<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1999
REGISTRATION NOS.: 33-54047
811-7185
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 10 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 11 /X/
------------------------
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES
(FORMERLY 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
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Post-Effective Amendment becomes effective
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ on August 9, 1999 pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
PROSPECTUS - AUGUST 9, 1999
Morgan Stanley Dean Witter
SELECT DIMENSIONS INVESTMENT SERIES
Morgan Stanley Dean Witter Select Dimensions Investment
Series is a mutual fund comprised of 13 separate Portfolios,
each with its own distinctive investment objective(s) and
policies. The Portfolios are:
<TABLE>
<S> <C>
The Money Market Portfolio The Value-Added Market Portfolio
The North American Government The Growth Portfolio
Securities Portfolio The American Opportunities Portfolio
The Diversified Income Portfolio The Mid-Cap Equity Portfolio
The Balanced Growth Portfolio The Global Equity Portfolio
The Utilities Portfolio The Developing Growth Portfolio
The Dividend Growth Portfolio The Emerging Markets Portfolio
</TABLE>
Shares of each Portfolio are sold exclusively to certain
life insurance companies in connection with particular life
insurance and/or annuity contracts they issue. The insurance
companies invest in shares of the Portfolios in accordance
with instructions received from owners of the applicable
life insurance or annuity policy.
This PROSPECTUS must be accompanied by a current prospectus
for the variable life insurance and/or annuity contracts
issued by Hartford Life Insurance Company or Hartford Life
and Annuity Insurance Company.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this PROSPECTUS. Any representation
to the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
Eligible Investors ............................................................ 1
The Portfolios ............................................................ 2
The Money Market Portfolio.................................. 2
The North American Government Securities Portfolio.......... 4
The Diversified Income Portfolio............................ 7
The Balanced Growth Portfolio............................... 10
The Utilities Portfolio..................................... 13
The Dividend Growth Portfolio............................... 16
The Value-Added Market Portfolio............................ 18
The Growth Portfolio........................................ 20
The American Opportunities Portfolio........................ 22
The Mid-Cap Equity Portfolio................................ 24
The Global Equity Portfolio................................. 26
The Developing Growth Portfolio............................. 28
The Emerging Markets Portfolio.............................. 30
Additional Investment
Strategy Information ............................................................ 34
Additional Risk
Information ............................................................ 35
Portfolio Management ............................................................ 39
Shareholder Information ............................................................ 42
Pricing Fund Shares......................................... 42
Distributions............................................... 42
Tax Consequences............................................ 42
Financial Highlights ............................................................ 43
</TABLE>
<PAGE>
ELIGIBLE INVESTORS
Morgan Stanley Dean Witter Select Dimensions Investment
Series (the "Fund") is comprised of 13 separate Portfolios
(each a "Portfolio"), each with its own distinct investment
objective(s) and policies. The Fund is offered exclusively
to certain life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer.
Shares of each Portfolio are purchased by the life insurance
companies at net asset value per share without a sales
charge in accordance with instructions received from the
owners of the applicable life insurance or annuity contract.
Currently, the Fund is offered to the following insurance
companies:
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
- -----------------------------------------------------------------------------
Certain flexible premium deferred variable
Hartford Life annuity contracts and flexible premium
Insurance Company variable life insurance policies
- -----------------------------------------------------------------------------
Certain flexible premium deferred variable
Hartford Life and Annuity annuity contracts and flexible premium
Insurance Company variable life insurance policies
- -----------------------------------------------------------------------------
</TABLE>
1
<PAGE>
(Sidebar)
MONEY MARKET
A mutual fund having the goal to select securities to provide current income
while seeking to maintain a stable share price of $1.00.
YIELD
The Portfolio's yield reflects the actual income the Portfolio pays to you
expressed as a percentage of the Portfolio share price. Because the Portfolio's
income from its portfolio securities will fluctuate, the income it in turn
distributes to you and the Portfolio's yield will vary.
(End Sidebar)
THE PORTFOLIOS
THE MONEY MARKET PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Money Market Portfolio seeks high current income,
preservation of capital and liquidity.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Portfolio invests in high quality, short-term debt
obligations. In selecting investments, the "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., seeks to
maintain the Portfolio's share price at $1.00. A mutual
fund's share price remaining stable at $1.00 means that the
fund would preserve the principal value of the shareholders'
investments.
The Portfolio's investments include the following money
market instruments:
<TABLE>
<C> <S> <C>
- commercial paper and corporate
obligations -- rated in one of the two highest rating
categories by at least two nationally
recognized rating organizations or, if not
rated, is of comparable quality;
- bank obligations -- including certificates of deposit of U.S.-
regulated banks having total assets of $1
billion or more, and investments secured by
these obligations;
- savings institution obligations -- including certificates of deposit of savings
banks and savings and loan institutions having
assets of $1 billion or more;
- insured certificates of deposit -- of banks and savings institutions having assets
of less than $1 billion;
- repurchase agreements -- which may be viewed as a type of secured
lending by the Portfolio; and
- U.S. government securities -- issued or guaranteed as to principal by the
U.S. government, its agencies or its
instrumentalities.
</TABLE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Money Market Portfolio will
achieve its investment objective. Principal risks of
investing in the Money Market Portfolio are associated with
its debt obligation investments. All debt obligations, such
as bonds, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make
interest payments and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
debt security resulting from changes in the general level of
interest rates.
The Investment Manager actively manages the Portfolio's
assets to reduce the risk of losing any principal investment
as a result of credit or interest rate risks. The
Portfolio's assets are reviewed to maintain or improve
creditworthiness. In addition, federal regulations require
money market funds to invest only in debt obligations of
high quality and short maturities.
2
<PAGE>
(Sidebar)
ANNUAL TOTAL
RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
An investment in the Portfolio is not a bank deposit and is
not insured or guaranteed by the FDIC or any other
governmental agency. Although the Portfolio seeks to
preserve the value of your investment at $1.00 per share, if
it is unable to do so, it is possible to lose money by
investing in the Portfolio.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Money Market Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 6.10%
'96 5.07%
'97 5.21%
'98 5.16%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 1.54% (quarter ended June
30, 1995) and the lowest return for a calendar quarter was
1.19% (quarter ended June 30, 1996). Year-to-date total
return as of March 31, 1999 was 1.12%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/4/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Money Market Portfolio 5.16% 5.39%
- -------------------------------------------------------------------------
Lipper Variable Annuity Money Market
Underlying Funds Average(1) 5.10% 5.19%
- -------------------------------------------------------------------------
</TABLE>
(1) The Lipper Variable Annuity Money Market Underlying Funds Average tracks
the performance of funds that invest in high-quality financial instruments
rated in the top two grades (first and second-tier) with dollar-weighted
average maturities of less than 90 days and intends to seek to keep net
asset value constant.
3
<PAGE>
(Sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(End Sidebar)
THE NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The North American Government Securities Portfolio seeks to
earn a high level of current income while maintaining
relatively low volatility of principal.
On April 22, 1999, the Fund's Board of Trustees approved the
termination of the Portfolio and the substitution of shares
of the Portfolio for shares of the Fixed-Income Fund of
Morgan Stanley Dean Witter Universal Funds. The substitution
will result in shares of the Portfolio being redeemed and
automatically invested in shares of the Fixed-Income Fund.
The substitution will not be consummated unless authorized
by the Securities and Exchange Commission.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The North American Government Securities Portfolio will
normally invest at least 65% of its assets in investment
grade fixed-income securities issued or guaranteed by the
United States, Canadian or Mexican governments, their
agencies or instrumentalities. These securities are referred
to generally as "government securities." In the case of the
United States and Canada, a substantial portion of these
securities will be mortgage-backed securities. The Portfolio
will normally invest at least fifty percent of its assets in
U.S. government securities, and no more than twenty-five
percent each in Canadian or Mexican government securities.
The Portfolio's "Sub-Advisor," TCW Funds Management, Inc.,
will allocate Portfolio assets among the three countries
based on its analysis of market, economic and political
conditions in those countries. The Sub-Advisor will consider
various factors, such as changes in interest rates and
currency exchange rates, to attempt to take advantage of
favorable investment opportunities in each country. The Sub-
Advisor expects that, under normal circumstances, the
weighted average maturity of the Portfolio's investment
securities will be no greater than 3 years.
MORTGAGE-BACKED SECURITIES. One type of mortgage-backed
security, in which the Portfolio may invest, is a mortgage
pass-through security. These securities represent a
participation interest in a pool of residential mortgage
loans originated by governmental or private lenders such as
banks. They differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts
and principal payments at maturity or on specified call
dates. Mortgage pass-through securities provide for monthly
payments that are a "pass-through" of the monthly interest
and principal payments made by the individual borrowers on
the pooled mortgage loans.
OTHER SECURITIES. The Portfolio may invest up to 35% of its
assets in securities that are not government securities.
This group of securities also will be issued by U.S.,
Canadian or Mexican issuers and may include corporate debt
securities and securities backed by other assets, such as
automobile or credit card receivables or home equity loans.
They are rated at least Aa by Moody's Investors Services or
AA by Standard & Poor's Corporation or, if not rated,
determined to be of comparable quality by the Sub-Advisor.
4
<PAGE>
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the North American Government
Securities Portfolio will achieve its investment objective.
The North American Government Securities Portfolio's share
price will fluctuate with changes in the market value of the
Portfolio's portfolio securities. When you sell Portfolio
shares, they may be worth less than what you paid for them
and, accordingly, you can lose money investing in this
Portfolio.
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
MORTGAGE-BACKED SECURITIES. There are particular risks
associated with the Portfolio's investment in
mortgage-backed securities. For example, these securities
are subject to prepayment risk and in some cases may be more
volatile and less liquid than other traditional types of
debt securities.
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 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 Portfolio invests.
Mexico is currently a major debtor nation (among developing
countries) to commercial banks and foreign governments.
The value of the 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 Portfolio can provide no assurance that
future developments in the Mexican economy will not impair
the Portfolio's investment flexibility, operations or
ability to achieve its investment objective.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Sub-Advisor is successful in pursuing
the Portfolio's investment strategy. In addition, the
Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
5
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the North American Government
Securities Portfolio. The Portfolio's past performance does
not indicate how it will perform in the future. The returns
shown do not reflect fees charged under the life insurance
or annuity contracts, which would lower the performance for
all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 6.40%
'96 4.35%
'97 5.91%
'98 4.28%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 2.19% (quarter ended
September 30, 1997) and the lowest return for a calendar
quarter was 0.06% (quarter ended March 31, 1996).
Year-to-date total return as of March 31, 1999 was 1.05%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
North American Government Securities
Portfolio 4.28% 5.20%
- -------------------------------------------------------------------------
Lehman Brothers Short (1-5) U.S.
Government Index(1) 7.65% 7.85%
- -------------------------------------------------------------------------
Lipper Variable Annuity Global Income
Underlying Funds Average(2) 5.15% 8.34%
- -------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Short (1-5) U.S. Government Index measures the
performance of all U.S. Government agency and U.S. Treasury securities with
maturities of one to five years. The Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
(2) The Lipper Variable Annuity Global Income Underlying Funds Average tracks
the performance of funds that state in their prospectus that they invest
primarily in U.S. dollar and non-U.S. dollar debt securities of issuers
located in at least three countries, one of which may be the United States,
as reported by Lipper Analytical Service.
6
<PAGE>
(Sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(End Sidebar)
THE DIVERSIFIED INCOME PORTFOLIO
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Diversified Income Portfolio seeks to provide a high
level of current income. As a secondary objective, the
Portfolio seeks to maximize total return but only to the
extent consistent with its primary objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Diversified Income Portfolio will normally invest at
least 65% of its assets in a diversified portfolio of
fixed-income securities. The Portfolio's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., attempts
to equally allocate approximately one-third of the
Portfolio's assets among three separate groups or market
segments of fixed-income securities. The Investment Manager
will adjust the Portfolio's assets not less than quarterly
to reflect any changes in the relative values of the
securities in each group so that following the adjustment
the value of the investments in each group will be equal to
the extent practicable. The Investment Manager diversifies
investments among the groups in an effort to reduce overall
portfolio risk -- a general downturn in one group may be
offset by a rise in another.
The three groups of Portfolio investments include: (1)
global short-term securities; (2) mortgage-backed and U.S.
Government securities; and (3) high yield securities.
(1) GLOBAL SHORT-TERM SECURITIES. The securities in the
first group include:
- 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 instrumentalities or
fixed-income securities issued by a corporation, all of
which are rated in one of the two highest bond rating
categories by either Standard & Poor's ("S&P") or Moody's
Investors Services ("Moody's") or, if unrated, are
determined by the Investment Manager to be of equivalent
quality;
- Certificates of deposit and bankers' acceptances (a)
issued or guaranteed by, or time deposits maintained at,
banks and (b) rated in the two highest short-term rating
categories by either S&P, Moody's or Duff & Phelps or, if
unrated, are determined by the Investment Manager to be of
high creditworthiness; and
- Commercial paper rated in the two highest short-term
rating category by either S&P, Moody's or Duff & Phelps
or, if unrated, issued by U.S. or foreign companies having
outstanding debt securities rated A or higher by S&P or
Moody's.
- Each security in this first group will have a short-term
maturity remaining (three years or less) when the
Portfolio purchases the investment.
The Investment Manager will actively manage the Portfolio's
assets in this group in accordance with a global market
strategy. Consistent with this strategy, the Investment
Manager intends to 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.
7
<PAGE>
(2) MORTGAGE-BACKED AND U.S. GOVERNMENT SECURITIES. The
securities in the second group include:
- Fixed-rate and adjustable rate mortgage-backed securities
that are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by private issuers that
are rated in the highest bond rating category by Moody's
or S&P or, if not rated, are determined to be of
comparable quality by the Investment Manager;
- U.S. Treasury securities, such as bills, notes, bonds and
zero coupon securities (without restrictions as to
remaining maturity at time of purchase); and
- U.S. Government agency securities, such as discount notes,
medium-term notes, debentures and zero coupon securities
(without restrictions as to remaining maturity at time of
purchase).
MORTGAGE-BACKED SECURITIES. One type of mortgage-backed
security, in which the Portfolio may invest, is a mortgage
pass-through security. These securities represent a
participation interest in a pool of residential mortgage
loans originated by U.S. governmental or private lenders
such as banks. They differ from conventional debt
securities, which provide for periodic payment of interest
in fixed amounts and principal payments at maturity or on
specified call dates. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of
the monthly interest and principal payments made by the
individual borrowers on the pooled mortgage loans.
(3) HIGH YIELD SECURITIES. The securities in the third group
include 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. Fixed-income securities rated Ba or
lower by Moody's or BB or lower by S&P are considered
speculative investments, commonly known as "junk bonds." The
securities in this group may include both convertible and
non-convertible debt securities and preferred stock. They
also may include "Rule 144A" securities, which are subject
to resale restrictions. The Portfolio does not have any
minimum quality rating standard for this group of
investments. Thus, the Portfolio may invest in fixed-income
securities that may already be in default on payment of
interest or principal.
FORWARD CURRENCY CONTRACTS. The Portfolio may invest in
forward currency contracts, which involve the purchase or
sale of a specific amount of foreign currency at a specified
price with delivery at a specified future date. The
Portfolio may use these contracts to hedge against adverse
price movements in its portfolio securities and the
currencies in which they are denominated.
OTHER SECURITIES. The Portfolio may invest up to 20% of its
assets in common stocks. The Portfolio may acquire stock,
among other ways, directly or upon exercise of warrants
attached to other securities.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Diversified Income Portfolio
will achieve its investment objectives. The Diversified
Income Portfolio's share price will fluctuate with changes
in the market value of the Portfolio's portfolio securities.
When you sell Portfolio shares, they may be worth less than
what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
8
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
MORTGAGE-BACKED SECURITIES. There are particular risks
associated with the Portfolio's investment in
mortgage-backed securities. For example, these securities
are subject to prepayment risk and in some cases may be more
volatile and less liquid than other traditional types of
debt securities.
HIGH YIELD SECURITIES. The Portfolio's investments in high
yield securities, commonly known as "junk bonds," pose
significant risks.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Diversified Income Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 6.96%
'96 9.54%
'97 8.32%
'98 4.22%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 3.42% (quarter ended
September 30, 1997) and the lowest return for a calendar
quarter was 0.12% (quarter ended March 31, 1997).
Year-to-date total return as of March 31, 1999 was -1.15%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Diversified Income Portfolio 4.22% 7.18%
- -------------------------------------------------------------------------
Lehman Brothers Government/Corporate
Intermediate Bond Index(1) 8.44% 8.75%
- -------------------------------------------------------------------------
Lipper Variable General Bond Underlying
Funds Average(2) 4.82% 9.67%
- -------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Government/Corporate Intermediate Bond Index tracks the
performance of government and corporate bonds, including U.S. Government
agency and U.S. Treasury securities and corporate and yankee bonds with
maturities of 1 to 10 years. The Index does not include any expenses, fees
or charges. The Index is unmanaged and should not be considered an
investment.
(2) The Lipper Variable Annuity General Bond Underlying Funds Average tracks
the performance of variable funds that do not have any quality or maturity
restrictions and intend to keep the bulk of assets in corporate and
government debt issues, as reported by Lipper Analytical Services.
9
<PAGE>
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(End Sidebar)
THE BALANCED GROWTH PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Balanced Growth Portfolio seeks to provide capital
growth with reasonable current income.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Balanced Growth Portfolio will normally invest at least
60% of its assets in a diversified portfolio of common
stocks, at least 25% in fixed-income securities, and its
remaining assets in money market securities. Within these
limitations, the Portfolio may hold whatever proportion of
these investments its "Investment Manager," Morgan Stanley
Dean Witter Advisors Inc., believes desirable based on the
Investment Manager's assessment of business, economic and
investment conditions.
The three groups of Portfolio investments in more detail
include:
(1) COMMON STOCKS. The Portfolio invests in common stocks,
and securities convertible into common stocks, of companies
that have a record of paying dividends and, in the
Investment Manager's opinion, have the potential for
increasing dividends. These investments may include foreign
securities that are listed in the U.S. on a national
securities exchange.
(2) FIXED-INCOME SECURITIES. The Portfolio's fixed-income
securities (including zero coupon securities) are limited to
investment grade corporate securities such as bonds and
notes, and U.S. Government securities. The U.S. Government
securities may include:
- U.S. Treasury notes and bonds, all of which are direct
obligations of the U.S. Government.
- Securities (including mortgage-backed 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 these obligations are the Government National
Mortgage Association and the Federal Housing
Administration.
- Securities (including mortgage-backed 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 U.S. Treasury. Among these
agencies and instrumentalities are the Federal National
Mortgage Association and the Federal Home Loan Mortgage
Corporation.
- Securities issued by agencies and instrumentalities which
are backed solely by the credit of the issuing agency or
instrumentality. Among these agencies and
instrumentalities is the Federal Home Loan Banks.
10
<PAGE>
(3) MONEY MARKET SECURITIES. The money market securities in
which the Portfolio may invest include: securities issued or
guaranteed by the U.S. government, its agencies and
instrumentalities; bank obligations; Eurodollar certificates
of deposit; obligations of savings institutions; fully
insured certificates of deposit; and commercial paper.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Balanced Growth Portfolio
will achieve its investment objective. The Balanced Growth
Portfolio's share price will fluctuate with changes in the
market value of the Portfolio's portfolio securities. When
you sell Portfolio shares, they may be worth less than what
you paid for them and, accordingly, you can lose money
investing in this Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. These prices can fluctuate widely.
FIXED-INCOME, INCLUDING MONEY MARKET, SECURITIES. The
Portfolio's investments in fixed-income securities are
subject to two types of risk: credit risk and interest rate
risk.
The Portfolio is not limited as to the maturities of the
securities in which it may invest. Thus, a rise in the
general level of interest rates may cause the price of the
Portfolio's investment securities to fall substantially.
MORTGAGE-BACKED SECURITIES. There are particular risks
associated with the Portfolio's investment in
mortgage-backed securities. For example, these securities
are subject to prepayment risk and in some cases may be more
volatile and less liquid than other traditional types of
debt securities.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
11
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Balanced Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
under the life insurance or annuity contracts, which would
lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 22.86%
'96 13.54%
'97 17.87%
'98 14.41%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 12.45% (quarter ended June
30, 1997 ) and the lowest return for a calendar quarter was
-7.84% (quarter ended September 30, 1998). Year-to-date
total return as of March 31, 1999 was 2.27%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Balanced Growth Portfolio 14.41% 16.65%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2) 8.69% 9.95%
- -------------------------------------------------------------------------
Lipper Variable Annuity Balanced
Underlying Funds Average(3) 14.79% 17.30%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's-Registered Trademark- 500 Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(2) The Lehman Brothers Aggregate Bond Index tracks the performance of all U.S.
Government agency and Treasury securities, investment-grade corporate debt
securities, agency mortgage-backed securities and asset-backed securities.
The Index does not include any expenses, fees or charges. The Index in
unmanaged and should not be considered an investment.
(3) The Lipper Variable Annuity Balanced Underlying Funds Average tracks the
performance of funds whose primary objective is to conserve principal by
maintaining at all times a balanced portfolio of both stocks and bonds.
Typically, the stock/bond ratio ranges around 60%/40%, as reported by
Lipper Analytical Services.
12
<PAGE>
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(End Sidebar)
THE UTILITIES PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Utilities Portfolio seeks both capital appreciation and current
income.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Utilities Portfolio will normally invest at least 65% of its assets
in the securities of companies engaged in the utilities industry. A
company will be considered engaged in the utilities industry if it
derives at least 50% of its revenues or earnings from that industry or
it devotes at least 50% of its assets to activities in that industry.
These may include companies involved in, among other things,
telecommunications, gas and electric energy, water distribution, the
Internet and Internet related services. These include traditionally
regulated utility companies or fully or partially deregulated utility
companies as well as unregulated utility companies.
The Portfolio's "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., will shift the Portfolio's assets between different
segments of the utilities industry and between common stock, other
equity securities and investment grade fixed-income securities based on
its view of prevailing market, economic and financial conditions. The
Portfolio does not have any set policies to concentrate its assets in
any particular segment of the utilities industry or any particular type
of security. In selecting common stock and other equity securities, the
Investment Manager considers earnings and dividend growth, book value,
dividend discount and price/earnings relationships. In addition, the
Investment Manager makes continuing assessments of management, the
prevailing regulatory framework and industry trends. Computer-based
equity selection models also may be used. If the Investment Manager
believes favorable conditions for capital growth of equity securities
are not prevalent at a particular time, it may allocate the Portfolio's
assets predominantly or exclusively to debt securities with the aim of
obtaining current income and thus benefitting long-term growth of
capital.
The Portfolio may also invest up to 25% of its assets in foreign
securities (including depository receipts). This percentage limitation,
however, does not apply to securities of foreign companies that are
listed in the U.S. on a national securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Utilities Portfolio will achieve its
investment objective. The Utilities Portfolio's share price will
fluctuate with changes in the market value of its portfolio securities.
When you sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing in this
Portfolio.
UTILITIES INDUSTRY. The Portfolio's investments in the utilities
industry are impacted by a host of risks particular to that industry.
Changing regulation constitutes one of the key industry-specific risks
for the Portfolio. State and other regulators monitor and control
utility revenues and costs, and therefore may limit utility profits and
dividends paid to investors. Regulatory authorities also may restrict a
company's access to new markets, thereby diminishing the company's
long-term prospects. Individual sectors of the utility market are
subject to additional risks. These risks apply to all utility companies
- regulated, fully or partially deregulated or
13
<PAGE>
unregulated. For example, telecommunications companies have been
affected by technological development leading to increased competition,
as well as changing regulation of local and long-distance telephone
service and other telecommunications businesses. Certain
telecommunications companies have not benefitted from the new
competitive climate.
Electric utilities may incur by unexpected increases in fuel and other
operating costs. They are adversely affected when long-term interest
rates rise. Long-term borrowings are used to finance most utility
investment, and rising interest rates lead to higher financing costs and
reduced earnings. There are also the considerable costs associated with
environmental compliance, nuclear waste clean-up, and safety regulation.
Increasingly, regulators are calling upon electric utilities to bear
these added costs, and there is a risk that these costs will not be
fully recovered through an increase in revenues.
Among gas companies, there has been a move to diversify into oil and gas
exploration and development, making investment return more sesitive to
energy prices. In the case of the water utility sector, the industry is
highly fragmented, and most water supply companies find themselves in
mature markets, with little potential for growth. In the case of the
water utility sector, the industry is highly fragmented and most water
supply companies find themselves in mature markets with little potential
for growth.
COMMON STOCKS AND OTHER EQUITY SECURITIES. A principal risk of investing
in the Portfolio is associated with its common stock and other equity
security investments. In general, stock and other equity security values
fluctuate in response to activities specific to the company as well as
general market, economic and political conditions.
FIXED-INCOME SECURITIES. The Portfolio's investments in fixed-income
securities are subject to two types of risk: credit risk and interest
rate risk.
The Portfolio is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates
may cause the prices of the Portfolio's investment securities to fall
substantially.
FOREIGN SECURITIES. The Portfolio is subject to the risks associated
with foreign securities generally. These risks include, among other
things, the possibility that the Portfolio could be adversely affected
by changes in currency exchange rates.
OTHER RISKS. The performance of the Portfolio also will depend on
whether the Investment Manager is successful in pursuing the Portfolio's
investment strategy. In addition, the Portfolio is subject to other
risks from its permissible investments. For information about these
risks, as well as more detailed information about the risks summarized
in this section, see the "Additional Risk Information" section.
14
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Utilities Portfolio. The Portfolio's past performance
does not indicate how it will perform in the future. The returns shown
do not reflect fees charged under the life insurance or annuity
contracts, which would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 28.05%
'96 8.48%
'97 26.45%
'98 22.23%
</TABLE>
During the periods shown in the bar chart, the highest return for a
calendar quarter was 16.17% (quarter ended December 31, 1998) and the
lowest return for a calendar quarter was -5.98% (quarter ended September
30, 1998). Year-to-date total return as of June 30, 1999 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Utilities Portfolio 22.23% 20.44%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lipper Variable Annuity Utility
Underlying Funds Average(2) 18.61% 20.12%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Lipper Variable Annuity Utility Underlying Funds Average tracks the
performance of funds which invest 65% of their equity portfolio in utility
shares, as reported by Lipper Analytical Services.
15
<PAGE>
(Sidebar)
GROWTH & INCOME
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(End Sidebar)
THE DIVIDEND GROWTH PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Dividend Growth Portfolio seeks to provide reasonable
current income and long-term growth of income and capital.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Dividend Growth Portfolio will normally invest at least
70% of its assets in common stocks of companies with a
record of paying dividends and the potential for increasing
dividends. The Portfolio's "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., initially employs a
quantitative screening process in an attempt to develop a
number of common stocks which are undervalued and which have
a record of paying dividends. The Investment Manager then
applies qualitative analysis to determine which stocks it
believes have the potential to increase dividends and,
finally, to determine whether any of the stocks should be
added to the Portfolio.
The Portfolio may also invest up to 30% of its assets in
convertible securities, U.S. Government securities issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities and investment
grade fixed-income securities (including zero coupon
securities). The Portfolio also may invest any amount of its
assets in foreign securities (including depository receipts)
that are listed in the U.S. on a national securities
exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Dividend Growth Portfolio
will achieve its investment objective. The Dividend Growth
Portfolio's share price will fluctuate with changes in the
market value of the Portfolio's portfolio securities. When
you sell Portfolio shares, they may be worth less than what
you paid for them and, accordingly, you can lose money
investing in this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the company
as well as general market, economic and political
conditions. Stock prices can fluctuate widely.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
16
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Dividend Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 40.13%
'96 24.49%
'97 26.12%
'98 19.73%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 15.33% (quarter ended June
30, 1997 and the lowest return for a calendar quarter was
-6.91% (quarter ended September 30, 1998). Year-to-date
total return as of March 31, 1999 was 0.75%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Dividend Growth Portfolio 19.73% 26.33%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lipper Variable Annuity Growth and
Income Underlying Funds Average(2) 16.37% 23.75%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Lipper Variable Annuity Growth and Income Underlying Funds Average
tracks the performance of funds which combine a growth-of-earnings
orientation and an income requirement for level and/or rising dividends, as
reported by Lipper Analytical Services.
17
<PAGE>
(Sidebar)
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(End Sidebar)
THE VALUE-ADDED MARKET PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Value-Added Market Portfolio will invest, on an
"equally-weighted basis," in a diversified portfolio of
common stocks represented in the Standard &
Poor's-Registered Trademark- 500 Composite Stock Price
Index. The S&P 500 represents 500 widely held companies
mostly listed on the New York Stock Exchange. The Portfolio
generally invests in each stock included in the S&P 500 in
equal proportion, referred to as an "equally-weighted
basis." This approach differs from the S&P 500 because
stocks in the S&P 500 are represented in portion to their
market value or market-capitalization. For example, the 50
largest companies in the S&P 500 represent approximately 45%
of the S&P 500's value; however, these same 50 companies
represent roughly 10% of the Portfolio's value
(approximately 0.20% of the Portfolio's value each). The
Portfolio may invest in foreign securities represented in
the S&P 500.
The Portfolio's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., believes that an equal-weighting
approach may benefit the Portfolio since a specific company
or industry selection, even with a broad-based index such as
the S&P 500, may not achieve superior performance. The
Investment Manager will adjust the Portfolio's investment
securities at least quarterly to maintain an approximately
equal-weighting.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Value-Added Market Portfolio
will achieve its investment objective. The Value-Added
Market Portfolio's share price will fluctuate with changes
in the market value of the Portfolio's portfolio securities.
When you sell Portfolio shares, they may be worth less than
what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock value
fluctuate in response to activities specific to the company
as well as general market, economic and political
conditions. Stock prices can fluctuate widely.
Unlike many mutual funds, the Portfolio is not actively
"managed." Therefore, the Portfolio generally would not sell
a stock because the stock's issuer is in financial trouble,
unless that stock is removed from the S&P 500. In addition,
the Investment Manager does not expect the Portfolio's
performance to track the performance of the S&P 500 because
the Portfolio uses an equally-weighted approach while the
S&P 500 uses a market-capitalization approach. The
Investment Manager may eliminate one or more securities (or
elect not to increase the Value-Added Market Portfolio's
position in such securities) in certain circumstances.
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy. In addition, the Portfolio
is subject to other risks from its permissible investments.
For information about these risks, as well as more detailed
information about the risks summarized in this section, see
the "Additional Risk Information" section.
18
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Value-Added Market Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 27.14%
'96 17.78%
'97 26.12%
'98 12.19%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.09% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -13.80% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 1.16%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Value-Added Market Portfolio 12.19% 19.65%
- -------------------------------------------------------------------------
S&P 500 Index (1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lipper Variable Annuity Growth and
Income Underlying Funds Average(2) 16.37% 23.75%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Lipper Variable Annuity Growth and Income Underlying Funds Average
tracks the performance of funds which combine a growth-of-earnings
orientation and an income requirement for level and/or rising dividends, as
reported by Lipper Analytical Services.
19
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
(End Sidebar)
THE GROWTH PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Growth Portfolio seeks long-term growth of capital.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Growth Portfolio will normally invest at least 65% of
its assets in common stocks and convertible securities
primarily in companies having stock market values or
capitalizations of at least $1 billion. The Portfolio's
"Sub-Advisor," Morgan Stanley Dean Witter Investment
Management Inc., invests the Portfolio's assets by pursuing
its "equity growth" philosophy. That strategy involves a
process that seeks to identify companies that exhibit strong
or accelerating earnings growth.
The Sub-Advisor emphasizes individual security selection.
Individual companies are chosen based on such factors as
potential growth in earnings, quality of management, new
products and/or new markets, and research and development
capabilities. The Sub-Advisor anticipates that the Portfolio
will invest in a relatively limited number of companies,
although the Sub-Advisor continuously monitors up to 250
companies for possible investment. There is no minimum
rating or quality requirements with respect to the
convertible securities in which the Portfolio may invest. Up
to 25% of the Portfolio's assets may be invested in foreign
securities (including depository receipts). This percentage
limitation, however, does not apply to securities of foreign
companies that are listed in the U.S. on a national
securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Growth Portfolio will achieve
its investment objective. The Growth Portfolio's share price
will fluctuate with changes in the market value of the
Portfolio's portfolio securities. When you sell Portfolio
shares, they may be worth less than what you paid for them
and, accordingly, you can lose money investing in this
Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. These prices can fluctuate widely.
Portfolio investments may include securities of medium-sized
and small companies that involve greater risk than is
customarily associated with investing in more established
companies. Often, medium-sized and small companies and the
industries in which they are focused are still evolving, and
they are more sensitive to changing market conditions than
larger companies in more established industries. Their
securities may be more volatile and have returns that vary,
sometimes significantly, from the overall stock market.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
20
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Sub-Advisor is successful in pursuing
the Portfolio's investment strategy. In addition, the
Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Growth Portfolio. The Portfolio's
past performance does not indicate how it will perform in
the future. The returns shown do not reflect fees charged
under the life insurance or annuity contracts, which would
lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 13.29%
'96 23.56%
'97 23.07%
'98 13.22%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 22.27% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -16.28% (quarter ended September 30 1998).
Year-to-date total return as of March 31, 1999 was 7.25%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Growth Portfolio 13.22% 17.69%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lipper Variable Annuity Growth
Underlying Funds Average(2) 24.94% 25.46%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indices, as reported by
Lipper Analytical Services.
21
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
(End Sidebar)
THE AMERICAN OPPORTUNITIES PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The American Opportunities Portfolio (formerly known as the
American Value Portfolio) seeks long-term capital growth
consistent with an effort to reduce volatility.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The American Opportunities Portfolio will normally invest at
least 65% of its assets in a diversified portfolio of common
stocks. The Portfolio's "Investment Manager," Morgan Stanley
Dean Witter Advisors Inc., invests in industries that it
believes have attractive earnings growth potential. The
Investment Manager utilizes a process, known as sector
rotation, that emphasizes industry selection over individual
company selection. The Investment Manager invests in those
industries that it believes will have the strongest relative
earnings growth potential given the projected economic
outlook. After selecting the Portfolio's target industries,
the Investment Manager then selects specific companies
within those industries whose prospects are deemed
attractive after assessing company fundamentals and
valuation screens.
SECTOR ROTATION. The Investment Manager will utilize a
sector rotation process designed to respond to changing
economic cycles by proactively investing in industries that
the Investment Manager believes to be positioned to benefit
from the current phase of the economic cycle. First, the
Investment Manager attempts to identify at what stage of the
business cycle the economy is in and which industries have
historically outperformed the overall market during that
stage of the cycle. To accomplish this task, the Investment
Manager establishes an economic forecast based on its short
term and long term views of the domestic and global economic
cycles. As part of this process, the Investment Manager will
attempt to identify secular trends, such as shifting
demographics or technological developments, that could add
clarity to its analysis. Also considered are competitive
industry variables, such as supply and demand, pricing
trends and new product cycles. Once attractive industries
are identified, individual companies that represent these
industries are selected using criteria including new product
cycles, market dominance, business model strength and
valuation measures.
The Portfolio also may invest up to 35% of its assets in
convertible debt and preferred securities; fixed income
securities (including zero coupon bonds) such as U.S.
government securities and investment grade corporate debt
securities; and foreign securities (including depository
receipts).
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the American Opportunities
Portfolio will achieve its investment objective. The
American Opportunities Portfolio's share price will
fluctuate with changes in the market value of the
Portfolio's portfolio securities. When you sell Portfolio
shares, they may be worth less than what you paid for them
and, accordingly, you can lose money investing in this
Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. Stock prices can fluctuate widely
in response to these factors. The Portfolio's emphasis on
industries may cause its performance to be more sensitive to
developments affecting particular industries than a fund
that places primary emphasis on individual companies.
The Portfolio may invest in medium and small-sized
companies, as well as large, more established companies.
Investing in securities of small and medium-sized growth
companies involves greater risk than is customarily
associated with investing in more established companies.
These stocks may be more volatile and have returns that
vary, sometimes significantly, from the overall stock
market.
22
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest risk.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the American Opportunities Portfolio.
The Portfolio's past performance does not indicate how it
will perform in the future. The returns shown do not reflect
fees charged under the life insurance or annuity contracts,
which would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 38.95%
'96 12.95%
'97 31.93%
'98 30.78%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.37% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -7.19% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 9.85%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
American Opportunities Portfolio 30.78% 27.40%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Lipper Variable Annuity Growth
Underlying Fund Average(2) 24.94% 25.46%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Lipper Variable Annuity Growth Underlying Funds Average tracks the
performance of funds which normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indices, as reported by
Lipper Analytical Services.
23
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective
having the goal of
selecting securities with
the potential to rise in
price rather than pay
out income.
(End Sidebar)
THE MID-CAP EQUITY PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Mid-Cap Equity Portfolio seeks long-term capital growth.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Mid-Cap Equity Portfolio will normally invest at least
65% of its assets in a portfolio of common stocks and other
equity securities of medium-sized companies with market
capitalizations, at the time of purchase, within the
capitalization range of the companies comprising the
Standard & Poor's Mid-Cap 400 Index, which capitalization
range is approximately between $192 million and $11.7
billion as of February 26, 1999. The Portfolio's
"Sub-Advisor" TCW Funds Management, Inc., invests in
companies that it believes exhibit superior earnings growth
prospects and attractive stock market valuations. The
Sub-Advisor uses its proprietary research in pursuing a
"bottom-up" investment philosophy, which emphasizes
individual company selection. Quantitative and qualitative
standards also will be used to screen more than one thousand
companies to provide a list of potential investment
securities. The Sub-Advisor then subjects the list of
securities to a fundamental analysis using a variety of
criteria.
Common stock is a share ownership or equity interest in a
corporation. It may or may not pay dividends, as some
companies reinvest all of their profits back into their
businesses, while others pay out some of their profits to
shareholders as dividends.
In pursuing the Mid-Cap Equity Portfolio's investment
objective, the Sub-Advisor has considerable leeway in
deciding which investments it buys, holds or sells on a day-
to-day basis -- and which trading strategies it uses. For
example, the Sub-Advisor in its discretion may determine to
use some permitted trading strategies while not using
others. In addition to U.S. common stocks, the Mid-Cap
Equity Portfolio may make other investments. For more
information about the Mid-Cap Equity Portfolio's
investments, see the "Additional Investment Strategy
Information" section.
In addition, the Mid-Cap Equity Portfolio may invest up to
35% of its assets in equity securities of small or large
companies and investment grade fixed-income securities. The
Portfolio also may invest up to 25% of its assets in foreign
equity securities (including depository receipts).
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Mid-Cap Equity Portfolio will
achieve its investment objective. The Mid-Cap Equity
Portfolio's share price will fluctuate with changes in the
market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments of
medium-sized companies. In general, stock values fluctuate
in response to activities specific to the company as well as
general market, economic and political conditions. Stock
prices can fluctuate widely in response to these factors.
Investing in securities of medium-sized companies may
involve greater risk than is customarily associated with
investing in more established companies. Often, medium-sized
companies and the industries in which they are focused are
still evolving, and they are more sensitive to changing
market conditions than larger companies in more established
industries. Their securities may be more volatile and have
returns that vary, sometimes significantly, from the overall
stock market.
24
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied over
the past calendar year.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Mid-Cap Equity Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 5.67%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 23.96% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -22.12% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 5.06%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
- -------------------------------------------------------------------------
Mid-Cap Equity Portfolio 5.67% 10.98%
- -------------------------------------------------------------------------
S&P 400 Index(1) 19.11% 24.38%
- -------------------------------------------------------------------------
Lipper Variable Annuity Mid-Cap Growth
Underlying Funds Average(2) 19.30% 17.39%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's Midcap 400 Index is a market-value weighted index,
the performance of which is based on the average performance of 400
domestic stocks chosen for market size, liquidity and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Mid-Cap Growth Underlying Funds Average tracks
the performance of funds which by prospectus or portfolio practice invest
primarily in companies with market capitalizations less than $5 billion at
the time of purchase, as reported by Lipper Analytical Services.
25
<PAGE>
(Sidebar)
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(End Sidebar)
THE GLOBAL EQUITY PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Global Equity Portfolio seeks to obtain total return on
its assets primarily through long-term capital growth and to
a lesser extent from income.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Global Equity Portfolio will normally invest at least
65% of its assets in common stocks and other equity
securities of companies located in various countries around
the world. The Portfolio's "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., will maintain a flexible
investment policy and invest in a diversified portfolio of
securities based on a worldwide investment strategy.
However, the Portfolio's assets normally will be invested in
at least three separate countries. Portfolio investments
generally will be those with a record of paying dividends
and the potential for increasing dividends. The Investment
Manager will shift the percentage of assets invested in
particular geographical regions based on its view of market,
economic and political conditions.
In addition to equity securities, the Portfolio may invest
in bonds and other investment grade fixed-income securities.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Global Equity Portfolio will
achieve its investment objective. The Global Equity
Portfolio's share price will fluctuate with changes in the
market value of the Portfolio's portfolio securities. When
you sell Portfolio shares, they may be worth less than what
you paid for them and, accordingly, you can lose money
investing in this Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. These prices can fluctuate widely.
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
The Portfolio is not limited as to the maturities of the
securities in which it may invest. Thus, a rise in the
general level of interest rates may cause the prices of the
Portfolio's investment securities to fall substantially.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
26
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Global Equity Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 13.76%
96 11.43%
97 8.66%
98 15.11%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 16.98% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -13.31% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 2.14%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Global Equity Portfolio 15.11% 11.69%
- -------------------------------------------------------------------------
Morgan Stanley Capital International
World Index(1) 24.80% 17.89%
- -------------------------------------------------------------------------
Lipper Variable Annuity Global
Underlying Funds Average(2) 16.19% 15.43%
- -------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International World Index (MSCI) measures
performance for a diverse range of global stock markets including the U.S.,
Canada, Europe, Australia, New Zealand and the Far East. The Index does not
reflect the deduction of any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Global Underlying Funds Average tracks the
performance of funds which invest at least 25% of their portfolio in
securities traded outside of the United States and that may own U.S.
securities as well, as reported by Lipper Analytical Services.
27
<PAGE>
(Sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
(End Sidebar)
THE DEVELOPING GROWTH PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Developing Growth Portfolio seeks long-term capital
growth.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Developing Growth Portfolio will normally invest at
least 65% of its assets in common stocks and other equity
securities of companies that the Portfolio's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., believes
have the potential to grow much more rapidly than the
economy. The Portfolio will invest primarily in smaller and
medium-sized companies. The Investment Manager focuses its
securities selection upon a diversified group of emerging
growth companies that have moved beyond the difficult and
extremely risky start-up phase and show positive earnings
with the prospects of achieving significant further profit
gains in at least the next two-to-three years. The
proportion of the Portfolio's assets invested in particular
industries will shift in accordance with the Investment
Manager's views of the market, economy and political
conditions.
The Portfolio may invest up to 35% of its assets in (a)
fixed-income securities issued or guaranteed by the United
States government, its agencies or instrumentalities, and
(b) corporate debt securities rated Baa or better by Moody's
Investors Service or BBB or better by Standard & Poor's or,
if not rated, judged to be of comparable quality by the
Investment Manager. Up to 10% of the Portfolio's assets may
be invested in foreign securities (including depository
receipts). This percentage limitation, however, does not
apply to securities of foreign companies that are listed in
the U.S. on a national securities exchange.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Developing Growth Portfolio
will achieve its investment objective. The Developing Growth
Portfolio's share price will fluctuate with changes in the
market value of the Portfolio's portfolio securities. When
you sell Portfolio shares, they may be worth less than what
you paid for them and, accordingly, you can lose money
investing in this Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. These prices can fluctuate widely.
Investing in securities of medium-sized and small companies
may involve greater risk than is customarily associated with
investing in more established companies. Often, medium-sized
and small companies and the industries in which they are
focused are still evolving, and they are more sensitive to
changing market conditions than larger companies in more
established industries. Their securities may be more
volatile and have returns that vary, sometimes
significantly, from overall stock market.
FIXED-INCOME SECURITIES. The Portfolio's investment in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
The Portfolio is not limited as to the maturities of the
securities in which it may invest. Thus, a risk in the
general level of interest rates may cause the prices of the
Portfolio's investment securities to fall substantially.
28
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Investment Manager is successful in
pursuing the Portfolio's investment strategy. In addition,
the Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Developing Growth Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 51.26%
'96 12.95%
'97 13.77%
'98 9.04%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 25.15% (quarter ended
December 31, 1998 ) and the lowest return for a calendar
quarter was -20.41% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 5.87%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Developing Growth Portfolio 9.04% 20.34%
- -------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 29.04%
- -------------------------------------------------------------------------
Russell 2000 Index(2) -2.55% 15.98%
- -------------------------------------------------------------------------
Lipper Variable Annuity Small-Cap
Underlying Funds Average(3) 1.48% 17.09%
- -------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
is a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(2) The Russell 2000 Index is a capitalization weighted index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization)
in the Russell 3000 Index. The performance of the Index does not include
any expenses or fees. The Index is unmanaged and should not be considered
an investment.
(3) The Lipper Variable Annuity Small-Cap Underlying Funds Average tracks the
performance of funds that by prospectus or portfolio practice invest
primarily in companies with market capitalizations less than $1 billion at
the time of purchase, as reported by Lipper Analytical Services.
29
<PAGE>
(Sidebar)
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
(End Sidebar)
THE EMERGING MARKETS PORTFOLIO
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Emerging Markets Portfolio seeks long-term capital
appreciation.
On April 22, 1999, the Fund's Board of Trustees approved the
termination of the Portfolio and the substitution of shares
of the Portfolio for shares of the Emerging Markets Equity
Fund of Morgan Stanley Dean Witter Universal Funds. The
substitution will result in shares of the Portfolio being
redeemed and automatically invested in shares of the
Emerging Markets Equity Fund. The substitution will not be
consummated unless authorized by the Securities and Exchange
Commission.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Emerging Markets Portfolio will normally invest at least
65% of its assets in common stocks and other equity
securities of companies in emerging markets. Each of these
companies is: organized in an emerging market country;
derives at least fifty percent of its revenues from goods
produced or sold, investments made, or services performed in
emerging markets; maintains at least fifty percent of its
assets in emerging market countries; or has securities that
are traded principally on a stock exchange in an emerging
market country. Presently, there are approximately 158
countries considered to be emerging market countries.
The Portfolio's "Sub-Advisor," TCW Funds Management, Inc.,
utilizes a top-down/ bottom-up approach. The Sub-Advisor
begins with an evaluation of the country in which the
proposed investment is to be made. Following the country
level review, the Sub-Advisor conducts a fundamental
analysis of securities, industries and companies, including
consideration of liquidity, market capitalization, financial
position, relative competitive position, together with
overall growth prospects. The Portfolio's assets will be
allocated among emerging market countries in accordance with
the Sub-Advisor's view of best investment opportunities;
however, the Portfolio will normally invest in at least five
emerging market counties.
The Portfolio may invest at least 35% of its assets in
fixed-income securities of government and corporate issuers
located in emerging market countries, and equity and
fixed-income securities of issuers in developed countries.
ICON SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Emerging Markets
Opportunities Portfolio will achieve its investment
objective. The Emerging Markets Portfolio's share price will
fluctuate with changes in the market value of the
Portfolio's portfolio securities. When you sell Portfolio
shares, they may be worth less than what you paid for them
and, accordingly, you can lose money investing in this
Portfolio.
COMMON STOCKS. A principal risk of investing in the
Portfolio is associated with its common stock investments.
In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic
and political conditions. These prices can fluctuate widely.
FOREIGN SECURITIES. The Portfolio is subject to the risks
associated with foreign securities generally. These risks
include, among other things, the possibility that the
Portfolio could be adversely affected by changes in currency
exchange rates.
30
<PAGE>
EMERGING MARKET COUNTRIES. Investing in securities of
emerging market countries involves certain risks, and
special considerations that 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 Portfolio's
operating expenses are expected to be higher than those of
mutual funds 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 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. This 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. Social, political and
economic instability could significantly disrupt the
principal financial markets in which the Portfolio invests
and adversely affect the value of the Portfolio's assets.
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 the 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 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. At times certain emerging market countries have
declared moratoria on the payment of principal and/or
interest on external debt.
31
<PAGE>
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 -- referred to as
"privatizations." The Sub-Advisor believes that
privatizations may offer investors opportunities for
significant capital appreciation and intends to invest
assets of the Portfolio in privatizations in appropriate
circumstances. In certain emerging market countries, the
ability of foreign investors, 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.
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 Portfolio.
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 depository
receipts 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 depository receipts and established
Chilean investment companies not subject to repatriation
restrictions.
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
OTHER RISKS. The performance of the Portfolio also will
depend on whether the Sub-Advisor is successful in pursuing
the Portfolio's investment strategy. In addition, the
Portfolio is subject to other risks from its permissible
investments. For information about these risks, as well as
more detailed information about the risks summarized in this
section, see the "Additional Risk Information" section.
32
<PAGE>
(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's shares has varied from
year to year over the past 4 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's average annual returns with those of a broad
measure of market performance over time.
(End Sidebar)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Emerging Markets Portfolio. The
Portfolio's past performance does not indicate how it will
perform in the future. The returns shown do not reflect fees
charged under the life insurance or annuity contracts, which
would lower the performance for all periods shown.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 -0.57%
'96 17.69%
'97 1.27%
'98 -29.03%
</TABLE>
During the periods shown in the bar chart, the highest
return for a calendar quarter was 14.33% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -22.28% (quarter ended September 30, 1998).
Year-to-date total return as of March 31, 1999 was 8.34%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 11/9/94)
<S> <C> <C>
- -------------------------------------------------------------------------
Emerging Markets Portfolio -29.03% -3.96%
- -------------------------------------------------------------------------
International Finance Corporation
Investable Emerging Markets Total
Returns Index(1) -22.02% -12.41%
- -------------------------------------------------------------------------
Lipper Variable Annuity Emerging Market
Underlying Funds Average(2) -28.34% -7.95%
- -------------------------------------------------------------------------
</TABLE>
(1) The International Finance Corporation Investable Emerging Markets Total
Returns Index (IFCI) is designed to measure more precisely the returns
foreign portfolio investors might receive from investing in baskets of
stocks that were legally and practically available to them in the emerging
markets of Latin America, East Asia, South Asia, Europe, the Mideast and
Africa. The Index does not include any expense, fees or charges. The Index
is unmanaged and should not be considered an investment.
(2) The Lipper Variable Annuity Emerging Market Underlying Funds Average tracks
the performance of funds which seek long-term capital appreciation by
investing at least 65% of their equity portfolio in emerging market shares,
as reported by Lipper Analytical Services.
33
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information concerning each
Portfolio's principal strategies.
INVESTMENT DISCRETION. In pursuing each Portfolio's
investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys,
holds or sells on a day-to-day basis - and which trading
strategies it uses. For example, the Investment Manager in
its discretion may determine to use some permitted trading
strategies while not using others. The Sub-Advisors -- TCW
Funds Management and Morgan Stanley Dean Witter Investment
Management -- have a similar degree of discretion.
DEFENSIVE INVESTING. Each Portfolio (other than the Money
Market Portfolio) may take temporary "defensive" positions
in attempting to respond to adverse market conditions. Each
Portfolio may invest any amount of its assets in cash or
money market instruments in a defensive posture when the
Investment Manager or its Sub-Advisor, as the case may be,
believes it advisable to do so. Although taking a defensive
posture is designed to protect the Fund from an anticipated
market downturn, it could have the effect of reducing the
benefit of an upswing in the market.
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio referenced in the discussion
of a Portfolio apply at the time a Portfolio acquires an
investment and refer to the Portfolio's net assets, unless
otherwise noted. Subsequent percentage changes that result
from market fluctuations will not require a Portfolio to
sell any Portfolio security. A Portfolio may change its
principal investment strategies without shareholder
approval; however you would be notified of any change.
PORTFOLIO TURNOVER. Each Portfolio's turnover rate is not
expected to exceed the following respective percentages
annually under normal circumstances.
<TABLE>
<S> <C>
The North American Government Securities
Portfolio 100%
- ---------------------------------------------------------------
The Diversified Income Portfolio
200%
- ---------------------------------------------------------------
The Balanced Growth Portfolio
150%
- ---------------------------------------------------------------
The Utilities Portfolio
100%
- ---------------------------------------------------------------
The Dividend Growth Portfolio
100%
- ---------------------------------------------------------------
The Value-Added Market Portfolio
50%
- ---------------------------------------------------------------
The Growth Portfolio
100%
- ---------------------------------------------------------------
The American Opportunities Portfolio
300%
- ---------------------------------------------------------------
The Mid-Cap Equity Portfolio
150%
- ---------------------------------------------------------------
The Global Equity Portfolio
100%
- ---------------------------------------------------------------
The Developing Growth Portfolio
200%
- ---------------------------------------------------------------
The Emerging Markets Portfolio
150%
- ---------------------------------------------------------------
</TABLE>
A high turnover rate will increase a Portfolio's brokerage
costs. It may also increase a Portfolio's capital gains,
which will be passed along to Portfolio shareholders as
distributions.
34
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information regarding the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
YEAR 2000. Each Portfolio could be adversely affected if the
computer systems necessary for the efficient operation of
the Investment Manager, the Sub-Advisor, the Fund's other
service providers and the markets and corporate and
governmental issuers in which the Portfolios invest do not
properly process and calculate date-related information from
and after January 1, 2000. While year 2000-related computer
problems could have a negative effect on the Fund and the
Portfolios, the Investment Manager, the Sub-Advisor and
their affiliates are working hard to avoid any problems and
to obtain assurances from their service providers that they
are taking similar steps.
In addition, it is possible that the markets for securities
in which the Portfolios invest may be detrimentally affected
by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and
liquidity issues. Corporate and governmental data processing
errors also may result in production problems for individual
companies and overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs,
which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the
Portfolios' investments may be adversely affected. Moreover,
issuers in emerging markets may have greater year
2000-related problems.
* * *
The risks set forth below are applicable to a Portfolio only
to the extent the Portfolio invests in the investment
described.
FIXED-INCOME SECURITIES. All fixed-income securities are
subject to two types of risk: credit risk and interest rate
risk. Credit risk refers to the possibility that the issuer
of a security will be unable to make interest payments
and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general
level of interest rates. When the general level of interest
rates goes up, the prices of most fixed-income securities go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. (Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.)
Accordingly, a rise in the general level of interest rates
may cause the price of a Portfolio's fixed-income securities
to fall substantially. As merely illustrative of the
relationship between fixed-income securities and interest
rates, the following table shows how interest rates affect
bond prices.
35
<PAGE>
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
-------------------------------------
INCREASE DECREASE
----------------- -----------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
1 year N/A $ 1,000 $ 1,000 $ 1,000 $ 1,000
- -------------------------------------------------------------------------------
5 years 4.25% $ 967 $ 934 $ 1,038 $ 1,076
- -------------------------------------------------------------------------------
10 years 4.75% $ 930 $ 867 $ 1,074 $ 1,155
- -------------------------------------------------------------------------------
30 years 5.25% $ 865 $ 756 $ 1,166 $ 1,376
- -------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December
31, 1998. The table is not representative of price changes
for mortgage-backed securities principally because of
prepayments, and it is not representative of junk bonds. In
addition, the table is an illustration and does not
represent expected yields or share price changes of any
Morgan Stanley Dean Witter mutual fund.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have
different risk characteristics than traditional debt
securities. Although generally the value of fixed-income
securities increases during periods of falling interest
rates and decreases during periods of rising interest rates,
this is not always the case with mortgage-backed securities.
This is due to the fact that principal on underlying
mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a
period of falling interest rates and decrease during a
period of rising interest rates. The rate of prepayments
also may be influenced by economic and other factors.
Prepayment risk includes the possibility that, as interest
rates fall, securities with stated interest rates may have
the principal prepaid earlier than expected, requiring the
Fund to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based
upon, among other things, expectations regarding the rate of
prepayments on underlying mortgage pools. Rates of
prepayment, faster or slower than expected by the Investment
Manager, could reduce a Portfolio's yield, increase the
volatility of the Portfolio and/ or cause a decline in net
asset value. Certain mortgage-backed securities in which a
Portfolio may invest may be more volatile and less liquid
than other traditional types of debt securities.
JUNK BONDS. A Portfolio's investments in securities rated
lower than investment grade or if unrated of comparable
quality as determined by the Investment Manager (commonly
known as "junk bonds") pose significant risks. The prices of
junk bonds are likely to be more sensitive to adverse
economic changes or individual corporate developments than
higher rated securities. During an economic downturn or
substantial period of rising interest rates, junk bond
issuers and, in particular, highly leveraged issuers may
experience financial stress that would adversely affect
their ability to service their principal and interest
payment obligations, to meet their projected business goals
or to obtain additional financing. In the event of a
default, the Portfolio may incur additional expenses to seek
recovery. The secondary market for junk bonds may be less
liquid than the markets for higher quality securities and,
as such, may have an adverse effect on the market prices of
certain securities. The Rule 144A securities could have the
effect of increasing the level of Portfolio illiquidity to
the extent a Portfolio may be unable to find qualified
institutional buyers interested in purchasing the
securities. The illiquidity of the market may also adversely
affect the ability of the Fund's Trustees to arrive at a
fair value for certain junk bonds at certain times and could
make it difficult for the Portfolios to sell certain
securities. In addition, periods of economic uncertainty and
change probably would result in an increased volatility of
market prices of high yield securities and a corresponding
volatility in a Portfolio's net asset value.
36
<PAGE>
SECURITIES RATED IN THE LOWEST INVESTMENT GRADE CATEGORY.
Investments in the fixed-income securities rated in the
lowest investment grade category by Moody's or S&P may have
speculative characteristics and therefore changes in
economic or other circumstances are more likely to weaken
their capacity to make principal and interest payments than
would be the case with investments in securities with higher
credit ratings.
FOREIGN SECURITIES. Foreign securities (including depository
receipts) involve risks in addition to the risks associated
with domestic securities. One additional risk is currency
risk. While the price of Portfolio shares is quoted in U.S.
dollars, a Portfolio generally converts U.S. dollars to a
foreign market's local currency to purchase a security in
that market. If the value of that local currency falls
relative to the U.S. dollar, the U.S. dollar value of the
foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and
political developments abroad, including effects of foreign
social, economic or political instability. Foreign
companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be
less publicly available information about these companies.
Moreover, foreign accounting, auditing and financial
reporting standards generally are different from those
applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment
against the issuers of the securities.
Securities of foreign issuers may be less liquid than
comparable securities of U.S. issuers and, as such, their
price changes may be more volatile. Furthermore, foreign
exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their
U.S. counterparts.
The foreign securities in which certain of the Portfolios
may invest may be issued by companies located in developing
countries. Compared to the United States and other developed
countries, developing countries may have relatively unstable
governments, economies based on only a few industries and
securities markets that trade a small number of securities.
Prices of these securities tend to be especially volatile
and, in the past, securities in these countries have offered
greater potential loss (as well as gain) than securities of
companies located in developed countries.
Many European countries have adopted or are in the process
of adopting a single European currency, referred to as the
"euro." The consequences of the euro conversion for foreign
exchange rates, interest rates and the value of European
securities the Fund may purchase are presently unclear. The
consequences may adversely affect the value and/or increase
the volatility of securities held by a Portfolio.
SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's
investments in smaller and medium-sized companies carry more
risk than investments in larger companies. While some of a
Portfolio's holdings in these companies may be listed on a
national securities exchange, such securities are more
likely to be traded in the over-the-counter market. The low
market liquidity of these securities may have an adverse
impact on a Portfolio's ability to sell certain securities
at favorable prices and may also make it difficult for a
Portfolio to obtain market quotations based on actual
trades, for purposes of valuing a Portfolio's securities.
Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of a
Portfolio's net asset value than is customarily associated
with larger, more established companies. Often smaller and
medium capitalization companies
37
<PAGE>
and the industries in which they are focused are still
evolving and, while this may offer better growth potential
than larger, more established companies, it also may make
them more sensitive to changing market conditions.
OPTIONS AND FUTURES. If a Portfolio invests in options
and/or futures, its participation in these markets would
subject the Portfolio to certain risks. The Investment
Manager's predictions of movements in the direction of the
stock, bond, currency or interest rate markets may be
inaccurate, and the adverse consequences to the Portfolio
(e.g., a reduction in the Portfolio's net asset value or a
reduction in the amount of income available for
distribution) may leave the Portfolio in a worse position
than if these strategies were not used. Other risks inherent
in the use of options and futures include, for example, the
possible imperfect correlation between the price of options
and futures contracts and movements in the prices of the
securities being hedged, and the possible absence of a
liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are
options negotiated with dealers; there is no secondary
market for these investments.
FORWARD CURRENCY CONTRACTS. A Portfolio's participation in
forward currency contracts also involves risks. If the
Investment Manager employs a strategy that does not
correlate well with the Fund's investments or the currencies
in which the investments are denominated, currency contracts
could result in a loss. The contracts also may increase the
Fund's volatility and may involve a significant risk.
INVESTMENT COMPANIES. Any Portfolio investment in an
investment company is subject to the underlying risk of that
investment company's portfolio securities. For example, if
the investment company held common stocks, the Portfolio
also would be exposed to the risk of investing in common
stocks. In addition, the Portfolio would bear its share of
the investment company's fees and expenses.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs pool
investors' funds for investments primarily in commercial
real estate properties. Like mutual funds, REITs have
expenses, including advisory and administration fees that
are paid by its shareholders. As a result, you will absorb
duplicate levels of fees when the Fund invests in REITs. The
performance of any Fund REIT holdings ultimately depends on
the types of real property in which the REITs invest and how
well the property is managed. A general downturn in real
estate values also can hurt REIT performance.
38
<PAGE>
(Sidebar)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc., its
wholly-owned subsidiary, has more than $129.2 billion in assets under management
or administration as of March 31, 1999.
(End Sidebar)
PORTFOLIO MANAGEMENT
Morgan Stanley Dean Witter Advisors Inc. is the Investment
Manager to each Portfolio. Each Portfolio has retained the
Investment Manager to provide administrative services,
manage its business affairs and (except for the North
American Government Securities, Emerging Markets, Mid-Cap
Equity, Growth and International Portfolios) invest its
assets, including the placing of orders for the purchase and
sale of portfolio securities. The Investment Manager is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.,
a preeminent global financial services firm that maintains
leading market positions in each of its three primary
businesses: securities, asset management and credit
services. Its main business office is located at Two World
Trade Center, New York, NY 10048.
Each of the North American Government Securities, Emerging
Markets, Mid-Cap Equity and Growth Portfolios has retained
the Investment Manager to supervise the investment of its
assets. The Investment Manager has, in turn, contracted with
TCW Funds Management Inc. as "Sub-Advisor" to invest each of
the North American Government Securities Portfolio, the
Emerging Markets Portfolio and the Mid-Cap Equity
Portfolio's assets, including the placing of orders for the
purchase and sales of investment securities. TCW Funds
Management, Inc., together with its affiliated companies,
manages more than $50 billion primarily for institutional
investors. It is a wholly-owned subsidiary of The TCW Group,
Inc., and its main business address is 865 South Figueroa
Street, Suite 1800, Los Angeles California 90017.
The Investment Manager also has contracted with Morgan
Stanley Dean Witter Investment Management Inc. as
"Sub-Advisor" to invest the Growth Portfolio Portfolio's
assets, including the placing of orders for the purchase and
sale of investment securities. Morgan Stanley Dean Witter
Investment Management Inc., together with its institutional
investment management affiliates, manages more than $150
billion primarily for employee benefit plans, investment
companies, endowments, foundations and wealthy individuals.
It also is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Its main business office is located at 1221
Avenue of the Americas, New York, New York.
Each Portfolio pays the Investment Manager a monthly
management fee as full compensation for the services and
facilities furnished to each Portfolio, and for Portfolio
expenses assumed by the Investment Manager. The fee is based
on the
39
<PAGE>
Portfolio's average daily net assets. For the fiscal year
ended December 31, 1998 each Portfolio accrued total
compensation to the Investment Manager as set forth in the
following table.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF
AVERAGE
PORTFOLIO DAILY NET ASSETS
<S> <C>
- ------------------------------------------------------------------------
The Money Market Portfolio 0.50%
- ------------------------------------------------------------------------
The North American Government Securities
Portfolio 0.65%(1)
- ------------------------------------------------------------------------
The Diversified Income Portfolio 0.40%
- ------------------------------------------------------------------------
The Balanced Growth Portfolio(2) 0.62%
- ------------------------------------------------------------------------
The Utilities Portfolio 0.65%
- ------------------------------------------------------------------------
The Dividend Growth Portfolio(3) 0.60%
- ------------------------------------------------------------------------
The Value-Added Market Portfolio 0.50%
- ------------------------------------------------------------------------
The Growth Portfolio(4) 0.80%(1)
- ------------------------------------------------------------------------
The American Opportunities Portfolio(5) 0.62%
- ------------------------------------------------------------------------
The Mid-Cap Equity Portfolio(6) 0
- ------------------------------------------------------------------------
The Global Equity Portfolio 1.00%
- ------------------------------------------------------------------------
The Developing Growth Portfolio 0.50%
- ------------------------------------------------------------------------
The Emerging Markets Portfolio 1.25%(1)
- ------------------------------------------------------------------------
</TABLE>
(1) 40% of the Investment Manager's compensation is paid to the Portfolio's
Sub-Advisor.
(2) Effective March 2, 1998, the investment management fee was reduced to 0.60%
of the Portfolio's average daily net assets. Previously the fee had been
0.75% of the Portfolio's average daily net assets.
(3) Effective May 1, 1999, the investment management fee was reduced to 0.625%
of the Portfolio's daily net assets up to $500 million, 0.50% of the
Portfolio's average daily net assets over $500 million but not over $1
billion, and 0.475% of the Portfolio's average daily net assets over $1
billion. Previously the fee had been 0.625% of the Portfolio's average
daily net assets up to $500 million and 0.50% of the Portfolio's daily net
assets over $500 million.
(4) Effective March 2, 1998, the investment management fee was reduced to 0.80%
of the Portfolio's average daily net assets. Previously the fee had been
0.85% of the Portfolio's average daily net assets.
(5) Effective May 1, 1999 the investment management fee was reduced to 0.625%
of the Portfolio's average daily net assets up to $500 million and 0.60% of
the Portfolio's average daily net assets over $500 million. Previously the
fee had been 0.625% of the Portfolio's average daily net assets.
(6) The Mid-Cap Equity Portfolio commenced operations on January 21, 1997. The
Investment Manager has undertaken to assume all expenses of this Portfolio
(except for any brokerage fees) and to waive the compensation provided for
this Portfolio in its Management Agreement with the Fund until such time as
the Portfolio attains $50 million of net assets or until December 31, 1999,
whichever occurs first. As of the date of this Prospectus, the Mid-Cap
Equity Portfolio has not attained $50 million of net assets.
The following individuals are primarily responsible for the
day-to-day management of certain of the Portfolios. Except
as otherwise noted, each of these individuals has been a
primary portfolio manager of the designated Portfolio for
over five years or since the inception of the Portfolio (if
less than five years) and has been a portfolio manager with
the Investment Manager or the applicable Sub-Advisor for
over five years.
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO - Philip A.
Barach, James M. Goldberg, Frederick E. Horton and Jeffrey
E. Gundlach, Managing Directors of TCW Funds Management,
Inc., are the primary portfolio managers of the Portfolio.
DIVERSIFIED INCOME PORTFOLIO - Peter M. Avelar and Rajesh K.
Gupta, Senior Vice Presidents of the Investment Manager, and
Anne Pickrell and Peter J. Seeley, Vice Presidents of the
Investment Manager, are the primary portfolio managers of
the Portfolio - Messrs. Avelar and Gupta since the inception
of the Portfolio and Ms. Pickrell and Mr. Seeley since
February 1998. Prior to joining the Investment Manager in
July 1994, Mr. Seeley was a portfolio manager at Nikko
Capital Management.
40
<PAGE>
BALANCED GROWTH PORTFOLIO - Rajesh K. Gupta and Paul D.
Vance, Senior Vice Presidents of the Investment Manager,
have been the primary portfolio managers of the Portfolio
since March 1998.
UTILITIES PORTFOLIO - Edward F. Gaylor, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
DIVIDEND GROWTH PORTFOLIO - Paul D. Vance, Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio.
VALUE-ADDED MARKET PORTFOLIO - Guy G. Rutherfurd, Jr.,
Senior Vice President of the Investment Manager, and Alice
Weiss, Vice President of the Investment Manager, have been
the primary portfolio managers of the Portfolio since May
1999. Mr. Rutherfurd has been a portfolio manager with the
Investment Manager since February 1997, prior to which time
he was Executive Vice President and Chief Investment Officer
of Nomura Asset Management (U.S.A.) Inc. (May 1992-February
1997).
GROWTH PORTFOLIO - Philip Friedman, a Managing Director of
Morgan Stanley Dean Witter Investment Management Inc.,
Margaret Johnson, a Principal of Morgan Stanley Dean Witter
Investment Management Inc., and William Auslander, a Vice
President of Morgan Stanley Dean Witter Investment
Management Inc., are all portfolio managers in the
Institutional Equity Group and have been the primary
portfolio managers since September 1998, in the case of
Messrs. Friedman and Auslander, and March 1998, in the case
of Ms. Johnson.
AMERICAN OPPORTUNITIES PORTFOLIO - Anita H. Kolleeny, Senior
Vice President of the Investment Manager, is the primary
portfolio manager of the Portfolio. Ms. Kolleeny has been
assisted by Michelle Kaufman since March 1998.
MID-CAP EQUITY PORTFOLIO - Douglas S. Foreman, Group
Managing Director of TCW Fund's Management, Inc., is the
primary portfolio manager of the Portfolio. He is assisted
by Christopher J. Ainley, Managing Director of the Adviser.
Mr. Foreman has been the primary portfolio manager of the
Portfolio since 1999. Mr. Foreman and Mr. Ainley have been
portfolio managers with affiliated companies of The TCW
Group since 1994.
GLOBAL EQUITY PORTFOLIO - Mark Bavoso, Senior Vice President
of the Investment Manager, has been the primary portfolio
manager of Portfolio since August 1995.
DEVELOPING GROWTH PORTFOLIO - Jayne S. Stevlingson, Senior
Vice President of the Investment Manager, is the primary
portfolio manager of the Portfolio and has been assisted by
Armon Bar-Tur since May 1998. Ms. Stevlingson has been the
primary portfolio manager since the Portfolio's inception.
Mr. Bar-Tur has been a portfolio manager with the Investment
Manager since October 1996, prior to which time he was a
research analyst with Merrill Lynch Asset Management.
EMERGING MARKETS PORTFOLIO - Terence F. Mahony, Managing
Director of TCW Funds Management, Inc., and Michael P.
Reilly, Managing Director of TCW Funds Management, Inc., are
the primary portfolio managers of the Portfolio. Mr. Mahony
has been a primary portfolio manager since July 1996; prior
to this, he was Chief Investment Officer for HSBC Asset
Management. Mr. Reilly has been a primary portfolio manager
since December 1994 and has been a portfolio manager with
affiliates of TCW Group for over five years.
41
<PAGE>
SHAREHOLDER INFORMATION
ICON PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of shares of each Portfolio, called "net asset
value," is based on the value of its portfolio securities.
The net asset value for each Portfolio is determined once
daily at 4:00 p.m. Eastern time on each day that the New
York Stock Exchange is open (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York
Stock Exchange is closed.
The value of each Portfolio's securities (other than the
Money Market Portfolio) is based on the securities' market
price when available. When a market price is not readily
available, including circumstances under which the
Investment Manager (or, if applicable, the Sub-Advisor)
determines that a security's market price is not accurate, a
portfolio security is valued at its fair value, as
determined under procedures established by the Fund's Board
of Trustees. In these cases, the applicable Portfolio's net
asset value will reflect certain portfolio securities' fair
value rather than their market price. In addition, if a
Portfolio holds securities primarily listed on foreign
exchanges, the value of the Portfolio's investment
securities may change on days when shareholders will not be
able to purchase or sell their shares.
An exception to the general policy of using market prices
concerns each Portfolio's short-term debt portfolio
securities. Debt securities with remaining maturities of
sixty days or less at the time of purchase are valued at
amortized cost. However, if the cost does not reflect the
securities' market value, these securities will be valued at
their fair value.
The Money Market Portfolio utilizes amortized cost in
determining the value of its portfolio securities. The
amortized cost valuation method involves valuing a debt
obligation in reference to its acquisition cost rather than
market forces.
ICON DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio passes substantially all of its earnings from
income and capital gains along to its investors as
"distributions." Each Portfolio earns income from stocks
and/or interest from fixed-income investments. These amounts
are passed along to the appropriate Portfolio investors as
"income dividend distributions." Each Portfolio realizes
capital gains whenever it sells securities for a higher
price than it paid for them. These amounts may be passed
along as "capital gain distributions." Normally, for each of
the Portfolios (except for the Money Market Portfolio),
income dividends are distributed monthly and capital gains
are distributed annually in December. The Money Market
Portfolio declares income dividends, payable on each day the
New York Stock Exchange is open for business, of all of its
daily net income to shareholders of record as of the close
of business the preceding business day. The Investment
Manager does not anticipate that the Money Market Portfolio
will make significant capital gain distributions.
ICON TAX CONSEQUENCES
- --------------------------------------------------------------------------------
For information concerning the tax consequences to holders
of the underlying variable annuity or variable life
insurance contracts, see the accompanying prospectus for the
applicable contract.
42
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table on the following pages is intended to
help you understand each Portfolio's financial performance for the past
5 fiscal years of the Fund. Certain information reflects financial
results for a single Portfolio share. The total returns in the tables
represent the rate an investor would have earned or lost on an
investment in each Portfolio (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund's financial statements, is included in the
annual report, which is available upon request.
Further information about the performance of the Portfolios of the Fund
is contained in the annual report. See the discussion under the caption
"Charges and Other Deductions" in the accompanying prospectus for either
the Variable Annuity Contracts or the Variable Life Contracts issued by
the applicable insurance company for a description of charges which are
applicable thereto. These charges are not reflected in the financial
highlights below. Inclusion of any of these charges would reduce the
total return figures for all periods shown.
43
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED AND TOTAL FROM
BEGINNING INVESTMENT UNREALIZED GAIN INVESTMENT
YEAR ENDED DECEMBER 31 OF PERIOD INCOME (LOSS) OPERATIONS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) $ 1.00 $0.01 - $ 0.01
- -----------------------------------------------------------------------------------------------------------------------------
1995 1.00 0.06 - 0.06
- -----------------------------------------------------------------------------------------------------------------------------
1996 1.00 0.05 - 0.05
- -----------------------------------------------------------------------------------------------------------------------------
1997 1.00 0.05 - 0.05
- -----------------------------------------------------------------------------------------------------------------------------
1998 1.00 0.05 - 0.05
- -----------------------------------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.06 - 0.06
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.04 0.53 $ 0.11 0.64
- -----------------------------------------------------------------------------------------------------------------------------
1996 10.18 0.52 (0.09) 0.43
- -----------------------------------------------------------------------------------------------------------------------------
1997 10.09 0.48 0.09 0.57
- -----------------------------------------------------------------------------------------------------------------------------
1998 10.17 0.46 (0.03) 0.43
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED INCOME
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.08 - 0.08
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.05 0.57 0.11 0.68
- -----------------------------------------------------------------------------------------------------------------------------
1996 10.22 0.80 0.13 0.93
- -----------------------------------------------------------------------------------------------------------------------------
1997 10.32 0.80 0.02 0.82
- -----------------------------------------------------------------------------------------------------------------------------
1998 10.29 0.79 (0.37) 0.42
- -----------------------------------------------------------------------------------------------------------------------------
BALANCED GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.08 (0.02) 0.06
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.04 0.40 1.85 2.25
- -----------------------------------------------------------------------------------------------------------------------------
1996 11.89 0.33 1.25 1.58
- -----------------------------------------------------------------------------------------------------------------------------
1997 13.07 0.29 2.01 2.30
- -----------------------------------------------------------------------------------------------------------------------------
1998 15.03 0.44 1.68 2.12
- -----------------------------------------------------------------------------------------------------------------------------
UTILITIES
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.07 - 0.07
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.04 0.45 2.30 2.75
- -----------------------------------------------------------------------------------------------------------------------------
1996 12.35 0.43 0.60 1.03
- -----------------------------------------------------------------------------------------------------------------------------
1997 12.94 0.39 2.96 3.35
- -----------------------------------------------------------------------------------------------------------------------------
1998 15.84 0.37 3.06 3.43
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.08 (0.09) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------
1995 9.97 0.36 3.57 3.93
- -----------------------------------------------------------------------------------------------------------------------------
1996 13.54 0.34 2.94 3.28
- -----------------------------------------------------------------------------------------------------------------------------
1997 16.45 0.38 3.80 4.18
- -----------------------------------------------------------------------------------------------------------------------------
1998 19.57 0.39 3.38 3.77
- -----------------------------------------------------------------------------------------------------------------------------
VALUE-ADDED MARKET
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.06 (0.14) (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
1995 9.90 0.31 2.34 2.65
- -----------------------------------------------------------------------------------------------------------------------------
1996 12.24 0.23 1.93 2.16
- -----------------------------------------------------------------------------------------------------------------------------
1997 14.16 0.23 3.43 3.66
- -----------------------------------------------------------------------------------------------------------------------------
1998 17.56 0.22 1.90 2.12
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL
DIVIDENDS TO DISTRIBUTIONS TO DIVIDENDS AND
YEAR ENDED DECEMBER 31 SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C>
- -----------------------------------------------------------------
MONEY MARKET
- -----------------------------------------------------------------
1994(a) $(0.01) - $(0.01)
- -----------------------------------------------------------------
1995 (0.06) - (0.06)
- -----------------------------------------------------------------
1996 (0.05) - (0.05)
- -----------------------------------------------------------------
1997 (0.05) - (0.05)
- -----------------------------------------------------------------
1998 (0.05) - (0.05)
- -----------------------------------------------------------------
NORTH AMERICAN GOVERNMENT SECURITIES
- -----------------------------------------------------------------
1994(a) (0.02) - (0.02)
- -----------------------------------------------------------------
1995 (0.50) - (0.50)
- -----------------------------------------------------------------
1996 (0.52) - (0.52)
- -----------------------------------------------------------------
1997 (0.49) - (0.49)
- -----------------------------------------------------------------
1998 (0.45) - (0.45)
- -----------------------------------------------------------------
DIVERSIFIED INCOME
- -----------------------------------------------------------------
1994(a) (0.03) - (0.03)
- -----------------------------------------------------------------
1995 (0.51) - (0.51)
- -----------------------------------------------------------------
1996 (0.82) $(0.01) (0.83)
- -----------------------------------------------------------------
1997 (0.83) (0.02) (0.85)
- -----------------------------------------------------------------
1998 (0.77) (0.01) (0.78)
- -----------------------------------------------------------------
BALANCED GROWTH
- -----------------------------------------------------------------
1994(a) (0.02) - (0.02)
- -----------------------------------------------------------------
1995 (0.40) - (0.40)
- -----------------------------------------------------------------
1996 (0.33) (0.07) (0.40)
- -----------------------------------------------------------------
1997 (0.30) (0.04) (0.34)
- -----------------------------------------------------------------
1998 (0.43) (0.34) (0.77)
- -----------------------------------------------------------------
UTILITIES
- -----------------------------------------------------------------
1994(a) (0.03) - (0.03)
- -----------------------------------------------------------------
1995 (0.44) - (0.44)
- -----------------------------------------------------------------
1996 (0.43) (0.01) (0.44)
- -----------------------------------------------------------------
1997 (0.40) (0.05) (0.45)
- -----------------------------------------------------------------
1998 (0.37) (0.19) (0.56)
- -----------------------------------------------------------------
DIVIDEND GROWTH
- -----------------------------------------------------------------
1994(a) (0.02) - (0.02)
- -----------------------------------------------------------------
1995 (0.36) - (0.36)
- -----------------------------------------------------------------
1996 (0.35) (0.02) (0.37)
- -----------------------------------------------------------------
1997 (0.38) (0.68) (1.06)
- -----------------------------------------------------------------
1998 (0.39) (0.90) (1.29)
- -----------------------------------------------------------------
VALUE-ADDED MARKET
- -----------------------------------------------------------------
1994(a) (0.02) - (0.02)
- -----------------------------------------------------------------
1995 (0.31) - (0.31)
- -----------------------------------------------------------------
1996 (0.23) (0.01) (0.24)
- -----------------------------------------------------------------
1997 (0.23) (0.03) (0.26)
- -----------------------------------------------------------------
1998 (0.22) (0.27) (0.49)
- -----------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
RATIOS TO AVERAGE NET ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
NET ASSETS ----------------------------- ------------------------- PORTFOLIO
NET ASSET VALUE END OF PERIOD NET INVESTMENT NET INVESTMENT TURNOVER
END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
$ 1.00 0.76%(1) $ 1,234 2.50%*(2) 3.33%*(2) - 5.83%(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
1.00 6.10 42,089 0.81 5.11 - 5.92 N/A
- -------------------------------------------------------------------------------------------------------------------------
1.00 5.07 87,002 0.59 4.94 0.57% 4.96 N/A
- -------------------------------------------------------------------------------------------------------------------------
1.00 5.21 84,045 0.55 5.08 0.55 5.08 N/A
- -------------------------------------------------------------------------------------------------------------------------
1.00 5.16 120,185 0.55 5.02 0.55 5.02 N/A
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.04 0.61(1) 122 2.50*(2) 1.78*(2) - 4.28(2) -
- -------------------------------------------------------------------------------------------------------------------------
10.18 6.40 1,288 2.50* 3.24* - 5.74 18%
- -------------------------------------------------------------------------------------------------------------------------
10.09 4.35 4,172 1.45 4.55 0.50 5.50 48
- -------------------------------------------------------------------------------------------------------------------------
10.17 5.91 5,091 1.26 4.75 1.26 4.75 27
- -------------------------------------------------------------------------------------------------------------------------
10.15 4.28 8,389 1.15 4.52 1.15 4.52 51
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.05 0.76(1) 402 2.50*(2) 3.08*(2) - 5.58(2) -
- -------------------------------------------------------------------------------------------------------------------------
10.22 6.96 8,972 1.33 5.95 - 7.28 33
- -------------------------------------------------------------------------------------------------------------------------
10.32 9.54 32,119 0.71 8.26 0.50 8.47 69
- -------------------------------------------------------------------------------------------------------------------------
10.29 8.32 62,287 0.55 8.09 0.55 8.09 110
- -------------------------------------------------------------------------------------------------------------------------
9.93 4.22 93,991 0.49 7.92 0.49 7.92 111
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.04 0.60(1) 796 2.50*(2) 2.90*(2) - 5.40(2) -
- -------------------------------------------------------------------------------------------------------------------------
11.89 22.86 16,311 1.39 2.45 - 3.84 99
- -------------------------------------------------------------------------------------------------------------------------
13.07 13.54 38,893 0.90 2.35 0.50 2.75 88
- -------------------------------------------------------------------------------------------------------------------------
15.03 17.87 71,323 0.86 2.13 0.86 2.13 64
- -------------------------------------------------------------------------------------------------------------------------
16.38 14.41 107,852 0.71 2.87 0.71 2.87 93
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.04 0.65(1) 498 2.50*(2) 2.79*(2) - 5.29(2) -
- -------------------------------------------------------------------------------------------------------------------------
12.35 28.05 17,959 1.43 3.01 - 4.44 3
- -------------------------------------------------------------------------------------------------------------------------
12.94 8.48 35,686 0.80 3.16 0.50 3.46 15
- -------------------------------------------------------------------------------------------------------------------------
15.84 26.45 50,766 0.76 2.83 0.76 2.83 34
- -------------------------------------------------------------------------------------------------------------------------
18.71 22.23 85,683 0.71 2.21 0.71 2.21 19
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
9.97 (0.05)(1) 1,378 2.50*(2) 3.28*(2) - 5.78(2) -
- -------------------------------------------------------------------------------------------------------------------------
13.54 40.13 78,694 0.83 2.80 - 3.63 4
- -------------------------------------------------------------------------------------------------------------------------
16.45 24.49 258,101 0.67 2.44 0.67 2.44 39
- -------------------------------------------------------------------------------------------------------------------------
19.57 26.12 518,419 0.65 2.11 0.65 2.11 26
- -------------------------------------------------------------------------------------------------------------------------
22.05 19.73 723,285 0.63 1.87 0.63 1.87 39
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
9.90 (0.76)(1) 349 2.50*(2) 1.25*(2) - 3.75(2) -
- -------------------------------------------------------------------------------------------------------------------------
12.24 27.14 23,970 1.46 1.64 - 3.10 4
- -------------------------------------------------------------------------------------------------------------------------
14.16 17.78 73,516 0.64 1.69 0.56 1.77 4
- -------------------------------------------------------------------------------------------------------------------------
17.56 26.12 141,316 0.58 1.49 0.58 1.49 8
- -------------------------------------------------------------------------------------------------------------------------
19.19 12.19 174,824 0.55 1.20 0.55 1.20 14
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED AND TOTAL FROM
BEGINNING INVESTMENT UNREALIZED GAIN INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO
YEAR ENDED DECEMBER 31 OF PERIOD INCOME (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) $10.00 $0.07 - $ 0.07 $ (0.02) -
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.05 0.26 $ 1.05 1.31 (0.29) -
- -----------------------------------------------------------------------------------------------------------------------------
1996 11.07 0.08 2.52 2.60 (0.08) $ (0.04)
- -----------------------------------------------------------------------------------------------------------------------------
1997 13.55 0.09 3.09 3.18 (0.10) (0.07)
- -----------------------------------------------------------------------------------------------------------------------------
1998 16.56 0.00 2.16 2.16 0.00 (0.49)
- -----------------------------------------------------------------------------------------------------------------------------
AMERICAN VALUE
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.06 0.01 0.07 (0.02) -
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.05 0.21 3.66 3.87 (0.21) -
- -----------------------------------------------------------------------------------------------------------------------------
1996 13.71 0.08 1.68 1.76 (0.10) (0.07)
- -----------------------------------------------------------------------------------------------------------------------------
1997 15.30 0.07 4.73 4.80 (0.06) (0.35)
- -----------------------------------------------------------------------------------------------------------------------------
1998 19.69 0.13 5.57 5.70 (0.14) (1.94)
- -----------------------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
1997(b) 10.00 0.18 1.39 1.57 (0.17) -
- -----------------------------------------------------------------------------------------------------------------------------
1998 11.40 0.06 0.57 0.63 (0.07) (0.10)
- -----------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.07 (0.10) (0.03) (0.03) -
- -----------------------------------------------------------------------------------------------------------------------------
1995 9.94 0.29 1.05 1.34 (0.29) -
- -----------------------------------------------------------------------------------------------------------------------------
1996 10.99 0.15 1.10 1.25 (0.17) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------
1997 12.06 0.12 0.92 1.04 (0.11) (0.02)
- -----------------------------------------------------------------------------------------------------------------------------
1998 12.97 0.14 1.81 1.95 (0.18) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------
DEVELOPING GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.08 0.08 0.16 (0.03) -
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.13 0.24 4.88 5.12 (0.25) -
- -----------------------------------------------------------------------------------------------------------------------------
1996 15.00 0.02 1.92 1.94 (0.04)++ (0.02)
- -----------------------------------------------------------------------------------------------------------------------------
1997 16.88 0.05 2.27 2.32 (0.04) -
- -----------------------------------------------------------------------------------------------------------------------------
1998 19.16 0.03 1.69 1.72 (0.04) (0.03)
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
- -----------------------------------------------------------------------------------------------------------------------------
1994(a) 10.00 0.06 - 0.06 (0.02) -
- -----------------------------------------------------------------------------------------------------------------------------
1995 10.04 0.29 (0.33) (0.04) (0.31) -
- -----------------------------------------------------------------------------------------------------------------------------
1996 9.69 0.16 1.51 1.67 (0.16) -
- -----------------------------------------------------------------------------------------------------------------------------
1997 11.20 0.06 0.11 0.17 (0.06) -
- -----------------------------------------------------------------------------------------------------------------------------
1998 11.31 0.07 (3.33) (3.26) (0.11)+++ (0.03)
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL
DIVIDENDS AND
YEAR ENDED DECEMBER 31 DISTRIBUTIONS
<S> <C>
- ------------------------------
GROWTH
- ------------------------------
1994(a) $ (0.02)
- ------------------------------
1995 (0.29)
- ------------------------------
1996 (0.12)
- ------------------------------
1997 (0.17)
- ------------------------------
1998 (0.49)
- ------------------------------
AMERICAN VALUE
- ------------------------------
1994(a) (0.02)
- ------------------------------
1995 (0.21)
- ------------------------------
1996 (0.17)
- ------------------------------
1997 (0.41)
- ------------------------------
1998 (2.08)
- ------------------------------
MID-CAP GROWTH
- ------------------------------
1997(b) (0.17)
- ------------------------------
1998 (0.17)
- ------------------------------
GLOBAL EQUITY
- ------------------------------
1994(a) (0.03)
- ------------------------------
1995 (0.29)
- ------------------------------
1996 (0.18)
- ------------------------------
1997 (0.13)
- ------------------------------
1998 (0.23)
- ------------------------------
DEVELOPING GROWTH
- ------------------------------
1994(a) (0.03)
- ------------------------------
1995 (0.25)
- ------------------------------
1996 (0.06)
- ------------------------------
1997 (0.04)
- ------------------------------
1998 (0.07)
- ------------------------------
EMERGING MARKETS
- ------------------------------
1994(a) (0.02)
- ------------------------------
1995 (0.31)
- ------------------------------
1996 (0.16)
- ------------------------------
1997 (0.06)
- ------------------------------
1998 (0.14)
- ------------------------------
</TABLE>
(a) For the period November 9, 1994 (commencement of operations) through
December 31, 1994.
(b) For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
+ Calculated based on the net asset value as of the last business day of the
period.
++ Includes distributions from paid-in-capital of $0.01.
+++ Includes distributions from paid-in-capital of $0.04.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
46
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
RATIOS TO AVERAGE NET ASSETS ASSETS
(BEFORE EXPENSES WERE (AFTER EXPENSES WERE
ASSUMED) ASSUMED)
NET ASSETS ----------------------------- ------------------------- PORTFOLIO
NET ASSET VALUE END OF PERIOD NET INVESTMENT NET INVESTMENT TURNOVER
END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
$10.05 0.67%(1) $ 316 2.50%*(2) 2.32%*(2) - 4.82%(2) -
- -------------------------------------------------------------------------------------------------------------------------
11.07 13.29 3,956 2.50* (0.64)* - 1.86 39%
- -------------------------------------------------------------------------------------------------------------------------
13.55 23.56 18,215 1.22 (0.03) 0.50% 0.69 47
- -------------------------------------------------------------------------------------------------------------------------
16.56 23.07 40,311 1.01 0.13 1.01 0.13 55
- -------------------------------------------------------------------------------------------------------------------------
18.23 13.22 53,504 1.06 0.01 1.06 0.01 223
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.05 0.69(1) 823 2.50*(2) 1.60*(2) - 4.10(2) 10(1)
- -------------------------------------------------------------------------------------------------------------------------
13.71 38.95 38,235 0.96 1.11 - 2.07 174
- -------------------------------------------------------------------------------------------------------------------------
15.30 12.95 120,904 0.71 0.52 0.69 0.54 232
- -------------------------------------------------------------------------------------------------------------------------
19.69 31.93 230,014 0.68 0.42 0.68 0.42 262
- -------------------------------------------------------------------------------------------------------------------------
23.31 30.78 371,633 0.66 0.62 0.66 0.62 325
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
11.40 15.84(1) 19,236 1.12(2) 0.65(2) - 1.77(2) 104(1)
- -------------------------------------------------------------------------------------------------------------------------
11.86 5.67 28,198 0.98 (0.40) - 0.58 323
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
9.94 (0.30)(1) 1,194 2.50*(2) 2.20*(2) - 4.70(2) -
- -------------------------------------------------------------------------------------------------------------------------
10.99 13.76 17,074 1.69 1.09 - 2.78 74
- -------------------------------------------------------------------------------------------------------------------------
12.06 11.43 59,246 1.25 0.69 0.72 1.22 62
- -------------------------------------------------------------------------------------------------------------------------
12.97 8.66 102,229 1.13 0.91 1.13 0.91 87
- -------------------------------------------------------------------------------------------------------------------------
14.69 15.11 125,522 1.10 1.01 1.10 1.01 80
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.13 1.58(1) 380 2.50*(2) 2.31*(2) - 4.81(2) 3(1)
- -------------------------------------------------------------------------------------------------------------------------
15.00 51.26 17,412 1.24 0.86 - 2.10 80
- -------------------------------------------------------------------------------------------------------------------------
16.88 12.95 61,120 0.68 (0.04) 0.58 0.06 146
- -------------------------------------------------------------------------------------------------------------------------
19.16 13.77 82,690 0.60 0.26 0.60 0.26 149
- -------------------------------------------------------------------------------------------------------------------------
20.81 9.04 81,625 0.59 0.19 0.59 0.19 193
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10.04 0.57(1) 448 2.50*(2) 2.22*(2) - 4.72(2) -
- -------------------------------------------------------------------------------------------------------------------------
9.69 (0.57) 4,092 2.50* 0.18* - 2.68 36
- -------------------------------------------------------------------------------------------------------------------------
11.20 17.69 17,240 2.02 (0.10) 0.50 1.42 46
- -------------------------------------------------------------------------------------------------------------------------
11.31 1.27 23,815 1.71 0.49 1.71 0.49 91
- -------------------------------------------------------------------------------------------------------------------------
7.91 (29.03) 13,272 1.73 0.72 1.73 0.72 116
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES
Additional information about the Fund's investments is
available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO
SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. The Fund's
STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL
INFORMATION is incorporated herein by reference (legally is
part of this PROSPECTUS). For a free copy of any of these
documents, to request other information about the Fund, or
to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling
your Morgan Stanley Dean Witter Financial Advisor.
Information about the Fund (including the STATEMENT OF
ADDITIONAL INFORMATION) can be viewed and copied at the
Securities and Exchange Commission's Public Reference Room
in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800)
SEC-0330. Reports and other information about the Fund are
available on the SEC's Internet site (www.sec.gov), and
copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7185)
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
AUGUST 9, 1999 SERIES
- ----------------------------------------------------------------------------
-THE MONEY MARKET PORTFOLIO
-THE NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
-THE DIVERSIFIED INCOME PORTFOLIO
-THE BALANCED GROWTH PORTFOLIO
-THE UTILITIES PORTFOLIO
-THE DIVIDEND GROWTH PORTFOLIO
-THE VALUE-ADDED MARKET PORTFOLIO
-THE GROWTH PORTFOLIO
-THE AMERICAN OPPORTUNITIES PORTFOLIO
-THE MID-CAP EQUITY PORTFOLIO
-THE GLOBAL EQUITY PORTFOLIO
-THE DEVELOPING GROWTH PORTFOLIO
-THE EMERGING MARKETS PORTFOLIO
This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated August 9, 1999) for the Morgan Stanley Dean Witter Select Dimensions
Investment Series (the "Fund") provides the basic information you should know
before allocating your investment under your variable annuity contract or your
variable life contract. The Prospectus may be obtained without charge from the
Fund at its address or telephone number listed below or from the Fund's
Distributor, Morgan Stanley Dean Witter Distributors Inc., or from Dean Witter
Reynolds at any of its branch offices.
Morgan Stanley Dean Witter
Select Dimensions Investment Series
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
I. Fund History........................................................ 4
II. Description of the Fund and Its Investments and Risks............... 4
A. Classification................................................. 4
B. Eligible Purchasers............................................ 4
C. Investment Strategies and Risks................................ 4
D. Fund Policies/Investment Restrictions.......................... 16
III. Management of the Fund.............................................. 19
A. Board of Trustees.............................................. 19
B. Management Information......................................... 19
C. Compensation................................................... 25
IV. Control Persons and Principal Holders of Securities................. 26
V. Investment Management and Other Services............................ 26
A. Investment Manager and Sub-Advisors............................ 26
B. Services Provided by the Investment Manager and Fund Expenses
Paid by Third Parties.......................................... 29
C. Other Service Providers........................................ 30
VI. Brokerage Allocation and Other Practices............................ 31
A. Brokerage Transactions......................................... 31
B. Commissions.................................................... 31
C. Brokerage Selection............................................ 33
D. Directed Brokerage............................................. 34
E. Regular Broker-Dealers......................................... 34
VII. Capital Stock and Other Securities.................................. 35
VIII. Purchase, Redemption and Pricing of Shares.......................... 36
A. Purchase/Redemption of Shares.................................. 36
B. Offering Price................................................. 36
IX. Taxation of the Fund and Shareholders............................... 39
X. Calculation of Performance Data..................................... 39
XI. Financial Statements................................................ 41
</TABLE>
2
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GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CONTRACT"--Variable annuity contract and/or variable life insurance contract
issued by Hartford Life Insurance Company and Hartford Life and Annuity
Insurance Company.
"CONTRACT OWNERS"--Owners of a Contract.
"CUSTODIAN"--The Bank of New York for each Portfolio other than the EMERGING
MARKETS PORTFOLIO and grouping (1) of the DIVERSIFIED INCOME PORTFOLIO. The
Chase Manhattan Bank for the EMERGING MARKETS PORTFOLIO and grouping (1) of the
DIVERSIFIED INCOME PORTFOLIO.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"FUND"--Morgan Stanley Dean Witter Select Dimensions Investment Series, a
registered open-end series investment company currently consisting of thirteen
Portfolios.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor; and (ii) that
hold themselves out to investors as related companies for investment and
investor services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW INVESTMENT MANAGEMENT"--Morgan Stanley Dean Witter Investment Management
Inc., a wholly-owned investment advisor subsidiary of MSDW.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"PORTFOLIO(S)"--The separate investment portfolio(s) of the Fund.
"SUB-ADVISORS"--TCW Funds Management, Inc. (only applicable to the North
American Government Securities Portfolio, the Emerging Markets Portfolio and the
Mid-Cap Equity Portfolio) and Morgan Stanley Asset Management Inc. (only
applicable to the Growth Portfolio and the International Portfolio).
"TCW"--TCW Funds Management Inc.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized under the laws of the Commonwealth of Massachusetts
on June 2, 1994, under the name Dean Witter Select Dimensions Investment Series
and is a trust of the type commonly referred to as a Massachusetts Business
Trust. Effective June 22, 1998, the Fund's name was changed to Morgan Stanley
Dean Witter Select Dimensions Investment Series. Effective March 2, 1998, the
name of the BALANCED PORTFOLIO was changed to the BALANCED GROWTH PORTFOLIO and
the name of the CORE EQUITY PORTFOLIO was changed to the GROWTH PORTFOLIO.
Effective April 26, 1999, the name of the AMERICAN VALUE PORTFOLIO was changed
to the AMERICAN OPPORTUNITIES PORTFOLIO. Effective August 5, 1999, the name of
the Mid-Cap Growth Portfolio was changed to the Mid-Cap Equity Portfolio.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company.
B. ELIGIBLE PURCHASERS
As discussed in the Prospectus, shares of the Fund are sold only to
particular insurance companies in connection with variable annuity and/or
variable life insurance contracts they issue. It is conceivable that in the
future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
funds. Although neither the insurance companies nor the Fund currently foresee
any such disadvantage, the Trustees intend to monitor events in order to
identify any material irreconcilable conflict between the interest of variable
annuity contract owners and variable life insurance contract owners and to
determine what action, if any, should be taken in response thereto.
C. INVESTMENT STRATEGIES AND RISKS
The following discussion of each Portfolio's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
CONVERTIBLE SECURITIES. Each Portfolio, other than the MONEY MARKET
PORTFOLIO, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the
VALUE-ADDED MARKET PORTFOLIO, may acquire through purchase fixed-income
securities which are convertible into common stock ("CONVERTIBLE SECURITIES").
In addition, each Portfolio, other than the MONEY MARKET PORTFOLIO, may acquire
convertible securities through a distribution by a security held in its
portfolio. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege)
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and to decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its conversion
value. (This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by a
Portfolio at varying price levels above their investment values and/ or their
conversion values in keeping with the Portfolio's objective.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO, the GROWTH PORTFOLIO, the
DEVELOP-
4
<PAGE>
ING GROWTH PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP GROWTH
PORTFOLIO, the UTILITIES PORTFOLIO, and the EMERGING MARKETS PORTFOLIO may enter
into forward foreign currency exchange contracts ("FORWARD CONTRACTS") to
facilitate settlement or in an attempt to limit the effect of changes in the
relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received. In addition, the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL EQUITY
PORTFOLIO, and the EMERGING MARKETS PORTFOLIO may enter into forward contracts
as a hedge against fluctuations in future foreign exchange rates. Each Portfolio
may conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward contracts to purchase or sell foreign
currencies. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial and investment
banks) and their customers. Forward contracts will only be entered into with
United States banks and their foreign branches, insurance companies or other
dealers or foreign banks whose assets total $1 billion or more. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
The Portfolios also may from time to time utilize forward contracts to hedge
a foreign security held in the portfolio or a security which pays out principal
tied to an exchange rate between the U.S. dollar and a foreign currency, against
a decline in value of the applicable foreign currency. They also may be used to
lock in the current exchange rate of the currency in which those securities
anticipated to be purchased are denominated. At times, the Portfolios may enter
into "cross-currency" hedging transactions involving currencies other than those
in which securities are held or proposed to be purchased are denominated.
A Portfolio will not enter into forward currency contracts or maintain a net
exposure to these contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's portfolio securities.
Although a Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
A Portfolio may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.
Forward contracts may limit gains on portfolio securities that could
otherwise be realized had they not been utilized and could result in losses. The
contracts also may increase the Portfolio's volatility and may involve a
significant amount of risk relative to the investment of cash.
OPTION AND FUTURES TRANSACTIONS. Each of the following Portfolios may
engage in transactions in listed and OTC options: the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED GROWTH
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the
MID-CAP EQUITY PORTFOLIO, the GLOBAL EQUITY PORTFOLIO, and the EMERGING MARKETS
PORTFOLIO. Listed options are issued or guaranteed by the exchange on which they
are traded or by a clearing corporation such as the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Portfolio the right to buy
from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell to the OCC (in the U.S.) or other
clearing corporation or exchange, the underlying security or currency at that
exercise price prior to the expiration date of the option, regardless of its
then current market price. Ownership of a listed put option would give the
Portfolio the right to sell the underlying security or currency to the OCC (in
the U.S.) or other clearing corporation or exchange, at
5
<PAGE>
the stated exercise price. Upon notice of exercise of the put option, the writer
of the put would have the obligation to purchase the underlying security or
currency from the OCC (in the U.S.) or other clearing corporation or exchange,
at the exercise price.
COVERED CALL WRITING. Each of the above-named Portfolios (except the
BALANCED GROWTH PORTFOLIO) is permitted to write covered call options on
portfolio securities, without limit, and the BALANCED GROWTH PORTFOLIO is
permitted to write covered call options on portfolio securities in an amount not
exceeding 5% of the value of its total assets. Each of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may also write covered call
options on the U.S. dollar and foreign currencies in which its portfolio
securities are denominated, without limit.
The Portfolio will receive from the purchaser, in return for a call it has
written, a "premium;" I.E., the price of the option. Receipt of these premiums
may better enable the Portfolio to earn a higher level of current income than it
would earn from holding the underlying securities (or currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Portfolio if the securities (or currencies) underlying the
option decline in value.
The Portfolio may be required, at any time during the option period, to
deliver the underlying security (or currency) against payment of the exercise
price on any calls it has written. This obligation is terminated upon the
expiration of the option period or at such earlier time when the writer effects
a closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
will be unable to effect a closing purchase transaction.
A call option is "covered" if a Portfolio owns the underlying security
subject to the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional consideration
(in cash, Treasury bills or other liquid portfolio securities) held in a
segregated account on the Fund's books) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if a Portfolio
holds a call on the same security as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written if the
difference is maintained by a Portfolio in cash, Treasury bills or other liquid
portfolio securities in a segregated account on the Fund's books.
Options written by the Portfolio normally have expiration dates of from up
to eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
COVERED PUT WRITING. Each of the Portfolios that may engage in covered call
writing may engage in covered put writing. As a writer of a covered put option,
the Portfolio incurs an obligation to buy the security underlying the option
from the purchaser of the put, at the option's exercise price at any time during
the option period, at the purchaser's election. Through the writing of a put
option, the Portfolio would receive income from the premium paid by purchasers.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction). At any time during
the option period, the Portfolio may be required to make payment of the exercise
price against delivery of the underlying security (or currency). A put option is
"covered" if a Portfolio maintains cash, Treasury bills or other liquid
portfolio securities with a value equal to the exercise price in a segregated
account on the Fund's books, or holds a put on the same security as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written. The aggregate value of the obligations
underlying puts may not exceed 50% of the Portfolio's net assets (in the case of
the BALANCED GROWTH PORTFOLIO, 30% of the Portfolio's total assets).
PURCHASING CALL AND PUT OPTIONS. Each of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED GROWTH
PORTFOLIO may purchase listed and OTC call and put options in amounts equaling
up to 5% of its total assets and, in the case of the EMERGING MARKETS PORTFOLIO,
up to 10% of its total assets. Each of the UTILITIES PORTFOLIO, the AMERICAN
OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY PORTFOLIO and the GLOBAL EQUITY
PORTFOLIO may purchase call and put options in an
6
<PAGE>
amount equaling up to 10% of its total assets with a maximum of 5% of its assets
invested in stock index options. The BALANCED GROWTH PORTFOLIO may purchase put
and call options on stock indexes in an amount equaling up to 5% of its total
assets. The purchase of a call option would enable a Portfolio, in return for
the premium paid, to lock in a purchase price for a security or currency during
the term of the option. The purchase of a put option would enable a Portfolio,
in return for a premium paid, to lock in a price at which it may sell a security
or currency during the term of the option.
OPTIONS ON FOREIGN CURRENCIES. The 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.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a
Portfolio. With OTC options, such variables as expiration date, exercise price
and premium will be agreed upon between a Portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. The Portfolios may
engage in OTC option transactions only with member banks of the Federal Reserve
Bank System or primary dealers in U.S. Government securities or with affiliates
of such banks or dealers.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager or, if applicable, the Sub-Advisors, to
forecast correctly interest rates, currency exchange rates and/or market
movements. If the market value of the portfolio securities (or the currencies in
which they are denominated) upon which call options have been written increases,
a Portfolio may receive a lower total return from the portion of its portfolio
upon which calls have been written than it would have had such calls not been
written. During the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the value of its denominated currency) increase, but has retained the risk of
loss should the price of the underlying security (or the value of its
denominated currency) decline. The covered put writer also retains the risk of
loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Prior to exercise
or expiration, an option position can only be terminated by entering into a
closing purchase or sale transaction. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price.
A Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in options, the Portfolio could experience delays and/or losses
in liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. In the case of OTC
options, if the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, due to insolvency or otherwise, the Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the
Portfolios may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying
7
<PAGE>
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
The markets in foreign currency options are relatively new and a Portfolio's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
STOCK INDEX OPTIONS. Each of the BALANCED GROWTH PORTFOLIO, the UTILITIES
PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY PORTFOLIO
and the GLOBAL EQUITY PORTFOLIO may invest in options on stock indexes. Options
on stock indexes are similar to options on stock except that, rather than the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, a Portfolio could not, if it wrote a call option, provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock
8
<PAGE>
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. Each of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED GROWTH PORTFOLIO, the
UTILITIES PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY
PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO may
purchase and sell interest rate and index futures contracts that are traded on
U.S. commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, bills and GNMA Certificates and, in the case of the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the GLOBAL
EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO on any foreign government
fixed-income security and on various currencies, and with respect to each of the
eight listed Portfolios that may engage in futures transactions, on such indexes
of U.S. securities (and, if applicable, foreign securities) as may exist or come
into existence.
A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables a Portfolio, during the term of the contract, to lock in a
price at which it may purchase a security or currency and protect against a rise
in prices pending purchase of portfolio securities. The sale of a futures
contract enables a Portfolio to lock in a price at which it may sell a security
or currency and protect against declines in the value of portfolio securities.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that a Portfolio will be able to enter into a
closing transaction.
MARGIN. If a Portfolio enters into a futures contract, it is initially
required to deposit an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities ranging from approximately 2% to 5% of the
contract amount. Initial margin requirements are established by the exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Portfolio upon the proper termination of
the futures
9
<PAGE>
contract. The margin deposits made are marked-to-market daily and the Portfolio
may be required to make subsequent deposits of cash or U.S. Government
securities, called "variation margin," which are reflective of price
fluctuations in the futures contract.
OPTIONS ON FUTURES CONTRACTS. Each of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED GROWTH
PORTFOLIO, the UTILITIES PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the
MID-CAP EQUITY PORTFOLIO, the GLOBAL EQUITY PORTFOLIO and the EMERGING MARKETS
PORTFOLIO may purchase and write call and put options on futures contracts and
enter into closing transactions with respect to such options to terminate an
existing position. An option on a futures contract gives the purchaser the right
(in return for the premium paid), and the writer the obligation, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the term of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option is
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract at the time of exercise exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the futures
contract.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. A Portfolio may
not enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Portfolio's total assets, after taking into account unrealized gains and
unrealized losses on such contracts into which it has entered; provided,
however, that in the case of an option that is in-the-money (the exercise price
of the call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage of
a Portfolio's net assets which may be subject to a hedge position.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Portfolio's securities (and the currencies in which they are
denominated). Also, prices of futures contracts may not move in tandem with the
changes in prevailing interest rates, market movements and/or currency exchange
rates against which a Portfolio seeks a hedge. A correlation may also be
distorted (a) temporarily, by short-term traders' seeking to profit from the
difference between a contract or security price objective and their cost of
borrowed funds; (b) by investors in futures contracts electing to close out
their contracts through offsetting transactions rather than meet margin deposit
requirements; (c) by investors in futures contracts opting to make or take
delivery of underlying securities rather than engage in closing transactions,
thereby reducing liquidity of the futures market; and (d) temporarily, by
speculators who view the deposit requirements in the futures markets as less
onerous than margin requirements in the cash market. Due to the possibility of
price distortion in the futures market and because of the possible imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of interest rate, currency
exchange rate and/or market movement trends by the Investment Manager (and/or if
applicable, the Sub-Advisors) may still not result in a successful hedging
transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a Portfolio may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin. The
absence of a liquid market in futures contracts might cause the Portfolio to
make or take delivery of the underlying securities (currencies) at a time when
it may be disadvantageous to do so.
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Exchanges also limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin on
open futures positions. In these situations, if the Portfolio has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on a Portfolio's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit a Portfolio's ability to enter into
certain commodity transactions on foreign exchanges. Moreover, differences in
clearance and delivery requirements on foreign exchanges may occasion delays in
the settlement of a Portfolio's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in futures or options thereon, the Portfolio could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker.
ADDITIONAL INFORMATION CONCERNING THE NORTH AMERICAN GOVERNMENT SECURITIES AND
DIVERSIFIED INCOME PORTFOLIOS
COLLATERALIZED MORTGAGE OBLIGATIONS. The Portfolio(s) may invest in CMOs -
collateralized mortgage obligations. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (collectively "Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets and any
reinvestment income are used to make payments on the CMOs. CMOs are issued in
multiple classes. Each class has a specific fixed or floating coupon rate and a
stated maturity or final distribution date. The principal and interest on the
Mortgage Assets may be allocated among the classes in a number of different
ways. Certain classes will, as a result of the collection, have more predictable
cash flows than others. As a general matter, the more predictable the cash flow,
the lower the yield relative to other Mortgage Assets. The less predictable the
cash flow, the higher the yield and the greater the risk. The Portfolio(s) may
invest in any class of CMO.
Certain mortgage-backed securities in which the Portfolio(s) may invest
(E.G.,certain classes of CMOs) may increase or decrease in value substantially
with changes in interest rates and/or the rates of prepayment. In addition, if
the collateral securing CMOs or any third party guarantees are insufficient to
make payments, the Portfolio could sustain a loss.
In addition, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the
DIVERSIFIED INCOME PORTFOLIO may invest in stripped mortgage-backed securities,
which are usually structured in two classes. One class entitles the holder to
receive all or most of the interest but little or none of the principal of a
pool of Mortgage Assets (the interest-only or "IO Class"), while the other class
entitles the holder to receive all or most of the principal but little or none
of the interest (the principal-only or "PO" Class). IOs tend to decrease in
value substantially if interest rates decline and prepayment rates become more
rapid. POs tend to decrease in value substantially if interest rates increase
and the rate of repayment decreases.
The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO may invest up to 10% of
its assets in inverse floaters. An inverse floater has a coupon rate that moves
in the direction opposite to that of a designated interest rate index. Like most
other fixed income securities, the value of inverse floaters will decrease as
interest rates increase. They are more volatile, however, than most other fixed
income securities because the coupon rate on an inverse floater typically
changes at a multiple of the change in the relevant index
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rate. Thus, any rise in the index rate (as a consequence of an increase in
interest rates) causes a correspondingly greater drop in the coupon rate of an
inverse floater while a drop in the index rate causes a correspondingly greater
increase in the coupon of an inverse floater. Some inverse floaters may also
increase or decrease substantially because of changes in the rate of
prepayments.
ASSET-BACKED SECURITIES. Each of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO and the BALANCED GROWTH PORTFOLIO
may invest in Asset-Backed Securities. Asset-Backed Securities represent the
securitization techniques used to develop mortgage-backed securities are also
applied to a broad range of other assets. Various types of assets, primarily
automobile and credit card receivables and home equity loans, are being
securitized in pass-through structures similar to the mortgage pass-through
structures. These types of securities are known as asset-backed securities. The
Portfolio(s) may invest in any type of asset-backed security.
Asset-backed securities have risk characteristics similar to mortgage-backed
securities. Like mortgage-backed securities, they generally decrease in value as
a result of interest rate increases, but may benefit less than other
fixed-income securities from declining interest rates, principally because of
prepayments. Also, as in the case of mortgage-backed securities, prepayments
generally increase during a period of declining interest rates although other
factors, such as changes in credit use and payment patterns, may also influence
prepayment rates. Asset-backed securities also involve the risk that various
federal and state consumer laws and other legal and economic factors may result
in the collateral backing the securities being insufficient to support payment
on the securities.
MONEY MARKET SECURITIES. In addition to the short-term fixed-income
securities in which the Portfolios may otherwise invest, the Portfolios may
invest in various money market securities for cash management purposes or when
assuming a temporary position, which among others may include commercial paper,
bank acceptances, bank obligations, corporate debt securities, certificates of
deposit, U.S. Government securities, obligations of savings institutions and
repurchase agreements. This section does not apply to the MONEY MARKET
PORTFOLIO, the BALANCED GROWTH PORTFOLIO and the DIVERSIFIED INCOME PORTFOLIO
whose money market instruments are described in the Prospectus. Such securities
are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan association, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of a Portfolio's total assets in all such obligations and in all illiquid
assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
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REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements.
When cash may be available for only a few days, it may be invested by a
Portfolio in repurchase agreements until such time as it may otherwise be
invested or used for payments of obligations of the Portfolio. These agreements,
which may be viewed as a type of secured lending by the Portfolio, typically
involve the acquisition by the Portfolio of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Portfolio will sell back to the
institution, and that the institution will repurchase, the underlying security
serving as collateral at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. The collateral will
be marked-to-market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Portfolio will accrue interest from the institution until
the time when the repurchase is to occur. Although this date is deemed by the
Portfolio to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, 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 continually monitored by the Investment
Manager or, in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the GROWTH PORTFOLIO and the EMERGING MARKETS PORTFOLIO, the Sub-Advisors,
subject to procedures established by the Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the case of the MONEY MARKET PORTFOLIO, such
collateral will consist entirely of securities that are direct obligations of,
or that are fully guaranteed as to principal and interest by, the United States
or any agency thereof, and/or certificates of deposit, bankers' acceptances
which are eligible for acceptance by a Federal Reserve Bank, and, if the seller
is a bank, mortgage related securities (as such term is defined in section
3(a)(41) of the Securities Exchange Act of 1934) that at the time the repurchase
agreement is entered into are rated in the highest rating category by the
"Requisite NRSROs" (as defined in Rule 2a-7 under the Investment Company Act of
1940). Additionally, in the case of the MONEY MARKET PORTFOLIO, the collateral
must qualify the repurchase agreement for preferential treatment under the
Federal Deposit Insurance Act of the Federal Bankruptcy Code. In the event of a
default or bankruptcy by a selling financial institution, the Portfolio will
seek to liquidate such collateral. However, the exercising of the Portfolio's
right to liquidate such collateral could involve certain costs or delays and, to
the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Portfolio could suffer a
loss. It is the current policy of each Portfolio not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Portfolio, amounts to more than 10%
of its net assets in the case of the MONEY MARKET PORTFOLIO, and 15% of its net
assets in the case of each of the other Portfolios.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each of the MONEY MARKET
PORTFOLIO, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED GROWTH PORTFOLIO may use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. The NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED
INCOME PORTFOLIO and the BALANCED GROWTH PORTFOLIO may also use dollar rolls as
part of their investment strategy.
Reverse repurchase agreements involve sales by the Portfolio of assets
concurrently with an agreement by the Portfolio to repurchase the same assets at
a later date at a fixed price. Reverse repurchase agreements involve the risk
that the market value of the securities the Portfolio is obligated to purchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the Portfolio's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Portfolio's obligation to repurchase the
securities.
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Dollar rolls involve the Portfolio selling securities for delivery in the
current month and simultaneously contracting to repurchase substantially similar
(same type and coupon) securities on a specified future date. During the roll
period, the Portfolio will forgo principal and interest paid on the securities.
The Portfolio is compensated by the difference between the current sales price
and the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage and are considered borrowings by the Portfolio. With respect
to each of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the
DIVERSIFIED INCOME PORTFOLIO, reverse repurchase agreements and dollar rolls are
not expected to exceed 25% of the Portfolio's total assets. With respect to the
MONEY MARKET PORTFOLIO, reverse repurchase agreements (other than for purposes
of meeting redemptions) may not exceed 5% of the Portfolio's total assets.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. Each of the BALANCED GROWTH
PORTFOLIO, the UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the GROWTH
PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY PORTFOLIO,
the GLOBAL EQUITY PORTFOLIO, the DEVELOPING GROWTH PORTFOLIO and the EMERGING
MARKETS PORTFOLIO may invest in real estate investment trusts, which pool
investors' funds for investments primarily in commercial real estate properties.
Investment in real estate investment trusts may be the most practical available
means for a Portfolio to invest in the real estate industry (the Fund is
prohibited from investing in real estate directly). As a shareholder in a real
estate investment trust, a Portfolio would bear its ratable share of the real
estate investment trust's expenses, including its advisory and administration
fees. At the same time the Portfolio would continue to pay its own investment
management fees and other expenses, as a result of which the Portfolio and its
shareholders in effect will be absorbing duplicate levels of fees with respect
to investments in real estate investment trusts. Real estate investment trusts
are not diversified and are subject to the risk of financing projects. They are
also subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free status
under the Internal Revenue Code and failing to maintain exemption from the
Investment Company Act.
LENDING PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities to brokers, dealers and other financial institutions, provided that
the loans are callable at any time by the Portfolio, and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least 100%
of the market value, determined daily, of the loaned securities. The advantage
of these loans is that the Portfolio continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. A
Portfolio will not lend securities with a value exceeding 25% of the Portfolio's
total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Portfolio's management to be creditworthy
and when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Portfolio. Any gain or loss in the market price during the
loan period would inure to the Portfolio.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Portfolio will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of the
rights if the matters involved would have a material effect on the Portfolio's
investment in the loaned securities. The Portfolio will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, each Portfolio other than the 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 these transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of commitment. While a
Portfolio will only purchase
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securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Portfolio may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date.
At the time a Portfolio makes the commitment to purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis, it will record
the transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of a
Portfolio's assets committed to the purchase of securities on a when-issued,
delayed delivery or forward commitment basis may increase the volatility of its
net asset value. The Portfolio will also establish a segregated account on its
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio other than the MONEY
MARKET PORTFOLIO 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 a Portfolio until the Portfolio
determines that issuance of the security is probable. At that time, the
Portfolio will record the transaction and, in determining its net asset value,
will reflect the value of the security daily. At that time, the Portfolio will
also establish a segregated account on the Portfolio's books in which it will
maintain cash or cash equivalents or other liquid portfolio securities equal in
value to recognized commitments for such securities.
The value of a Portfolio's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Portfolio, may not exceed 5% of the value of the Portfolio's total assets at the
time the initial commitment to purchase such securities is made. An increase in
the percentage of the Portfolio assets committed to the purchase of securities
on a "when, as and if issued" basis may increase the volatility of its net asset
value. A Portfolio may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Portfolio at the time of sale.
PRIVATE PLACEMENTS. Each of the NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, the BALANCED GROWTH PORTFOLIO, the
UTILITIES PORTFOLIO, the DIVIDEND GROWTH PORTFOLIO, the GROWTH PORTFOLIO, the
AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY 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 which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "SECURITIES ACT"), or which are otherwise not
readily marketable. (With respect to these eleven Portfolios, securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) Limitations on the
resale of these securities may have an adverse effect on their marketability,
and may prevent a Portfolio from disposing of them promptly at reasonable
prices. A Portfolio may have to bear the expense of registering the securities
for resale and the risk of substantial delays in effecting the registration.
Rule 144A permits the above-listed Portfolios to sell restricted securities
to qualified institutional buyers without limitation. The Investment Manager or,
in the case of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the EMERGING
MARKETS PORTFOLIO and the GROWTH PORTFOLIO, the Sub-Advisors, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by a Portfolio. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which under current policy may not exceed,
as to each Portfolio (other than the MONEY MARKET PORTFOLIO), 15% of the
Portfolio's total assets and as to the MONEY MARKET PORTFOLIO, 10% of the
Portfolio's net assets, as more fully described under "Fund Policies/ Investment
Restrictions" below. However, investing in Rule 144A securities could have the
effect of
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increasing the level of Portfolio illiquidity to the extent the Portfolio, at a
particular point in time, may be unable to find qualified institutional buyers
interested in purchasing such securities.
WARRANTS AND SUBSCRIPTION RIGHTS. Each Portfolio, other than the MONEY
MARKET PORTFOLIO, the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the
VALUE-ADDED MARKET PORTFOLIO, may acquire warrants and subscription rights
attached to other securities. 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 its assets in warrants not attached to other
securities with a limit of up to 2% of its total assets in warrants that are not
listed on the New York or American Stock Exchange. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock. A subscription right is freely transferable.
YEAR 2000. The investment management services provided to the Portfolios by
the Investment Manager, and, in the case of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the EMERGING MARKETS PORTFOLIO and the GROWTH PORTFOLIO,
by the Sub-Advisors, and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
the handling of securities trades, pricing and account services. The Investment
Manager, the Sub-Advisors, the Distributor and the Transfer Agent have been
actively working on necessary changes to their own computer systems to prepare
for the year 2000 and expect that their systems will be adapted before that
date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
In addition, it is possible that the markets for securities in which the
Portfolios invest may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. Corporate and governmental data processing errors also may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Portfolios' investments may be adversely affected.
REITS. REITs pool investors' funds for investments primarily in commercial
real estate properties. Like mutual funds, REITs have expenses, including
advisory and administration fees that are paid by its shareholders. As a result,
you will absorb duplicate levels of fees when the Fund invests in REITs. The
performance of any Fund REIT holdings ultimately depends on the types of real
property in which the REITs invest and how well the property is managed. A
general downturn in real estate values also can hurt REIT performance.
D. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objectives, policies and restrictions listed below have been
adopted by the Fund as fundamental policies of the Portfolios except as
otherwise indicated. Under the Investment Company Act of 1940 (the "INVESTMENT
COMPANY ACT"), a fundamental policy of a Portfolio may not be changed without
the vote of a majority of the outstanding voting securities of the Portfolio.
The Investment Company Act defines a majority as the lesser of (a) 67% or more
of the shares of a Portfolio present at a meeting of Fund shareholders, if the
holders of 50% of the outstanding shares of the Portfolio are present or
represented by proxy; or (b) more than 50% of the outstanding shares of the
Portfolio. For purposes of the following restrictions: (i) all percentage
limitations apply immediately after a purchase or initial investment; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
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INVESTMENT OBJECTIVES
The investment objective of each Portfolio is a fundamental policy, which
may not be changed without approval of shareholders of that Portfolio.
RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
Each Portfolio may not:
1. With the exception of the MONEY MARKET PORTFOLIO, 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, which will invest 25% or
more of its total assets in the utilities industry, 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 or, in the case of the MONEY MARKET
PORTFOLIO, to domestic bank obligations.
4. With the exception of the MONEY MARKET PORTFOLIO, invest more than 5% of
its total assets in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation. This restriction
shall not apply to any obligation issued or guaranteed by the United States
Government, its agencies or instrumentalities 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 GROWTH 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 GROWTH 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 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).
6. 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).
7. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Portfolios may invest in
the securities of companies which operate, invest in, or sponsor such programs.
8. Pledge its assets or assign or otherwise encumber them except: (a) to
secure borrowings effected within the limitations set forth in restriction 5
above; 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.
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Portfolio may be deemed to have issued a senior security by
reason of: (a) entering into any repurchase agreement or reverse repurchase
agreement; (b) purchasing any securities on a when-issued or delayed delivery
17
<PAGE>
basis; (c) purchasing or selling any financial futures contracts or options
thereon; (d) borrowing money in accordance with restrictions described above; or
(e) lending portfolio securities.
10. 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 EMERGING MARKETS
PORTFOLIO, by investing in loan participations and loan assignments.
11. Make short sales of securities.
12. 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.
13. Purchase or sell commodities or commodities contracts except that the
Portfolios may purchase or sell futures contracts or options on futures.
14. 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 fundamental (in the case of the MONEY MARKET PORTFOLIO)
and non-fundamental (in the case of the other Portfolios) limitations applicable
to each Portfolio).
15. Invest for the purpose of exercising control or management of any other
issuer.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY
The MONEY MARKET PORTFOLIO may not:
1. As 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 its 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 liquid 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 Investment Company 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.
If a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in value of portfolio
securities or amount of total or net assets will not be considered a violation
of any of the foregoing restrictions.
18
<PAGE>
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Trustees oversee the management of the Portfolios but do not manage each
Portfolio. The Trustees review various services provided by or under the
direction of the Investment Manager to ensure that each Portfolio's general
investment policies and programs are properly carried out. The Trustees also
conduct their review to ensure that administrative services are provided to each
Portfolio in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and each Portfolio and
not the Trustee's own interest or the interest of another person or
organization. A Trustee satisfies his or her duty of care by acting in good
faith with the care of an ordinarily prudent person and in a manner the Trustee
reasonably believes to be in the best interest of the Fund and each Portfolio
and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other two Trustees (the "MANAGEMENT TRUSTEES") are
affiliated with the Investment Manager. All of the Trustees also serve as
Trustees of "Discover Brokerage Index Series," a mutual fund for which the
Investment Manager is the investment advisor.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 90 Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Michael Bozic (58) Vice Chairman of Kmart Corporation (since December, 1998); Director or
Trustee Trustee of the Morgan Stanley Dean Witter Funds and Discover Brokerage
c/o Kmart Corporation Index Series; formerly Chairman and Chief Executive Officer of Levitz
3100 West Big Beaver Road Furniture Corporation (November, 1995-November, 1998) and President and
Troy, Michigan Chief Executive Officer of Hills Department Stores (May, 1991-July,
1995); formerly variously Chairman, Chief Executive Officer, President
and Chief Operating Officer (1987-1991) of the Sears Merchandise Group
of Sears, Roebuck and Co.; Director of Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) Chairman, Director or Trustee and Chief Executive Officer of the Morgan
Chairman of the Board, Stanley Dean Witter Funds and Discover Brokerage Index Series; formerly
Chief Executive Officer and Trustee Chairman, Chief Executive Officer and Director of the Investment
Two World Trade Center Manager, Morgan Stanley Dean Witter Distributors Inc. ("MSDW
New York, New York Distributors") and MSDW Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and Director of the Transfer
Agent; formerly Director and/or officer of various MSDW subsidiaries
(until June, 1998).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Edwin J. Garn (66) Director or Trustee of the Morgan Stanley Dean Witter Funds and
Trustee Discover Brokerage Index Series; formerly United States Senator
c/o Huntsman Corporation (R-Utah)(1974-1992) and Chairman, Senate Banking Committee (1980-1986);
500 Huntsman Way formerly Mayor of Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of Franklin Covey (time
management systems), BMW Bank of North America, Inc., (industrial loan
corporation), United Space Alliance (joint venture between Lockheed
Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic and charitable organi-
zations.
Wayne E. Hedien (65) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds
Trustee and Discover Brokerage Index Series; Director of The PMI Group, Inc.
c/o Gordon Altman Butowsky (private mortgage insurance); Trustee and Vice Chairman of The Field
Weitzen Shalov & Wein Museum of Natural History; formerly associated with the Allstate
Counsel to the Companies (1966-1994), most recently as Chairman of The Allstate
Independent Trustees Corporation (March, 1993-December, 1994) and Chairman and Chief
114 West 47th Street Executive Officer of its wholly- owned subsidiary, Allstate Insurance
New York, New York Company (July, 1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (50) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick international economic commission; Chairman of the Audit Committee and
International, Inc. Director or Trustee of the Morgan Stanley Dean Witter Funds and
1133 Connecticut Avenue, N.W. Discover Brokerage Index Series; Director of Greenwich Capital Markets,
Washington, D.C. Inc. (broker-dealer) and NVR, Inc. (home construction); Chairman and
Trustee of the Financial Accounting Foundation (oversight organization
of the Financial Accounting Standards Board); formerly Vice Chairman of
the Board of Governors of the Federal Reserve System (1986-1990) and
Assistant Secretary of the U.S. Treasury.
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private investment part-
Trustee nership; Chairman of the Insurance Committee and Director or Trustee of
c/o Triumph Capital, L.P. the Morgan Stanley Dean Witter Funds and Discover Brokerage Index
237 Park Avenue Series; formerly Vice President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); director of various business organizations.
Philip J. Purcell* (55) Chairman of the Board of Directors and Chief Executive Officer of MSDW,
Trustee Dean Witter Reynolds and Novus Credit Services Inc.; Director of the
1585 Broadway MSDW Distributors; Director or Trustee of the Morgan Stanley Dean
New York, New York Witter Funds and Discover Brokerage Index Series; Director and/or
officer of various MSDW subsidiaries.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
John L. Schroeder (68) Retired; Chairman of the Derivatives Committee and Director or Trustee
Trustee of the Morgan Stanley Dean Witter Funds and Discover Brokerage Index
c/o Gordon Altman Butowsky Series; Director of Citizens Utilities Company (telecommunications,
Weitzen Shalov & Wein gas, electric and water utilities company); formerly Executive Vice
Counsel to the Independent President and Chief Investment Officer of the Home Insurance Company
Trustees (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Mitchell M. Merin (45) President and Chief Operating Officer of Asset Management of MSDW
President (since December, 1998); President and Director (since April, 1997) and
Two World Trade Center Chief Executive Officer (since June, 1998) of the Investment Manager
New York, New York and MSDW Services Company; Chairman, Chief Executive Officer and
Director of MSDW Distributors (since June, 1998); Chairman and Chief
Executive Officer (since June, 1998) and Director (since January, 1998)
of the Transfer Agent; Director of various MSDW subsidiaries; President
of the Morgan Stanley Dean Witter Funds and Discover Brokerage Index
Series (since May, 1999); previously Chief Strategic Officer of the
Investment Manager and MSDW Services Company and Executive Vice
President of MSDW Distributors (April, 1997-June, 1998), Vice President
of the Morgan Stanley Dean Witter Funds and Discover Brokerage Index
Series (May, 1997-April, 1999), an Executive Vice President of Dean
Witter, Discover & Co.
Barry Fink (44) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Counsel (since February, 1997) and Director (since July, 1998) of the
Secretary and General Counsel Investment Manager and MSDW Services Company; Senior Vice President
Two World Trade Center (since March, 1997) and Assistant Secretary and Assistant General
New York, New York Counsel (since February, 1997) of MSDW Distributors; Assistant
Secretary of Dean Witter Reynolds (since August, 1996); Vice President,
Secretary and General Counsel of the Morgan Stanley Dean Witter Funds
(since February, 1997); Vice President, Secretary and General Counsel
of Discover Brokerage Index Series; previously First Vice President
(June, 1993-February, 1997), Vice President and Assistant Secretary and
Assistant General Counsel of the Investment Manager and MSDW Services
Company and Assistant Secretary of the Morgan Stanley Dean Witter
Funds.
Peter M. Avelar (40) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Mark Bavoso (38) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (57) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Rajesh K. Gupta (38) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Peter Hermann (39) Vice President of the Investment Manager (since May, 1995) and
Vice President portfolio manager with the Investment Manager (since March, 1994); Vice
Two World Trade Center President of various Morgan Stanley Dean Witter Funds.
New York, New York
Anita H. Kolleeny (43) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Paula LaCosta (47) Vice President of the Investment Manager; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page (52) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Guy G. Rutherfurd Jr. (59) Senior Vice President of the Investment Manager (since February 1997);
Vice President Vice President of various Morgan Stanley Dean Witter Funds; formerly
Two World Trade Center Executive Vice President and Chief Investment Officer of Nomura Asset
New York, New York Management (U.S.A.) Inc. (May, 1992-February, 1997).
Rochelle G. Siegel (50) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Anne Pickrell (45) Vice President of the Investment Manager (since April, 1996); Vice
Vice President President of various Morgan Stanley Dean Witter Funds; previously
Two World Trade Center Assistant Vice President of the Investment Manager.
New York, New York
Peter J. Seeley (49) Vice President of the Investment Manager (since April, 1996); Vice
Vice President President of various Morgan Stanley Dean Witter Funds; previously
Two World Trade Center Senior Fixed-Income Portfolio Manager with the Investment Manager
New York, New York (July, 1994-April, 1996) and prior thereto Senior Vice President of
Nikko Capital Management (October, 1992-June, 1994).
Paul D. Vance (63) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Jayne Stevlingson (39) Senior Vice President of the Investment Manager; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Alice S. Weiss (50) Vice President of MSDW Advisors; Vice President of various Morgan
Vice President Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Philip A. Barach (46) 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.
Los Angeles, California
James M. Goldberg (53) 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.
Los Angeles, California
Jeffrey E. Gundlach (39) Group Managing Director of TCW Funds Management, Inc.; Managing
Vice President Director, Mortgage-Backed Securities of Trust Company of the West and
865 South Figueroa Street TCW Asset Management Company.
Los Angeles, California
Frederick E. Horton (40) Managing Director of TCW.
Vice President
865 South Figueroa Street
Los Angeles, California
Terence F. Mahony (56) Managing Director and Head of Emerging Markets Equities of TCW (since
Vice President April, 1996); previously Chief Investment Officer for Global Emerging
865 South Figueroa Street Markets at HSBC Asset Management (September, 1993-April, 1996).
Los Angeles, California
Michael P. Reilly (35) Managing Director of TCW.
Vice President
865 South Figueroa Street
Los Angeles, California
Armon Bar-Tur (29) Vice President of the Investment Manager (since February, 1999) and
Assistant Vice President Portfolio Manager with the Investment Manager (since October, 1996);
Two World Trade Center previously Assistant Vice President of the Investment Manager
New York, New York (February, 1998-February, 1999) and prior thereto Research Analyst with
Merrill Lynch Asset Management (February, 1994-January, 1996).
Michelle Kaufman (34) Senior Vice President of the Investment Manager (since February, 1999)
Assistant Vice President and Portfolio Manager with the Investment Manager (since September,
Two World Trade Center 1993); Vice President or Assistant Vice President of various Morgan
New York, New York Stanley Dean Witter Funds; previously Vice President of the Investment
Manager (June, 1997-February, 1999) and prior thereto Assistant Vice
President of the Investment Manager (May, 1995-June, 1997).
Thomas F. Caloia (53) First Vice President and Assistant Treasurer of the Investment Manager,
Treasurer the Distributor, and MSDW Services Company; Treasurer of the Morgan
Two World Trade Center Stanley Dean Witter Funds and Discover Brokerage Index Series.
New York, New York
</TABLE>
- -------------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Investment Company Act.
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, MSDW Distributors and the Transfer Agent and Director of
the Transfer Agent, and JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
are Vice Presidents of the Fund.
23
<PAGE>
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS,
CARSTEN OTTO AND RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, and TODD LEBO,
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. All of the Independent Trustees serve as
members of the Audit Committee. In addition, three of the Trustees, including
two Independent Trustees, serve as members of the Derivatives Committee and the
Insurance Committee.
The Independent Trustees are charged with recommending to the full Board
approval of man-agement, advisory and administration contracts and distribution
and underwriting agreements; continually reviewing Portfolio performance;
checking on the pricing of portfolio securities, brokerage commissions, transfer
agent costs and performance, and trading among Funds in the same complex; and
approving fidelity bond and related insurance coverage and allocations, as well
as other matters that arise from time to time.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
The Board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Portfolios.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds' management
believe that having the same Independent Trustees for each of the Morgan Stanley
Dean Witter Funds avoids the duplication of effort that would arise from having
different groups of individuals serving as Independent Trustees for each of the
Funds or even of sub-groups of Funds. They believe that having the same
individuals serve as Independent Trustees of all the Funds tends to increase
their knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent Trustees
serve on all Fund Boards enhances the ability of each Fund to obtain, at modest
cost to each separate Fund, the services of Independent Trustees, of the
caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
24
<PAGE>
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended December 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic.................................................................................... $ 1,500
Edwin J. Garn.................................................................................... 1,650
Wayne E. Hedien.................................................................................. 1,650
Dr. Manuel H. Johnson............................................................................ 1,600
Michael E. Nugent................................................................................ 1,650
John L. Schroeder................................................................................ 1,650
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds. No compensation was paid to the
Fund's Independent Trustees by Discover Brokerage Index Series for the calendar
year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION FOR
SERVICES TO 90
MORGAN STANLEY
DEAN WITTER FUNDS
AND 11 TCW/DW
NAME OF INDEPENDENT TRUSTEE FUNDS
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Michael Bozic................................................................................. $ 120,150
Edwin J. Garn................................................................................. 132,450
Wayne E. Hedien............................................................................... 132,350
Dr. Manuel H. Johnson......................................................................... 155,681
Michael E. Nugent............................................................................. 155,731
John L. Schroeder............................................................................. 160,731
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an Independent Trustee who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "ADOPTING FUND"
and each such Trustee referred to as an "ELIGIBLE TRUSTEE") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service.
25
<PAGE>
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended December 31,
1998 and by the 55 Morgan Stanley Dean Witter Funds (not including the Fund) for
the year ended December 31, 1998, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1998 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1998.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
-------------------------------------
ESTIMATED
CREDITED YEARS ESTIMATED
OF SERVICE AT PERCENTAGE OF RETIREMENT BENEFITS ESTIMATED ANNUAL BENEFITS
RETIREMENT ELIGIBLE ACCRUED AS EXPENSES UPON RETIREMENT FROM
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION BY ALL ADOPTING FUNDS ALL ADOPTING FUNDS(2)
- ------------------------------ ---------------- ------------------ --------------------- --------------------------
<S> <C> <C> <C> <C>
Michael Bozic................. 10 60.44% $ 22,377 $ 52,250
Edwin J. Garn................. 10 60.44 35,225 52,250
Wayne E. Hedien............... 9 51.37 41,978 44,413
Dr. Manuel H. Johnson......... 10 60.44 14,047 52,250
Michael E. Nugent............. 10 60.44 25,336 52,250
John L. Schroeder............. 8 50.37 45,117 44,343
</TABLE>
- ------------------------------
(1) An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount, when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, Hartford Life
Insurance Company and Hartford Life and Annuity Insurance Company owned all of
the outstanding shares of the Fund for allocation to their respective separate
accounts ("ACCOUNTS"), none of the Fund's Trustees was a Contract Owner under
the Accounts, and the aggregate number of shares of each Portfolio of the Fund
allocated to Contracts owned by the Fund's officers as a group was less than one
percent of each Portfolio's outstanding shares.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER AND SUB-ADVISORS
The Investment Manager to each Portfolio is Morgan Stanley Dean Witter
Advisors Inc., a Delaware corporation, whose address is Two World Trade Center,
New York, New York 10048. The Investment Manager is a wholly-owned subsidiary of
MSDW, a Delaware corporation. MSDW is a preeminent global
26
<PAGE>
financial services firm that maintains leading market positions in each of its
three primary businesses: securities, asset management and credit services.
The Sub-Advisor to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
MID-CAP EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO is TCW Funds
Management Inc., a 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. TCW's address is 865 South Figueroa Street, Suite 1800, Los
Angeles, California 90017. TCW was retained to provide sub-advisory services to
the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the EMERGING MARKETS
PORTFOLIO since the inception of each Portfolio. TCW has been retained to
provide sub-advisory services to the Mid-Cap Equity Portfolio since August,
1999.
The Sub-Advisor to the GROWTH PORTFOLIO is Morgan Stanley Dean Witter
Investment Management Inc., a subsidiary of MSDW. MSDW Investment Management,
together with its affiliated asset management companies, conducts a worldwide
portfolio management business and provides a broad range of portfolio management
services to customers in the United States and abroad. MSDW Investment
Management's address is 1221 Avenue of the Americas, New York, New York 10020.
MSDW Investment Management was retained to provide sub-advisory services to the
GROWTH PORTFOLIO effective March 2, 1998.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide each Portfolio administrative services, manage its business affairs and,
other than with respect to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the EMERGING MARKETS PORTFOLIO and the GROWTH PORTFOLIO, manage its investments,
including the placing of orders for the purchase and sale of portfolio
securities. With respect to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO,
the EMERGING MARKETS PORTFOLIO and the GROWTH PORTFOLIO, the Investment Manager
supervises these Portfolios' investments. The Fund pays the Investment Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of each Portfolio determined as of the close of each business
day:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO INVESTMENT MANAGEMENT FEE RATES
- ------------------------------------------- ---------------------------------------------------------------------
<S> <C>
The Money Market Portfolio 0.50% of net assets
The North American Government Securities 0.65% of net assets
Portfolio
The Diversified Income Portfolio 0.40% of net assets
The Balanced Growth Portfolio 0.60% of net assets
The Utilities Portfolio 0.65% of net assets
The Dividend Growth Portfolio 0.625% of net assets up to $500 million;
0.50% of net assets exceeding $500 million
but not exceeding $1 billion; and
0.475% of net assets exceeding $1 billion
The Value-Added Market Portfolio 0.50% of net assets
The Growth Portfolio 0.80% of net assets
The American Opportunities Portfolio 0.625% of net assets up to $500 million;
and 0.60% of net assets exceeding $500 million
The Mid-Cap Equity Portfolio 0.75% of net assets
The Global Equity Portfolio 1.0% of net assets
The Developing Growth Portfolio 0.50% of net assets
The Emerging Markets Portfolio 1.25% of net assets
</TABLE>
27
<PAGE>
For the fiscal years ended December 31, 1996, 1997 and 1998, the Investment
Manager accrued compensation under the Management Agreement as follows:
<TABLE>
<CAPTION>
COMPENSATION ACCRUED FOR THE FISCAL YEAR ENDED
DECEMBER 31,
----------------------------------------------
NAME OF PORTFOLIO 1996 1997 1998
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
The Money Market Portfolio...................................... $ 288,326 $ 463,709 $ 492,661
The North American Government Securities Portfolio.............. 0 30,048 41,048
The Diversified Income Portfolio................................ 36,906 186,066 313,337
The Balanced Growth Portfolio................................... 54,817 422,583 554,456
The Utilities Portfolio......................................... 100,392 261,168 412,581
The Dividend Growth Portfolio................................... 1,015,687 2,477,416 3,794,294
The Value-Added Market Portfolio................................ 196,612 540,475 797,292
The Growth Portfolio............................................ 6,411 254,398 376,026
The American Opportunities Portfolio............................ 473,945 1,082,276 1,802,876
The Mid-Cap Equity Portfolio.................................... N/A 0 0
The Global Equity Portfolio..................................... 179,010 852,703 1,158,905
The Developing Growth Portfolio................................. 155,982 355,267 401,774
The Emerging Markets Portfolio.................................. 0 308,327 218,826
-------------- -------------- --------------
Total....................................................... $ 2,508,088 $ 7,234,436 $ 10,364,076
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
Under a Sub-Advisory Agreement between TCW and the Investment Manager (the
"TCW Sub-Advisory Agreement") respecting the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO and the EMERGING MARKETS PORTFOLIO, TCW provides these
Portfolios with investment advice and portfolio management, subject to the
overall supervision of the Investment Manager. The Investment Manager pays TCW
monthly compensation equal to 40% of the Investment Manager's fee, payable in
respect of the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO and the EMERGING
MARKETS PORTFOLIO.
Under a Sub-Advisory Agreement between MSDW Investment Management and the
Investment Manager (the "MSDW Investment Management Sub-Advisory Agreement")
respecting the GROWTH PORTFOLIO, MSDW Investment Management provides that
Portfolio with investment advice and portfolio management, subject to the
overall supervision of the Investment Manager. The Investment Manager pays MSDW
Investment Management monthly compensation equal to 40% of the Investment
Manager's fee, payable in respect of the GROWTH PORTFOLIO.
Prior to March 1998, the BALANCED GROWTH PORTFOLIO (then named the BALANCED
PORTFOLIO) and the GROWTH PORTFOLIO (then named the CORE EQUITY PORTFOLIO) were
sub-advised by TCW. In October 1997, TCW indicated its intention to resign as
Sub-Advisor of these Portfolios and, on November 6, 1997, the Board of Trustees
recommended that the Investment Manager assume the investment management advice
and portfolio management function then being performed by TCW for BALANCED
GROWTH PORTFOLIO and that the MSDW Investment Management Sub-Advisory Agreement
be submitted to shareholders of the GROWTH PORTFOLIO (then named the CORE EQUITY
PORTFOLIO) for approval. The shareholders of the GROWTH PORTFOLIO approved the
MSDW Investment Management Sub-Advisory Agreement on February 26, 1998 and the
agreement became effective on March 2, 1998, at which time TCW also resigned as
Sub-Advisor of the GROWTH PORTFOLIO and the BALANCED GROWTH PORTFOLIO.
Concurrent with the effectiveness of the MSDW Investment Management
Sub-Advisory Agreement, the Investment Manager and the Fund amended the
Management Agreement to reduce the fee paid by the Fund to the Investment
Manager under the Agreement in respect of the BALANCED GROWTH PORTFOLIO from
0.75% to 0.60% of the Portfolio's average daily net assets and to reduce the fee
paid by the Fund to the Investment Manager under the Agreement in respect of the
GROWTH PORTFOLIO from 0.85% to 0.80% of the Portfolio's average daily net
assets.
28
<PAGE>
Under a Sub-Advisory Agreement between TCW and the Investment Manager (the
"TCW Sub-Advisory Agreement") respecting the MID-CAP EQUITY PORTFOLIO, TCW
provides the Portfolio with investment advice and portfolio management, subject
to the overall supervision of the Investment Manager. The Investment Manager
pays TCW monthly compensation equal to 40% of the Investment Manager's fee,
payable in respect of the MID-CAP EQUITY PORTFOLIO.
On May 1, 1998, the Management Agreement was amended to lower the management
fees charged on daily net assets of the Dividend Growth Portfolio in excess of
$500 million to 0.50%.
Effective May 1, 1999, the Management Agreement was amended to lower the
management fees charged on daily net assets of the Dividend Growth Portfolio in
excess of $1 billion to 0.475% and to lower the management fees charged on daily
net assets of the American Opportunities Portfolio in excess of $500 million to
0.60%.
The Investment Manager has undertaken to assume all expenses of the Mid-Cap
Equity Portfolio (except for any brokerage fees) and to waive the compensation
provided for the Portfolio in its Management Agreement with the Fund until such
time as the Portfolio attains $50 million of net assets or until December 31,
1999, whichever occurs first. As of May 1, 1999, the Mid-Cap Equity Portfolio
has not attained $50 million of net assets.
B. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
Each Portfolio has retained the Investment Manager to provide administrative
services, manage its business affairs and (except for the NORTH AMERICAN
GOVERNMENT SECURITIES PORTFOLIO, THE EMERGING MARKETS PORTFOLIO and the GROWTH
PORTFOLIO) invest its assets, including the placing of orders for the purchase
and sale of portfolio securities. Each of the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, THE EMERGING MARKETS PORTFOLIO and the GROWTH PORTFOLIO
has retained the Investment Manager to supervise the investment of its assets.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, the office space, facilities, equipment, clerical help, bookkeeping and
certain legal services as the Fund may reasonably require in the conduct of its
business, including the preparation of prospectuses, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
The services provided by the Sub-Advisors are discussed above under
"Investment Manager and Sub-Advisors."
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisors for the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, THE EMERGING MARKETS PORTFOLIO and the GROWTH PORTFOLIO
under the TCW Sub-Advisory Agreement and the MSDW Investment Management
Sub-Advisory Agreement, or by the Distributor, will be paid by the Portfolios.
Each Portfolio pays all expenses incurred in its operation and a portion of the
Fund's general administration expenses allocated based on the asset sizes of the
Portfolios. The Portfolios' direct expenses include, but are not limited to:
charges and expenses of any registrar, custodian, transfer and dividend
disbursing agent; brokerage commissions; certain taxes; registration costs of
the Fund under federal and state securities laws; shareholder servicing costs,
charges and expenses of any outside service used for pricing of the Portfolios'
shares; fees and expenses of legal counsel, including counsel to the Trustees
who are not interested persons of the Fund or of the Investment Manager (or the
Sub-Advisors) (not including compensation or expenses of attorneys who are
employees of the Investment Manager (or the Sub-Advisors)); fees and expenses of
the Fund's independent accountants; interest on Portfolio borrowings; and all
other expenses attributable to a particular Portfolio.
Expenses which are allocated on the basis of size of the respective
Portfolios include the costs and expenses of printing, including typesetting,
and distributing prospectuses and statements of additional
29
<PAGE>
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-Advisors) or any corporate affiliate of
the Investment Manager (or the Sub-Advisors); state franchise taxes; Securities
and Exchange Commission fees; membership dues of industry associations; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Fund which inure to its benefit; and all other costs of the Fund's
operations properly payable by the Fund and allocable on the basis of size to
the respective Portfolios. Depending on the nature of a legal claim, liability
or lawsuit, litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to the Portfolio or
allocated on the basis of the size of the respective Portfolios. The Trustees
have determined that this is an appropriate method of allocation of expenses.
Each of the Management Agreement, the TCW Sub-Advisory Agreement and the
MSDW Investment Management Sub-Advisory Agreement provides that in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager and the Sub-Advisors,
respectively, are not liable to the Fund or any of its investors (and, in the
case of the TCW Sub-Advisory Agreement and the MSDW Investment Management
Sub-Advisory Agreement, to the Investment Manager) for any act or omission or
for any losses sustained by the Fund or its investors.
Each of the Management Agreement and the Sub-Advisory Agreements will remain
in effect from year to year provided continuance of the applicable Agreement is
approved at least annually by the vote of the holders of a majority, as defined
in the Investment Company Act, of the outstanding shares of the Fund, or by the
Trustees; provided that in either event such continuance is approved annually by
the vote of a majority of the Trustees.
C. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for each
Portfolio's shares and the Dividend Disbursing Agent for payment of dividends
and distributions on Portfolio shares. The principal business address of the
Transfer Agent is Harborside Financial Center, Plaza Two, Jersey City, New
Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286, is the
Custodian of each Portfolio's assets other than those of the 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. Any Portfolio's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. These balances may, at
times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, of MSDW
Investment Management and of the Distributor. As Transfer Agent and Dividend
Disbursing Agent, the Transfer Agent's responsibilities include maintaining
shareholder accounts, reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, tabulating proxies and
maintaining shareholder records and lists. For these services, the Transfer
Agent receives a fee from each Portfolio and is reimbursed for its out-of-pocket
expenses in connection with such services.
30
<PAGE>
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
and, for the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the EMERGING
MARKETS PORTFOLIO and the GROWTH PORTFOLIO, the Sub-Advisors, are responsible
for decisions to buy and sell securities for each Portfolio, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. Purchases and sales of securities on a stock exchange are
effected through brokers who charge a commission for their services. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. The
Fund also expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation, generally
referred to as the underwriter's concession or discount. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. Certain securities (e.g., certain money market instruments) are
purchased directly from an issuer, in which case no commissions or discounts are
paid.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Portfolios
paid brokerage commissions as follows:
<TABLE>
<CAPTION>
BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS PAID COMMISSIONS PAID COMMISSIONS PAID
FOR FISCAL YEAR FOR FISCAL YEAR FOR FISCAL YEAR
NAME OF PORTFOLIO ENDED 12/31/96 ENDED 12/31/97 ENDED 12/31/98
- ---------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Diversified Income Portfolio........................ $ 413 $ 1,875 $ 500
Balanced Growth Portfolio........................... 26,227 52,983 138,374
Utilities Portfolio................................. 28,391 23,494 29,288
Dividend Growth Portfolio........................... 288,011 420,488 593,695
Value-Added Market Portfolio........................ 39,218 48,470 52,338
Growth Portfolio.................................... 19,971 45,268 187,650
American Opportunities Portfolio.................... 313,876 764,656 1,391,379
Mid-Cap Equity Portfolio............................ -- 23,517 131,466
Global Equity Portfolio............................. 243,803 433,239 443,043
Developing Growth Portfolio......................... 91,128 143,389 217,634
Emerging Markets Portfolio.......................... 106,025 140,267 123,716
------------------ ------------------ ------------------
Total........................................... $ 1,157,063 $ 2,097,646 $ 3,309,083
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
B. COMMISSIONS
Pursuant to an order of the SEC, the Portfolios may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Portfolios will limit their transactions with Dean Witter Reynolds to U.S.
Government and government agency securities, bank money instruments (i.e.,
certificates of deposit and bankers' acceptances) and commercial paper. The
transactions will be effected with Dean Witter Reynolds only when the price
available from Dean Witter Reynolds is better than that available from other
dealers.
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through Dean Witter Reynolds, Morgan Stanley & Co. and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions on an exchange for the Portfolios, the commissions, fees
or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow the affiliated broker or dealer to receive no
more than the remuneration
31
<PAGE>
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Trustees, including the
Independent Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliated
broker or dealer are consistent with the foregoing standard. The Fund does not
reduce the management fee it pays to the Investment Manager by any amount of the
brokerage commissions it may pay to an affiliated broker or dealer.
During the fiscal years ended December 31, 1996 and 1997 the Portfolios paid
brokerage commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
PAID
TO DEAN WITTER REYNOLDS
FOR FISCAL YEAR ENDED
------------------------
NAME OF PORTFOLIO 12/31/96 12/31/97
- ---------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Balanced Growth Portfolio......................................................... $ 5,464 $ 4,707
Utilities Portfolio............................................................... 25,530 15,600
Dividend Growth Portfolio......................................................... 173,213 148,680
Growth Portfolio.................................................................. 4,616 3,655
American Opportunities Portfolio.................................................. 108,676 73,465
Mid-Cap Equity Portfolio.......................................................... N/A 9,511
Global Equity Portfolio........................................................... 28,026 38,917
Developing Growth Portfolio....................................................... 28,536 27,638
----------- -----------
Total......................................................................... $ 374,061 $ 322,173
----------- -----------
----------- -----------
</TABLE>
For the fiscal year ended December 31, 1998, the Portfolios paid brokerage
commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
PERCENTAGE OF TRADES ON WHICH
BROKERAGE AGGREGATE BROKERAGE BROKERAGE
COMMISSIONS PAID TO COMMISSIONS FOR COMMISSIONS WERE
DWR FOR FISCAL YEAR FISCAL YEAR ENDED PAID FOR FISCAL
NAME OF PORTFOLIO ENDED 12/31/98 12/31/98 YEAR ENDED 12/31/98
- ----------------------------------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C>
Balanced Growth Portfolio...................... $ 31,211 22.56% 26.68%
Utilities Portfolio............................ 15,178 51.82 61.64
Dividend Growth Portfolio...................... 112,033 18.87 24.14
American Opportunities Portfolio............... 92,265 3.04 7.15
Mid-Cap Equity Portfolio....................... 12,282 9.34 13.00
Global Equity Portfolio........................ 13,946 3.15 8.28
Developing Growth Portfolio.................... 25,879 11.89 17.53
----------
Total...................................... $ 302,784
----------
----------
</TABLE>
During the period June 1 through December 31, 1997, the Portfolios paid
brokerage commissions to Morgan Stanley & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31,
32
<PAGE>
1997 upon consummation of the merger of Dean Witter, Discover & Co. with Morgan
Stanley Group Inc., as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS PAID TO
MORGAN STANLEY & CO. FOR FISCAL
NAME OF PORTFOLIO YEAR ENDED 12/31/97
- --------------------------------------------------------------------------------- -------------------------------
<S> <C>
Balanced Growth Portfolio........................................................ $ 165
Dividend Growth Portfolio........................................................ 11,150
Growth Portfolio................................................................. 135
American Opportunities Portfolio................................................. 27,095
Mid-Cap Equity Portfolio......................................................... 850
Global Equity Portfolio.......................................................... 3,141
Developing Growth Portfolio...................................................... 2,758
Emerging Markets Portfolio....................................................... 3,274
----------
Total........................................................................ $ 48,568
----------
----------
</TABLE>
For the fiscal year ended December 31, 1998, the Portfolios paid brokerage
commissions to Morgan Stanley & Co. as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
PERCENTAGE OF TRADES ON WHICH
BROKERAGE COMMISSIONS AGGREGATE BROKERAGE BROKERAGE
PAID TO MORGAN STANLEY & COMMISSIONS FOR COMMISSIONS WERE
CO. FOR FISCAL YEAR FISCAL YEAR ENDED PAID FOR FISCAL YEAR
NAME OF PORTFOLIO ENDED 12/31/98 12/31/98 ENDED 12/31/98
- ------------------------------------------ ------------------------ --------------------- --------------------
<S> <C> <C> <C>
Balanced Growth Portfolio................. $ 7,785 5.63% 5.92%
Utilities Portfolio....................... 250 0.85 1.48
Dividend Growth Portfolio................. 80,317 13.53 13.33
Growth Portfolio.......................... 45 0.02 0.03
American Opportunities Portfolio.......... 185,891 13.36 14.86
Mid-Cap Equity Portfolio.................. 9,208 7.00 7.11
Global Equity Portfolio................... 9,579 2.16 3.28
Developing Growth Portfolio............... 10,445 4.80 4.70
Emerging Markets Portfolio................ 2,855 2.31 2.41
----------
Total................................. $ 306,375
----------
----------
</TABLE>
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for the
Portfolios is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager (or, if applicable, the
Sub-Advisors) from obtaining a high quality of brokerage and research services.
In seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager (or, if applicable, the Sub-Advisors) relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. These
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
33
<PAGE>
In seeking to implement each Portfolio's policies, the Investment Manager
(or, if applicable, the Sub-Advisors) effects transactions with those brokers
and dealers who the Investment Manager (or, if applicable, the Sub-Advisors)
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager (or, if applicable, the
Sub-Advisors) believes the prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Manager (or, if applicable, the
Sub-Advisors). The services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities. The information and services received by the Investment Manager (or,
if applicable, the Sub-Advisors) from brokers and dealers may be of benefit to
the Investment Manager (or, if applicable, the Sub-Advisors) in the management
of accounts of some of its other clients and may not in all cases benefit a
Portfolio directly.
The Investment Manager and the Sub-Advisors currently serve as investment
advisors to a number of clients, including other investment companies, and may
in the future act as investment advisors to others. It is the practice of the
Investment Manager (or, if applicable, the Sub-Advisors) to cause purchase and
sale transactions to be allocated among the Portfolios and others whose assets
it manages in such manner as it deems equitable. In making such allocations
among the Portfolios and other client accounts, various factors may be
considered, including the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the Portfolios and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager (or, if applicable, the Sub-Advisors) utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.
D. DIRECTED BROKERAGE
During the fiscal year ended December 31, 1998, the Portfolios paid
brokerage commissions to brokers because of research services provided as
follows:
<TABLE>
<CAPTION>
AGGREGATE DOLLAR AMOUNT OF
BROKERAGE COMMISSIONS DIRECTED TRANSACTIONS FOR WHICH
IN CONNECTION WITH RESEARCH SUCH COMMISSIONS WERE PAID
SERVICES PROVIDED FOR FISCAL FOR FISCAL YEAR ENDED
NAME OF PORTFOLIO YEAR ENDED 12/31/98 12/31/98
- ---------------------------------------------------- ------------------------------- --------------------------
<S> <C> <C>
Balanced Growth Portfolio........................... $ 85,262 $ 79,556,073
Utilities Portfolio................................. 13,860 6,622,402
Dividend Growth Portfolio........................... 392,734 353,128,190
Growth Portfolio.................................... 65,030 62,956,632
American Opportunities Portfolio.................... 1,100,010 901,072,488
Mid-Cap Equity Portfolio............................ 44,457 55,473,992
Global Equity Portfolio............................. 415,826 149,450,997
Developing Growth Portfolio......................... 472,321 56,497,243
Emerging Markets Portfolio.......................... 119,199 26,471,631
----------- --------------------------
Total........................................... $ 2,708,699 $ 1,691,229,648
----------- --------------------------
----------- --------------------------
</TABLE>
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1998, the BALANCED GROWTH
PORTFOLIO purchased bonds issued by Bear Stearns Co., Inc., the DIVIDEND GROWTH
PORTFOLIO purchased common stock issued by Bank America Corp., the VALUE ADDED
MARKET PORTFOLIO purchased common stock issued by The Bank of New York, Bank
America Corp. and Chase Manhattan Corp., and the AMERICAN OPPORTUNITIES
PORTFOLIO purchased common stock issued by Lehman Brothers Inc. and Merrill
Lynch & Co., Inc., which issuers were among the ten brokers or the ten dealers
that executed transactions for or with the Fund or the Portfolio in the largest
dollar amounts during the year.
34
<PAGE>
At December 31, 1998, the BALANCED GROWTH PORTFOLIO held bonds issued by
Merrill Lynch & Co., Inc. with a market value of $151,662, the DIVIDEND GROWTH
PORTFOLIO held common stock issued by Bank America Corp. with a market value of
$17,436,250, the VALUE ADDED MARKET PORTFOLIO held common stock issued by The
Bank of New York, Bank America Corp. and Chase Manhattan Corp. with market
values of $402,500, $384,800 and $367,537, respectively, and the AMERICAN
OPPORTUNITIES PORTFOLIO held common stock issued by Merrill Lynch & Co., Inc.,
Lehman Brothers Holdings, Inc. and The Bank of New York with market values of
$3,324,150, $1,044,281 and $1,549,625, respectively.
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of each Portfolio are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. The Fund's shares of beneficial
interest are divided currently into thirteen separate Portfolios.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional Portfolios and additional classes of shares within any
Portfolio.
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. The shareholders also have the right under certain circumstances to
remove the Trustees in accordance with the provisions of Section 16(c) of the
Investment Company Act. 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.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.
Shareholders have the right to vote on the election of Trustees of the Fund
and on any and all matters on which by law or the provisions of the Fund's
By-Laws they may be entitled to vote. To the extent required by law, Hartford
Life Insurance Company and 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 established to fund the benefits under either a flexible premium
deferred variable annuity Contract or a flexible premium variable life insurance
Contract in accordance with instructions from the owners of such Contracts.
Shareholders of all Portfolios vote for a single set of Trustees. All of the
Trustees have been elected by the shareholders of the Fund, most recently at a
Special Meeting of Shareholders held on May 20, 1997. The Trustees themselves
have the power to alter the number and the terms of office of the Trustees (as
provided for in the Declaration of Trust), and they may at any time lengthen or
shorten their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees
has been elected by the shareholders of the Fund.
On any matters affecting only one Portfolio, only the shareholders of that
Portfolio are entitled to vote. On matters relating to all the Portfolios, but
affecting the Portfolios differently, separate votes by Portfolio are required.
Approval of an Investment Management Agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by each
Portfolio.
35
<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.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered (and how they are
redeemed) is provided in the Fund's Prospectus.
B. OFFERING PRICE
The price of each Portfolio shares, called "net asset value," is based on
the value of the Portfolio's securities.
The MONEY MARKET PORTFOLIO, however, utilizes the amortized cost method in
valuing its portfolio securities for purposes of determining the net asset value
of its shares. The MONEY MARKET PORTFOLIO utilizes the amortized cost method in
valuing its portfolio securities even though the portfolio securities may
increase or decrease in market value, generally in connection with changes in
interest rates. The amortized cost method of valuation involves valuing a
security at its cost at the time of purchase adjusted by a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the MONEY MARKET
PORTFOLIO would receive if it sold the investment. During such periods, the
yield to investors in the MONEY MARKET PORTFOLIO may differ somewhat from that
obtained in a similar company which uses mark-to-market values for all of its
portfolio securities. For example, if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the MONEY MARKET PORTFOLIO would be able to obtain a somewhat higher
(lower) yield than would result from investment in such a similar company and
existing investors would receive less (more) investment income. The purpose of
this method of calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the Investment Company Act (the
"RULE") and is conditioned on its compliance with various conditions contained
in the Rule including: (a) the Trustees are obligated, as a particular
responsibility within the overall duty of care owed to the Portfolio's
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Portfolio's investment objectives, to
stabilize the net asset value per share as computed for the purpose of
distribution and redemption at $1.00 per share; (b) the procedures include (i)
calculation, at such intervals as the Trustees determine are appropriate and as
are reasonable in light of current market conditions, of the deviation, if any,
between net asset value per share using amortized cost to value portfolio
securities and net asset value per share based upon available market quotations
with respect to such portfolio securities; (ii) periodic review by the Trustees
of the amount of deviation as well as methods used to calculate it; and (iii)
maintenance of written records of the procedures, and the Trustees'
considerations made pursuant to them and any actions taken upon such
consideration; (c) the Trustees should consider what steps should be taken, if
any, in the event of a difference of more than 1/2 of 1% between the two methods
of valuation; and (d) the Trustees should take such action as they deem
appropriate (such as shortening the average portfolio maturity, realizing gains
or losses, withholding dividends or, as provided by the Declaration of Trust,
reducing the number of outstanding shares of the MONEY MARKET PORTFOLIO) to
eliminate or reduce to the extent reasonably practicable material dilution or
other unfair results to investors or existing
sharehold-
36
<PAGE>
ers which might arise from differences between the two methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the MONEY MARKET PORTFOLIO'S capital the necessary
shares that represent the amount of excess upon such determination. Each
Contract Owner will be deemed to have agreed to such contribution in these
circumstances by allocating investment under his or her Contract to the MONEY
MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which the MONEY MARKET
PORTFOLIO'S interest in the instrument is subject to market action) until the
date on which in accordance with the terms of the security the principal amount
must unconditionally be paid, or in the case of a security called for
redemption, the date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. A floating rate security that is subject to a demand
feature is deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
An "NRSRO" is a nationally recognized statistical rating organization. The
term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (ii) if only
one NRSRO has issued a rating with respect to such security or issuer at the
time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) a security: (A) that at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligations within that class) that is now comparable
in priority and security with the security, in one of the two highest short-term
rating categories (within which there may be subcategories or gradations
indicating relative standing); or (iii) an unrated security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the Trustees. The MONEY MARKET PORTFOLIO will limit its
investments to securities that meet the requirements for Eligible Securities
including the required ratings by S&P or Moody's.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the MONEY MARKET PORTFOLIO will limit its
investments in securities, other than Government securities, so that, at the
time of purchase: (a) except as further limited in (b) below with regard to
certain securities, no more than 5% of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or that have been determined to be of comparable quality: (i) no more than 5% in
the aggregate of the Portfolio's total assets in all such securities, and (ii)
no more than the greater of 1% of total assets, or $1 million, in the securities
on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
The Rule further requires that the Money Market Portfolio limit its
investments to U.S. dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are
37
<PAGE>
Eligible Securities. The Rule also requires the Portfolio to maintain a
dollar-weighted average portfolio maturity (not more than 90 days) appropriate
to its objective of maintaining a stable net asset value of $1.00 per share and
precludes the purchase of any instrument with a remaining maturity of more than
397 days. Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Portfolio
will invest its available cash in such a manner as to reduce such maturity to 90
days or less a soon as is reasonably practicable.
If the Trustees determine that it is no longer in the best interests of the
MONEY MARKET PORTFOLIO and its shareholders to maintain a stable price of $1 per
share or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the board has the right to change from
an amortized cost basis of valuation to valuation based on market quotations.
The Fund will notify shareholders of the Portfolio of any such change.
In the calculation of a Portfolio's net asset value (other than for the
MONEY MARKET PORTFOLIO): (1) an equity security listed or traded on the New York
or American Stock Exchange or other stock exchange is valued at its latest sale
price on that exchange, prior to the time when assets are valued; if there were
no sales that day, the security is valued at the latest bid price (in cases
where a security is traded on more than one exchange, the security is valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); and (2) all other securities for which over-the-counter market
quotations are readily available are valued at the latest bid price. When market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager (or if applicable, the Sub-Advisor) that
sale or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's
Trustees. For valuation purposes, quotations of foreign portfolio securities,
other assets and liabilities and forward contracts stated in foreign currency
are translated into U.S. dollar equivalents at the prevailing market rates prior
to the close of the New York Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. 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 the securities will be valued at their fair value as
determined by the Trustees.
Certain of the Portfolios' securities (other than securities of the MONEY
MARKET PORTFOLIO) may be valued by an outside pricing service approved by the
Fund's Trustees. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research evaluations by its staff, including review of broker-dealer market
price quotations in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service.
Listed options on 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 such price does not reflect
their market value, in which case they will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Portfolios' shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may affect the values of such securities
and such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange and will therefore not be reflected
in the computation of a Portfolio's net asset value. If events that may affect
the value of such securities occur
38
<PAGE>
during such period, then these securities may be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
IX. TAXATION OF THE PORTFOLIOS AND SHAREHOLDERS
- --------------------------------------------------------------------------------
Each of the Portfolios is treated as a separate entity for federal tax
purposes. Each of the Portfolios intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986. As
such, each of the Portfolios will not be subject to federal income tax on its
net investment income and capital gains, if any, to the extent that it
distributes such income and capital gains to its shareholders. Each of the
Portfolios generally intends to distribute sufficient income and gains so that
each of the Portfolios will not pay corporate income tax on its earnings.
Section 817(h) of the Internal Revenue Code provides that the investments of
a separate account underlying a variable insurance contract (or the investments
of a mutual fund, the shares of which are owned by the variable separate
account) must be "adequately diversified" in order for the contract to be
treated as an annuity or life insurance for tax purposes. The Treasury
Department has issued regulations prescribing these diversification
requirements. Each Portfolio intends to comply with these requirements.
Information concerning the federal income tax consequences to holders of the
underlying variable annuity or variable life insurance Contracts is contained in
the accompanying prospectus for the applicable Contract.
X. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
The annualized current yield of the MONEY MARKET PORTFOLIO, as may be quoted
from time to time in advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated seven-day period,
the net change, exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends declared therefrom,
in the value of a hypothetical pre-existing account 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 based period return by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the MONEY MARKET PORTFOLIO in the
future since the yield is not fixed. Actual yields will depend not only on the
type, quality and maturities of the investments held by the MONEY MARKET
PORTFOLIO and changes in interest rates on such investments, but also on changes
in the Portfolio's expenses during the period.
Yield information may be useful in reviewing the performance of the Money
Market Portfolio and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Portfolio's
yield fluctuates. Furthermore, the quoted yield does not reflect charges which
may be imposed on the Contracts by the applicable Account and therefore is not
equivalent to total return under a Contract. (For a description of such charges,
see the Prospectus for the Contracts which accompanies the PROSPECTUS for the
Fund.)
39
<PAGE>
The current yield of the MONEY MARKET PORTFOLIO for the seven days ending
December 31, 1998 was 4.71%. The Fund's effective annualized yield for the seven
days ending December 31, 1998 was 4.82%, assuming daily compounding.
From time to time the Fund may quote the "yield" of each of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the DIVERSIFIED INCOME PORTFOLIO, and
the BALANCED GROWTH PORTFOLIO in advertising and sales literature. Yield is
calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Portfolio is determined in accordance
with regulatory requirements; the total for the entire portfolio constitutes the
Portfolio's gross income for the period. Expenses accrued during the period are
subtracted to arrive at "net investment income." The resulting amount is divided
by the product of the net asset value per share on the last day of the period
multiplied by the average number of Portfolio shares outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised to
the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The "yield" of a Portfolio
does not reflect the deduction of any charges which may be imposed on the
Contracts by the applicable Account which, if quoted, would reduce the yield
quoted. For the 30-day period ended December 31, 1998, the yield of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, calculated pursuant to this formula,
was 4.94%, the yield of the DIVERSIFIED INCOME PORTFOLIO, calculated pursuant to
this formula, was 8.26%, and the yield of the BALANCED GROWTH PORTFOLIO,
calculated pursuant to this formula, was 2.83%.
From time to time the Fund may quote the "total return" of each Portfolio in
advertising and sales literature. A Portfolio's "average annual total return"
represents an annualization of the Portfolio's total return over a particular
period and is computed by finding the annual percentage rate which will result
in the ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of the Portfolio's operations, if shorter than any of the
foregoing. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. However, average annual total return does not
reflect the deduction of any charges which may be imposed on the Contracts by
the applicable Account which, if quoted, would reduce the performance quoted.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result.
The average annual total returns for each Portfolio (other than the MID-CAP
EQUITY PORTFOLIO) for the period from November 9, 1994 (commencement of
operations) through December 31, 1998 and for the fiscal year ended December 31,
1998 were 5.39% and 5.16%, respectively, for the MONEY MARKET PORTFOLIO; 5.20%
and 4.28%, respectively, for the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO;
7.18% and 4.22%, respectively, for the DIVERSIFIED INCOME PORTFOLIO; 16.65% and
14.41%, respectively, for the BALANCED GROWTH PORTFOLIO; 20.44% and 22.23%,
respectively, for the UTILITIES PORTFOLIO; 26.33% and 19.73%, respectively, for
the DIVIDEND GROWTH PORTFOLIO; 19.65% and 12.19%, respectively, for the VALUE-
ADDED MARKET PORTFOLIO; 17.69% and 13.22%, respectively, for the GROWTH
PORTFOLIO; 27.40% and 30.78%, respectively, for the AMERICAN OPPORTUNITIES
PORTFOLIO; 11.69% and 15.11%, respectively, for the GLOBAL EQUITY PORTFOLIO;
20.34% and 9.04%, respectively, for the DEVELOPING GROWTH PORTFOLIO; and -3.96%
and -29.03%, respectively, for the EMERGING MARKETS PORTFOLIO. The average
annual total return for the MID-CAP EQUITY PORTFOLIO for the year ended December
31, 1998 and for the period from January 21, 1997 (commencement of the
Portfolio's operations) through December 31, 1998 were 5.67% and 10.98%,
respectively.
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by an Account. The Fund may also compute the aggregate total returns
of the Portfolios for specified periods by determining the aggregate percentage
rate which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without the reduction for any
40
<PAGE>
charges imposed on the Contracts by the applicable Account) by the initial
$1,000 investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns for each Portfolio (other than the MID-CAP EQUITY
PORTFOLIO) for the period from November 9, 1994 (commencement of operations)
through December 31, 1998 and for the fiscal year ended December 31, 1998 were
24.28% and 5.16%, respectively, for the MONEY MARKET PORTFOLIO; 23.37% and
4.28%, respectively, for the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO;
33.28% and 4.22%, respectively, for the DIVERSIFIED INCOME PORTFOLIO; 89.26% and
14.41%, respectively, for the BALANCED GROWTH PORTFOLIO; 116.09% and 22.23%,
respectively, for the UTILITIES PORTFOLIO; 163.29% and 19.73%, respectively, for
the DIVIDEND GROWTH PORTFOLIO; 110.28% and 12.19%, respectively, for the
VALUE-ADDED MARKET PORTFOLIO; 96.36% and 13.22%, respectively, for the GROWTH
PORTFOLIO; 172.66% and 30.78%, respectively, for the AMERICAN OPPORTUNITIES
PORTFOLIO; 58.09% and 15.11%, respectively, for the GLOBAL EQUITY PORTFOLIO;
115.30% and 9.04%, respectively, for the DEVELOPING GROWTH PORTFOLIO; and
- -15.42% and -29.03%, respectively, for the EMERGING MARKETS PORTFOLIO. Applying
the same calculation, the total returns for the MID-CAP EQUITY PORTFOLIO for the
year ended December 31, 1998 and for the period from January 21, 1997
(commencement of the Portfolio's operations) through December 31, 1998 were
5.67% and 22.41%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of a Portfolio by adding 1 to the
Portfolio's aggregate total return to date (expressed as a decimal) and
multiplying by $10,000, $50,000 or $100,000, as the case may be. Investments of
$10,000, $50,000 and $100,000 in each Portfolio of the Fund at inception
(January 21, 1997 in the case of the MID-CAP EQUITY PORTFOLIO and November 9,
1994 in the case of each of the other Portfolios) of the Portfolio would have
grown (or declined) to the following amounts at December 31, 1998:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT OF
OPERATIONS OF
-----------------------------------
NAME OF PORTFOLIO $10,000 $50,000 $100,000
- ---------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Money Market Portfolio...................................................... $ 12,428 $ 62,140 $ 124,280
North American Government Securities Portfolio.............................. 12,337 61,685 123,370
Diversified Income Portfolio................................................ 13,328 66,640 133,280
Balanced Growth Portfolio................................................... 18,926 94,630 189,260
Utilities Portfolio......................................................... 21,609 108,045 216,090
Dividend Growth Portfolio................................................... 26,329 131,645 263,290
Value-Added Market Portfolio................................................ 21,028 105,140 210,280
Growth Portfolio............................................................ 19,636 98,180 196,360
American Opportunities Portfolio............................................ 27,266 136,330 272,660
Mid-Cap Equity Portfolio.................................................... 12,241 61,205 122,410
Global Equity Portfolio..................................................... 15,809 79,045 158,090
Developing Growth Portfolio................................................. 21,530 107,650 215,300
Emerging Markets Portfolio.................................................. 8,458 42,290 84,580
</TABLE>
The Fund from time to time may also advertise the performance of the
Portfolios relative to certain performance rankings and indexes compiled by
recognized organizations.
XI. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1998 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
* * * * *
This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
41
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (64.6%)
ALUMINUM (0.8%)
$ 950 Aluminum Co. of America................................. 5.16% 02/25/99 $ 942,598
------------
BANKING (4.9%)
1,500 Mellon Financial Co..................................... 5.12 03/19/99 1,483,798
1,600 Morgan (J.P.) & Co. Inc................................. 5.52 01/08/99 1,598,317
2,790 Wells Fargo & Co........................................ 5.14-5.36 02/11/99-03/12/99 2,767,367
------------
5,849,482
------------
CONSTRUCTION/AGRICULTURAL/EQUIPMENT/TRUCKS (1.8%)
2,220 Caterpillar Financial Services Ltd...................... 5.19-5.44 01/04/99-02/12/99 2,215,963
------------
DIVERSIFIED FINANCIAL SERVICES (4.9%)
5,950 General Electric Capital Corp........................... 5.15-5.65 01/19/99-03/22/99 5,903,918
------------
FINANCE COMPANIES (4.7%)
1,700 Ciesco, L.P............................................. 5.27 02/05/99 1,691,406
1,300 CIT Group Holdings, Inc................................. 5.24 03/15/99 1,286,424
2,625 Norwest Financial Inc................................... 5.29-5.50 02/03/99-02/04/99 2,611,975
------------
5,589,805
------------
FINANCE - AUTOMOTIVE (18.0%)
6,000 American Honda Finance Corp............................. 5.14-5.51 01/11/99-02/11/99 5,983,051
1,925 Daimler-Benz North America Corp......................... 5.05-5.12 03/08/99-04/20/99 1,899,926
6,035 Ford Motor Credit Co.................................... 5.14-5.31 01/22/99-02/18/99 6,006,569
6,315 General Motors Acceptance Corp.......................... 5.15-527 01/06/99-02/09/99 6,300,199
1,500 Toyota Motor Credit Corp................................ 5.16 01/08/99 1,498,513
------------
21,688,258
------------
FINANCE - CONSUMER (3.9%)
1,635 Avco Financial Services, Inc............................ 5.20 02/16/99 1,624,241
1,060 Household Finance Corp.................................. 5.71 01/07/99 1,058,993
2,000 Household Finance Corp.................................. 5.20 02/22/99 1,985,122
------------
4,668,356
------------
INSURANCE (2.4%)
2,905 American General Finance Corp........................... 5.15-5.22 03/05/99-03/09/99 2,878,166
------------
INTERNATIONAL BANKS (16.3%)
1,500 ABN-AMRO North America Finance Inc...................... 5.17 03/30/99 1,481,300
2,000 Abbey National North America Corp....................... 5.27 01/06/99 1,998,550
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 ANZ (DE) Inc............................................ 6.66% 01/06/99 $ 1,998,153
1,785 Canadian Imperial Holdings Inc.......................... 5.25 02/02/99 1,776,781
2,015 CommerzBank U.S. Finance Inc............................ 5.24 02/04/99 2,005,104
1,745 Dresdner U.S. Finance Inc............................... 5.50 01/05/99 1,743,938
2,000 Internationale Nederlanden (U.S.) Funding Corp.......... 5.16 02/23/99 1,985,013
1,200 Societe Generale N.A. Inc............................... 5.53 01/12/99 1,198,013
3,365 Toronto-Dominion Holdings USA Inc....................... 5.45-5.71 01/19/99-01/28/99 3,353,080
1,500 UBS Finance (DE) Inc.................................... 5.29 01/05/99 1,499,130
550 WestPac Capital Corp.................................... 5.57 01/13/99 548,983
------------
19,588,045
------------
RETAIL (4.9%)
4,550 Sears Roebuck Acceptance Corp........................... 5.24-5.35 01/25/99-02/19/99 4,525,254
1,400 Sears Roebuck Acceptance Corp........................... 5.303 03/08/99 1,386,525
------------
5,911,779
------------
UTILITIES (2.0%)
2,425 National Rural Utilities Cooperative Finance Corp....... 5.43 01/26/99 2,416,024
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $77,652,394)........................................................... 77,652,394
------------
BANKERS' ACCEPTANCES (0.8%)
MAJOR BANKS
1,000 Bank of America NT & SA (AMORTIZED COST $993,467)....... 4.93 02/18/99 993,467
------------
CERTIFICATES OF DEPOSIT (4.3%)
MAJOR BANKS
2,000 Chase Manhattan Bank.................................... 5.25 01/14/99 2,000,000
1,800 Chase Manhattan Bank (USA).............................. 5.12 02/24/99 1,800,000
1,400 Mellon Bank, N.A........................................ 5.13 02/12/99 1,400,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $5,200,000)............................................................ 5,200,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTES (6.7%)
MAJOR BANKS (6.7%)
$ 2,000 F.C.C. National Bank.................................... 5.07% 04/13/99 $ 2,000,000
2,000 First Union National Bank............................... 5.65 01/20/99 2,000,000
2,000 La Salle National Bank.................................. 5.60 02/10/99 2,000,000
2,000 NationsBank, N.A........................................ 5.12 03/17/99 2,000,000
------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $8,000,000)............................................................ 8,000,000
------------
U.S. GOVERNMENT AGENCIES (24.4%)
3,652 Federal Farm Credit Bank................................ 4.82-5.56 04/27/99-12/24/99 3,550,337
1,576 Federal Home Loan Banks................................. 5.46-5.55 01/15/99-06/28/99 1,551,169
6,790 Federal Home Loan Mortgage Corp......................... 4.91-5.15 02/26/99-05/25/99 6,714,230
17,756 Federal National Mortgage Assoc......................... 4.87-5.58 01/11/99-09/22/99 17,439,041
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $29,254,777)........................................................... 29,254,777
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $121,100,638) (a)......................................................... 100.8 % 121,100,638
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.8) (915,810)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 120,184,828
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (7.8%)
U.S. Treasury Note
$ 200 ................................................................. 5.50 % 02/28/99 $ 200,240
150 ................................................................. 5.50 04/15/00 151,583
100 ................................................................. 6.00 08/15/99 100,825
200 ................................................................. 6.375 05/15/99 201,236
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $650,671)............................................................. 653,884
----------
MORTGAGE-BACKED SECURITIES (35.2%)
Federal Home Loan Mortgage Corp. PC Gold
55 ................................................................. 5.50 11/01/00 54,650
28 ................................................................. 6.00 11/01/99 27,780
3 ................................................................. 7.00 07/01/00 3,389
233 ................................................................. 7.00 09/01/17 237,982
416 ................................................................. 7.00 02/01/28 423,844
56 ................................................................. 7.50 05/01/11 57,246
107 ................................................................. 7.50 06/01/11 109,638
84 ................................................................. 7.50 08/01/11 85,959
Federal National Mortgage Assoc.
52 ................................................................. 6.00 09/01/00 51,333
46 ................................................................. 6.50 07/01/02 46,063
43 ................................................................. 7.00 06/01/02 43,486
25 ................................................................. 7.00 10/01/02 25,294
79 ................................................................. 7.00 01/01/03 80,506
105 ................................................................. 7.362 12/01/26 106,516
15 ................................................................. 7.42 09/01/26 15,276
16 ................................................................. 7.575 07/01/24 16,400
18 ................................................................. 7.60 04/01/27 18,045
239 ................................................................. 7.623 03/01/27 239,969
17 ................................................................. 7.69 05/01/27 16,622
138 ................................................................. 7.75 01/01/22 139,043
Government National Mortgage Assoc. II
215 ................................................................. 6.625 07/20/27 217,109
217 ................................................................. 6.625 08/20/27 219,086
86 ................................................................. 6.875 02/20/23 87,163
43 ................................................................. 6.875 06/20/25 43,293
41 ................................................................. 6.875 01/20/26 41,008
38 ................................................................. 6.875 05/20/26 37,938
500 ................................................................. 7.50 12/20/28 512,656
----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $2,945,445)........................................................... 2,957,294
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (56.9%)
U.S. GOVERNMENT AGENCIES (a) (52.4%)
Federal Farm Credit Bank
$ 300 ................................................................. 5.03 % 01/12/99 $ 299,539
600 ................................................................. 5.06 01/07/99 599,494
200 ................................................................. 5.11 01/21/99 199,432
Federal Home Loan Banks
250 ................................................................. 5.00 01/06/99 249,826
700 ................................................................. 5.03 01/20/99 698,142
300 ................................................................. 5.10 01/13/99 299,490
Federal Home Loan Mortgage Corp.
250 ................................................................. 4.50 01/04/99 249,906
100 ................................................................. 4.95 01/06/99 99,931
600 ................................................................. 5.08 01/06/99 599,577
300 ................................................................. 5.09 01/07/99 299,746
300 ................................................................. 5.11 01/06/99 299,787
Federal National Mortgage Assoc.
250 ................................................................. 5.04 02/05/99 248,775
254 ................................................................. 5.12 01/15/99 253,494
----------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $4,397,139)............................................................ 4,397,139
----------
REPURCHASE AGREEMENT (4.5%)
373 The Bank of New York (dated 12/31/98; proceeds $373,365) (b)
(IDENTIFIED COST $373,199)..................................... 4.00 01/04/99 373,199
----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,770,338)........................................................... 4,770,338
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $8,366,454) (c)............................................................ 99.9 % 8,381,516
OTHER ASSETS IN EXCESS OF LIABILITIES....................................................... 0.1 7,706
------ -----------
NET ASSETS.................................................................................. 100.0 % $ 8,389,222
------ -----------
------ -----------
</TABLE>
- ---------------------
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $367,790 U.S. Treasury Note 5.875% due 02/15/00 valued at
$380,663.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $25,693 and the
aggregate gross unrealized depreciation is $10,631, resulting in net
unrealized appreciation of $15,062.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (94.5%)
FOREIGN (19.8%)
AUSTRALIA (0.1%)
CABLE TELEVISION
$ 1,300 Australis Holdings Property
Ltd. (a)..................... 15.00++% 11/01/02 $ 65,000
3 Australis Media Ltd. (a)....... 15.75++ 05/15/03 33
-----------
TOTAL AUSTRALIA......................................................... 65,033
-----------
CANADA (1.0%)
CELLULAR TELEPHONE (0.5%)
500 Clearnet Communications Inc.... 14.75++ 12/15/05 430,000
-----------
FOODS & BEVERAGES (0.2%)
250 Sparkling Spring Water......... 11.50 11/15/07 242,500
-----------
INDUSTRIAL SPECIALTIES (0.1%)
750 International Semi-Tech
Microelectronics............. 11.50++ 08/15/03 82,500
-----------
TELECOMMUNICATIONS (0.2%)
200 MetroNet Communications Corp... 12.00 08/15/07 217,500
-----------
TOTAL CANADA............................................................ 972,500
-----------
DENMARK (4.8%)
GOVERNMENT OBLIGATION
DKK 26,000 Kingdom of Denmark............. 8.00 11/15/01 4,516,625
-----------
EUROPE (2.1%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKING
ECU 500 Council of Europe.............. 6.375 11/14/01 631,556
1,100 European Investment Bank (b)... 6.00 04/04/01 1,361,130
-----------
TOTAL EUROPE............................................................ 1,992,686
-----------
FINLAND (0.4%)
FINANCIAL SERVICES
GBP 200 Finnish Export Credit Corp.
(b).......................... 6.75 12/29/00 336,708
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FRANCE (1.0%)
GOVERNMENT OBLIGATIONS
ECU 500 French Treasury Note........... 4.00% 07/12/00 $ 592,965
250 Societe Nationale des Chemins
de Fer de France............. 9.375 03/12/01 329,925
-----------
TOTAL FRANCE............................................................ 922,890
-----------
GERMANY (1.4%)
SMALLER BANKS
500 Bayerische Hypotheken Bank..... 7.00 12/22/00 623,100
GBP 150 Bayerische Hypotheken Bank
(b).......................... 6.75 12/30/99 250,059
100 Bayerische Vereins Bank (b).... 7.50 12/27/00 170,532
150 Deutsche Siedlungs Bank........ 7.50 12/27/00 255,796
-----------
TOTAL GERMANY........................................................... 1,299,487
-----------
NETHERLANDS (0.5%)
SMALLER BANKS (0.3%)
GBP 176 Baden Wurt L-Finance........... 7.75 12/14/00 301,514
-----------
TELECOMMUNICATIONS (0.2%)
$ 200 Versatel Telecommunications
BV........................... 13.25 05/15/08 198,000
-----------
TOTAL NETHERLANDS....................................................... 499,514
-----------
NEW ZEALAND (1.6%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKS
NZD 2,850 International Bank for
Reconstruction & Development
(b).......................... 7.00 09/18/00 1,527,113
-----------
NORWAY (2.3%)
ENERGY (0.1%)
$ 200 Northern Offshore ASA -
144A*........................ 10.00 05/15/05 104,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATION (2.2%)
NOK 15,400 Norway Government Bond......... 7.00% 05/31/01 $ 2,069,211
-----------
TOTAL NORWAY............................................................ 2,173,211
-----------
SWEDEN (2.2%)
GOVERNMENT OBLIGATION
ECU 1,650 Swedish Treasury Bond (b)...... 7.25 06/30/00 2,042,522
-----------
UNITED KINGDOM (2.4%)
OTHER TELECOMMUNICATIONS (0.3%)
$ 300 Esprit Telecom Group PLC....... 10.875 06/15/08 303,000
-----------
SMALLER BANKS (1.9%)
ECU 500 Abbey National Treasury
Service...................... 4.50 08/03/01 599,511
GBP 400 Abbey National Treasury Service
(b).......................... 7.125 03/14/01 680,251
300 Halifax PLC (b)................ 8.375 12/15/99 506,993
-----------
1,786,755
-----------
TRANSPORTATION (0.2%)
$ 600 Alpha Shipping PLC (Series
A)........................... 9.50 02/15/08 174,000
-----------
TOTAL UNITED KINGDOM.................................................... 2,263,755
-----------
TOTAL FOREIGN
(IDENTIFIED COST $19,175,070)........................................... 18,612,044
-----------
UNITED STATES (74.7%)
CORPORATE BONDS (30.5%)
AEROSPACE (0.3%)
300 Sabreliner Corp. - 144A*....... 11.00 06/15/08 267,000
-----------
BROADCAST/MEDIA (1.3%)
300 Interep National Radio Sales -
144A*........................ 10.00 07/01/08 309,000
100 Paxson Communications Corp..... 11.625 10/01/02 102,500
200 Spanish Broadcasting System,
Inc.......................... 12.50 06/15/02 222,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 600 Tri-State Outdoor Media Group,
Inc.......................... 11.00% 05/15/08 $ 597,000
-----------
1,230,500
-----------
CASINO/GAMBLING (1.1%)
250 Argosy Gaming LLC.............. 13.25 06/01/04 280,000
850 Fitzgeralds Gaming Corp.
(Series B)................... 12.25 12/15/04 459,000
115 Lady Luck Gaming (Series SA)... 11.875 03/01/01 117,588
200 Lady Luck Gaming Finance
Corp......................... 11.875 03/01/01 204,500
-----------
1,061,088
-----------
CELLULAR TELEPHONE (1.7%)
300 American Cellular Corp. -
144A*........................ 10.50 05/15/08 297,000
200 Dobson/Sygnet Communications -
144A*........................ 12.25 12/15/08 200,000
500 McCaw International Ltd........ 13.00++ 04/15/07 278,750
300 Nextel Communications, Inc..... 10.65++ 09/15/07 193,500
600 Price Communication Cellular
Holdings..................... 11.25+ 08/15/08 570,000
200 Triton PCS Inc................. 11.00++ 05/01/08 93,500
-----------
1,632,750
-----------
COMPUTERS (0.6%)
400 CHS Electronics, Inc........... 9.875 04/15/05 386,000
200 Unisys Corp.................... 12.00 04/15/03 224,000
-----------
610,000
-----------
CONSUMER/BUSINESS SERVICES (1.6%)
500 Anacomp, Inc. (Series B)....... 10.875 04/01/04 520,000
300 CEX Holdings Inc............... 9.625 06/01/08 276,000
500 Comforce Operating, Inc........ 12.00 12/01/07 500,000
300 Entex Information Services,
Inc. - 144A*................. 12.50 08/01/06 210,000
-----------
1,506,000
-----------
CONSUMER SPECIALTIES (0.7%)
700 Samsonite Corp................. 10.75 06/15/08 609,000
-----------
CONSUMER SUNDRIES (0.3%)
310 Windmere-Durable Holdings,
Inc.......................... 10.00 07/31/08 289,850
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONTAINERS/PACKAGING (0.7%)
$ 325 Berry Plastics Corp............ 12.25% 04/15/04 $ 341,250
300 Premier Graphics Inc. -
144A*........................ 11.50 12/01/05 300,000
-----------
641,250
-----------
DIVERSIFIED MANUFACTURING (1.5%)
300 High Voltage Engineering,
Inc.......................... 10.50 08/15/04 283,500
700 Interlake Corp................. 12.125 03/01/02 714,000
200 J.B. Poindexter & Co., Inc..... 12.50 05/15/04 192,000
325 Jordan Industries, Inc. (Series
B)........................... 11.75++ 04/01/09 206,375
-----------
1,395,875
-----------
ENERGY (1.1%)
300 Texaco Capital, Inc............ 15.00 01/13/99 300,558
500 Transamerican Refining Corp.
(Units) ++ - 144A*........... 16.00 06/30/03 442,500
300 Transamerican Refining Corp. -
144A*........................ 15.00+ 12/01/03 289,665
-----------
1,032,723
-----------
FINANCE COMPANIES (2.3%)
300 General Electric Capital Corp.
(Series A)................... 15.00 01/21/99 301,209
GBP 800 General Electric Capital Corp.
(b).......................... 6.625 03/16/01 1,351,603
325 KFW International Finance
(b).......................... 7.625 12/29/00 556,825
-----------
2,209,637
-----------
FOOD CHAINS (0.8%)
$ 250 Big V Supermarkets, Inc.
(Series B)................... 11.00 02/15/04 252,500
500 Pueblo Xtra International, Inc.
(Series C)................... 9.50 08/01/03 477,500
-----------
730,000
-----------
FOOD DISTRIBUTORS (0.3%)
300 Fleming Companies, Inc. (Series
B)........................... 10.625 07/31/07 280,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOODS & BEVERAGES (2.0%)
$ 600 Envirodyne Industries, Inc..... 10.25% 12/01/01 $ 498,000
500 General Mills, Inc............. 15.00 01/29/99 503,090
600 Pepsico, Inc................... 15.00 08/06/99 635,814
1,000 Specialty Foods Acquisition
Corp. (Series B)............. 13.00++ 08/15/05 210,000
-----------
1,846,904
-----------
HEALTHCARE (1.5%)
500 Pediatric Services of America,
Inc. (Series A).............. 10.00 04/15/08 355,000
300 Unilab Corp.................... 11.00 04/01/06 311,250
500 Unison Healthcare Corp. - 144A*
(c).......................... 12.25 11/01/06 232,500
300 Universal Hospital Services,
Inc.......................... 10.25 03/01/08 267,000
300 Vencor Operating, Inc.......... 9.875 05/01/05 249,000
-----------
1,414,750
-----------
HOTELS/RESORTS (1.2%)
300 Epic Resorts LLC/Capital
(Series B)................... 13.00 06/15/05 294,000
700 Motels of America, Inc. (Series
B)........................... 12.00 04/15/04 588,000
281 Resort At Summerlin............ 13.00+ 12/15/07 272,725
-----------
1,154,725
-----------
INDUSTRIAL SPECIALTIES (0.9%)
900 Aladdin Gaming/Capital Corp.
(Series B)................... 13.50++ 03/01/10 261,000
350 International Wire Group, Inc.
(Series B)................... 11.75 06/01/05 368,375
250 Outsourcing Services Group,
Inc. - 144A*................. 10.875 03/01/06 237,500
-----------
866,875
-----------
MOVIES/ENTERTAINMENT (0.1%)
250 Stuart Entertainment, Inc.
(Series B)................... 12.50 11/15/04 80,000
-----------
OFFICE EQUIPMENT/SUPPLIES (0.4%)
400 Mosler, Inc.................... 11.00 04/15/03 356,000
-----------
PRINTING/PUBLISHING (0.3%)
250 American Media Operations,
Inc.......................... 11.625 11/15/04 255,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RENTAL/LEASING COMPANIES (0.3%)
$ 300 IBM Credit Corp................ 15.00% 02/02/99 $ 302,076
-----------
RESTAURANTS (0.6%)
200 FRD Acquisition Corp. (Series
B)........................... 12.50 07/15/04 214,000
900 Planet Hollywood International,
Inc.......................... 12.00 04/01/05 351,000
-----------
565,000
-----------
TELECOMMUNICATION EQUIPMENT (0.7%)
1,100 FWT, Inc....................... 9.875 11/15/07 660,000
-----------
TELECOMMUNICATIONS (4.6%)
400 21st Century Telecom Group,
Inc.......................... 12.25++ 02/15/08 168,000
200 Birch Telecom Inc. - 144A*
(Units) ++................... 14.00 06/15/08 184,000
300 CapRock Communications Corp.... 12.00 07/15/08 285,000
300 e. Spire Communications,
Inc.......................... 13.75 07/15/07 294,000
600 Facilicom International, Inc.
(Series B)................... 10.50 01/15/08 486,000
1,700 Firstworld Communications,
Inc.......................... 13.00++ 04/15/08 544,000
250 GST Equipment Funding, Inc..... 13.25 05/01/07 262,500
350 GST Telecommunications, Inc. -
144A*........................ 10.50++ 05/01/08 168,000
300 Hyperion Telecommunication,
Inc. (Series B).............. 13.00++ 04/15/03 214,500
300 Hyperion Telecommunication,
Inc. (Series B).............. 12.25 09/01/04 304,500
400 In-Flight Phone Corp. (Series
B) (d)....................... 14.00 05/15/02 48,000
300 Level 3 Communications, Inc.... 9.125 05/01/08 297,750
150 NextLink Communications,
Inc.......................... 12.50 04/15/06 160,500
300 Optel, Inc..................... 11.50 07/01/08 294,000
300 Primus Telecommunication Group,
Inc.......................... 11.75 08/01/04 310,500
300 Primus Telecommunication Group,
Inc.......................... 9.875 05/15/08 286,500
-----------
4,307,750
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WIRELESS COMMUNICATION (3.6%)
$ 825 Advanced Radio Telecom Corp.... 14.00% 02/15/07 $ 643,500
1,800 CellNet Data Systems Inc....... 14.00++ 10/01/07 504,000
200 Echostar DBS Corp.............. 12.50 07/01/02 231,000
150 Globalstar LP/Capital Corp..... 11.50 06/01/05 113,250
250 Globalstar LP/Capital Corp..... 11.375 02/15/04 188,750
200 Orbcomm Global LP/Capital
Corp......................... 14.00 08/15/04 206,000
300 Paging Network, Inc............ 10.125 08/01/07 292,500
600 TCI Satellite Entertainment
Corp......................... 12.25++ 02/15/07 138,000
400 USA Mobile Communications
Holdings, Inc................ 14.00 11/01/04 412,000
500 Winstar Communications, Inc.... 14.00++ 10/15/05 361,250
250 Winstar Equipment Corp......... 12.50 03/15/04 255,000
-----------
3,345,250
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $31,704,255)........................................... 28,650,503
-----------
MORTGAGE-BACKED SECURITIES (22.5%)
596 Federal Home Loan Mortgage
Corp. (0.6%)................. 7.00 06/01/04 607,957
-----------
Federal National Mortgage
Assoc. (8.3%)
1,785 ............................... 6.00 02/01/11-11/01/28 1,773,582
2,899 ............................... 6.50 04/01/12-06/01/28 2,925,096
2,760 ............................... 7.00 07/01/25-05/01/27 2,814,800
271 ............................... 8.00 07/01/26 280,756
-----------
7,794,234
-----------
Government National Mortgage
Assoc. (13.6%)
4,979 ............................... 6.00 05/15/28-12/15/28 4,935,612
5,430 ............................... 6.50 01/15/24-04/20/28 5,476,167
784 ............................... 7.00 01/15/26-04/15/26 802,388
844 ............................... 7.50 02/15/26-07/15/26 869,664
621 ............................... 8.00 02/15/26-06/15/26 644,657
-----------
12,728,488
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $20,645,306)........................................... $21,130,679
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (21.7%)
Federal Home Loan Banks (0.5%)
$ 500 ............................... 5.53% 01/15/03 507,245
-----------
Federal National Mortgage
Assoc. (b) (3.1%)
500 ............................... 5.60 02/02/01 506,790
NZD 4,520 ............................... 7.00 09/26/00 2,420,327
-----------
2,927,117
-----------
Resolution Funding Corp. (4.3%)
$ 1,000 ............................... 0.00 01/15/05 743,350
2,000 ............................... 0.00 07/15/07 1,308,620
3,000 ............................... 0.00 10/15/07 1,943,550
-----------
3,995,520
-----------
1,000 Tennesee Valley Authority
(1.0%)....................... 0.00 07/15/00 926,450
-----------
U.S. Treasury Notes (12.8%)
5,000 ............................... 4.625 11/30/00 5,007,850
1,800 ............................... 5.75 11/30/02 1,867,500
1,000 ............................... 6.25 08/31/02 1,051,990
2,000 ............................... 6.375 09/30/01 2,089,220
1,900 ............................... 8.00 05/15/01 2,043,108
-----------
12,059,668
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $19,862,728)........................................... 20,416,000
-----------
TOTAL UNITED STATES
(IDENTIFIED COST $72,212,289)........................................... 70,197,182
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $91,387,359)........................................... 88,809,226
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
COMMON STOCKS (f) (0.2%)
CASINO/GAMBLING (0.0%)
787 Fitzgerald Gaming Corp.................................................................. $ 1,574
-----------
CELLULAR TELEPHONE (0.1%)
342 MetroNet Communications Corp. (Class B) (Canada)........................................ 11,286
6,716 Price Communications Corp............................................................... 86,888
-----------
98,174
-----------
RETAIL (0.1%)
47,058 County Seat Store , Inc. (e)............................................................ 39,717
-----------
TEXTILES (0.0%)
11,192 U.S. Leather, Inc. (e).................................................................. 16,788
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $438,257).............................................................. 156,253
-----------
CONVERTIBLE PREFERRED STOCKS (0.0%)
ENERGY
6,878 Transcontinental Refining Corp. (Series B)*............................................. 413
3,783 Transcontinental Refining Corp. (Series C)*............................................. 227
9,973 Transcontinental Refining Corp. (Series D)*............................................. 598
20,633 Transcontinental Refining Corp. (Series E)*............................................. 1,238
12,000 Transcontinental Refining Corp.*........................................................ 8,160
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $10,648)............................................................... 10,636
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ---------- ----------
<C> <S> <C> <C>
WARRANTS (f) (0.0%)
CABLE TELEVISION (0.0%)
300 Uih Australia/Pacific Inc..................................................... 05/15/06 3
-----------
CASINO/GAMBLING (0.0%)
9,000 Aladdin Gaming Enterprises - 144A*............................................ 03/01/10 90
100 Fitzgeralds South Inc. - 144A*................................................ 03/15/99 1
-----------
91
-----------
CELLULAR TELEPHONE (0.0%)
500 McCaw International Ltd. - 144A*.............................................. 04/15/07 5
-----------
HOTELS/RESORTS (0.0%)
300 Epic Resorts LLC/Capital - 144A*.............................................. 06/15/05 3
250 Resort At Summerlin - 144A*................................................... 12/15/07 3
-----------
6
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
OTHER TELECOMMUNICATIONS (0.0%)
1,700 Firstworld Communications, Inc. - 144A*....................................... 04/15/08 $ 17
200 Versatel Telecom - 144A* (Netherlands)........................................ 05/15/08 2,000
-----------
2,017
-----------
TOTAL WARRANTS
(IDENTIFIED COST $1,260).................................................................. 2,122
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------- ---------- -----------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (g) (3.0%)
U.S. GOVERNMENT AGENCY
$ 2,850 Federal Farm Credit Bank (AMORTIZED COST $2,848,931)............ 4.50% 01/04/99 2,848,931
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $94,686,455) (h).......................................................... 97.7 % 91,827,168
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 2.3 2,163,969
------ ------------
NET ASSETS................................................................................. 100.0 % $ 93,991,137
------ ------------
------ ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a unit;
bonds with attached stocks or warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Issuer in bankruptcy.
(b) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a forward
commitment basis.
(c) Non-income producing security; bond in default.
(d) Non-income producing securities; issuer in bankruptcy.
(e) Acquired through exchange offer.
(f) Non-income producing securities.
(g) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(h) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,156,158 and the
aggregate gross unrealized depreciation is $5,015,445, resulting in net
unrealized depreciation of $2,859,287.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -------------------------------------------------------------------
<S> <C> <C> <C>
GBP 550,000 $ 915,332 01/07/99 $ 4,818
SEK 8,765,000 $ 1,078,260 01/11/99 (3,787)
NOK 8,045,000 $ 1,064,491 01/11/99 11,113
GBP 2,050,000 $ 3,399,310 01/11/99 6,068
NZD 2,578,000 $ 1,355,822 01/12/99 361
NLG 1,488,000 $ 788,449 01/13/99 (3,781)
NLG 2,161,000 $ 1,146,255 02/08/99 (5,811)
$ 1,080,095 DEM 1,800,000 02/10/99 3,422
$ 1,102,961 ECU 930,000 02/16/99 (10,338)
$ 1,936,761 ECU 1,626,000 02/19/99 (26,157)
$ 708,716 ECU 595,000 02/19/99 (9,572)
NZD 1,362,000 $ 740,519 02/23/99 24,026
NZD 875,000 $ 467,906 02/26/99 7,586
NZD 1,530,000 $ 804,107 03/22/99 (826)
NZD 1,210,000 $ 642,873 04/06/99 6,292
--------------
Net unrealized appreciation.................. $ 3,414
--------------
--------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
GBP British Pound.
DKK Danish Krone.
NLG Dutch Guilder.
ECU European Currency Unit.
DEM German Deutschemark.
NZD New Zealand Dollar.
NOK Norwegian Krone.
SEK Swedish Krona.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (64.0%)
ALUMINUM (2.5%)
35,500 Aluminum Co. of America................................................................. $ 2,646,969
-----------
BEVERAGES - NON-ALCOHOLIC (2.6%)
69,000 PepsiCo, Inc............................................................................ 2,824,688
-----------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.5%)
80,000 Deere & Co.............................................................................. 2,650,000
-----------
DEPARTMENT STORES (2.4%)
43,000 May Department Stores Co................................................................ 2,596,125
-----------
DISCOUNT CHAINS (2.8%)
55,000 Dayton-Hudson Corp...................................................................... 2,983,750
-----------
DIVERSIFIED MANUFACTURING (2.6%)
28,000 General Electric Co..................................................................... 2,857,750
-----------
ELECTRIC UTILITIES (4.6%)
56,000 GPU, Inc................................................................................ 2,474,500
64,000 Unicom Corp............................................................................. 2,468,000
-----------
4,942,500
-----------
ELECTRONIC DATA PROCESSING (2.6%)
15,000 International Business Machines Corp.................................................... 2,771,250
-----------
FINANCE COMPANIES (2.7%)
68,000 Associates First Capital Corp. (Class A)................................................ 2,881,500
-----------
FOREST PRODUCTS (2.4%)
51,000 Weyerhaeuser Co......................................................................... 2,591,437
-----------
INTEGRATED OIL COMPANIES (2.4%)
39,000 Atlantic Richfield Co................................................................... 2,544,750
-----------
MAJOR BANKS (4.7%)
48,000 Banc One Corp........................................................................... 2,451,000
43,000 BankAmerica Corp........................................................................ 2,585,375
-----------
5,036,375
-----------
MAJOR CHEMICALS (2.3%)
47,000 Du Pont (E.I.) de Nemours & Co., Inc.................................................... 2,493,937
-----------
MAJOR PHARMACEUTICALS (2.6%)
21,000 Bristol-Myers Squibb Co................................................................. 2,810,062
-----------
MEAT/POULTRY/FISH (2.3%)
79,000 ConAgra, Inc............................................................................ 2,488,500
-----------
METALS FABRICATIONS (2.3%)
134,000 Timken Co............................................................................... 2,529,250
-----------
MILITARY/GOV'T/TECHNICAL (2.5%)
50,000 Raytheon Co. (Class B).................................................................. 2,662,500
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MOTOR VEHICLES (5.1%)
48,000 Ford Motor Co........................................................................... $ 2,817,000
37,000 General Motors Corp..................................................................... 2,647,813
-----------
5,464,813
-----------
MULTI-SECTOR COMPANIES (2.4%)
77,000 Tenneco, Inc............................................................................ 2,622,813
-----------
OIL/GAS TRANSMISSION (2.4%)
46,000 Enron Corp.............................................................................. 2,624,875
-----------
PACKAGE GOODS/COSMETICS (2.5%)
30,000 Procter & Gamble Co..................................................................... 2,739,375
-----------
RAILROADS (2.3%)
60,000 CSX Corp................................................................................ 2,490,000
-----------
TELECOMMUNICATIONS (2.5%)
36,000 AT&T Corp............................................................................... 2,709,000
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $64,651,013)........................................................... 68,962,219
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (3.9%)
BIOTECHNOLOGY (0.0%)
$ 40 Monsanto Co.
8.875% due 12/15/09................................................................... 49,632
-----------
CELLULAR TELEPHONE (0.1%)
120 Northern Telecom Capital
7.40% due 06/15/06.................................................................... 131,377
-----------
ELECTRIC UTILITIES (0.2%)
15 Texas Utilities Electric Co.
7.875% due 04/01/24................................................................... 15,914
150 Union Electric Co.
6.75% due 05/01/08.................................................................... 163,383
-----------
179,297
-----------
ELECTRONIC DATA PROCESSING (0.5%)
500 IBM Corp.
7.00% due 10/30/25.................................................................... 556,175
-----------
FINANCE COMPANIES (0.2%)
100 Abbey National PLC (United Kingdom)
6.69% due 10/17/05.................................................................... 104,546
110 Wells Fargo & Co.
6.875% due 04/01/06................................................................... 117,151
-----------
221,697
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS (0.2%)
$ 15 Mead Corp.
7.125% due 08/01/25................................................................... $ 15,335
200 Willamette Industries, Inc.
7.85% due 07/01/26.................................................................... 219,588
-----------
234,923
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (0.5%)
400 Bear Stearns Co., Inc.
6.50% due 08/01/02.................................................................... 405,904
150 Merrill Lynch & Co., Inc.
6.00% due 01/15/01.................................................................... 151,662
-----------
557,566
-----------
MAJOR BANKS (0.7%)
145 Citicorp
6.375% due 01/15/06................................................................... 148,841
200 NationsBank Corp.
7.50% due 09/15/06.................................................................... 221,074
325 Norwest Corp.
6.80% due 05/15/02.................................................................... 337,097
-----------
707,012
-----------
MAJOR PHARMACEUTICALS (0.1%)
45 Lilly (Eli) & Co.
8.375% due 12/01/06................................................................... 53,639
-----------
MEDIA CONGLOMERATES (0.2%)
180 Walt Disney Co. (Series B)
6.75% due 03/30/06.................................................................... 195,705
-----------
MILITARY/GOV'T/TECHNICAL (0.5%)
150 Lockheed Martin Corp.
7.25% due 05/15/06.................................................................... 160,934
400 Raytheon Co.
6.45% due 08/15/02.................................................................... 410,596
-----------
571,530
-----------
SPECIALTY CHEMICALS (0.2%)
200 Praxair, Inc.
6.90% due 11/01/06.................................................................... 204,836
-----------
TELECOMMUNICATIONS (0.4%)
400 MCI Communication Corp.
6.95% due 08/15/06.................................................................... 427,648
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION (0.1%)
$ 100 General American Transportation Corp.
6.75% due 03/01/06.................................................................... $ 101,120
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $3,946,641)............................................................ 4,192,157
-----------
MORTGAGE-BACKED SECURITIES (18.3%)
1,557 Federal Home Loan Mortgage Corp.
6.00% due 04/01/03.................................................................... 1,566,455
715 Federal Home Loan Mortgage Corp.
7.00% due 08/01/12.................................................................... 731,185
267 Federal Home Loan Mortgage Corp.
7.00% due 04/01/26.................................................................... 272,492
648 Federal Home Loan Mortgage Corp.
7.00% due 12/01/27.................................................................... 660,269
445 Federal National Mortgage Assoc.
6.00% due 04/01/04.................................................................... 447,997
26 Federal National Mortgage Assoc.
6.50% due 01/01/13.................................................................... 26,465
1,414 Federal National Mortgage Assoc.
6.00% due 03/01/13.................................................................... 1,417,756
258 Federal National Mortgage Assoc.
6.50% due 03/01/13.................................................................... 262,005
893 Federal National Mortgage Assoc.
6.50% due 04/01/13.................................................................... 905,278
2,406 Federal National Mortgage Assoc.
6.00% due 05/01/13.................................................................... 2,411,600
653 Federal National Mortgage Assoc.
6.50% due 05/01/13.................................................................... 662,547
41 Federal National Mortgage Assoc.
6.00% due 06/01/13.................................................................... 40,963
937 Federal National Mortgage Assoc.
6.50% due 10/01/17.................................................................... 953,141
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 980 Federal National Mortgage Assoc.
6.50% due 06/01/28.................................................................... $ 986,574
463 Government National Mortgage Assoc.
7.50% due 08/15/27.................................................................... 477,839
393 Government National Mortgage Assoc.
6.00% due 04/15/28.................................................................... 389,995
973 Government National Mortgage Assoc.
6.50% due 04/20/28.................................................................... 976,226
244 Government National Mortgage Assoc.
6.00% due 05/15/28.................................................................... 241,612
347 Government National Mortgage Assoc.
6.00% due 06/15/28.................................................................... 344,364
1,009 Government National Mortgage Assoc.
6.00% due 11/15/28.................................................................... 1,000,206
1,010 Government National Mortgage Assoc.
6.00% due 12/15/28.................................................................... 1,001,162
1,000 Government National Mortgage Assoc.
6.50% due 12/20/28.................................................................... 1,003,437
3,000 Government National Mortgage Assoc.
6.50% due 01/21/29 WI................................................................. 3,010,312
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $19,550,492)........................................................... 19,789,880
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (12.1%)
1,100 Federal Home Loan Banks
5.65% due 02/06/03.................................................................... 1,120,933
1,500 Federal Home Loan Banks
5.96% due 02/05/08.................................................................... 1,561,635
500 Resolution Funding Corp.
0.00% due 10/15/04.................................................................... 376,545
1,705 U.S. Treasury Bond
7.50% due 11/15/24.................................................................... 2,207,890
1,065 U.S. Treasury Bond
6.00% due 02/15/26+................................................................... 1,161,638
1,965 U.S. Treasury Note
6.00% due 06/30/99.................................................................... 1,978,794
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 750 U.S. Treasury Note
7.75% due 01/31/00.................................................................... $ 773,948
385 U.S. Treasury Note
6.625% due 06/30/01................................................................... 403,137
1,400 U.S. Treasury Note
6.625% due 04/30/02+.................................................................. 1,483,272
500 U.S. Treasury Note
5.50% due 05/31/03.................................................................... 516,250
80 U.S. Treasury Note
7.875% due 11/15/04................................................................... 92,686
1,300 U.S. Treasury Note
5.875% due 11/15/05+.................................................................. 1,387,399
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $12,429,286)........................................................... 13,064,127
-----------
SHORT-TERM INVESTMENT (4.1%)
REPURCHASE AGREEMENT
4,458 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $4,459,542) (a)
(IDENTIFIED COST $4,457,561).......................................................... 4,457,561
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $105,034,993) (b)......................................................... 102.4 % 110,465,944
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (2.4) (2,613,827)
------ ------------
NET ASSETS................................................................................. 100.0 % $107,852,117
------ ------------
------ ------------
</TABLE>
- ---------------------
WI Security purchased on a "when-issued" basis.
+ Some or all of these securities are segregated in connection with the
purchase of "when-issued" securities.
(a) Collateralized by $4,499,610 U.S. Treasury Note 6.75% due 06/30/99 valued
at $4,546,713.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,137,381 and the
aggregate gross unrealized depreciation is $3,706,430, resulting in net
unrealized appreciation of $5,430,951.
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (89.9%)
ELECTRIC UTILITIES (31.0%)
16,000 AES Corp. (The)*........................................................................ $ 758,000
14,000 Allegheny Energy, Inc................................................................... 483,000
10,000 American Electric Power Co.............................................................. 470,625
12,000 BEC Energy.............................................................................. 494,250
20,000 CalEnergy, Inc.*........................................................................ 693,750
15,000 Carolina Power & Light Co............................................................... 705,937
10,000 Central & South West Corp............................................................... 274,375
11,500 CINERGY Corp............................................................................ 395,312
15,000 CLECO Corp.............................................................................. 514,687
12,000 CMS Energy Corp......................................................................... 581,250
14,000 Consolidated Edison, Inc................................................................ 740,250
15,000 Dominion Resources, Inc................................................................. 701,250
17,500 DQE, Inc................................................................................ 768,906
13,355 Duke Energy Corp........................................................................ 855,555
18,000 Edison International.................................................................... 501,750
10,500 Enersis S.A. (ADR) (Chile).............................................................. 271,031
7,500 Entergy Corp............................................................................ 233,437
15,000 FPL Group, Inc.......................................................................... 924,375
14,000 GPU, Inc................................................................................ 618,625
15,000 Houston Industries Inc.................................................................. 481,875
7,500 Illinova Corp........................................................................... 187,500
30,000 Independent Energy Holdings
PLC (ADR) (United Kingdom)*........................................................... 270,000
15,000 Interstate Energy Corp.................................................................. 483,750
15,000 IPALCO Enterprises, Inc................................................................. 829,687
10,000 Kansas City Power & Light Co............................................................ 296,250
31,700 LG&E Energy Corp........................................................................ 897,506
17,300 Metzler Group, Inc. (The)*.............................................................. 841,213
12,000 Nevada Power Co......................................................................... 312,000
11,000 New Century Energies, Inc............................................................... 536,250
10,000 New England Electric System............................................................. 481,250
25,000 Niagara Mohawk Power Corp.*............................................................. 403,125
24,000 NIPSCO Industries, Inc.................................................................. 730,500
20,000 Northwestern Corp....................................................................... 528,750
24,000 OGE Energy Corp......................................................................... 694,500
12,000 PacifiCorp.............................................................................. 252,750
7,500 Peco Energy Co.......................................................................... 312,187
9,500 PG & E Corp............................................................................. 299,250
9,500 Pinnacle West Capital Corp.............................................................. 402,562
12,500 Public Service Company of New Mexico.................................................... 255,469
6,000 Public Service Enterprise Group, Inc.................................................... 240,000
22,000 SCANA Corp.............................................................................. 709,500
16,000 Sierra Pacific Resources................................................................ 608,000
15,000 Southern Co............................................................................. 435,937
22,000 TECO Energy, Inc........................................................................ 620,125
11,000 Texas Utilities Co...................................................................... 513,562
10,000 TNP Enterprises, Inc.................................................................... 379,375
14,000 Unicom Corp............................................................................. 539,875
40,000 USEC Inc................................................................................ 555,000
14,000 Utilicorp United, Inc................................................................... 513,625
13,000 Western Resources, Inc.................................................................. 432,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
16,000 Wisconsin Energy Corp................................................................... $ 503,000
-----------
26,532,988
-----------
NATURAL GAS (12.2%)
20,000 AGL Resources, Inc...................................................................... 461,250
10,000 Cabot Oil & Gas Corp. (Class A)......................................................... 150,000
6,000 Consolidated Natural Gas Co............................................................. 324,000
10,000 Eastern Enterprises..................................................................... 437,500
12,622 El Paso Energy Corp..................................................................... 439,403
16,912 Enron Corp.............................................................................. 965,041
7,000 Ente Nazionale Idrocarburi SpA ENI (ADR) (Italy)........................................ 474,250
10,000 Exxon Corp.............................................................................. 731,250
15,999 Indiana Energy Inc...................................................................... 393,975
31,600 KeySpan Energy.......................................................................... 979,600
12,000 KN Energy, Inc.......................................................................... 436,500
19,000 MCN Energy Group Inc.................................................................... 362,187
14,000 New Jersey Resources Corp............................................................... 553,000
15,000 North Carolina Natural Gas Corp......................................................... 497,812
13,750 Northwest Natural Gas Co................................................................ 354,062
24,000 Questar Corp............................................................................ 465,000
10,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 478,750
24,541 Sempra Energy........................................................................... 622,728
7,000 South Jersey Industries, Inc............................................................ 183,313
15,000 Washington Gas Light Co................................................................. 406,875
10,000 Williams Companies, Inc................................................................. 311,875
16,000 YPF Sociedad Anomina (ADR) (Argentina).................................................. 447,000
-----------
10,475,371
-----------
REAL ESTATE INVESTMENT TRUST (0.7%)
15,000 Brandywine Realty Trust................................................................. 268,125
10,000 Mack-Cali Realty Corp................................................................... 308,750
-----------
576,875
-----------
TELECOMMUNICATIONS (44.0%)
10,000 AirTouch Communications, Inc.*.......................................................... 721,250
14,000 Alcatel Alsthom (ADR) (France).......................................................... 342,125
14,160 ALLTEL Corp............................................................................. 846,945
9,000 Ameritech Corp.......................................................................... 570,375
15,000 AT&T Corp............................................................................... 1,128,750
15,000 BCE, Inc. (Canada)...................................................................... 569,063
11,144 Bell Atlantic Corp...................................................................... 633,119
10,000 BellSouth Corp.......................................................................... 498,750
20,000 Cellnet Data Systems, Inc.*............................................................. 100,000
6,000 Cellular Communications International, Inc.*............................................ 408,000
13,750 Century Telephone Enterprises, Inc...................................................... 928,125
13,000 China Telecom (Hong Kong) Ltd. (ADR)*................................................... 451,750
22,000 Cincinnati Bell, Inc.................................................................... 831,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Cisco Systems, Inc.*.................................................................... $ 928,125
19,200 COLT Telecom Group plc (ADR) (United Kingdom)*.......................................... 1,152,000
12,000 Commonwealth Telephone Enterprises, Inc.*............................................... 394,500
12,000 COMSAT Corp............................................................................. 432,000
30,000 Crown Castle International Corp.*....................................................... 697,500
12,000 Deutsche Telekom AG (ADR) (Germany)..................................................... 393,000
15,000 Dycom Industries, Inc.*................................................................. 856,875
11,900 Esat Telecom Group PLC (ADR) (Ireland)*................................................. 447,738
8,200 France Telecom S.A. (ADR) (France)...................................................... 647,288
15,000 Frontier Corp........................................................................... 510,000
5,000 General Motors Corp. (Class H) (Hughes Electronics)..................................... 198,438
20,000 Global Crossing Ltd. (Bermuda)*......................................................... 900,000
14,000 Grupo Iusacell, S.A. de C.V. (Series L) (ADR) (Mexico)*................................. 99,750
6,500 GTE Corp................................................................................ 438,344
6,000 Harris Corp............................................................................. 219,750
20,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR) (Greece)*...................... 265,000
25,000 Hyperion Telecommunications, Inc.*...................................................... 378,125
12,000 ICG Communications, Inc.*............................................................... 258,000
20,000 ITC DeltaCom, Inc.*..................................................................... 302,500
12,000 Level 3 Communications, Inc.*........................................................... 516,750
8,292 Lucent Technologies Inc................................................................. 912,120
10,000 Magyar Tavkozlesi RT (MATAV) (ADR) (Hungary)............................................ 298,125
33,860 MCI WorldCom, Inc.*..................................................................... 2,429,455
10,000 McLeodUSA, Inc. (Class A)*.............................................................. 310,000
12,000 MediaOne Group Inc.*.................................................................... 564,000
20,000 MetroNet Communications Corp. (Class B) (Canada)*....................................... 660,000
10,000 Motorola, Inc........................................................................... 610,625
18,000 Nextel Communications, Inc. (Class A)*.................................................. 425,250
11,000 NEXTLINK Communications, Inc. (Class A)*................................................ 312,125
10,000 Omnipoint Corp.*........................................................................ 93,125
10,000 Pacific Gateway Exchange, Inc.*......................................................... 480,625
4,000 Philips Electronics NV (ADR) (Netherlands).............................................. 270,750
10,000 Portugal Telecom S.A. (ADR) (Portugal).................................................. 446,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Powertel, Inc.*......................................................................... $ 136,250
20,000 Primus Telecommunications Group, Inc.*.................................................. 326,250
22,325 Qwest Communications International, Inc.*............................................... 1,114,855
15,000 RCN Corp.*.............................................................................. 265,313
8,000 Royal PTT Nederland NV (ADR) (Netherlands).............................................. 402,000
10,000 RSL Communications, Ltd. (Class A) (Bermuda)*........................................... 293,750
7,000 Saville Systems PLC (ADR) (Ireland)*.................................................... 132,563
20,428 SBC Communications, Inc................................................................. 1,095,452
7,000 Sprint Corp. (FON Group)................................................................ 588,875
3,500 Sprint Corp. (PCS Group)*............................................................... 80,938
10,000 Tele Danmark AS (ADR) (Denmark)......................................................... 678,750
12,000 Tele-Communications, Inc. (Class A)*.................................................... 663,750
4,000 Telecomunicacoes Brasileiras S.A.-Telebras (ADR) (Brasil)*.............................. 290,750
5,100 Telefonica Espana S.A. (ADR) (Spain).................................................... 690,413
12,000 Teleglobe Inc........................................................................... 432,000
9,000 Telephone & Data Systems, Inc........................................................... 404,438
15,000 Teligent, Inc. (Class A)*............................................................... 431,250
5,000 Telstra Corp. Ltd. (ADR) (Australia)*................................................... 463,750
10,000 The Associated Group, Inc.*............................................................. 423,750
5,327 U.S. West, Inc.......................................................................... 344,257
7,000 United States Cellular Corp.*........................................................... 266,000
10,000 Vanguard Cellular Systems, Inc. (Class A)*.............................................. 257,500
4,000 Vodafone Group PLC (ADR) (United Kingdom)............................................... 644,500
20,000 Western Wireless Corp. (Class A)........................................................ 438,750
20,000 Winstar Communications, Inc.*........................................................... 778,750
8,000 World Access, Inc.*..................................................................... 171,000
-----------
37,694,114
-----------
WATER SUPPLY (2.0%)
22,000 American Water Works Company, Inc....................................................... 742,500
11,000 E'Town Corp............................................................................. 521,125
15,000 Philadelphia Suburban Corp.............................................................. 443,438
-----------
1,707,063
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $54,621,372)........................................................... 76,986,411
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
UTILITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (0.4%)
ELECTRIC UTILITIES
6,000 Alabama Power Capital Trust I (Series Q) $1.84.......................................... $ 153,750
1,000 Duquesne Capital LP (Series A) $2.094................................................... 26,000
2,500 Public Service Electric & Gas Capital (Series B) $2.00.................................. 63,594
5,000 Virginia Power Capital $2.013........................................................... 127,812
-----------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $363,687).............................................................. 371,156
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
CORPORATE BONDS (4.7%)
ELECTRIC UTILITIES (1.3%)
$ 100 Florida Power & Light Co.
7.05% due 12/01/26.................................................................... 102,357
500 Niagara Mohawk Power Corp.
8.00% due 06/01/04.................................................................... 550,130
500 Salton Sea Funding Co. - 144A**
7.475% due 11/30/18................................................................... 499,065
-----------
1,151,552
-----------
TELECOMMUNICATIONS (3.4%)
500 Aliant Communications, Inc.
6.75% due 04/01/28.................................................................... 530,560
500 LCI International, Inc.
7.25% due 06/15/07.................................................................... 509,060
250 Sprint Capital Corp.
6.125% due 11/15/08................................................................... 255,232
1,000 Sprint Capital Corp.
6.875% due 11/15/28................................................................... 1,039,660
500 WorldCom, Inc.
6.95% due 08/15/28.................................................................... 537,705
-----------
2,872,217
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $3,897,527)............................................................ 4,023,769
-----------
U.S. GOVERNMENT AGENCY (0.0%)
25 Tennessee Valley Authority (Series 95-A)
8.00% due 03/31/45
(IDENTIFIED COST $25,000)............................................................. 26,188
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.6%)
U.S. GOVERNMENT AGENCY (a) (1.2%)
$ 1,000 Federal National Mortgage Assoc. 5.09% due 01/07/99 (AMORTIZED COST $999,152)........... $ 999,152
-----------
REPURCHASE AGREEMENT (3.4%)
2,947 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,948,017) (b)
(IDENTIFIED COST $2,946,707).......................................................... 2,946,707
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,945,859)............................................................ 3,945,859
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $62,853,445).............................................................. 99.6 % 85,353,383
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.4 329,802
------ ------------
NET ASSETS................................................................................. 100.0 % $ 85,683,185
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $2,974,500 U.S. Treasury Note 6.75% due 06/30/99 valued
at $3,005,641.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $23,940,363 and the
aggregate gross unrealized depreciation is $1,440,425, resulting in net
unrealized appreciation of $22,499,938.
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.9%)
AEROSPACE (2.6%)
170,000 United Technologies Corp............................................................... $ 18,487,500
------------
ALUMINUM (2.5%)
245,000 Aluminum Co. of America................................................................ 18,267,812
------------
BEVERAGES - NON-ALCOHOLIC (2.6%)
468,000 PepsiCo, Inc........................................................................... 19,158,750
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.6%)
564,000 Deere & Co............................................................................. 18,682,500
------------
CONSUMER ELECTRONICS/APPLIANCES (2.4%)
320,000 Whirlpool Corp......................................................................... 17,720,000
------------
DEPARTMENT STORES (5.0%)
300,000 May Department Stores Co............................................................... 18,112,500
430,000 Sears, Roebuck & Co.................................................................... 18,275,000
------------
36,387,500
------------
DIVERSIFIED MANUFACTURING (7.5%)
192,000 General Electric Co.................................................................... 19,596,000
235,000 Honeywell, Inc......................................................................... 17,698,437
240,000 Minnesota Mining & Manufacturing Co.................................................... 17,070,000
------------
54,364,437
------------
ELECTRIC UTILITIES (4.8%)
400,000 GPU, Inc............................................................................... 17,675,000
438,000 Unicom Corp............................................................................ 16,890,375
------------
34,565,375
------------
ELECTRONIC DATA PROCESSING (2.7%)
107,000 International Business Machines Corp................................................... 19,768,250
------------
FINANCE COMPANIES (2.7%)
460,000 Associates First Capital Corp. (Class A)............................................... 19,492,500
------------
FOOD CHAINS (2.6%)
510,000 American Stores Co..................................................................... 18,838,125
------------
FOREST PRODUCTS (2.5%)
355,000 Weyerhaeuser Co........................................................................ 18,038,437
------------
INTEGRATED OIL COMPANIES (7.3%)
260,000 Atlantic Richfield Co.................................................................. 16,965,000
240,000 Exxon Corp............................................................................. 17,550,000
208,000 Mobil Corp............................................................................. 18,122,000
------------
52,637,000
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR BANKS (4.8%)
341,000 Bank One Corp.......................................................................... $ 17,412,313
290,000 BankAmerica Corp....................................................................... 17,436,250
------------
34,848,563
------------
MAJOR CHEMICALS (2.4%)
190,000 Dow Chemical Co........................................................................ 17,278,125
------------
MAJOR PHARMACEUTICALS (5.1%)
360,000 Abbott Laboratories.................................................................... 17,640,000
340,000 American Home Products Corp............................................................ 19,146,250
------------
36,786,250
------------
MOTOR VEHICLES (5.3%)
195,000 DaimlerChrysler AG (Germany)........................................................... 18,732,188
329,000 Ford Motor Co.......................................................................... 19,308,188
------------
38,040,376
------------
MULTI-LINE INSURANCE (2.5%)
220,000 Lincoln National Corp.................................................................. 17,998,750
------------
MULTI-SECTOR COMPANIES (2.6%)
547,300 Tenneco, Inc........................................................................... 18,642,406
------------
NATURAL GAS (2.4%)
320,000 Consolidated Natural Gas Co............................................................ 17,280,000
------------
OFFICE EQUIPMENT/SUPPLIES (2.7%)
300,000 Pitney Bowes, Inc...................................................................... 19,818,750
------------
OIL REFINERIES/MARKETING (2.6%)
615,000 USX-Marathon Group..................................................................... 18,526,875
------------
OIL/GAS TRANSMISSION (2.6%)
330,000 Enron Corp............................................................................. 18,830,625
------------
OTHER METALS/MINERALS (2.3%)
330,000 Phelps Dodge Corp...................................................................... 16,788,750
------------
PACKAGED FOODS (2.4%)
290,000 Quaker Oats Company (The).............................................................. 17,255,000
------------
PAINTS/COATINGS (2.3%)
291,000 PPG Industries, Inc.................................................................... 16,950,750
------------
PHOTOGRAPHIC PRODUCTS (2.4%)
240,000 Eastman Kodak Co....................................................................... 17,280,000
------------
RAILROADS (2.4%)
425,000 CSX Corp............................................................................... 17,637,500
------------
TELECOMMUNICATIONS (4.9%)
230,000 AT&T Corp.............................................................................. 17,307,500
316,000 Bell Atlantic Corp..................................................................... 17,952,750
------------
35,260,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TOBACCO (2.4%)
319,000 Philip Morris Companies, Inc........................................................... $ 17,066,500
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $618,446,655)......................................................... 722,697,656
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
$ 3,890 The Bank of New York 4.00%
due 01/04/99 (dated 12/31/98;
proceeds $3,891,258)
(IDENTIFIED COST $3,889,529) (a)..................................................... 3,889,529
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $622,336,184) (b)........................................................ 100.5 % 726,587,185
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.5) (3,302,107)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 723,285,078
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Collateralized by $3,926,210 U.S. Treasury Note 6.75% due 06/30/99 valued
at $3,967,319.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $124,567,822 and the
aggregate gross unrealized depreciation is $20,316,821, resulting in net
unrealized appreciation of $104,251,001.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.0%)
ACCIDENT & HEALTH INSURANCE (0.5%)
7,400 Provident Companies, Inc............................................................... $ 307,100
8,600 Torchmark Corp......................................................................... 303,688
6,000 UNUM Corp.............................................................................. 350,250
------------
961,038
------------
ADVERTISING (0.4%)
4,900 Interpublic Group of Companies, Inc.................................................... 390,775
6,600 Omnicom Group, Inc..................................................................... 382,800
------------
773,575
------------
AEROSPACE (0.8%)
9,400 Boeing Co.............................................................................. 306,675
3,700 Lockheed Martin Corp................................................................... 313,575
4,200 Northrop Grumman Corp.................................................................. 307,125
3,600 United Technologies Corp............................................................... 391,500
------------
1,318,875
------------
AIR FREIGHT/DELIVERY SERVICES (0.2%)
4,400 FDX Corp.*............................................................................. 391,600
------------
AIRLINES (0.7%)
5,500 AMR Corp.*............................................................................. 326,562
6,000 Delta Air Lines, Inc................................................................... 312,000
15,600 Southwest Airlines Co.................................................................. 350,025
5,800 US Airways Group Inc.*................................................................. 301,600
------------
1,290,187
------------
ALCOHOLIC BEVERAGES (0.8%)
5,700 Anheuser-Busch Companies, Inc.......................................................... 374,062
5,100 Brown-Forman Corp. (Class B)........................................................... 386,006
7,400 Coors (Adolph) Co. (Class B)........................................................... 417,637
9,700 Fortune Brands, Inc.................................................................... 306,762
------------
1,484,467
------------
ALUMINUM (0.6%)
11,500 Alcan Aluminium Ltd. (Canada).......................................................... 311,219
4,700 Aluminum Co. of America................................................................ 350,444
5,800 Reynolds Metals Co..................................................................... 305,587
------------
967,250
------------
APPAREL (0.8%)
25,000 Fruit of the Loom, Inc. (Class A)*..................................................... 345,313
10,000 Liz Claiborne, Inc..................................................................... 315,625
18,000 Russell Corp........................................................................... 365,625
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,500 VF Corp................................................................................ $ 304,688
------------
1,331,251
------------
AUTO PARTS: O.E.M. (0.8%)
9,200 Dana Corp.............................................................................. 376,050
4,300 Eaton Corp............................................................................. 303,956
5,500 Johnson Controls, Inc.................................................................. 324,500
5,800 TRW, Inc............................................................................... 325,887
------------
1,330,393
------------
AUTOMOTIVE AFTERMARKET (0.5%)
15,000 Cooper Tire & Rubber Co................................................................ 306,562
9,100 Genuine Parts Co....................................................................... 304,281
6,000 Goodyear Tire & Rubber Co.............................................................. 302,625
------------
913,468
------------
BEVERAGES - NON-ALCOHOLIC (0.5%)
4,500 Coca Cola Co........................................................................... 300,938
7,800 Coca-Cola Enterprises Inc.............................................................. 278,850
8,500 PepsiCo, Inc........................................................................... 347,969
------------
927,757
------------
BIOTECHNOLOGY (0.2%)
3,700 Amgen Inc.*............................................................................ 386,650
------------
BOOKS/MAGAZINE (0.3%)
5,700 Harcourt General, Inc.................................................................. 303,169
7,900 Meredith Corp.......................................................................... 299,213
------------
602,382
------------
BROADCASTING (0.4%)
10,000 CBS Corp............................................................................... 327,500
7,400 Clear Channel Communications, Inc.*.................................................... 403,300
------------
730,800
------------
BUILDING MATERIALS (0.2%)
9,500 Owens Corning.......................................................................... 336,656
------------
BUILDING MATERIALS/DIY CHAINS (0.4%)
6,300 Home Depot, Inc........................................................................ 385,481
7,500 Lowe's Companies, Inc.................................................................. 383,906
------------
769,387
------------
BUILDING PRODUCTS (0.5%)
4,900 Armstrong World Industries, Inc........................................................ 295,531
5,500 Georgia-Pacific Corp................................................................... 322,094
10,200 Masco Corp............................................................................. 293,250
------------
910,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CABLE TELEVISION (0.6%)
6,600 Comcast Corp. (Class A Special)........................................................ $ 387,337
7,100 Tele-Communications, Inc. (Class A)*................................................... 392,719
7,300 MediaOne Group Inc.*................................................................... 343,100
------------
1,123,156
------------
CASINO/GAMBLING (0.4%)
23,000 Harrah's Entertainment, Inc.*.......................................................... 360,812
21,000 Mirage Resorts, Inc.*.................................................................. 313,687
------------
674,499
------------
CELLULAR TELEPHONE (0.6%)
5,700 AirTouch Communications, Inc.*......................................................... 411,113
14,800 Nextel Communications, Inc. (Class A)*................................................. 349,650
13,800 Sprint Corp. (PCS Group)............................................................... 319,125
------------
1,079,888
------------
CLOTHING/SHOE/ACCESSORY STORES (1.0%)
6,400 Gap, Inc. (The)........................................................................ 360,000
11,000 Limited (The), Inc..................................................................... 320,375
10,500 Nordstrom, Inc......................................................................... 364,219
13,700 TJX Companies, Inc..................................................................... 397,300
38,000 Venator Group, Inc.*................................................................... 244,625
------------
1,686,519
------------
COMPUTER COMMUNICATIONS (0.8%)
8,200 3Com Corp.*............................................................................ 367,462
5,800 Ascend Communications, Inc.*........................................................... 381,350
38,000 Cabletron Systems, Inc.*............................................................... 318,250
4,200 Cisco Systems, Inc.*................................................................... 389,812
------------
1,456,874
------------
COMPUTER SOFTWARE (1.9%)
8,300 Adobe Systems, Inc..................................................................... 388,025
9,600 Autodesk, Inc.......................................................................... 409,200
7,000 BMC Software, Inc.*.................................................................... 311,937
8,700 Computer Associates International, Inc................................................. 370,837
2,800 Microsoft Corp.*....................................................................... 387,975
21,600 Novell, Inc.*.......................................................................... 391,500
8,200 Oracle Corp.*.......................................................................... 353,625
25,000 Parametric Technology Corp.*........................................................... 406,250
20,000 PeopleSoft, Inc.*...................................................................... 377,500
------------
3,396,849
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER/VIDEO CHAINS (0.4%)
7,700 Circuit City Stores, Inc............................................................... $ 384,519
7,200 Tandy Corp............................................................................. 296,550
------------
681,069
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (1.3%)
14,200 Case Corp.............................................................................. 309,737
7,500 Caterpillar, Inc....................................................................... 345,000
8,600 Cummins Engine Co., Inc................................................................ 305,300
10,500 Deere & Co............................................................................. 347,812
3,500 NACCO Industries, Inc. (Class A)....................................................... 322,000
10,900 Navistar International Corp.*.......................................................... 310,650
8,000 PACCAR, Inc............................................................................ 327,000
------------
2,267,499
------------
CONSUMER ELECTRONICS/APPLIANCES (0.4%)
6,100 Maytag Corp............................................................................ 379,725
6,000 Whirlpool Corp......................................................................... 332,250
------------
711,975
------------
CONSUMER SPECIALTIES (0.2%)
13,300 Jostens, Inc........................................................................... 348,294
------------
CONSUMER SUNDRIES (0.2%)
7,500 American Greetings Corp. (Class A)..................................................... 307,969
------------
CONTAINERS/PACKAGING (1.2%)
8,800 Ball Corp.............................................................................. 402,600
8,200 Bemis Company, Inc..................................................................... 311,087
10,000 Crown Cork & Seal Co., Inc............................................................. 308,125
10,500 Owens-Illinois, Inc.*.................................................................. 321,562
7,800 Sealed Air Corp.*...................................................................... 398,288
6,200 Temple-Inland, Inc..................................................................... 367,737
------------
2,109,399
------------
CONTRACT DRILLING (0.4%)
18,800 Helmerich & Payne, Inc................................................................. 364,250
32,000 Rowan Companies, Inc.*................................................................. 320,000
------------
684,250
------------
DEPARTMENT STORES (1.1%)
10,400 Dillard's, Inc. (Class A).............................................................. 295,100
6,700 Federated Department Stores, Inc.*..................................................... 291,869
5,100 May Department Stores Co............................................................... 307,912
6,000 Kohl's Corp............................................................................ 368,625
6,100 Penney (J.C.) Co., Inc................................................................. 285,937
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
8,000 Sears, Roebuck & Co.................................................................... $ 340,000
------------
1,889,443
------------
DISCOUNT CHAINS (1.2%)
16,000 Consolidated Stores Corp.*............................................................. 323,000
5,200 Costco Companies, Inc.*................................................................ 375,375
7,500 Dayton Hudson Corp..................................................................... 406,875
12,500 Dollar General Corp.................................................................... 295,312
20,200 Kmart Corp.*........................................................................... 309,313
4,800 Wal-Mart Stores, Inc.*................................................................. 390,900
------------
2,100,775
------------
DIVERSIFIED COMMERCIAL SERVICES (0.2%)
5,900 Paychex, Inc........................................................................... 303,481
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.4%)
8,100 Harris Corp............................................................................ 296,662
6,700 Rockwell International Corp............................................................ 325,369
------------
622,031
------------
DIVERSIFIED FINANCIAL SERVICES (0.6%)
3,400 American Express Co.................................................................... 347,650
5,600 Providian Financial Corp............................................................... 420,000
3,100 Transamerica Corp...................................................................... 358,050
------------
1,125,700
------------
DIVERSIFIED MANUFACTURING (2.0%)
11,000 Aeroquip-Vickers, Inc.................................................................. 329,313
14,900 Allegheny Teledyne Inc................................................................. 304,519
7,000 AlliedSignal, Inc...................................................................... 310,188
6,200 Cooper Industries, Inc................................................................. 295,662
5,600 Danaher Corp........................................................................... 304,150
8,400 Dover Corp............................................................................. 307,650
5,400 FMC Corp.*............................................................................. 302,400
8,700 ITT Industries, Inc.................................................................... 345,825
4,000 Minnesota Mining & Manufacturing Co.................................................... 284,500
18,200 Thermo Electron Corp.*................................................................. 308,263
5,200 Tyco International Ltd................................................................. 392,275
------------
3,484,745
------------
DRUG STORE CHAIN (0.9%)
7,100 CVS Corp............................................................................... 390,500
8,500 Longs Drug Stores Corp................................................................. 318,750
8,000 Rite Aid Corp.......................................................................... 396,500
6,600 Walgreen Co............................................................................ 386,513
------------
1,492,263
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS (0.5%)
4,800 EMC Corp.*............................................................................. $ 408,000
13,400 Seagate Technology, Inc.*.............................................................. 405,350
------------
813,350
------------
E.D.P. SERVICES (1.0%)
4,400 Automatic Data Processing, Inc......................................................... 352,825
5,500 Ceridian Corp.*........................................................................ 383,969
4,500 Computer Sciences Corp.*............................................................... 289,969
7,400 Electronic Data Systems Corp........................................................... 371,850
10,500 First Data Corp........................................................................ 332,719
------------
1,731,332
------------
ELECTRIC UTILITIES (5.4%)
6,400 AES Corp. (The)*....................................................................... 303,200
7,500 Ameren Corp............................................................................ 320,156
6,300 American Electric Power Co............................................................. 296,494
10,500 Baltimore Gas & Electric Co............................................................ 324,188
6,700 Carolina Power & Light Co.............................................................. 315,319
12,300 Central & South West Corp.............................................................. 337,481
8,700 CINergy Corp........................................................................... 299,063
7,000 Consolidated Edison, Inc............................................................... 370,125
7,700 Dominion Resources, Inc................................................................ 359,975
8,000 DTE Energy Co.......................................................................... 343,000
5,000 Duke Power Co.......................................................................... 320,313
10,700 Edison International................................................................... 298,263
12,000 Entergy Corp........................................................................... 373,500
10,100 FirstEnergy Corp....................................................................... 328,881
4,800 FPL Group, Inc......................................................................... 295,800
8,000 GPU, Inc............................................................................... 353,500
11,000 Houston Industries, Inc................................................................ 353,375
6,100 New Century Energies, Inc.............................................................. 297,375
22,000 Niagara Mohawk Power Corp.*............................................................ 354,750
12,000 Northern States Power Co............................................................... 333,000
14,300 PacifiCorp............................................................................. 301,194
9,500 PG & E Corp............................................................................ 299,250
9,500 PECO Energy Co......................................................................... 395,438
13,800 PP&L Resources, Inc.................................................................... 384,675
8,900 Public Service Enterprise Group, Inc................................................... 356,000
12,100 Southern Co............................................................................ 351,656
7,000 Texas Utilities Co..................................................................... 326,813
9,500 Unicom Corp............................................................................ 366,344
------------
9,359,128
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL PRODUCTS (0.6%)
5,500 Emerson Electric Co.................................................................... $ 344,094
10,700 Raychem Corp........................................................................... 345,744
7,000 Thomas Betts Corp...................................................................... 303,187
------------
993,025
------------
ELECTRONIC COMPONENTS (0.2%)
7,500 AMP, Inc............................................................................... 390,469
------------
ELECTRONIC DATA PROCESSING (2.1%)
9,000 Apple Computer, Inc.*.................................................................. 368,437
9,400 COMPAQ Computer Corp................................................................... 394,212
22,500 Data General Corp.*.................................................................... 369,844
5,100 Dell Computer Corp.*................................................................... 373,256
6,500 Gateway 2000, Inc.*.................................................................... 332,719
5,000 Hewlett-Packard Co..................................................................... 341,562
2,100 International Business Machines Corp................................................... 387,975
26,000 Silicon Graphics, Inc.*................................................................ 334,750
4,600 Sun Microsystems, Inc.*................................................................ 393,587
11,400 Unisys Corp.*.......................................................................... 392,587
------------
3,688,929
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.5%)
9,000 Applied Materials, Inc.*............................................................... 384,188
9,400 KLA-Tencor Corp.*...................................................................... 407,725
------------
791,913
------------
ENGINEERING & CONSTRUCTION (0.4%)
7,100 Fluor Corp............................................................................. 302,194
23,500 Foster Wheeler Corp.................................................................... 309,906
------------
612,100
------------
ENVIRONMENTAL SERVICES (0.4%)
10,300 Browning-Ferris Industries, Inc........................................................ 292,906
7,200 Waste Management, Inc.................................................................. 335,700
------------
628,606
------------
FARMING/SEEDS/MILLING (0.3%)
18,000 Archer-Daniels-Midland Co.............................................................. 309,375
10,800 Pioneer Hi-Bred International, Inc..................................................... 291,600
------------
600,975
------------
FINANCE COMPANIES (1.6%)
8,200 Associates First Capital Corp. (Class A)............................................... 347,475
3,000 Capital One Financial Corp............................................................. 345,000
6,700 Countrywide Credit Industries, Inc..................................................... 336,256
5,100 Fannie Mae............................................................................. 377,400
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,000 Freddie Mac............................................................................ $ 386,625
8,800 Household International, Inc........................................................... 348,700
15,000 MBNA Corp.............................................................................. 374,062
7,500 SLM Holding Corp....................................................................... 360,000
------------
2,875,518
------------
FINANCIAL PUBLISHING/SERVICES (0.6%)
9,900 Dun & Bradstreet Corp.................................................................. 312,469
9,200 Equifax, Inc........................................................................... 314,525
3,700 McGraw-Hill, Inc....................................................................... 376,937
------------
1,003,931
------------
FLUID CONTROLS (0.2%)
10,000 Parker-Hannifin Corp................................................................... 327,500
------------
FOOD CHAINS (1.4%)
6,100 Albertson's, Inc....................................................................... 388,494
10,300 American Stores Co..................................................................... 380,456
6,700 Fred Meyer, Inc.*...................................................................... 403,675
10,600 Great Atlantic & Pacific Tea Co., Inc.................................................. 314,025
6,600 Kroger Co.*............................................................................ 399,300
4,800 Safeway, Inc.*......................................................................... 292,500
7,700 Winn-Dixie Stores, Inc................................................................. 345,537
------------
2,523,987
------------
FOOD DISTRIBUTORS (0.4%)
13,400 Supervalu, Inc......................................................................... 375,200
12,800 Sysco Corp............................................................................. 351,200
------------
726,400
------------
FOREST PRODUCTS (0.4%)
16,600 Louisiana-Pacific Corp................................................................. 303,988
6,500 Weyerhaeuser Co........................................................................ 330,281
------------
634,269
------------
HOME BUILDING (0.8%)
8,600 Centex Corp............................................................................ 387,537
8,500 Fleetwood Enterprises, Inc............................................................. 295,375
11,100 Kaufman & Broad Home Corp.............................................................. 319,125
12,600 Pulte Corp............................................................................. 350,437
------------
1,352,474
------------
HOME FURNISHINGS (0.8%)
8,000 National Service Industries, Inc....................................................... 304,000
8,500 Newell Co.............................................................................. 350,625
10,400 Rubbermaid, Inc........................................................................ 326,950
20,800 Tupperware Corp........................................................................ 341,900
------------
1,323,475
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOSPITAL/NURSING MANAGEMENT (0.6%)
11,900 Columbia/HCA Healthcare Corp........................................................... $ 294,525
13,400 HCR Manor Care, Inc.................................................................... 393,625
11,600 Tenet Healthcare Corp.*................................................................ 304,500
------------
992,650
------------
HOTELS/RESORTS (0.5%)
6,200 Carnival Corp. (Class A)............................................................... 297,600
15,000 Hilton Hotels Corp..................................................................... 286,875
9,900 Marriott International, Inc............................................................ 287,100
------------
871,575
------------
INDUSTRIAL MACHINERY/ COMPONENTS (0.7%)
33,400 Harnischfeger Industries, Inc.......................................................... 340,263
5,000 Illinois Tool Works Inc................................................................ 290,000
7,100 Ingersoll-Rand Co...................................................................... 333,256
16,500 Milacron, Inc.......................................................................... 317,625
------------
1,281,144
------------
INDUSTRIAL SPECIALTIES (0.6%)
10,300 Ecolab, Inc............................................................................ 372,731
13,500 Millipore Corp......................................................................... 383,906
14,500 Pall Corp.............................................................................. 367,031
------------
1,123,668
------------
INSURANCE BROKERS/SERVICES (0.4%)
5,400 AON Corp............................................................................... 299,025
5,400 Marsh & McLennan Companies, Inc........................................................ 315,562
------------
614,587
------------
INTEGRATED OIL COMPANIES (2.0%)
6,200 Amerada Hess Corp...................................................................... 308,450
6,100 Amoco Corp............................................................................. 368,288
4,600 Atlantic Richfield Co.................................................................. 300,150
3,800 Chevron Corp........................................................................... 315,163
4,200 Exxon Corp.*........................................................................... 307,125
8,500 Kerr-McGee Corp........................................................................ 325,125
4,100 Mobil Corp............................................................................. 357,213
7,000 Phillips Petroleum Co.................................................................. 298,375
6,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)*......................................... 287,250
5,500 Texaco, Inc............................................................................ 290,813
10,300 Unocal Corp............................................................................ 300,631
------------
3,458,583
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT BANKERS/BROKERS/ SERVICES (1.0%)
8,000 Bear Stearns Companies, Inc............................................................ $ 299,000
8,500 Lehman Brothers Holdings, Inc.......................................................... 374,531
5,000 Merrill Lynch & Co., Inc............................................................... 333,750
5,200 Morgan Stanley Dean Witter & Co. (Note 3).............................................. 369,200
6,600 Schwab (CHARLES) Corp.................................................................. 370,837
------------
1,747,318
------------
INVESTMENT MANAGERS (0.2%)
9,000 Franklin Resources, Inc................................................................ 288,000
------------
LIFE INSURANCE (0.8%)
4,800 American General Corp.................................................................. 374,400
10,100 Conseco, Inc........................................................................... 308,681
5,100 Jefferson-Pilot Corp................................................................... 382,500
4,600 SunAmerica Inc......................................................................... 373,175
------------
1,438,756
------------
MAJOR BANKS (4.6%)
10,000 Bank of New York Co., Inc.............................................................. 402,500
7,500 Bank One Corp.......................................................................... 382,969
6,400 Bank America Corp...................................................................... 384,800
7,800 BankBoston Corp........................................................................ 303,713
4,200 Bankers Trust New York Corp............................................................ 358,837
9,600 BB&T Corp.............................................................................. 387,000
5,400 Chase Manhattan Corp................................................................... 367,537
7,700 Citigroup, Inc......................................................................... 381,150
4,650 Comerica, Inc.......................................................................... 317,072
6,432 First Union Corp....................................................................... 391,146
7,200 Fleet Financial Group, Inc............................................................. 321,750
9,900 Huntington Bancshares, Inc............................................................. 297,619
9,400 KeyCorp................................................................................ 300,800
4,800 Mellon Bank Corp....................................................................... 330,000
2,900 Morgan (J.P.) & Co., Inc............................................................... 304,681
4,100 National City Corp..................................................................... 297,250
5,500 PNC Bank Corp.......................................................................... 297,688
6,600 Republic New York Corp................................................................. 300,713
4,400 State Street Corp...................................................................... 306,075
6,700 Summit Bancorp......................................................................... 292,706
4,200 SunTrust Banks, Inc.................................................................... 321,300
8,400 U.S. Bancorp........................................................................... 298,200
3,700 Wachovia Corp.......................................................................... 323,518
9,900 Wells Fargo & Co....................................................................... 395,381
------------
8,064,405
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR CHEMICALS (1.2%)
3,500 Dow Chemical Co........................................................................ $ 318,281
5,200 Du Pont (E.I.) de Nemours & Co., Inc................................................... 275,925
7,000 Eastman Chemical Co.................................................................... 313,250
11,000 Hercules, Inc.......................................................................... 301,125
6,700 Monsanto Co............................................................................ 318,250
9,300 Rohm & Haas Co......................................................................... 280,163
6,900 Union Carbide Corp..................................................................... 293,250
------------
2,100,244
------------
MAJOR PHARMACEUTICALS (2.3%)
7,800 Abbott Laboratories.................................................................... 382,200
6,100 American Home Products Corp............................................................ 343,506
5,300 Baxter International, Inc.............................................................. 340,856
2,900 Bristol-Myers Squibb Co................................................................ 388,056
4,100 Johnson & Johnson...................................................................... 343,887
4,200 Lilly (Eli) & Co....................................................................... 373,275
2,600 Merck & Co., Inc.*..................................................................... 383,987
3,100 Pfizer, Inc.*.......................................................................... 388,856
6,900 Pharmacia & Upjohn, Inc................................................................ 390,712
6,600 Schering-Plough Corp................................................................... 364,650
4,500 Warner-Lambert Co...................................................................... 338,344
------------
4,038,329
------------
MAJOR U.S. TELECOMMUNICATIONS (2.2%)
6,400 ALLTEL Corp............................................................................ 382,800
6,200 Ameritech Corp......................................................................... 392,925
5,000 AT&T Corp.............................................................................. 376,250
6,400 Bell Atlantic Corp..................................................................... 363,600
8,000 BellSouth Corp......................................................................... 399,000
5,500 GTE Corp............................................................................... 370,906
5,300 MCI WorldCom, Inc...................................................................... 380,275
7,200 SBC Communications, Inc................................................................ 386,100
4,500 Sprint Corp. (FON Group)............................................................... 378,563
6,000 U.S. West, Inc......................................................................... 387,750
------------
3,818,169
------------
MANAGED HEALTH CARE (0.5%)
3,900 Aetna Inc.............................................................................. 306,637
16,900 Humana, Inc.*.......................................................................... 301,031
6,800 United Healthcare Corp................................................................. 292,825
------------
900,493
------------
MEAT/POULTRY/FISH (0.2%)
10,000 ConAgra, Inc........................................................................... 315,000
------------
MEDICAL EQUIPMENT & SUPPLIES (0.2%)
5,100 Medtronic, Inc......................................................................... 378,675
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SPECIALTIES (1.9%)
8,000 ALZA Corp. (Class A)*.................................................................. $ 418,000
8,000 Bard (C.R.), Inc....................................................................... 396,000
6,700 Bausch & Lomb, Inc..................................................................... 402,000
8,600 Becton, Dickinson & Co................................................................. 367,113
9,900 Biomet, Inc............................................................................ 397,856
11,300 Boston Scientific Corp.*............................................................... 302,981
3,600 Guidant Corp........................................................................... 396,900
12,600 Mallinckrodt Group, Inc................................................................ 388,237
11,000 St. Jude Medical, Inc.*................................................................ 304,563
------------
3,373,650
------------
MEDICAL/DENTAL DISTRIBUTORS (0.2%)
5,100 Cardinal Health, Inc................................................................... 386,962
------------
MEDICAL/NURSING SERVICES (0.2%)
20,000 Healthsouth Corp.*..................................................................... 308,750
------------
METALS FABRICATIONS (0.2%)
16,400 Timken Co.............................................................................. 309,550
------------
MID - SIZED BANKS (1.1%)
5,362 Fifth Third Bancorp.................................................................... 382,378
6,500 Mercantile Bancorporation, Inc......................................................... 299,813
4,500 Northern Trust Corp.................................................................... 392,625
7,500 Regions Financial Corp................................................................. 302,344
12,900 Synovus Financial Corp................................................................. 314,438
7,000 Union Planters Corp.................................................................... 317,187
------------
2,008,785
------------
MILITARY/GOV'T/TECHNICAL (0.6%)
12,900 EG & G, Inc............................................................................ 358,781
6,600 General Dynamics Corp.................................................................. 386,925
5,800 Raytheon Co. (Class B)................................................................. 308,850
------------
1,054,556
------------
MOTOR VEHICLES (0.4%)
6,500 Ford Motor Co.......................................................................... 381,469
4,400 General Motors Corp.................................................................... 314,875
------------
696,344
------------
MOVIES/ENTERTAINMENT (1.0%)
12,500 King World Productions Inc.*........................................................... 367,969
8,400 Seagram Co. Ltd. (Canada).............................................................. 319,200
6,300 Time Warner, Inc....................................................................... 390,994
5,300 Viacom, Inc. (Class B)*................................................................ 392,200
10,000 Walt Disney Co......................................................................... 300,000
------------
1,770,363
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-LINE INSURANCE (1.1%)
8,500 Allstate Corp.......................................................................... $ 328,313
3,525 American International Group, Inc...................................................... 340,603
4,500 CIGNA Corp............................................................................. 347,906
6,000 Hartford Financial Services Group, Inc................................................. 329,250
3,600 Lincoln National Corp.................................................................. 294,525
6,900 SAFECO Corp............................................................................ 296,269
------------
1,936,866
------------
MULTI-SECTOR COMPANIES (1.3%)
10,400 Crane Co............................................................................... 313,950
3,600 General Electric Co.................................................................... 367,425
4,000 Honeywell, Inc......................................................................... 301,250
3,500 Loews Corp............................................................................. 343,875
12,000 McDermott International, Inc........................................................... 296,250
9,400 Tenneco, Inc........................................................................... 320,188
4,300 Textron, Inc........................................................................... 326,531
------------
2,269,469
------------
NATURAL GAS (1.1%)
5,500 Consolidated Natural Gas Co............................................................ 297,000
7,800 Eastern Enterprises.................................................................... 341,250
7,500 Nicor Inc.............................................................................. 316,875
8,500 ONEOK, Inc............................................................................. 307,063
8,500 Peoples Energy Corp.................................................................... 338,938
12,000 Sempra Energy.......................................................................... 304,500
------------
1,905,626
------------
NEWSPAPERS (1.0%)
6,200 Dow Jones & Co., Inc................................................................... 298,375
4,600 Gannett Co., Inc....................................................................... 304,463
6,100 Knight-Ridder, Inc..................................................................... 311,863
8,800 New York Times Co. (Class A)........................................................... 305,250
5,200 Times Mirror Co. (Class A)............................................................. 291,200
4,900 Tribune Co............................................................................. 323,400
------------
1,834,551
------------
OFFICE EQUIPMENT/SUPPLIES (0.6%)
6,600 Avery Dennison Corp.................................................................... 297,413
6,000 Pitney Bowes, Inc...................................................................... 396,375
3,200 Xerox Corp............................................................................. 377,600
------------
1,071,388
------------
OIL & GAS PRODUCTION (1.0%)
12,000 Apache Corp............................................................................ 303,750
10,000 Anardarko Petroleum Corp............................................................... 308,750
8,200 Burlington Resources, Inc.............................................................. 293,663
16,800 Occidental Petroleum Corp.............................................................. 283,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
23,100 Oryx Energy Co.*....................................................................... $ 310,406
35,000 Union Pacific Resources Group, Inc..................................................... 317,187
------------
1,817,256
------------
OIL REFINERIES/MARKETING (0.6%)
6,000 Ashland, Inc........................................................................... 290,250
8,600 Sunoco Inc............................................................................. 310,138
12,000 USX-Marathon Group..................................................................... 361,500
------------
961,888
------------
OIL/GAS TRANSMISSION (1.0%)
10,000 Coastal Corp........................................................................... 349,375
5,900 Columbia Energy Group.................................................................. 340,725
6,500 Enron Corp............................................................................. 370,906
11,200 Sonat, Inc............................................................................. 303,100
10,400 Williams Companies, Inc................................................................ 324,350
------------
1,688,456
------------
OILFIELD SERVICES/EQUIPMENT (0.6%)
19,000 Baker Hughes, Inc...................................................................... 336,063
12,800 Halliburton Co......................................................................... 379,200
7,000 Schlumberger, Ltd...................................................................... 322,875
------------
1,038,138
------------
OTHER CONSUMER SERVICES (0.6%)
7,900 Block (H.&R.), Inc..................................................................... 355,500
19,500 Cendant Corp.*......................................................................... 371,719
8,000 Service Corp. International............................................................ 304,500
------------
1,031,719
------------
OTHER METALS/MINERALS (0.9%)
20,000 ASARCO, Inc............................................................................ 301,250
32,000 Cyprus Amax Minerals Co................................................................ 320,000
30,000 Freeport-McMoran Copper & Gold, Inc. (Class B)......................................... 313,125
28,700 Inco Ltd. (Canada)..................................................................... 303,144
5,800 Phelps Dodge Corp...................................................................... 295,075
------------
1,532,594
------------
OTHER PHARMACEUTICALS (0.2%)
5,700 Allergan, Inc.......................................................................... 369,075
------------
OTHER SPECIALTY STORES (0.8%)
10,500 AutoZone, Inc.*........................................................................ 345,844
25,000 Pep Boys-Manny, Moe & Jack............................................................. 392,188
6,600 Staples, Inc.*......................................................................... 288,338
19,000 Toys 'R' Us, Inc.*..................................................................... 320,625
------------
1,346,995
------------
OTHER TRANSPORTATION (0.2%)
30,600 Laidlaw, Inc. (Canada)................................................................. 307,912
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PACKAGE GOODS/COSMETICS (1.6%)
11,700 Alberto-Culver Co. (Class B)........................................................... $ 312,244
8,400 Avon Products, Inc..................................................................... 371,700
3,400 Clorox Co.............................................................................. 397,162
3,900 Colgate-Palmolive Co................................................................... 362,212
6,700 Gillette Co............................................................................ 323,694
7,600 International Flavors & Fragrances Inc................................................. 335,825
6,300 Kimberly-Clark Corp.................................................................... 343,350
3,600 Procter & Gamble Co.................................................................... 328,725
------------
2,774,912
------------
PACKAGED FOODS (1.6%)
5,400 BestFoods.............................................................................. 287,550
6,000 Campbell Soup Co....................................................................... 330,000
4,500 General Mills, Inc..................................................................... 349,875
5,300 Heinz (H.J.) Co........................................................................ 300,113
8,700 Kellogg Co............................................................................. 296,888
5,700 Quaker Oats Company (The).............................................................. 339,150
9,500 Ralston-Ralston Purina Group........................................................... 307,563
10,600 Sara Lee Corp.......................................................................... 298,788
4,400 Unilever N.V. (Netherlands)............................................................ 364,925
------------
2,874,852
------------
PAINTS/COATINGS (0.4%)
5,700 PPG Industries, Inc.................................................................... 332,025
13,000 Sherwin-Williams Co.................................................................... 381,875
------------
713,900
------------
PAPER (1.7%)
10,000 Boise Cascade Corp..................................................................... 310,000
7,800 Champion International Corp............................................................ 315,900
9,000 Fort James Corp........................................................................ 360,000
7,000 International Paper Co................................................................. 313,688
11,000 Mead Corp.............................................................................. 322,438
8,000 Potlatch Corp.......................................................................... 295,000
5,900 Union Camp Corp........................................................................ 398,250
11,100 Westvaco Corp.......................................................................... 297,619
9,500 Willamette Industries, Inc............................................................. 318,250
------------
2,931,145
------------
PHOTOGRAPHIC PRODUCTS (0.4%)
4,200 Eastman Kodak Co....................................................................... 302,400
18,000 Polaroid Corp.......................................................................... 336,375
------------
638,775
------------
PRECIOUS METALS (0.9%)
16,400 Barrick Gold Corp. (Canada)............................................................ 319,800
71,000 Battle Mountain Gold Co................................................................ 292,875
34,000 Homestake Mining Co.................................................................... 312,375
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
18,500 Newmont Mining Corp.................................................................... $ 334,156
26,500 Placer Dome Inc. (Canada).............................................................. 304,750
------------
1,563,956
------------
PRECISION INSTRUMENTS (0.4%)
4,100 Perkin-Elmer Corp...................................................................... 400,006
13,100 Tektronix, Inc......................................................................... 393,819
------------
793,825
------------
PRINTING FORMS (0.5%)
9,000 Deluxe Corp............................................................................ 329,063
7,200 Donnelley (R.R.) & Sons Co............................................................. 315,450
29,000 Moore Corp. Ltd. (Canada).............................................................. 319,000
------------
963,513
------------
PROPERTY - CASUALTY INSURANCE (0.9%)
147 Berkshire Hathaway, Inc................................................................ 345,450
4,600 Chubb Corp............................................................................. 298,425
8,400 Cincinnati Financial Corp.............................................................. 307,650
2,300 Progressive Corp....................................................................... 389,563
9,000 St. Paul Companies, Inc................................................................ 312,750
------------
1,653,838
------------
RAILROADS (0.7%)
9,000 Burlington Northern Santa Fe Corp...................................................... 303,750
7,200 CSX Corp............................................................................... 298,800
10,000 Norfolk Southern Corp.................................................................. 316,875
6,900 Union Pacific Corp..................................................................... 310,931
------------
1,230,356
------------
RECREATIONAL PRODUCTS/TOYS (0.6%)
15,600 Brunswick Corp......................................................................... 386,100
9,300 Hasbro, Inc............................................................................ 335,962
13,000 Mattel, Inc............................................................................ 296,562
------------
1,018,624
------------
RENTAL/LEASING COMPANIES (0.2%)
11,700 Ryder System, Inc...................................................................... 304,200
------------
RESTAURANTS (0.8%)
21,000 Darden Restaurants, Inc................................................................ 378,000
5,100 McDonald's Corp........................................................................ 390,788
8,000 Tricon Global Restaurants, Inc.*....................................................... 401,000
14,500 Wendy's International, Inc............................................................. 316,281
------------
1,486,069
------------
SAVINGS & LOAN ASSOCIATIONS (0.4%)
3,500 Golden West Financial Corp............................................................. 320,906
10,500 Washington Mutual, Inc................................................................. 400,969
------------
721,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (1.3%)
14,200 Advanced Micro Devices, Inc.*.......................................................... $ 410,912
3,200 Intel Corp............................................................................. 379,200
19,400 LSI Logic Corp.*....................................................................... 312,825
7,600 Micron Technology, Inc.*............................................................... 384,275
26,500 National Semiconductor Corp.*.......................................................... 357,750
4,600 Texas Instruments, Inc................................................................. 393,587
------------
2,238,549
------------
SERVICES TO THE HEALTH INDUSTRY (0.6%)
11,600 HBO & Co............................................................................... 332,775
5,200 IMS Health Inc......................................................................... 392,275
7,000 Shared Medical Systems Corp............................................................ 349,125
------------
1,074,175
------------
SHOE MANUFACTURING (0.4%)
7,300 Nike, Inc. (Class B)................................................................... 296,106
23,000 Reebok International Ltd. (United Kingdom)*............................................ 342,125
------------
638,231
------------
SPECIALTY CHEMICALS (1.6%)
8,200 Air Products & Chemicals, Inc.......................................................... 328,000
15,200 Engelhard Corp......................................................................... 296,400
8,800 Goodrich (B.F.) Co..................................................................... 315,700
21,500 Grace (W. R.) & Co..................................................................... 337,281
7,500 Great Lakes Chemical Corp.............................................................. 300,000
12,700 Morton International, Inc.............................................................. 311,150
10,200 Nalco Chemical Co...................................................................... 316,200
8,800 Praxair, Inc........................................................................... 310,200
10,000 Sigma-Aldrich Corp..................................................................... 292,500
------------
2,807,431
------------
SPECIALTY FOODS/CANDY (0.3%)
4,700 Hershey Foods Corp..................................................................... 292,281
3,400 Wrigley (Wm.) Jr. Co. (Class A)........................................................ 304,513
------------
596,794
------------
SPECIALTY INSURERS (0.4%)
4,500 MBIA, Inc.............................................................................. 295,031
9,000 MGIC Investment Corp................................................................... 358,312
------------
653,343
------------
SPECIALTY STEEL (0.2%)
7,100 Nucor Corp............................................................................. 307,075
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL/IRON ORE (0.7%)
55,000 Armco Inc.............................................................................. $ 240,625
38,900 Bethlehem Steel Corp.*................................................................. 325,788
13,500 USX-U.S. Steel Group, Inc.............................................................. 310,500
24,000 Worthington Industries, Inc............................................................ 300,000
------------
1,176,913
------------
TELECOMMUNICATION EQUIPMENT (1.7%)
20,000 Andrew Corp.*.......................................................................... 330,000
8,700 Corning, Inc........................................................................... 391,500
11,400 General Instrument Corp.*.............................................................. 386,887
3,500 Lucent Technologies Inc................................................................ 385,000
6,000 Motorola, Inc.......................................................................... 366,375
7,800 Northern Telecom Ltd. (Canada)......................................................... 390,975
15,100 Scientific-Atlanta, Inc................................................................ 344,469
5,500 Tellabs, Inc.*......................................................................... 377,095
------------
2,972,301
------------
TELECOMMUNICATIONS (0.2%)
10,600 Frontier Corp.......................................................................... 360,400
------------
TEXTILES (0.2%)
7,100 Springs Industries, Inc. (Class A)..................................................... 294,206
------------
TOBACCO (0.6%)
7,200 Philip Morris Companies, Inc........................................................... 385,200
10,500 RJR Nabisco Holdings Corp.............................................................. 311,719
11,200 UST, Inc............................................................................... 390,600
------------
1,087,519
------------
TOOLS/HARDWARE (0.8%)
6,300 Black & Decker Corp.................................................................... 353,194
7,900 Briggs & Stratton Corp................................................................. 394,013
8,600 Snap-On, Inc........................................................................... 299,387
10,700 Stanley Works.......................................................................... 296,925
------------
1,343,519
------------
WHOLESALE DISTRIBUTOR (0.3%)
7,400 Grainger (W.W.), Inc................................................................... 308,025
35,000 IKON Office Solutions, Inc............................................................. 299,688
------------
607,713
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $132,363,447)......................................................... 169,631,168
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.6%)
REPURCHASE AGREEMENT
$ 2,800 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $2,800,409 (a)
(IDENTIFIED COST $2,799,165)......................................................... $ 2,799,165
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $135,162,612) (b)........................................................ 98.6 % 172,430,333
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 1.4 2,393,489
------ -------------
NET ASSETS................................................................................ 100.0 % $ 174,823,822
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $2,825,570 U.S. Treasury Note 6.75% due 06/30/99 valued
at $2,855,149.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate appreciation is $46,892,377 and the aggregate gross
unrealized depreciation is $9,624,656, resulting in net unrealized
appreciation of $37,267,721.
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.5%)
AEROSPACE (2.7%)
9,400 Cordant Technologies, Inc............................................................... $ 352,500
20,400 Gulfstream Aerospace Corp.*............................................................. 1,086,300
-----------
1,438,800
-----------
AIRLINES (1.0%)
15,500 Continental Airlines, Inc. (Class B)*................................................... 519,250
-----------
BEVERAGES - NON-ALCOHOLIC (2.2%)
6,700 Coca Cola Co............................................................................ 448,061
20,500 Coca-Cola Enterprises Inc............................................................... 732,875
-----------
1,180,936
-----------
BIOTECHNOLOGY (1.1%)
11,400 Genzyme Corp. (General Division)*....................................................... 566,437
-----------
BROADCASTING (11.5%)
12,700 Chancellor Media Corp.*................................................................. 607,219
52,300 Clear Channel Communications, Inc.*..................................................... 2,850,350
7,500 Comcast Corp. (Class A Special)......................................................... 440,156
4,500 Comcast Corp. (Class A)................................................................. 258,187
18,300 General Motors Corp. (Class H)*......................................................... 726,281
17,800 Tele-Communications Liberty Media Group (Class A)*...................................... 819,913
8,000 Tele-Communications, Inc. (Class A)*.................................................... 442,500
-----------
6,144,606
-----------
BUILDING MATERIALS/DIY CHAINS (1.7%)
14,900 Home Depot, Inc. (The).................................................................. 911,694
-----------
COMPUTER COMMUNICATIONS (2.5%)
14,525 Cisco Systems, Inc.*.................................................................... 1,348,102
-----------
COMPUTER HARDWARE (3.5%)
16,000 Compaq Computer Corp.................................................................... 671,000
6,500 Dell Computer Corp.*.................................................................... 475,719
4,000 International Business Machines Corp.................................................... 739,000
-----------
1,885,719
-----------
COMPUTER SOFTWARE (3.9%)
12,900 Microsoft Corp.*........................................................................ 1,787,456
6,500 Oracle Corp.*........................................................................... 280,313
-----------
2,067,769
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (1.7%)
4,900 America Online, Inc.*................................................................... $ 709,275
12,400 Novell, Inc.*........................................................................... 224,750
-----------
934,025
-----------
CONSUMER/BUSINESS SERVICES (3.9%)
767 Berkshire Hathaway, Inc.*............................................................... 1,801,275
15,533 Nielsen Media Research, Inc............................................................. 279,594
-----------
2,080,869
-----------
DISCOUNT CHAINS (0.5%)
3,700 Costco Companies, Inc.*................................................................. 267,094
-----------
DIVERSIFIED FINANCIAL SERVICES (3.4%)
12,300 American Express Co..................................................................... 1,257,675
11,300 Citigroup Inc........................................................................... 559,350
-----------
1,817,025
-----------
DIVERSIFIED MANUFACTURING (11.9%)
7,300 Textron, Inc............................................................................ 554,344
35,700 Tyco International Ltd.................................................................. 2,693,119
28,600 United Technologies Corp................................................................ 3,110,250
-----------
6,357,713
-----------
ELECTRICAL PRODUCTS (2.8%)
14,700 General Electric Co..................................................................... 1,500,319
-----------
ELECTRONICS (2.6%)
17,400 Litton Industries, Inc.*................................................................ 1,135,350
15,300 Loral Space & Communications Ltd. (Bermuda)*............................................ 272,531
-----------
1,407,881
-----------
GENERIC DRUGS (1.5%)
7,500 Amgen Inc.*............................................................................. 783,750
-----------
HEALTHCARE PRODUCTS & SERVICES (0.6%)
3,600 Johnson & Johnson....................................................................... 301,950
-----------
INSURANCE (0.9%)
8,100 Reinsurance Group of America, Inc....................................................... 492,075
-----------
INTEGRATED OIL COMPANIES (0.5%)
3,700 Exxon Corp.............................................................................. 270,562
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (0.6%)
4,700 Merrill Lynch & Co., Inc................................................................ 313,725
-----------
INVESTMENT MANAGERS (0.5%)
8,900 Pimco Advisors Holdings L.P............................................................. 277,012
-----------
MAJOR BANKS (0.9%)
4,100 First Union Corp........................................................................ 249,331
6,100 Fleet Financial Group, Inc.............................................................. 272,594
-----------
521,925
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR PHARMACEUTICALS (6.1%)
7,600 Lilly (Eli) & Co........................................................................ $ 675,450
8,900 Merck & Co., Inc........................................................................ 1,314,419
10,200 Pfizer, Inc............................................................................. 1,279,462
-----------
3,269,331
-----------
MAJOR U.S. TELECOMMUNICATIONS (2.4%)
17,000 AT&T Corp............................................................................... 1,279,250
-----------
MEDICAL EQUIPMENT & SUPPLIES (1.2%)
10,300 Bausch & Lomb, Inc...................................................................... 618,000
-----------
MOVIES/ENTERTAINMENT (1.6%)
13,800 Time Warner, Inc........................................................................ 856,462
-----------
MULTI-LINE INSURANCE (5.0%)
2,400 American Bankers Insurance Group, Inc................................................... 116,101
26,100 Loews Corp.............................................................................. 2,564,325
-----------
2,680,426
-----------
NEWSPAPERS (0.6%)
3,700 Pulitzer Publishing Co.................................................................. 320,512
-----------
OFFICE EQUIPMENT/SUPPLIES (2.9%)
22,500 Knoll, Inc.*............................................................................ 666,563
13,300 Pitney Bowes, Inc....................................................................... 878,631
-----------
1,545,194
-----------
PACKAGED FOODS (1.6%)
6,200 Quaker Oats Company (The)............................................................... 368,900
15,400 Ralston-Ralston Purina Group............................................................ 498,575
-----------
867,475
-----------
PHOTOGRAPHIC PRODUCTS (0.6%)
4,200 Eastman Kodak Co........................................................................ 302,400
-----------
PROPERTY - CASUALTY INSURANCE (1.6%)
9,800 Ace, Ltd. (Bermuda)..................................................................... 337,488
8,200 Allstate Corp........................................................................... 316,725
1,200 Progressive Corp........................................................................ 203,250
-----------
857,463
-----------
RESTAURANTS (0.1%)
1,000 Brinker International, Inc.*............................................................ 28,875
-----------
RETAIL - SPECIALTY (2.9%)
16,050 Gap, Inc. (The)......................................................................... 902,813
6,500 Staples, Inc.*.......................................................................... 283,969
23,300 Toys 'R' Us, Inc.*...................................................................... 393,188
-----------
1,579,970
-----------
SEMICONDUCTORS (3.0%)
12,700 Intel Corp.............................................................................. 1,504,950
1,400 Uniphase Corp.*......................................................................... 97,125
-----------
1,602,075
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT (1.3%)
1,100 Lucent Technologies Inc................................................................. $ 121,000
9,600 Motorola, Inc........................................................................... 586,200
-----------
707,200
-----------
TELECOMMUNICATIONS (1.6%)
12,300 MCI WorldCom, Inc.*..................................................................... 882,525
-----------
TOBACCO (2.6%)
26,300 Philip Morris Companies, Inc............................................................ 1,407,050
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $43,584,064)........................................................... 52,193,446
-----------
PREFERRED STOCK (0.4%)
NEWSPAPERS
8,000 News Corporation Ltd. (The) (ADR) (Australia) (IDENTIFIED COST $185,047)................ 197,500
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT
$ 1,611 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $1,611,959) (a)
(IDENTIFIED COST $1,611,243).......................................................... 1,611,243
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $45,380,354) (b).......................................................... 100.9 % 54,002,189
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (0.9) (498,411)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 53,503,778
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $1,587,892 U.S. Treasury Note 5.875% due 02/15/00 valued
at $1,643,468.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,151,048 and the
aggregate gross unrealized depreciation is $529,213, resulting in net
unrealized appreciation of $8,621,835.
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.9%)
ADVERTISING (0.4%)
20,000 Interpublic Group of Companies, Inc.................................................... $ 1,595,000
------------
AEROSPACE (0.7%)
43,800 General Dynamics Corp.................................................................. 2,567,775
------------
AIRLINES (0.2%)
37,400 Southwest Airlines Co.................................................................. 839,162
------------
BANKING (1.4%)
38,500 Bank of New York Co., Inc.............................................................. 1,549,625
25,000 Chase Manhattan Corp. (The)............................................................ 1,701,562
12,000 Fifth Third Bancorp.................................................................... 855,750
12,000 First Union Corp....................................................................... 729,750
------------
4,836,687
------------
BIOTECHNOLOGY (3.3%)
26,000 Amgen Inc.*............................................................................ 2,717,000
14,000 Biogen, Inc.*.......................................................................... 1,160,250
1,700 Genentech, Inc. (Special)*............................................................. 135,469
34,000 Genzyme Corp. (General Division)*...................................................... 1,689,375
20,000 IDEC Pharmaceuticals Corp.*............................................................ 940,000
18,000 Immunex Corp.*......................................................................... 2,254,500
15,000 MedImmune, Inc.*....................................................................... 1,490,625
27,000 PathoGenesis Corp.*.................................................................... 1,539,000
------------
11,926,219
------------
BROADCASTING (2.5%)
37,000 Chancellor Media Corp.*................................................................ 1,769,062
70,000 Clear Channel Communications, Inc.*.................................................... 3,815,000
50,000 Tele-Communications Liberty Media Group (Class A)*..................................... 2,303,125
33,000 USA Networks, Inc.*.................................................................... 1,091,062
------------
8,978,249
------------
CABLE TELEVISION (3.6%)
73,000 Comcast Corp. (Class A Special)........................................................ 4,284,187
63,100 Cox Communications, Inc. (Class A)*.................................................... 4,361,787
77,000 Time Warner, Inc....................................................................... 4,778,812
------------
13,424,786
------------
COMPUTER HARDWARE (7.3%)
108,000 Compaq Computer Corp................................................................... 4,529,250
23,000 Dell Computer Corp.*................................................................... 1,683,312
25,000 Flextronics International, Ltd.*....................................................... 2,137,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
11,100 Hewlett-Packard Co..................................................................... $ 758,269
25,000 International Business Machines Corp................................................... 4,618,750
11,500 Jabil Circuit, Inc.*................................................................... 858,187
29,000 Sanmina Corp.*......................................................................... 1,805,250
35,200 SCI Systems, Inc.*..................................................................... 2,032,800
42,000 Solectron Corp.*....................................................................... 3,903,375
55,000 Sun Microsystems, Inc.*................................................................ 4,705,937
------------
27,032,630
------------
COMPUTER SOFTWARE (3.9%)
30,000 Citrix Systems, Inc.*.................................................................. 2,910,000
45,000 Compuware Corp.*....................................................................... 3,512,812
14,800 Great Plains Software, Inc.*........................................................... 714,100
12,100 Legato Systems, Inc.*.................................................................. 797,087
42,000 Microsoft Corp.*....................................................................... 5,819,625
14,000 Veritas Software Corp.*................................................................ 837,375
------------
14,590,999
------------
CONSUMER ELECTRONICS/APPLIANCES (0.8%)
16,000 Electronic Arts Inc.*.................................................................. 896,000
36,000 Maytag Corp............................................................................ 2,241,000
------------
3,137,000
------------
CONSUMER SUNDRIES (2.4%)
55,000 Anheuser-Busch Companies, Inc.......................................................... 3,609,375
15,000 Clorox Co.............................................................................. 1,752,187
21,000 Estee Lauder Companies, Inc. (Class A)................................................. 1,795,500
32,000 Philip Morris Companies, Inc........................................................... 1,712,000
------------
8,869,062
------------
CONSUMER/BUSINESS SERVICES (1.8%)
26,000 Automatic Data Processing, Inc......................................................... 2,084,875
25,000 Ceridian Corp.*........................................................................ 1,745,312
20,750 Outdoor Systems, Inc.*................................................................. 622,500
42,100 Paychex, Inc........................................................................... 2,165,519
------------
6,618,206
------------
DIVERSIFIED MANUFACTURING (0.4%)
15,000 United Technologies Corp............................................................... 1,631,250
------------
DRUG STORE CHAIN (2.8%)
52,000 CVS Corp............................................................................... 2,860,000
12,400 Duane Reade, Inc.*..................................................................... 477,400
92,400 Rite Aid Corp.......................................................................... 4,579,575
43,000 Walgreen Co............................................................................ 2,518,187
------------
10,435,162
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS (2.4%)
55,000 EMC Corp.*............................................................................. $ 4,675,000
101,000 Seagate Technology, Inc.*.............................................................. 3,055,250
80,000 Western Digital Corp.*................................................................. 1,205,000
------------
8,935,250
------------
E.D.P. SERVICES (0.5%)
27,800 Computer Sciences Corp.*............................................................... 1,791,362
------------
ELECTRONIC PRODUCTION EQUIPMENT (3.2%)
110,000 Applied Materials, Inc.*............................................................... 4,695,625
53,000 ASM Lithography Holding NV (Netherlands)*.............................................. 1,616,500
34,000 KLA-Tencor Corp.*...................................................................... 1,474,750
40,000 Novellus Systems, Inc.*................................................................ 1,975,000
42,000 Teradyne, Inc.*........................................................................ 1,779,750
6,600 Veeco Instruments, Inc.*............................................................... 348,150
------------
11,889,775
------------
ENERGY (0.9%)
25,000 Exxon Corp............................................................................. 1,828,125
15,500 Mobil Corp............................................................................. 1,350,437
------------
3,178,562
------------
FINANCIAL SERVICES (9.0%)
40,000 Associates First Capital Corp. (Class A)............................................... 1,695,000
11,000 Capital One Financial Corp............................................................. 1,265,000
16,600 CIT Group, Inc. (The) (Series A)....................................................... 528,088
30,000 E*TRADE Group, Inc.*................................................................... 1,402,500
43,000 Fannie Mae............................................................................. 3,182,000
21,000 Franklin Resources, Inc................................................................ 672,000
63,600 Freddie Mac............................................................................ 4,098,225
25,000 General Electric Co.................................................................... 2,551,563
23,700 Lehman Brothers Holdings, Inc.......................................................... 1,044,281
49,800 Merrill Lynch & Co., Inc............................................................... 3,324,150
45,100 Paine Webber Group, Inc................................................................ 1,741,988
67,500 Providian Financial Corp............................................................... 5,062,500
119,050 Schwab (CHARLES) Corp.................................................................. 6,689,122
10,000 The MONY Group Inc.*................................................................... 313,125
------------
33,569,542
------------
FOOD CHAINS (2.3%)
80,300 Fred Meyer, Inc.*...................................................................... 4,838,075
61,000 Safeway Inc.*.......................................................................... 3,717,188
------------
8,555,263
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS (0.7%)
18,800 Georgia-Pacific Corp................................................................... $ 1,100,975
100,000 Jefferson Smurfit Group PLC (Ireland).................................................. 178,837
38,000 Willamette Industries, Inc............................................................. 1,273,000
------------
2,552,812
------------
HEALTHCARE (0.9%)
9,400 CIGNA Corp............................................................................. 726,738
67,000 Health Management Associates, Inc. (Class A)*.......................................... 1,448,875
14,000 Wellpoint Health Networks, Inc.*....................................................... 1,218,000
------------
3,393,613
------------
HOME BUILDING (0.3%)
40,000 Kaufman & Broad Home Corp.............................................................. 1,150,000
------------
INSURANCE (3.1%)
4,000 Aegon N.V. (ARS) (Netherlands)......................................................... 489,000
12,000 Aegon NV (Netherlands)................................................................. 1,472,306
28,300 American General Corp.................................................................. 2,207,400
26,000 American International Group, Inc...................................................... 2,512,250
6,400 AXA (France)........................................................................... 927,586
17,000 Equitable Companies, Inc............................................................... 983,875
33,000 Hartford Financial Services Group, Inc................................................. 1,810,875
10,300 Nationwide Financial Services, Inc. (Class A).......................................... 532,381
45,000 Societa Assicuratrice Industriale SpA (Italy).......................................... 542,267
------------
11,477,940
------------
INTERNET SERVICES (4.0%)
39,000 America Online, Inc.*.................................................................. 5,645,250
17,000 At Home Corp. (Series A)*.............................................................. 1,251,625
2,200 Concur Technologies, Inc.*............................................................. 65,450
15,000 Inktomi Corp.*......................................................................... 1,949,063
38,000 Intuit Inc.*........................................................................... 2,755,000
2,550 Ticketmaster Online-CitySearch, Inc. (Series B)*....................................... 145,350
14,000 Yahoo! Inc.*........................................................................... 3,316,250
------------
15,127,988
------------
MAJOR PHARMACEUTICALS (4.9%)
20,000 ALZA Corp.*............................................................................ 1,045,000
24,000 American Home Products Corp............................................................ 1,351,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,000 Bristol-Myers Squibb Co................................................................ $ 936,688
29,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 2,017,313
56,000 Forest Laboratories, Inc.*............................................................. 2,978,500
30,000 Glaxo Wellcome PLC (United Kingdom).................................................... 1,027,320
19,000 Lilly (Eli) & Co....................................................................... 1,688,625
29,000 Pfizer, Inc............................................................................ 3,637,688
20,000 Pharmacia & Upjohn, Inc................................................................ 1,132,500
25,000 SmithKline Beecham PLC (United Kingdom)................................................ 347,739
28,000 Warner-Lambert Co...................................................................... 2,105,250
------------
18,268,123
------------
MEDIA CONGLOMERATES (0.8%)
39,000 Viacom, Inc. (Class B)*................................................................ 2,886,000
------------
MEDICAL EQUIPMENT & SUPPLIES (1.9%)
28,800 Bausch & Lomb, Inc..................................................................... 1,728,000
23,000 Guidant Corp........................................................................... 2,535,750
40,000 Medtronic, Inc......................................................................... 2,970,000
------------
7,233,750
------------
MOTOR VEHICLES (1.7%)
57,000 Ford Motor Co.......................................................................... 3,345,188
43,000 General Motors Corp.................................................................... 3,077,188
------------
6,422,376
------------
RESTAURANTS (1.2%)
14,600 McDonald's Corp........................................................................ 1,118,725
46,000 Outback Steakhouse, Inc.*.............................................................. 1,828,500
33,000 Tricon Global Restaurants, Inc.*....................................................... 1,654,125
------------
4,601,350
------------
RETAIL (8.8%)
33,000 Abercrombie & Fitch Co. (Class A)*..................................................... 2,334,750
11,000 Amazon.com, Inc.*...................................................................... 3,533,063
89,200 Ann Taylor Stores Corp.*............................................................... 3,517,825
30,000 Bed Bath & Beyond Inc.*................................................................ 1,021,875
37,000 Costco Companies, Inc.*................................................................ 2,670,938
61,000 Gap, Inc. (The)........................................................................ 3,431,250
35,000 Gucci Group NV (Netherlands)........................................................... 1,701,875
62,000 Home Depot, Inc. (The)................................................................. 3,793,625
31,000 Linens 'N Things, Inc.*................................................................ 1,228,375
91,000 Lowe's Companies, Inc.................................................................. 4,658,063
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
53,000 Wal-Mart Stores, Inc................................................................... $ 4,316,188
10,000 Williams-Sonoma, Inc.*................................................................. 403,125
------------
32,610,952
------------
SEMICONDUCTORS (7.1%)
59,000 Altera Corp.*.......................................................................... 3,584,250
41,000 Analog Devices, Inc.*.................................................................. 1,286,375
28,000 Applied Micro Circuits Corp.*.......................................................... 948,500
38,000 Intel Corp............................................................................. 4,503,000
22,000 Linear Technology Corp................................................................. 1,969,000
47,000 Maxim Integrated Products, Inc.*....................................................... 2,050,375
8,000 Micrel, Inc.*.......................................................................... 440,000
72,000 Micron Technology, Inc.*............................................................... 3,640,500
49,400 Texas Instruments, Inc................................................................. 4,226,788
56,000 Xilinx, Inc.*.......................................................................... 3,643,500
------------
26,292,288
------------
TELECOMMUNICATION EQUIPMENT (5.9%)
35,000 Ascend Communications, Inc.*........................................................... 2,301,250
13,500 Broadcom Corp. (Class A)*.............................................................. 1,625,063
74,000 Cisco Systems, Inc.*................................................................... 6,868,125
26,000 Lucent Technologies Inc................................................................ 2,860,000
54,000 Newbridge Networks Corp. (Canada)*..................................................... 1,640,250
12,000 Nokia Corp. (ADR) (Class A) (Finland).................................................. 1,445,250
29,000 PMC - Sierra, Inc.*.................................................................... 1,827,000
73,000 RF Micro Devices, Inc.*................................................................ 3,353,438
4,000 Xircom, Inc.*.......................................................................... 136,000
------------
22,056,376
------------
TELECOMMUNICATIONS (6.8%)
44,000 Ameritech Corp......................................................................... 2,788,500
59,000 AT&T Corp.............................................................................. 4,439,750
46,000 Bell Atlantic Corp..................................................................... 2,613,375
58,000 BellSouth Corp......................................................................... 2,892,750
60,000 MCI WorldCom, Inc.*.................................................................... 4,305,000
36,200 Sprint Corp. (FON Group)............................................................... 3,045,325
15,000 Sprint Corp. (PCS Group)*.............................................................. 346,875
57,000 U.S. West, Inc......................................................................... 3,683,625
30,000 Winstar Communications, Inc.*.......................................................... 1,168,125
------------
25,283,325
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $298,506,069)......................................................... 363,758,834
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
AMERICAN VALUE
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (6.3%)
U.S. GOVERNMENT AGENCY
$ 23,400 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $23,391,225)....... $ 23,391,225
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $321,897,294) (b)........................................................ 104.2 % 387,150,059
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (4.2) (15,517,150)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 371,632,909
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
ARS American Regulatory Shares.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $67,311,630 and the
aggregate gross unrealized depreciation is $2,058,865, resulting in net
unrealized appreciation of $65,252,765.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- ----------------------------------------------------
<S> <C> <C> <C>
$ 1,387,577 GBP 833,129 01/08/99 ($7,998)
<CAPTION>
CURRENCY ABBREVIATION:
<S> <C> <C> <C>
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
MID-CAP GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.5%)
ACCIDENT & HEALTH INSURANCE (2.1%)
7,000 ALFAC, Inc.............................................................................. $ 308,000
5,000 UNUM Corp............................................................................... 291,875
-----------
599,875
-----------
ADVERTISING (2.4%)
8,300 Lamar Advertising Co.*.................................................................. 309,175
12,000 Outdoor Systems, Inc.*.................................................................. 360,000
-----------
669,175
-----------
AUTO PARTS: O.E.M. (0.9%)
4,300 Federal Mogul Corp...................................................................... 255,850
-----------
BIOTECHNOLOGY (2.0%)
2,500 Biogen, Inc.*........................................................................... 207,187
14,000 Chiron Corp.*........................................................................... 365,750
-----------
572,937
-----------
BROADCASTING (2.3%)
10,000 Jacor Communications, Inc.*............................................................. 643,750
-----------
BUILDING MATERIALS (2.2%)
10,500 Southdown, Inc.......................................................................... 621,469
-----------
CLOTHING/SHOE/ACCESSORY STORES (2.0%)
8,000 Abercrombie & Fitch Co. (Class A)*...................................................... 566,000
-----------
COMPUTER COMMUNICATIONS (2.1%)
3,000 Apple Computer, Inc.*................................................................... 122,812
7,000 Ascend Communications, Inc.*............................................................ 460,250
-----------
583,062
-----------
COMPUTER HARDWARE (1.7%)
10,000 American Power Conversion Corp.*........................................................ 483,750
-----------
COMPUTER SOFTWARE (7.8%)
15,000 CheckFree Holdings Corp.*............................................................... 348,750
8,000 Citrix Systems, Inc.*................................................................... 776,000
6,000 Compuware Corp.*........................................................................ 468,375
4,500 Legato Systems, Inc.*................................................................... 296,437
4,500 Network Associates, Inc.*............................................................... 298,406
-----------
2,187,968
-----------
COMPUTER SOFTWARE & SERVICES (8.1%)
5,600 At Home Corp. (Series A)*............................................................... 412,300
11,000 Check Point Software Technologies Ltd. (Israel)*........................................ 501,875
14,000 General Instrument Corp.*............................................................... 475,125
8,500 I2 Technologies, Inc.*.................................................................. 257,656
9,200 NCR Corp.*.............................................................................. 384,100
9,500 Rational Software Corp.*................................................................ 250,562
-----------
2,281,618
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER/VIDEO CHAINS (2.7%)
9,000 Quantum Corp.*.......................................................................... $ 190,687
10,500 Synopsys, Inc.*......................................................................... 568,312
-----------
758,999
-----------
CONSUMER/BUSINESS SERVICES (0.9%)
5,500 Metzler Group, Inc. (The)*.............................................................. 267,437
-----------
CONTRACT DRILLING (0.6%)
26,000 Global Industries, Ltd.*................................................................ 159,250
-----------
DIVERSIFIED COMMERCIAL SERVICES (1.1%)
8,500 HA-LO Industries, Inc.*................................................................. 319,812
-----------
DIVERSIFIED FINANCIAL SERVICES (2.9%)
5,000 FINOVA Group, Inc....................................................................... 269,688
7,200 Providian Financial Corp................................................................ 540,000
-----------
809,688
-----------
DRUG STORE CHAINS (3.3%)
8,600 Duane Reade, Inc.*...................................................................... 331,100
9,000 Express Scripts, Inc. (Class A)*........................................................ 595,125
-----------
926,225
-----------
ELECTRIC UTILITIES (2.1%)
6,800 AES Corp. (The)*........................................................................ 322,150
3,500 Jabil Circuit, Inc.*.................................................................... 261,188
-----------
583,338
-----------
ELECTRICAL PRODUCTS (0.6%)
10,000 FORE Systems, Inc.*..................................................................... 182,500
-----------
ELECTRONIC COMPONENTS (0.5%)
1,400 Solectron Corp.*........................................................................ 130,113
-----------
ELECTRONIC DATA PROCESSING (3.0%)
9,500 Gemstar International Group Ltd. (Virgin Islands)*...................................... 543,281
8,000 Microchip Technology, Inc.*............................................................. 295,000
-----------
838,281
-----------
GENERIC DRUGS (4.6%)
5,000 Forest Laboratories, Inc.*.............................................................. 265,938
18,000 Mylan Laboratories, Inc................................................................. 567,000
7,500 Watson Pharmaceuticals, Inc.*........................................................... 471,563
-----------
1,304,501
-----------
HOME BUILDING (1.2%)
12,000 Kaufman & Broad Home Corp............................................................... 345,000
-----------
INTERNET SERVICES (7.0%)
2,500 America Online, Inc.*................................................................... 361,875
7,500 CSG Systems International, Inc.*........................................................ 590,625
6,000 Earthlink Network, Inc.*................................................................ 340,875
6,500 Infoseek Corp.*......................................................................... 320,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
MID-CAP GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,500 MindSpring Enterprises, Inc.*........................................................... $ 274,781
400 Yahoo! Inc.*............................................................................ 94,750
-----------
1,983,031
-----------
INVESTMENT BANKERS/BROKERS/
SERVICES (0.4%)
3,000 Paine Webber Group, Inc................................................................. 115,875
-----------
MAJOR U.S. TELECOMMUNICATIONS (1.5%)
11,000 Winstar Communications, Inc.*........................................................... 428,313
-----------
MEDICAL SPECIALTIES (0.8%)
8,000 IDEXX Laboratories, Inc.*............................................................... 214,000
-----------
MEDICAL/NURSING SERVICES (3.9%)
18,000 Renal Care Group, Inc.*................................................................. 522,000
20,000 Total Renal Care Holdings, Inc.*........................................................ 591,250
-----------
1,113,250
-----------
MID - SIZED BANKS (1.0%)
3,000 Firstar Corp............................................................................ 279,750
-----------
MULTI-LINE INSURANCE (1.5%)
8,500 American Bankers Insurance Group, Inc................................................... 411,188
-----------
OFFICE EQUIPMENT/SUPPLIES (2.2%)
4,000 Lexmark International Group, Inc. (Class A)*............................................ 402,000
5,900 Office Depot, Inc.*..................................................................... 217,931
-----------
619,931
-----------
OTHER PHARMACEUTICALS (2.1%)
10,000 Medicis Pharmaceutical Corp. (Class A)*................................................. 596,250
-----------
OTHER SPECIALTY STORES (1.2%)
8,000 Staples, Inc.*.......................................................................... 349,500
-----------
RAILROAD EQUIPMENT (0.3%)
2,500 Trinity Industries, Inc................................................................. 96,250
-----------
RESTAURANTS (4.0%)
5,500 CKE Restaurants, Inc.................................................................... 161,906
16,000 Outback Steakhouse, Inc.*............................................................... 636,000
7,500 Papa John's International, Inc.*........................................................ 330,000
-----------
1,127,906
-----------
RETAIL (2.2%)
500 Amazon.com, Inc.*....................................................................... 160,594
7,500 Best Buy Co., Inc.*..................................................................... 460,313
-----------
620,907
-----------
RETAIL - SPECIALTY (2.7%)
20,000 Eagle Hardware & Garden, Inc.*.......................................................... 647,500
10,000 PETsMART, Inc.*......................................................................... 107,500
-----------
755,000
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (3.2%)
12,500 Advanced Micro Devices, Inc.*........................................................... $ 361,719
3,000 Broadcom Corp. (Class A)*............................................................... 361,125
3,500 Veeco Instruments, Inc.*................................................................ 184,625
-----------
907,469
-----------
SERVICES TO THE HEALTH INDUSTRY (1.6%)
9,000 Bard (C.R.), Inc........................................................................ 445,500
-----------
SPECIALTY FOODS/CANDY (0.6%)
8,000 Foodmaker, Inc.*........................................................................ 176,500
-----------
TELECOMMUNICATION EQUIPMENT (1.2%)
11,100 American Tower Corp. (Class A)*......................................................... 328,144
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $21,666,531)........................................................... 26,659,362
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.5%)
U.S. GOVERNMENT AGENCY
$ 700 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $699,738)........... 699,738
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $22,366,269) (b).......................................................... 97.0 % 27,359,100
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 3.0 838,537
------ ------------
NET ASSETS................................................................................. 100.0 % $ 28,197,637
------ ------------
------ ------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $5,164,227 and the
aggregate gross unrealized depreciation is $171,396, resulting in net
unrealized appreciation of $4,992,831.
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (95.6%)
ARGENTINA (0.3%)
TELECOMMUNICATIONS
15,000 Telefonica de Argentina S.A. (ADR)...................................... $ 419,063
------------
AUSTRALIA (1.2%)
BANKING
60,000 Australia & New Zealand Banking Group Ltd............................... 391,849
------------
DIVERSIFIED FINANCIAL SERVICES
132,000 Tyndall Australia Ltd................................................... 201,795
------------
TELECOMMUNICATIONS
400,000 Cable & Wireless Optus Ltd.*............................................ 838,978
------------
TOTAL AUSTRALIA......................................................... 1,432,622
------------
CANADA (1.8%)
BIOTECHNOLOGY
44,900 BioChem Pharma, Inc.*................................................... 1,285,262
------------
LIFE INSURANCE
60,000 Great-West Lifeco Inc................................................... 1,019,275
------------
TOTAL CANADA............................................................ 2,304,537
------------
DENMARK (1.6%)
MAJOR PHARMACEUTICALS
7,000 Novo-Nordisk AS (Series B).............................................. 920,476
------------
TELECOMMUNICATIONS
16,700 Tele Danmark A/S (ADR).................................................. 1,133,512
------------
TOTAL DENMARK........................................................... 2,053,988
------------
FINLAND (0.7%)
TELECOMMUNICATION EQUIPMENT
7,000 Nokia Corp. (ADR) (Class A)............................................. 843,063
------------
FRANCE (5.4%)
AEROSPACE
24,000 Thomson CSF............................................................. 1,030,651
------------
AUTO PARTS: O.E.M.
7,500 Valeo S.A............................................................... 591,014
------------
INTEGRATED OIL COMPANIES
8,300 Elf Aquitaine S.A....................................................... 959,400
------------
MOTOR VEHICLES
18,000 Renault S.A............................................................. 808,417
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-LINE INSURANCE
8,000 AXA..................................................................... $ 1,159,482
------------
MULTI-SECTOR COMPANIES
3,500 Suez Lyonnaise des Eaux................................................. 718,951
2,200 Vivendi................................................................. 570,795
------------
1,289,746
------------
RETAIL
9,300 Etablissements Economiques du Casino Guichard-Perrachon S.A............. 968,490
------------
TOTAL FRANCE............................................................ 6,807,200
------------
GERMANY (2.4%)
APPAREL
300 Hugo Boss AG (Pref.).................................................... 576,646
------------
BANKING
20,000 Commerzbank AG.......................................................... 633,109
------------
MOTOR VEHICLES
9,000 Volkswagen AG........................................................... 719,005
------------
MULTI-SECTOR COMPANIES
20,000 RWE AG.................................................................. 1,096,228
------------
TOTAL GERMANY........................................................... 3,024,988
------------
GREECE (0.5%)
TELECOMMUNICATIONS
50,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR)*............... 662,500
------------
HONG KONG (2.6%)
BANKING
200,000 Dao Heng Bank Group Ltd................................................. 618,336
------------
MULTI-SECTOR COMPANIES
125,000 Hutchison Whampoa, Ltd.................................................. 883,452
150,000 New World Development Co., Ltd.......................................... 377,585
200,000 Shanghai Industrial Holdings Ltd........................................ 404,048
------------
1,665,085
------------
NATURAL GAS DISTRIBUTION
266,200 Hong Kong & China Gas Co., Ltd.......................................... 338,480
12,100 Hong Kong & China Gas Co., Ltd. (Warrants due 09/30/99)*................ 797
------------
339,277
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES
123,000 CLP Holdings Ltd........................................................ $ 612,888
------------
TOTAL HONG KONG......................................................... 3,235,586
------------
ITALY (3.9%)
BANKING
100,000 Banca Commerciale Italiana.............................................. 690,323
------------
CELLULAR TELEPHONE
90,000 Telecom Italia Mobile SpA............................................... 664,890
------------
LIFE INSURANCE
24,000 Assicurazioni Generali.................................................. 1,002,786
------------
OIL & GAS PRODUCTION
13,000 ENI SpA (ADR)........................................................... 880,750
------------
TELECOMMUNICATIONS
200,000 Telecom Italia SpA...................................................... 1,707,642
------------
TOTAL ITALY............................................................. 4,946,391
------------
JAPAN (9.9%)
ALCOHOLIC BEVERAGES
100,000 Kirin Brewery Co., Ltd.................................................. 1,272,085
------------
CELLULAR TELEPHONE
300 NTT Mobile Communication Network, Inc................................... 1,232,332
------------
CONSUMER ELECTRONICS/APPLIANCES
55,000 Pioneer Electronic Corp................................................. 920,715
11,000 Sony Corp............................................................... 799,735
170,000 Toshiba Corp............................................................ 1,010,689
------------
2,731,139
------------
DIVERSIFIED COMMERCIAL SERVICES
5,000 Secom Co................................................................ 413,428
------------
ELECTRONIC COMPONENTS
7,000 TDK Corp................................................................ 638,781
------------
ELECTRONIC PRODUCTION EQUIPMENT
30,000 Tokyo Electron Ltd...................................................... 1,136,926
------------
INDUSTRIAL MACHINERY/COMPONENTS
27,000 Minebea Co., Ltd........................................................ 308,640
------------
MAJOR PHARMACEUTICALS
40,000 Banyu Pharmaceutical Co., Ltd........................................... 742,049
27,000 Yamanouchi Pharmaceutical Co., Ltd...................................... 868,198
------------
1,610,247
------------
MEDICAL SPECIALTIES
32,000 Terumo Corp............................................................. 751,943
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHOTOGRAPHIC PRODUCTS
20,000 Fuji Photo Film Co...................................................... $ 742,049
------------
SEMICONDUCTORS
10,000 Rohm Co., Ltd........................................................... 909,011
------------
TELECOMMUNICATIONS
190 DDI Corp................................................................ 704,947
------------
TOTAL JAPAN............................................................. 12,451,528
------------
MEXICO (0.9%)
BEVERAGES - NON-ALCOHOLIC
200,000 Grupo Continental, S.A. (Series CP)..................................... 483,838
75,000 Pepsi-Gemex S.A. de C.V. (ADR).......................................... 585,938
------------
TOTAL MEXICO............................................................ 1,069,776
------------
NETHERLANDS (3.4%)
DIVERSIFIED FINANCIAL SERVICES
21,000 ING Groep NV............................................................ 1,279,330
------------
LIFE INSURANCE
9,200 Aegon NV................................................................ 1,128,768
------------
MEDIA CONGLOMERATES
18,000 Ver Ned Utigev Ver Bezit NV............................................. 678,053
5,300 Wolters Kluwer NV....................................................... 1,133,035
------------
1,811,088
------------
TOTAL NETHERLANDS....................................................... 4,219,186
------------
PORTUGAL (1.4%)
BUILDING MATERIALS
22,000 Cimpor-Cimentos de Portugal, SGPS, S.A.................................. 702,402
------------
TELECOMMUNICATIONS
5,000 Telecel-Comunicacoes Pessoais S.A.*..................................... 1,022,261
------------
TOTAL PORTUGAL.......................................................... 1,724,663
------------
SINGAPORE (0.9%)
BANKING
100,000 Overseas Chinese Banking Corp., Ltd..................................... 678,993
------------
REAL ESTATE
100,000 City Developments Ltd................................................... 433,465
------------
TOTAL SINGAPORE......................................................... 1,112,458
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPAIN (3.9%)
BANKING
60,000 Banco Central Hispanoamericano S.A...................................... $ 712,423
------------
ENGINEERING & CONSTRUCTION
18,000 Fomento De Construcciones Y Contratas S.A............................... 1,338,172
------------
FOOD CHAINS
30,000 Centros Comerciales Pryca S.A........................................... 930,167
------------
TELECOMMUNICATIONS
6,267 Telefonica de Espana S.A. (ADR)......................................... 848,517
------------
UTILITIES
38,800 Endesa S.A.............................................................. 1,028,032
------------
TOTAL SPAIN............................................................. 4,857,311
------------
SWEDEN (2.3%)
CLOTHING/SHOE/ACCESSORY STORES
4,200 Hennes & Mauritz AB (B Shares).......................................... 343,069
------------
DIVERSIFIED FINANCIAL SERVICES
50,000 OM Gruppen AB........................................................... 629,280
------------
MAJOR PHARMACEUTICALS
65,000 Astra AB (B Shares)..................................................... 1,323,339
------------
METALS FABRICATIONS
53,000 S.K.F. AB (B Shares).................................................... 617,990
------------
TOTAL SWEDEN............................................................ 2,913,678
------------
SWITZERLAND (5.0%)
BANKING
3,300 UBS AG (Registered)..................................................... 1,013,906
------------
BUILDING MATERIALS
500 Holderbank Financiere Glarus AG (B Shares).............................. 591,919
------------
ENGINEERING & CONSTRUCTION
340 Schindler Holdings AG (Part Cert.)...................................... 544,594
300 Schindler Holdings AG (Registered)...................................... 511,103
------------
1,055,697
------------
MAJOR PHARMACEUTICALS
494 Novartis AG............................................................. 971,096
80 Roche Holdings AG....................................................... 976,192
------------
1,947,288
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
4,000 Swisscom AG............................................................. $ 1,674,554
------------
TOTAL SWITZERLAND....................................................... 6,283,364
------------
UNITED KINGDOM (13.0%)
AEROSPACE
240,543 Rolls-Royce PLC......................................................... 991,805
------------
BANKING
64,000 Abbey National PLC...................................................... 1,363,932
50,630 National Westminster Bank PLC........................................... 971,685
------------
2,335,617
------------
CELLULAR TELEPHONE
80,607 Vodafone Group PLC...................................................... 1,302,737
------------
CLOTHING/SHOE/ACCESSORY STORES
50,000 Dixons Group PLC........................................................ 700,032
------------
DIVERSIFIED COMMERCIAL SERVICES
51,000 Compass Group PLC....................................................... 581,444
------------
DIVERSIFIED ELECTRONIC PRODUCTS
90,000 General Electric Co. PLC................................................ 808,493
------------
DIVERSIFIED FINANCIAL SERVICES
16,608 HSBC Holdings PLC....................................................... 413,774
------------
E.D.P. SERVICES
72,000 SEMA Group PLC.......................................................... 704,619
------------
ELECTRIC UTILITIES
70,000 National Power PLC...................................................... 600,429
------------
ENGINEERING & CONSTRUCTION
140,000 Siebe PLC............................................................... 549,428
------------
INTEGRATED OIL COMPANIES
150,000 Shell Transport & Trading Co. PLC....................................... 917,162
------------
INVESTMENT BANKERS/BROKERS/SERVICES
5,700 Garban PLC*............................................................. 21,803
------------
MAJOR PHARMACEUTICALS
30,000 Zeneca Group PLC........................................................ 1,300,047
------------
MEDIA CONGLOMERATES
85,000 Reed International PLC.................................................. 661,532
------------
MILITARY/GOV'T/TECHNICAL
120,000 Racal Electronics PLC................................................... 691,504
------------
MULTI-LINE INSURANCE
18,000 Britannic Plc........................................................... 389,865
36,000 CGU PLC................................................................. 560,953
71,110 Royal & Sun Alliance Insurance Group PLC................................ 577,863
------------
1,528,681
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NEWSPAPERS
57,000 United News & Media PLC................................................. $ 497,416
------------
OTHER METALS/MINERALS
110,000 Antofagasta Holdings PLC................................................ 327,868
------------
PACKAGE GOODS/COSMETICS
46,000 Reckitt & Colman PLC.................................................... 606,324
------------
TELECOMMUNICATIONS
20,700 Esat Telecom Group PLC (ADR) (Ireland)*................................. 778,837
------------
TOTAL UNITED KINGDOM.................................................... 16,319,552
------------
UNITED STATES (34.5%)
AEROSPACE
9,200 Lockheed Martin Corp.................................................... 779,700
------------
ALUMINUM
17,900 Aluminum Co. of America................................................. 1,334,669
------------
BANKING
20,600 Chase Manhattan Corp. (The)............................................. 1,402,087
------------
BEVERAGES - NON-ALCOHOLIC
24,100 PepsiCo, Inc............................................................ 986,594
------------
BIOTECHNOLOGY
14,100 Genentech, Inc. (Special)*.............................................. 1,123,594
------------
BROADCASTING
27,600 General Motors Corp. (Class H)*......................................... 1,095,375
------------
COMPUTER COMMUNICATIONS
23,175 Cisco Systems, Inc.*.................................................... 2,150,930
------------
COMPUTER HARDWARE
21,900 Gateway 2000, Inc.*..................................................... 1,121,006
------------
DIVERSIFIED FINANCIAL SERVICES
15,000 American Express Co..................................................... 1,533,750
26,800 Citigroup Inc........................................................... 1,326,600
------------
2,860,350
------------
DIVERSIFIED MANUFACTURING
18,700 Honeywell, Inc.......................................................... 1,408,344
------------
ELECTRONIC DATA PROCESSING
25,000 Hewlett-Packard Co...................................................... 1,707,812
22,100 Sun Microsystems, Inc.*................................................. 1,890,931
------------
3,598,743
------------
FINANCE COMPANIES
16,100 Fannie Mae.............................................................. 1,191,400
------------
INTEGRATED OIL COMPANIES
15,400 Atlantic Richfield Co................................................... 1,004,850
17,200 Chevron Corp............................................................ 1,426,525
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
13,900 Exxon Corp.............................................................. $ 1,016,437
15,700 Mobil Corp.............................................................. 1,367,862
------------
4,815,674
------------
MAJOR CHEMICALS
11,800 Dow Chemical Co......................................................... 1,073,062
20,200 Monsanto Co............................................................. 959,500
------------
2,032,562
------------
MAJOR PHARMACEUTICALS
25,600 Abbott Laboratories..................................................... 1,254,400
22,800 American Home Products Corp............................................. 1,283,925
------------
2,538,325
------------
MOTOR VEHICLES
18,500 Ford Motor Co........................................................... 1,085,719
------------
MOVIES/ENTERTAINMENT
45,000 Walt Disney Co.......................................................... 1,350,000
------------
PACKAGE GOODS/COSMETICS
12,300 Colgate-Palmolive Co.................................................... 1,142,363
------------
PACKAGED FOODS
16,800 General Mills, Inc...................................................... 1,306,200
------------
PAPER
28,200 Champion International Corp............................................. 1,142,100
------------
RETAIL - SPECIALTY
50,200 Bed Bath & Beyond Inc.*................................................. 1,709,938
34,200 Gap, Inc. (The)......................................................... 1,923,750
------------
3,633,688
------------
SAVINGS & LOAN ASSOCIATIONS
14,600 Golden West Financial Corp.............................................. 1,338,638
35,180 Washington Mutual, Inc.................................................. 1,343,436
------------
2,682,074
------------
SEMICONDUCTORS
11,600 Intel Corp.............................................................. 1,374,600
------------
SERVICES TO THE HEALTH INDUSTRY
38,200 HBO & Co................................................................ 1,095,863
------------
TOTAL UNITED STATES..................................................... 43,251,960
------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(IDENTIFIED COST $93,909,714)........................................... 119,933,414
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.3%)
U.S. GOVERNMENT AGENCY (a) (4.2%)
$ 5,300 Federal Home Loan Banks 4.30% due 01/04/99 (AMORTIZED COST
$5,298,101)........................................................... $ 5,298,101
------------
REPURCHASE AGREEMENT (0.1%)
153 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98;
proceeds $153,146) (b) (IDENTIFIED COST $153,078)..................... 153,078
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $5,451,179)............................................ 5,451,179
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $99,360,893) (c)......................................................... 99.9 % 125,384,593
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.1 137,619
------ -------------
NET ASSETS................................................................................ 100.0 % $ 125,522,212
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $150,859 U.S. Treasury Note 5.875% due 02/15/00 valued at
$156,140.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $28,066,424 and the
aggregate gross unrealized depreciation is $2,042,724, resulting in net
unrealized appreciation of $26,023,700.
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (93.3%)
ADVERTISING (2.0%)
14,000 DoubleClick Inc.*....................................................................... $ 622,125
11,000 Lamar Advertising Co.*.................................................................. 409,750
20,000 Outdoor Systems, Inc.*.................................................................. 600,000
-----------
1,631,875
-----------
AIRLINES (0.4%)
15,970 Midwest Express Holdings, Inc.*......................................................... 420,211
-----------
APPAREL (1.1%)
9,300 Fossil, Inc.*........................................................................... 265,050
22,700 Quiksilver, Inc.*....................................................................... 681,000
-----------
946,050
-----------
BIOTECHNOLOGY (4.1%)
26,500 BioChem Pharma Inc. (Canada)*........................................................... 758,562
24,900 Medco Research, Inc.*................................................................... 647,400
21,100 Millennium Pharmaceuticals, Inc.*....................................................... 543,325
10,600 PathoGenesis Corp.*..................................................................... 604,200
15,000 SangStat Medical Corp.*................................................................. 318,750
5,000 Sepracor, Inc.*......................................................................... 440,312
-----------
3,312,549
-----------
BOOKS/MAGAZINE (0.7%)
34,000 CMP Media Inc. (Class A)*............................................................... 612,000
-----------
BROADCASTING (2.0%)
12,000 Jacor Communications, Inc.*............................................................. 772,500
20,000 Medialink Worldwide Inc.*............................................................... 335,000
18,000 Westwood One, Inc.*..................................................................... 549,000
-----------
1,656,500
-----------
CATALOG/SPECIALTY DISTRIBUTION (0.8%)
18,700 Micro Warehouse, Inc.*.................................................................. 631,125
-----------
COMPUTER HARDWARE (2.1%)
20,000 Adaptec, Inc.*.......................................................................... 350,000
9,000 Hutchinson Technology Inc.*............................................................. 318,375
30,000 Maxtor Corp.*........................................................................... 421,875
17,000 National Computer Systems, Inc.......................................................... 624,750
-----------
1,715,000
-----------
COMPUTER SOFTWARE (11.3%)
25,300 Avant! Corp.*........................................................................... 401,637
15,000 AXENT Technologies, Inc.*............................................................... 463,125
16,000 BroadVision, Inc.*...................................................................... 517,000
13,000 Check Point Software Technologies Ltd. (Israel)*........................................ 593,125
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,000 Citrix Systems, Inc.*................................................................... $ 970,000
24,000 Entrust Technologies Inc.*.............................................................. 564,000
15,000 GeoTel Communications Corp.*............................................................ 555,000
10,000 Intuit Inc.*............................................................................ 725,000
15,000 IONA Technologies PLC (ADR) (Ireland)*.................................................. 570,000
7,100 MAPICS, Inc.*........................................................................... 117,150
25,800 Micromuse Inc.*......................................................................... 499,875
20,000 New Era of Networks, Inc.*.............................................................. 875,000
7,000 Peregrine Systems, Inc.*................................................................ 324,187
15,000 Rogue Wave Software, Inc.*.............................................................. 129,375
5,000 Segue Software, Inc.*................................................................... 100,000
12,000 Siebel Systems, Inc.*................................................................... 406,500
30,000 Symantec Corp.*......................................................................... 648,750
6,700 VERTAS Software Corp.*.................................................................. 400,744
9,000 Visio Corp.*............................................................................ 324,000
-----------
9,184,468
-----------
COMPUTER SOFTWARE & SERVICES (3.5%)
20,000 Dendrite International, Inc.*........................................................... 495,000
10,000 Mercury Interactive Corp.*.............................................................. 631,250
23,500 Pegasus Systems, Inc.*.................................................................. 840,125
29,000 Software AG Systems, Inc.*.............................................................. 525,625
20,000 VideoServer, Inc.*...................................................................... 370,000
-----------
2,862,000
-----------
CONSUMER/BUSINESS SERVICES (6.1%)
19,074 American Management Systems, Inc.*...................................................... 762,960
13,000 Concord EFS, Inc.*...................................................................... 550,875
24,000 Hagler Bailly, Inc.*.................................................................... 492,000
22,000 Iron Mountain, Inc.*.................................................................... 781,000
19,000 Metzler Group, Inc. (The)*.............................................................. 923,875
20,500 Nichols Research Corp.*................................................................. 425,375
8,000 The BISYS Group, Inc.*.................................................................. 412,000
24,000 USWeb Corp.*............................................................................ 630,000
-----------
4,978,085
-----------
DIVERSIFIED COMMERCIAL SERVICES (4.5%)
10,000 Abacus Direct Corp.*.................................................................... 456,875
40,000 Alternative Resources Corp.*............................................................ 425,000
9,000 Charles River Associates Inc.*.......................................................... 196,875
20,000 Convergys Corp.*........................................................................ 447,500
12,000 HA-LO Industries, Inc.*................................................................. 451,500
14,000 Lason, Inc.*............................................................................ 814,625
25,000 Nielsen Media Research, Inc............................................................. 450,000
14,000 Pharmaceutical Product Development, Inc.*............................................... 420,875
-----------
3,663,250
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. SERVICES (0.5%)
40,000 4Front Technologies, Inc.*.............................................................. $ 435,000
-----------
EDUCATION (3.1%)
18,300 Apollo Group, Inc. (Class A)*........................................................... 618,769
30,000 CBT Group PLC (ADR) (Ireland)*.......................................................... 446,250
32,000 Education Management Corp.*............................................................. 752,000
12,000 ITT Educational Services, Inc.*......................................................... 408,000
10,000 Sylvan Learning Systems, Inc.*.......................................................... 305,000
-----------
2,530,019
-----------
ELECTRICAL PRODUCTS (0.5%)
13,000 AFC Cable Systems, Inc.*................................................................ 435,500
-----------
ELECTRONIC COMPONENTS (1.9%)
25,000 CommScope, Inc.*........................................................................ 420,312
8,000 Flextronics International, Ltd.*........................................................ 684,000
13,000 Pittway Corp. (Class A)................................................................. 429,812
-----------
1,534,124
-----------
ELECTRONIC PRODUCTION EQUIPMENT (1.1%)
17,000 ATMI, Inc.*............................................................................. 429,250
12,000 Etec Systems, Inc.*..................................................................... 477,000
-----------
906,250
-----------
ENGINEERING & CONSTRUCTION (2.7%)
10,000 Dycom Industries, Inc.*................................................................. 571,250
63,700 International FiberCom, Inc.*........................................................... 465,806
34,000 Metromedia Fiber Network, Inc. (Class A)*............................................... 1,130,500
-----------
2,167,556
-----------
ENTERTAINMENT & LEISURE TIME (2.8%)
40,000 Callaway Golf Co........................................................................ 410,000
12,000 Cinar Films, Inc. (Class B) (Canada)*................................................... 300,000
13,000 Pinnacle Systems, Inc.*................................................................. 458,250
13,000 Steiner Leisure Ltd.*................................................................... 415,187
24,900 THQ, Inc.*.............................................................................. 694,087
-----------
2,277,524
-----------
ENVIRONMENTAL SERVICES (0.5%)
11,500 Casella Waste Systems Inc., (Class A)*.................................................. 421,187
-----------
FINANCE (0.5%)
7,000 FINOVA Group, Inc....................................................................... 377,562
-----------
HOME BUILDING (0.8%)
27,000 D.R. Horton, Inc........................................................................ 621,000
-----------
HOME FURNISHINGS (0.6%)
17,000 Select Comfort Corp.*................................................................... 450,500
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE (1.8%)
9,000 American Bankers Insurance Group, Inc................................................... $ 435,375
7,427 Delphi Financial Group, Inc. (Class A)*................................................. 389,453
6,800 Executive Risk, Inc..................................................................... 373,575
11,000 Fremont General Corp.................................................................... 272,250
-----------
1,470,653
-----------
INTERNET SERVICES (3.4%)
10,000 At Home Corp. (Series A)*............................................................... 736,250
8,000 CMGI Inc.*.............................................................................. 852,000
16,000 Concentric Network Corp.*............................................................... 534,000
6,000 Excite, Inc.*........................................................................... 252,000
7,000 Lycos, Inc.*............................................................................ 388,500
-----------
2,762,750
-----------
INVESTMENT BANKERS/BROKERS/ SERVICES (0.5%)
17,000 Hambrecht & Quist Group*................................................................ 385,687
-----------
MAJOR PHARMACEUTICALS (1.2%)
7,000 Coulter Pharmaceutical, Inc.*........................................................... 206,500
20,000 Shire Pharmaceuticals Group PLC (ADR) (United Kingdom)*................................. 392,500
18,000 Zonagen, Inc.*.......................................................................... 339,750
-----------
938,750
-----------
MANAGED HEALTH CARE (0.5%)
25,000 Oxford Health Plans, Inc.*.............................................................. 368,750
-----------
MEDICAL EQUIPMENT & SUPPLIES (6.7%)
21,500 ArthroCare Corp.*....................................................................... 459,562
11,000 Bard (C.R.), Inc........................................................................ 544,500
24,000 Haemonetics Corp.*...................................................................... 546,000
9,000 Henry Schein, Inc.*..................................................................... 398,250
45,100 Orthofix International N.V.*............................................................ 620,125
20,000 Owens & Minor, Inc...................................................................... 315,000
19,000 PSS World Medical, Inc.*................................................................ 435,812
18,000 ResMed, Inc.*........................................................................... 814,500
21,000 STERIS Corp.*........................................................................... 597,187
23,250 Xomed Surgical Products, Inc.*.......................................................... 742,547
-----------
5,473,483
-----------
METALS FABRICATIONS (0.4%)
14,600 Tower Automotive, Inc.*................................................................. 364,087
-----------
OIL & GAS PRODUCTION (0.2%)
7,000 Evergreen Resources, Inc.*.............................................................. 123,375
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PRECIOUS METALS (0.8%)
30,000 Ashanti Goldfield Co., Ltd. (GDR) (Ghana)............................................... $ 281,250
40,000 Battle Mountain Gold Co................................................................. 165,000
20,000 Placer Dome Inc. (Canada)............................................................... 230,000
-----------
676,250
-----------
PRINTING/FORMS (2.1%)
45,000 American Bank Note Holographics, Inc.*.................................................. 787,500
14,000 Consolidated Graphics, Inc.*............................................................ 945,875
-----------
1,733,375
-----------
REAL ESTATE INVESTMENT TRUST (1.0%)
15,565 Golf Trust of America, Inc.............................................................. 431,929
15,000 Public Storage, Inc..................................................................... 405,938
-----------
837,867
-----------
RESTAURANTS (0.1%)
7,000 Friendly Ice Cream Corp.*............................................................... 42,438
-----------
RETAIL - SPECIALTY (3.6%)
12,000 BJ's Wholesale Club, Inc.*.............................................................. 555,750
9,800 Cost Plus, Inc.*........................................................................ 305,025
14,500 CSK Auto Corp.*......................................................................... 386,969
15,000 Eagle Hardware & Garden, Inc.*.......................................................... 485,625
13,900 Guitar Center, Inc.*.................................................................... 341,419
12,200 Linens 'N Things, Inc.*................................................................. 483,425
20,000 Trans World Entertainment Corp.*........................................................ 380,000
-----------
2,938,213
-----------
SAVINGS & LOAN ASSOCIATIONS (0.5%)
20,000 Dime Community Bancshares............................................................... 411,250
-----------
SEMICONDUCTORS (5.3%)
30,000 Aeroflex Inc.*.......................................................................... 453,750
17,000 Analog Devices, Inc.*................................................................... 533,375
2,200 Broadcom Corp. (Class A)*............................................................... 264,825
15,000 MIPS Technologies, Inc.*................................................................ 479,063
5,500 PMC - Sierra, Inc.*..................................................................... 346,500
15,000 Power Integrations, Inc,*............................................................... 375,938
20,000 Sawtek, Inc.*........................................................................... 350,000
3,000 Semtech Corp.*.......................................................................... 106,500
11,000 TranSwitch Corp.*....................................................................... 427,625
20,000 Vishay Intertechnology, Inc.*........................................................... 290,000
16,000 Vitesse Semiconductor Corp.*............................................................ 728,000
-----------
4,355,576
-----------
SHOE MANUFACTURING (0.3%)
20,000 Wolverine World Wide, Inc............................................................... 265,000
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY FOODS/CANDY (0.6%)
15,600 Earthgrains Co.......................................................................... $ 482,625
-----------
TELECOMMUNICATION EQUIPMENT (3.0%)
46,000 Advanced Fibre Communications, Inc.*.................................................... 500,250
37,300 ANTEC Corp.*............................................................................ 750,663
35,000 California Microwave, Inc.*............................................................. 323,750
18,000 Polycom, Inc.*.......................................................................... 401,625
19,000 Proxim, Inc.*........................................................................... 507,063
-----------
2,483,351
-----------
TELECOMMUNICATIONS (3.8%)
23,500 Inter-Tel, Inc.......................................................................... 549,313
25,000 ITC DeltaCom, Inc.*..................................................................... 378,125
7,000 IXC Communications, Inc.*............................................................... 234,063
15,100 MetroNet Communications Corp. (Class B) (Canada)*....................................... 498,300
16,000 NEXTLINK Communications, Inc. (Class A)*................................................ 454,000
22,000 PSINet, Inc.*........................................................................... 459,250
25,000 SkyTel Communications Inc.*............................................................. 548,438
-----------
3,121,489
-----------
WATER SUPPLY (1.1%)
3,700 American States Water Co................................................................ 100,825
8,000 Aquarian Co............................................................................. 328,000
9,500 E'Town Corp............................................................................. 450,063
-----------
878,888
-----------
WHOLESALE DISTRIBUTOR (1.0%)
16,500 MSC Industrial Direct Co., Inc.*........................................................ 373,313
20,000 School Specialty, Inc.*................................................................. 427,500
-----------
800,813
-----------
WIRELESS COMMUNICATION (1.8%)
18,000 Vanguard Cellular Systems, Inc. (Class A)*.............................................. 463,500
20,000 Western Wireless Corp. (Class A)*....................................................... 438,750
15,000 Winstar Communications, Inc.*........................................................... 584,063
-----------
1,486,313
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $55,540,509)........................................................... 76,170,318
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATION (2.6%)
$ 2,000 U.S. Treasury Note 5.625% due 05/15/08 (IDENTIFIED COST $2,153,515)..................... $ 2,131,860
-----------
SHORT-TERM INVESTMENTS (3.9%)
U.S. GOVERNMENT AGENCY (a) (3.7%)
3,000 Federal Home Loan Mortgage Corp. 4.50% due 01/04/99 (AMORTIZED COST $2,998,875)......... 2,998,875
-----------
REPURCHASE AGREEMENT (0.2%)
164 The Bank of New York 4.00% due 01/04/99 (dated 12/31/98; proceeds $164,498) (b)
(IDENTIFIED COST $164,425)............................................................ 164,425
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,163,300)............................................................ 3,163,300
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $60,857,324) (c).......................................................... 99.8 % 81,465,478
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.2 159,681
------ ------------
NET ASSETS................................................................................. 100.0 % $ 81,625,159
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $162,041 U.S. Treasury Note 5.875% due 02/15/00 valued at
$167,713.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $21,772,178 and the
aggregate gross unrealized depreciation is $1,164,024, resulting in net
unrealized appreciation of $20,608,154.
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (92.5%)
ARGENTINA (4.3%)
ALCOHOLIC BEVERAGES
5,825 Quilmes Industrial (Quinsa) S.A. (ADR)................................................ $ 54,245
-----------
BANKING
2,877 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B) (ADR).......................... 49,988
2,100 Banco Frances del Rio de La Plato S.A. (ADR).......................................... 43,575
-----------
93,563
-----------
INTEGRATED OIL COMPANIES
6,175 Yacimentos Petroliferos Fiscales S.A. (ADR)........................................... 172,514
-----------
MULTI-SECTOR COMPANIES
18,700 Perez Companc S.A. (Class B).......................................................... 79,176
-----------
OIL/GAS TRANSMISSION
1,700 Transportadora de Gas del Sur S.A. (ADR).............................................. 17,212
-----------
TELECOMMUNICATIONS
2,160 Telecom Argentina Stet - France Telecom S.A. (Class B) (ADR).......................... 59,400
3,175 Telefonica de Argentina S.A. (ADR).................................................... 88,702
-----------
148,102
-----------
TOTAL ARGENTINA....................................................................... 564,812
-----------
BRAZIL (9.9%)
BANKING
103,000 Banco Itau S.A. (Pref.)............................................................... 50,305
3,500 Uniao de Bancos Brasileiros S.A. (GDR)................................................ 50,531
-----------
100,836
-----------
ELECTRIC UTILITIES
8,212 Companhia Energetica de Minas Gerais S.A. (ADR) (Pref.)............................... 155,002
9,900,000 Companhia Paranaense de Energia - Copel (Pref.)....................................... 71,300
-----------
226,302
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES
118,000 Itausa - Investmentos Itau S.A. (Pref.)............................................... $ 65,447
-----------
INTEGRATED OIL COMPANIES
865,000 Petroleo Brasileiro S.A. (Pref.)...................................................... 98,100
-----------
OTHER METALS/MINERALS
5,000 Companhia Vale do Rio Doce S.A. (Debentures)*......................................... --
5,600 Companhia Vale do Rio Doce S.A. (Pref.)............................................... 71,854
-----------
71,854
-----------
TELECOMMUNICATIONS
950,000 Embratel Participacoes S.A.*.......................................................... 8,257
7,062,000 Embratel Participacoes S.A. (Pref.)*.................................................. 96,459
950,000 Tele Celular Sul Participacoes S.A.*.................................................. 881
4,642,000 Tele Celular Sul Participacoes S.A. (Pref.)*.......................................... 7,839
950,000 Tele Centro Sul Participacoes S.A.*................................................... 6,291
14,742,000 Tele Centro Sul Participacoes S.A. (Pref.)*........................................... 128,016
950,000 Tele Norte Leste Participacoes S.A.*.................................................. 7,786
7,620,000 Tele Norte Leste Participacoes S.A. (Pref.)*.......................................... 95,250
13,900,000 Tele Sudeste Celular Participacoes S.A. (Pref.)*...................................... 58,684
950,000 Telemig Celular Participacoes S.A.*................................................... 669
17,742,000 Telemig Celular Participacoes S.A. (Pref.)*........................................... 19,681
950,000 Telesp Celular Participacoes S.A.*.................................................... 4,089
12,982,000 Telesp Celular Participacoes S.A. (Pref.)*............................................ 95,646
950,000 Telesp Participacoes S.A.*............................................................ 12,190
9,482,000 Telesp Participacoes S.A. (Pref.)*.................................................... 215,857
-----------
757,595
-----------
TOTAL BRAZIL.......................................................................... 1,320,134
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CHILE (2.8%)
ALCOHOLIC BEVERAGES
3,620 Vina Concha Y Toro (ADR).............................................................. $ 93,667
-----------
BEVERAGES - NON-ALCOHOLIC
2,840 Embotelladora Andina S.A. (Series A) (ADR)............................................ 41,180
-----------
FOOD CHAINS
4,600 Distribucion Y Servicio D&S S.A. (ADR)*............................................... 52,900
-----------
GENERIC DRUGS
5,170 Laboratorio Chile S.A. (ADR).......................................................... 74,319
-----------
TELECOMMUNICATIONS
5,108 Cia de Telecommunicaciones de Chile S.A. (ADR)........................................ 105,672
-----------
TOTAL CHILE........................................................................... 367,738
-----------
CHINA (0.9%)
UTILITIES
147,000 Beijing Datang Power Generation Co., Ltd.............................................. 44,119
196,000 Huaneng Power International, Inc. (Class H)*.......................................... 69,579
-----------
TOTAL CHINA........................................................................... 113,698
-----------
COLOMBIA (0.6%)
BANKING
16,700 Bancolombia S.A. (ADR)................................................................ 78,281
-----------
EGYPT (0.6%)
BUILDING MATERIALS
5,200 Suez Cement Co. (GDR) - 144A**........................................................ 74,100
-----------
GREECE (9.6%)
BANKING
3,720 Alpha Credit Bank..................................................................... 388,001
1,959 National Bank of Greece S.A........................................................... 440,539
-----------
828,540
-----------
BUILDING MATERIALS
1,960 Titan Cement Co. S.A.................................................................. 150,419
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
9,252 Hellenic Telecommunication Organization S.A........................................... $ 246,038
1,700 Panafon Hellenic Telecom S.A.*........................................................ 45,511
-----------
291,549
-----------
TOTAL GREECE.......................................................................... 1,270,508
-----------
HONG KONG (2.4%)
ELECTRONIC DATA PROCESSING
300,000 Legend Holdings Ltd................................................................... 105,530
-----------
REAL ESTATE
108,000 China Resources Enterprise Ltd........................................................ 168,694
-----------
TELECOMMUNICATIONS
28,000 China Telecom Ltd..................................................................... 48,434
-----------
TOTAL HONG KONG....................................................................... 322,658
-----------
HUNGARY (4.9%)
BANKING
3,700 OTP Bank RT........................................................................... 184,923
-----------
OIL & GAS
8,700 MOL Magyar Olaj-es Gazipari RT (GDR) - 144A**......................................... 240,120
-----------
SPECIALTY CHEMICALS
4,000 Pannonplast RT........................................................................ 112,928
-----------
TELECOMMUNICATIONS
3,700 Magyar Tavkozlesi RT (ADR) (Hungary).................................................. 110,306
-----------
TOTAL HUNGARY......................................................................... 648,277
-----------
INDIA (3.6%)
TELECOMMUNICATIONS
7,900 Mahanagar Telephone Nigam Ltd. (GDR) 144A**........................................... 96,380
12,100 Videsh Sanchar Nigam Ltd. (GDR)*...................................................... 148,225
-----------
244,605
-----------
TEXTILES
41,000 Reliance Industries Ltd. (GDR)*....................................................... 232,470
-----------
TOTAL INDIA........................................................................... 477,075
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ISRAEL (2.8%)
BANKING
105,150 Bank Hapoalim Ltd..................................................................... $ 190,492
-----------
CLOTHING/SHOE/ACCESSORY STORES
7,615 Blue Square Chain Investments & Properties Ltd.*...................................... 91,420
-----------
DIVERSIFIED ELECTRONIC PRODUCTS
4,470 NICE-Systems Ltd. (ADR)*.............................................................. 95,826
-----------
TOTAL ISRAEL.......................................................................... 377,738
-----------
MEXICO (11.7%)
ALCOHOLIC BEVERAGES
61,400 Grupo Modelo S.A. de C.V. (Series C).................................................. 130,242
-----------
BEVERAGES - NON-ALCOHOLIC
2,200 Coca-Cola Femsa S.A. de C.V. (ADR).................................................... 29,150
5,050 Fomento Economico Mexicano, S.A. de C.V. (ADR)........................................ 134,456
5,334 Panamerican Beverages, Inc. (Class A)................................................. 116,348
-----------
279,954
-----------
BROADCASTING
5,820 Grupo Televisa S.A. de C.V. (GDR)..................................................... 143,681
-----------
BUILDING MATERIALS
23,100 Apasco S.A. de C.V.................................................................... 81,433
27,460 Cemex S.A. de C.V. (B Shares)......................................................... 68,927
-----------
150,360
-----------
OTHER SPECIALTY STORES
154,300 Cifra S.A. de C.V. (Series C)......................................................... 190,148
22,300 Organizacion Soriana S.A. de C.V. (Series B).......................................... 72,081
-----------
262,229
-----------
PAPER
48,900 Kimberly-Clark de Mexico S.A. de C.V. (A Shares)...................................... 156,085
-----------
SPECIALTY FOODS/CANDY
57,200 Grupo Industrial Bimbo S.A. de C.V. (Series A)........................................ 109,778
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
6,520 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)..................................... $ 317,443
-----------
TOTAL MEXICO.......................................................................... 1,549,772
-----------
PERU (0.8%)
BUILDING MATERIALS
52,475 Cementos Lima, S.A.................................................................... 62,547
-----------
OTHER METALS/MINERALS
6,720 Compania de Minas Buenaventura S.A. (B Shares)........................................ 40,476
-----------
TOTAL PERU............................................................................ 103,023
-----------
PHILIPPINES (2.0%)
RESTAURANTS
190,000 Jollibee Foods Co. (Warrants due 03/25/03)*........................................... 88,258
-----------
TELECOMMUNICATIONS
3,520 Philippine Long Distance Telephone Co................................................. 90,838
-----------
UTILITIES
26,300 Manila Electric Co. (B Shares)........................................................ 84,839
-----------
TOTAL PHILIPPINES..................................................................... 263,935
-----------
POLAND (5.1%)
BANKING
3,400 Bank Przemyslowo-Handlowy S.A......................................................... 201,769
-----------
TELECOMMUNICATIONS
30,600 Telekomunikacja Polska S.A. (GDR)*.................................................... 156,825
-----------
WHOLESALE DISTRIBUTOR
30,000 Elektrim Spolka Akcyjna S.A........................................................... 325,250
-----------
TOTAL POLAND.......................................................................... 683,844
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PORTUGAL (3.2%)
BANKING
6,500 Banco Comercial Portugues S.A......................................................... $ 199,874
2,915 Banco Espirito Santo e Comercial de Lisboa, S.A....................................... 90,490
4,510 Banco Pinto & Sotto Mayor, S.A........................................................ 85,523
-----------
375,887
-----------
UTILITIES
2,000 EDP-Electricidade de Portugal, S.A.................................................... 44,042
-----------
TOTAL PORTUGAL........................................................................ 419,929
-----------
SOUTH AFRICA (9.0%)
ALCOHOLIC BEVERAGES
17,146 South African Breweries Ltd........................................................... 286,956
-----------
BANKING
12,257 Nedcor Ltd............................................................................ 208,674
-----------
LIFE INSURANCE
14,460 Liberty Life Association of Africa Ltd................................................ 199,008
-----------
MULTI-SECTOR COMPANIES
115,706 New Clicks Holdings Ltd............................................................... 113,042
-----------
OTHER METALS/MINERALS
7,645 Anglo American Platinum Corporation Ltd............................................... 104,826
-----------
PRECIOUS METALS
3,410 Anglo American Corporation of South Africa Ltd........................................ 96,063
2,316 Anglogold Ltd......................................................................... 90,192
-----------
186,255
-----------
TELECOMMUNICATION EQUIPMENT
24,200 Allied Technologies Ltd............................................................... 48,314
82,147 New Africa Investments Ltd. (N Shares)................................................ 50,247
-----------
98,561
-----------
TOTAL SOUTH AFRICA.................................................................... 1,197,322
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (9.9%)
ELECTRICAL PRODUCTS
6,369 Samsung Display Devices Co............................................................ $ 314,735
-----------
ELECTRIC UTILITIES
18,100 Korea Electric Power Corp............................................................. 449,483
-----------
MAJOR CHEMICALS
18,900 L.G. Chemical Ltd..................................................................... 206,325
-----------
STEEL/IRON ORE
5,610 Pohang Iron & Steel Co., Ltd.......................................................... 346,768
-----------
TELECOMMUNICATIONS
100 Korea Telecom Corp.*.................................................................. 3,167
-----------
TOTAL SOUTH KOREA..................................................................... 1,320,478
-----------
TAIWAN (6.4%)
COMPUTER/VIDEO CHAINS
4,000 Synnex Technology International Corp. (GDR)*.......................................... 71,000
-----------
ELECTRONIC COMPONENTS
25,200 Siliconware Precision Industries Co. (GDR)*........................................... 264,600
-----------
ELECTRONIC DATA PROCESSING
29,150 Asustek Computer Inc. (GDR)........................................................... 270,366
64 Asustek Computer Inc. (GDR) - 144A**.................................................. 594
-----------
270,960
-----------
MUTUAL FUNDS
4,700 The Taiwan Index Fund Ltd............................................................. 43,475
-----------
SEMICONDUCTORS
14,010 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR).................................... 198,768
-----------
TOTAL TAIWAN.......................................................................... 848,803
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TURKEY (2.0%)
BANKING
2,700,000 Akbank T.A.S.......................................................................... $ 54,831
-----------
FINANCE
14,900,000 Dogan Yayin Holdings*................................................................. 75,647
-----------
FOOD CHAINS
91,700 Migros Turk T.A.S..................................................................... 91,656
-----------
PROPERTY - CASUALTY INSURANCE
1,600,000 Aksigorta A.S......................................................................... 48,739
-----------
TOTAL TURKEY.......................................................................... 270,873
-----------
VIETNAM (0.0%)
MUTUAL FUNDS
1,800 Lazard Vietnam Fund Ltd............................................................... --
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(IDENTIFIED COST $13,176,917) (a).......................................................... 92.5 % 12,272,998
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 7.5 999,307
------ ------------
NET ASSETS................................................................................. 100.0 % $ 13,272,305
------ ------------
------ ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,455,639 and the
aggregate gross unrealized depreciation is $2,359,558, resulting in net
unrealized depreciation of $903,919.
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
EMERGING MARKETS
SUMMARY OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Alcoholic Beverages............................................................... $ 565,110 4.3 %
Banking........................................................................... 2,317,796 17.5
Beverages - Non-Alcoholic......................................................... 321,134 2.4
Broadcasting...................................................................... 143,681 1.1
Building Materials................................................................ 437,426 3.3
Clothing/Shoe/Accessory Stores.................................................... 91,420 0.7
Computer/Video Chains............................................................. 71,000 0.5
Diversified Electronic Products................................................... 95,826 0.7
Electric Utilities................................................................ 675,785 5.1
Electrical Products............................................................... 314,735 2.4
Electronic Components............................................................. 264,600 2.0
Electronic Data Processing........................................................ 376,490 2.8
Finance........................................................................... 75,647 0.6
Financial Services................................................................ 65,447 0.5
Food Chains....................................................................... 144,556 1.1
Generic Drugs..................................................................... 74,319 0.6
Integrated Oil Companies.......................................................... 270,614 2.0
Life Insurance.................................................................... 199,008 1.5
Major Chemicals................................................................... 206,325 1.6
Multi-Sector Companies............................................................ 192,218 1.4
Mutual Funds...................................................................... 43,475 0.3
Oil - Exploration & Production.................................................... 240,120 1.8
Oil/Gas Transmission.............................................................. 17,212 0.1
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Metals/Minerals............................................................. $ 217,156 1.6 %
Other Specialty Stores............................................................ 262,229 2.0
Paper............................................................................. 156,085 1.2
Precious Metals................................................................... 186,255 1.4
Property - Casualty Insurance..................................................... 48,739 0.4
Real Estate....................................................................... 168,694 1.3
Restaurants....................................................................... 88,258 0.7
Semiconductors.................................................................... 198,768 1.5
Specialty Chemicals............................................................... 112,928 0.8
Specialty Foods/Candy............................................................. 109,778 0.8
Steel/Iron Ore.................................................................... 346,768 2.6
Telecommunication Equipment....................................................... 98,561 0.7
Telecommunications................................................................ 2,274,536 17.1
Textiles.......................................................................... 232,470 1.8
Utilities......................................................................... 242,579 1.8
Wholesale Distributor............................................................. 325,250 2.5
------------ ---
$ 12,272,998 92.5 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks...................................................................... $10,955,300 82.5 %
Preferred Stocks................................................................... 1,229,440 9.3
Rights & Warrants.................................................................. 88,258 0.7
----------- ---
$12,272,998 92.5 %
----------- ---
----------- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at value
*.................... $121,100,638 $8,381,516 $91,827,168 $110,465,944 $ 85,353,383
Cash................... 2,084 -- 664,576** -- --
Receivable for:
Investments sold... -- -- -- -- --
Shares of
beneficial
interest sold.... 238,137 -- 159,696 73,955 258,330
Dividends.......... -- -- -- 102,090 110,757
Interest........... 155,162 26,726 1,494,321 331,272 42,039
Foreign withholding
taxes
reclaimed........ -- -- -- -- 10,391
Unrealized appreciation
on open forward
foreign currency
contracts............ -- -- 63,686 -- --
Prepaid expenses and
other assets......... 5,736 102 8,226 1,246 1,113
Deferred organizational
expenses............. 1,374 1,374 1,374 1,374 1,374
Receivable from
affiliate............ -- -- -- -- --
------------ ----------- ------------ ------------ ------------
TOTAL ASSETS...... 121,503,131 8,409,718 94,219,047 110,975,881 85,777,387
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Payable for:
Investments
purchased........ -- -- -- 3,012,552 --
Shares of
beneficial
interest
repurchased...... 1,241,348 334 14,905 20,567 28,511
Compensated forward
foreign currency
contracts........ -- -- 94,349 -- --
Investment
management
fees............. 51,840 4,454 31,604 53,333 44,326
Payable to bank........ -- -- -- -- --
Unrealized depreciation
on open forward
foreign currency
contracts............ -- -- 60,272 -- --
Accrued expenses and
other payables....... 25,115 15,708 26,780 37,312 21,365
------------ ----------- ------------ ------------ ------------
TOTAL
LIABILITIES....... 1,318,303 20,496 227,910 3,123,764 94,202
------------ ----------- ------------ ------------ ------------
NET ASSETS:
Paid-in-capital........ 120,184,715 8,352,447 96,280,837 89,562,413 62,417,478
Accumulated
undistributed net
investment income
(net investment
loss)................ 113 30,818 740,817 250,069 117,223
Accumulated
undistributed net
realized gain
(accumulated net
realized loss)....... -- (9,105) (173,260) 12,608,684 648,546
Net unrealized
appreciation
(depreciation)....... -- 15,062 (2,857,257) 5,430,951 22,499,938
------------ ----------- ------------ ------------ ------------
NET ASSETS........ $120,184,828 $8,389,222 $93,991,137 $107,852,117 $ 85,683,185
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
*IDENTIFIED
COST.............. $121,100,638 $8,366,454 $94,686,455 $105,034,993 $ 62,853,445
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
SHARES OF
BENEFICIAL
INTEREST
OUTSTANDING....... 120,184,715 826,319 9,461,101 6,584,329 4,579,609
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
NET ASSET VALUE PER
SHARE
(UNLIMITED AUTHORIZED
SHARES OF $.01 PAR
VALUE)................. $1.00 $10.15 $9.93 $16.38 $18.71
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
</TABLE>
- ------------------
** Including foreign currency of $22,516.
SEE NOTES TO FINANCIAL STATEMENTS
100
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at value
*.................... $726,587,185 $172,430,333 $54,002,189 $387,150,059 $27,359,100 $125,384,593 $81,465,478 $12,272,998
Cash................... -- -- -- 72,428 76,985 -- -- 1,007,265
Receivable for:
Investments sold... -- 7,971,204 703,199 2,253,749 1,575,777 -- 303,600 9,874
Shares of
beneficial
interest sold.... 513,433 29,607 10,368 680,905 16,694 108,041 142,767 1,863
Dividends.......... 1,239,350 221,571 43,469 102,133 2,680 83,491 10,394 20,833
Interest........... 432 311 179 -- -- 17 14,625 --
Foreign withholding
taxes
reclaimed........ -- -- -- 28,697 -- 99,548 -- --
Unrealized appreciation
on open forward
foreign currency
contracts............ -- -- -- -- -- -- -- --
Prepaid expenses and
other assets......... 21,356 4,447 1,134 12,835 1,933 1,421 3,464 926
Deferred organizational
expenses............. 1,374 1,374 1,374 1,374 -- 1,374 1,374 1,374
Receivable from
affiliate............ -- -- -- -- 17,569 -- -- --
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
TOTAL ASSETS...... 728,363,130 180,658,847 54,761,912 390,302,180 29,050,738 125,678,485 81,941,702 13,315,133
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
LIABILITIES:
Payable for:
Investments
purchased........ 4,324,890 5,194,921 1,144,341 18,274,475 833,046 -- 237,187 --
Shares of
beneficial
interest
repurchased...... 342,855 56,929 8,379 166,992 1,046 18,796 16,423 1,770
Compensated forward
foreign currency
contracts........ -- -- -- -- -- -- -- --
Investment
management
fees............. 352,745 72,013 34,439 183,105 -- 102,334 31,989 13,800
Payable to bank........ -- 465,333 -- -- -- -- -- --
Unrealized depreciation
on open forward
foreign currency
contracts............ -- -- -- -- -- -- -- --
Accrued expenses and
other payables....... 57,562 45,829 70,975 44,699 19,009 35,143 30,944 27,258
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
TOTAL
LIABILITIES....... 5,078,052 5,835,025 1,258,134 18,669,271 853,101 156,273 316,543 42,828
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSETS:
Paid-in-capital........ 553,275,042 130,891,723 41,618,075 267,074,857 25,955,091 103,938,295 62,301,476 19,455,506
Accumulated
undistributed net
investment income
(net investment
loss)................ 853,057 183,347 3,871 7,077 7,295 28,138 7,110 (2,344)
Accumulated
undistributed net
realized gain
(accumulated net
realized loss)....... 64,905,978 6,481,031 3,259,997 39,297,660 (2,757,580) (4,474,238) (1,291,581) (5,276,475)
Net unrealized
appreciation
(depreciation)....... 104,251,001 37,267,721 8,621,835 65,253,315 4,992,831 26,030,017 20,608,154 (904,382)
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSETS........ $723,285,078 $174,823,822 $53,503,778 $371,632,909 $28,197,637 $125,522,212 $81,625,159 $13,272,305
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
*IDENTIFIED
COST.............. $622,336,184 $135,162,612 $45,380,354 $321,897,294 $22,366,269 $ 99,360,893 $60,857,324 $13,176,917
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
SHARES OF
BENEFICIAL
INTEREST
OUTSTANDING....... 32,805,517 9,111,849 2,934,577 15,944,705 2,376,967 8,546,128 3,921,506 1,678,582
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
NET ASSET VALUE PER
SHARE
(UNLIMITED AUTHORIZED
SHARES OF $.01 PAR
VALUE)................. $22.05 $19.19 $18.23 $23.31 $11.86 $14.69 $20.81 $7.91
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
</TABLE>
101
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest............... $ 5,484,859 $357,842 $ 6,584,351 $ 2,011,419 $ 356,972
Dividends.............. -- -- -- 1,190,885 1,496,942*
----------- -------------- ------------ ----------- ------------
TOTAL INCOME...... 5,484,859 357,842 6,584,351 3,202,304 1,853,914
----------- -------------- ------------ ----------- ------------
EXPENSES
Investment management
fee.................. 492,661 41,048 313,337 554,456 412,581
Professional fees...... 18,407 16,145 17,142 42,135 18,075
Custodian fees......... 11,323 10,703 28,299 19,491 13,819
Shareholder reports and
notices.............. 11,491 1,088 8,872 14,857 4,379
Trustees' fees and
expenses............. 558 -- 570 729 470
Transfer agent fees and
expenses............. 500 500 500 500 500
Organizational
expenses............. 1,606 1,606 1,606 1,606 1,606
Other.................. 2,254 1,353 11,384 4,511 1,829
----------- -------------- ------------ ----------- ------------
TOTAL EXPENSES.... 538,800 72,443 381,710 638,285 453,259
Less: amounts
reimbursed/waived.... -- -- -- -- --
----------- -------------- ------------ ----------- ------------
NET EXPENSES...... 538,800 72,443 381,710 638,285 453,259
----------- -------------- ------------ ----------- ------------
NET INVESTMENT
INCOME............ 4,946,059 285,399 6,202,641 2,564,019 1,400,655
----------- -------------- ------------ ----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on:
Investments........ 96 1,246 409,753 12,637,891 648,615
Foreign exchange
transactions..... -- -- (301,301) -- --
----------- -------------- ------------ ----------- ------------
NET GAIN (LOSS)... 96 1,246 108,452 12,637,891 648,615
----------- -------------- ------------ ----------- ------------
Net change in
unrealized
appreciation/depreciation
on:
Investments........ -- (24,395) (3,183,638) (3,521,872) 11,747,508
Translation of
forward foreign
currency
contracts, other
assets and
liabilities
denominated in
foreign
currencies....... -- -- (56,748) -- --
----------- -------------- ------------ ----------- ------------
NET APPRECIATION
(DEPRECIATION).... -- (24,395) (3,240,386) (3,521,872) 11,747,508
----------- -------------- ------------ ----------- ------------
NET GAIN (LOSS)... 96 (23,149) (3,131,934) 9,116,019 12,396,123
----------- -------------- ------------ ----------- ------------
NET INCREASE
(DECREASE)............. $ 4,946,155 $262,250 $ 3,070,707 $11,680,038 $ 13,796,778
----------- -------------- ------------ ----------- ------------
----------- -------------- ------------ ----------- ------------
</TABLE>
- ------------------
* Net of foreign withholding tax of $19,218, $7,285, $35,622, $587, $168,834,
$1,749 and $23,975, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME
Interest............... $ 333,766 $ 296,420 $ 95,138 $ 1,897,644 $ 96,865 $ 575,082 $ 455,511 $ 94,953
Dividends.............. 15,363,732 2,494,684* 401,083 1,798,430* 42,091* 1,870,076* 169,357* 334,753*
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
TOTAL INCOME...... 15,697,498 2,791,104 496,221 3,696,074 138,956 2,445,158 624,868 429,706
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
EXPENSES
Investment management
fee.................. 3,794,294 797,292 376,026 1,802,876 180,804 1,158,905 401,774 218,826
Professional fees...... 19,132 17,987 29,578 20,108 15,305 18,482 18,447 20,071
Custodian fees......... 50,736 23,331 26,636 51,637 33,384 63,746 36,659 47,694
Shareholder reports and
notices.............. 71,821 16,565 10,602 22,678 5,172 15,115 11,229 5,310
Trustees' fees and
expenses............. 5,829 1,294 45,548 2,281 -- 1,015 688 --
Transfer agent fees and
expenses............. 500 500 500 500 500 500 500 500
Organizational
expenses............. 1,606 1,606 1,606 1,606 -- 1,606 1,606 1,606
Other.................. 6,013 16,291 1,854 6,714 1,107 21,055 2,195 9,557
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
TOTAL EXPENSES.... 3,949,931 874,866 492,350 1,908,400 236,272 1,280,424 473,098 303,564
Less: amounts
reimbursed/waived.... -- -- -- -- (236,272) -- -- --
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET EXPENSES...... 3,949,931 874,866 492,350 1,908,400 -- 1,280,424 473,098 303,564
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET INVESTMENT
INCOME............ 11,747,567 1,916,238 3,871 1,787,674 138,956 1,164,734 151,770 126,142
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on:
Investments........ 65,404,292 6,592,408 3,308,989 40,392,336 (2,490,436) (3,068,168) (1,185,922) (4,282,112)
Foreign exchange
transactions..... -- -- -- 44 -- (2,436) -- (65,660)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET GAIN (LOSS)... 65,404,292 6,592,408 3,308,989 40,392,380 (2,490,436) (3,070,604) (1,185,922) (4,347,772)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
Net change in
unrealized
appreciation/depreciation
on:
Investments........ 31,880,861 9,340,718 2,556,804 37,572,280 3,446,115 16,922,614 7,288,857 (2,129,565)
Translation of
forward foreign
currency
contracts, other
assets and
liabilities
denominated in
foreign
currencies....... -- -- -- 550 -- 8,488 -- 12,912
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET APPRECIATION
(DEPRECIATION).... 31,880,861 9,340,718 2,556,804 37,572,830 3,446,115 16,931,102 7,288,857 (2,116,653)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET GAIN (LOSS)... 97,285,153 15,933,126 5,865,793 77,965,210 955,679 13,860,498 6,102,935 (6,464,425)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
NET INCREASE
(DECREASE)............. $109,032,720 $17,849,364 $5,869,664 $79,752,884 $1,094,635 $15,025,232 $6,254,705 $(6,338,283)
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------
</TABLE>
103
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY MARKET GOVERNMENT SECURITIES
---------------------------- -------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------- -------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 4,946,059 $ 4,711,014 $ 285,399 $ 219,391
Net realized gain
(loss)............... 96 -- 1,246 (1,271)
Net change in
unrealized
appreciation/
depreciation......... -- -- (24,395) 44,134
------------- ------------ ----------- -----------
NET INCREASE...... 4,946,155 4,711,014 262,250 262,254
------------- ------------ ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (4,946,009) (4,710,989) (270,457) (222,788)
Net realized gain...... (96) -- -- --
------------- ------------ ----------- -----------
TOTAL............. (4,946,105) (4,710,989) (270,457) (222,788)
------------- ------------ ----------- -----------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 160,543,866 120,256,057 5,217,638 1,648,694
Reinvestment of
dividends and
distributions........ 4,946,105 4,710,989 270,457 222,788
Cost of shares
repurchased.......... (129,350,587) (127,923,366) (2,182,113) (991,209)
------------- ------------ ----------- -----------
NET INCREASE
(DECREASE)........ 36,139,384 (2,956,320) 3,305,982 880,273
------------- ------------ ----------- -----------
TOTAL INCREASE
(DECREASE)........ 36,139,434 (2,956,295) 3,297,775 919,739
NET ASSETS:
Beginning of period.... 84,045,394 87,001,689 5,091,447 4,171,708
------------- ------------ ----------- -----------
END OF PERIOD..... $ 120,184,828 $ 84,045,394 $ 8,389,222 $ 5,091,447
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 113 $ 63 $ 30,818 $ 15,876
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold................... 160,543,866 120,256,057 513,927 162,979
Issued in reinvestment
of dividends and
distributions........ 4,946,105 4,710,989 26,678 22,097
Repurchased............ (129,350,587) (127,923,366) (214,966) (98,049)
------------- ------------ ----------- -----------
NET INCREASE
(DECREASE)............. 36,139,384 (2,956,320) 325,639 87,027
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DIVERSIFIED INCOME BALANCED GROWTH UTILITIES
------------------------- ------------------------ ------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------- ------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 6,202,641 $ 3,763,814 $ 2,564,019 $ 1,183,842 $ 1,400,655 $ 1,137,314
Net realized gain
(loss)................. 108,452 (326,813) 12,637,891 1,883,756 648,615 872,891
Net change in unrealized
appreciation/
depreciation........... (3,240,386) 431,079 (3,521,872) 5,626,407 11,747,508 8,023,362
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE........ 3,070,707 3,868,080 11,680,038 8,694,005 13,796,778 10,033,567
------------ ----------- ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (5,803,603) (3,642,497) (2,431,401) (1,157,698) (1,364,710) (1,156,425)
Net realized gain........ (99,333) (92,958) (1,884,145) (164,839) (698,541) (140,005)
------------ ----------- ----------- ----------- ----------- -----------
TOTAL............... (5,902,936) (3,735,455) (4,315,546) (1,322,537) (2,063,251) (1,296,430)
------------ ----------- ----------- ----------- ----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 43,957,759 37,352,457 38,742,816 32,245,427 34,192,413 12,711,349
Reinvestment of dividends
and distributions...... 5,902,936 3,735,455 4,315,546 1,322,537 2,063,251 1,296,430
Cost of shares
repurchased............ (15,324,330) (11,052,734) (13,894,173) (8,509,024) (13,071,951) (7,665,054)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE
(DECREASE).......... 34,536,365 30,035,178 29,164,189 25,058,940 23,183,713 6,342,725
------------ ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE).......... 31,704,136 30,167,803 36,528,681 32,430,408 34,917,240 15,079,862
NET ASSETS:
Beginning of period...... 62,287,001 32,119,198 71,323,436 38,893,028 50,765,945 35,686,083
------------ ----------- ----------- ----------- ----------- -----------
END OF PERIOD....... $ 93,991,137 $62,287,001 $107,852,117 $71,323,436 $85,683,185 $50,765,945
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 740,817 $ 433,907 $ 250,069 $ 117,451 $ 117,223 $ 81,278
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 4,342,229 3,651,731 2,464,618 2,274,595 2,031,983 904,097
Issued in reinvestment of
dividends and
distributions.......... 583,849 366,945 273,422 93,933 122,896 95,848
Repurchased.............. (1,515,732) (1,079,349) (898,886) (598,705) (781,200) (551,585)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE
(DECREASE)............... 3,410,346 2,939,327 1,839,154 1,769,823 1,373,679 448,360
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
</TABLE>
105
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DIVIDEND GROWTH VALUE-ADDED MARKET
-------------------------- -------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------- -------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 11,747,567 $ 8,348,134 $ 1,916,238 $ 1,612,380
Net realized gain
(loss)............... 65,404,292 25,772,008 6,592,408 2,211,559
Net change in
unrealized
appreciation/
depreciation......... 31,880,861 50,279,373 9,340,718 20,050,469
------------ ------------ ------------- ---------------
NET INCREASE...... 109,032,720 84,399,515 17,849,364 23,874,408
------------ ------------ ------------- ---------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (11,679,096) (8,067,138) (1,902,826) (1,545,598)
Net realized gain...... (26,160,355) (13,688,414) (2,322,935) (214,735)
------------ ------------ ------------- ---------------
TOTAL............. (37,839,451) (21,755,552) (4,225,761) (1,760,333)
------------ ------------ ------------- ---------------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 192,533,628 216,990,147 42,071,121 56,658,607
Reinvestment of
dividends and
distributions........ 37,839,451 21,755,552 4,225,761 1,760,333
Cost of shares
repurchased.......... (96,700,375) (41,071,424) (26,412,836) (12,733,322)
------------ ------------ ------------- ---------------
NET INCREASE...... 133,672,704 197,674,275 19,884,046 45,685,618
------------ ------------ ------------- ---------------
TOTAL INCREASE.... 204,865,973 260,318,238 33,507,649 67,799,693
NET ASSETS:
Beginning of period.... 518,419,105 258,100,867 141,316,173 73,516,480
------------ ------------ ------------- ---------------
END OF PERIOD..... $723,285,078 $518,419,105 $ 174,823,822 $141,316,173
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 853,057 $ 784,586 $ 183,347 $ 169,935
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
SHARES ISSUED AND
REPURCHASED:
Sold................... 9,213,959 11,751,312 2,296,136 3,510,750
Issued in reinvestment
of dividends and
distributions........ 1,805,072 1,203,410 228,033 110,135
Repurchased............ (4,697,895) (2,163,103) (1,458,807) (765,113)
------------ ------------ ------------- ---------------
NET INCREASE........... 6,321,136 10,791,619 1,065,362 2,855,772
------------ ------------ ------------- ---------------
------------ ------------ ------------- ---------------
</TABLE>
- ------------------
* For the period January 21, 1997 (commencement of operations) through
December 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
GROWTH AMERICAN VALUE MID-CAP GROWTH
---------------------------- -------------------------- -------------------------
1998 1997 1998 1997 1998 1997*
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 3,871 $ 39,493 $ 1,787,674 $ 722,602 $ 138,956 $ 156,690
Net realized gain
(loss)................. 3,308,989 1,290,619 40,392,380 28,077,637 (2,490,436) (41,862)
Net change in unrealized
appreciation/
depreciation........... 2,556,804 4,281,360 37,572,830 18,351,924 3,446,115 1,546,716
------------- ------------ ------------ ------------ ----------- ------------
NET INCREASE........ 5,869,664 5,611,472 79,752,884 47,152,163 1,094,635 1,661,544
------------- ------------ ------------ ------------ ----------- ------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... -- (51,873) (1,947,082) (581,955) (152,597) (136,942)
Net realized gain........ (1,299,815) (131,373) (24,723,150) (3,287,899) (224,094) --
------------- ------------ ------------ ------------ ----------- ------------
TOTAL............... (1,299,815) (183,246) (26,670,232) (3,869,854) (376,691) (136,942)
------------- ------------ ------------ ------------ ----------- ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 17,430,665 28,816,261 112,225,756 83,771,943 14,883,943 20,630,739
Reinvestment of dividends
and distributions...... 1,299,815 183,246 26,670,232 3,869,854 376,691 136,942
Cost of shares
repurchased............ (10,107,664) (12,331,431) (50,359,365) (21,814,303) (7,016,976) (3,056,248)
------------- ------------ ------------ ------------ ----------- ------------
NET INCREASE........ 8,622,816 16,668,076 88,536,623 65,827,494 8,243,658 17,711,433
------------- ------------ ------------ ------------ ----------- ------------
TOTAL INCREASE...... 13,192,665 22,096,302 141,619,275 109,109,803 8,961,602 19,236,035
NET ASSETS:
Beginning of period...... 40,311,113 18,214,811 230,013,634 120,903,831 19,236,035 --
------------- ------------ ------------ ------------ ----------- ------------
END OF PERIOD....... $ 53,503,778 $ 40,311,113 $371,632,909 $230,013,634 $28,197,637 $ 19,236,035
------------- ------------ ------------ ------------ ----------- ------------
------------- ------------ ------------ ------------ ----------- ------------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 3,871 -- $ 7,077 $ 166,525 $ 7,295 $ 19,748
------------- ------------ ------------ ------------ ----------- ------------
------------- ------------ ------------ ------------ ----------- ------------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 1,021,903 1,878,945 5,366,406 4,775,976 1,315,016 1,956,099
Issued in reinvestment of
dividends and
distributions.......... 75,659 12,436 1,333,903 238,084 33,289 12,916
Repurchased.............. (597,280) (801,820) (2,436,239) (1,234,165) (658,565) (281,788)
------------- ------------ ------------ ------------ ----------- ------------
NET INCREASE............. 500,282 1,089,561 4,264,070 3,779,895 689,740 1,687,227
------------- ------------ ------------ ------------ ----------- ------------
------------- ------------ ------------ ------------ ----------- ------------
<CAPTION>
GLOBAL EQUITY
-------------------------
1998 1997
<S> <C> <C>
- ------------------------- -------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 1,164,734 $ 778,723
Net realized gain
(loss)................. (3,070,604) 206,968
Net change in unrealized
appreciation/
depreciation........... 16,931,102 4,447,711
----------- ------------
NET INCREASE........ 15,025,232 5,433,402
----------- ------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (1,517,727) (731,065)
Net realized gain........ (422,276) (128,304)
----------- ------------
TOTAL............... (1,940,003) (859,369)
----------- ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 38,348,277 51,953,057
Reinvestment of dividends
and distributions...... 1,940,003 859,369
Cost of shares
repurchased............ (30,080,763) (14,403,393)
----------- ------------
NET INCREASE........ 10,207,517 38,409,033
----------- ------------
TOTAL INCREASE...... 23,292,746 42,983,066
NET ASSETS:
Beginning of period...... 102,229,466 59,246,400
----------- ------------
END OF PERIOD....... $125,522,212 $102,229,466
----------- ------------
----------- ------------
UNDISTRIBUTED NET
INVESTMENT INCOME........ $ 28,138 $ 310,005
----------- ------------
----------- ------------
SHARES ISSUED AND
REPURCHASED:
Sold..................... 2,738,834 4,006,028
Issued in reinvestment of
dividends and
distributions.......... 135,036 66,503
Repurchased.............. (2,210,444) (1,101,520)
----------- ------------
NET INCREASE............. 663,426 2,971,011
----------- ------------
----------- ------------
</TABLE>
107
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
DEVELOPING GROWTH EMERGING MARKETS
------------------------- ------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ------------------------------------------------- ------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income............... $ 151,770 $ 181,401 $ 126,142 $ 120,967
Net realized gain
(loss)............... (1,185,922) 2,009,657 (4,347,772) (594,755)
Net change in
unrealized
appreciation/
depreciation......... 7,288,857 6,889,489 (2,116,653) (156,630)
------------ ----------- ----------- -----------
NET INCREASE
(DECREASE)........ 6,254,705 9,080,547 (6,338,283) (630,418)
------------ ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (180,742) (145,319) (146,105) (113,623)
Net realized gain...... (120,681) -- (48,814) --
Paid-in-capital........ -- -- (70,872) --
------------ ----------- ----------- -----------
TOTAL............. (301,423) (145,319) (265,791) (113,623)
------------ ----------- ----------- -----------
TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Net proceeds from
sales................ 16,665,137 32,654,294 3,482,891 13,701,773
Reinvestment of
dividends and
distributions........ 301,423 145,319 265,791 113,623
Cost of shares
repurchased.......... (23,985,095) (20,164,427) (7,686,938) (6,496,911)
------------ ----------- ----------- -----------
NET INCREASE
(DECREASE)........ (7,018,535) 12,635,186 (3,938,256) 7,318,485
------------ ----------- ----------- -----------
TOTAL INCREASE
(DECREASE)........ (1,065,253) 21,570,414 (10,542,330) 6,574,444
NET ASSETS:
Beginning of period.... 82,690,412 61,119,998 23,814,635 17,240,191
------------ ----------- ----------- -----------
END OF PERIOD..... $ 81,625,159 $82,690,412 $13,272,305 $23,814,635
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................. $ 7,110 $ 36,082 $ (2,344) $ 85,508
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
SHARES ISSUED AND
REPURCHASED:
Sold................... 861,579 1,800,018 368,627 1,094,065
Issued in reinvestment
of dividends and
distributions........ 16,369 9,034 27,733 8,961
Repurchased............ (1,272,373) (1,113,498) (823,654) (536,332)
------------ ----------- ----------- -----------
NET INCREASE
(DECREASE)............. (394,425) 695,554 (427,294) 566,694
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
108
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Select Dimensions Investment Series (the "Fund"),
formerly Dean Witter Select Dimensions Investment Series, is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The shares of the Fund are only sold to Hartford
Life Insurance Company and ITT Hartford Life and Annuity Insurance Company for
allocation to certain of its separate accounts to fund variable annuity
contracts and variable life insurance policies they issue.
The Fund, which consists of 13 separate portfolios ("Portfolios"), was organized
on June 2, 1994 as a Massachusetts business trust and commenced operations on
November 9, 1994, with the exception of Mid-Cap Growth which commenced
operations on January 21, 1997.
The investment objectives of each Portfolio are as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<C> <S>
Money Market Seeks high current income, preservation of capital and liquidity
by investing in short-term money market instruments.
North American Seeks to earn a high level of current income while maintaining
Government relatively low volatility of principal by primarily investing in
Securities investment grade fixed income securities issued or guaranteed by
the U.S., Canadian or Mexican governments.
Diversified Seeks, as a primary objective, to earn a high level of current
Income 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.
Balanced Seeks to achieve capital growth with reasonable current income by
Growth investing in common stock of companies which have a record of
(formerly paying dividends and have the potential for increasing dividends,
Balanced)* securities convertible into common stock and in investment grade
fixed income securities. Prior to March 2, 1998, the investment
objective was 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.
Utilities 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.
Dividend Seeks to provide reasonable current income and long-term growth of
Growth income and capital by investing primarily in common stock of
companies with a record of paying dividends and the potential for
increasing dividends.
Value-Added Seeks to achieve a high level of total return on its assets
Market 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.
</TABLE>
109
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<C> <S>
Growth Seeks long-term growth of capital by investing primarily in common stocks and
(formerly Core securities convertible into common stocks issued by domestic and foreign
Equity) companies.
American Value 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.
Mid-Cap Seeks long-term capital appreciation by investing primarily in equity securities
Growth of mid-cap companies (that is, companies whose equity market capitalization falls
within the range of $250 million to $5 billion).
Global Equity 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.
Developing Seeks long-term capital growth by investing primarily in common stocks of smaller
Growth 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.
Emerging Seeks long-term capital appreciation by investing primarily in equity securities
Markets of companies in emerging market countries. The 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.
</TABLE>
* On February 26, 1998, shareholders approved a change in the investment
objective.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Money Market: securities are valued at amortized
cost which approximates market value. All remaining Portfolios: (1) an equity
security listed or traded on the New York, American or other domestic or foreign
stock exchange is valued at its latest sale price on that exchange prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest available bid price prior to the time of
valuation; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., or (in the case of Growth) by Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM"), or (in the case of North American Government
Securities and Emerging Markets) by TCW Funds Management Inc. ("TCW"), that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be
110
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain of the securities may be valued by an outside pricing service approved
by the Trustees. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research and evaluations by its staff, including review of broker-dealer market
price quotations, if available, in determining what it believes is the fair
valuation of the securities valued by such pricing service; and (5) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except certain dividends on foreign securities which are recorded as soon as the
Fund is informed after the ex-dividend date. Interest income is accrued daily
except where collection is not expected. The Money Market Portfolio amortizes
premiums and accretes discounts over the life of the respective securities;
gains and losses realized upon the sale of securities are based on amortized
cost. For all other Portfolios, discounts are accreted over the life of the
respective securities.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Portfolios
investing in foreign currency denominated transactions are translated into U.S.
dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward contracts are translated at
the exchange rates prevailing at the end of the period; and (2) purchases,
sales, income and expenses are translated at the exchange rates prevailing on
the respective dates of such transactions. The resultant exchange gains and
losses are included in the Statement of Operations as realized and unrealized
gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax
regulations, certain exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. The Portfolios do not isolate that portion of the results
of operations arising as a result of changes in the foreign exchange rates from
the changes in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- Some of the Portfolios may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are included
in the Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Portfolios record realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually
for each Portfolio with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its taxable income to
its shareholders. Accordingly, no federal income tax provision is required.
111
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
G. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of approximately $96,000 ($8,000 for each respective Portfolio,
excluding Mid-Cap Growth) which have been reimbursed for the full amount
thereof, exclusive of amounts waived of approximately $22,000 ($1,833 for each
respective Portfolio, excluding Mid-Cap Growth). Such expenses have been
deferred and are being amortized by the straight-line method over a period not
to exceed five years from the commencement of operations.
H. EXPENSES -- Direct expenses are charged to the respective Portfolio and
general Fund expenses are allocated on the basis of relative net assets or
equally among the Portfolios.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to each Portfolio's net assets determined at the close of
each business day:
<TABLE>
<CAPTION>
ANNUAL ANNUAL
PORTFOLIO RATE PORTFOLIO RATE
- ---------------------------------------- ------ ---------------------------------------- ------
<S> <C> <C> <C>
Money Market............................ 0.50 % Growth ................................. 0.80*%
North American Government Securities.... 0.65 American Value ......................... 0.625
Diversified Income...................... 0.40 Mid-Cap Growth ......................... 0.75
Balanced Growth......................... 0.60* Global Equity .......................... 1.00
Utilities............................... 0.65 Developing Growth ...................... 0.50
Dividend Growth......................... ** Emerging Markets ....................... 1.25
Value-Added Market...................... 0.50
</TABLE>
- ----------------
* Effective March 2, 1998, the Agreement was amended to reduce the annual
rate from 0.75% of daily net assets to 0.60% of daily net assets for
Balanced Growth, and from 0.85% of daily net assets to 0.80% of daily net
assets for Growth.
** Effective May 1, 1998, the Agreement was amended to reduce the annual rate
from 0.625% of the daily net assets to 0.625% to the portion of the daily
net assets not exceeding $500 million and 0.50% of the portion of daily net
assets in excess of $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space,
112
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the Fund.
Under Sub-Advisory Agreements between MSDWIM and the Investment Manager and TCW
and the Investment Manager, MSDWIM provides Growth and TCW provides North
American Government Securities and Emerging Markets with investment advice and
portfolio management relating to the Portfolios' investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for their services provided pursuant to the Sub-Advisory Agreements, the
Investment Manager pays MSDWIM and TCW monthly compensation equal to 40% of its
monthly compensation. Prior to March 2, 1998 TCW acted as sub-advisor to both
Growth and Balanced Growth. As compensation for its services under the
Sub-Advisory Agreements, the Investment Manager paid TCW 40% of its monthly
compensation.
The Investment Manager has undertaken to reimburse all operating expenses and
waive the compensation provided for in its Investment Management Agreement with
Mid-Cap Growth until such time as the Portfolio has $50 million of net assets or
April 30, 1999, whichever comes first. At December 31, 1998, included in the
Statements of Assets and Liabilities is a receivable from an affiliate which
represents expense reimbursements due to the Portfolio.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/maturities of portfolio securities, excluding short-term
investments (except for the Money Market Portfolio), for the year ended December
31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT SECURITIES OTHER
------------------------------- --------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Money Market............................ $45,946,262 $ 17,245,691 $635,319,250 $631,626,126
North American Government Securities.... 2,074,196 2,444,328 -- --
Diversified Income...................... 37,570,032 28,527,638 76,562,274 54,786,647
Balanced Growth......................... 24,098,714 8,720,034 83,119,366 70,967,243
Utilities............................... -- -- 34,209,085 11,721,729
Dividend Growth......................... -- -- 353,914,246 240,342,099
Value-Added Market...................... -- 39,356 40,264,892 21,785,906
Growth.................................. -- -- 105,026,135 97,743,598
American Value.......................... 101,801,772 121,461,966 849,346,644 765,458,947
Mid-Cap Growth.......................... -- -- 81,539,991 71,945,319
Global Equity........................... 750,103 774,612 93,916,522 83,752,467
Developing Growth....................... 4,441,633 2,558,068 137,043,763 137,285,921
Emerging Markets........................ -- -- 18,007,796 19,525,507
</TABLE>
Included in the aforementioned sales of portfolio securities of Value-Added
Market are sales of Morgan Stanley Dean Witter & Co., an affiliate of the
Investment Manager, of $96,695, as well as a realized gain of $66,835.
113
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
For the year ended December 31, 1998, the following Portfolios incurred
brokerage commissions with Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING
GROWTH UTILITIES GROWTH VALUE GROWTH EQUITY GROWTH
- ------------- ----------- ----------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 31,211 $ 15,178 $ 112,033 $ 92,265 $ 12,282 $ 13,946 $ 25,879
- ------------- ----------- ----------- ------------- ----------- ----------- -------
- ------------- ----------- ----------- ------------- ----------- ----------- -------
</TABLE>
Included at December 31, 1998 in the payable for investments purchased and
receivable for investments sold were $44,204 and $901,317, respectively, for
Mid-Cap Growth and $7,360,083 and $468,144, respectively, for American Value for
unsettled trades with DWR. Included at December 31, 1998 in the payable for
investments purchased was $4,324,890 for Dividend Growth, for unsettled trades
with DWR.
For the year ended December 31, 1998, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH UTILITIES GROWTH GROWTH VALUE GROWTH EQUITY GROWTH MARKETS
- ------------- ------------- ----------- --------------- ----------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7,785 $ 250 $ 80,317 $ 45 $ 185,891 $ 9,208 $ 9,579 $ 10,445 $ 2,855
------ ----- ----------- --- ----------- ----------- ----------- ------- ------
------ ----- ----------- --- ----------- ----------- ----------- ------- ------
</TABLE>
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent.
4. FEDERAL INCOME TAX STATUS
At December 31, 1998, the following Portfolios had an approximate net capital
loss carryover which may be used to offset future capital gains to the extent
provided by regulations:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
AVAILABLE THROUGH --------------------------------------------
DECEMBER 31, 2004 2005 2006 TOTAL
- --------------------------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
North American Government Securities $ 5 $ 2 -- $ 7
Diversified Income -- -- 164 164
Mid-Cap Growth -- -- $ 2,388 2,388
Global Equity -- -- 3,935 3,935
Developing Growth -- -- 1,207 1,207
Emerging Markets -- -- 4,785 4,785
</TABLE>
During the year ended December 31, 1998, the North American Government
Securities Portfolio utilized approximately $3,000 of its net capital loss
carryover.
Net capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Portfolios' next taxable year. The following Portfolios incurred and will
elect to defer post-October losses during fiscal 1998: Capital: North American
Government Securities -- $2,000; Utilities -- $130,000; Growth -- $956,000;
Global Equity -- $426,000; Emerging Markets -- $290,000; Currency: Diversified
Income $280,000; American Value $8,000.
114
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
At December 31, 1998, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES
----------------------------- ----------------------
POST-OCTOBER LOSS DEFERRALS FOREIGN CURRENCY
LOSSES FROM WASH SALES GAINS/LOSSES
------------ --------------- ----------------------
<S> <C> <C> <C>
North American Government Securities.... -
Diversified Income...................... - - -
Balanced Growth......................... -
Utilities............................... -
Dividend Growth......................... -
Value-Added............................. -
Growth.................................. - -
American Value.......................... - -
Mid-Cap Growth.......................... -
Global Equity........................... - - -
Developing Growth....................... -
Emerging Markets........................ - - -
</TABLE>
Additionally, Diversified Income had temporary differences attributable to the
mark-to-market of open forward foreign currency exchange contracts and
compensated forward foreign currency exchange contracts. Mid-Cap Growth and
Global Equity had permanent differences attributable to tax adjustments on
passive foreign investment companies sold by the Portfolios and American Value
had permanent differences attributable to tax equalization debits.
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED PAID-IN
INVESTMENT GAIN (LOSS) CAPITAL
------------- ------------- -------------
<S> <C> <C> <C>
Diversified Income...................... $ (92,128) $ 92,128 --
American Value.......................... (40) (4,133,929) $ 4,133,969
Mid-Cap Growth.......................... 1,188 (1,188) --
Global Equity........................... 71,126 (69,366) (1,760)
Emerging Markets........................ (67,889) 67,889 --
</TABLE>
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
Some of the Portfolios may enter into forward foreign currency contracts
("forward contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolios bear the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
At December 31, 1998, American Value and Diversified Income had outstanding
forward contracts.
At December 31, 1998, Emerging Markets' cash balance consisted principally of
interest bearing deposits with Chase Manhattan Bank N.A., the Portfolio's
custodian.
115
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL DIVIDENDS
YEAR ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1994 (a) $ 1.00 $ 0.01 -- $ 0.01 $(0.01) -- $(0.01)
1995 1.00 0.06 -- 0.06 (0.06) -- (0.06)
1996 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1998 1.00 0.05 -- 0.05 (0.05) -- (0.05)
NORTH AMERICAN GOVERNMENT SECURITIES
1994 (a) 10.00 0.06 -- 0.06 (0.02) -- (0.02)
1995 10.04 0.53 $ 0.11 0.64 (0.50) -- (0.50)
1996 10.18 0.52 (0.09) 0.43 (0.52) -- (0.52)
1997 10.09 0.48 0.09 0.57 (0.49) -- (0.49)
1998 10.17 0.46 (0.03) 0.43 (0.45) -- (0.45)
DIVERSIFIED INCOME
1994 (a) 10.00 0.08 -- 0.08 (0.03) -- (0.03)
1995 10.05 0.57 0.11 0.68 (0.51) -- (0.51)
1996 10.22 0.80 0.13 0.93 (0.82) $(0.01) (0.83)
1997 10.32 0.80 0.02 0.82 (0.83) (0.02) (0.85)
1998 10.29 0.79 (0.37) 0.42 (0.77) (0.01) (0.78)
BALANCED GROWTH
1994 (a) 10.00 0.08 (0.02) 0.06 (0.02) -- (0.02)
1995 10.04 0.40 1.85 2.25 (0.40) -- (0.40)
1996 11.89 0.33 1.25 1.58 (0.33) (0.07) (0.40)
1997 13.07 0.29 2.01 2.30 (0.30) (0.04) (0.34)
1998 15.03 0.44 1.68 2.12 (0.43) (0.34) (0.77)
UTILITIES
1994 (a) 10.00 0.07 -- 0.07 (0.03) -- (0.03)
1995 10.04 0.45 2.30 2.75 (0.44) -- (0.44)
1996 12.35 0.43 0.60 1.03 (0.43) (0.01) (0.44)
1997 12.94 0.39 2.96 3.35 (0.40) (0.05) (0.45)
1998 15.84 0.37 3.06 3.43 (0.37) (0.19) (0.56)
DIVIDEND GROWTH
1994 (a) 10.00 0.08 (0.09) (0.01) (0.02) -- (0.02)
1995 9.97 0.36 3.57 3.93 (0.36) -- (0.36)
1996 13.54 0.34 2.94 3.28 (0.35) (0.02) (0.37)
1997 16.45 0.38 3.80 4.18 (0.38) (0.68) (1.06)
1998 19.57 0.39 3.38 3.77 (0.39) (0.90) (1.29)
VALUE-ADDED MARKET
1994 (a) 10.00 0.06 (0.14) (0.08) (0.02) -- (0.02)
1995 9.90 0.31 2.34 2.65 (0.31) -- (0.31)
1996 12.24 0.23 1.93 2.16 (0.23) (0.01) (0.24)
1997 14.16 0.23 3.43 3.66 (0.23) (0.03) (0.26)
1998 17.56 0.22 1.90 2.12 (0.22) (0.27) (0.49)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
116
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
(BEFORE EXPENSES WERE
RATIOS TO AVERAGE NET
ASSUMED) ASSETS
NET ------------------------- (AFTER EXPENSES WERE
ASSETS NET ASSUMED)
NET ASSET END OF INVESTMENT ------------------------- PORTFOLIO
YEAR ENDED VALUE END TOTAL PERIOD INCOME NET INVESTMENT TURNOVER
DECEMBER 31 OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) EXPENSES INCOME (LOSS) RATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
1994 (a) $ 1.00 0.76%(1) $ 1,234 2.50%*(2) 3.33%*(2) -- 5.83%(2) N/A
1995 1.00 6.10 42,089 0.81 5.11 -- 5.92 N/A
1996 1.00 5.07 87,002 0.59 4.94 0.57% 4.96 N/A
1997 1.00 5.21 84,045 0.55 5.08 0.55 5.08 N/A
1998 1.00 5.16 120,185 0.55 5.02 0.55 5.02 N/A
NORTH AMERICAN
GOVERNMENT
SECURITIES
1994 (a) 10.04 0.61(1) 122 2.50*(2) 1.78*(2) -- 4.28(2) --
1995 10.18 6.40 1,288 2.50* 3.24* -- 5.74 18%
1996 10.09 4.35 4,172 1.45 4.55 0.50 5.50 48
1997 10.17 5.91 5,091 1.26 4.75 1.26 4.75 27
1998 10.15 4.28 8,389 1.15 4.52 1.15 4.52 51
DIVERSIFIED
INCOME
1994 (a) 10.05 0.76(1) 402 2.50*(2) 3.08*(2) -- 5.58(2) --
1995 10.22 6.96 8,972 1.33 5.95 -- 7.28 33
1996 10.32 9.54 32,119 0.71 8.26 0.50 8.47 69
1997 10.29 8.32 62,287 0.55 8.09 0.55 8.09 110
1998 9.93 4.22 93,991 0.49 7.92 0.49 7.92 111
BALANCED GROWTH
1994 (a) 10.04 0.60(1) 796 2.50*(2) 2.90*(2) -- 5.40(2) --
1995 11.89 22.86 16,311 1.39 2.45 -- 3.84 99
1996 13.07 13.54 38,893 0.90 2.35 0.50 2.75 88
1997 15.03 17.87 71,323 0.86 2.13 0.86 2.13 64
1998 16.38 14.41 107,852 0.71 2.87 0.71 2.87 93
UTILITIES
1994 (a) 10.04 0.65(1) 498 2.50*(2) 2.79*(2) -- 5.29(2) --
1995 12.35 28.05 17,959 1.43 3.01 -- 4.44 3
1996 12.94 8.48 35,686 0.80 3.16 0.50 3.46 15
1997 15.84 26.45 50,766 0.76 2.83 0.76 2.83 34
1998 18.71 22.23 85,683 0.71 2.21 0.71 2.21 19
DIVIDEND GROWTH
1994 (a) 9.97 (0.05) (1) 1,378 2.50*(2) 3.28*(2) -- 5.78(2) --
1995 13.54 40.13 78,694 0.83 2.80 -- 3.63 4
1996 16.45 24.49 258,101 0.67 2.44 0.67 2.44 39
1997 19.57 26.12 518,419 0.65 2.11 0.65 2.11 26
1998 22.05 19.73 723,285 0.63 1.87 0.63 1.87 39
VALUE-ADDED
MARKET
1994 (a) 9.90 (0.76) (1) 349 2.50*(2) 1.25*(2) -- 3.75(2) --
1995 12.24 27.14 23,970 1.46 1.64 -- 3.10 4
1996 14.16 17.78 73,516 0.64 1.69 0.56 1.77 4
1997 17.56 26.12 141,316 0.58 1.49 0.58 1.49 8
1998 19.19 12.19 174,824 0.55 1.20 0.55 1.20 14
</TABLE>
117
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS TOTAL DIVIDENDS
YEAR ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH
1994 (a) $ 10.00 $ 0.07 -- $ 0.07 $(0.02) -- $(0.02)
1995 10.05 0.26 $ 1.05 1.31 (0.29) -- (0.29)
1996 11.07 0.08 2.52 2.60 (0.08) $(0.04) (0.12)
1997 13.55 0.09 3.09 3.18 (0.10) (0.07) (0.17)
1998 16.56 0.00 2.16 2.16 0.00 (0.49) (0.49)
AMERICAN VALUE
1994 (a) 10.00 0.06 0.01 0.07 (0.02) -- (0.02)
1995 10.05 0.21 3.66 3.87 (0.21) -- (0.21)
1996 13.71 0.08 1.68 1.76 (0.10) (0.07) (0.17)
1997 15.30 0.07 4.73 4.80 (0.06) (0.35) (0.41)
1998 19.69 0.13 5.57 5.70 (0.14) (1.94) (2.08)
MID-CAP GROWTH
1997 (b) 10.00 0.18 1.39 1.57 (0.17) -- (0.17)
1998 11.40 0.06 0.57 0.63 (0.07) (0.10) (0.17)
GLOBAL EQUITY
1994 (a) 10.00 0.07 (0.10) (0.03) (0.03) -- (0.03)
1995 9.94 0.29 1.05 1.34 (0.29) -- (0.29)
1996 10.99 0.15 1.10 1.25 (0.17) (0.01) (0.18)
1997 12.06 0.12 0.92 1.04 (0.11) (0.02) (0.13)
1998 12.97 0.14 1.81 1.95 (0.18) (0.05) (0.23)
DEVELOPING GROWTH
1994 (a) 10.00 0.08 0.08 0.16 (0.03) -- (0.03)
1995 10.13 0.24 4.88 5.12 (0.25) -- (0.25)
1996 15.00 0.02 1.92 1.94 (0.04)++ (0.02) (0.06)
1997 16.88 0.05 2.27 2.32 (0.04) -- (0.04)
1998 19.16 0.03 1.69 1.72 (0.04) (0.03) (0.07)
EMERGING MARKETS
1994 (a) 10.00 0.06 -- 0.06 (0.02) -- (0.02)
1995 10.04 0.29 (0.33) (0.04) (0.31) -- (0.31)
1996 9.69 0.16 1.51 1.67 (0.16) -- (0.16)
1997 11.20 0.06 0.11 0.17 (0.06) -- (0.06)
1998 11.31 0.07 (3.33) (3.26) (0.11)+++ (0.03) (0.14)
</TABLE>
<TABLE>
<C> <S>
- ---------------------
(a) For the period November 9, 1994 (commencement of operations) through December 31, 1994.
(b) For the period January 21, 1997 (commencement of operations) through December 31, 1997.
+ Calculated based on the net asset value as of the last business day of the period.
++ Includes distributions from paid-in-capital of $0.01.
+++ Includes distributions from paid-in-capital of $0.04.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
118
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
(BEFORE EXPENSES WERE
RATIOS TO AVERAGE NET
ASSUMED) ASSETS
NET ------------------------- (AFTER EXPENSES WERE
ASSETS NET ASSUMED)
NET ASSET END OF INVESTMENT ------------------------- PORTFOLIO
YEAR ENDED VALUE END TOTAL PERIOD INCOME NET INVESTMENT TURNOVER
DECEMBER 31 OF PERIOD RETURN+ (000'S) EXPENSES (LOSS) EXPENSES INCOME (LOSS) RATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH
1994 (a) $ 10.05 0.67%(1) $ 316 2.50%*(2) 2.32%*(2) -- 4.82%(2) --
1995 11.07 13.29 3,956 2.50* (0.64) * -- 1.86 39%
1996 13.55 23.56 18,215 1.22 (0.03) 0.50% 0.69 47
1997 16.56 23.07 40,311 1.01 0.13 1.01 0.13 55
1998 18.23 13.22 53,504 1.06 0.01 1.06 0.01 223
AMERICAN VALUE
1994 (a) 10.05 0.69(1) 823 2.50*(2) 1.60*(2) -- 4.10(2) 10(1)
1995 13.71 38.95 38,235 0.96 1.11 -- 2.07 174
1996 15.30 12.95 120,904 0.71 0.52 0.69 0.54 232
1997 19.69 31.93 230,014 0.68 0.42 0.68 0.42 262
1998 23.31 30.78 371,633 0.66 0.62 0.66 0.62 325
MID-CAP GROWTH
1997 (b) 11.40 15.84(1) 19,236 1.12(2) 0.65(2) -- 1.77(2) 104(1)
1998 11.86 5.67 28,198 0.98 (0.40) -- 0.58 323
GLOBAL EQUITY
1994 (a) 9.94 (0.30) (1) 1,194 2.50*(2) 2.20*(2) -- 4.70(2) --
1995 10.99 13.76 17,074 1.69 1.09 -- 2.78 74
1996 12.06 11.43 59,246 1.25 0.69 0.72 1.22 62
1997 12.97 8.66 102,229 1.13 0.91 1.13 0.91 87
1998 14.69 15.11 125,522 1.10 1.01 1.10 1.01 80
DEVELOPING
GROWTH
1994 (a) 10.13 1.58(1) 380 2.50*(2) 2.31*(2) -- 4.81(2) 3(1)
1995 15.00 51.26 17,412 1.24 0.86 -- 2.10 80
1996 16.88 12.95 61,120 0.68 (0.04) 0.58 0.06 146
1997 19.16 13.77 82,690 0.60 0.26 0.60 0.26 149
1998 20.81 9.04 81,625 0.59 0.19 0.59 0.19 193
EMERGING
MARKETS
1994 (a) 10.04 0.57(1) 448 2.50*(2) 2.22*(2) -- 4.72(2) --
1995 9.69 (0.57) 4,092 2.50* 0.18* -- 2.68 36
1996 11.20 17.69 17,240 2.02 (0.10) 0.50 1.42 46
1997 11.31 1.27 23,815 1.71 0.49 1.71 0.49 91
1998 7.91 (29.03) 13,272 1.73 0.72 1.73 0.72 116
</TABLE>
119
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Money Market Portfolio, North
American Government Securities Portfolio, Diversified Income Portfolio, Balanced
Growth Portfolio (formerly Balanced Portfolio), Utilities Portfolio, Dividend
Growth Portfolio, Value-Added Market Portfolio, Growth Portfolio (formerly Core
Equity Portfolio), American Value Portfolio, Mid-Cap Growth Portfolio, Global
Equity Portfolio, Developing Growth Portfolio and Emerging Markets Portfolio
(constituting Morgan Stanley Dean Witter Select Dimensions Investment Series,
formerly Dean Witter Select Dimensions Investment Series, hereafter referred to
as the "Fund") at December 31, 1998, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 10, 1999
120
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
Part C Other Information
ITEM 23. EXHIBITS
1(a). Declaration of Trust of the Registrant, dated June 2, 1994, is
incorporated by reference to Exhibit 1 of the Initial Registration
Statement on Form N-1A, filed on June 9, 1994.
1(b). Instrument Establishing and Designating Additional Series of Shares
dated October 15, 1996 is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A, filed on October 17, 1996.
1(c). Amendment dated February 26, 1998 to the Declaration of Trust of the
Registrant is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 7 to the Registration Statement on Form
N-1A, filed on February 27, 1998.
1(d). Amendment dated June 22, 1998 to the Declaration of Trust of the
Registrant is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A, filed on February 26, 1999.
1(e). Amendment dated May 1, 1999 to the Declaration of Trust of the
Registrant is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A, filed on April 29, 1999
1(f). Form of Amendment to the Declaration of Trust of the Registrant.
2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999,
is incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A, filed on
April 29, 1999.
3. Not Applicable
4(a). Investment Management Agreement, amended as of May 1, 1999, is
incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A, filed on
April 29, 1999.
<PAGE>
4(b). Sub-Advisory Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Asset Management Inc. (now named Morgan
Stanley Dean Witter Investment Management Inc.), dated March 2,
1998, is incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A, filed on
February 26, 1999.
4(c). Amended and Restated Sub-Advisory Agreement between Morgan Stanley
Dean Witter Advisors Inc. and TCW Funds Management, Inc. is
incorporated by reference to Exhibit 5(f) to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A, filed on
December 19, 1997.
4(d). Form of Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and TCW Funds Management, Inc.
4(e). Secondary Sub-Advisory Agreement between TCW Funds Management, Inc.
and TCW London International, Limited, is incorporated by reference
to Exhibit 5(b) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A, filed on December 19, 1997.
4(h). Secondary Sub-Advisory Agreement between TCW Funds Management, Inc.
and TCW Asia Limited is incorporated by reference to Exhibit 5(d) to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A, filed on December 19, 1997.
5. Participation Agreement between Hartford Life Insurance Company, ITT
Hartford Life and Annuity Company (now named Hartford Life and
Annuity Company) and the Registrant is incorporated by reference to
Exhibit 6 to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on December 19, 1997.
6. Not Applicable.
7(a). Custody Agreement between The Bank of New York and the Registrant is
incorporated by reference to Exhibit8(a) to Pre-Effective Amendment
No.1 to the Registration Statement on Form N-1A, filed on October 6,
1994.
<PAGE>
7(b). Custody Agreement between The Chase Manhattan Bank and the
Registrant is incorporated by reference to Exhibit 8(b) to
Pre-Effective Amendment No.1 to the Registration Statement on Form
N-1A, filed on October 6, 1994.
7(c). Amendment dated April 17, 1996 to the Custody Agreement between The
Bank of New York and the Registrant is incorporated by reference to
Exhibit 8 to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A, filed on April 22, 1996.
8(a). Amended and Restated Transfer Agency and Service Agreement is
incorporated by reference to Exhibit 8(a) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A, filed on
February 26, 1999.
8(b). Amended Services Agreement is incorporated by reference to Exhibit 8
to Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A, filed on April 29, 1999.
9. Opinion of Registrant's Counsel is incorporated by reference to
Exhibit 10 to Pre-Effective Amendment No. 1 on Form N-1A, filed on
October 6, 1994.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable
14. Not Applicable.
15. Not Applicable.
Other Investment Letter of Hartford Life Insurance Company is
incorporated by reference to Exhibit 13 to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N1-A, filed on October
6, 1994.
Powers of Attorney of Trustees is incorporated by reference to
Exhibit (Other) to Pre-Effective Amendment No. 1 and Post-Effective
Amendment No. 6 (filed on October 6, 1994 and December 19, 1997,
respectively) on Form N1-A.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
<PAGE>
ITEM 25. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for the
expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given
regarding officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors"). MSDW Advisors is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
<TABLE>
<CAPTION>
CLOSED-END INVESTMENT COMPANIES
<S> <C>
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
</TABLE>
<TABLE>
<CAPTION>
OPEN-END INVESTMENT COMPANIES
<S> <C>
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
<PAGE>
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Limited Term Municipal Trust
(35) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(36) Morgan Stanley Dean Witter Market Leader Trust
(37) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(38) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(39) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(40) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(41) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(42) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(43) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(44) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(45) Morgan Stanley Dean Witter Real Estate Fund
(46) Morgan Stanley Dean Witter S&P 500 Index Fund
(47) Morgan Stanley Dean Witter S&P 500 Select Fund
(48) Morgan Stanley Dean Witter Select Dimensions Investment Series
(49) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(50) Morgan Stanley Dean Witter Short-Term Bond Fund
(51) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(52) Morgan Stanley Dean Witter Special Value Fund
(53) Morgan Stanley Dean Witter Strategist Fund
(54) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(55) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(56) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(57) Morgan Stanley Dean Witter U.S. Government Securities Trust
(58) Morgan Stanley Dean Witter Utilities Fund
(59) Morgan Stanley Dean Witter Value-Added Market Series
(60) Morgan Stanley Dean Witter Value Fund
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
The term "TCW/DW Funds" refers to the following registered investment companies:
<PAGE>
<TABLE>
<CAPTION>
OPEN-END INVESTMENT COMPANIES
<S> <C>
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
</TABLE>
<TABLE>
<CAPTION>
CLOSED-END INVESTMENT COMPANIES
<S> <C>
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
</TABLE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series; Executive Vice President and
Director of Dean Witter Reynolds Inc. ("DWR"); Director of
various MSDW subsidiaries.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Discover Brokerage Index Series; Director of MSDW
and Chief Investment Trust.
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds,
Officer and Director TCW/DW Funds and Discover Brokerage Index Series.
Edward C. Oelsner, III
Executive Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds,
TCW/DW Funds and Discover Brokerage Index Series.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds and Discover Brokerage Index Series.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Elizabeth A. Vetell
Senior Vice President
and Director of
Shareholder Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Frank Bruttomesso First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds,
TCW/DW Funds and Discover Brokerage Index Series..
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors, the Morgan Stanley Dean
Witter Funds, TCW/DW Funds and Discover Brokerage
Index Series.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors, the
and Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur
Vice President
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Aaron Clark
Vice President
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty Vice President of Morgan Stanley Dean Witter Prime
Vice President Income Trust
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Doug Ketterer
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ------------------------ ---------------------------------------------------------
<S> <C>
Naomi Stein
Vice President
Michael Strayhorn
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW
Distributors, DWR, the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and
Discover Brokerage Index Series is Two World Trade Center, New York, New York
10048. The principal address of MSDW is 1585 Broadway, New York, New York
10036. The principal address of MSDW Trust is 2 Harborside Financial Center,
Jersey City, New Jersey 07311.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
<TABLE>
<S> <C>
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
<PAGE>
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Limited Term Municipal Trust
(35) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(36) Morgan Stanley Dean Witter Market Leader Trust
(37) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(38) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(39) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(40) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(41) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(42) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(43) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(44) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(45) Morgan Stanley Dean Witter Prime Income Trust
(46) Morgan Stanley Dean Witter Real Estate Fund
(47) Morgan Stanley Dean Witter S&P 500 Index Fund
(48) Morgan Stanley Dean Witter S&P 500 Select Fund
(49) Morgan Stanley Dean Witter Short-Term Bond Fund
(50) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(51) Morgan Stanley Dean Witter Special Value Fund
(52) Morgan Stanley Dean Witter Strategist Fund
(53) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(54) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(55) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(56) Morgan Stanley Dean Witter U.S. Government Securities Trust
(57) Morgan Stanley Dean Witter Utilities Fund
(58) Morgan Stanley Dean Witter Value-Added Market Series
<PAGE>
(59) Morgan Stanley Dean Witter Value Fund
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
</TABLE>
(b) The following information is given regarding directors and officers of
MSDW Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than
Mr. Purcell, who is a Trustee of the Registrant, none of the following
persons has any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- --------------------------------------------
Christine A. Edwards Executive Vice President, Secretary, Director and
Chief Legal Officer.
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
ITEM 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
<PAGE>
ITEM 30. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly
caused this Post-Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 9th day of June, 1999.
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
By: /s/ Barry Fink
----------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ---
(1) Principal Executive Officer Chief Executive
Officer, Trustee
By: /s/ Charles A. Fiumefreddo and Chairman 6/9/99
------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 6/9/99
------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 6/9/99
------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By: /s/ David M. Butowsky 6/9/99
------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
EXHIBIT INDEX
Exhibit No. Exhibits
- ---------- --------
1 (f). Form of Amendment to the Declaration of Trust of the Registrant.
4 (d). Form of Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and TCW Funds Management, Inc.
10. Consent of Independent Accountants.
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Morgan
Stanley Dean Witter Select Dimensions Investment Series (the "Trust"), an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts, that annexed hereto is an Amendment to the Declaration of
Trust of the Trust adopted by the Trustees of the Trust on August , 1999 as
provided in Section 9.3 of the said Declaration, said Amendment to take
effect on August , 1999, and I do hereby further certify that such
amendment has not been amended and is on the date hereof in full force and
effect.
Dated this day of August, 1999.
------------------------------
Barry Fink
Secretary
<PAGE>
Amendment dated August ,1999 to the Declaration of Trust (the "
Declaration") of Morgan Stanley Dean Witter Select Dimensions Investment
Series
(the "Trust")
dated June 2, 1994
WHEREAS, the Trust and its Mid-Cap Growth Portfolio were established by the
Declaration on the date hereinabove set forth under the laws of the Commonwealth
of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to change the name
of the Mid-Cap Growth Portfolio of the Trust to "Mid-Cap Equity Portfolio", such
change to be effective on August , 1999;
NOW, THEREFORE:
1. The Declaration is hereby amended so that the Mid-Cap Growth Portfolio
is hereby designated the "Mid-Cap Equity Portfolio."
2. The Trustees of the Trust hereby reaffirm the declaration, as amended,
in all respects.
3. This amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this day of August, 1999.
- ----------------------------- ------------------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corp. c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, NW 1133 Connecticut Avenue, NW
Boca Raton, FL 33487 Washington, D.C. 20036
- ------------------------------ ------------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, NY 10048 237 Park Avenue
New York, NY 10017
- ------------------------------- -------------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Huntsman Corporation 1585 Broadway
500 Huntsman Way New York, NY 10048
Salt Lake City, UT 84111
- ------------------------------ -------------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky Weitzen
New York, NY 10048 Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
- ------------------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Gordon Altman Butowsky Weitzen
Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this day of August 1999, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO, EDWIN J.
GARN, JOHN R. HAIRE, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL E. NUGENT,
PHILIP J. PURCELL and JOHN L. SCHROEDER, known to me to be the individuals
described in and who executed the foregoing instrument, personally appeared
before me and they severally acknowledged the foregoing instrument to be
their free act and deed.
--------------------
Notary Public
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the day of , 1999, by and between Morgan
Stanley Dean Witter Advisors, Inc., a Delaware corporation (hereinafter called
the "Investment Manager"), and TCW Funds Management, Inc., a Delaware
corporation (hereinafter called the "Sub-Advisor").
WHEREAS, Morgan Stanley Dean Witter Select Dimensions Investment Series
(hereinafter called the "Fund") is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Investment Manager 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 thirteen current Portfolios of the Fund and may provide such
services to other Portfolios subsequently established by the Fund; and
WHEREAS, the Sub-Advisor 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-Advisor to render investment advisory services for the Mid-Cap Equity
Portfolio in the manner and on the terms and conditions hereinafter set forth
(this Portfolio 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-Advisor 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-Advisor 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-Advisor, the Sub-Advisor 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; to 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-Advisor
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 Portfolio with respect to which the Investment Manager desires to
retain the Sub-Advisor to render investment advisory services
A-1
<PAGE>
hereunder, the Investment Manager shall notify the Sub-Advisor in writing. If
the Sub-Advisor 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-Advisor 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-Advisor shall be deemed to include
persons employed or otherwise retained by the Sub-Advisor 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-Advisor 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.
3. The Fund will, from time to time, furnish or otherwise make available to
the Sub-Advisor such financial reports, proxy statements and other information
relating to the business and affairs of the Sub-Advisory Portfolios as the
Sub-Advisor 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.
4. The Sub-Advisor 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-Advisor, and such clerical help and bookkeeping
services as the Sub-Advisor shall reasonably require in performing its duties
hereunder.
5. 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-Advisor; 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-Advisor, 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
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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.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Sub-Advisor, the Investment Manager shall pay to the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation
receivable pursuant to the Investment Management Agreement in respect of the
Mid-Cap 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-Advisor 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-Advisor's fees payable under this Agreement will be
proportionately waived in whole or in part. The calculation of the fees payable
to the Sub-Advisor 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 7 hereof, payment of the Sub-Advisor's compensation for the preceding
month shall be made as promptly as possible after completion of the computations
contemplated by paragraph 7 hereof.
7. The Sub-Advisor 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-Advisor 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-Advisor or for
any losses sustained by the Sub-Advisory Portfolios or their investors.
8. 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-Advisor, and in any person controlled by or
under common control or affiliated with the Sub-Advisor, and that the
Sub-Advisor and any person controlled by or under common control or affiliated
with the Sub-Advisor may have an interest in the Fund. It is also understood
that the Sub-Advisor and any affiliated persons thereof or any persons
controlled by or under common control with the Sub-Advisor 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-Advisor or any affiliated person
thereof from so acting or engaging in any other business.
9. This Agreement shall remain in effect until April 30, 2001 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 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-Advisor,
either by majority vote of the Trustees of the Fund or, with respect to a Sub-
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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-Advisor; and (e) the Sub-Advisor 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.
10. 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-Advisor shall be liable for failing to do so.
11. 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,
conflicts 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.
MORGAN STANLEY DEAN WITTER ADVISORS
INC.
By: ..................................
Attest: ..............................
TCW FUNDS MANAGEMENT, INC.
By: ..................................
Attest: ..............................
Accepted and agreed to as of
the day and year first above written:
MORGAN STANLEY DEAN WITTER SELECT
DIMENSIONS INVESTMENT SERIES
By: ..................................
Attest: ..............................
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 10, 1999, relating to the financial statements and financial
highlights of Morgan Stanley Dean Witter Select Dimensions Investment Series,
formerly Dean Witter Select Dimensions Investment Series, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings "Custodian
and Independent Accountants" and "Experts" in such Statement of Additional
Information and to the reference to us under the heading "Financial Highlights"
in such Prospectus.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
June 9, 1999
