to seek to enhance capital appreciation by
leveraging its investments through purchasing securities with the borrowed
funds. Such borrowings will be subject to current margin requirements of the
Federal Reserve Board and where necessary the Portfolio may use any or all of
its securities as collateral for such borrowings. Any investment gains (and/ or
investment income) made with the additional monies in excess of interest paid
will cause the net asset value of the Portfolio's shares (and/or the Portfolio's
net income per share) to rise to a greater extent than would otherwise be the
case. Conversely, if the investment performance of the additional monies fails
to cover their cost to the Portfolio, net asset value (and/or net income per
share) will decrease to a greater extent than would otherwise be the case. This
is the speculative factor involved in leverage.
The DEVELOPING GROWTH PORTFOLIO will be required to maintain an asset
coverage (including the proceeds of borrowings) of at least 300% of such
borrowings in accordance with the provisions of the Act. If, due to market
fluctuations or other reasons, the value of the Portfolio's assets (including
the proceeds of borrowings) becomes at any time less than three times the amount
of any outstanding bank debt, the Portfolio, within three business days, will
reduce its bank debt to the extent necessary to meet
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the required 300% asset coverage. In restoring the 300% asset coverage, the
Portfolio may have to sell a portion of its investments at a time when it may be
disadvantageous to do so.
The investment policy provides that the Portfolio may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker of
any part of the purchase price of a security.
In addition to borrowings for leverage, the Portfolio may also borrow from
banks an additional amount as a temporary measure for extraordinary or emergency
purposes and, for these purposes, in no event an amount greater than 5% of total
assets taken at the lower of market value or cost.
THE EMERGING MARKETS PORTFOLIO
EMERGING MARKET COUNTRY DESIGNATION. The following countries are not
included within the International Bank of Reconstruction and Development (the
"World Bank") definition of an emerging market country: Saudi Arabia, Ireland,
Spain, Israel, Hong Kong, Singapore, New Zealand, Australia, The United Kingdom,
Italy, The Netherlands, Kuwait, Canada, Belgium, Austria, France, United Arab
Emirates, Germany, Denmark, United States, Sweden, Finland, Norway, Japan and
Switzerland.
POLITICAL AND ECONOMIC RISKS. Even though opportunities for investment may
exist in emerging countries, any change in the leadership or policies of the
governments of those countries or in the leadership or policies of any other
government which exercises a significant influence over those countries, may
halt the expansion, or reverse the liberalization, of foreign investment
policies now occurring and thereby eliminate any investment opportunities which
may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging market countries previously
expropriated large quantities of real and personal property. The claims of
property owners against those governments were never finally settled. There can
be no assurance that any property represented by securities purchased by the
EMERGING MARKETS PORTFOLIO will not also be expropriated, nationalized, or
otherwise confiscated. If such confiscation were to occur, the Portfolio could
lose a substantial portion of its investments in such countries. The Portfolio's
investments would similarly be adversely affected by exchange control
regulations in any of those countries.
SECURITIES MARKETS. The market capitalizations of listed equity securities
on major exchanges in emerging market countries is significantly smaller than in
the United States. A high proportion of the shares of many companies in emerging
market countries may be held by a limited number of persons, which may further
limit the number of shares available for investment by the EMERGING MARKETS
PORTFOLIO. A limited number of issuers in most, if not all, emerging securities
markets may represent a disproportionately large percentage of market
capitalization and trading value. The limited liquidity of emerging securities
markets may also affect the Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, certain
emerging securities markets are susceptible to being influenced by large
investors trading significant blocks of securities or by large dispositions of
securities
resulting from the failure to meet margin calls when due.
The high volatility of certain emerging securities markets, as well as
currency fluctuations, may result in greater volatility in the Portfolio's net
asset value than would be the case for companies investing in domestic
securities. If the Portfolio were to experience unexpected net redemptions, it
could be forced to sell securities in its portfolio without regard to investment
merit, thereby decreasing the asset base over which Portfolio expenses can be
spread and possibly reducing the Portfolio's rate of return.
Emerging market securities exchanges and brokers are generally subject to
less governmental supervision and regulation than in the U.S., and emerging
market securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions. In addition, emerging market securities exchange transactions may
be subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of the
Portfolio are uninvested and no return is earned thereon. The inability of the
Portfolio to make intended security purchases due to settlement problems could
cause the Portfolio to
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miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the
Portfolio due to subsequent declines in value of the portfolio security or, if
the Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser.
RESTRICTIONS ON INVESTMENTS. The EMERGING MARKETS PORTFOLIO may be
prohibited under the Act from purchasing the securities of any company that, in
its most recent fiscal year, derived more than 15% of its gross revenues from
securities related activities. In a number of emerging market countries,
commercial banks act as securities brokers and dealers, investment advisers and
underwriters or are otherwise engaged in securities-related activities, which
may limit the Portfolio's ability to hold securities issued by the banks. The
U.S. Securities and Exchange Commission has proposed a rule which, if adopted,
may permit the Portfolio to invest in certain of these securities subject to
certain restrictions.
FOREIGN INVESTMENT RESTRICTIONS. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the EMERGING MARKETS
PORTFOLIO. For example, certain countries require governmental approval prior to
investments by foreign persons or limit the amount of investment by foreign
persons in a particular company or limit the investment by foreign persons to
only a specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals.
Moreover, the national policies of certain countries may restrict investment
opportunities in issuers or industries deemed sensitive to national interests.
In addition, some countries require governmental approval for the repatriation
of investment income, capital or the proceeds of securities sales by foreign
investors. The Portfolio could be adversely affected by delays in or a refusal
to grant any required governmental approval for repatriation, such as by the
application to it of other restrictions on investments.
DEBT-TO-EQUITY CONVERSIONS. THE EMERGING MARKETS PORTFOLIO may participate
with respect to up to 5% of its total assets in debt-to-equity conversions.
Debt-to-equity conversion programs are sponsored in varying degrees by certain
emerging market countries and permit investors to use external debt of a country
to make equity investments in local companies. Many conversion programs relate
primarily to investments in transportation, communication, utilities and similar
infrastructure related areas. The terms of the programs vary from country to
country, but include significant restrictions on the application of the proceeds
received in the conversion and on the repatriation of investment profits and
capital. In inviting conversion applications by holders of eligible debt, a
government will usually specify a minimum discount from par value that it will
accept for conversion. The Sub-Adviser believes that emerging market
debt-to-equity conversion programs may offer investors opportunities to invest
in otherwise restricted equity securities of emerging market countries with a
potential for significant capital appreciation and, to a limited extent, intends
to invest assets of the Portfolio in such programs in appropriate circumstances.
There can be no assurance that debt-to-equity conversion programs will continue
or be successful or that the Portfolio will be able to convert all or any of its
emerging market debt portfolio into equity investments.
ASIAN ECONOMIES AND SECURITIES MARKETS
The Asian continent covers approximately one-fifth of the earth's surface
and is home to over half the world's population. Certain of the Asian countries
in which the EMERGING MARKETS PORTFOLIO may invest include China, Hong Kong,
India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri
Lanka, Taiwan and Thailand. The discussion below focuses on some of the emerging
market countries in which the Sub-Adviser anticipates that the EMERGING MARKETS
PORTFOLIO will initially invest.
ASIAN ECONOMIES. In recent years, countries in the Asian region have
experienced real economic growth rates exceeding those experienced by many
Western industrialized countries.
The Sub-Adviser of the EMERGING MARKETS PORTFOLIO believes that economic
conditions in the Asian region exist to provide for high levels of economic
activity in the long-term, offering the potential for long-term capital
appreciation from investment in equity securities of Asian Companies (as defined
in the Prospectus). Among these conditions, as discussed below, are the
following: (i) the increasing
industri-
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alization of Asian economies, (ii) favorable demographics and competitive wage
rates, (iii) high rates of domestic savings available to fund investment,
particularly in the area of infrastructure, (iv) the ability to attract foreign
direct investment, (v) the emergence of a regional trading zone and (vi) rising
per capita incomes available to support local markets for consumer goods.
INDUSTRIALIZATION OF ASIA. The rapid ongoing shift from primary industries
into industrial manufacturing has contributed to high rates of economic
activity. During the last two decades, there was a significant shift in the
percentage of gross domestic product ("GDP") accounted for by the agricultural
sector in these markets and a marked increase in output by the industrial
sector, most markedly in Indonesia, Malaysia and Thailand. Generally, in the
Asian countries there is still potential for further industrialization so as to
reach the levels presently attained by the countries of the industrialized
world.
FAVORABLE DEMOGRAPHICS AND COMPETITIVE WAGES. Based on favorable
demographic statistics as to the Asian countries relative to the United States
and Western Europe and the existence in the region of low relative wage rates,
the Sub-Adviser believes that the competitive advantages of Asia through access
to a large pool of disciplined and low cost (and, in East Asia, well educated)
labor, will continue to lead to high levels of inward capital investment by
companies based in the industrialized world. Moreover, the demographic profile
of Asian countries shows a plentiful potential supply of new labor force
participants as indicated by the high percentage of the populations under
fifteen years of age. In this respect, China, India, Indonesia, Malaysia, the
Philippines and Thailand are well positioned. The larger this percentage, the
lower the likelihood of significant upward pressure on wage rates over the
medium term, thus ensuring a continuation of the current, favorable cost
structure these countries enjoy relative to the United States and Japan. In
addition, these countries in particular need to maintain a sufficient level of
overall economic activity in order to provide employment opportunities to new
entrants. If this cannot be achieved, as in the case of the Philippines, the
export of labor may occur. Direct investment and the establishment of labor
intensive industries, such as textiles, have had a favorable impact on job
creation in the Asian region. However, direct investment may be deterred by the
absence of basic infrastructure such as energy, telephone lines, ports, roads
and railways, as has occurred in the Philippines with shortages of electricity.
SAVINGS AND INFRASTRUCTURE. There is a need in the Asian countries for
substantial investment in infrastructure. A low penetration rate of telephone
lines per 1,000 population exists in each of China, India, Indonesia, Malaysia
and Thailand. Asia has the means to overcome the deficiency in infrastructure
given its high domestic savings rates. A high rate of savings is generally
associated with strong investment, rising productivity and faster GDP growth.
China, Indonesia, Korea and Singapore compare favorably with the United States
in this regard. The savings rates of India and the Philippines are the lowest in
the region and, in the opinion of the Sub-Adviser, may have to be raised if
investment, and hence growth, is to accelerate in such countries. China is still
in the process of developing a network of financial intermediaries capable of
channeling available funds between savers and investors, the lack of which may
constrain growth in the short term.
ABILITY TO ATTRACT FOREIGN DIRECT INVESTMENT. Foreign direct investment has
underpinned economic growth in the Asian region. With the rapid appreciation of
the Yen since the end of 1985, Japanese investment flows have increased
considerably. Japanese firms have built regional networks of affiliates in Asia,
where Japanese direct investment has grown predominantly in manufacturing,
especially in the electronics industry.
The Sub-Adviser believes that in addition to increasing the foreign supply
of capital, direct foreign investment from Japan confers a number of benefits
which enhance the long-term growth potential of a recipient country, including
but not limited to (i) the mobilization of domestic savings for productive
purpose in joint ventures between multinational corporations and local
companies, (ii) the improvement of local training and education as local
employees are exposed to modern production techniques and established training
methods, (iii) the modernization of management and accounting, (iv) a transfer
of technology and (v) the promotion of exports.
TRADE AND EXPORTS. Most of the countries in the Asian region have
historically pursued the Japanese development model of export-led growth. This,
together with the inflow of foreign manufacturing
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facilities, has led in general to strong export sector performances. During the
1980s a significant proportion of Asian exports were shipped to the United
States and Europe, which resulted in severe trade account imbalances. The
appreciation of the Japanese Yen since the end of 1985, together with
increasingly persistent attempts on the part of various U.S. administrations to
lower Asian trade barriers, has resulted in a shift in the pattern of trade.
RISING PER CAPITA INCOMES. Overall economic activity in the Asian region
has been supported by a rising trend in per capita GDP. This trend is highly
significant in light of the fact that the Asian region contains three of the
world's four most populous nations: China, India and Indonesia. Consequently, in
the Sub-Adviser's opinion, the prospects for the establishment of substantial
local markets for a wide range of consumer products, both imported and
manufactured locally, are attractive.
ASIAN SECURITIES MARKETS. There has been no set pattern to the historical
developments of the stock markets in the region. Some stock exchanges, such as
that in Bombay, India, have been operating since as early as 1875, while the
Shenzhen Exchange in China, the most recently established, has operated only
since April, 1991. Additionally, for a wide variety of historical and/or
ideological reasons, foreign ownership restrictions have at some time been
imposed over most stock exchanges in the region.
Until 1987, investment in Indonesia was effectively closed to foreigners;
Korea generally opened up 10% of equity ownership to foreigners in 1992; Taiwan
offers extremely limited access to foreign investors and India is only now in
the process of authorizing direct access for approved international
institutional investors. China, Indonesia, Korea, Malaysia, the Philippines,
Singapore and Thailand have foreign investment restrictions which can result in
foreign owned stock trading at a substantial premium or discount to local
shares. Average daily volume can be much lower in these markets than a typical
day's trading volume in the United States, particularly in the small and medium
capitalization sectors of the less well developed stock markets. In some of
these markets, for example, Hong Kong, Taiwan and Thailand, retail trading is
comparatively more active and institutional investment accounts for a lower
proportion of total trading. A large volume of retail trading can result in more
volatile stock markets, although some markets have daily price fluctuation
limits.
Foreign investment restrictions may in the future be subject to change. For
example, the Securities Exchange Commission of Thailand is currently studying
various proposals to permit foreigners to hold local stock without voting
rights. If adopted, such proposals could have the effect of reducing or
eliminating the premium at which many foreign owned stocks presently trade. This
could have an adverse affect on the EMERGING MARKETS PORTFOLIO if it has
previously purchased such stocks at a premium. It is uncertain when or if such a
change may be implemented.
Since the mid 1980s, however, stock market development throughout the
region, both with respect to daily trading volume and the number of securities
traded, has gained momentum. In terms of market capitalization, after Japan,
Hong Kong is the largest stock market in Asia, followed by Korea. In recent
years, Indonesia has seen a significant expansion in the number of listed
companies, coupled with a significant increase in market capitalization. Also,
the number of listed companies in India, Taiwan and Thailand has increased
significantly in recent years, while annual stock exchange turnover in these
markets has risen dramatically.
LATIN AMERICAN ECONOMIES AND SECURITIES MARKETS
LATIN AMERICAN ECONOMIES. During the past ten years, the countries of Latin
America have undergone tremendous political and economic change. As countries
have moved towards democratic reforms and market-oriented economic policies,
many have benefited from an increase in trade and foreign investment which has
helped propel economic growth. In the opinion of the Sub-Adviser, with GDP
growth in the region expected to average between 4% to 6% over the next three to
five years, investment in equity securities of Latin American companies provides
the potential for high returns.
Political and economic reform in Latin America have been closely linked. At
the beginning of the 1980s, many Latin American countries were ruled by
authoritative, and often military, governments. The traditional inward-oriented
economics policies, which were characterized by state ownership of indus-
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tries and restrictive trade barriers, became discredited as countries in the
region continuously suffered from heavy debt loads, shrinking economies, balance
of payment difficulties and high inflation. More recently, economic reforms in
the region have begun under democratically elected governments. Reform has
centered around lowering tariffs and dismantling trade barriers, privatizing
state-owned industrial and utility companies and reducing government spending.
The incoming democratic movement was partially dependent on economic revival.
Trade barriers were reduced by several means. First, nominal tariffs were
lowered significantly, especially in countries such as Brazil, Mexico, Argentina
and Colombia. Although Latin American tariffs have seen substantial declines as
a result of reforms, tariffs are still relatively high compared to those of
industrialized nations. Second, import restrictions were sharply reduced and
trade borders were opened.
Privatization has also been a key component of economic reform. The
conversion of ownership from the state to the private sector has attracted
foreign and repatriated capital. Privatized business include railroads,
telephones/telecommunications, airlines and other industrial concerns. Monies
raised from privatization provide an additional source of financing for Latin
American governments, and the newly privatized businesses have incentives to
operate efficiently since they must now compete against foreign imports and must
also provide a return to shareholders.
While economic and political reforms in Latin America have been successful
to date, it is uncertain whether these reforms can be sustained over the
long-term. The prospects for sustained democratic and market-oriented policies
are improved since countries in the region are joining GATT (General Agreements
on Tariffs and Trade), which has forced the adoption of GATT rules regarding
customs valuation, anti-dumping and subsidies. In addition, the recent passage
of NAFTA (North American Free Trade Agreement), which took effect on January 1,
1994, will have a positive effect on cross-border trade between the U.S. and
Mexico. In addition, other trade pacts such as the Columbia-Venezuela free trade
agreement, the G-3 Agreement (Mexico, Venezuela and Columbia) and the Mercosur
agreement, which will be implemented on January 1, 1995 (Argentina, Brazil,
Uruguay and Paraguay), will further expand trade and investment opportunities.
However, many problems still exist in Latin America. The region continues to
experience social and income inequities, and the high levels of poverty have
contributed to increased levels of social unrest. In addition, not all countries
have tightened fiscal and monetary policies. While there are opportunities for
extraordinary returns in Latin America, such returns are accompanied by greater
risk of loss of capital than in developed countries.
LATIN AMERICAN SECURITIES MARKETS. Latin American stock markets have grown
significantly over the past decade. The largest of these stock markets, measured
in terms of market capitalization, are Mexico, Brazil, Chile and Argentina.
The Sub-Adviser believes that economic growth and growth in stock market
capitalization may create an environment for improving performance in stock
markets. The Sub-Adviser also believes the economic expansion of developing
markets in part is led by increased foreign investment from companies seeking
lower cost production facilities or new markets. Latin American markets with low
hourly wages and large populations have attracted companies relocating from the
higher production cost environments of North America, Western Europe and Japan.
Other characteristics, including high economic growth rates, falling rates of
inflation, falling interest rates and improving credit ratings, may also
contribute to attracting new foreign investment for capital improvement or
manufacturing, and potentially to improving performance of stock markets.
Historic and current economic data demonstrate the positive changes experienced
by several Latin American markets over the past decade. Of course, this past
performance was achieved during a period of generally favorable circumstances
for emerging and developing markets and is no guarantee of future trends or
results.
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GENERAL PORTFOLIO TECHNIQUES
MONEY MARKET SECURITIES
As stated in the Prospectus, the money market instruments in which each
Portfolio other than the MONEY MARKET PORTFOLIO and the DIVERSIFIED INCOME
PORTFOLIO may invest include U.S. Government securities, bank obligations,
Eurodollar certificates of deposit, obligations of savings institutions, fully
insured certificates of deposit and commercial paper. 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, bankers'
acceptances, commercial paper (see below) and other debt obligations) 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 as permitted below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
OBLIGATIONS OF SAVING INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount are
not protected by federal deposit insurance);
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Portfolio's total assets in all such
obligations and in all illiquid assets, in the aggregate; and
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the highest grade by Moody's Investors
Service Inc. ("Moody's") or, if not rated, issued by a company having an
outstanding debt issue rated at least AAA by S&P or Aaa by Moody's.
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO, the
UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO AND THE EMERGING MARKETS PORTFOLIO may
invest in, among other securities, securities issued by the U.S. Government, its
agencies or instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
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(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service. The
U.S. Treasury has no legal obligation to provide such line of credit and may
choose not to do so.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Portfolios are guaranteed by the U.S. Government. Such
values and yield will fluctuate with changes in prevailing interest rates,
economic factors and fiscal and monetary policies. Generally, as prevailing
interest rates rise, the value of any U.S. Government securities held by the
Portfolios will fall. Such securities with longer maturities generally tend to
produce higher yields and are subject to greater market fluctuation as a result
of changes in interest rates than debt securities with shorter maturities.
MORTGAGE-BACKED SECURITIES
Certain of the U.S. Government securities in which the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the
BALANCED PORTFOLIO may invest, e.g., certificates issued by GNMA, FNMA and
FHLMC, are "mortgage-backed securities," which evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the timely
payment of the principal and interest on mortgages underlying the certificates,
whether or not such amounts are collected by the issuer on the underlying
mortgages. (A pass-through security is formed when mortgages are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments net of a service fee).
The average life of such certificates varies with the maturities of the
underlying mortgage instruments, which may be up to thirty years but which may
include mortgage instruments with maturities of fifteen years, adjustable rate
mortgage instruments, variable rate mortgage instruments, graduated rate
mortgage instruments and/or other types of mortgage instruments. The assumed
average life of mortgages backing the majority of GNMA and FNMA certificates is
twelve years, and of FHLMC certificates is ten years. The average life is likely
to be substantially shorter than the original maturity of the mortgage pools
underlying the certificates, as a pool's duration may be shortened by
unscheduled or early payments of principal on the underlying mortgages. (Such
prepayments occur when the holder of an individual mortgage prepays the
remaining principal before the mortgage's scheduled maturity date.) In periods
of falling interest rates, the rate of prepayment tends to increase thereby
shortening the actual average life of a pool of mortgage-related securities.
Conversely, in periods of rising rates, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the pool. Prepayment
rates vary widely, and therefore it is not possible to accurately predict the
average life or realized yield of a particular pool.
The occurrence of mortgage prepayments is affected by factors including the
prevailing level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. Prepayment
rates are important because of their effect on the yield and price of the
securities. If the Portfolio has purchased securities backed by pools containing
mortgages whose yields exceed the prevailing interest rate, any premium (i.e., a
price in excess of principal amount) paid for such securities may be lost. As a
result, the net asset value of shares of the Portfolio and the Portfolio's
ability to achieve its investment objectives may be adversely affected by
mortgage prepayments.
GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities, which evidence
an undivided interest in a pool or pools of
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mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA Certificates that the Portfolios will invest in are the "modified
pass-through" type in that GNMA guarantees the timely payment of monthly
installments of principal and interest due on the mortgage pool whether or not
such amounts are collected by the issuer on the underlying mortgages. The
National Housing Act provides that the full faith and credit of the United
States is pledged to the timely payment of principal and interest by GNMA of the
amounts due on the GNMA Certificates. Additionally, GNMA is empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments some of which have maturities of 30 years. The
average life of the GNMA Certificate is likely to be substantially less than the
original maturity of the underlying mortgage pool because of prepayments or
refinancing of the mortgages or foreclosure. (Due to GNMA guarantee,
foreclosures impose no risk to principal investments.) Statistics indicate that
the average life of the type of mortgages backing the majority of GNMA
Certificates is approximately 12 years and for this reason it is standard
practice to treat GNMA Certificates as 30-year mortgage-backed securities which
prepay fully in the twelfth year.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the actual maturities of the underlying instruments and the
associated average life assumption. Historically, actual average life has been
consistent with the 12-year assumption referred to above. The actual yield of
each GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying the Certificates. Such prepayments are passed through to the
registered holder of the Certificate along with the regular monthly payments of
principal and interest, which has the effect of reducing future payments, and
consequently the yield. Reinvestment by the Portfolios of prepayments may occur
at higher or lower interest rates than the original investment.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC Certificates.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such FHLMC Certificate, whether
or not received. FHLMC also guarantees to each registered holder a FHLMC
Certificate ultimate collection of all principal of the related mortgage loans,
without any offset or deduction, but does not, generally, guarantee the timely
payment of scheduled principal. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on any underlying
mortgage loan, but not later than 30 days following (i) foreclosure sale, (ii)
payment of a claim by any mortgage insurer or (iii) the expiration of any right
of redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. The obligations of FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by the full faith and credit of the U.S. Government.
The FHLMC has the right, however, to borrow from an existing line of credit with
the U.S. Treasury in order to meet is obligations.
FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a "FHLMC Certificates group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one-to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and participants comprising another FHLMC Certificate
group.
FNMA CERTIFICATES The Federal National Mortgage Association ("FNMA") is a
federally chartered and privately owned corporation organized and existing under
the Federal National Mortgage Association Charter Act. FNMA was originally
established in 1938 as a U.S. Government agency to provide
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supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968. FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans form local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgage loans
directly, thereby expanding the total amount of funds available for housing.
Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. Government.
Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects. FNMA Certificates have an assumed average life similar to GNMA
Certificates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may enter into forward
foreign currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. Each of these Portfolios will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through entering into forward contracts to purchase or sell foreign currencies.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
Such forward contracts will only be entered into with United States banks and
their foreign branches or foreign banks whose assets total $1 billion or more. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
When management of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO or the EMERGING MARKETS PORTFOLIO believes that the currency of a
particular foreign country may suffer a substantial movement against the U.S.
dollar, it may enter into a forward contract to purchase or sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of these Portfolios believes that it is important to
have the flexibility to enter into such forward contracts when it determines
that the best interests of the Portfolio will be served. The Portfolio's
custodian bank will place cash, U.S. Government securities or other appropriate
liquid high grade debt securities in a segregated account of the Portfolio in an
amount equal to the value of the Portfolio's total assets committed to the
consummation of forward contracts entered into under the circumstances set forth
above. If the value of the
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securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Portfolio's commitments with respect to
such contracts.
Where, for example, the Portfolio is hedging a portfolio position consisting
of foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Portfolio of a foreign currency, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency. It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
If the Portfolio purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied to
the exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Portfolio has written a call option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of the
security on which a call currency option has been written declining in value to
a greater extent than the value of the premium received for the options. The
Portfolio will maintain with its Custodian, at all times, cash, U.S. Government
securities, or other high grade debt obligations in a segregated account equal
in value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although each Portfolio values its assets daily in terms of U.S. dollars,
the Portfolios do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. Each Portfolio will, however, do so from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the spread between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Portfolio at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
SOVEREIGN DEBT OBLIGATIONS
As discussed in the Prospectus, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO may invest in Canadian and Mexican Sovereign Debt and the EMERGING
MARKETS PORTFOLIO may invest in Sovereign Debt of emerging market countries.
Political conditions, in terms of a country or agency's willingness to meet the
terms of its debt obligations, are of considerable significance. Investors
should be aware that
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the Sovereign Debt instruments in which the EMERGING MARKETS PORTFOLIO may
invest involve great risk and are deemed to be the equivalent in terms of
quality to securities rated below investment grade by Moody's and Standard &
Poor's Corporation.
Sovereign Debt generally offers high yields, reflecting not only perceived
credit risk, but also the need to compete with other local investments in
domestic financial markets. Mexico and certain other emerging market countries
are among the largest debtors to commercial banks and foreign governments. A
foreign debtor's willingness or ability to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the foreign debtor's policy towards the
International Monetary Fund and the political constraints to which a sovereign
debtor may be subject. Sovereign debtors may default on their Sovereign Debt.
Sovereign debtors may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debts.
In recent years, some of the emerging market countries in which the EMERGING
MARKETS PORTFOLIO expects to invest have encountered difficulties in servicing
their Sovereign Debt. Some of these countries have withheld payments of interest
and/or principal of Sovereign Debt. These difficulties have also led to
agreements to restructure external debt obligations; in particular, commercial
bank loans, typically by rescheduling principal payments, reducing interest
rates and extending new credits to finance interest payments on existing debt.
In the future, holders of Sovereign Debt may be requested to participate in
similar reschedulings to such debt.
The ability or willingness of the governments of Mexico and other emerging
market countries to make timely payments on their Sovereign Debt is likely to be
influenced strongly by a country's balance of trade and its access to trade and
other international credits. A country whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international prices of one
or more of such commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect its exports. Such events could
extinguish a country's trade account surplus, if any. To the extent that a
country receives payment for its exports in currencies other than hard
currencies, its ability to make hard currency payments could be affected.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Portfolio's
investments. The countries issuing such instruments are faced with social and
political issues and some of them have experienced high rates of inflation in
recent years and have extensive internal debt. Among other effects, high
inflation and internal debt service requirements may adversely affect the cost
and availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While the Sub-Adviser intends to invest the assets of the
Portfolio in a manner that will minimize the exposure to such risks, there can
be no assurance that adverse political changes will not cause the Portfolio to
suffer a loss of interest or principal on any of its holdings.
As a result of all of the foregoing, a government obligor may default on its
obligations. If such an event occurs, the Portfolio may have limited legal
recourse against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting party itself, and the ability of the
holder of foreign government debt securities to obtain recourse may be subject
to the political climate in the relevant country. Bankruptcy, moratorium and
other similar laws applicable to issuers of Sovereign Debt Obligations may be
substantially different from those applicable to issuers of private debt
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obligations. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Periods of economic uncertainty may result in the volatility of market
prices of Sovereign Debt and in turn, the Portfolio's net asset value, to a
greater extent than the volatility inherent in domestic securities. The value of
Sovereign Debt will likely vary inversely with changes in prevailing interest
rates, which are subject to considerable variance in the international market.
HIGH YIELD SECURITIES
As discussed in the Prospectus, the DIVERSIFIED INCOME PORTFOLIO and the
EMERGING MARKETS PORTFOLIO will also invest in high yield, high risk
fixed-income securities rated Baa or lower by Moody's Investors Service Inc.
("Moody's"), or BBB or lower by Standard & Poor's Corporation ("S&P"). The
ratings of fixed-income securities by Moody's and S&P are a generally accepted
barometer of credit risk. They are, however, subject to certain limitations from
an investor's standpoint.
Such limitations include the following: the rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions; there is frequently a lag between the time a rating is assigned and
the time it is updated; and there may be varying degrees of difference in credit
risk of securities in each rating category. The Investment Manager and, for the
EMERGING MARKETS PORTFOLIO, the Sub-Adviser will attempt to reduce the overall
portfolio credit risk through diversification and selection of portfolio
securities based on considerations mentioned below.
While the ratings provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating the interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuation in net asset value of the Portfolio's shares. The extent of the
fluctuation is determined by a complex interaction of a number of factors. The
Investment Manager or, for the EMERGING MARKETS PORTFOLIO, the Sub-Adviser will
evaluate those factors it considers relevant and will make portfolio changes
when it deems it appropriate in seeking to reduce the risk of depreciation in
the value of the assets of the Portfolio. However, in seeking to achieve the
Portfolio's primary objective, there will be times, such as during periods of
rising interest rates, when depreciation and realization of capital losses on
securities in the portfolio will be unavoidable. Moreover, medium and
lower-rated securities and non-rated securities of comparable quality tend to be
subject to wider fluctuations in yield and market values than higher rated
securities. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset value
of the Portfolio.
REPURCHASE AGREEMENTS
As discussed in the Prospectus, when cash may be available to a Portfolio
for only a few days, it may be invested by the Portfolio in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Portfolio. These agreements, which may be viewed as a type
of secured lending by the Portfolio, typically involve the acquisition by the
Portfolio of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides that
the Portfolio will sell back to the institution, and that the institution will
repurchase, the underlying security ("collateral"), which is held by the
Portfolio's custodian bank, at a specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. The
Portfolio will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Portfolio to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits. While repurchase agreements
involve certain risks not associated with direct investments in debt securities,
the Portfolios follow procedures designed to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions, whose financial
conditions will be continually monitored. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Portfolio will
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seek to liquidate such collateral. However, the exercising of the right by a
Portfolio to liquidate such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale upon a default of the obligation
to repurchase were less than the repurchase price, the Portfolio could suffer a
loss. It is the current policy of each Portfolio not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Portfolio, amounts to more than 15%
(10% in the case of the MONEY MARKET PORTFOLIO) of its net assets. The
investments by a Portfolio in repurchase agreements may at times be substantial
when, in the view of the Investment Manager, liquidity, tax or other
considerations warrant.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, each Portfolio of the
Fund may lend its portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the
Portfolio, 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 the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Portfolio continues to
receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. A Portfolio will not lend portfolio securities having a
value of more than 25% of its total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Portfolio on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Portfolio
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made of
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Portfolio.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Portfolio will follow the policy of calling the loaned securities,
in whole or in part as may be appropriate, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Portfolio's investment in such loaned securities. The
Portfolio will pay reasonable finder's, administrative and custodial fees in
connection with a loan of its securities. No Portfolio has the intention of
lending its portfolio securities in the foreseeable future.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
As discussed in the Prospectus, from time to time, in the ordinary course of
business, each Portfolio of the Fund may purchase securities on a when-issued or
delayed delivery basis or may purchase or sell securities on a forward
commitment basis. When such transactions are negotiated, the price is fixed at
the time of commitment, but delivery and payment can take place a month or more
after the date of the commitment. While the 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 the Portfolio
makes the commitment to purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security purchased or, if a
sale, the proceeds to be received, in determining the net asset value of the
Portfolio. At the time of delivery of the securities, the value may be more or
less than the purchase or sale price. The Portfolio will also establish a
segregated account with its custodian bank in which it will continually maintain
cash or U.S. Government securities or other high grade debt portfolio securities
equal in value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis; subject to this requirement, a Portfolio
may purchase securities on such basis without limit. An increase in the
percentage of a Portfolio's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the
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Portfolio's net asset value. The Investment Manager and the Board of Trustees,
do not believe that a Portfolio's net asset value or income will be adversely
affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES
As discussed in the Prospectus, each Portfolio other than the MONEY MARKET
PORTFOLIO and the VALUE-ADDED MARKET PORTFOLIO may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Portfolio
until the Investment Manager determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in determining
the net asset value of the Portfolio, will reflect the value of the security
daily. At such time, the Portfolio will also establish a segregated account with
its custodian bank in which it will maintain cash or U.S. Government securities
or other high grade liquid debt portfolio securities equal in value to
recognized commitments for such securities. The value of the Portfolio's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Portfolio, may not exceed 5%
of the value of the Portfolio's total assets at the time the initial commitment
to purchase such securities is made (see "Investment Restrictions" in the
Prospectus). Subject to the foregoing restrictions, these Portfolios may
purchase securities on such basis without limit. An increase in the percentage
of a Portfolio's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value. The
Investment Manager and, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the Sub-Adviser, and the Board of Trustees, do not believe
that the net asset value of these Portfolios will be adversely affected by their
purchase of securities on such basis. These Portfolios may also sell securities
on a "when, as and if issued" basis provided that the issuance of the security
will result automatically from the exchange or conversion of a security owned by
the Portfolio at the time of the sale.
ZERO COUPON SECURITIES
A portion of the U.S. Government securities purchased by the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED
PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the AMERICAN
VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO AND THE EMERGING MARKETS PORTFOLIO
may be "zero coupon" Treasury securities. These are U.S. Treasury bills, notes
and bonds which have been stripped of their unmatured interest coupons and
receipts or which are certificates representing interests in such stripped debt
obligations and coupons. In addition, a portion of the fixed-income securities
purchased by the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may be "zero coupon" securities. "Zero coupon"
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Portfolios) of a zero coupon security accrue a portion of
the discount at which the security was purchased as income each year even though
the Fund receives no interest payments in cash on the security during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions
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from the coupon portions of the U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account).
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, each of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO,
the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities (the
UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO and the GLOBAL EQUITY
PORTFOLIO may also write covered put and call options on stock indexes) and
purchase options of the same series to effect closing transactions, and may
hedge against potential changes in the market value of investments (or
anticipated investments) by purchasing put and call options on portfolio (or
eligible portfolio) securities and engaging in transactions involving interest
rate futures contracts and bond index futures contracts and options on such
contracts. In addition, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO,
the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also hedge
against such changes by entering into transactions involving stock index futures
contracts and options thereon, and (except for the EMERGING MARKETS PORTFOLIO)
options on stock indexes. The VALUE-ADDED MARKET PORTFOLIO may purchase futures
contracts on stock indexes such as the S&P Index and the New York Stock Exchange
Composite Index and may sell such futures contracts to effect closing
transactions. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO may also hedge against potential changes in the market value
of the currencies in which their investments (or anticipated investments) are
denominated by purchasing put and call options on currencies and engaging in
transactions involving currencies futures contracts and options on such
contracts.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if a Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, a Portfolio,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Portfolio will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Portfolio to cover an option position in any but the nearest expiration
month may cease to represent cover for the option in the event of a decline in
the GNMA coupon rate at which new pools are originated under the FHA/VA loan
ceiling in effect at any given time, as such decline may increase the
prepayments made on other mortgage pools. If this should occur, the Portfolio
will no longer be covered, and the Portfolio will either enter into a closing
purchase transaction or replace such Certificate with a Certificate which
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represents cover. When the Portfolio closes out its position or replaces such
Certificate, it may realize an unanticipated loss and incur transaction costs.
OPTIONS ON FOREIGN CURRENCIES. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may purchase and write options on foreign currencies
for purposes similar to those involved with investing in forward foreign
currency exchange contracts. For example, in order to protect against declines
in the dollar value of portfolio securities which are denominated in a foreign
currency, the Portfolio may purchase put options on an amount of such foreign
currency equivalent to the current value of the portfolio securities involved.
As a result, the Portfolio would be enabled to sell the foreign currency for a
fixed amount of U.S. dollars, thereby "locking in" the dollar value of the
portfolio securities (less the amount of the premiums paid for the options).
Conversely, these Portfolios may purchase call options on foreign currencies in
which securities they anticipate purchasing are denominated to secure a set U.S.
dollar price for such securities and protect against a decline in the value of
the U.S. dollar against such foreign currency. These Portfolios may also
purchase call and put options to close out written option positions.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
SECURITIES PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
security is denominated and the U.S. dollar, then a loss to the Portfolio
occasioned by such value decline would be ameliorated by receipt of the premium
on the option sold. At the same time, however, the Portfolio gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also write options to close out
long call option positions. A put option on a foreign currency would be written
by the Portfolio for the same reason it would purchase a call option, namely, to
hedge against an increase in the U.S. dollar value of a foreign security which
the Portfolio anticipates purchasing. Here, the receipt of the premium would
offset, to the extent of the size of the premium, any increased cost to the
Portfolio resulting from an increase in the U.S. dollar value of the foreign
security. However, the Portfolio could not benefit from any decline in the cost
of the foreign security which is greater than the price of the premium received.
These Portfolios may also write options to close out long put and call option
positions.
The markets in foreign currency options are relatively new and the ability
of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. Although a Portfolio will not purchase or write
such options unless and until, in the opinion of the management of the
Portfolio, the market for them has developed sufficiently to ensure that the
risks in connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance that a liquid
secondary market will exist for a particular option at any specific time. In
addition, options on foreign currencies are affected by all of those factors
which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a
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timely basis. Quotation information available is generally representative of
very large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are closed
while the markets for the underlying currencies remain open, significant price
and rate movements may take place in the underlying markets that are not
reflected in the options market.
COVERED CALL WRITING. As stated in the Prospectus, the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO are permitted to write covered call options on
portfolio securities, and the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO are permitted to write covered call options on the U.S. dollar
and foreign currencies, in each case without limit, in order to aid in achieving
their investment objectives. Generally, a call option is "covered" if the
Portfolio owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Portfolio by
its Custodian in a segregated account) the underlying security (currency)
subject to the option except that in the case of call options on U.S. Treasury
Bills, a Portfolio might own U.S. Treasury Bills of a different series from
those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the securities (currency) deliverable under the call option. A call option is
also covered if the Portfolio holds a call on the same security (currency) as
the underlying security of the written option, where the exercise price of the
call used for coverage is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the
mark-to-market difference is maintained by the Portfolio in cash, U.S.
Government securities or other high grade debt obligations which the Portfolio
holds in a segregated account maintained with the Portfolio's Custodian.
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 NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO to
achieve a higher current income return than would be realized from holding the
underlying securities (and, in the case of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, currencies) alone. Moreover, the
premium received will offset a portion of the potential loss incurred by the
Portfolio if the securities (currencies) underlying the option are ultimately
sold (exchanged) by the Portfolio at a loss. The premium received will fluctuate
with varying economic market conditions. If the market value of the portfolio
securities (or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO, the currencies in which they are denominated) upon
which call options have been written increases, the Portfolio may receive a
lower total return from the portion of its portfolio upon which calls have been
written than it would have had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Portfolio may be required, at any time, to deliver
the underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Portfolio to write another call option
on the underlying security (currency) with either a different exercise price or
expiration date or both. The Portfolio may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting
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the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security (currency). Conversely, a gain resulting
from a closing purchase transaction could be offset in whole or in part or
exceeded by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received when the option was written, less the commission paid.
Options written by a Portfolio normally have expiration dates of up to to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
(currency) at the time the option is written. See "Risks of Options and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO, the UTILITIES PORTFOLIO, THE AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO or the EMERGING MARKETS PORTFOLIO incurs an obligation
to buy the security underlying the option from the purchaser of the put, at the
option's exercise price at any time during the option period, at the purchaser's
election (certain listed and OTC put options written by the Portfolio will be
exercisable by the purchaser only on a specific date). A put is "covered" if the
Portfolio maintains, in a segregated account maintained on its behalf at its
Custodian, cash, U.S. Government securities or other high grade debt obligations
in an amount equal to at least the exercise price of the option, at all times
during the option period. Similarly, a written put position could be covered by
the Portfolio by its purchase of a put option on the same security as the
underlying security of the written option, where the exercise price of the
purchased option is equal to or more than the exercise price of the put written
or less than the exercise price of the put written if the mark-to-market
difference is maintained by the Portfolio in cash, U.S. Government securities or
other high grade debt obligations which the Portfolio holds in a segregated
account maintained at its Custodian. In writing puts, the Portfolio assumes the
risk of loss should the market value of the underlying security decline below
the exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). In the case of listed options, during the option
period, the Portfolio may be required, at any time, to make payment of the
exercise price against delivery of the underlying security. The operation of and
limitations on covered put options in other respects are substantially identical
to those of call options.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will write put options for
three purposes: (1) to receive the income derived from the premiums paid by
purchasers; (2) when the Investment Manager (or, for the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the
Sub-Adviser) wishes to purchase the security underlying the option at a price
lower than its current market price, in which case the Portfolio will write the
covered put at an exercise price reflecting the lower purchase price sought; and
(3) to close out a long put option position. The potential gain on a covered put
option is limited to the premium received on the option (less the commissions
paid on the transaction) while the potential loss equals the difference between
the exercise price of the option and the current market price of the underlying
securities when the put is exercised, offset by the premium received (less the
commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Emerging
Markets Portfolio may purchase listed and OTC call and put options in amounts
equalling up to 10% of its total assets, and each of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO and the DIVERSIFIED INCOME PORTFOLIO may
purchase such call and put options in amounts equalling up to 5% of its total
assets. Each of the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO and the
GLOBAL EQUITY PORTFOLIO may purchase such call and put options and options on
stock indexes in amounts equalling 10% of its total assets, with a maximum of 5%
of its total assets invested in the purchase of stock index options. These
Portfolios may purchase call options in order to close out a covered call
position (see "Covered Call Writing" above) or purchase call
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options on securities they intend to purchase. Each of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may purchase a call option
on foreign currency to hedge against an adverse exchange rate move of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Portfolio.
Each of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may purchase put
options on securities (and, in the case of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, on currencies) which it holds (or
has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security (currency). If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Portfolio would
incur no additional loss. These Portfolios may also purchase put options to
close out written put positions in a manner similar to call options closing
purchase transactions. In addition, a Portfolio may sell a put option which it
has previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option when it was purchased. Any such
gain or loss could be offset in whole or in part by a change in the market value
of the underlying security (currency). If a put option purchased by a Portfolio
expired without being sold or exercised, the Portfolio would realize a loss.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO, the value of the security's denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the value of the security's denominated currency) decline.
The covered put writer also retains the risk of loss should the market value of
the underlying security decline below the exercise price of the option less the
premium received on the sale of the option. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A secured put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting
over-the-counter option would continue to bear the risk of decline in the market
price of the underlying security until the option expires or is exercised. In
addition, a covered writer would be unable to utilize the amount held in cash or
U.S. Government securities or other high grade short-term obligations securities
as security for the put option for other investment purposes until the exercise
or expiration of the option.
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A Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, a Portfolio
may be able to purchase an offsetting option which does not close out its
position as a writer but constitutes an asset of equal value to the obligation
under the option written. If the Portfolio is not able to either enter into a
closing purchase transaction or purchase an offsetting position, it will be
required to maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to do so, until a
closing transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in options, the Portfolio could experience delays and/or losses
in liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by a Portfolio,
the Portfolio could experience a loss of all or part of the value of the option.
Transactions are entered into by a Portfolio only with brokers or financial
institutions deemed creditworthy by the Portfolio's management.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which a Portfolio may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
STOCK INDEX OPTIONS. The UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO
and the GLOBAL EQUITY PORTFOLIO may invest in options on stock indexes. As
stated in the Prospectus, options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on,
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among other indexes, the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." Options on
broad-based stock indexes provide the Portfolio with a means of protecting the
Portfolio against the risk of market-wide price movements. If the Investment
Manager anticipates a market decline, the Portfolio could purchase a stock index
put option. If the expected market decline materialized, the resulting decrease
in the value of the Portfolio's portfolio would be offset to the extent of the
increase in the value of the put option. If the Investment Manager anticipates a
market rise, the Portfolio may purchase a stock index call option to enable the
Portfolio to participate in such rise until completion of anticipated common
stock purchases by the Portfolio. Purchases and sales of stock index options
also enable the Investment Manager to more speedily achieve changes in a
Portfolio's equity positions.
The UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO and the GLOBAL EQUITY
PORTFOLIO will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other high grade debt obligations
equal to the aggregate exercise price of the puts, or by a put option on the
same stock index with a strike price no lower than the strike price of the put
option sold by the Portfolio, which cover is held for the Portfolio in a
segregated account maintained for it by its Custodian. All call options on stock
indexes written by a Portfolio will be covered either by a portfolio of stocks
substantially replicating the movement of the index underlying the call option
or by holding a separate call option on the same stock index with a strike price
no higher than the strike price of the call option sold by the Portfolio.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the UTILITIES PORTFOLIO, the AMERICAN
VALUE PORTFOLIO and the GLOBAL EQUITY PORTFOLIO cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its stock portfolio. This "timing risk" is
an inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
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between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. As stated in the Prospectus, the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may purchase and sell interest rate futures contracts
that are traded, or may in the future be traded, on U.S. commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, bills and GNMA
Certificates and bond index futures contracts that are traded, or may in the
future be traded, on U.S. commodity exchanges on such indexes as the Moody's
Investment-Grade Corporate Bond Index. The UTILITIES PORTFOLIO, the VALUE-ADDED
MARKET PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and
the EMERGING MARKETS PORTFOLIO may also purchase and sell stock index futures
contracts that are traded on U.S. commodity exchanges on such indexes as the S&P
500 Index and the New York Stock Exchange Composite Index. The GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also purchase and sell futures
contracts that are currently traded, or may in the future be traded, on foreign
commodity exchanges on such underlying securities as common stocks and on such
indexes of foreign equity securities as may exist or come into being, such as
the Financial Times Equity Index. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may also purchase and sell futures contracts that are
currently traded, or may in the future be traded, on foreign commodity exchanges
on such underlying securities as foreign government fixed-income securities, on
various currencies ("currency futures") and on such indexes of foreign
fixed-income securities as may exist or come into being.
As a futures contract purchaser, a Portfolio incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, a Portfolio incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will purchase or sell
interest rate futures contracts for the purpose of hedging their fixed-income
portfolio (or anticipated portfolio) securities against changes in prevailing
interest rates or, in the case of the UTILITIES PORTFOLIO, to alter the
Portfolio's asset allocation in fixed-income securities. If it is anticipated
that interest rates may rise and, concomitantly, the price of certain of its
portfolio securities fall, a Portfolio may sell an interest rate futures
contract or a bond index futures contract. If declining interest rates are
anticipated, or if the Investment Manager wishes to increase the UTILITIES
PORTFOLIO's allocation of fixed-income securities, a Portfolio may purchase an
interest rate futures contract or a bond index futures contract to protect
against a potential increase in the price of securities the Portfolio intends to
purchase. Subsequently, appropriate securities may be purchased by the Portfolio
in an orderly fashion; as securities are purchased, corresponding futures
positions would be terminated by offsetting sales of contracts.
The UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO will purchase or sell stock index
futures contracts for the purpose of hedging their equity portfolio (or
anticipated portfolio) securities against changes in their prices. If the
Investment Manager anticipates that the prices of stock held by a Portfolio may
fall or wishes to decrease the UTILITIES PORTFOLIO's asset allocation in equity
securities, the Portfolio may sell a stock index futures contract. Conversely,
if the Investment Manager wishes to increase the assets of the UTILITIES
PORTFOLIO which are invested in stocks or as a hedge against anticipated prices
rises in those stocks which the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO or the EMERGING MARKETS PORTFOLIO intends
to purchase, the Portfolio may purchase stock index futures contracts. This
allows the Portfolio to purchase equities, in accordance with the asset
allocations of the Portfolio's management, in an orderly and efficacious manner.
The
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circumstances under which the VALUE-ADDED MARKET PORTFOLIO may purchase and sell
stock index futures are described below.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will
purchase or sell currency futures on currencies in which their portfolio
securities (or anticipated portfolio securities) are denominated for the
purposes of hedging against anticipated changes in currency exchange rates.
These Portfolios will enter into currency futures contracts for the same reasons
as set forth under the heading "Forward Foreign Currency Exchange Contracts"
above for entering into forward foreign currency exchange contracts; namely, to
"lock-in" the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate and bond index and stock index (and
currency) futures contracts will be bought or sold in order to close out a short
or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the open or close
of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of security (or, in the case of
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO,
currency) and the same delivery date. If the sale price exceeds the offsetting
purchase price, the seller would be paid the difference and would realize a
gain. If the offsetting purchase price exceeds the sale price, the seller would
pay the difference and would realize a loss. Similarly, a futures contract
purchase is closed out by effecting a futures contract sale for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that a Portfolio will be able to enter into a closing transaction.
INTEREST RATE FUTURES CONTRACTS. When The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO,
the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO or the EMERGING
MARKETS PORTFOLIO enters into a futures contract, it is initially required to
deposit with its Custodian, in an account in the name of the broker performing
the transaction, an "initial margin" of cash or U.S. Government securities or
other high grade short-term obligations equal to approximately 2% of the
contract amount. Initial margin requirements are established by the Exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Portfolio upon the proper termination of
the futures contract. The margin deposits made are marked to market daily and
the Portfolio may be required to make subsequent deposits of cash or U.S.
Government securities, called "variation margin", with the Portfolio's futures
contract clearing broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be purchased on
debt securities such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with
maturities between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates
of Deposit.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may invest in bond index futures contracts, and the
UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO
and the EMERGING
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MARKETS PORTFOLIO may invest in stock index futures contracts. The VALUE-ADDED
MARKET PORTFOLIO may purchase stock index futures contracts as a temporary
substitute for the purchase of individual stocks which may then be purchased in
orderly fashion, and may sell such contracts to effect closing transactions. An
index futures contract sale creates an obligation by the Portfolio, as seller,
to deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Portfolio, as purchaser, to take delivery of
cash at a specified future time. Futures contracts on indexes do not require the
physical delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Portfolio is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Portfolio may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Portfolio may
elect to close the position by taking an opposite position which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio and the Portfolio realizes a loss or a
gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond Index
on the Chicago Board of Trade.
CURRENCY FUTURES. As noted above, the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may invest in foreign currency futures. Generally,
foreign currency futures provide for the delivery of a specified amount of a
given currency, on the exercise date, for a set exercise price denominated in
U.S. dollars or other currency. Foreign currency futures contracts would be
entered into for the same reason and under the same circumstances as forward
foreign currency exchange contracts. The Portfolio's management will assess such
factors as cost spreads, liquidity and transaction costs in determining whether
to utilize futures contracts or forward contracts in its foreign currency
transactions and hedging strategy. Currently, currency futures exist for, among
other foreign currencies, the Japanese yen, German mark, Canadian dollar,
British pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Portfolio must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulation
regarding the maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the
Portfolios will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the Portfolio's management, the
market for such options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts.
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OPTIONS ON FUTURES CONTRACTS. The NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the
AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO may purchase and write call and put options on futures contracts which
are traded on an exchange and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the term of the option. Upon the exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option is
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract at the time of exercise exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the futures
contract.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO will only purchase and write
options on futures contracts for identical purposes to those set forth above for
the purchase of a futures contract (purchase of a call option or sale of a put
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or to close out a long or short position in futures contracts.
If, for example, the Investment Manager (or, in the case of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the
Sub-Adviser) wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of a Portfolio's
fixed-income portfolio, it might write a call option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Portfolio's management seeks to hedge. Any premiums received in
the writing of options on futures contracts may, of course, augment the income
of the Portfolio and thereby provide a further hedge against losses resulting
from price declines in portions of its portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may not enter into futures contracts or purchase
related options thereon if, immediately thereafter, the amount committed to
margin plus the amount paid for premiums for unexpired options on futures
contracts exceeds 5% of the value of the Portfolio's total assets, after taking
into account unrealized gains and unrealized losses on such contracts it has
entered into, provided, however, that in the case of an option that is
in-the-money (the exercise price of the call (put) option is less (more) than
the market price of the underlying security) at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. The VALUE-ADDED
MARKET PORTFOLIO is similarly limited in its purchase of stock index futures
contracts. However, there is no overall limitation on the percentage of a
Portfolio's assets which may be subject to a hedge position. In addition, in
accordance with the regulations of the Commodity Futures Trading Commission
("CFTC") under which the Fund is exempted from registration as a commodity pool
operator, these Portfolios may only enter into futures contracts and options on
futures contracts transactions for purposes of hedging a part or all of the
Portfolio's portfolio. If the CFTC changes its regulations so that a Portfolio
would be permitted to write options on futures contracts for income purposes
without CFTC registration, these Portfolios may engage in such transactions for
those purposes. Except as described above, there are no other limitations on the
use of futures and options thereon by these Portfolios.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may
sell a futures contract to protect against the decline in the value of
securities (or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO
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and the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the currency in which
securities are denominated) held by the Portfolio. However, it is possible that
the futures market may advance and the value of securities (or, in the case of
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the currency in which they are denominated) held in the
Portfolio may decline. If this occurred, the Portfolio would lose money on the
futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO purchases a futures
contract to hedge against the increase in value of securities it intends to buy
(or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the currency in which they are denominated), and the value of
such securities (currency) decreases, then the Portfolio may determine not to
invest in the securities as planned and will realize a loss on the futures
contract that is not offset by a reduction in the price of the securities.
If a Portfolio maintains a short position in a futures contract or has sold
a call option on a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or other high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities (currencies) underlying the futures contract or the exercise price of
the option. Such a position may also be covered by owning the securities
(currencies) underlying the futures contract (in the case of a stock index
futures contract a portfolio of securities substantially replicating the
relevant index), or by holding a call option permitting the Portfolio to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if a Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other high grade debt obligations equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the
Portfolio by its Custodian. Alternatively, the Portfolio could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Portfolio.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on open
futures positions. In such situations, if the Portfolio has insufficient cash,
it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the Portfolio's ability to effectively hedge its portfolio.
With regard to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, futures contracts and options thereon which are purchased or
sold on foreign commodities exchanges may have greater price volatility than
their U.S. counterparts. Furthermore, foreign commodities exchanges may be less
regulated and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on foreign
exchanges. Greater margin requirements may limit the ability of these Portfolios
to enter into certain commodity transactions on foreign exchanges. Moreover,
differences in clearance and delivery requirements on foreign exchanges may
occasion delays in the settlement of the Portfolio's transactions effected on
foreign exchanges.
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In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, the Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by a
Portfolio only with brokers or financial institutions deemed creditworthy by the
Portfolio's management.
While the futures contracts and options transactions to be engaged in by a
Portfolio for the purpose of hedging the Portfolio's portfolio securities are
not speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and, for the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the
GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the currencies in
which they are denominated) is that the prices of securities and indexes subject
to futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Portfolio's portfolio
securities (and the currencies in which they are denominated). Another such risk
is that prices of interest rate futures contracts may not move in tandem with
the changes in prevailing interest rates against which the Portfolio seeks a
hedge. A correlation may also be distorted by the fact that the futures market
is dominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by a Portfolio and
the movements in the prices of the securities (currencies) which are the subject
of the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt securities
and futures markets could result. Price distortions could also result if
investors in futures contracts opt to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant
reduction in the liquidity of the futures market. In addition, due to the fact
that, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the
Portfolios may invest. In the event a liquid market does not exist, it may not
be possible to close out a futures position, and in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash payments
of variation margin. In addition, limitations imposed by an exchange or board of
trade on which futures contracts are traded may compel or prevent a Portfolio
from closing out a contract which may result in reduced gain or increased loss
to the Portfolio. The absence of a liquid market in futures contracts might
cause the Portfolios to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the
Portfolio because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the
Portfolio notwithstanding that the purchase or sale of a futures contract would
not result in a loss, as in the instance where there is no movement in the
prices of the futures contract or underlying securities (currencies).
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INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies of the Portfolios, except as otherwise indicated. Under the
Act, a fundamental policy may not be changed with respect to a Portfolio without
the vote of a majority of the outstanding voting securities of that Portfolio,
as defined in the Act. Such a majority is defined as the lesser of (a) 67% or
more of the shares of the Portfolio present at a meeting of shareholders of the
Fund, if the holders of more than 50% of the outstanding shares of the Portfolio
are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Portfolio. For purposes of the following restrictions and those
contained in the Prospectus: (i) all percentage limitations apply immediately
after a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in the
amount of total or net assets does not require elimination of any security from
the portfolio.
Each Portfolio of the Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Portfolio may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein (as such, in case of default of such
securities, a Portfolio may hold the real estate securing such security).
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Portfolio
may invest in the securities of companies which operate, invest in, or
sponsor such programs.
3. Pledge its assets or assign or otherwise encumber them except: (a)
to secure borrowings effected within the limitations set forth in
restriction (5) in the Prospectus or (b), in the case of the DEVELOPING
GROWTH PORTFOLIO, to secure borrowings effected in connection with leverage.
For the purpose of this restriction, collateral arrangements with respect to
initial or variation margin for futures are not deemed to be pledges of
assets.
4. Issue senior securities as defined in the Act except insofar as the
Portfolio may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement or reverse repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling any financial futures contracts or options thereon;
(d) borrowing money in accordance with restrictions described above and in
the Prospectus; or (e) lending portfolio securities.
5. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Portfolio may invest consistent with its
investment objective and policies; (b) by investing in repurchase
agreements; or (c) by lending its portfolio securities or (d), in the case
of the EMERGING MARKETS PORTFOLIO, by investing in loan participations and
loan assignments.
6. Make short sales of securities.
7. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the 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. Purchase or sell commodities or commodities contracts except that
the Portfolios may purchase or sell futures contracts or options on futures.
9. Engage in the underwriting of securities, except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security. (The Portfolios may invest in restricted
securities subject to the fundamental (in the case of the MONEY MARKET
PORTFOLIO) and non-fundamental (in the case of the other Portfolios)
limitations contained in the Prospectus).
10. Invest for the purpose of exercising control or management of any
other issuer.
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In addition, as a non-fundamental policy, the Portfolios may not 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 or, in
the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED
PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the
SUB-ADVISER 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 issuers.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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PORTFOLIO TURNOVER. Although the Fund does not intend to engage in
short-term trading of portfolio securities as a means of achieving the
investment objectives of the respective Portfolios, each Portfolio may sell
portfolio securities without regard to the length of time they have been held
whenever such sale will in the opinion of the Investment Manager or, in the case
of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO,
the CORE EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser
strengthen the Portfolio's position and contribute to its investment objectives.
A 100% turnover rate would occur, for example, if all the portfolio securities
of a Portfolio (other than short-term money market securities) were replaced
once during the fiscal year. Based on this definition, it is anticipated that
the MONEY MARKET PORTFOLIO's policy of investing in securities with remaining
maturities of less than one year will not result in a quantifiable portfolio
turnover rate. It is not anticipated that the portfolio turnover rates of the
Portfolios will exceed the following percentages in any one year: NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO: 100%; DIVERSIFIED INCOME PORTFOLIO: 150%;
BALANCED PORTFOLIO: 100%; UTILITIES PORTFOLIO: 100%; DIVIDEND GROWTH PORTFOLIO:
90%; VALUE-ADDED MARKET PORTFOLIO: 100%; CORE EQUITY PORTFOLIO: 100%; AMERICAN
VALUE PORTFOLIO: 400%; GLOBAL EQUITY PORTFOLIO: 100%; DEVELOPING GROWTH
PORTFOLIO: 300%; and EMERGING MARKETS PORTFOLIO: 100%.
PORTFOLIO TRANSACTIONS AND BROKERAGE. Subject to the general supervision of
the Board of Trustees, The Investment Manager and, for the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY
PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Adviser are responsible
for decisions to buy and sell securities for each Portfolio of the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased or sold directly from or to an issuer, no commissions or discounts are
paid.
Purchases of money market instruments are made from dealers, underwriters
and issuers; sales, if any, prior to maturity, are made to dealers and issuers.
The Fund does not normally incur brokerage commission expense on such
transactions. Money market instruments are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer.
The Investment Manager and, for the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the BALANCED PORTFOLIO, the CORE EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO, the Sub-Adviser currently serve as investment advisors to a
number of clients, including other investment companies, and may in the future
act as investment manager or adviser to others. It is the practice of the
Investment Manager or the Sub-Adviser to cause purchase and sale transactions to
be allocated among the Portfolios of the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the
Portfolios of the Fund and other client accounts, the main factors considered
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and the opinions
of the persons responsible for managing the portfolios of the Fund and other
client accounts. This procedure may, under certain circumstances, have an
adverse effect on the Fund.
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The policy of the Fund regarding purchases and sales of securities for the
various Portfolios is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager (or the Sub-Adviser) from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager (or the Sub-Adviser) relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
In seeking to implement the policies of the Portfolios of the Fund, the
Investment Manager or the Sub-Adviser effects transactions with those brokers
and dealers who the Investment Manager or the Sub-Adviser believes provide the
most favorable prices and are capable of providing efficient executions. If the
Investment Manager or the Sub-Adviser believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund, the Investment Manager or the
Sub-Adviser. Such services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities.
The information and services received by the Investment Manager and the
Sub-Adviser from brokers and dealers may be of benefit to the Investment Manager
or the Sub-Adviser in the management of accounts of some of its other clients
and may not in all cases benefit a Portfolio of the Fund directly. While the
receipt of such information and services is useful in varying degrees and would
generally reduce the amount of research or services otherwise performed by the
Investment Manager or the Sub-Adviser and thus reduce its expenses, it is of
indeterminable value and the fees paid to the Investment Manager and the
Sub-Adviser are not reduced by any amount that may be attributable to the value
of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR 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 DWR 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 of the Fund,
including a majority of the Trustees who are not "interested" persons of the
Fund, as defined in the Act, have adopted
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procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to DWR 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 DWR.
PURCHASE AND REDEMPTION OF FUND SHARES
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As discussed in the Prospectus, investments in the Fund may be made only by
(1) Hartford Life Insurance Company for allocation to certain separate accounts
it established and maintains for the purpose of funding variable annuity
contracts it issues, and by (2) ITT Hartford Life and Annuity Insurance Company
for allocation to certain separate accounts it established and maintains for the
purpose of funding variable annuity contracts it issues. These separate accounts
are sometimes referred to individually as an "Account" and collectively as the
"Accounts." The Fund offers the shares of each Portfolio of the Fund to Hartford
Life Insurance Company and ITT Hartford Life and Annuity Insurance Company (the
"Companies") without sales charge at the respective net asset values of the
Portfolios next determined after receipt by the Fund of the purchase payment in
the manner set forth under the caption "Determination of Net Asset Value" below
and in the Prospectus. Shares of any Portfolio of the Fund can be redeemed by
the Companies at any time for cash, without sales charge, at the net asset value
next determined after receipt of the redemption request. Such payment may be
postponed or the right of redemption suspended at times when normal trading is
not taking place on the New York Stock Exchange, as discussed in the Prospectus.
(For information regarding charges which may be imposed upon the Contracts by
the Account, see the Prospectus for the Variable Annuity Contracts.)
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the net asset value of the shares of the
each Portfolio is determined once daily at 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open for trading. The New York Stock
Exchange currently observes the following holidays: New Year's Day; Presidents'
Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day;
and Christmas Day.
As discussed in the Prospectus, the MONEY MARKET PORTFOLIO utilizes the
amortized cost method in valuing its portfolio securities for purposes of
determining the net asset value of its shares. The MONEY MARKET PORTFOLIO
utilizes the amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in market value,
generally in connection with changes in interest rates. The amortized cost
method of valuation involves valuing a security at its cost at the time of
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the MONEY MARKET PORTFOLIO would receive if it
sold the investment. During such periods, the yield to investors in the MONEY
MARKET PORTFOLIO may differ somewhat from that obtained in a similar company
which uses mark-to-market values for all of its portfolio securities. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in the MONEY MARKET
PORTFOLIO would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company and existing investors would
receive less (more) investment income. The purpose of this method of calculation
is to facilitate the maintenance of a constant net asset value per share of
$1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Act (the "Rule") and is
conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Portfolio's shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Portfolio's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable
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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 instrument 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 noted on the face of the instrument as the date on which the principal
amount must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument 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 Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b)(i) is rated in the two
highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a short-term rating
with respect to the security or class of debt obligations of the issuer; or (ii)
if only one NRSRO has issued a short-term rating with respect to the security,
then by that NRSRO; (c) was a long-term security at the time of issuance whose
issuer has outstanding a short-term debt obligation which is comparable in
priority and security and has a rating as specified in clause (b) above; or (d)
if no rating is assigned by any NRSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Board to be of comparable quality to
any such rated security. The MONEY MARKET PORTFOLIO will limit its investments
to securities that meet the requirements for Eligible Securities as set forth in
the Prospectus.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and (ii)
no more than the greater of 1% of total assets, or $1 million, in the securities
of 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
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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. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Portfolio will invest its available cash in such a manner
as to reduce such maturity to 90 days or less as soon as is reasonably
practicable.
If the Board determines that it is no longer in the best interests of the
MONEY MARKET PORTFOLIO and its shareholders to maintain a stable price of $1 per
share or if the Board believes that maintaining such price no longer reflects a
market-based net asset value per share, the Board has the right to change from
an amortized cost basis of valuation to valuation based on market quotations.
The Fund will notify shareholders of the Portfolio of any such change.
As stated in the Prospectus, in the calculation of the net asset value of
the Portfolios other than the MONEY MARKET PORTFOLIO, short-term debt securities
with remaining maturities of sixty days or less at the time of purchase are
valued at amortized cost, unless the Trustees determine such does not reflect
the securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt securities
will be valued on a mark-to-market basis until such time as they reach a
remaining maturity of sixty days, whereupon they will be valued at amortized
cost using their value on the 61st day unless the Trustees determine such does
not reflect the securities' market value, in which case these securities will be
valued at their fair value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their latest bid and asked prices.
Unlisted options on debt securities and all options on equity securities are
valued at the mean between their latest bid and asked prices. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the Trustees determine that such price does not reflect their market value, in
which case they will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
a Portfolio's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which 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 materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income on the MONEY MARKET PORTFOLIO will be declared payable on each day the
New York Stock Exchange is open for business to shareholders of record as of the
close of business the preceding business day. Net income, for dividend purposes,
includes accrued interest and accretion of original issue and market discount,
less the amortization of market premium and the estimated expenses of the MONEY
MARKET PORTFOLIO. Net income will be calculated immediately prior to the
determination of net asset value per share of the
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MONEY MARKET PORTFOLIO (see "Determination of Net Asset Value" above and in the
Prospectus). The amount of dividend may fluctuate from day to day and may be
omitted on some days if realized losses on portfolio securities exceed the Money
Market Portfolio's net investment income. The Trustees may revise the above
dividend policy, or postpone the payment of dividends, if the MONEY MARKET
PORTFOLIO should have or anticipate any large unexpected expense, loss or
fluctuation in net assets which in the opinion of the Trustees might have a
significant adverse effect on shareholders. On occasion, in order to maintain a
constant $1.00 per share net asset value, the Trustees may direct that the
number of outstanding shares of the MONEY MARKET PORTFOLIO be reduced in each
shareholder's account. Such reduction may result in taxable income to a
shareholder in excess of the net increase (i.e., dividends, less such
reductions), if any, in the shareholder's account for a period. Furthermore,
such reduction may be realized as a capital loss when the shares are liquidated.
Any net realized capital gains will be declared and paid at least once per
calendar year, except that net short-term gains may be paid more frequently,
with the distribution of dividends from net investment income.
OTHER PORTFOLIOS. The dividend policies of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED PORTFOLIO,
the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the VALUE-ADDED MARKET
PORTFOLIO, the CORE EQUITY PORTFOLIO, the AMERICAN VALUE PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO, the DEVELOPING GROWTH PORTFOLIO and the EMERGING MARKETS
PORTFOLIO are discussed in the Prospectus. In computing interest income, these
Portfolios will not accrete any discount or amortize any premium resulting from
the purchase of debt securities except those original issue discounts for which
accretion is required for federal income tax purposes. Additionally, with
respect to market discount on bonds, a portion of any capital gain realized upon
disposition may be recharacterized as taxable ordinary income in accordance with
the provisions of the Internal Revenue Code (the "Code"). Dividends and/or
interest and capital gains received by the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO may give rise to withholding and other taxes imposed
by foreign countries. Realized gains and losses on security transactions are
determined on the identified cost method.
Gains or losses on sales of securities by the Fund will be long-term gains
or losses if the securities have been held by the Fund for more than twelve
months. Gains or losses on the sale of securities held for twelve months or less
will be short-term gains or losses.
OPTIONS AND FUTURES. Exchange-traded futures contracts, listed options on
futures contracts and certain listed options are classified as "Section 1256"
contracts under the Code. Unless the Portfolio makes an election as discussed
below, the character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts would
generally be treated as long-term capital gain or loss to the extent of 60
percent thereof and short-term capital gain or loss to the extent of 40 percent
thereof and such Section 1256 contracts would also be required to be marked-to-
market at the end of the Fund's fiscal year, for purposes of federal income tax
calculations.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation rules.
When call options written by a Portfolio, or put options purchased by a
Portfolio, are exercised, the gain or loss realized on the sales of the
underlying securities may be either short-term or long-term, depending upon the
holding period of the securities. In determining the amount of gain or loss, the
sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.
If a Portfolio holds a security which is offset by a Section 1256 contract,
the Portfolio would be deemed to hold a "mixed straddle" position, as such is
defined in the Code. A Portfolio may elect to identify its mixed straddle
positions pursuant to Section 1256(d) of the Code and thereby avoid application
of both the mark-to-market and 60 percent-40 percent taxation rules. The
Portfolio may also make certain other elections with respect to mixed straddles
which could avoid or limit the application of certain rules which could, in
certain circumstances, cause deferral or disallowance of losses, change
long-term capital gains into short-term capital gains, or change short-term
capital losses into long-term capital losses.
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Whether the portfolio security constituting part of the identified mixed
straddle is deemed to have been held for less than three months for purposes of
determining qualification of the Portfolio as a regulated investment company
will be determined generally by the actual holding period of the security. In
certain circumstances, entering into a mixed straddle could result in the
recognition of unrealized gain
or loss which would be taken into account in determining the amount of income
available for the Portfolio's distributions, and can result in an amount which
is greater or less than the Portfolio's net realized gains being available for
distribution. If an amount which is less than the Portfolio's net realized gains
is available for distribution, the Portfolio may elect to distribute more than
such available amount, up to the full amount of such net realized gains. Such a
distribution may, in part, constitute a return of capital to the shareholders.
If the Portfolio does not elect to identify a mixed straddle, no recognition of
gain or loss on the securities in its portfolio will result when the mixed
straddle is entered into. However, any losses realized on the straddle will be
governed by a number of tax rules which might, under certain circumstances,
defer or disallow the losses in whole or in part, change long-term gains into
short-term gains, or change short-term losses into long-term losses. A deferral
or disallowance of recognition of a realized loss may result in an amount being
available for the Portfolio's distributions which is greater than the
Portfolio's net realized gains.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS (NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, DIVERSIFIED INCOME PORTFOLIO, GLOBAL EQUITY
PORTFOLIO AND EMERGING MARKETS PORTFOLIO). In general, gains from foreign
currencies and from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in stock, securities
or foreign currencies are currently considered to be qualifying income for
purposes of determining whether each of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the
EMERGING MARKETS PORTFOLIO qualifies as a regulated investment company. It is
currently unclear, however, who will be treated as the issuer of certain foreign
currency instruments or how foreign currency options, futures, or forward
foreign currency contracts will be valued for purposes of the regulated
investment company diversification requirements applicable to the Portfolio. The
Fund may request a private letter ruling from the Internal Revenue Service on
some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Portfolio's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Portfolio's net capital gain. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
affected Portfolio would not be able to make any ordinary dividend
distributions.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may be
subject to taxes in foreign countries in which they invest. In addition, if the
European Growth Portfolio were deemed to be a resident of the United Kingdom for
United Kingdom tax purposes or if the Portfolio were treated as being engaged in
a trading activity through an agent in the United Kingdom, there is a risk that
the United Kingdom would attempt to tax all or a portion of the Portfolio's
gains or income. In light of the terms and conditions of the Investment
Management and Sub-Advisory Agreements, it is believed that any such risk is
minimal.
If any of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING
MARKETS PORTFOLIO invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the
Portfolio level which could not be eliminated by distributions to shareholders.
The U.S. Treasury issued proposed regulation section 1.1291-8 which establishes
a mark-
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to-market regime which allows investment companies investing in PFIC's to avoid
most, if not all, of the difficulties posed by the PFIC rules. In any event, it
is not anticipated that any taxes on a Portfolio with respect to investments in
PFIC's would be significant.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The annualized current yield of the MONEY MARKET PORTFOLIO, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated seven-day period,
the net change, exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends declared therefrom,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge which
reflects deductions from shareholder accounts (such as management fees), and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7).
The MONEY MARKET PORTFOLIO's annualized effective yield, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining (for the same stated seven-day
period as for the current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with dividends and any
dividends declared therefrom, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the MONEY MARKET PORTFOLIO in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the MONEY MARKET
PORTFOLIO and changes in interest rates on such investments, but also on changes
in the Portfolio's expenses during the period.
Yield information may be useful in reviewing the performance of the MONEY
MARKET PORTFOLIO and for providing a basis for comparison with other investment
alternatives. However unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the MONEY MARKET PORTFOLIO's
yield fluctuates. Furthermore, the quoted yield does not reflect charges which
may be imposed on the Contracts by the applicable Account and therefore is not
equivalent to total return under a Contract (for a description of such charges,
see the Prospectus for the Contracts).
As discussed in the Prospectus, from time to time the Fund may quote the
"total return" of each Portfolio in advertising and sales literature. A
Portfolio's "average annual total return" represents an annualization of the
Portfolio's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Portfolio's
operations, if shorter than any of the foregoing. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
However, average annual total return does not reflect the deduction of any
charges which may be imposed on the Contracts by the applicable Account which,
if quoted, would reduce the performance quoted. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result.
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
52
<PAGE>
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.
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.
The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
independent organizations.
DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of separate Portfolios and to divide or combine
the shares of any Portfolio into a greater or lesser number of shares of that
Portfolio without thereby changing the proportionate beneficial interests in
that Portfolio. As discussed in the Prospectus, the shares of beneficial
interest of the Fund are divided into twelve separate Portfolios, and the shares
of each Portfolio have equal rights and privileges with all other shares of that
Portfolio. Each share of a Portfolio represents an equal proportional interest
in that Portfolio with each other share. Upon liquidation of the Fund or any
Portfolio, shareholders of a Portfolio are entitled to share pro rata in the net
assets of that Portfolio available for distribution to shareholders. Shares have
no preemptive or conversion rights. The right of redemption is described above
and in the Prospectus. Shares of each Portfolio are fully paid and
non-assessable by the Fund. The Trustees are authorized to classify unissued
shares of the Fund by assigning them to a Portfolio for issuance.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares and additional classes of shares within any series,
as described in the Prospectus. Such additional offerings would not affect the
interests of the current shareholders in the existing Portfolios. All
consideration received by the Fund for shares of any additional Portfolios, and
all assets in which such consideration is invested, would belong to that
Portfolio (subject only to the rights of creditors of the Fund) and would be
subject to the liabilities related thereto. Pursuant to the Act, shareholders of
any additional Portfolio would normally have to approve the adoption of any
management contract relating to such Portfolio and of any changes in the
investment policies related thereto.
Shares of each Portfolio entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders have the right to vote
on the election of Trustees of the Fund and on any and all matters on which by
law or the provisions of the Fund's By-Laws they may be entitled to vote. To the
extent required by law, Hartford Life Insurance Company and ITT Hartford Life
and Annuity Insurance Company, which are the only shareholders of the Fund, will
vote the shares of the Fund held in the Account in accordance with instructions
from Contract Owners, as more fully described under the caption "Voting Rights"
in the Prospectus for the Variable Annuity Contracts. Shareholders of all
Portfolios vote for a single set of Trustees. The Trustees themselves have the
power to alter the number and the terms of office of the Trustees, and they may
at any time lengthen their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund. Under certain
circumstances the Trustees may be removed by action of the Trustees. Under
certain circumstances the shareholders may call a meeting to remove Trustees and
the Fund is required to provide assistance in communicating with shareholders
about such a meeting.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
53
<PAGE>
With respect to the submission to shareholder vote of a matter requiring
separate voting by Portfolio, the matter shall have been effectively acted upon
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio votes for the approval of the matter, notwithstanding that:
(1) the matter has not been approved by a majority of the outstanding voting
securities of any other Portfolio; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Trust shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of the assets of each Portfolio of the Fund other than the EMERGING
MARKETS PORTFOLIO and Grouping (1) of the DIVERSIFIED INCOME PORTFOLIO. The
Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the Custodian
of the assets of the EMERGING MARKETS PORTFOLIO and Grouping (1) of the
DIVERSIFIED INCOME PORTFOLIO. The Custodians have contracted with various
foreign banks and depositories to hold portfolio securities of non-U.S. issuers
on behalf of various Portfolios. All of a Portfolio's cash balances with the
Custodian in excess of $100,000 are unprotected by Federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust Company'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 Dean Witter Trust
Company receives a fee from each Portfolio of the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Statements showing the portfolio of each Portfolio and other information
will be furnished, at least semi-annually, to Contract Owners, and annually such
statements will be audited by independent accountants whose selection must be
approved annually by the Fund's Trustees. The Fund's fiscal year ends on
December 31.
54
<PAGE>
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The Statements of Assets and Liabilities of each of the Portfolios of the
Fund included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholder and Trustees of
Dean Witter Select Dimensions Investment Series
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of each of the
Portfolios of Dean Witter Select Dimensions Investment Series (the "Fund") at
September 6, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
September 9, 1994
55
<PAGE>
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
STATEMENTS OF ASSETS AND LIABILITIES AT SEPTEMBER 6, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY GOVERNMENT DIVERSIFIED
MARKET SECURITIES INCOME BALANCED
--------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash.............................................................. $ 100 $ 100 $ 100 $ 100
Deferred organizational expenses (Note 1)......................... 8,333 8,333 8,333 8,333
--------- ------- ----------- -----------
TOTAL ASSETS............................................... 8,433 8,433 8,433 8,433
--------- ------- ----------- -----------
LIABILITIES:
Organizational expenses payable (Note 1).......................... 8,333 8,333 8,333 8,333
Commitments (Notes 1 and 2)....................................... -- -- -- --
--------- ------- ----------- -----------
NET ASSETS................................................. $ 100 $ 100 $ 100 $ 100
--------- ------- ----------- -----------
--------- ------- ----------- -----------
SHARES OF BENEFICIAL INTEREST OUTSTANDING......................... 100 10 10 10
--------- ------- ----------- -----------
--------- ------- ----------- -----------
NET ASSET VALUE PER SHARE (unlimited authorized shares of
beneficial interest of $.01 par value)........................... $1 $10 $10 $10
--------- --------------- ----------- -----------
--------- --------------- ----------- -----------
</TABLE>
- ------------------------
Note 1-- Dean Witter Select Dimensions Investment Series (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund was organized as a
Massachusetts Business Trust on June 2, 1994 and is comprised of twelve separate
portfolios (the "Portfolios"). The Fund has had no transactions other than those
relating to organizational matters and the sale of 100 shares of beneficial
interest of the MONEY MARKET PORTFOLIO for $100 and the sale of 10 shares of
each of the North American Government Securities, Diversified Income, Balanced,
Utilities, Dividend Growth, Value-Added Market, Core Equity, American Value,
Global Equity, Developing Growth and Emerging Markets Portfolios for $100 each
to Hartford Life Insurance Company. Dean Witter InterCapital Inc. (the
"Investment Manager") has incurred and will be reimbursed by each of the
Portfolios for approximately $8,333 in organizational expenses. These expenses
will be deferred and amortized by each Portfolio on the straight-line method
over a period not to exceed five years from the date of commencement of
operations of each Portfolio. In the event that the Fund or any one or more of
the Portfolios liquidates before the deferred organizational expenses are fully
amortized, the Investment Manager shall bear such unamortized deferred
organizational expenses, applicable to the liquidated Portfolios.
Note 2 -- On August 31, 1994 the Fund entered into an Investment Management
Agreement (the ("Agreement") with the Investment Manager. The Agreement was
approved by the Fund's shareholder on August 31, 1994. With respect to the North
American Government Securities, Balanced, Core Equity and Emerging Markets
Portfolios, the Investment Manager has entered into a Sub-Advisory Agreement
with TCW Funds Management, Inc. (the "Sub-Adviser"). The Sub-Adviser, which was
organized in 1987, is a wholly-owned subsidiary of the TCW Group, Inc., whose
subsidiaries provide a variety of trust, investment management and investment
advisory services. The Sub-Adviser in turn has entered into further sub-advisory
agreements with two other wholly-owned subsidiaries of the TCW Group, Inc., TCW
Asia Limited and TCW London International, Limited, to assist it in performing
its sub-advisory functions in respect of the Emerging Markets Portfolio. The
Sub-Adviser will provide investment advice and portfolio management relating to
these Portfolios' investments in securities, subject to the overall supervision
of the Investment Manager. Certain officers and/or trustees of the Fund are
officers and/or directors of the Investment Manager or the Sub-Adviser. The Fund
has retained the Investment Manager to supervise the investment of the Fund's
assets. Under the terms of the Agreement, the Investment Manager maintains
certain of the Fund's books and records and furnishes, at its own expense, such
office space, facilities, equipment, supplies, clerical help and bookkeeping and
certain legal services as the Fund may reasonably require in the conduct of its
business. 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 the Fund's telephone service, heat,
light, power and other utilities.
56
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND VALUE-ADDED CORE AMERICAN GLOBAL DEVELOPING EMERGING
UTILITIES GROWTH MARKET EQUITY VALUE EQUITY GROWTH MARKETS
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100
8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
8,433 8,433 8,433 8,433 8,433 8,433 8,433 8,433
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333
-- -- -- -- -- -- -- --
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
$ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
10 10 10 10 10 10 10 10
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
$10 $10 $10 $10 $10 $10 $10 $10
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
- --------- ----------- ------------- --------- ----------- --------- ----------- -----------
</TABLE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund will pay
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to each Portfolio's daily net assets: Diversified
Income--0.40%; Money Market, Value-Added Market and Developing Growth--0.50%;
Dividend Growth and American Value--0.625%; North American Government Securities
and Utilities--0.65%; Balanced--0.75%; Core Equity--0.85%; Global Equity--1.00%
and Emerging Markets--1.25%. As compensation for the services to be provided for
each of the North American Government Securities, Balanced, Core Equity and
Emerging Markets Portfolios, pursuant to the Sub-Advisory Agreement, the
Investment Manager will pay the Sub-Adviser monthly compensation equal to 40% of
its monthly compensation under the Investment Management Agreement in respect of
these Portfolios.
Dean Witter Trust Company (the "Transfer Agent"), an affiliate of the
Investment Manager, is the transfer agent of the Fund's shares and dividend
disbursing agent for payment of dividends and distributions on the Fund's
shares.
The Investment Manager has undertaken to assume all operating expenses of
each of the Portfolios (except any brokerage fees and a portion of
organizational expenses) and waive the compensation provided for each Portfolio
in its Investment Management Agreement with the Fund until such time as the
pertinent Portfolio has $50 million of net assets or until six months from the
date of commencement of operations of each of the Portfolios, whichever occurs
first.
57
<PAGE>
APPENDIX -- RATINGS
- --------------------------------------------------------------------------------
Description of the highest commercial paper, bond and other short-and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc.
("Fitch"), Duff and Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc. ("IBCA")
and Thomson BankWatch, Inc. ("Thomson"):
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by good fundamental
protection factors. Risk factors are minor. Duff applies the modifiers (+) and
(-) to the rating Duff-1 in recognition of significant quality differences
within the highest tier. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
The rating TBW-1 is the highest short-term rating assigned by Thomson and
indicates a very high degree of likelihood that principal and interest will be
paid on a timely basis. The rating TBW-2 by Thomson is its second highest
rating; while the degree of safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is not as high as for issues
rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay interest and repay principal.
Bonds rated AA by S&P are judged by S&P to have a very strong capacity to pay
interest and repay principal, and differ only in small degrees from issues rated
AAA.
58
<PAGE>
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations 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 rated bonds. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated AAA by Duff are considered to be of the highest credit quality
with negligible risk factors that are only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA are judged by Duff to be of high credit quality
with strong protection factors; risk is modest but may vary slightly from time
to time because of economic conditions. Duff applies modifiers of (+) and (-) to
the AA category.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Ratings and Individual Ratings. In addition, IBCA assigns banks Long-and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA to be a prime
factor in its assessment of credit risk. Individual Ratings, which range in
gradations from A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state authorities or its
owners.
Companies rated A are considered by Thomson to possess an exceptionally
strong balance sheet and earnings record, translating into an excellent
reputation and unquestioned access to their natural money markets; if weakness
or vulnerability exists in any aspect of a company's business, it is entirely
mitigated by the strengths of the organization. Companies rated A/B- by Thomson
are judged by Thomson to be financially very solid with a favorable track record
and no readily apparent weakness; their overall risk profiles, while low, are
not quite as favorable as for companies in the highest rating category.
59
<PAGE>
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
None
(b) EXHIBITS:
1. -- Declaration of Trust of Registrant *
2. -- By-Laws of Registrant *
3. -- None
4. -- Not Applicable
5.(a) -- Form of Investment Management Agreement between Registrant and Dean
Witter InterCapital Inc.
(b) -- Form of Sub-Advisory Agreement between Dean Witter InterCapital Inc.
and TCW Funds Management, Inc.
(c) -- Form of Secondary Sub-Advisory Agreement between TCW Funds
Management, Inc. and TCW Asia Limited
(d) -- Form of Secondary Sub-Advisory Agreement between TCW Funds
Management, Inc. and TCW London International, Limited
6. -- Form of Participation Agreement among the Registrant, Hartford Life
Insurance Company and ITT Hartford Life and Annuity Insurance
Company
7. -- None
8.(a) -- Form of Custodian Agreement with The Bank of New York
(b) -- Form of Custodian Agreement with The Chase Manhattan Bank, N.A.
(c) -- Form of Transfer Agency and Services Agreement between Registrant
and Dean Witter Trust Company
9. -- Form of Services Agreement between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc.
10. -- Opinion of Sheldon Curtis, Esq.
1
<PAGE>
11. -- Consent of Independent Accountants
12. -- None
13. -- Investment Letter of Hartford Life Insurance Company
14. -- None
15. -- None
16. -- Schedule for Computation of Performance Quotations - to be filed
with first post-effective amendment
27. -- Financial Data Schedules -
(a) to (l)
Other -- Powers of Attorney
_____________________________
* Filed in the Form N-1A Registration Statement on June 9, 1994.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Prior to the effectiveness of this Registration Statement, the Registrant
sold 100 shares of the Money Market Portfolio and 10 shares of each of the other
eleven portfolios to Hartford Life Insurance Company, a Connecticut
corporation, for an aggregate purchase price of $1,200. ITT Corporation, a
Delaware corporation, is the ultimate controlling parent of Hartford Life
Insurance Company.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at October 5, 1994
-------------- ------------------------
Shares of Beneficial Interest 1
Item 27. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
2
<PAGE>
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 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
3
<PAGE>
no event will Registrant maintain insurance to indemnify any such person for any
act for which Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. The term "Dean Witter Funds" used
below refers to the following Funds: (1) InterCapital Income Securities Inc.,
(2) High Income Advantage Trust, (3) High Income Advantage Trust II, (4) High
Income Advantage Trust III, (5) Municipal Income Trust, (6) Municipal Income
Trust II, (7) Municipal Income Trust III, (8) Dean Witter Government Income
Trust, (9) Municipal Premium Income Trust, (10) Municipal Income Opportunities
Trust, (11) Municipal Income Opportunities Trust II, (12) Municipal Income
Opportunities Trust III, (13) Prime Income Trust, (14) InterCapital Insured
Municipal Bond Trust, (15) InterCapital Quality Municipal Income Trust, (16)
InterCapital Quality Municipal Investment Trust, (17) InterCapital Insured
Municipal Income Trust, (18) InterCapital California Insured Municipal Income
Trust, (19) InterCapital Insured Municipal Trust, (20) InterCapital Quality
Municipal Securities (21) InterCapital New York Quality Municipal Securities,
(22) InterCapital California Municipal Securities, (23) InterCapital Insured
California Municipal Securities and (24) InterCapital Insured Municipal
Securities, registered closed-end investment companies, and (1) Dean Witter Tax-
Exempt Securities Trust, (2) Dean Witter Tax-Free Daily Income Trust, (3) Dean
Witter Dividend Growth Securities Inc., (4) Dean Witter Convertible Securities
Trust, (5) Dean Witter Liquid Asset Fund Inc., (6) Dean Witter Developing Growth
Securities Trust, (7) Dean Witter Retirement Series, (8) Dean Witter Federal
Securities Trust, (9) Dean Witter World Wide Investment Trust, (10) Dean Witter
U.S. Government Securities Trust, (11) Dean Witter Select Municipal Reinvestment
Fund, (12) Dean Witter High Yield Securities Inc., (13) Dean Witter Intermediate
Income Securities, (14) Dean Witter New York Tax-Free Income Fund, (15) Dean
Witter California Tax-Free Income Fund, (16) Dean Witter Health Sciences Trust,
(17) Dean Witter California Tax-Free Daily Income Trust, (18) Dean Witter
Managed Assets Trust, (19) Dean Witter American Value Fund, (20) Dean Witter
Strategist Fund, (21) Dean Witter Utilities Fund, (22) Dean Witter World Wide
Income Trust, (23) Dean Witter New York Municipal Money Market Trust, (24) Dean
Witter Capital Growth Securities, (25) Dean Witter Precious Metals and Minerals
Trust, (26) Dean Witter European Growth Fund Inc., (27) Dean Witter Global
Short-Term Income Fund Inc., (28) Dean Witter Pacific Growth Fund Inc., (29)
Dean Witter Multi-State Municipal Series Trust, (30) Dean Witter Premier Income
Trust, (31) Dean Witter Short-Term U.S. Treasury Trust, (32) Dean Witter
Diversified Income Trust, (33) Dean Witter U.S. Government Money Market Trust,
(34) Dean Witter Global Dividend Growth Securities, (35) Active Assets
California Tax-Free Trust, (36) Dean Witter
4
<PAGE>
Natural Resource Development Securities Inc., (37) Active Assets Government
Securities Trust, (38) Active Assets Money Trust, (39) Active Assets Tax-Free
Trust, (40) Dean Witter Limited Term Municipal Trust, (41) Dean Witter Variable
Investment Series, (42) Dean Witter Value-Added Market Series, (43) Dean Witter
Global Utilities Fund, (44) Dean Witter High Income Securities, (45) Dean Witter
National Municipal Trust, (46) Dean Witter Short-Term Bond Fund, (47) Dean
Witter International SmallCap Fund, (48) Dean Witter Mid-Cap Growth Fund
and (49) Dean Witter Select Dimensions Investment Series, registered open-end
investment companies. InterCapital is a wholly-owned direct subsidiary of
Dean Witter, Discover & Co. The principal address of the Dean Witter Funds
is Two World Trade Center, New York, New York 10048. The term "TCW/DW Funds"
refers to the following Funds: (1) TCW/DW Core Equity Trust, (2) TCW/DW North
American Government Income Trust, (3) TCW/DW Latin American Growth Fund,
(4) TCW/DW Income and Growth Fund, (5) TCW/DW Small Cap Growth Fund,
(6) TCW/DW Balanced Fund, (7) TCW/DW North American Intermediate Income Trust,
(8) TCW/DW Total Return Trust, (9) TCW/DW Global Convertible Trust,
registered open-end investment companies and (10) TCW/DW Term Trust 2002,
(11) TCW/DW Term Trust 2003, (12) TCW/DW Term Trust 2000, and (13) TCW/DW
Emerging Markets Opportunities Trust, registered closed-end investment
companies.
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
Charles A. Chairman, Chief Executive Vice
Fiumefreddo Executive Officer President and Director
and Director of Dean Witter Reynolds Inc.
("DWR"); Chairman, Director
or Trustee, President and
Chief Executive Officer of
the Dean Witter Funds;
Chairman, Chief Executive
Officer and Trustee of the
TCW/DW Funds; Chairman and
Director of Dean Witter
Trust Company ("DWTC");
Chairman, Chief Executive
Officer and Director of Dean
Witter Distributors
Inc.("Distributors") and
Dean Witter Services
Company Inc.("DWSC");
Formerly Executive Vice
President and Director of
Dean Witter, Discover & Co.
("DWDC"); Director and/or
officer of DWDC subsidiaries.
5
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
Philip J. Director Chairman, Chief Executive
Purcell Officer and Director of DWDC and DWR;
Director of DWSC and Distributors;
Director or Trustee of the Dean Witter
Funds; Director and/or fficer of
various DWDC subsidiaries.
Richard M. Director President and Chief
DeMartini Operating Officer of
Dean Witter Capital
and Director of DWSC,
DWR and Distributors;
Trustee of the TCW/DW Funds.
James F. Director President and Chief
Higgins Operating Officer of
Dean Witter Financial;
Director of DWSC, DWR
and Distributors.
Thomas C. Executive Vice Executive Vice President,
Schneider President, Chief Chief Financial Officer and
Financial Officer Director of DWSC, DWR and
and Director Distributors.
Christine A. Director Executive Vice
Edwards President, Secretary,
General Counsel and
Director of DWSC, DWR and
Distributors.
Robert M. President and Vice President of
Scanlan Chief Operating the Dean Witter Funds
Officer and the TCW/DW Funds;
President and Chief
Operating Officer of
DWSC;Executive Vice
President of Distributors;
Executive Vice President
and Director of DWTC.
6
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
David A. Hughey Executive Vice Vice President of the
President and Dean Witter Funds and
Chief Administrative the TCW/DW Funds;
Officer Executive Vice President,
Chief Administrative
Officer and Director of
DWTC; Executive Vice
President and Chief
Administrative Officer of
DWSC and Distributors.
Edmund C. Executive Vice Vice President of the
Puckhaber President Dean Witter Funds.
John Van Heuvelen Executive Vice President and Chief
President Executive Officer of
DWTC.
Sheldon Curtis Senior Vice Vice President,
President, Secretary and
General Counsel General Counsel of the
and Secretary Dean Witter Funds and the
TCW/DW Funds; Senior Vice
President and Secretary of
DWTC; Assistant Secretary
of DWR and DWDC; Senior
Vice President, Assistant
General Counsel and
Assistant Secretary of
Distributors;Senior Vice
President,General Counsel
and Secretary of DWSC.
Peter M. Avelar Senior Vice Vice President of
President various Dean Witter
Funds.
Mark Bavoso Senior Vice Vice President of
President various Dean Witter
Funds.
Thomas H. Senior Vice Vice President of
Connelly President various Dean Witter
Funds.
Edward Gaylor Senior Vice Vice President of
President various Dean Witter Funds.
7
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ---------------- ---------------------
Rajesh K. Gupta Senior Vice Vice President of
President various Dean Witter
Funds.
Kenton J. Senior Vice Vice President of
Hinchliffe President various Dean Witter
Funds.
John B. Kemp, III Senior Vice Director of the
President Provident Savings
Bank, Jersey City,
New Jersey.
Anita Kolleeny Senior Vice Vice President of
President various Dean Witter
Funds.
Jonathan R. Page Senior Vice Vice President of
President various Dean Witter
Funds.
Ira Ross Senior Vice Vice President of
President various Dean Witter
Funds.
Rochelle G. Siegel Senior Vice Vice President of
President various Dean Witter
Funds.
Paul D. Vance Senior Vice Vice President of
President various Dean Witter
Funds.
Elizabeth A. Senior Vice
Vetell President
James F. Willison Senior Vice Vice President of
President various Dean Witter
Funds.
Ronald Worobel Senior Vice Vice President of
President various Dean Witter
Funds.
Thomas F. Caloia First Vice Treasurer of the
President and Dean Witter Funds
Assistant Treasurer and the TCW/DW Funds;
Assistant Treasurer of DWSC;
Assistant Treasurer of
Distributors.
8
<PAGE>
Other Substantial
Business, Profession,
Vocation or
Employment, including
Position with Name, Principal
Dean Witter Address and Nature
Name InterCapital Inc. of Connection
---- ----------------- --------------------
Marilyn K. Cranney First Vice Assistant Secretary
President and of the Dean Witter
Assistant Funds and the TCW/DW
Secretary Funds; First Vice
President and
Assistant Secretary
of DWSC; Assistant
Secretary of DWR
and DWDC.
Barry Fink First Vice Assistant Secretary
President of the Dean Witter
Funds and TCW/DW
Funds; First Vice
President and
Assistant Secretary of
DWSC.
Michael First Vice First Vice President
Interrante President and and Controller of
Controller DWSC; Assistant
Treasurer of
Distributors.
Robert Zimmerman First Vice
President
Joan Allman Vice President
Joseph Arcieri Vice President
Mark Bavoso Vice President
Stephen Brophy Vice President
Terence P. Brennan Vice President
Douglas Brown Vice President
Thomas Chronert Vice President
Rosalie Clough Vice President
B. Catherine Vice President
Connelly
Salavatore DeSteno Vice President Vice President of
DWSC.
Frank J. Devito Vice President
9
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- --------------- ---------------------
Dwight Doolan Vice President
Bruce Dunn Vice President
Jeffrey D. Vice President
Geffen
Deborah Genovese Vice President
Peter W. Gurman Vice President
Peter Hermann Vice President
Russell Harper Vice President
John Hechtlinger Vice President
David Hoffman Vice President
David Johnson Vice President
Christopher Jones Vice President
Stanley Kapica Vice President
Konrad J. Krill Vice President
Paula LaCosta Vice President Vice President of
various Dean Witter
Funds.
Lawrence S. Lafer Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC.
Thomas Lawlor Vice President
Lou Anne D. McInnis Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC.
10
<PAGE>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------ ---------------------
Sharon K. Milligan Vice President
James Mulcahy Vice President
James Nash Vice President
Hugh Rose Vice President
Richard Norris Vice President
Ruth Rossi Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Assistant
Secretary of DWSC.
Carl F. Sadler Vice President
Rafael Scolari Vice President
Diane Lisa Sobin Vice President Vice President of
various Dean Witter
Funds.
Kathleen Stromberg Vice President Vice President of
various Dean Witter
Funds.
Vinh Q. Tran Vice President Vice President of
various Dean Witter
Funds.
Alice Weiss Vice President Vice President of
various Dean Witter
Funds.
Jayne M. Wolff Vice President
Marianne Zalys Vice President
Item 29. PRINCIPAL UNDERWRITERS
None
11
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
The undersigned Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
audited, within four to six months from the effective date of the Registrant's
Registration Statement under the Securities Act of 1933.
The undersigned Registrant hereby undertakes to comply with the provisions
of Section 16 (c) of the Investment Company Act of 1940 with regard to
facilitating shareholder communications in the event the requisite percentage of
shareholders so requests, to the same extent as if Registrant were subject to
the provisions of that Section.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 5th
day of October, 1994.
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
By: /s/ Sheldon Curtis
--------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer Chairman, President,
Chief Executive
Officer and Trustee
By:/s/ Charles A. Fiumefreddo 10/05/94
-----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By:/s/ Thomas F. Caloia 10/05/94
-----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Edward R. Telling
Philip J. Purcell
By:/s/ Sheldon Curtis 10/05/94
-----------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Paul Kolton
John R. Haire Michael E. Nugent
John E. Jeuck Edwin J. Garn
Manuel H. Johnson Michael Bozic
John L. Schroeder
By:/s/ David M. Butowsky 10/05/94
-----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
1. -- Declaration of Trust of Registrant *
2. -- By-Laws of Registrant *
3. -- None
4. -- Not Applicable
5.(a) -- Form of Investment Management Agreement between Registrant and Dean
Witter InterCapital Inc.
(b) -- Form of Sub-Advisory Agreement between Dean Witter InterCapital Inc.
and TCW Funds Management, Inc.
(c) -- Form of Secondary Sub-Advisory Agreement between TCW Funds Management,
Inc. and TCW Asia Limited
(d) -- Form of Secondary Sub-Advisory Agreement between TCW Funds Management,
Inc. and TCW London International, Limited
6. -- Form of Participation Agreement among the Registrant, Hartford Life
Insurance Company and ITT Hartford Life and Annuity Insurance Company
7. -- None
8.(a) -- Form of Custodian Agreement with The Bank of New York
(b) -- Form of Custodian Agreement with The Chase Manhattan Bank, N.A.
(c) -- Form of Transfer Agency and Services Agreement between Registrant and
Dean Witter Trust Company
9. -- Form of Services Agreement between Dean Witter InterCapital Inc. and
Dean Witter Services Company Inc.
10. -- Opinion of Sheldon Curtis, Esq.
11. -- Consent of Independent Accountants
12. -- None
13. -- Investment Letter of Hartford Life Insurance Company
14. -- None
15. -- None
16. -- Schedule for Computation of Performance Quotations -
to be filed with first post-effective amendment
27.(a)-- Financial Data Schedule - Money Market
(b)-- Financial Data Schedule - North American Government Securities
(c)-- Financial Data Schedule - Diversified Income
(d)-- Financial Data Schedule - Balanced
(e)-- Financial Data Schedule - Utilities
(f)-- Financial Data Schedule - Dividend Growth
(g)-- Financial Data Schedule - Value-Added Market
(h)-- Financial Data Schedule - Core Equity
(i)-- Financial Data Schedule - American Value
(j)-- Financial Data Schedule - Global Equity
(k)-- Financial Data Schedule - Developing Growth
(l)-- Financial Data Schedule - Emerging Markets
Other -- Powers of Attorney
* Filed in the Form N-1A Registration Statement on June 9, 1994.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of August, 1994, by and between Dean
Witter Select Dimensions Investment Series, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter
called the "Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund intends to engage in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund is authorized to issue shares of beneficial interest in
separate portfolios (the "Portfolios") with each Portfolio representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, The Fund intends to initially offer shares in twelve Portfolios,
such Portfolios together with all other Portfolios subsequently established by
the Fund with respect to which the Fund desires to retain the Investment Manager
to render management and investment advisory services in the manner and on the
terms and conditions hereinafter set forth being collectively referred to as the
"Portfolios;" and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Portfolios and, subject to the supervision of the Trustees, to
supervise the investment activities of the Portfolios as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager: shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; with respect to the
Portfolios other than such Portfolios in respect of which a Sub-Advisory
Agreement is in effect in accordance with paragraph 2 hereof, shall continuously
manage the assets of the Portfolios in a manner consistent with the investment
objectives and policies of the Portfolios and shall determine the securities and
commodities to be purchased, sold or otherwise disposed of by the Portfolios and
the timing of such purchases, sales and dispositions; with respect to the
Portfolios in respect of which a Sub-Advisory Agreement is in effect in
accordance with paragraph 2 hereof, shall supervise the management of the assets
of the Portfolio in a manner consistent with the investment objectives and
policies of the Portfolio and subject to such other limitations and directions
as the Trustees of the Fund may from time to time prescribe; and shall take such
further action, including the placing of purchase and sale orders on behalf of
the Portfolios other than the Portfolios in respect of which a Sub-Advisory
Agreement is in effect in accordance with paragraph 2 hereof, as the Investment
Manager shall deem necessary or appropriate. The Investment Manager shall also
furnish to or place at the disposal of the Fund such of the information,
evaluations, analyses and opinions formulated or obtained by the Investment
Manager in the discharge of its duties as the Fund may, from time to time,
reasonably request.
In the event the Fund establishes another Portfolio other than the current
Portfolios with respect to which it desires to retain the Investment Manager to
render investment advisory services hereunder, it shall notify the Investment
Manager in writing. If the Investment Manager is willing to render such
services, it shall notify the Fund in writing, whereupon such other Portfolio
shall become a Portfolio hereunder.
94nyc5613
<PAGE>
2. The Investment Manager may, at its own expense, from time to time and in
its discretion, enter into a Sub-Advisory Agreement or Sub-Advisory Agreements
in respect of any of the Portfolios with a Sub-Adviser or Sub-Advisers to make
determinations as to the securities and commodities to be purchased, sold or
otherwise disposed of by the Portfolio and the timing of such purchases, sales
and dispositions and to take such further action, including the placing of
purchase and sale orders on behalf of the Portfolio, as the Sub-Adviser, in
consultation with the Investment Manager, shall deem necessary or appropriate;
provided that the Investment Manager shall be responsible for monitoring
compliance by such Sub-Adviser with the investment policies and restrictions of
the Portfolio and with such other limitations or directions as the Trustees of
the Fund may from time to time prescribe. Upon the termination of any such
Sub-Advisory Agreement, the Investment Manager may assume all of the duties that
were the responsibility of the Sub-Adviser under the Sub-Advisory Agreement.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund, and provide such office space, facilities and
equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its business. The Investment Manager shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities or commodities and other property, and any
stock transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio transactions to
which the Fund is a party; all taxes, including securities or commodities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing (including typesetting) and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership
2
<PAGE>
dues of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Fund which inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the various Portfolios of the Fund
shall pay to the Investment Manager monthly compensation determined by applying
the following annual rates to the daily net assets of the respective Portfolios
determined as of the close of each business day: (a) the Money Market Portfolio
- -- 0.50%; (b) the North American Government Securities Portfolio -- 0.65%; (c)
the Diversified Income Portfolio -- 0.40%; (d) the Balanced Portfolio -- 0.75%;
(e) the Utilities Portfolio -- 0.65%; (f) the Dividend Growth Portfolio --
0.625%; (g) the Value-Added Market Portfolio -- 0.50%; (h) the Core Equity
Portfolio -- 0.85%; (i) the American Value Portfolio -- 0.625%; (j) the Global
Equity Portfolio -- 1.0%; (k) the Developing Growth Portfolio -- 0.50%; and (l)
the Emerging Markets Portfolio -- 1.25%. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly. Such calculations shall be
made by applying 1/365ths of the annual rates to the net assets of the
respective Portfolios each day determined as of the close of business on that
day or the last previous business day. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above.
Subject to the provisions of paragraph 8 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event that the operating expenses of any of the Money Market
Portfolio, the North American Government Securities Portfolio, the Diversified
Income Portfolio, the Balanced Portfolio, the Utilities Portfolio, the Dividend
Growth Portfolio, the Value-Added Market Portfolio, the Core Equity Portfolio,
the American Value Portfolio, the Global Equity Portfolio, the Developing Growth
Portfolio or the Emerging Markets Portfolio, including amounts payable to the
Investment Manager pursuant to paragraph 7 hereof, for any year ending on a date
on which this Agreement is in effect exceed 2.5% of the average daily net assets
of such Portfolio up to $30 million, 2.0% of the next $70 million and 1.5% of
the average daily net assets of such Portfolio in excess of $100 million (the
"expense limitation" of these Portfolios), the Investment Manager shall reduce
its management fee in respect of such Portfolio to the extent of such excess and
will reimburse such Portfolio for annual operating expenses in excess of the
expense limitation, up to the amount of the management fee for that Portfolio
which otherwise would be payable for that year; provided, however, there shall
be excluded from such expenses the amount of any interest, taxes, brokerage
commissions and extraordinary expenses (including but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by such Portfolio. Such reduction, if any, shall be
computed and accrued daily, shall be settled on a monthly basis, and shall be
based upon the expense limitation applicable to such Portfolio as at the end of
the last business day of the month.
9. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Trustee,
3
<PAGE>
officer or employee of the Investment Manager to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 1996 and from year
to year thereafter with respect to each Portfolio provided such continuance with
respect to a Portfolio is approved at least annually by the vote of holders of a
majority (as defined in the Act) of the outstanding voting securities of such
Portfolio or by the Trustees of the Fund; provided that in either event such
continuance is also approved annually by the vote of a majority of the Trustees
of the Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon thirty days' written notice to the Investment
Manager, either by majority vote of the Trustees of the Fund or, with respect to
a Portfolio, by the vote of a majority of the outstanding voting securities of
such Portfolio; (b) this Agreement shall immediately terminate in the event of
its assignment (to the extent required by the Act and the rules thereunder)
unless such automatic terminations shall be prevented by an exemptive order of
the Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Portfolio shall be effective to continue
this Agreement with respect to such Portfolio notwithstanding (a) that this
Agreement has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio or (b) that this Agreement has not been
approved by the vote of a majority of the outstanding voting securities of the
Fund, unless such approval shall be required by any other applicable law or
otherwise.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
14. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right of
Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will only use
the name "Dean Witter" as a component of its name and for no other purpose, (ii)
it will not purport to grant to any third party the right to use the name "Dean
Witter" for any purpose, (iii) the Investment Manager or its parent, Dean Witter
Reynolds Inc., or any corporate affiliate of the Investment Manager's parent,
may use or grant to others the right to use the name "Dean Witter," or any
combination or abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company, (iv) at the request of the Investment Manager or
its parent, the Fund will take such action as may be required to provide its
consent to the use of the name "Dean Witter," or any combination or abbreviation
thereof, by the Investment Manager or its parent or any corporate affiliate of
the Investment Manager's parent, or by any person to whom the Investment Manager
or its parent or any corporate affiliate of the Investment Manager's parent
shall have granted the right to such use, and (v) upon the termination of any
investment advisory agreement into which the Investment Manager and the Fund may
enter, or upon termination of affiliation of the Investment Manager with its
parent, the Fund shall, upon request by the Investment Manager or its parent,
cease to use the name "Dean Witter" as a component of its name, and shall not
use the name, or any combination or abbreviation thereof, as a part of its name
or for any other commercial
4
<PAGE>
purpose, and shall cause its officers, Trustees and shareholders to take any and
all actions which the Investment Manager or its parent may request to effect the
foregoing and to reconvey to the Investment Manager or its parent any and all
rights to such name.
15. The Declaration of Trust establishing Dean Witter Select Dimensions
Investment Series, dated June 2, 1994, 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 Dean
Witter Select Dimensions 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 Dean Witter Select
Dimensions 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 Dean Witter Select
Dimensions Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
<TABLE>
<S> <C>
DEAN WITTER SELECT DIMENSIONS INVESTMENT
SERIES
By
.................................................................
Attest:
................................................................
DEAN WITTER INTERCAPITAL INC.
By
.................................................................
Attest:
................................................................
</TABLE>
5
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 26th day of August, 1994 by and between Dean Witter
InterCapital Inc., a Delaware corporation (hereinafter called the "Investment
Manager"), and TCW Funds Management, Inc., a California corporation (hereinafter
called the "Sub-Adviser").
WHEREAS, Dean Witter Select Dimensions Investment Series (hereinafter called
the "Fund") intends to engage in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act"); and
WHEREAS, the Investment Manager has entered into an Investment Management
Agreement (hereinafter called the "Investment Management Agreement") with the
Fund wherein the Investment Manager has agreed to provide investment management
services to the twelve current Portfolios of the Fund and may provide such
services to other Portfolios subsequently established by the Fund; and
WHEREAS, the Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as an
investment adviser; and
WHEREAS, the Investment Manager desires to retain the services of the
Sub-Adviser to render investment advisory services for each of the North
American Government Securities Portfolio, the Balanced Portfolio, the Core
Equity Portfolio and the Emerging Markets Portfolio in the manner and on the
terms and conditions hereinafter set forth (these Portfolios together with all
other Portfolios subsequently established by the Fund with respect to which the
Fund will have retained the Investment Manager to render management and
investment advisory services under the Investment Management Agreement and with
respect to which the Investment Manager desires to retain the Sub-Adviser to
render investment advisory services in the manner and on the terms and
conditions hereinafter set forth being collectively referred to as the "Sub-
Advisory Portfolios"); and
WHEREAS, the Sub-Adviser desires to be retained by the Investment Manager to
perform services on said terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Subject to the supervision of the Fund, its officers and Trustees, and
the Investment Manager, and in accordance with the investment objectives,
policies and restrictions set forth in the then current Registration Statement
relating to the Fund, and such investment objectives, policies and restrictions
from time to time prescribed by the Trustees of the Fund and communicated by the
Investment Manager to the Sub-Adviser, the Sub-Adviser agrees to provide each
Sub-Advisory Portfolio with investment advisory services; to obtain and evaluate
such information and advice relating to the economy, securities and commodities
markets and securities or commodities as it deems necessary or useful to
discharge its duties hereunder; to continuously manage the assets of the
Sub-Advisory Portfolio in a manner consistent with the investment objective and
policies of the Sub-Advisory Portfolio; to make decisions as to foreign currency
matters and make determinations as to forward foreign exchange contracts and
options and futures contracts in foreign currencies; shall determine the
securities and commodities to be purchased or otherwise acquired, or sold or
otherwise disposed of, by the Sub-Advisory Portfolio and the timing of such
purchases, acquisitions, sales and dispositions; to take such further action,
including the placing of purchase and sale orders on behalf of the Sub-Advisory
Portfolio, as it shall deem necessary or appropriate; to furnish to or place at
the disposal of the Sub-Advisory Portfolio and the Investment Manager such of
the information, evaluations, analyses and opinions formulated or obtained by it
in the discharge of its duties as the Fund and the Investment Manager may, from
time to time, reasonably request. The Investment Manager and the Sub-Adviser
shall each make its officers and employees available to the other from time to
time at reasonable times to review investment policies of the Sub-Advisory
Portfolios and to consult with each other.
In the event the Fund establishes another Portfolio other than the current
Sub-Advisory Portfolios with respect to which the Investment Manager desires to
retain the Sub-Adviser to render investment advisory services hereunder, the
Investment Manager shall notify the Sub-Adviser in writing. If the Sub-Adviser
is willing to render such services, it shall notify the Investment Manager in
writing, whereupon such other Portfolio shall become a Sub-Advisory Portfolio
hereunder.
2. The Sub-Adviser may, at its own expense, from time to time and in its
discretion, enter into a Secondary Sub-Advisory Agreement or Secondary
Sub-Advisory Agreements in respect of any of the Sub-
94nyc5614
<PAGE>
Advisory Portfolios with a Secondary Sub-Adviser or Secondary Sub-Advisers to
assist it in making determinations as to the securities and commodities to be
purchased or otherwise acquired, or sold or otherwise disposed of, by the
Sub-Advisory Portfolio and the timing of such purchases, acquisitions, sales and
dispositions and to take such further action, including the placing of purchase
and sale orders on behalf of the Sub-Advisory Portfolio, as the Secondary
Sub-Adviser, in consultation with the Sub-Adviser, shall deem necessary or
appropriate; provided that the Sub-Adviser shall be responsible for monitoring
compliance by such Secondary Sub-Adviser with the investment policies and
restrictions of the Sub-Advisory Portfolio and with such other limitations or
directions as the Trustees of the Fund may from time to time prescribe. Upon the
termination of any such Secondary Sub-Advisory Agreement, the Sub-Adviser may
assume all of the duties that were the responsibility of the Secondary
Sub-Adviser under the Secondary Sub-Advisory Agreement.
3. The Sub-Adviser shall, at its own expense, maintain such staff and
employ or retain such personnel and consult with such other persons as it shall
from time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Sub-Adviser shall be deemed to include
persons employed or otherwise retained by the Sub-Adviser to furnish statistical
and other factual data, advice regarding economic factors and trends,
information with respect to technical and scientific developments, and such
other information, advice and assistance as the Investment Manager may desire.
The Sub-Adviser shall maintain whatever records as may be required to be
maintained by it under the Act. All such records so maintained shall be made
available to the Fund, upon the request of the Investment Manager or the Fund.
4. The Fund will, from time to time, furnish or otherwise make available to
the Sub-Adviser such financial reports, proxy statements and other information
relating to the business and affairs of the Sub-Advisory Portfolios as the
Sub-Adviser may reasonably require in order to discharge its duties and
obligations hereunder or to comply with any applicable law and regulations and
the investment objectives, policies and restrictions from time to time
prescribed by the Trustees of the Fund.
5. The Sub-Adviser shall bear the cost of rendering the investment advisory
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the
Fund, employed by the Sub-Adviser, and such clerical help and bookkeeping
services as the Sub-Adviser shall reasonably require in performing its duties
hereunder.
6. The Fund, on behalf of each Sub-Advisory Portfolio, assumes and shall
pay or cause to be paid all other expenses of the Sub-Advisory Portfolio,
including, without limitation: any fees paid to the Investment Manager; the
charges and expenses of any registrar, any custodian, sub-custodian or
depository appointed by the Fund for the safekeeping of the Sub-Advisory
Portfolio's cash, portfolio securities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Sub-Advisory Portfolio in connection with portfolio securities
transactions to which the Sub-Advisory Portfolio is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the
Sub-Advisory Portfolio to federal, state or other governmental agencies or
pursuant to any foreign laws; the cost and expense of engraving or printing
certificates representing shares of the Sub-Advisory Portfolio; all costs and
expenses in connection with the registration and maintenance of registration of
the Sub-Advisory Portfolio and its shares with the Securities and Exchange
Commission and various states and other jurisdictions or pursuant to any foreign
laws (including filing fees and legal fees and disbursements of counsel); the
cost and expense of printing (including typesetting) and distributing
prospectuses of the Fund and supplements thereto to the Sub-Advisory Portfolio's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Investment Manager or Sub-Adviser; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Sub-Advisory Portfolio's shares; charges and
expenses of legal counsel, including counsel to the Trustees of the Fund who are
not interested persons (as defined in the Act) of the Fund, the Investment
Manager or the Sub-Adviser, and of independent accountants, in connection with
any matter relating to the Sub-Advisory Portfolio; membership dues of industry
associations; interest payable on Sub-Advisory Portfolio borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Sub-Advisory Portfolio which inure to its benefit; extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and costs of the
Sub-Advisory Portfolio's operation unless otherwise explicitly provided herein.
2
<PAGE>
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Sub-Adviser, the Investment Manager shall pay to the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation
receivable pursuant to the Investment Management Agreement in respect of each of
the North American Government Securities Portfolio, the Balanced Portfolio, the
Core Equity Portfolio and the Emerging Markets Portfolio. Any subsequent change
in the Investment Management Agreement which has the effect of raising or
lowering the compensation of the Investment Manager will have the concomitant
effect of raising or lowering the fees payable to the Sub-Adviser under this
Agreement. In addition, if the Investment Manager has undertaken in the Fund's
Registration Statement as filed under the Act or elsewhere to waive all or part
of its fees under the Investment Management Agreement, the Sub-Adviser's fees
payable under this Agreement will be proportionately waived in whole or in part.
The calculation of the fees payable to the Sub-Adviser pursuant to this
Agreement will be made, each month, at the time designated for the monthly
calculation of the fees payable to the Investment Manager pursuant to the
Investment Management Agreement. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Subject to the provisions of paragraph 8 hereof, payment of the
Sub-Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event the operating expenses of any of the North American
Government Securities Portfolio, the Balanced Portfolio, the Core Equity
Portfolio or the Emerging Markets Portfolio, including amounts payable to the
Investment Manager pursuant to the Investment Management Agreement in respect of
any of these Sub-Advisory Portfolios, for any fiscal year ending on a date on
which this Agreement is in effect, exceed 2.5% of the average daily net assets
of the Sub-Advisory Portfolio up to $30 million, 2.0% of the next $70 million
and 1.5% of the average daily net assets of the Sub-Advisory Portfolio in excess
of $100 million (the "expense limitation"), the Sub-Adviser shall reduce its
advisory fee to the extent of 40% of such excess and will reimburse the
Investment Manager for annual operating expenses in the amount of 40% of such
excess of the expense limitation, up to the amount of the Sub-Adviser's fee
which would otherwise be payable under this Agreement for that year, it being
understood that the Investment Manager has agreed to effect a reduction and
reimbursement of 100% of such excess, up to the amount of its management fee in
respect of the Sub-Advisory Portfolio which otherwise would be payable for that
year, in accordance with the terms of the Investment Management Agreement;
provided, however, there shall be excluded from such expenses the amount of any
interest, taxes, brokerage commissions, and extraordinary expenses (including
but not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Sub-Advisory Portfolio.
Such reduction, if any, shall be computed and accrued daily, shall be settled on
a monthly basis, and shall be based upon the expense limitation applicable to
the Sub-Advisory Portfolio as at the end of the last business day of the month.
9. The Sub-Adviser will use its best efforts in the performance of
investment activities on behalf of the Sub-Advisory Portfolios, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations hereunder, the Sub-Adviser shall not be liable to
the Investment Manager or the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by the Sub-Adviser or for
any losses sustained by the Sub-Advisory Portfolios or their investors.
10. It is understood that any of the shareholders, Trustees, officers and
employees of the Fund may be a shareholder, director, officer or employee of, or
be otherwise interested in, the Sub-Adviser, and in any person controlled by or
under common control or affiliated with the Sub-Adviser, and that the
Sub-Adviser and any person controlled by or under common control or affiliated
with the Sub-Adviser may have an interest in the Fund. It is also understood
that the Sub-Adviser and any affiliated persons thereof or any persons
controlled by or under common control with the Sub-Adviser have and may have
advisory, management service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may purchase,
sell or trade any securities or commodities for their own accounts or for the
account of others for whom they may be acting. Nothing contained in this
Agreement shall limit or restrict the Sub-Adviser or any affiliated person
thereof from so acting or engaging in any other business.
11. This Agreement shall remain in effect until April 30, 1996 and from year
to year thereafter with respect to each Sub-Advisory Portfolio provided such
continuance with respect to a Sub-Advisory Portfolio is approved at least
annually by the vote of holders of a majority, as defined in the Act, of the
outstanding voting securities of the Sub-Advisory Portfolio or by the Trustees
of the Fund; provided, that in either event
3
<PAGE>
such continuance is also approved annually by the vote of a majority of the
Trustees of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, which vote must be cast in
person at a meeting called for the purpose of voting on such approval; provided,
however, that (a) the Fund may, at any time and without the payment of any
penalty, terminate this Agreement upon thirty days' written notice to the
Investment Manager and the Sub-Adviser, either by majority vote of the Trustees
of the Fund or, with respect to a Sub-Advisory Portfolio, by the vote of a
majority of the outstanding voting securities of such Sub-Advisory Portfolio;
(b) this Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Act) unless such automatic termination shall be
prevented by an exemptive order of the Securities and Exchange Commission; (c)
this Agreement shall immediately terminate in the event of the termination of
the Investment Management Agreement; (d) the Investment Manager may terminate
this Agreement without payment of penalty on thirty days' written notice to the
Fund and the Sub-Adviser and; (e) the Sub-Adviser may terminate this Agreement
without the payment of penalty on thirty days' written notice to the Fund and
the Investment Manager. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of any Sub-Advisory Portfolio to supply any omission, to
cure, correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund,
the Investment Manager nor the Sub-Adviser shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the law of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By ___________________________________
Attest: ______________________________
TCW FUNDS MANAGEMENT, INC.
By ___________________________________
By ___________________________________
Attest: ______________________________
Accepted and agreed to as of
the day and year first above written:
DEAN WITTER SELECT DIMENSIONS
INVESTMENT SERIES
By ___________________________________
Attest: ______________________________
4
<PAGE>
SECONDARY SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of August, 1994 by and between TCW Funds
Management, Inc., a California corporation ("FMI"), and TCW Asia Limited, a
Hong Kong corporation ("TCW Asia").
WHEREAS, FMI has entered into a Sub-Advisory Agreement with Dean Witter
InterCapital Inc. ("InterCapital") to provide investment advisory services for
the Emerging Markets Portfolio and any subsequently established Portfolio
("Portfolio(s)") of Dean Witter Select Dimensions Investment Series (the
"Fund");
WHEREAS, TCW Asia is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as an
investment adviser;
WHEREAS, FMI desires to retain the services of TCW Asia to render
investment advisory services for the Portfolio in the manner and on the terms
and conditions hereinafter set forth;
WHEREAS, TCW Asia desires to be retained by FMI to provide such investment
advisory services on said terms and conditions;
NOW, THEREFORE; in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Subject to the supervision of FMI, and in accordance with the
investment objective, policies and restrictions set forth in the then current
Registration Statement, which is hereby incorporated by reference, relating to
the Fund which Registration Statement contains a recital of risk factors, and
such investment objective, policies and restrictions from time to time
prescribed by the Trustees of the Fund and communicated by FMI in writing to
TCW Asia, TCW Asia agrees to provide the Portfolio with investment advisory
services including, but not limited to, obtaining and evaluating such
information and advice relating to the economy, securities and commodities
markets and securities and commodities and shall manage the assets of the
Portfolio in a manner consistent with the investment objective and policies of
such Portfolio and shall determine the securities and commodities to be
purchased, acquired, sold or otherwise disposed of by the Portfolio and the
timing of such purchases, acquisitions, sales or dispositions. TCW Asia agrees
to furnish to or place at the disposal of FMI the information, evaluations,
analyses and opinions formulated or obtained by it in performing its advisory
services under this Agreement. FMI and TCW Asia agree to make their offices
and employees available to the other from time to time at reasonable times to
review investment policies of the Portfolio and to consult with each other.
Nothing in this Agreement shall require FMI to utilize the services of TCW
Asia with respect to any specific or minimum percentage of the assets of the
Portfolio.
In the event the Fund establishes another portfolio other than the current
Portfolio with respect to which FMI desires to retain TCW Asia to render
investment advisory services hereunder, FMI shall notify TCW Asia in writing.
If TCW Asia is willing to render such services, it shall notify FMI in
writing, whereupon such other portfolio shall be deemed a Portfolio hereunder.
2. TCW Asia shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of TCW Asia shall be deemed to include
persons employed or otherwise retained by TCW Asia to furnish statistical and
other factual data, advice regarding economic factors and trends, information,
advice and assistance as FMI may desire. TCW Asia shall maintain whatever
records as may be required to be maintained by it under the Investment Company
Act of 1940, as amended (the "Act"), or the Investment Advisers Act of 1940.
All such records so maintained shall be made available to FMI and the Fund,
upon the request of FMI or the Fund. TCW Asia shall provide all account
statements and performance or financial records as required by United States
securities laws. TCW Asia acknowledges that cash balances and other assets of
the Fund will be held by Custodian bank(s) designated by the Fund.
3. FMI will, from time to time, furnish or otherwise make available to TCW
Asia such financial reports, proxy statements and other information provided it
by the Fund, including investment policies and restrictions from time to time
prescribed by the Trustees of the Fund, relating to the business and affairs of
<PAGE>
the Portfolios as TCW Asia may reasonably require in order to discharge its
duties and obligations hereunder or to comply with any applicable law and
regulations. All instructions given by FMI to TCW Asia shall be in writing and
sent to TCW Asia's principal office and shall take effect upon actual receipt
by TCW Asia.
4. For the services to be rendered, FMI, at its own expense, shall pay TCW
Asia monthly compensation, as determined from time to time by the parties,
calculated as a percentage of its monthly compensation pursuant to the
Sub-Advisory Agreement not to exceed the monthly compensation received by FMI.
5. TCW Asia will use its best efforts in the performance of investment
activities on behalf of the Portfolios, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, TCW Asia shall not be liable to InterCapital, FMI or the
Fund or any of its investors for any error of judgment or mistake of law or for
any act or omission by TCW Asia or for any losses sustained by the Portfolios
or their investors.
6. It is understood that any of the shareholders, Trustees, officers and
employees of the Fund may be a shareholder, director, officer or employee of,
or be otherwise interested in, TCW Asia and in any person controlled by or
under common control or affiliated with TCW Asia and that TCW Asia and any
person controlled by or under common control or affiliated with TCW Asia may
have an interest in the Fund. It is also understood that TCW Asia and any
affiliated persons thereof or any persons controlled by or under common
control with TCW Asia have and may have advisory, management service or other
contracts with other organizations and persons, and may have other interests
and businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting. Nothing contained in this Agreement shall limit or restrict TCW
Asia or any affiliated person thereof from so acting or engaging in any other
business.
7. This Agreement shall remain in effect until April[nb]30, 1996 and from
year to year thereafter with respect to each Portfolio provided such
continuance with respect to a Portfolio is approved at least annually by the
vote of holders of a majority, as defined in the Act, of the outstanding voting
securities of the Portfolio or by the Trustees of the Fund; provided, that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a)[nb]the Fund may at any time and without
the payment of any penalty, terminate this Agreement upon thirty days' written
notice to FMI and TCW Asia, either by majority vote of the Trustees of the Fund
or, with respect to a Portfolio, by the vote of a majority of the outstanding
voting securities of such Portfolio; (b)[nb]this Agreement shall immediately
terminate in the event of its assignment, as defined in the Act, unless
automatic termination shall be prevented by an exemptive order of the
Securities and Exchange Commission; (c)[nb]this Agreement shall immediately
terminate in the event of the termination of the Sub-Advisory Agreement;
(d) FMI may terminate this Agreement without payment of penalty on thirty days'
written notice to TCW Asia and the Fund; and (e) TCW Asia may terminate this
Agreement without the payment of penalty on thirty days' written notice to FMI
and the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postage paid, to the other party at its
principal business office.
8. This Agreement may be amended by the parties without the vote or
consent of the shareholders of any Portfolio to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund,
InterCapital, FMI nor TCW Asia shall be liable for failing to do so.
9. This Agreement shall be construed in accordance with the law of the
State of California and the applicable provisions of the Act. To the extent the
applicable law of the State of California, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
10. The effective date of this Agreement shall be the day and year first
written above.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in Los Angeles, California.
TCW FUNDS MANAGEMENT, INC.
By: ___________________________
Name: _________________________
Title: ________________________
Attest: _______________________
Name: _________________________
Title: ________________________
TCW ASIA LIMITED
By: ___________________________
Name: _________________________
Title: ________________________
Attest: _______________________
Name: _________________________
Title: ________________________
3
<PAGE>
SECONDARY SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of August, 1994 by and between TCW Funds
Management, Inc., a California corporation ("FMI"), and TCW London
International, Limited, a California corporation ("TCW London").
WHEREAS, FMI has entered into a Sub-Advisory Agreement with Dean Witter
InterCapital Inc. ("InterCapital") to provide investment advisory services for
the Emerging Markets Portfolio and any subsequently established Portfolio
("Portfolio(s)") of Dean Witter Select Dimensions Investment Series (the
"Fund");
WHEREAS, TCW London is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as an
investment adviser;
WHEREAS, TCW London is a member of the Investment Management Regulatory
Organization Limited ("IMRO") and as such is regulated by IMRO in the conduct
of its investment business and nothing in this Agreement shall exclude any
liability of TCW London to the Fund under the Financial Services Act of 1986 or
the IMRO Rules;
WHEREAS, FMI desires to retain the services of TCW London to render
investment advisory services for the Portfolio in the manner and on the terms
and conditions hereinafter set forth;
WHEREAS, TCW London desires to be retained by FMI to provide such
investment advisory services on said terms and conditions;
NOW, THEREFORE; in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Subject to the supervision of FMI, and in accordance with the
investment objective, policies and restrictions set forth in the then current
Registration Statement, which is hereby incorporated by reference, relating to
the Fund which Registration Statement contains a recital of risk factors, and
such investment objective, policies and restrictions from time to time
prescribed by the Trustees of the Fund and communicated by FMI in writing to
TCW London, TCW London agrees to provide the Portfolio with investment advisory
services including, but not limited to, obtaining and evaluating such
information and advice relating to the economy, securities and commodities
markets and securities and commodities and shall manage the assets of the
Portfolio in a manner consistent with the investment objective and policies of
such Portfolio and shall determine the securities and commodities to be
purchased, acquired, sold or otherwise disposed of by the Portfolio and the
timing of such purchases, acquisitions, sales or dispositions. TCW London
agrees to furnish to or place at the disposal of FMI the information,
evaluations, analyses and opinions formulated or obtained by it in performing
its advisory services under this Agreement. FMI and TCW London agree to make
their offices and employees available to the other from time to time at
reasonable times to review investment policies of the Portfolio and to consult
with each other. Nothing in this Agreement shall require FMI to utilize the
services of TCW London with respect to any specific or minimum percentage of
the assets of the Portfolio.
In the event the Fund establishes another portfolio other than the current
Portfolio with respect to which FMI desires to retain TCW London to render
investment advisory services hereunder, FMI shall notify TCW London in writing.
If TCW London is willing to render such services, it shall notify FMI in
writing, whereupon such other portfolio shall be deemed a Portfolio hereunder.
2. TCW London shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from time
to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of TCW London shall be deemed to include
persons employed or otherwise retained by TCW London to furnish statistical
and other factual data, advice regarding economic factors and trends,
information, advice and assistance as FMI may desire. TCW London shall
maintain whatever records as may be required to be maintained by it under the
Investment Company Act of 1940, as amended (the "Act"), or the Investment
Advisers Act of 1940. All such records so maintained shall be made available to
FMI and the
<PAGE>
Fund, upon the request of FMI or the Fund. TCW London shall provideall account
statements and performance or financial records as required by United States
securities laws. TCW London acknowledges that cash balances and other assets of
the Fund will be held by Custodian bank(s) designated by the Fund.
3. FMI will, from time to time, furnish or otherwise make available to TCW
London such financial reports, proxy statements and other information provided
it by the Fund, including investment policies and restrictions from time to
time prescribed by the Trustees of the Fund, relating to the business and
affairs of the Portfolios as TCW London may reasonably require in order to
discharge its duties and obligations hereunder or to comply with any applicable
law and regulations. All instructions given by FMI to TCW London shall be in
writing and sent to TCW London's principal office and shall take effect upon
actual receipt by TCW London.
4. For the services to be rendered, FMI, at its own expense, shall pay TCW
London monthly compensation, as determined from time to time by the parties,
calculated as a percentage of its monthly compensation pursuant to the
Sub-Advisory Agreement not to exceed the monthly compensation received by FMI.
5. TCW London will use its best efforts in the performance of investment
activities on behalf of the Portfolios, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, TCW London shall not be liable to InterCapital, FMI or
the Fund or any of its investors for any error of judgment or mistake of law or
for any act or omission by TCW London or for any losses sustained by the
Portfolios or their investors.
6. It is understood that any of the shareholders, Trustees, officers and
employees of the Fund may be a shareholder, director, officer or employee of,
or be otherwise interested in, TCW London and in any person controlled by or
under common control or affiliated with TCW London and that TCW London and any
person controlled by or under common control or affiliated with TCW London may
have an interest in the Fund. It is also understood that TCW London and any
affiliated persons thereof or any persons controlled by or under common
control with TCW London have and may have advisory, management service or
other contracts with other organizations and persons, and may have other
interests and businesses, and further may purchase, sell or trade any
securities or commodities for their own accounts or for the account of others
for whom they may be acting. Nothing contained in this Agreement shall limit
or restrict TCW London or any affiliated person thereof from so acting or
engaging in any other business.
7. This Agreement shall remain in effect until April 30, 1996 and from
year to year thereafter with respect to each Portfolio provided such
continuance with respect to a Portfolio is approved at least annually by the
vote of holders of a majority, as defined in the Act, of the outstanding voting
securities of the Portfolio or by the Trustees of the Fund; provided, that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may at any time and without the
payment of any penalty, terminate this Agreement upon thirty days' written
notice to FMI and TCW London, either by majority vote of the Trustees of the
Fund or, with respect to a Portfolio, by the vote of a majority of the
outstanding voting securities of such Portfolio; (b) this Agreement shall
immediately terminate in the event of its assignment, as defined in the Act,
unless automatic termination shall be prevented by an exemptive order of the
Securities and Exchange Commission; (c) this Agreement shall immediately
terminate in the event of the termination of the Sub-Advisory Agreement;
(d) FMI may terminate this Agreement without payment of penalty on thirty days'
written notice to TCW London and the Fund; and (e) TCW London may terminate
this Agreement without the payment of penalty on thirty days' written notice to
FMI and the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postage paid, to the other party at its
principal business office.
8. This Agreement may be amended by the parties without the vote or
consent of the shareholders of any Portfolio to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent
2
<PAGE>
provision hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund,
InterCapital, FMI nor TCW London shall be liable for failing to do so.
9. All formal complaints should, in the first instance, be made in writing
to TCW London's compliance officer at TCW London's principal office. In
addition, the FMI and/or the Fund shall have a right to complain directly to
IMRO.
10. A statement is available from TCW London describing FMI's and/or the
Fund's rights to compensation, if any, in the event that TCW London is unable
to meet its liabilities.
11. FMI acknowledges that for purposes of the IMRO rules, it will be
treated as a non-private customer.
12. This Agreement shall be construed in accordance with the law of the
State of California and the applicable provisions of the Act. To the extent
the applicable law of the State of California, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The effective date of this Agreement shall be the day and year first
written above.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in Los Angeles, California.
TCW FUNDS MANAGEMENT, INC.
By: ___________________________
Name: _________________________
Title: ________________________
Attest: _______________________
Name: _________________________
Title: ________________________
TCW LONDON INTERNATIONAL LIMITED
By: ___________________________
Name: _________________________
Title: ________________________
Attest: _______________________
Name: _________________________
Title: ________________________
3
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is entered into this 31st day of August, 1994 by HARTFORD
LIFE INSURANCE COMPANY ("Hartford Life"), a Connecticut corporation, on its own
behalf and on behalf of its Separate Account Three, ITT HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY ("ITT Hartford"), a Wisconsin corporation, on its own
behalf and on behalf of its Separate Account Three, and DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, a Massachusetts business trust ("Fund").
WHEREAS, Hartford Life and ITT Hartford (singly "Company" and together
"Companies") have each established a Separate Account Three (singly "Account"
and together "Accounts"), as unit investment trusts to purchase shares from the
Fund for the purpose of funding variable annuity contracts ("Contracts") issued
by the Companies;
WHEREAS, the Fund wishes to permit the Companies and the Separate Accounts
to participate in the purchase of shares of the Fund for the purpose of funding
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Companies and
the Fund agree as follows:
1. PURCHASE OF SHARES. The Companies will purchase shares at the net asset
value applicable to the then currently effective prospectus of the Fund. The
Companies will order Fund shares in the quantities and at the times each Company
determines to be necessary to meet the requirements of its Contracts. Orders
from Contract owners received and processed by the Companies prior to the close
of the New York Stock Exchange ("Exchange") on any given day that the Exchange
is open ("business day") will be executed by the Fund at the net asset value
determined as of the close of the Exchange on such business day. Any orders
received and processed on such day but after the close of the Exchange will be
executed by the Fund at the net asset value determined as of the close of the
Exchange on the next business day following the day of receipt of such order.
Each Company will forward to the Fund a list of names and specimen signatures of
persons authorized to act on the Company's behalf. The Fund shall not accept
orders given on behalf of a Company by persons not on such list. Each Company
agrees to promptly notify the Fund in writing of any additions, deletions or
other modifications to such list. Until so notified of such modifications, the
Fund shall have no liability as a result of the execution of orders given by a
person previously identified on the list as authorized.
2. SALES OF SHARES. The Fund will sell its shares to the Companies for
allocation to their respective Accounts. The Fund will execute share orders on a
daily basis at the next determined net asset value per share after receipt by
the Fund or its designee of the order for shares of the applicable Portfolio of
the Fund determined as set forth in the Fund prospectus. For each Portfolio, the
Fund will determine the closing net asset value, dividend and capital gain rate
information at the close of each business day. The Fund will provide this
information to the Companies by 5:30 p.m. Eastern Time or as soon thereafter as
is practicable. By 10:00 a.m. Eastern Time the following such business day or as
soon thereafter as is practicable, the Companies will send directly to the Fund
or its specified agent orders to purchase or redeem Fund shares for the
preceding business day. Payment for net purchases will be wired by the Companies
to a custodial account designated by the Fund as nearly as practicable to
coincide with the order for shares of the Fund. The Fund shares will be sold
only to insurance companies and separate accounts which have entered into
agreements to purchase shares or participation agreements substantially
identical to this Agreement, except that the Fund may sell its shares to its
investment manager(s) consistent with Section 817(h) of the Internal Revenue
Code ("Code") and Treasury Regulation 1.817-5, as amended from time to time, and
any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity or variable life insurance contracts and any
amendments or other modifications to such section or Regulations. No shares of
the Fund will be sold to the general public. The Fund will send confirmations of
Fund share purchases by a Company directly to the Company. The Fund will
maintain all Fund share purchases in a book share account in the name of each
Company.
3. REDEMPTION OF SHARES. At a Company's request, the Fund agrees to redeem
for cash without charge, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value of the
applicable Portfolio computed after receipt of the redemption request; provided,
however, that the Fund reserves the right to suspend the right of redemption or
to postpone the date of payment upon redemption of the shares of any Portfolio
under the circumstances and for the period
J94nyc6227
<PAGE>
of time specified in the prospectus. To the extent that it is able to do so,
payments for net redemptions of shares of the Funds will be wired by the Fund
from the Fund's custodial account to an account designated by each Company.
Until the Fund is so able to wire such redemption proceeds, they may be sent by
check or by such other means as the Fund and each Company agree.
4. AVAILABILITY OF SHARES. The Fund agrees to make its shares available
for purchase by the Companies at the applicable net asset value per share on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission ("SEC"). The Fund shall use reasonable
efforts to calculate such net asset value on each day on which the Exchange is
open for trading. The Fund shall have the right to suspend the sale of its
shares if (a) the Exchange has closed or has suspended or materially restricted
trading, (b) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, (c)
the SEC, by order, so permits, (d) a banking moratorium shall have been declared
by federal or New York authorities, or (e) there shall have been some other
extraordinary event which, in the judgment of the Fund, makes it impracticable
to sell the shares.
5. PAYMENT OF SHARES. The Companies shall pay for Fund shares within five
days after they place the order for Fund shares. The Fund reserves the right to
delay issuing or transferring Fund shares and/or to delay accruing or declaring
dividends in accordance with any policy set forth in the prospectus with respect
to such shares until any payment check has cleared. If the Fund does not receive
payment within the five-day period, the Fund may, without notice, cancel the
order and require a Company to reimburse the Fund promptly for any loss the Fund
suffered by reason of the Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Companies shall purchase and redeem shares in the
Fund at net asset value.
7. FUND'S REGISTRATION STATEMENT AND PROSPECTUS. The Fund shall amend the
Registration Statement for its shares under the Securities Act of 1933 ("1933
Act") and the Investment Company Act of 1940 ("1940 Act") from time to time as
required in order to effect the continuous offering of its shares and, at the
expense of Dean Witter Reynolds Inc., shall provide the Companies with as many
copies of its current prospectus as the Companies may reasonably request.
The Companies shall not accept any order for an additional purchase payment
to a Contract funded by the Fund unless a current prospectus of the Fund shall
have been furnished by the applicable Company, at the expense of Dean Witter
Reynolds Inc., to the Contract Owner no later than with the confirmation for
such order. Unless and until the procedure described below has been established,
the Companies agree that current prospectuses of the Fund will be routinely
distributed by the Companies, at the expense of Dean Witter Reynolds Inc., to
all existing Contract Owners, whether or not additional purchase payments have
been made to the Contract, on an annual basis. The Companies agree to use their
best efforts to establish a procedure to identify Contract Owners who are making
an additional purchase payment to their Contracts and who have not previously
been furnished with a then current prospectus of the Fund, and to have the
procedure in place by the time the Fund's 1997 prospectus is effective so that a
current prospectus can be mailed by the Companies, at the expense of Dean Witter
Reynolds Inc., solely to those Contract Owners so identified, with the
confirmation for such additional purchase payment. There can be no assurance
that the procedure will be in place by the time the Fund's 1997 prospectus is
effective. Such procedure may be established only with the consent of the Fund,
which consent will not be unreasonably withheld. Until such time as the
procedure is in place, current prospectuses of the Fund will be routinely
distributed by the Companies, at the expense of Dean Witter Reynolds Inc., to
Contract Owners, whether or not additional purchase payments have been made to
the Contract, on an annual basis as described above.
8. INVESTMENT OF ASSETS. The Fund agrees to invest its assets in
accordance with its investment policies as disclosed in the prospectus and the
provisions of Section 817(h) of the Code and Treasury Regulation 1.817-5, as
amended from time to time, and any Treasury interpretations thereof, relating to
the diversification requirements for variable annuity and variable life
insurance contracts and any amendments or other modifications to such Section or
Regulations.
9. ADMINISTRATION OF CONTRACTS. The Companies shall be responsible for
administering their respective Contracts and keeping records on the Contracts.
2
<PAGE>
10. SHAREHOLDER INFORMATION. The Fund shall in a timely manner, at the
expense of the Fund or Dean Witter Reynolds Inc., furnish the Companies copies
of its proxy material, reports to shareholders and other communication to
shareholders in such quantity as the Companies shall reasonably require for
distributing to owners or participants under the Contracts. The Companies, at
the expense of the Fund or Dean Witter Reynolds Inc., will distribute these
materials to such owners or participants as required; provided that any proxy
materials required as a result of events originating from the Companies will be
furnished and distributed at the expense of the Companies.
11. RECORD KEEPING AND ACCESS TO RECORDS. Each Company and the Fund shall
maintain records in accordance with the applicable federal and state statutes,
rules and regulations applicable to their respective operations in connection
with the performance of their duties under this Agreement. Upon request, a party
to this Agreement shall promptly provide to another party copies of such records
as the party shall reasonably request. At the expense of the requesting party,
each party to this Agreement shall cooperate with and assist the requesting
party's auditors or representatives of regulatory agencies having jurisdiction
over the requesting party in connection with inquiries, complaints or judicial
proceedings involving responsibilities carried out under this Agreement. Such
cooperation and assistance shall include the production of copies of potentially
relevant records if so requested.
12. VOTING. To the extent required by law, the Companies shall vote Fund
shares in accordance with instructions received from Contract owners. If,
however, the 1940 Act or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result the Companies
determine that they are permitted to vote the Fund's shares in their own right,
they may elect to do so. The Companies shall vote shares of a Portfolio for
which no instructions have been received in the same proportion as the voting
instructions which are received with respect to all Contracts participating in
that Portfolio. Neither the Companies nor persons under their control shall
recommend action in connection with solicitation of proxies for Fund shares
allocated to the Accounts. The Companies shall also vote shares they own that
are not attributable to Contract owners in the same proportion. The Companies
may, when required by state insurance regulatory authorities, disregard voting
instructions if the instructions require that the shares be voted so as to cause
a change in the sub-classification or investment objective of the Fund or one or
more of its Portfolios or to approve or disapprove an investment advisory
contract for a Portfolio of the Fund. In addition, the Companies themselves may
disregard voting instructions in favor of changes initiated by a Contract owner
in the investment policy or the investment adviser of a Portfolio of the Fund if
the Companies reasonably disapprove of such changes.
13. FUND'S WARRANTY. The Fund represents and warrants that Fund shares
sold pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with all applicable federal and state
laws.
14. EACH COMPANY'S WARRANTY. Each Company represents and warrants that it
is an insurance company duly organized and in good standing under the law of its
state of domicile and that it has legally and validly established its Account
under the laws of its state of domicile, and will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for certain Contracts. Each Company further
represents and warrants that its Contracts will be registered under the 1933 Act
and will be issued and sold in compliance with all applicable federal and state
laws.
15. TERMINATION OF AGREEMENT. (a) The parties may terminate this
Agreement as follows:
(i) at the option of a Company with respect to that Company or the Fund
upon 180 days' written notice to the other parties;
(ii) at the option of each Company if, for any reason except for those
specified in Section 4, Fund shares are not available to meet the
requirements of the Company's Contracts as determined by the Company;
(iii) at the option of the Fund with respect to a Company, upon the
National Association of Securities Dealers, Inc. ("NASD"), the SEC, the
director of the Department of Insurance in a Company's state of domicile or
any other regulatory body instituting legal proceedings against the Company
regarding its duties under this Agreement;
3
<PAGE>
(iv) at the option of each Company upon institution of formal
proceedings against the Fund by the SEC or other regulatory body; or
(v) at the option of each Company if Fund shares are not registered,
issued or sold in conformance with applicable federal or state law,
including Section 817(h) and Regulations and Treasury interpretations
thereunder. Prompt notice shall be given to the Companies if the conditions
of this provision occur.
(b)This Agreement shall automatically terminate in the event of its
assignment.
(c)Notwithstanding any termination of this Agreement, the Fund shall, at the
Companies' option, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"), so long as the Fund is in existence.
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in the Fund,
or invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. A termination under Section 18 of this Agreement shall end
rights of the owners of Existing Contracts.
(d)The Companies shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Companies' assets held in
the Accounts) except (i) as necessary to implement transactions permitted under
the Contracts, or (ii) as required by state or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"). Upon request, a Company will promptly
furnish to the Fund the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, a Company
shall not prevent its Contract owners from allocating payments to a Portfolio
that was otherwise available under the Contracts without first giving the Fund
90 days' notice of its intention to do so.
16. EACH COMPANY'S INDEMNIFICATION AGREEMENT. (a) Each Company agrees to
indemnify and hold harmless the Fund and each of its Trustees who is not an
"interested person" of the Fund, as defined in the 1940 Act (collectively the
"Fund's Indemnified Parties" for purposes of this Section 16), against any
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or expenses or actions to which the Fund's
Indemnified Parties may become subject, under the Federal securities laws or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements arise as a result of any failure by
the Company to provide the services and furnish the materials under the terms of
this Agreement or which arise from erroneous instructions by the Company to the
Fund concerning the particular Portfolio or Portfolios whose shares are to be
allocated to the Account. This indemnity agreement is in addition to any
liability which the Company may otherwise have.
(b)The Company will reimburse the Fund's Indemnified Parties for any legal
or other expenses reasonably incurred by the Fund's Indemnified Parties
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c)Promptly after receipt by any of the Fund's Indemnified Parties of notice
of the commencement of any action, or the making of any claim for which
indemnity may apply under this section, the Fund's Indemnified Parties will, if
a claim in respect thereof is to be made against the Fund, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability which it may have to the Fund's
Indemnified Parties otherwise than under this Agreement. In case any such action
is brought against the Fund's Indemnified Parties, and the Company is notified
of the commencement thereof, the Company will be entitled to participate therein
and to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Company to such party of the Company's
election to assume the defense thereof, the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
4
<PAGE>
17. FUND INDEMNIFICATION AGREEMENT. (a) The Fund agrees to indemnify and
hold harmless each Company and each of the Company's Directors who is not an
"interested person" of the Company, as defined in the 1940 Act (collectively the
"Company's Indemnified Parties" for purposes of this Section 17), against any
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or expenses or actions to which the Company's
Indemnified Parties may become subject, under the Federal securities laws or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement;
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as to
the Company's Indemnified Parties if such statement or omission was made in
reliance upon and in conformity with information furnished to the Fund by or
on behalf of the Company for use in the registration statement or prospectus
of the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(iii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund, including a failure, whether unintentional or in good faith or
otherwise, to comply with the requirements specified in Section 8 of this
Agreement. This indemnity agreement is in addition to any liability which
the Fund may otherwise have.
(b)The Fund represents and warrants that the Fund will at all times invest
its assets in such a manner as to ensure that the Contracts will be
treated as variable annuity or flexible premium life insurance contracts under
the Code and the regulations thereunder. Without limiting the scope of the
foregoing, the Fund will at all times comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity or variable life insurance contracts and any amendments or
other modifications to such section or Regulations.
(c)Fund shares will not be sold to any person or entity that would result in
the Contracts not being treated as annuity contracts or variable life
contracts.
(d)The Fund will reimburse the Companies, as shareholders of the Fund, for
pricing errors respecting Fund shares transacted with incorrect net asset
values by paying the Companies the amount of the difference between the
incorrect net asset value as of the date of the error and the correct net asset
value as of the date of the error, provided that: (a) in the case of an
overstatement of net asset value, any such reimbursement resulting from
overpayments by the Companies on Fund share purchases during the period the
error in pricing was in effect will be net of overpayments to the Companies on
Fund share redemptions during such period, (b) in the case of an understatement
of net asset value, any such reimbursement resulting from underpayments to the
Companies on Fund share redemptions during the period the error in pricing was
in effect will be net of underpayments by the Companies on Fund share purchases
during such period, and (c) in the case of a series of pricing errors over a
period of days consisting alternately of overstatements and understatements of
net asset value, any such reimbursements shall reflect the combined effect of
the net of all overpayments and underpayments during such period; and provided
further that reimbursements in connection with a pricing error discovered for a
period for which another pricing error has previously been corrected will be
calculated as if all errors pertaining to that period had been discovered at the
same time for purposes of the foregoing netting process.
(e)The Fund will reimburse the Company's Indemnified Parties for any legal
or other expenses reasonably incurred by the Company's Indemnified
Parties in connection with investigating or defending of any such loss, claim,
damage, liability or action.
5
<PAGE>
(f)Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for
which indemnity may apply under this section, the Company's Indemnified Parties
will, if a claim in respect thereof is to be made against the Company, notify
the Fund of commencement thereof; but the omission so to notify the Fund will
not relieve the Fund from any liability which it may have to the Company's
Indemnified Parties otherwise than under this Agreement. In case any such action
is brought against the Company's Indemnified Parties, and the Fund is notified
of the commencement thereof, the Fund will be entitled to participate therein
and to assume the defense thereof, with counsel satisfactory to the party named
in the action, and after notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Fund will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
18. POTENTIAL CONFLICTS. (a) The Trustees of the Fund will monitor the
operations of the Fund for the existence of any material irreconcilable conflict
between the interests of the contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (i) an action by any state insurance regulatory authority;
(ii) a change in applicable Federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (iii) an administrative or judicial decision in any
relevant proceeding; (iv) the manner in which the investments of any Portfolio
are being managed; (v) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (vi) a decision
by an insurer to disregard the voting instructions of contract owners. The
Trustees shall promptly inform the Companies if they determine that an
irreconcilable material conflict exists and the implications thereof.
(b)Each Company will report any potential or existing conflicts of which it
is aware to the Trustees of the Fund. The Company will assist the
Trustees in carrying out their responsibilities under sections (a) and (b) of
this section, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Trustees whenever
contract owner voting instructions are disregarded.
(c)If it is determined by a majority of the Trustees, or a majority of the
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 any agreement related thereto (the "Independent Trustees"), that a
material irreconcilable conflict exists, the Company shall, at its expense and
to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or eliminate
the irreconcilable material conflict, up to and including: (i) withdrawing the
assets allocable to the Account from the Fund or any Portfolio and reinvesting
such assets in a different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected contract owners and,
as appropriate, segregating the assets of variable annuity contract owners
invested in the Account from those of any other appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
other life insurance companies) that votes in favor of such segregation, or
offering to the contract owners the option of making such a change; and (ii)
establishing a new registered management investment company or managed separate
account.
(d)If a material irreconcilable conflict arises because of a decision by a
Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the Independent
Trustees. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Fund shall continue
to accept and implement orders by the Company for the purchase (and redemption)
of shares of the Fund.
(e)If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to a Company conflicts with the
majority of other state regulators, then the Company will
6
<PAGE>
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Trustees inform the Company in writing that they
have determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Trustees. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
(f)For purposes of sections (c) through (f) of this section, a majority of
the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts. A
Company shall not be required by section (c) to establish a new funding medium
for its Contracts if an offer to do so has been declined by vote of a majority
of contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Trustees determine that any proposed action does
not adequately remedy any irreconcilable material conflict, then the Company
will withdraw its Account's investment in the Fund and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination, provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the Independent Trustees.
19. DURATION OF THIS AGREEMENT. This Agreement shall become effective as
of the date first above written and shall remain in force until April 30, 1996
and thereafter, but only so long as such continuance is specifically approved at
least annually by the Trustees of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, cast in person or by proxy. This
Agreement also may be terminated in accordance with Section 15 hereof.
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.
20. 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 Fund, or by the vote of a majority of outstanding voting securities of the
Fund, and (ii) a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of New York and the applicable provisions of the 1933, 1934
and 1940 Acts and the rules and regulations and rulings thereunder including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
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. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise the remainder of the
Agreement shall not be affected thereby.
22. NOTICES. Any notice under this Agreement shall be in writing and if to
the Fund, delivered or mailed postage prepaid to it at Two World Trade Center,
New York, NY 10048; and if to the Companies, delivered or mailed postage prepaid
to Vice President, Individual Annuity Sales and Marketing, 200 Hopmeadow Street,
Simsbury, CT 06070, with a copy to General Counsel at the same address. The
parties shall have the right to designate any other address hereafter by written
notice to the other parties.
23. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Select Dimensions Investment Series, dated June 2, 1994, 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 Dean Witter Select Dimensions 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 Dean
Witter Select Dimensions 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 Dean Witter Select Dimensions Investment Series, but the Trust
Estate only shall be liable.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
<TABLE>
<S> <C>
COMPANIES:
HARTFORD LIFE INSURANCE COMPANY
By
..............................................
Attest:
.............................................
ITT HARTFORD LIFE AND ANNUITY INSURANCE
COMPANY
By
..............................................
Attest:
.............................................
FUND:
DEAN WITTER SELECT DIMENSIONS INVESTMENT
SERIES
By
..............................................
Attest:
.............................................
</TABLE>
Accepted with regard to Paragraphs 7 and 10 hereof:
<TABLE>
<S> <C>
DEAN WITTER REYNOLDS INC.
By
..............................................
Attest:
.............................................
</TABLE>
8
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this day of , 1994, between DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES, a Massachusetts business trust organized
and existing under the laws of the Commonwealth of Massachusetts, having its
principal office and place of business at 2 World Trade Center, New York,
New York 10048 (hereinafter called the "Fund"), and THE BANK OF NEW YORK,
a New York corporation authorized to do a banking business, having its
principal office and place of business at 48 Wall Street, New York, New York
10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, shall
have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all Appendices and
Certifications described in the Exhibits delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether or not such person
is an Officer or employee of the Fund, duly authorized by the Board of Trustees
of the Fund to give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, provided that
each person who is designated in any such Certificate as an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles XII and XIII hereof.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
<PAGE>
4. "Call Option" shall mean an exchange traded option with respect to
Securities other than Index, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the
Custodian which is actually received (irrespective of constructive receipt) by
the Custodian and signed on behalf of the Fund by any two Officers. The term
Certificate shall also include instructions by the Fund to the Custodian
communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein.
8. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities (excluding Futures Contracts) which are
owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy or
sell financial instruments on a U.S. commodities exchange or board of trade at a
specified future time at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or
Index Futures Contracts.
- 2 -
<PAGE>
12. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
13. "Investment Company Act of 1940" shall mean the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
index at the close of the last business day of the contract and the price at
which the futures contract is originally struck.
15. "Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
16. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or a Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's effecting an
appropriate entry in its books and records.
17. "Money Market Security" shall mean all instruments and obligations
commonly known as a money market instruments, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale, including, without limitation, certain Reverse Repurchase
Agreements, debt obligations issued or guaranteed as to interest and/or
principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the
- 3 -
<PAGE>
Securities Exchange Act of 1934, its successor or successors, and its nominee or
nominees.
19. "Officers" shall mean the President, any Vice President, the
Secretary, the Clerk, the Treasurer, the Controller, any Assistant Secretary,
any Assistant Clerk, any Assistant Treasurer, and any other person or persons,
whether or not any such other person is an officer or employee of the Fund, but
in each case only if duly authorized by the Board of Trustees of the Fund to
execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix B or such
other Certificate as may be received by the Custodian from time to time;
provided that each person who is designated in any such Certificate as holding
the position of "Officer of DWTC" shall be an Officer only for purposes of
Articles XII and XIII hereof.
20. "Option" shall mean a Call Option, Covered Call Option, Index Option
and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions actually received
(irrespective of constructive receipt) by the Custodian from an Authorized
Person or from a person reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option with respect to
instruments, currency, or Securities other than Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon timely
exercise and tender of the specified underlying instruments, currency, or
Securities, to sell such instruments, currency, or Securities to the writer
thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
24. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Index Options, Index Futures
Contracts, Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, over the
counter options on Securities, common stocks and other securities having
characteristics similar to common stocks, preferred stocks, debt obligations
issued by state or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds, industrial bonds
and industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe
- 4 -
<PAGE>
for the same, or evidencing or representing any other rights or interest
therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
26. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund, except that if the Fund does not have more than one portfolio, "Series"
shall mean the Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only one portfolio.
27. "Shares" shall mean the shares of beneficial interest of the Fund and
its Series.
28. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use of the
Terminal Link the use of an authorization code provided by the Custodian and at
least two access codes established by the Fund, provided, that the Fund shall
have delivered to the Custodian a Certificate substantially in the form of
Appendix C.
29. "Transfer Agent" shall mean Dean Witter Trust Company, a New Jersey
limited purpose trust company, its successors and assigns.
30. "Transfer Agent Account" shall mean any account in the name of the
Transfer Agent maintained with The Bank of New York pursuant to a Cash
Management and Related Services Agreement between The Bank of New York and the
Transfer Agent.
31. "Written Instructions" shall mean written communications actually
received (irrespective of constructive receipt) by the Custodian from an
Authorized Person or from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the receiver of such
communications is able to verify by codes or otherwise with a reasonable degree
of certainty the identity of the sender of such communication.
- 5 -
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of
the Securities and moneys at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated, and the Custodian shall not
be responsible for any Securities or money not so delivered. The Custodian shall
physically segregate, keep and maintain the Securities of the Series separate
and apart from each other Series and from other assets held by the Custodian.
Except as otherwise expressly provided in this Agreement, the Custodian will not
be responsible for any Securities and moneys not actually received by it, unless
the Custodian has been negligent or has engaged in willful misconduct with
respect thereto. The Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The Fund shall deliver to
the Custodian a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in any Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund, substantially in
the form of Exhibit B hereto, approving,
- 6 -
<PAGE>
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate to deposit in such
Depository all Securities specifically allocated to such Series eligible for
deposit therein, and to utilize such Depository to the extent possible with
respect to such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
Securities collateral. Securities and moneys deposited in either the
Book-Entry System or a Depository will be represented in accounts which include
only assets held by the Custodian for customers, including, but not limited
to, accounts in which the Custodian acts in a fiduciary or representative
capacity and will be specifically allocated on the Custodian's books to the
separate account for the applicable Series. Prior to the Custodian's
accepting, utilizing and acting with respect to Clearing Member confirmations
for Options and transactions in Options for a Series as provided in this
Agreement, the Custodian shall have received a certified resolution of the
Fund's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate, to accept,
utilize and act in accordance with such confirmations as provided in this
Agreement with respect to such Series. All securities are to be held or
disposed of by the Custodian for, and subject at all times to the instructions
of, the Fund pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of
any Securities except as provided by the terms of this Agreement, and shall
have the sole power to release and deliver Securities held pursuant to this
Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Such moneys will be held in such manner and account as the Fund and the
Custodian shall agree upon in writing from time to time. Money credited to a
separate account for a Series shall be subject only to drafts, orders, or
charges of the Custodian pursuant to this Agreement and shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of Trustees certified
by an Officer and by the Secretary or Assistant Secretary of the Fund setting
forth the name and address of the person to whom the payment is to be made, the
Series account from which payment is to be made, the purpose for which payment
is to be made, and declaring such purpose to be a proper corporate purpose;
provided, however, that amounts
- 7 -
<PAGE>
representing dividends or distributions with respect to Shares shall be paid
only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series and authorized by this
Agreement; or
(d) Pursuant to Certificates to pay interest, taxes, management fees
or operating expenses (including, without limitation thereto, Board of Trustees'
fees and expenses, and fees for legal accounting and auditing services), which
Certificates set forth the name and address of the person to whom payment is to
be made, state the purpose of such payment and designate the Series for whose
account the payment is to be made.
3. Promptly after the close of business on each day, the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series but held in a Depository, the Custodian shall upon such
transfer also by book-entry or otherwise identify such Securities as belonging
to such Series in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or a
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or a
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in a Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
- 8 -
<PAGE>
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or a Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all Securities held for
the Fund hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income and dividends due or payable;
(b) Promptly give notice to the Fund and promptly present for payment
and collect the amount of money or other consideration payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix D annexed hereto, which may be amended at
any time by the Custodian without the prior consent of the Fund, provided the
Custodian gives prior notice of such amendment to the Fund;
(c) Promptly present for payment and collect for the Fund's account
the amount payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form in exchange for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered holder (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
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6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Promptly execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held hereunder for
the Series specified in such Certificate may be exercised;
(b) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
right, warrant or conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such Series in exchange
therefor such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery or such Securities as
may be issued upon such delivery; and
(d) Promptly present for payment and collect the amount payable upon
Securities which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940 in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale, writing, settlement or
closing out upon its receipt from a broker, dealer, or futures commission
merchant of a statement or confirmation reasonably believed by the Custodian to
be in the form customarily used by brokers, dealers, or future
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commission merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a Futures Contract
Option, the Fund shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each purchase of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit; (f)
the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities purchased by or for
the Fund, pay to the broker specified in
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the Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions or Written
Instructions.
2. Promptly after each execution of a sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures Contract Option, or
any Reverse Repurchase Agreement, the Fund shall deliver such to the Custodian
(i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money Market
Securities, a Certificate, Oral Instructions or Written Instructions, specifying
with respect to each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale and settlement; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. On the settlement date, the Custodian shall
deliver the Securities specifically allocated to such Series to the broker in
accordance with generally accepted street practices and as specified in the
Certificate upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any Option by the Fund
other than a closing purchase transaction the Fund shall deliver to the
Custodian a Certificate specifying with respect to each Option purchased: (a)
the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or Security underlying such
Option and the number of Options, or the name of the in the case of an Index
Option, the index to which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; and (h) the name of the Clearing Member through whom such
Option was purchased. The Custodian shall pay, upon receipt of a Clearing
Member's statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and registered
nominee of the
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Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the execution of a sale of any Option purchased by the
Fund, other than a closing sale transaction, pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) the Series to which such Option was specifically allocated;
(b) the type of Option (put or call); (c) the instrument, currency, or Security
underlying such Option and the number of Options, or the name of the issuer and
the title and number of shares subject to such Option or, in the case of a Index
Option, the index to which such Option relates and the number of Index Options
sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously supplied
the confirmation described in preceding paragraph 1 of this Article with respect
to such Option against payment to the Custodian of the total amount payable to
the Fund, provided that the same conforms to the total amount payable as set
forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise
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and settlement; (e) the exercise price per share; (f) the total amount to be
paid to the Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Put Option was exercised. The Custodian shall, upon receipt of
the amount payable upon the exercise of the Put Option, deliver or direct a
Depository to deliver the Securities specifically allocated to such Series,
provided the same conforms to the amount payable to the Fund as set forth in
such Certificate.
5. Promptly after the exercise by the Fund of any Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Index Option: (a) the
Series to which such Index Option was specifically allocated; (b) the type of
Index Option (put or call); (c) the number of Options being exercised; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the total amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct a
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
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Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct a Depository to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate, against delivery of such
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Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes an Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) whether such
Index Option is a put or a call; (c) the number of options written; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever an Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option being exercised;
(c) the Clearing Member through whom such Index Option is being exercised; (d)
the total amount payable upon such exercise, and whether such amount is to be
paid by or to the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account; and (f) the amount
of cash and/or amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
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12. Promptly after the execution of a purchase or sale by the Fund of any
Option identical to a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction or a
Closing Sale Transaction; (b) the Series for which the Option was written; (c)
the instrument, currency, or Security subject to the Option, or, in the case of
an Index Option, the index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g) the type of Option
(put or call); (h) the date of such purchase or sale; (i) the name of the
Clearing Member to whom the premium is to be paid or from whom the amount is to
be received; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium or receipt of the amount, as the case may be,
specified in the Certificate and the return and/or cancellation of any receipt
issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the
Option being liquidated through the Closing Purchase Transaction or the Closing
Sale Transaction, the Custodian shall remove, or direct a Depository to remove,
the previously imposed restrictions on the Securities underlying the Call
Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
14. Securities acquired by the Fund through the exercise of an Option
described in this Article shall be subject to Article IV hereof.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract,
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(or with respect to any number of identical Futures Contract(s)): (a) the Series
for which the Futures Contract is being entered; (b) the category of Futures
Contract (the name of the underlying index or financial instrument); (c) the
number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) such Futures Contract(s); (g) the amount
of cash and/or the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract was entered into;
and (i) the amount of fee or commission, if any, to be paid and the name of the
broker, dealer, or futures commission merchant to whom such amount is to be
paid. The Custodian shall make the deposits, if any, to the Margin Account in
accordance with the terms and conditions of the Margin Account Agreement. The
Custodian shall make payment out of the moneys specifically allocated to such
Series of the fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the amount of cash and/or
the amount and kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian prior to the delivery or
settlement date a Certificate specifying: (a) the Futures Contract and the
Series to which the same relates; (b) with respect to an Index Futures Contract,
the total cash settlement amount to be paid or received, and with respect to a
Financial Futures Contract, the Securities and/or amount of cash to be delivered
or received; (c) the broker, dealer, or futures commission merchant to or from
whom payment or delivery is to be made or received; and (d) the amount of cash
and/or Securities to be withdrawn from the Senior Security Account for such
Series. The Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the
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statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any Futures Contract
Option by the Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to which
such Option is specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or futures commission
merchant through whom such option was purchased; and (i) the name of the broker,
or futures commission merchant, to whom payment is to be made. The Custodian
shall pay out of the moneys specifically allocated to such Series the total
amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the execution of a sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of Futures Contract
and such other
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information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the broker of futures commission merchant through whom the sale was
made. The Custodian shall consent to the cancellation of the Futures Contract
Option being closed against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount payable as set forth
in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments of money, if any,
and the deposits of Securities, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
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5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Promptly after the execution by the Fund of a purchase of any Futures
Contract Option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the Custodian a Certificate
specifying with respect to the Futures Contract Option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Future Contract and such other
information as may be necessary to identify the
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Futures Contract underlying the Futures Option Contract; (d) the exercise price;
(e) the premium to be paid by the Fund; (f) the expiration date; (g) the name of
the broker or futures commission merchant to whom the premium is to be paid; and
(h) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account for such Series. The Custodian shall
effect the withdrawals from the Senior Security Account specified in the
Certificate. The withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of Securities by any
Series of the Fund, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale price per unit; (f) the total amount credited
to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and
kind of Securities, if any, which are to be deposited in a Margin Account and
the name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in a Senior Security Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of a statement from
such broker confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by
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such broker for the account of the Custodian (or any nominee of the Custodian)
as custodian of the Fund, issue a receipt or make the deposits into the Margin
Account and the Senior Security Account specified in the Certificate.
2. Promptly after the execution of a purchase to close-out any short sale
of Securities, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to be delivered to the
broker; (d) the dates of closing-out and settlement; (e) the purchase price per
unit; (f) the net total amount payable to the Fund upon such closing-out; (g)
the net total amount payable to the broker upon such closing-out; (h) the amount
of cash and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker, dealer, or financial institution with whom the Reverse
Repurchase Agreement is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker, dealer, or financial institution; (e) the
date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon receipt of
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the total amount payable to the Fund specified in the Certificate, Oral
Instructions, or Written Instructions make the delivery to the broker, dealer,
or financial institution and the deposits, if any, to the Senior Security
Account, specified in such Certificate, Oral Instructions, or Written
Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and
the Series for which same was entered; (b) the total amount payable by the Fund
in connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker,
dealer, or financial institution with whom the Reverse Repurchase Agreement is
to be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker, dealer, or financial institution
and the withdrawals, if any, from the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
3. The Certificates, Oral Instructions, or Written Instructions described
in paragraphs 1 and 2 of this Article may with respect to any particular Reverse
Repurchase Agreement be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution
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<PAGE>
to which the loan was made. The Custodian shall deliver the Securities thus
designated to the broker, dealer or financial institution to which the loan was
made upon receipt of the total amount designated in the Certificate as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or a
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds.
2. In connection with each termination of a loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS,
AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Account and from time
to time make such deposits thereto, or withdrawals therefrom, as specified in a
Certificate. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly notify the Fund that no such deposit
has been made.
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<PAGE>
2. The Custodian shall make deliveries or payments from a Margin Account
to the broker, dealer, futures commission merchant or Clearing Member in whose
name, or for whose benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. The Custodian shall establish a Collateral Account and from time to
time shall make such deposits thereto as may be specified in a Certificate.
Promptly after the close of business on each business day in which cash and/or
Securities are maintained in a Collateral Account for any Series, the Custodian
shall furnish the Fund with a statement with respect to such Collateral Account
specifying the amount of cash and/or the amount and kind of Securities held
therein. No later than the close of business next succeeding the delivery to the
Fund of such statement, the Fund shall furnish to the Custodian a Certificate or
Written Instructions specifying the then market value of the Securities
described in such statement. In the event such then market value is indicated to
be less than the Custodian's obligation with respect to any outstanding Put
Option guarantee letter or similar document,
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the Fund shall promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein and the declaration of dividends and
distributions thereon the Custodian to rely on Oral Instructions, Written
Instructions, or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral Instructions,
Written Instructions, or Certificate, as the case may be, the Custodian shall
pay to the Transfer Agent Account out of the moneys held for the account of the
Series specified therein the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or cause to
be delivered, to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price;
and
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(b) The amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series the Custodian shall pay, out
of the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish, or cause to be
furnished, to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent Account out of the moneys held in the separate
account in the name of the Series the total amount specified in the Certificate
issued pursuant to the foregoing paragraph 4 of this Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account of
such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series, (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund
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for such Series payable on demand and shall bear interest from the date incurred
at a rate per annum (based on a 360-day year for the actual number of days
involved) equal to the Federal Funds Rate plus 1/2%, such rate to be adjusted on
the effective date of any change in such Federal Funds Rate but in no event to
be less than 6% per annum. In addition, the Fund hereby agrees that the
Custodian shall have a continuing lien and security interest in the aggregate
amount of such overdrafts and indebtedness as may from time to time exist in and
to any property specifically allocated to such Series at any time held by it for
the benefit of such Series or in which the Fund may have an interest which is
then in the Custodian's possession or control or in possession or control of any
third party acting in the Custodian's behalf. The Fund authorizes the Custodian,
in its sole discretion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any money balance of account standing
to such Series' credit on the Custodian's books. In addition, the Fund hereby
covenants that on each Business Day on which either it intends to enter a
Reverse Repurchase Agreement and/ or otherwise borrow from a third party, or
which next succeeds a Business Day on which at the close of business the Fund
had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of each
such borrowing, shall specify the Series to which the same relates, and shall
not incur any indebtedness, including pursuant to any Reverse Repurchase
Agreement, not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the
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borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at the option
of the lending bank, keep such collateral in its possession, but such collateral
shall be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to specify
in a Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, to any such bank, the Custodian shall not be under
any obligation to deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its
duties hereunder, and, except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence, bad faith, or willful misconduct or that of its
officers, employees, or agents. The Custodian may, with respect to questions of
law arising hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund, at the expense of the
Fund, or of its own counsel, at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Notwithstanding the foregoing, the Custodian shall be under no
obligation to inquire into, and shall not be liable for:
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(a) The validity (but not the authenticity) of the issue of any
Securities purchased, sold, or written by or for the Fund, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor, as specified in a Certificate, Oral Instructions, or Written
Instructions;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor, as specified in a
Certificate;
(c) The legality of the declaration or payment of any dividend by the
Fund, as specified in a resolution, Certificate, Oral Instructions, or Written
Instructions;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that the cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might sustain as a result
of such loan, except that this subparagraph shall not excuse any liability the
Custodian may have for failing to act in accordance with Article X hereof or any
Certificate, Oral Instructions, or Written Instructions given in accordance with
this Agreement. The Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund, except that this
sub-paragraph shall not excuse any liability the Custodian may have for failing
to establish, maintain, make deposits to or withdrawals from such accounts in
accordance with this Agreement. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer, futures commission merchant
or Clearing Member makes payment to the Fund of any variation margin payment or
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similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. With respect to Securities held in a Depository, except as otherwise
provided in paragraph 5(b) of Article III hereof, the Custodian shall have no
responsibility and shall not be liable for ascertaining or acting upon any
calls, conversions, exchange offers, tenders, interest rate changes or similar
matters relating to such Securities, unless the Custodian shall have actually
received timely notice from the Depository in which such Securities are held. In
no event shall the Custodian have any responsibility or liability for the
failure of a Depository to collect, or for the late collection or late crediting
by a Depository of any amount payable upon Securities deposited in a Depository
which may mature or be redeemed, retired, called or otherwise become payable.
However, upon receipt of a Certificate from the Fund of an overdue amount on
Securities held in a Depository the Custodian shall make a claim against the
Depository on behalf of the Fund, except that the Custodian shall not be under
any obligation to appear in, prosecute or defend any action suit or proceeding
in respect to any Securities held by a Depository which in its opinion may
involve it in expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be required, or
alternatively, the Fund shall be subrogated to the rights of the Custodian with
respect to such claim against the Depository should it so request in a
Certificate. This paragraph shall not, however, excuse any failure by the
Custodian to act in accordance with a Certificate, Oral Instructions, or Written
Instructions given in accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
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6. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after the Custodian has timely
and properly, in accordance with this Agreement, made due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action, but the Custodian
shall have such a duty if the Securities were not in default on the payable date
and the Custodian failed to timely and properly make such demand for payment and
such failure is the reason for the non-receipt of payment.
7. The Custodian may appoint one or more banking institutions as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians including,
but not limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an agreement
executed by the Custodian, the Fund and the appointed institution.
8. The Custodian agrees to indemnify the Fund against and save the Fund
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of the negligence, bad
faith or willful misconduct of any Sub-Custodian of the Securities and moneys
owned by the Fund, provided such Sub-Custodian is a banking institution located
in a foreign country and appointed by the Custodian pursuant to paragraph 7 of
this Article.
9. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically allocated to a Series are such as
properly may be held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
10. The Custodian shall be entitled to receive and the Fund agrees to pay
to the Custodian all reasonable out-of-pocket expenses and such compensation as
may be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation, and any such expenses with respect to a
Series incurred by the Custodian in the performance of its duties under this
Agreement against any money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it for the account of
a Series the amount of any loss, damage, liability or expense, including counsel
fees, for which it
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<PAGE>
shall be entitled to reimbursement under the provisions of this Agreement
attributable to, or arising out of, its serving as Custodian for such Series.
The expenses for which the Custodian shall be entitled to reimbursement
hereunder shall include, but are not limited to, the expenses of sub-custodians
and foreign branches of the Custodian incurred in settling outside of New York
City transactions involving the purchase and sale of Securities of the Fund.
Notwithstanding the foregoing or anything else contained in this Agreement to
the contrary, the Custodian shall, prior to effecting any charge for
compensation, expenses, or any overdraft or indebtedness or interest thereon,
submit an invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any Certificate, notice
or other instrument in writing, Oral Instructions, or Written Instructions
received by the Custodian and reasonably believed by the Custodian to be
genuine. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming Oral Instructions or Written Instructions in such manner so
that such Certificate or facsimile thereof is received by the Custodian, whether
by hand delivery, telecopier or other similar device, or otherwise, by the close
of business of the same day that such Oral Instructions or Written Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions thereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions or Written Instructions
given to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member. This paragraph shall not excuse any failure by the Custodian to
have acted in accordance with any Margin Agreement it has executed or any
Certificate, Oral Instructions, or Written Instructions given in accordance with
this Agreement.
13. The books and records pertaining to the Fund, as described in Appendix
E hereto, which are in the possession of the Custodian shall be the property of
the Fund. Such books
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<PAGE>
and records shall be prepared and maintained by the Custodian as required by the
Investment Company Act of 1940, as amended, and other applicable securities laws
and rules and regulations. The Fund, or the Fund's authorized representatives,
shall have access to such books and records during the Custodian's normal
business hours. Upon the reasonable request of the Fund, copies of any such
books and records shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of the Fund, the
Custodian shall provide in hard copy or on micro-film, whichever the Custodian
elects, any records included in any such delivery which are maintained by the
Custodian on a computer disc, or are similarly maintained, and the Fund shall
reimburse the Custodian for its expenses of providing such hard copy or
micro-film.
14. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
each Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
15. The Custodian shall furnish upon request annually to the Fund a letter
prepared by the Custodian's accountants with respect to the Custodian's internal
systems and controls in the form generally provided by the Custodian to other
investment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising out of, or related to, the
Custodian's performance of its obligations under this Agreement, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence, bad faith, or willful misconduct or that of its officers, employees,
or agents.
17. Subject to the foregoing provisions of this Agreement, the Custodian
shall deliver and receive Securities, and receipts with respect to such
Securities, and shall make and receive payments only in accordance with the
customs prevailing from time to time among brokers or dealers in such Securities
and, except as may otherwise be provided by this Agreement or as may be in
accordance with such customs, shall make payment for Securities only against
delivery thereof and deliveries of Securities only against payment therefor.
18. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
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<PAGE>
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article, this Agreement
shall continue until terminated by either the Custodian giving to the Fund, or
the Fund giving to the Custodian, a notice in writing specifying the date of
such termination, which date shall be not less than 60 days after the date of
the giving of such notice. In the event such notice or a notice pursuant to
paragraph 3 of this Article is given by the Fund, it shall be accompanied by a
copy of a resolution of the Board of Trustees of the Fund, certified by an
Officer and the Secretary or an Assistant Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be eligible to serve as a custodian for the securities of a
management investment company under the Investment Company Act of 1940. In the
event such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
3. Notwithstanding the foregoing, the Fund may terminate this Agreement
upon the date specified in a written
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<PAGE>
notice in the event of the "Bankruptcy" of The Bank of New York. As used in this
sub-paragraph, the term "Bankruptcy" shall mean The Bank of New York's making a
general assignment, arrangement or composition with or for the benefit of its
creditors, or instituting or having instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or the entry of a order for relief under
any applicable bankruptcy law or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or if a
petition is presented for the winding up or liquidation of the party or a
resolution is passed for its winding up or liquidation, or it seeks, or becomes
subject to, the appointment of an administrator, receiver, trustee, custodian or
other similar official for it or for all or substantially all of its assets or
its taking any action in furtherance or, or indicating its consent to approval
of, or acquiescence in, any of the foregoing.
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to and to receive notices
from the Custodian.
2. The parties hereto shall utilize the Terminal Link only for the
purpose of the Fund providing Certificates to the Custodian and the Custodian
providing notices to the Fund and only after the Fund and the Custodian shall
have established access codes and internal safekeeping procedures to safeguard
and protect the confidentiality and availability of such access codes. Each use
of the Terminal Link by the Fund shall constitute a representation and warranty
that at least two such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such equipment or
services, except that the Custodian shall not pay any communications costs of
any line leased by the Fund, even if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
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<PAGE>
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, each Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from time
to time without notice to the Fund, except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees not to
modify or attempt to modify the Terminal Link without the Bank's prior written
consent. The Fund acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it utilizes
or the Fund utilizes in connection with the Terminal Link makes any warranties
or representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
8. Each party will, and will cause its officers and employees to, treat
the user and authorization codes, passwords and authentication keys applicable
to Terminal Link with extreme care. Each party hereby irrevocably authorizes the
other to act in accordance with and rely on Certificates and notices received by
it through the Terminal Link. Each party acknowledges that it is its
responsibility to assure that only its authorized persons use the Terminal Link
on its behalf, and that a party shall not be responsible nor liable for use of
the Terminal Link on its behalf of the other party by unauthorized persons
except that the other party shall be liable for such use thereof by unauthorized
persons who have obtained access thereto as a result of the bad faith or willful
misconduct of such party or any of its officers or employees.
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<PAGE>
9. Notwithstanding anything else in this Agreement to the contrary,
neither party shall have any liability to the other for any losses, damages,
injuries, claims, costs or expenses arising as a result of a delay, omission or
error in the transmission of a Certificate or notice by use of the Terminal Link
except for money damages for those suffered as the result of the negligence, bad
faith or willfull misconduct of such party or its officers, employees or agents
in an amount not exceeding for any incident $100,000, provided, however, that a
party shall have no liability under this Section 9 if the other party fails to
comply with the provisions of Section 11.
10. Without limiting the generality of the foregoing, it is hereby agreed
that in no event shall either party or any manufacturer or supplier of its
computer equipment, software or services relating to the Terminal Link be
responsible for any special, indirect, incidental or consequential damages which
the other party may incur or experience by reason of its use of the Terminal
Link even if such party, manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall either party or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. Each party shall, as soon as practicable after its receipt of a
Certificate or of any notice transmitted by the Terminal Link, verify to the
other party by use of the Terminal Link its receipt of such Certificate or
notice, and in the absence of such verification a party to whom a Certificate or
notice is sent shall not be liable for any failure to act in accordance with
such Certificate or notice, and the sending party may not claim that such
Certificate or notice was received by the other.
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<PAGE>
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event that other
or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be entitled to rely and to
act upon Oral Instructions, Written Instructions, or signatures of the present
Authorized Persons as set forth in the last delivered Certificate to the extent
provided by this Agreement.
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered Certificate to the
extent provided by this Agreement.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, other than any Certificate or
Written Instructions, shall be sufficiently given if addressed to the Custodian
and mailed or delivered to it at its offices at 90 Washington Street, New York,
New York 10286, or at such other place as the Custodian may from time to time
designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund,
except that Appendices A and B may be amended unilaterally by the Fund without
such an approving resolution.
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<PAGE>
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian or The Bank of New York without the
written consent of the Fund, authorized or approved by a resolution of the
Fund's Board of Trustees. For purposes of this paragraph, no merger,
consolidation, or amalgamation of the Custodian, The Bank of New York, or the
Fund shall be deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
9. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DEAN WITTER SELECT DIMENSIONS
INVESTMENT SERIES
[SEAL] By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:_______________________
Attest:
_______________________
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<PAGE>
APPENDIX A
I, , President and I, ,
of Dean Witter Select Dimensions Investment Series, a Massachusetts business
trust (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of Trust and
By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, except that those persons designated as being an "Officer of DWTC" shall
be an Authorized Person only for purposes of Articles XII and XIII. The
signatures set forth opposite their respective names are their true and correct
signatures:
Name Position Signature
_________________ ________________ _________________
<PAGE>
APPENDIX B
I, , President and I, ,
of Dean Witter Select Dimensions Investment Series, a Massachusetts business
trust (the "Fund"), do hereby certify that:
The following individuals for whom a position other than "Officer of DWTC"
is specified serve in the following positions with the Fund and each has been
duly elected or appointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's Declaration of
Trust and By-Laws. With respect to the following individuals for whom a position
of "Officer of DWTC" is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an Officer for purposes of
the Fund's Custody Agreement with The Bank of New York, but only for purposes of
Articles XII and XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set forth opposite
their respective names are their true and correct signatures:
Name Position Signature
_________________ ________________ _________________
<PAGE>
APPENDIX C
The undersigned, hereby certifies that he or she
is the duly elected and acting of Dean Witter Select
Dimensions Investment Series (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Trustees of the Fund at
a meeting duly held on , 1994, at which a quorum at all times
present and that such resolutions have not been modified or rescinded and
are in full force an effect as of the date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1994
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to act in accordance with, and to rely on instructions by the Fund
to the Custodian communicated by a Terminal Link as defined in the Custody
Agreement.
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to officers of the Fund as defined in the Custody Agreement,
and shall establish internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the Custody Agreement
shall, following the establishment of such access codes and such internal
safekeeping procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of Dean Witter
Select Investment Series, as of the day of , 1994.
[SEAL]
<PAGE>
APPENDIX D
I, Vincent Blazewicz, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
APPENDIX E
The following books and records pertaining to Fund shall be prepared and
maintained by the Custodian and shall be the property of the Fund:
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of Dean Witter Select Dimensions
Investment Series, a Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Trustees
of the Fund at a meeting duly held on , 1994, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1994, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to deposit in the Book-Entry
System, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Book-Entry System to the extent
possible in connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Dean Witter
Select Investment Series, as of the day of , 1994.
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of Dean Witter Select Dimensions
Investment Series, a Massachusetts business Trust (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Trustees of
the Fund at a meeting duly held on , 1994, at which a quorum
was at all times present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1994, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it receives
a Certificate, as defined in the Custody Agreement, to the contrary to
deposit in The Depository Trust Company ("DTC"), as a "Depository" as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize DTC to the extent possible in connection with its
performance thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Dean Witter
Select Investment Series, as of the day of , 1994.
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of Dean Witter Select Dimensions
Investment Series, a Massachusetts business Trust (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Trustees of
the Fund at a meeting duly held on , 1994, at which a quorum was
at all times present and that such resolution has not been modified or rescinded
and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1994 (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Participants Trust Company as a Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated, and
to utilize the Participants Trust Company to the extent possible in
connection with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Dean Witter
Select Investment Series, as of the day of , 1994.
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or she is the
duly elected and acting of Dean Witter Select Dimensions
Investment Series, a Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Trustees
of the Fund at a meeting duly held on , 1994, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1994, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it receives
a Certificate, as defined in the Custody Agreement, to the contrary, to
accept, utilize and act with respect to Clearing Member confirmations for
Options and transaction in Options, regardless of the Series to which the
same are specifically allocated, as such terms are defined in the Custody
Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Dean Witter
Select Investment Series, as of the day of , 1994.
[SEAL]
<PAGE>
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective October 6, 1994, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and Dean Witter Select Dimensions Investment
Series (the "Customer").
1. CUSTOMER ACCOUNTS.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) One or more custody accounts singly, a ("Custody Account") and
collectively, the ("Custody Accounts") for any and all stocks, shares, bonds,
debentures, notes, mortgages or other obligations for the payment of money,
bullion, coin and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or evidencing
or representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer'
portfolios ("Securities"); and
(b) One or more deposit accounts singly, a ("Deposit Account") and
collectively, the ("Deposit Accounts") for any and all cash in any currency
received by the Bank or its Subcustodian for the account of the Customer's
portfolios, which cash shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
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The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets
in the Accounts in accounts which the Bank has established with one or more of
its branches or Subcustodians. The Bank and Subcustodians are authorized to
hold any of the Securities in their account with any securities depository in
which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
With respect to Assets credited to the Accounts in the custody of a
Subcustodian:
(a) The Bank will identify such Assets on its books as belonging to
the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive benefit of
customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian acting in accordance with instructions of
the Bank.
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in favor of
such Subcustodian or its creditors including a receiver or trustee in bankruptcy
except for safe custody or administration, and that the beneficial ownership of
such assets will be freely transferable without the payment of money or value
other than for safe custody or administration.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its discretion,
may advance the Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by the Bank on
similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its
Subcustodian shall have no duty or obligation to institute legal proceedings,
file a claim or a proof of claim in any insolvency proceeding or take any other
action with respect to the collection of such amount, but may act for the
Customer upon Instructions after consultation with the Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
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(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of Instructions which include
all information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be made
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on
a contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by the Bank in its discretion, after the
contractual settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and
debits of the particular transaction at any time.
7. ACTIONS OF THE BANK.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will wire instruct each subcustodian to:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities and hold monies received upon such
presentations for credit to a Deposit Account.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(i) Exchange interim receipts or temporary Securities for definitive
Securities.
(j) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(k) At least monthly and from time to time, issue statements to the
Customer identifying the Assets in the Accounts.
Promptly after the close of business each day, the Bank will send the
Customer an advice or notification of any transfers of Assets to or from the
Accounts during the said day. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless the
Customer sends the Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, the Customer shall be deemed to have approved
such statement. In such event, or where the Customer has otherwise approved any
such statement, the Bank shall, to the extent permitted by law, be released,
relieved and discharged with respect to all matters set forth in such statement
or reasonably implied therefrom as though it had been settled by the decree of a
court of competent jurisdiction in an action where the Customer and all persons
having or claiming an interest in the Customer or the Customer's Accounts were
parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned
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by delay in the actual receipt of notice by the Bank or by its Subcustodians of
any payment, redemption or other transaction regarding Securities in the Custody
Account in respect of which the Bank has agreed to take any action under this
Agreement.
8. CORPORATE ACTIONS; PROXIES.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not received in time
for the Bank to take timely action, or actual notice of such Corporate Action
was received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated in resolutions of
the Board of Trustees of the Customer, certified to the Bank from time to time
by the Customer's Secretary or Assistant Secretary, to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer or
its designated agent that any such employee or agent is no longer an Authorized
Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms
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and conditions which the Bank may specify. Unless otherwise expressly provided,
all Instructions shall continue in full force and effect until canceled or
superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in Instructions
which are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable to
the Customer for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of such
Assets to the same extent that the Bank would be liable to the Customer if the
Bank were holding such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its Subcustodian to utilize
reasonable care, the Bank shall be liable to the Customer only to the extent of
the Customer's direct damages plus interest at the Fed Funds rate of interest
from the date of the loss, to be determined based on the market value of the
property which is the subject of the loss at the date of discovery of such loss
and without reference to any special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission, default
or for the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness of any document which
it believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless from
any liability or loss resulting from the imposition or assessment of any taxes
or other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.
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(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as provided in
Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement;
(v) review or reconcile trade confirmations received from brokers.
The Customer or its Authorized Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
13. FEES AND EXPENSES.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision of
this Agreement.
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration
of the Customer's trading and investment activity, the Bank is authorized, at
the request of the Customer, which may include standing instructions, to enter
into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange through
its subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
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(b) CERTIFICATION OF RESIDENCY, ETC. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) ACCESS TO RECORDS. The Bank shall allow the Customer's
independent public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer's affairs. Subject to restrictions
under applicable law, the Bank shall also obtain an undertaking to permit the
Customer's independent public accountants reasonable access to the records of
any Subcustodian which has physical possession of any Assets as may be required
in connection with the examination of the Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that
the Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
---- Retirement Income Security Act of 1974, as amended ("ERISA");
X Mutual Fund assets subject to certain Securities and Exchange
---- Commission ("SEC") rules and regulations;
Neither of the above.
----
This Agreement consists exclusively of this document together with Schedule
A, Exhibits I - _______ and the following Rider(s) [Check applicable rider(s)]:
ERISA
----
X MUTUAL FUND
----
SPECIAL TERMS AND CONDITIONS
----
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
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(g) WAIVER. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or partial
exercise of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party of any provision of
this Agreement, or waiver of any breach or default, is effective unless in
writing and signed by the party against whom the waiver is to be enforced.
(h) NOTICES. All notices under this Agreement shall be effective
when actually received. Any notices or other communications which may be
required under this Agreement are to be sent to the parties at the following
addresses or such other addresses as may subsequently be given to the other
party in writing:
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center, 18th Fl.
Brooklyn, NY 11245
Attention: Global Custody Division
or telex: ______________________________
Customer: Dean Witter InterCapital
2 World Trade Center, 72nd Floor
New York, NY 10048
Attn: Legal Counsel
or telex: ______________________________
(i) TERMINATION. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the Bank
shall deliver the Assets in the Accounts. If notice of termination is given by
the Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver
the Assets to the persons so specified, after deducting any amounts which the
Bank determines in good faith to be owed to it under Section 13. If within
sixty (60) days following receipt of a notice of termination by the Bank, the
Bank does not receive Instructions from the Customer specifying the names of the
persons to whom the Bank shall deliver the Assets, the Bank, at its election,
may deliver the Assets to a bank or trust company doing business in the State of
New York to be held and disposed of pursuant to the provisions of this
Agreement, or to Authorized Persons, or may continue to hold the Assets until
Instructions are provided to the Bank. The obligations of the parties hereto
regarding indemnities shall survive the termination of this Agreement.
CUSTOMER
By:
-----------------------------------
Title
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THE CHASE MANHATTAN BANK, N.A.
By:
-----------------------------------
Title
9
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STATE OF )
: ss.
COUNTY OF )
On this day of , 19 , before me
personally came , to me known, who being by me duly sworn, did
depose and say that he/she resides in at
;
that he/she is of
, the entity described in and which executed the foregoing
instrument; that he/she knows the seal of said entity, that the seal affixed to
said instrument is such seal, that it was so affixed by order of said entity,
and that he/she signed his/her name thereto by like order.
Sworn to before me this day of , 19 .
----- ---------- --
- ---------------------------------------------------------------
Notary
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STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of ,19 , before
me personally came , to me known, who being by me duly
sworn, did depose and say that he/she resides in
at ; that he/she is a
Vice President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the Board
of Directors of said corporation, and that he/she signed his/her name thereto by
like order.
Sworn to before me this day of , 19 .
----- ---------- --
- ---------------------------------------------------------------
Notary
- -----------------------------------
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Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Dean Witter Select Dimensions Investment Series
effective , 1994
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 (c) (3) under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's
government or an agency thereof and that has shareholders' equity in excess
of $200 million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States and that
has shareholders' equity in excess of $100 million in U.S. currency (or a
foreign currency equivalent thereof)(iii) a banking institution or trust
company incorporated or organized under the laws of a country other than
the United States or a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States which
has such other qualifications as shall be specified in Instructions and
approved
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by the Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of
a country other than the United States, which operates (i) the central
system for handling securities or equivalent book-entries in that country,
(ii) a transnational system for the central handling of securities or
equivalent book-entries, or (iii) any entity that shall have been so
qualified by exemptive order, rule or other appropriate action of the SEC.
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
standard form of subcustody agreement between the Bank and its Subcustodians and
further represents that its Board has determined that the use of each
Subcustodian and the terms of the standard form of subcustody agreement are
consistent with the best interests of the Customer and its shareholders. The
Bank will supply the Customer with any amendment to Schedule A for approval.
The Customer has supplied or will supply the Bank with certified copies of its
Board of Directors resolution(s) with respect to the foregoing prior to placing
Assets with any Subcustodian so approved.
Section 11. INSTRUCTIONS.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses on behalf of the Customer;
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(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the Bank,
its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent of
such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, the Bank will receive from brokers the Securities
previously deposited. The Bank will act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and will
have no responsibility or liability for any such Securities which are not
returned promptly when due other than to make proper request for such
return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification that
the purpose is a proper purpose under the instruments governing the
Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. STANDARD OF CARE; LIABILITIES.
Add the following subsection (c) to Section 12:
14
<PAGE>
(c) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the Bank's established
procedures with respect to similar securities held by the Bank and its
securities depositories in New York.
SECTION 14. ACCESS TO RECORDS.
ADD THE FOLLOWING LANGUAGE TO THE END OF SECTION 14(C):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
15
<PAGE>
GLOBAL CUSTODY AGREEMENT
with Dean Witter Select Dimensions Investment Series
-----------------------------------------------
(Customer)
dated , 1994
-------------
SPECIAL TERMS AND CONDITIONS
16
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
DEAN WITTER TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article 1 Terms of Appointment; Duties of DWTC. . . . . . . . . . . . . 2
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 6
Article 3 Representations and Warranties of DWTC. . . . . . . . . . . . 7
Article 4 Representations and Warranties of the
Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . . . . 9
Article 6 Documents and Covenants of the Fund and
DWTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article 7 Duration and Termination of Agreement . . . . . . . . . . . . 16
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . . . 17
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 18
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 18
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . . . 20
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . . . . . 21
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<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st day of August, 1993
by and between each of the Dean Witter Funds listed on the signature pages
hereof, each of such Funds acting severally on its own behalf and not jointly
with any of such other Funds (each such Fund hereinafter referred to as the
"Fund"), each such Fund having its principal office and place of business at Two
World Trade Center, New York, New York, 10048, and DEAN WITTER TRUST COMPANY, a
trust company organized under the laws of New Jersey, having its principal
office and place of business at Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 ("DWTC").
WHEREAS, the Fund desires to appoint DWTC as its transfer agent,
dividend disbursing agent and shareholder servicing agent and DWTC desires to
accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
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<PAGE>
Article 1 TERMS OF APPOINTMENT; DUTIES OF DWTC
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints DWTC to act as, and DWTC agrees
to act as, the transfer agent for each series and class of shares of the Fund,
whether now or hereafter authorized or issued ("Shares"), dividend disbursing
agent and shareholder servicing agent in connection with any accumulation, open-
account or similar plans provided to the holders of such Shares ("Shareholders")
and set out in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund, including without limitation any
periodic investment plan or periodic withdrawal program.
1.2 DWTC agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund and DWTC, DWTC shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
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<PAGE>
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and issue certificates therefor or hold such Shares in book form in
the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
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<PAGE>
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. DWTC
shall also provide to the Fund on a regular basis the total number of Shares
which are authorized, issued and outstanding and shall notify the Fund in case
any proposed issue of Shares by the Fund would result in an overissue. In case
any issue of Shares would result in an overissue, DWTC shall refuse to issue
such Shares and shall not countersign and issue any certificates requested for
such Shares. When recording the issuance of Shares, DWTC shall have no
obligation to take cognizance of any Blue Sky laws relating to the issue of sale
of such Shares, which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in
the above paragraph (a), DWTC shall: (i) perform all of the customary services
of a transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with dividend reinvestment, accumulation, open-
account or similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to, maintaining
all Shareholder accounts, preparing Shareholder meeting lists,
-5-
<PAGE>
mailing proxies, receiving and tabulating proxies, mailing shareholder reports
and prospectuses to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing appropriate forms required
with respect to dividends and distributions by federal tax authorities for all
Shareholders, preparing and mailing confirmation forms and statements of account
to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders and providing Shareholder account information; (ii)
open any and all bank accounts which may be necessary or appropriate in order to
provide the foregoing services; and (iii) provide a system which will enable the
Fund to monitor the total number of Shares sold in each State or other
jurisdiction.
(c) In addition, the Fund shall (i) identify to DWTC in writing
those transactions and assets to be treated as exempt from Blue Sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of DWTC for the Fund's registration status under
the Blue Sky or securities laws of any State or other jurisdiction is solely
limited to the initial establishment of transactions subject to Blue Sky
compliance by the Fund and the reporting of such transactions
-6-
<PAGE>
to the Fund as provided above and as agreed from time to time by the Fund and
DWTC.
(d) DWTC shall provide such additional services and functions
not specifically described herein as may be mutually agreed between DWTC and
the Fund. Procedures applicable to such services may be established from time
to time by agreement between the Fund and DWTC.
Article 2 FEES AND EXPENSES
2.1 For performance by DWTC pursuant to this Agreement, each
Fund agrees to pay DWTC an annual maintenance fee for each Shareholder account
and certain transactional fees, if applicable, as set out in the respective fee
schedule attached hereto as Schedule A. Such fees and out-of-pocket expenses
and advances identified under Section 2.2 below may be changed from time to time
subject to mutual written agreement between the Fund and DWTC.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse DWTC in connection with the services rendered by DWTC
hereunder. In addition, any other expenses incurred by DWTC at the request or
with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time
-7-
<PAGE>
following the mailing of the respective billing notice. Postage for mailing of
dividends, proxies, Fund reports and other mailings to all Shareholder accounts
shall be advanced to DWTC by the Fund upon request prior to the mailing date of
such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF DWTC
DWTC represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in
good standing under the laws of New Jersey and it is duly qualified to carry on
its business in New Jersey.
3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-8-
<PAGE>
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to DWTC that:
4.1 It is a corporation duly organized and existing and in good
standing under the laws of Delaware or Maryland or a trust duly organized and
existing and in good standing under the laws of Massachusetts, as the case may
be.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation or Declaration of Trust, as the case may be, and under its By-Laws
to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to
enter into and perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under
the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933
(the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
-9-
<PAGE>
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 DWTC shall not be responsible for, and the Fund shall
indemnify and hold DWTC harmless from and against, any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of DWTC or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by DWTC or its agents or subcontractors of
information, records and documents which (i) are received by DWTC or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by DWTC or its agents or
subcontractors of, any instructions or requests
-10-
<PAGE>
of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky laws of
any State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.2 DWTC shall indemnify and hold the Fund harmless from or
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by DWTC as a result of the lack of good faith, negligence or
willful misconduct of DWTC, its officers, employees or agents.
5.3 At any time, DWTC may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund, with respect to
any matter arising in connection with the services to be performed by DWTC under
this Agreement, and DWTC and its agents or subcontractors shall not be liable
and shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. DWTC, its
-11-
<PAGE>
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to DWTC or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. DWTC, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
-12-
<PAGE>
5.5 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND DWTC
6.1 The Fund shall promptly furnish to DWTC the following:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of DWTC and the execution and delivery of
this Agreement;
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<PAGE>
(ii) A certified copy of the Articles of Incorporation and By-Laws of
the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of DWTC and the execution and delivery of
this Agreement;
(ii) A certified copy of the Declaration of Trust and By-laws of the
Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
-14-
<PAGE>
(iv) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Trustees, with a certificate of the Secretary of the
Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act or the 1940 Act;
(d) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan, program or service offered or
to be offered by the Fund; and
(e) Such other certificates, documents or opinions as DWTC deems to
be appropriate or necessary for the proper performance of its duties.
6.2 DWTC hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.3 DWTC shall prepare and keep records relating to the services
to be performed hereunder, in the form and manner as it may deem advisable and
as required by applicable laws and regulations. To the extent required by
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<PAGE>
Section 31 of the 1940 Act, and the rules and regulations thereunder, DWTC
agrees that all such records prepared or maintained by DWTC relating to the
services performed by DWTC hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section 31 of
the 1940 Act, and the rules and regulations thereunder, and will be surrendered
promptly to the Fund on and in accordance with its request.
6.4 DWTC and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of DWTC and the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, DWTC will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. DWTC reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
-16-
<PAGE>
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until
July 31, 1996 and from year-to-year thereafter unless terminated by either party
as provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days
written notice, and by DWTC on 90 days written notice, to the other party
without payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all out-of-
pocket expenses associated with the movement of records and other materials will
be borne by the Fund. Additionally, DWTC reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
-17-
<PAGE>
8.3 DWTC may, in its sole discretion and without further consent
by the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with DWTC; PROVIDED, HOWEVER, that
such person or entity has and maintains the qualifications, if any, required to
perform such obligations and duties, and that DWTC shall be as fully responsible
to the Fund for the acts and omissions of any agent or subcontractor as it is
for its own acts or omissions under this Agreement.
Article 9 AFFILIATIONS
9.1 DWTC may now or hereafter, without the consent of or notice
to the Fund, function as transfer agent and/or shareholder servicing agent for
any other investment company registered with the SEC under the 1940 Act and for
any other issuer, including without limitation any investment company whose
adviser, administrator, sponsor or principal underwriter is or may become
affiliated with Dean Witter, Discover & Co. or any of its direct or indirect
subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the
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<PAGE>
Fund's investment adviser and/or distributor, are or may be interested in DWTC
as directors, officers, employees, agents and shareholders or otherwise, and
that the directors, officers, employees, agents and shareholders of DWTC may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
employees, agents and shareholders or otherwise, or in the investment adviser
and/or distributor as directors, officers, employees, agents, shareholders or
otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or the Board of Trustees (as the case may be) of the
Fund.
Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment
companies managed or administered by Dean Witter InterCapital Inc. or any of its
affiliates ("Additional Funds") desires to retain DWTC to act as transfer agent,
dividend disbursing agent and/or shareholder servicing agent,
-19-
<PAGE>
and DWTC desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between DWTC and each Additional Fund.
12.2 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to DWTC an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to DWTC and the Fund issued by a
surety company satisfactory to DWTC, except that DWTC may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as DWTC deems appropriate
indemnifying DWTC and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
12.3 In the event that any check or other order for payment of money
on the account of any Shareholder or new investor is returned unpaid for any
reason, DWTC will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as DWTC
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<PAGE>
may, in its sole discretion, deem appropriate or as the Fund and, if applicable,
the Distributor may instruct DWTC.
12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to DWTC shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To DWTC:
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
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<PAGE>
Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts business
trust, a copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Equity Income Trust
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
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<PAGE>
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Select Municipal Reinvestment Fund
(44) Dean Witter Variable Investment Series
By:/s/ Sheldon Curtis
-------------------------------------
Sheldon Curtis
Vice President and General Counsel
ATTEST:
/s/ Barry Fink
- ---------------------------
Barry Fink
Assistant Secretary
DEAN WITTER TRUST COMPANY
By:/s/ Charles A. Fiumefreddo
------------------------------------
Charles A. Fiumefreddo
Chairman
ATTEST:
/s/ David A. Hughey
- ------------------------
David A. Hughey
Executive Vice President
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<PAGE>
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, Dean Witter Select Dimensions Investment Series, a
Massachusetts business trust (the "Fund"), desires to employ and appoint Dean
Witter Trust Company ("DWTC") to act as transfer agent for each series and class
of shares of the Fund, whether now or hereafter authorized or issued ("Shares"),
dividend disbursing agent and shareholder servicing agent, registrar and agent
in connection with any accumulation, open-account or similar plan provided to
the holders of Shares, including without limitation any periodic investment plan
or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for the payment by the
Fund to DWTC of fees as set out in the fee schedule attached hereto as Schedule
A, DWTC shall provide such services to the Fund pursuant to the terms and
conditions set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
-25-
<PAGE>
Please indicate DWTC's acceptance of employment and appointment by the
Fund in the capacities set forth above by so indicating in the space provided
below.
Very truly yours,
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
By:
----------------------------------
Sheldon Curtis
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST COMPANY
By:
-----------------------
Its:
----------------------
Date:
---------------------
-26-
<PAGE>
SCHEDULE A
Fund: Dean Witter Select Dimensions Investment Series
Fees: (1) Annual maintenance fee of $500 per annum per account.
(2) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(3) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
-27-
<PAGE>
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
October 6, 1994
Dean Witter Services Company Inc.
Two World Trade Center
New York, New York 10048
Re: Dean Witter Select Dimensions Investment Series (the "Fund")
Dear Sirs:
Please be advised that, having entered into an Investment Management
Agreement with the Fund, we wish to retain you to perform administrative
services in respect of the Fund under our Services Agreement with you, dated
December 31, 1993 (attached hereto), for monthly compensation calculated daily
in accordance with the annual rates listed on the schedule of administrative
fees dated October 6, 1994.
Your execution of this letter, where indicated, shall constitute
notification to us of your willingness to render administrative services in
respect of the Fund under the attached Services Agreement, in consideration of
the above-stated compensation.
Very truly yours,
DEAN WITTER INTERCAPITAL INC.
By:
------------------------------------
ACCEPTED: DEAN WITTER SERVICES COMPANY INC.
BY:
----------------------------------------------------
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey corporation
(herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which InterCapital is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice); (ii)
provide the Fund with full administrative services, including the maintenance of
certain books and records, such as journals, ledger accounts and other records
required under the Investment Company Act of 1940, as amended (the"Act"), the
notification to the Fund and InterCapital of available funds for investment, the
reconciliation of account information and balances among the Fund's custodian,
transfer agent and dividend disbursing agent and InterCapital, and the
calculation of the net asset value of the Fund's shares; (iii) provide the Fund
with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary to provide effective
operation of the Fund; (iv) oversee the performance of administrative and
professional services rendered to the Fund by others, including its custodian,
transfer agent and dividend disbursing agent, as well as accounting, auditing
and other services; (v) provide the Fund with adequate general office space and
facilities; (vi) assist in the preparation and the printing of the periodic
updating of the Fund's registration statement and prospectus (and, in the case
of an open-end Fund, the statement of additional information), tax returns,
proxy statements, and reports to its shareholders and the Securities and
Exchange Commission; and (vii) monitor the compliance of the Fund's investment
policies and restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to time
determine to be necessary or useful to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of DWS shall be deemed to include officers of DWS and persons employed
or otherwise retained by DWS (including officers and employees of InterCapital,
with the consent of InterCapital) to furnish services, statistical and other
factual data, information with respect to technical and scientific developments,
and such other information, advice and assistance as DWS may desire. DWS shall
maintain each Fund's records and books of account (other than those maintained
by the Fund's transfer agent, registrar, custodian and other agencies). All such
books and records so maintained shall be the property of the Fund and, upon
request therefor, DWS shall surrender to InterCapital or to the Fund such of the
books and records so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as DWS may
1
<PAGE>
reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule B
to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be calculated
by applying 1/365th of the annual rate or rates to the Fund's or the Series'
daily net assets determined as of the close of business on that day or the last
previous business day and (ii) in the case of a closed-end Fund, compensation
under this Agreement shall be calculated by applying the annual rate or rates
to the Fund's average weekly net assets determined as of the close of the last
business day of each week. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
on Schedule B. Subject to the provisions of paragraph 5 hereof, payment of DWS'
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund and/or any Series thereof imposed by
state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Dean Witter Variable Investment Series or any Series thereof,
the expense limitation specified in the Fund's Investment Management Agreement,
the fee payable hereunder shall be reduced on a pro rata basis in the same
proportion as the fee payable by the Fund under the Investment Management
Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by DWS,
and such clerical help and bookkeeping services as DWS shall reasonably require
in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an interest
in the Fund. It is also understood that DWS and any affiliated persons thereof
or any persons controlling, controlled by or under common control with DWS have
and may have advisory, management, administration service or other contracts
with other organizations and persons, and may have other interests and
businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.
9. This Agreement shall continue until April 30, 1994, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the
2
<PAGE>
event that the Investment Management Agreement between any Fund and InterCapital
is terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by mutual written agreement executed by each of the parties hereto.
11. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By:
----------------------------
Attest:
- --------------------------
DEAN WITTER SERVICES COMPANY INC.
By:
-----------------------------
Attest:
- --------------------------
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
at December 31, 1993
Open-End Funds
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter California Tax-Free Daily Income Trust
7. Dean Witter California Tax-Free Income Fund
8. Dean Witter Capital Growth Securities
9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust
Closed-End Funds
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities
4
<PAGE>
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - OCTOBER 6, 1994
MONTHLY COMPENSATION CALCULATED DAILY BY APPLYING THE FOLLOWING ANNUAL RATES TO
THE NET ASSETS OF THE RESPECTIVE PORTFOLIOS:
Dean Witter Select
Dimensions Investment
Series
(a) the Money Market Portfolio 0.050%
(b) the North American Government 0.065%
Securities Portfolio
(c) the Diversified Income Portfolio 0.040%
(d) the Balanced Portfolio 0.075%
(e) the Utilities Portfolio 0.065%
(f) the Dividend Growth Portfolio 0.0625%
(g) the Value-Added Market Portfolio 0.050%
(h) the Core Equity Portfolio 0.085%
(i) the American Value Portfolio 0.0625%
(j) the Global Equity Portfolio 0.10%
(k) the Developing Growth Portfolio 0.050%
(l) the Emerging Markets Portfolio 0.125%
<PAGE>
DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
October 5, 1994
Dean Witter Select Dimensions Investment Series
Two World Trade Center
New York, New York 10048
Dear Sirs:
With respect to the Registration Statement on Form N-1A (File No. 33-54047)
(the "Registration Statement") filed by Dean Witter Select Dimensions Investment
Series, a Massachusetts business trust (the "Fund"), with the Securities and
Exchange Commission for the purpose of registering under the Securities Act of
1933, as amended, an indefinite number of shares of Beneficial Interest of $0.01
par value of the Fund (the "Shares"), I, as your counsel, have examined such
Fund records, certificates and other documents and reviewed such questions of
law as I have considered necessary or appropriate for the purposes of this
opinion , and on the basis of such examination and review, I advise you that, in
my opinion, proper trust proceedings have been taken by the Fund so that the
Shares have been validly authorized; and when the Shares have been issued and
sold in accordance with the terms of the Participation Agreement referred to in
the Registration Statement, the Shares will be validly issued, fully paid and
non-assessable.
As to matters of Massachusetts law contained in the foregoing opinion, I
have relied upon the opinion of Lane & Altman, dated October 5, 1994.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Counsel" in the Statement of Additional Information forming a part of the
Registration Statement. In giving this consent, I do not thereby admit that I am
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Sheldon Curtis
Sheldon Curtis
Vice President
and General Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A of our report dated September 9, 1994, relating to the
statements of assets and liabilities of Dean Witter Select Dimensions Investment
Series, which appear in such Statement of Additional Information. We also
consent to the references to us under the headings "Independent Accountants" and
"Experts" in such Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 4, 1994
<PAGE>
[Letterhead: ITT HARTFORD]
August 31, 1994
Dean Witter Select Dimensions Investment Series
Two World Trade Center
New York, New York 10048
Gentlemen:
We are purchasing from you today 100 shares of beneficial interest of your Money
Market Portfolio, of $0.01 par value, at a price of $1.00 per share, and 10
shares of beneficial interest of each of your eleven other Portfolios, of $0.01
par value, at a price of $10.00 per share, for an aggregate price of $1,200.
We hereby represent that we are acquiring said shares for investment and not for
distribution or resale to the public.
Very truly yours,
HARTFORD LIFE INSURANCE COMPANY
By: /s/ Peter Cummins
---------------------------
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 1
[NAME] SELECT DIMENSIONS - MONEY MARKET
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 100
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 100
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] SELECT DIMENSIONS - NORTH AMERICAN GOVERNMENT SECURITIES
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 3
[NAME] SELECT DIMENSIONS - DIVERSIFIED INCOME
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 4
[NAME] SELECT DIMENSIONS - BALANCED
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] SELECT DIMENSIONS - UTILITIES
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] SELECT DIMENSIONS - DIVIDED GROWTH
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] SELECT DIMENSIONS - VALUE-ADDED MARKET
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 7
[NAME] SELECT DIMENSIONS - CORE EQUITY
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 9
[NAME] SELECT DIMENSIONS - AMERICAN VALUE
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 10
[NAME] SELECT DIMENSIONS - GLOBAL EQUITY
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 11
[NAME] SELECT DIMENSIONS - DEVELOPING GROWTH
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] SELECT DIMENSIONS - EMERGING MARKETS
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-06-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 8,433
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,433
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,333
[TOTAL-LIABILITIES] 8,333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 10
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8,333
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 8,333
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.00
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Jack F. Bennett, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and
Stuart M. Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Dated: August 25, 1994
/s/ Jack F. Bennett
------------------------
Jack F. Bennett
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael Bozic whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and Stuart
M. Strauss, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ Michael Bozic
-----------------------
Michael Bozic
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Charles A. Fiumefreddo, whose
signature appears below, constitutes and appoints Sheldon Curtis, Marilyn K.
Cranney and Barry Fink, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign any amendments to any registration statement of DEAN
WITTER SELECT DIMENSIONS INVESTMENT SERIES, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: August 25, 1994
/s/ Charles A. Fiumefreddo
---------------------------
Charles A. Fiumefreddo
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edwin J. Garn, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and Stuart
M. Strauss, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ Edwin J. Garn
--------------------
Edwin J. Garn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John R. Haire, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and Stuart
M. Strauss or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ John R. Haire
---------------------
John R. Haire
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John E. Jeuck, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and Stuart
M. Strauss, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ John E. Jeuck
----------------------
John E. Jeuck
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Manuel H. Johnson, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and
Stuart M. Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Dated: August 25, 1994
/s/ Manuel H. Johnson
-----------------------
Manuel H. Johnson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Paul Kolton, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and Stuart
M. Strauss, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ Paul Kolton
-------------------
Paul Kolton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael E. Nugent, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and
Stuart M. Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Dated: August 25, 1994
/s/ Michael E. Nugent
-----------------------
Michael E. Nugent
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Philip J. Purcell, whose signature
appears below, constitutes and appoints Sheldon Curtis, Marilyn K. Cranney and
Barry Fink, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ Philip J. Purcell
------------------------
Philip J. Purcell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John L. Schroeder whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald M. Feiman and
Stuart M. Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Dated: August 25, 1994
/s/ John L. Schroeder
-----------------------
John L. Schroeder
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edward R. Telling, whose signature
appears below, constitutes and appoints Sheldon Curtis, Marilyn K. Cranney and
Barry Fink, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1994
/s/ Edward R. Telling
------------------------
Edward R. Telling
