<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 29, 2000
REGISTRATION NOS.: 33-54047
811-7185
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 11 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 12 /X/
------------------------
MORGAN STANLEY 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:
STUART M. STRAUSS, ESQ.
MAYER BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Post-Effective Amendment becomes effective
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ on May 1, 2000 pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS - MAY 1, 2000
Morgan Stanley Dean Witter
SELECT DIMENSIONS INVESTMENT SERIES
CLASS X
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 The Money Market Portfolio.......... 2
The North American Government
Securities Portfolio................ 4
The Diversified Income Portfolio.... 7
The Balanced Growth Portfolio....... 11
The Utilities Portfolio............. 14
The Dividend Growth Portfolio....... 17
The Value-Added Market Portfolio.... 19
The Growth Portfolio................ 21
The American Opportunities
Portfolio........................... 23
The Mid-Cap Equity Portfolio........ 26
The Global Equity Portfolio......... 29
The Developing Growth Portfolio..... 31
The Emerging Markets Portfolio...... 34
Additional Investment
Strategy Information .................................... 38
Additional Risk Information .................................... 39
Portfolio Management .................................... 43
Shareholder Information Pricing Fund Shares................. 46
Distributions....................... 46
Tax Consequences.................... 46
Financial Highlights .................................... 47
</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 the following life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer (the "Contracts"):
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
------------------------------------------------------------------------------------
Certain flexible premium deferred variable annuity
Hartford Life contracts and flexible premium variable life insurance
Insurance Company policies
------------------------------------------------------------------------------------
Hartford Life and Certain flexible premium deferred variable annuity
Annuity Insurance contracts and flexible premium variable life insurance
Company policies
------------------------------------------------------------------------------------
</TABLE>
Shares of each Portfolio are purchased by the life insurance
companies at net asset value per share without a sales
charge in accordance with instructions received from the
owners of the applicable Contract.
Class X shares of each Portfolio are available only to
holders of Contracts issued before May 1, 2000. All
Portfolio shares issued prior to May 1, 2000 have been
designated Class X shares.
Class Y shares of each Portfolio are offered through a
separate prospectus to holders of Contracts issued on or
after May 1, 2000.
1
<PAGE>
[Sidebar]
MONEY MARKET
A portfolio 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 with short maturities.
2
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a comparable measure of market performance over time.
[End Sidebar]
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy.
An investment in the Portfolio is not a bank deposit and is
not guaranteed or insured by the FDIC or any other
government agency. Although the Portfolio seeks to preserve
the value of your investment at $1.00 per share, if it is
unable to do so, it is possible to lose money by investing
in the Portfolio.
[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%
'99 4.78%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 1.54% (quarter ended
June 30, 1995) and the lowest return for a calendar quarter
was 1.10% (quarter ended June 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/4/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Money Market Portfolio 4.78% 5.26% 5.27%
-----------------------------------------------------------------------------------------
3-month U.S. Treasury Bill(1) 4.74% 5.11% 5.13%(2)
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 3-month U.S. Treasury Bill is a short-term, discounted
obligation of the U.S. Government.
(2) For the period November 31, 1994 to December 31, 1999.
</TABLE>
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.
Effective September 7, 1999, shares of the North American
Government Securities Portfolio are no longer offered for
new investment other than through the reinvestment of
dividends.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The North American Government Securities Portfolio will
normally invest at least 65% of its total 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 Investment Management
Company, 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
4
<PAGE>
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.
[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 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.
FIXED-INCOME SECURITIES. The Portfolio's investments in
fixed-income securities are subject to two types of risk:
credit risk and interest rate risk.
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. Investments in mortgage-backed securities
may be subject to a risk referred to as "extension risk,"
which is the possibility that rising interest rates may
cause owners of the underlying mortgages to pay off their
mortgages at a slower than expected rate. This risk may
effectively change a security that was short- or
intermediate-term into a long-term security. Long-term
securities generally drop in value more dramatically when
the general level of interest rates goes up.
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.
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, it 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.
5
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
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 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%
'99 3.40%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 2.19% (quarter ended September 30, 1997) and
the lowest return for a calendar quarter was 0.06% (quarter ended
March 31, 1996).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------
North American
Government Securities
Portfolio 3.40% 4.86% 4.85%
-----------------------------------------------------------------------------
Lehman Brothers Short
(1-5) U.S. Government
Index(1) 1.96% 6.74% 6.67%(2)
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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 performance of the Index does not include any
expenses, fees or charges. The Index is unmanaged and should
not be considered an investment.
(2) For the period November 30, 1994 to December 31, 1999.
</TABLE>
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 as a primary
objective 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 total 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 comparable
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 categories 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.
8
<PAGE>
[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 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.
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.
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.
9
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 -1.83%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 3.42% (quarter ended
September 30, 1997) and the lowest return for a calendar
quarter was -1.15% (quarter ended March 31, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Diversified Income Portfolio -1.83% 5.36% 5.37%
-----------------------------------------------------------------------------------------
Lehman Brothers Mutual Fund
Government/Corporate Intermediate
Bond Index(1) 0.39% 7.10% 7.06%(2)
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Lehman Brothers Mutual Fund 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) For the period November 30, 1994 to December 31, 1999.
</TABLE>
10
<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 total 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.
11
<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 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.
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.
12
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures 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%
'99 3.52%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 12.45% (quarter ended
June 30, 1997) and the lowest return for a calendar quarter
was -7.84% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Balanced Growth Portfolio 3.52% 14.26% 13.97%
----------------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
----------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index(2) -0.82% 7.73% 7.75%(3)
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's-Registered Trademark- 500 Stock Index
(S&P 500 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 performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(3) For the period November 30, 1994 to December 31, 1999.
</TABLE>
13
<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 total
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, computers and other new or emerging technology
companies, 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
14
<PAGE>
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 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 be burdened 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 sensitive to
energy prices. In the case of the water utility sector, the industry is
highly fragmented, and most water supply companies find themselves in
mature markets, although upgrading of fresh water and waste water
systems is an expanding business.
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.
15
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the 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%
'99 43.71%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 26.89% (quarter ended December 31, 1999) and
the lowest return for a calendar quarter was -5.98% (quarter ended
September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Utilities Portfolio 43.71% 25.27% 24.66%
-----------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
16
<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 total 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 its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the 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.
17
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 0.53%
</TABLE>
Year-to-date total return as of March 31, 2000 was .
During the periods shown in the bar chart, the highest
return for a calendar quarter was 15.33% (quarter ended June
30, 1997) and the lowest return for a calendar quarter was
-10.95% (quarter ended September 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Dividend Growth Portfolio 0.53% 21.50% 20.84%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
18
<PAGE>
[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 proportion 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.
-----------------------------------------
"Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by the Value-Added Market
Portfolio. The Portfolio is not sponsored, endorsed, sold or
promoted by S&P, and S&P makes no representation regarding
the advisability of investing in the Portfolio.
[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 its portfolio securities. When you
sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing
in this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the 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.
19
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table
compares the average annual returns of the Portfolio's Class X shares with those
of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 12.15%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.09% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -13.80% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Value-Added Market Portfolio 12.15% 18.90% 18.16%
-----------------------------------------------------------------------------------------
S&P 500 Index (1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
20
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE 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 total 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 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.
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.
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.
21
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares
the average annual returns of the Portfolio's Class X shares with those of a
broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 39.10%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 22.27% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -16.28% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Growth Portfolio 39.10% 22.10% 21.58%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
22
<PAGE>
[Sidebar]
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 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 total 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; foreign securities (including depository
receipts); and options and futures on stock indexes.
[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 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.
In general, stock values fluctuate in response to
23
<PAGE>
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.
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.
OPTIONS AND FUTURES. Stock index futures and options on
stock indexes and stock index futures may be used to
facilitate trading, to increase or decrease the Portfolio's
market exposure, to seek higher investment returns, or to
seek to protect against a decline in the value of the
Portfolio's securities or an increase in prices of
securities that may be purchased.
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.
24
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 55.81%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 39.58% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -7.19% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
American Opportunities Portfolio 55.81% 33.36% 32.49%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
25
<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 (formerly known as the Mid-Cap
Growth Portfolio) seeks long-term capital growth.
[ICON]
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Mid-Cap Equity Portfolio will normally invest at least
65% of its total 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 was approximately between $ million and $ billion
as of , 2000. The Portfolio's "Sub-Advisor," TCW
Investment Management Company, 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
which generally looks for at least some of the following
factors:
- a demonstrated record of consistent earnings growth or the
potential to grow earnings;
- an ability to earn an attractive return on equity;
- a price/earnings ratio which is less than the
Sub-Advisor's internally estimated three-year earnings
growth rate;
- a large and growing market share;
- a strong balance sheet; and
- significant ownership by management and a strong
management team.
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 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.
26
<PAGE>
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.
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.
27
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied over the past 2 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 92.10%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 60.12% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -22.12% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
---------------------------------------------------------------------------------------
Mid-Cap Equity Portfolio 92.10% 33.75%
---------------------------------------------------------------------------------------
S&P 400 Index(1) 14.72% 20.58%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's Midcap 400 Index (S&P 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 performance of the Index does not
include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
</TABLE>
28
<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 total 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 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.
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.
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.
29
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 34.14%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 23.30% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -13.31% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Global Equity Portfolio 34.14% 16.29% 15.74%
-----------------------------------------------------------------------------------------
MSCI(1) 24.93% 19.76% 18.83%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Morgan Stanley Capital International World Index (MSCI)
measures performance for a diverse range of global stock
markets including the U.S., Canada, Europe, Australia, New
Zealand and the Far East. The performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
30
<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 total 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 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.
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-sized
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 the overall stock market.
31
<PAGE>
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.
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.
32
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures of market performance over time.
[End Sidebar]
[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%
'99 92.52%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 52.65% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -20.41% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------- LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Developing Growth Portfolio 92.52% 32.48% 31.86%
----------------------------------------------------------------------------------------------
Russell 2000 Index(1) 21.26% 16.69% 16.12%
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 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, fees
or charges. The Index is unmanaged and should not be
considered an investment.
</TABLE>
33
<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.
Effective September 7, 1999, shares of the Emerging Markets
Portfolio are no longer offered for new investment other
than through the reinvestment of dividends.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Emerging Markets Portfolio will normally invest at least
65% of its total 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 Investment Management
Company, 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 countries.
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 Portfolio
will achieve its investment objective. The Emerging Markets
Portfolio's share price will fluctuate with changes in the
market value of its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
34
<PAGE>
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.
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
35
<PAGE>
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.
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.
36
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 83.53%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 34.79% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -22.28% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------ LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Emerging Markets Portfolio 83.53% 9.07% 8.93%
-----------------------------------------------------------------------------------------
IFCI(1) 67.11% 2.17% -0.54%(2)
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(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) For the period November 11, 1994 to December 31, 1999.
</TABLE>
37
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to
each Portfolio's principal strategies.
INVESTMENT DISCRETION. In pursuing each Portfolio's
investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys,
holds or sells on a day-to-day basis - and which trading
strategies it uses. For example, the Investment Manager in
its discretion may determine to use some permitted trading
strategies while not using others. The Sub-Advisors -- TCW
Investment Management Company 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 a Portfolio from an
anticipated market downturn, it could have the effect of
reducing the benefit of an upswing in the market. When a
Portfolio takes a defensive position, it may not achieve its
investment objective(s).
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio apply at the time a Portfolio
acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage
changes that result from market fluctuations will not
require a Portfolio to sell any Portfolio security. A
Portfolio may change its principal investment strategies
without shareholder approval; however you would be notified
of any change.
PORTFOLIO TURNOVER. Each Portfolio, other than the
Value-Added Market Portfolio, may engage in active and
frequent trading of its portfolio securities. The Financial
Highlights Table at the end of this PROSPECTUS shows the
portfolio turnover rates for each Portfolio during recent
fiscal years. A portfolio turnover rate of 200%, for
example, is equivalent to the Portfolio buying and selling
all of its securitites two times during the course of the
year. A high portfolio turnover rate (over 100%) could
result in high brokerage costs and an increase in taxable
capital gains distributions to the Portfolio's shareholders.
See the section on "Distributions."
38
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
* * *
The risks set forth below are applicable to a Portfolio only
to the extent the Portfolio invests in the investment
described.
FIXED-INCOME SECURITIES. All fixed-income securities are
subject to two types of risk: credit risk and interest rate
risk. Credit risk refers to the possibility that the issuer
of a security will be unable to make interest payments
and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general
level of interest rates. When the general level of interest
rates goes up, the prices of most fixed-income securities go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. (Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.)
Accordingly, a rise in the general level of interest rates
may cause the price of a Portfolio's fixed-income securities
to fall substantially. As merely illustrative of the
relationship between fixed-income securities and interest
rates, the following table shows how interest rates affect
bond prices.
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
-----------------------------------------
INCREASE DECREASE
---------------- ----------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
1 year N/A% $1,000 $1,000 $1,000 $1,000
-------------------------------------------------------------------------------------------
5 years 5.875% $ 951 $ 920 $1,018 $1,054
-------------------------------------------------------------------------------------------
10 years 6.00% $ 910 $ 853 $1,038 $1,110
-------------------------------------------------------------------------------------------
30 years 6.125% $ 841 $ 748 $1,093 $1,264
-------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of
December 31, 1999. The table is not representative of price
changes for mortgage-backed securities principally because
of prepayments, and it is not representative of junk bonds.
In addition, the table is an illustration and does not
represent expected yields or share price changes of any
Morgan Stanley Dean Witter mutual fund.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have
different risk characteristics than traditional debt
securities. Although generally the value of fixed-income
securities increases during periods of falling interest
rates and decreases during periods of rising interest rates,
this is not always the case with mortgage-backed securities.
This is due to the fact that principal on underlying
mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a
period of falling interest rates and decrease during a
period of rising interest rates. The rate of prepayments
also may be influenced by economic 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.
39
<PAGE>
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 or a Sub-Advisor, could reduce a Portfolio's yield,
increase the volatility of the Portfolio and/or cause a
decline in net asset value. Certain mortgage-backed
securities in which a Portfolio may invest may be more
volatile and less liquid than other traditional types of
debt securities.
JUNK BONDS. A Portfolio's investments in securities rated
lower than investment grade or if unrated of comparable
quality as determined by the Investment Manager or
Sub-Advisor (commonly known as "junk bonds") pose
significant risks. The prices of junk bonds are likely to be
more sensitive to adverse economic changes or individual
corporate developments than higher rated securities. During
an economic downturn or substantial period of rising
interest rates, junk bond issuers and, in particular, highly
leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal
and interest payment obligations, to meet their projected
business goals or to obtain additional financing. In the
event of a default, the Portfolio may incur additional
expenses to seek recovery. The secondary market for junk
bonds may be less liquid than the markets for higher quality
securities and, as such, may have an adverse effect on the
market prices of certain securities. The Rule 144A
securities could have the effect of increasing the level of
Portfolio illiquidity to the extent a Portfolio may be
unable to find qualified institutional buyers interested in
purchasing the securities. The illiquidity of the market may
also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain junk bonds at certain
times and could make it difficult for the Portfolios to sell
certain securities. In addition, periods of economic
uncertainty and change probably would result in an increased
volatility of market prices of high yield securities and a
corresponding volatility in a Portfolio's net asset value.
SECURITIES RATED IN THE LOWEST INVESTMENT GRADE
CATEGORY. Investments in the fixed-income securities rated
in the lowest investment grade category by Moody's or S&P
may have speculative characteristics and therefore changes
in economic or other circumstances are more likely to weaken
their capacity to make principal and interest payments than
would be the case with investments in securities with higher
credit ratings.
FOREIGN SECURITIES. Foreign securities involve risks in
addition to the risks associated with domestic securities.
One additional risk is currency risk. While the price of
Portfolio shares is quoted in U.S. dollars, a Portfolio
generally converts U.S. dollars to a foreign market's local
currency to purchase a security in that market. If the value
of that local currency falls relative to the U.S. dollar,
the U.S. dollar value of the foreign security will decrease.
This is true even if the foreign security's local price
remains unchanged.
Foreign securities (including depository receipts) also have
risks related to economic and political developments abroad,
including effects of foreign social, economic or political
instability. Foreign companies, in general, are not subject
to the regulatory requirements of U.S. companies and, as
such, there may be less publicly available information about
these companies. Moreover, foreign accounting, auditing and
financial reporting standards generally are different from
those applicable to U.S.
40
<PAGE>
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.
SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's
investments in smaller and medium-sized companies carry more
risk than investments in larger companies. While some of a
Portfolio's holdings in these companies may be listed on a
national securities exchange, such securities are more
likely to be traded in the over-the-counter market. The low
market liquidity of these securities may have an adverse
impact on a Portfolio's ability to sell certain securities
at favorable prices and may also make it difficult for a
Portfolio to obtain market quotations based on actual
trades, for purposes of valuing a Portfolio's securities.
Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of a
Portfolio's net asset value than is customarily associated
with larger, more established companies. Often smaller and
medium capitalization companies and the industries in which
they are focused are still evolving and, while this may
offer better growth potential than larger, more established
companies, it also may make them more sensitive to changing
market conditions.
OPTIONS AND FUTURES. If a Portfolio invests in options
and/or futures, its participation in these markets would
subject the Portfolio to certain risks. The Investment
Manager's or a Sub-Advisor's predictions of movements in the
direction of the stock, bond, stock index, 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 or a Sub-Advisor 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.
41
<PAGE>
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 REIT holding ultimately depends on the
types of real property in which the REIT invests and how
well the property is managed. A general downturn in real
estate values also can hurt REIT performance.
42
<PAGE>
[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc., its
wholly-owned subsidiary, had approximately $ billion in assets under
management as of March 31, 2000.
[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 Investment Management Company as "Sub-Advisor" to invest
the assets of each of the North American Government
Securities Portfolio, the Emerging Markets Portfolio and the
Mid-Cap Equity Portfolio, including the placing of orders
for the purchase and sales of investment securities. TCW
Investment Management Company, 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's assets,
including the placing of orders for the purchase and sale of
investment securities. As of March 31, 2000 Morgan Stanley
Dean Witter Investment Management Inc., together with its
institutional investment management affiliates, manages more
than $ 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 Portfolio's average daily net assets. For the fiscal
year ended December 31, 1999 each Portfolio accrued total
compensation to the Investment Manager as set forth in the
following table.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
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 0.60%
-----------------------------------------------------------------------------------
The Utilities Portfolio 0.65%
-----------------------------------------------------------------------------------
The Dividend Growth Portfolio(2) 0.58%
-----------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
<S> <C>
-----------------------------------------------------------------------------------
The Value-Added Market Portfolio 0.50%
-----------------------------------------------------------------------------------
The Growth Portfolio 0.80%(1)
-----------------------------------------------------------------------------------
The American Opportunities Portfolio(3) 0.62%
-----------------------------------------------------------------------------------
The Mid-Cap Equity Portfolio 0.75%(1)
-----------------------------------------------------------------------------------
The Global Equity Portfolio 1.00%
-----------------------------------------------------------------------------------
The Developing Growth Portfolio 0.50%
-----------------------------------------------------------------------------------
The Emerging Markets Portfolio 1.25%(1)
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 40% of the Investment Manager's compensation is paid to the
Portfolio's Sub-Advisor.
(2) 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.
(3) 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.
</TABLE>
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 Investment Management Company, are the
primary portfolio managers of the Portfolio.
DIVERSIFIED INCOME PORTFOLIO - Peter M. Avelar, Senior Vice
President and Director of the High Yield Group of the
Investment Manager, Rajesh K. Gupta, Senior Vice President,
Director of the Taxable Fixed-Income Group and Chief
Administrative Officer of Investments of the Investment
Manager, and Peter J. Seeley, Vice President of the
Investment Manager, are the primary portfolio managers of
the Portfolio - Messrs. Avelar and Gupta since the inception
of the Portfolio and Mr. Seeley since February 1998.
BALANCED GROWTH PORTFOLIO - Rajesh K. Gupta, Senior Vice
President; Director of the Taxable Fixed-Income Group and
Chief Administrative Officer of Investments and Paul D.
Vance, Senior Vice President and Director of the Growth and
Income Group 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. Mr. Gaylor has been
assisted by Ronald B. Silvestri, Vice President of the
Investment Manager, since January 2000.
44
<PAGE>
DIVIDEND GROWTH PORTFOLIO - Paul D. Vance, Senior Vice
President and Director of the Growth and Income Group of the
Investment Manager, is the primary portfolio manager of the
Portfolio.
VALUE-ADDED MARKET PORTFOLIO - Guy G. Rutherfurd, Jr.,
Senior Vice President and Director of the Growth Group 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 and Margaret Johnson,
Managing Directors 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 and Director of Sector Rotation of the
Investment Manager, is the primary portfolio manager of the
Portfolio. Ms. Kolleeny has been assisted by Michelle
Kaufman, Senior Vice President of the Investment Manager,
since March 1998.
MID-CAP EQUITY PORTFOLIO - Douglas S. Foreman, Group
Managing Director of TCW Investment Management Company, is
the primary portfolio manager of the Portfolio. He is
assisted by Christopher J. Ainley, Managing Director of the
Sub-Advisor. Mr. Foreman has been the primary portfolio
manager of the Portfolio since August 1999. Mr. Foreman and
Mr. Ainley have been portfolio managers with affiliated
companies of The TCW Group Inc. since 1994.
GLOBAL EQUITY PORTFOLIO - Mark Bavoso, a Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio and co-management is
provided by David Dineen, a Vice President of the Investment
Manager and a member of the Growth Group. Both Mr. Bavoso
and Mr. Dineen have been portfolio managers with the
Investment Manager for over five years.
DEVELOPING GROWTH PORTFOLIO - Armon Bar-Tur, Vice President
of the Investment Manager, has been the primary portfolio
manager of the Portfolio since July 1999. Mr. Bar-Tur had
assisted the former primary portfolio manager of the
Portfolio since May 1998. 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 - Saker Nusseibeh, Managing
Director of European and International Equities of TCW
London International, Limited and Michael P. Reilly,
Managing Director of TCW Fund Management Inc. are the
primary portfolio managers of the Portfolio. Mr. Nusseibeh
has been a primary portfolio manager since October 1999;
prior to this, since 1996, he has served in various
portfolio management positions with TCW London
International, Limited and prior to 1996, he served as
Director of the international division of Mercury 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.
45
<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, with
respect to securities that are primarily listed on foreign
exchanges, the value of the Portfolio's investment
securities may change on days when shareholders will not be
able to purchase or sell their shares.
An exception to the general policy of using market prices
concerns each Portfolio's short-term debt portfolio
securities. Debt securities with remaining maturities of
sixty days or less at the time of purchase are valued at
amortized cost. However, if the cost does not reflect the
securities' market value, these securities will be valued at
their fair value.
The Money Market Portfolio utilizes amortized cost in
determining the value of its portfolio securities. The
amortized cost valuation method involves valuing a debt
obligation in reference to its acquisition cost rather than
market forces.
[ICON] 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.
46
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table on the following pages is intended to
help you understand the financial performance of each Portfolio's Class
X shares for the past 5 fiscal years of the Fund (3 fiscal years in the
case of Mid-Cap Equity Portfolio). Prior to May 1, 2000, the Fund issued
one Class of shares of each Portfolio, which, as of that date, have been
designated Class X shares. Certain information reflects financial
results for a single Portfolio share. The total returns in the tables
represent the rate an investor would have earned or lost on an
investment in each Portfolio (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Fund's financial
statements, is included in the annual report, which is available upon
request.
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.
47
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1.00 0.05 - 0.05 (0.05) - (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 10.15 0.47 (0.13) 0.34 (0.46) - (0.46)
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 9.93 0.78 (0.96) (0.18) (0.77) (0.02)++ (0.79)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCED GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 16.38 0.48 0.15 0.63 (0.48) (1.90) (2.38)
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 18.71 0.34 7.69 8.03 (0.34) (0.15) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 22.05 0.40 (0.10) 0.30 (0.40) (2.03) (2.43)
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE-ADDED MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 19.19 0.22 2.08 2.30 (0.22) (0.73) (0.95)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE 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 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
- ------------------------------------------------------------------------------------------------------------------------
1.00 4.78 135,675 0.54 4.67 0.54 4.67 N/A
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
10.03 3.40 9,421 1.01 4.60 1.01 4.60 53
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
8.96 (1.83) 86,270 0.48 8.31 0.48 8.31 69
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
14.63 3.52 128,299 0.64 3.10 0.64 3.10 37
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
26.25 43.71 165,368 0.70 1.63 0.70 1.63 31
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
19.92 0.53 742,811 0.60 1.86 0.60 1.86 101
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
20.54 12.15 189,708 0.55 1.11 0.55 1.11 21
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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 - 2.16 2.16 - (0.49) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 18.23 (0.02) 6.65 6.63 - (1.59) (1.59)
- ---------------------------------------------------------------------------------------------------------------------------------
AMERICAN OPPORTUNITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 23.31 0.08 11.76 11.84 (0.07) (2.48) (2.55)
- ---------------------------------------------------------------------------------------------------------------------------------
MID-CAP EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1997(a) 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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.86 0.06 10.81 10.87 (0.06) (0.01) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 14.69 0.06 4.94 5.00 (0.06) - (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
DEVELOPING GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 10.13 0.24 4.88 5.12 (0.25) - (0.25)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.00 0.02 1.92 1.94 (0.03) (0.03)++ (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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 20.81 0.01 19.23 19.24 (0.01) - (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
- ---------------------------------------------------------------------------------------------------------------------------------
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) (0.07) (0.07)+++ (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 7.91 - 6.60 6.60 - (0.02)++ (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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.
++ Distribution from paid-in-capital.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
50
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE ASSUMED)
NET ASSETS ------------------------------- ------------------------------
NET ASSET VALUE END OF PERIOD NET INVESTMENT NET INVESTMENT PORTFOLIO
END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
$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
- -----------------------------------------------------------------------------------------------------------------------------
23.27 39.10 96,699 0.90 (0.11) 0.90 (0.11) 88
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
32.60 55.81 768,751 0.66 0.29 0.66 0.29 360
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
22.66 92.10 84,949 0.92 (0.35) 0.20 0.37 318
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
19.63 34.14 173,743 1.08 0.36 1.08 0.36 79
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
40.04 92.52 160,595 0.58 0.06 0.58 0.06 178
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
14.49 83.53 22,889 1.84 (0.03) 1.84 (0.03) 82
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
NOTES
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52
<PAGE>
NOTES
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53
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES
Additional information about each Portfolio's investments is
available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO
SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a
discussion of the market conditions and investment
strategies that significantly affected each Portfolio's
performance during its last fiscal year. The Fund's
STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL
INFORMATION is incorporated herein by reference (legally is
part of this PROSPECTUS). For a free copy of any of these
documents, to request other information about the
Portfolios, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling
your Morgan Stanley Dean Witter Financial Advisor.
Information about the Fund (including the STATEMENT OF
ADDITIONAL INFORMATION) can be viewed and copied at the
Securities and Exchange Commission's Public Reference
Room in Washington, DC. Information about the Reference
Room's operations may be obtained by calling the SEC at
202-942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the SEC's Internet
site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected],
or by writing the Public Reference Section of the SEC,
Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7185)
<PAGE>
PROSPECTUS - MAY 1, 2000
Morgan Stanley Dean Witter
SELECT DIMENSIONS INVESTMENT SERIES
CLASS Y
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 following Portfolios offer Class Y shares:
<TABLE>
<S> <C>
The Money Market Portfolio The Growth Portfolio
The Diversified Income Portfolio The American Opportunities Portfolio
The Balanced Growth Portfolio The Mid-Cap Equity Portfolio
The Utilities Portfolio The Global Equity Portfolio
The Dividend Growth Portfolio The Developing Growth Portfolio
The Value-Added Market 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 The Money Market Portfolio.......... 2
The Diversified Income Portfolio.... 4
The Balanced Growth Portfolio....... 8
The Utilities Portfolio............. 11
The Dividend Growth Portfolio....... 14
The Value-Added Market Portfolio.... 16
The Growth Portfolio................ 18
The American Opportunities
Portfolio........................... 20
The Mid-Cap Equity Portfolio........ 23
The Global Equity Portfolio......... 26
The Developing Growth Portfolio..... 28
Additional Investment
Strategy Information .................................... 31
Additional Risk Information .................................... 32
Portfolio Management .................................... 36
Shareholder Information Pricing Fund Shares................. 39
Plan of Distribution................ 39
Distributions....................... 39
Tax Consequences.................... 40
Financial Highlights .................................... 41
</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 the following life insurance companies in connection with
particular life insurance and/or annuity contracts they
offer (the "Contracts"):
<TABLE>
<CAPTION>
INSURANCE COMPANY TYPE OF POLICY
<C> <S>
------------------------------------------------------------------------------------
Certain flexible premium deferred variable annuity
Hartford Life contracts and flexible premium variable life insurance
Insurance Company policies
------------------------------------------------------------------------------------
Hartford Life and Certain flexible premium deferred variable annuity
Annuity Insurance contracts and flexible premium variable life insurance
Company policies
------------------------------------------------------------------------------------
</TABLE>
Shares of each Portfolio are purchased by the life insurance
companies at net asset value per share without a sales
charge in accordance with instructions received from the
owners of the applicable Contract.
A separate Class of shares, Class X shares are offered
through a separate prospectus and are available only to
Contracts issued before May 1, 2000. All Portfolio shares
issued prior to May 1, 2000 have been designated Class X
shares.
1
<PAGE>
[Sidebar]
MONEY MARKET
A portfolio 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 with short maturities.
2
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a comparable measure of market performance over time.
[End Sidebar]
The performance of the Portfolio also will depend on whether
the Investment Manager is successful in pursuing the
Portfolio's investment strategy.
An investment in the Portfolio is not a bank deposit and is
not guaranteed or insured by the FDIC or any other
government agency. Although the Portfolio seeks to preserve
the value of your investment at $1.00 per share, if it is
unable to do so, it is possible to lose money by investing
in the Portfolio.
[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%
'99 4.78%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 1.54% (quarter ended
June 30, 1995) and the lowest return for a calendar quarter
was 1.10% (quarter ended June 30, 1999).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/4/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Money Market Portfolio 4.78% 5.26% 5.27%
-----------------------------------------------------------------------------------------
3-month U.S. Treasury Bill(1) 4.74% 5.11% 5.13%(2)
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 3-month U.S. Treasury Bill is a short-term, discounted
obligation of the U.S. Government.
(2) For the period November 30, 1994 to December 31, 1999.
</TABLE>
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 DIVERSIFIED INCOME PORTFOLIO
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The Diversified Income Portfolio seeks as a primary
objective 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 total 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 comparable
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 categories 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.
4
<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 its portfolio securities. When you
sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing
in this Portfolio.
5
<PAGE>
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.
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.
6
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 -1.83%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 3.42% (quarter ended
September 30, 1997) and the lowest return for a calendar
quarter was -1.15% (quarter ended March 31, 1999).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Diversified Income Portfolio -1.83% 5.36% 5.37%
-----------------------------------------------------------------------------------------
Lehman Brothers Mutual Fund
Government/Corporate Intermediate
Bond Index(1) 0.39% 7.10% 7.06%(2)
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Lehman Brothers Mutual Fund 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) For the period November 30, 1994 to December 31, 1999.
</TABLE>
7
<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 total 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.
8
<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 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.
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.
9
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures 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%
'99 3.52%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 12.45% (quarter ended
June 30, 1997) and the lowest return for a calendar quarter
was -7.84% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Balanced Growth Portfolio 3.52% 14.26% 13.97%
----------------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
----------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index(2) -0.82% 7.73% 7.75%(3)
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's-Registered Trademark- 500 Stock Index
(S&P 500 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 performance of the Index does not include
any expenses, fees or charges. The Index in unmanaged and
should not be considered an investment.
(3) For the period November 30, 1994 to December 31, 1999.
</TABLE>
10
<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 total
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, computers and other new or emerging technology
companies, 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
11
<PAGE>
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 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 be burdened 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 sensitive to
energy prices. In the case of the water utility sector, the industry is
highly fragmented, and most water supply companies find themselves in
mature markets although upgrading of fresh water and waste systems is an
expanding business.
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.
12
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the 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%
'99 43.71%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 26.89% (quarter ended December 31, 1999) and
the lowest return for a calendar quarter was -5.98% (quarter ended
September 30, 1998).
*The Fund commenced offering Class Y shares of each Portfolio on
May 1, 2000. The returns shown in the Chart (and the Table below)
are for Class X shares of the Portfolio (which are offered in a
separate prospectus). Class X and Class Y shares are invested in
the same portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the Classes
have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
---------------------------------------------------------------------------
Utilities Portfolio 43.71% 25.27% 24.66%
---------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
13
<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 total 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 its portfolio securities. When you sell
Portfolio shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the 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.
14
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 0.53%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 15.33% (quarter ended
June 30, 1997 and the lowest return for a calendar quarter
was -10.95% (quarter ended September 30, 1999).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Dividend Growth Portfolio 0.53% 21.50% 20.84%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
15
<PAGE>
[Sidebar]
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 proportion 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.
-----------------------------------------
"Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by the Value-Added Market
Portfolio. The Portfolio is not sponsored, endorsed, sold or
promoted by S&P, and S&P makes no representation regarding
the advisability of investing in the Portfolio.
[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 its portfolio securities. When you
sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing
in this Portfolio.
A principal risk of investing in the Portfolio is associated
with its common stock investments. In general, stock values
fluctuate in response to activities specific to the 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.
16
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 12.15%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 17.09% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -13.80% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Value-Added Market Portfolio 12.15% 18.90% 18.16%
-----------------------------------------------------------------------------------------
S&P 500 Index (1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
17
<PAGE>
[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 total 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 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.
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.
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.
18
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 39.10%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 22.27% (quarter ended
December 31, 1998) and the lowest return for a calendar
quarter was -16.28 %(quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Growth Portfolio 39.10% 22.10% 21.58%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
19
<PAGE>
[Sidebar]
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[End Sidebar]
THE AMERICAN OPPORTUNITIES PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The American Opportunities 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 total 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; foreign securities (including depository
receipts); and options and futures on stock indexes.
[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 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.
In general, stock values fluctuate in response to
20
<PAGE>
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.
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.
OPTIONS AND FUTURES. Stock index futures and options on
stock indexes and stock index futures may be used to
facilitate trading, to increase or decrease the Portfolio's
market exposure, to seek higher investment returns, or to
seek to protect against a decline in the value of the
Portfolio's securities or an increase in prices of
securities that may be purchased.
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.
21
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the 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%
'99 55.81%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 39.58% (quarter ended
December 31,1999) and the lowest return for a calendar
quarter was -7.19% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
American Opportunities Portfolio 55.81% 33.36% 32.49%
-----------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.54% 27.45%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's 500-Registered Trademark- Stock Index
(S&P 500 Index) is a broad-based index, the performance of
which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
</TABLE>
22
<PAGE>
[Sidebar]
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 total 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 was approximately between $ million and $ billion
as of , 2000. The Portfolio's "Sub-Advisor," TCW
Investment Management Company, 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
which generally looks for at least some of the following
factors:
- a demonstrated record of consistent earnings growth or the
potential to grow earnings;
- an ability to earn an attractive return on equity;
- a price/earnings ratio which is less than the
Sub-Advisor's internally estimated three-year earnings
growth rate;
- a large and growing market share;
- a strong balance sheet; and
- significant ownership by management and a strong
management team.
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 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.
23
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied over the past 2 calendar years.
[End Sidebar]
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.
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%
'99 92.10%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 60.12% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -22.12% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
24
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR (SINCE 1/21/97)
<S> <C> <C>
---------------------------------------------------------------------------------------
Mid-Cap Equity Portfolio 92.10% 33.75%
---------------------------------------------------------------------------------------
S&P 400 Index(1) 14.72% 20.58%
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Standard & Poor's Midcap 400 Index (S&P 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 performance of the Index does not
include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
</TABLE>
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 total 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 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.
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.
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 Class X shares has
varied from year to year over the past 5 calendar years.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of a broad measure of market performance over time.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Global 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%
'99 34.14%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 23.30% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -13.31% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
-----------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Global Equity Portfolio 34.14% 16.29% 15.74%
-----------------------------------------------------------------------------------------
MSCI(1) 24.93% 19.76% 18.83%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Morgan Stanley Capital International World Index (MSCI)
measures performance for a diverse range of global stock
markets including the U.S., Canada, Europe, Australia, New
Zealand and the Far East. The performance of the Index is
listed in U.S. dollars and assumes reinvestment of net
dividends. "Net dividends" reflects a reduction in dividends
after taking into account withholding of taxes by certain
foreign countries represented in the Index. The Index does
not take into account the Portfolio's expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>
27
<PAGE>
[Sidebar]
CAPITAL 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 total 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 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.
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-sized
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 the overall stock market.
28
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Portfolio's Class X shares has
varied from year to year over the past 5 calendar years.
[End Sidebar]
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.
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%
'99 92.52%
</TABLE>
Year-to-date total return as of March 31, 2000 was %.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 52.65% (quarter ended
December 31, 1999) and the lowest return for a calendar
quarter was -20.41% (quarter ended September 30, 1998).
*The Fund commenced offering Class Y shares of each
Portfolio on May 1, 2000. The returns shown in the Chart
(and the Table below) are for Class X shares of the
Portfolio (which are offered in a separate prospectus).
Class X and Class Y shares are invested in the same
portfolio of securities. However, the returns for Class Y
shares would differ from those of Class X to the extent the
Classes have different expenses.
29
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average annual returns of the Portfolio's Class X shares
with those of broad measures of market performance over time.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
----------------------------------------------------------------------------------------------
LIFE OF PORTFOLIO
PAST 1 YEAR PAST 5 YEARS (SINCE 11/9/94)
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Developing Growth Portfolio 92.52% 32.48% 31.86%
----------------------------------------------------------------------------------------------
Russell 2000 Index(1) 21.26% 16.69% 16.12%
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 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, fees
or charges. The Index is unmanaged and should not be
considered an investment.
</TABLE>
30
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to
each Portfolio's principal strategies.
INVESTMENT DISCRETION. In pursuing each Portfolio's
investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys,
holds or sells on a day-to-day basis - and which trading
strategies it uses. For example, the Investment Manager in
its discretion may determine to use some permitted trading
strategies while not using others. The Sub-Advisors -- TCW
Investment Management Company 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 a Portfolio from an
anticipated market downturn, it could have the effect of
reducing the benefit of an upswing in the market. When a
Portfolio takes a defensive position, it may not achieve its
investment objective(s).
INVESTMENT POLICIES. The percentage limitations relating to
the composition of a Portfolio apply at the time a Portfolio
acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage
changes that result from market fluctuations will not
require a Portfolio to sell any Portfolio security. A
Portfolio may change its principal investment strategies
without shareholder approval; however you would be notified
of any change.
PORTFOLIO TURNOVER. Each Portfolio, other than the
Value-Added Market Portfolio, may engage in active and
frequent trading of its portfolio securities. The Financial
Highlights Table at the end of this PROSPECTUS shows the
portfolio turnover rates for each Portfolio during recent
fiscal years. A portfolio turnover rate of 200%, for
example, is equivalent to the Portfolio buying and selling
all of its securities two times during the course of the
year. A high portfolio turnover rate (over 100%) could
result in high brokerage costs and an increase in taxable
capital gains distributions to the Portfolio's shareholders.
See the section on "Distributions."
31
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the
principal risks of investing in the Portfolios.
Shares of the Portfolios are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
* * *
The risks set forth below are applicable to a Portfolio only
to the extent the Portfolio invests in the investment
described.
FIXED-INCOME SECURITIES. All fixed-income securities are
subject to two types of risk: credit risk and interest rate
risk. Credit risk refers to the possibility that the issuer
of a security will be unable to make interest payments
and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general
level of interest rates. When the general level of interest
rates goes up, the prices of most fixed-income securities go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. (Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.)
Accordingly, a rise in the general level of interest rates
may cause the price of a Portfolio's fixed-income securities
to fall substantially. As merely illustrative of the
relationship between fixed-income securities and interest
rates, the following table shows how interest rates affect
bond prices.
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
-----------------------------------------
INCREASE DECREASE
---------------- ----------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
1 year N/A $1,000 $1,000 $1,000 $1,000
-------------------------------------------------------------------------------------------
5 years 5.875% $ 951 $ 920 $1,018 $1,054
-------------------------------------------------------------------------------------------
10 years 6.00% $ 910 $ 853 $1,038 $1,110
-------------------------------------------------------------------------------------------
30 years 6.125% $ 841 $ 748 $1,093 $1,264
-------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of
December 31, 1999. The table is not representative of price
changes for mortgage-backed securities principally because
of prepayments, and it is not representative of junk bonds.
In addition, the table is an illustration and does not
represent expected yields or share price changes of any
Morgan Stanley Dean Witter mutual fund.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have
different risk characteristics than traditional debt
securities. Although generally the value of fixed-income
securities increases during periods of falling interest
rates and decreases during periods of rising interest rates,
this is not always the case with mortgage-backed securities.
This is due to the fact that principal on underlying
mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a
period of falling interest rates and decrease during a
period of rising interest rates. The rate of prepayments
also may be influenced by economic 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.
32
<PAGE>
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 or Sub-Advisor, could reduce a Portfolio's yield,
increase the volatility of the Portfolio and/or cause a
decline in net asset value. Certain mortgage-backed
securities in which a Portfolio may invest may be more
volatile and less liquid than other traditional types of
debt securities.
JUNK BONDS. A Portfolio's investments in securities rated
lower than investment grade or if unrated of comparable
quality as determined by the Investment Manager or a
Sub-Advisor (commonly known as "junk bonds") pose
significant risks. The prices of junk bonds are likely to be
more sensitive to adverse economic changes or individual
corporate developments than higher rated securities. During
an economic downturn or substantial period of rising
interest rates, junk bond issuers and, in particular, highly
leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal
and interest payment obligations, to meet their projected
business goals or to obtain additional financing. In the
event of a default, the Portfolio may incur additional
expenses to seek recovery. The secondary market for junk
bonds may be less liquid than the markets for higher quality
securities and, as such, may have an adverse effect on the
market prices of certain securities. The Rule 144A
securities could have the effect of increasing the level of
Portfolio illiquidity to the extent a Portfolio may be
unable to find qualified institutional buyers interested in
purchasing the securities. The illiquidity of the market may
also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain junk bonds at certain
times and could make it difficult for the Portfolios to sell
certain securities. In addition, periods of economic
uncertainty and change probably would result in an increased
volatility of market prices of high yield securities and a
corresponding volatility in a Portfolio's net asset value.
SECURITIES RATED IN THE LOWEST INVESTMENT GRADE
CATEGORY. Investments in the fixed-income securities rated
in the lowest investment grade category by Moody's or S&P
may have speculative characteristics and therefore changes
in economic or other circumstances are more likely to weaken
their capacity to make principal and interest payments than
would be the case with investments in securities with higher
credit ratings.
FOREIGN SECURITIES. Foreign securities involve risks in
addition to the risks associated with domestic securities.
One additional risk is currency risk. While the price of
Portfolio shares is quoted in U.S. dollars, a Portfolio
generally converts U.S. dollars to a foreign market's local
currency to purchase a security in that market. If the value
of that local currency falls relative to the U.S. dollar,
the U.S. dollar value of the foreign security will decrease.
This is true even if the foreign security's local price
remains unchanged.
Foreign securities (including depository receipts) also have
risks related to economic and political developments abroad,
including effects of foreign social, economic or political
instability. Foreign companies, in general, are not subject
to the regulatory requirements of U.S. companies and, as
such, there may be less publicly available information about
these companies. Moreover, foreign accounting, auditing and
financial reporting standards generally are different from
those applicable to U.S.
33
<PAGE>
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.
SMALL & MEDIUM CAPITALIZATION COMPANIES. A Portfolio's
investments in smaller and medium-sized companies carry more
risk than investments in larger companies. While some of a
Portfolio's holdings in these companies may be listed on a
national securities exchange, such securities are more
likely to be traded in the over-the-counter market. The low
market liquidity of these securities may have an adverse
impact on a Portfolio's ability to sell certain securities
at favorable prices and may also make it difficult for a
Portfolio to obtain market quotations based on actual
trades, for purposes of valuing a Portfolio's securities.
Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of a
Portfolio's net asset value than is customarily associated
with larger, more established companies. Often smaller and
medium capitalization companies and the industries in which
they are focused are still evolving and, while this may
offer better growth potential than larger, more established
companies, it also may make them more sensitive to changing
market conditions.
OPTIONS AND FUTURES. If a Portfolio invests in options
and/or futures, its participation in these markets would
subject the Portfolio to certain risks. The Investment
Manager's or Sub-Advisor predictions of movements in the
direction of the stock, bond, stock index, 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 or Sub-Advisor 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.
34
<PAGE>
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 REIT holding ultimately depends on the
types of real property in which the REIT invests and how
well the property is managed. A general downturn in real
estate values also can hurt REIT performance.
35
<PAGE>
[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc., its
wholly-owned subsidiary, had approximately $ billion in assets under
management as of March 31, 2000.
[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 Mid-Cap
Equity, and Growth Portfolios) invest its assets, including
the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market
positions in each of its three primary businesses:
securities, asset management and credit services. Its main
business office is located at Two World Trade Center,
New York, NY 10048.
Each of the 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 Investment Management Company as
"Sub-Advisor" to invest the assets of the Mid-Cap Equity
Portfolio, including the placing of orders for the purchase
and sales of investment securities. TCW Investment
Management Company, 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's assets,
including the placing of orders for the purchase and sale of
investment securities. As of March 31, 2000 Morgan Stanley
Dean Witter Investment Management Inc., together with its
institutional investment management affiliates, manages more
than $ 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 Portfolio's average daily net assets. For the fiscal
year ended December 31, 1999 each Portfolio accrued total
compensation to the Investment Manager as set forth in the
following table.
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
<S> <C>
-----------------------------------------------------------------------------------
The Money Market Portfolio 0.50%
-----------------------------------------------------------------------------------
The Diversified Income Portfolio 0.40%
-----------------------------------------------------------------------------------
The Balanced Growth Portfolio 0.60%
-----------------------------------------------------------------------------------
The Utilities Portfolio 0.65%
-----------------------------------------------------------------------------------
The Dividend Growth Portfolio(2) 0.58%
-----------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEES AS A
PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
<S> <C>
-----------------------------------------------------------------------------------
The Value-Added Market Portfolio 0.50%
-----------------------------------------------------------------------------------
The Growth Portfolio 0.80%(1)
-----------------------------------------------------------------------------------
The American Opportunities Portfolio(3) 0.62%
-----------------------------------------------------------------------------------
The Mid-Cap Equity Portfolio 0.75%(1)
-----------------------------------------------------------------------------------
The Global Equity Portfolio 1.00%
-----------------------------------------------------------------------------------
The Developing Growth Portfolio 0.50%
-----------------------------------------------------------------------------------
The Emerging Markets Portfolio 1.25%(1)
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) 40% of the Investment Manager's compensation is paid to the
Portfolio's Sub-Advisor.
(2) 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.
(3) 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.
</TABLE>
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.
DIVERSIFIED INCOME PORTFOLIO - Peter M. Avelar Senior Vice
President and Director of the High Yield Group of the
Investment Manager, Rajesh K. Gupta, Senior Vice President,
Director of the Taxable Fixed-Income Group and Chief
Administrative Officer of Investments of the Investment
Manager, and Peter J. Seeley, Vice President of the
Investment Manager, are the primary portfolio managers of
the Portfolio - Messrs. Avelar and Gupta since the inception
of the Portfolio and Mr. Seeley since February 1998.
BALANCED GROWTH PORTFOLIO - Rajesh K. Gupta Senior Vice
President, Director of the Taxable Fixed-Income Group and
Chief Adminstrative Officer of Investments and Paul D.
Vance, Senior Vice President and Director of the Growth and
Income Group 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. Mr. Gaylor has been
assisted by Ronald B. Silvestri, Vice President of the
Investment Manager, since January 2000.
DIVIDEND GROWTH PORTFOLIO - Paul D. Vance, Senior Vice
President and Director of the Growth and Income Group of the
Investment Manager, is the primary portfolio manager of the
Portfolio.
VALUE-ADDED MARKET PORTFOLIO - Guy G. Rutherfurd, Jr.,
Senior Vice President and Director of the Growth Group of
the Investment Manager, and Alice Weiss, Vice
37
<PAGE>
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 and Margaret Johnson,
Managing Directors 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 and Director of Sector Rotation of the
Investment Manager, is the primary portfolio manager of the
Portfolio. Ms. Kolleeny has been assisted by Michelle
Kaufman, Senior Vice President of the Investment Manager,
since March 1998.
MID-CAP EQUITY PORTFOLIO - Douglas S. Foreman, Group
Managing Director of TCW Investment Management Company, is
the primary portfolio manager of the Portfolio. He is
assisted by Christopher J. Ainley, Managing Director of the
Sub-Advisor. Mr. Foreman has been the primary portfolio
manager of the Portfolio since August 1999. Mr. Foreman and
Mr. Ainley have been portfolio managers with affiliated
companies of The TCW Group Inc. since 1994.
GLOBAL EQUITY PORTFOLIO - Mark Bavoso, a Senior Vice
President of the Investment Manager, is the primary
portfolio manager of the Portfolio and co-management is
provided by David Dineen, a vice president of the Investment
Manager and a member of the Growth Group. Both Mr. Bavoso
and Mr. Dineen have been portfolio managers with the
Investment Manager for over five years.
DEVELOPING GROWTH PORTFOLIO - Armon Bar-Tur, Vice President
of the Investment Manager, has been the primary portfolio
manager of the Portfolio since July 1999. Mr. Bar-Tur had
assisted the former primary portfolio manager of the
Portfolio since May 1998. 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.
38
<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, with
respect to securities that are primarily listed on foreign
exchanges, the value of the Portfolio's investment
securities may change on days when shareholders will not be
able to purchase or sell their shares.
An exception to the general policy of using market prices
concerns each Portfolio's short-term debt portfolio
securities. Debt securities with remaining maturities of
sixty days or less at the time of purchase are valued at
amortized cost. However, if the cost does not reflect the
securities' market value, these securities will be valued at
their fair value.
The Money Market Portfolio utilizes amortized cost in
determining the value of its portfolio securities. The
amortized cost valuation method involves valuing a debt
obligation in reference to its acquisition cost rather than
market forces.
[ICON] PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
The Fund has adopted a Plan of Distribution for each
Portfolio in accordance with Rule 12b-1 under the Investment
Company Act of 1940. Class Y shares of each Portfolio are
subject to a distribution (12b-1) fee of 0.25% of the
average daily net assets of the Class. The Plan allows
Class Y shares of each Portfolio to bear distribution fees
in connection with the sale and distribution of Class Y
shares. It also allows each Portfolio to pay for services to
Class Y shareholders. Because these fees are paid out of the
assets of each Portfolio's Class Y shares on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of
sales charges.
[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
39
<PAGE>
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.
40
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table on the following pages is intended to
help you understand the financial performance of each Portfolio's
Class X shares for the past 5 fiscal years of the Fund (3 fiscal years
in the case of Mid-Cap Equity Portfolio). The Fund commenced offering
Class Y shares of each Portfolio other than the North American
Government Securities Portfolio and the Emerging Markets Portfolio on
May 1, 2000. Prior to that date, the Fund issued one Class of shares of
each Portfolio, which, as of May 1, 2000, have been designated Class X
shares. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate an
investor would have earned or lost on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Fund's financial
statements, is included in the annual report, which is available upon
request.
Further information about the performance of the Portfolios of the Fund
is contained in the annual report. See the discussion under the caption
"Charges and Other Deductions" in the accompanying prospectus for either
the Variable Annuity Contracts or the Variable Life Contracts issued by
the applicable insurance company for a description of charges which are
applicable thereto. These charges are not reflected in the financial
highlights below. Inclusion of any of these charges would reduce the
total return figures for all periods shown.
41
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1.00 0.05 - 0.05 (0.05) - (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 10.15 0.47 (0.13) 0.34 (0.46) - (0.46)
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 9.93 0.78 (0.96) (0.18) (0.77) (0.02)++ (0.79)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCED GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 16.38 0.48 0.15 0.63 (0.48) (1.90) (2.38)
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 18.71 0.34 7.69 8.03 (0.34) (0.15) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 22.05 0.40 (0.10) 0.30 (0.40) (2.03) (2.43)
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE-ADDED MARKET
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 19.19 0.22 2.08 2.30 (0.22) (0.73) (0.95)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE 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 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
- ----------------------------------------------------------------------------------------------------------------------------------
1.00 4.78 135,675 0.54 4.67 0.54 4.67 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
10.03 3.40 9,421 1.01 4.60 1.01 4.60 53
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
8.96 (1.83) 86,270 0.48 8.31 0.48 8.31 69
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
14.63 3.52 128,299 0.64 3.10 0.64 3.10 37
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
26.25 43.71 165,368 0.70 1.63 0.70 1.63 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
19.92 0.53 742,811 0.60 1.86 0.60 1.86 101
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
20.54 12.15 189,708 0.55 1.11 0.55 1.11 21
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM TOTAL
BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS DIVIDENDS AND
YEAR ENDED DECEMBER 31 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
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 - 2.16 2.16 - (0.49) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 18.23 (0.02) 6.65 6.63 - (1.59) (1.59)
- ---------------------------------------------------------------------------------------------------------------------------------
AMERICAN OPPORTUNITIES
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 23.31 0.08 11.76 11.84 (0.07) (2.48) (2.55)
- ---------------------------------------------------------------------------------------------------------------------------------
MID-CAP EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
1997(a) 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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 11.86 0.06 10.81 10.87 (0.06) (0.01) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 14.69 0.06 4.94 5.00 (0.06) - (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
DEVELOPING GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
1995 10.13 0.24 4.88 5.12 (0.25) - (0.25)
- ---------------------------------------------------------------------------------------------------------------------------------
1996 15.00 0.02 1.92 1.94 (0.03) (0.03)++ (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)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 20.81 0.01 19.23 19.24 (0.01) - (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
- ---------------------------------------------------------------------------------------------------------------------------------
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) (0.07) (0.07)+++ (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 7.91 - 6.60 6.60 - (0.02)++ (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(a) 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.
++ Distribution from paid-in-capital.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE ASSUMED)
NET ASSETS ------------------------------ -----------------------------
NET ASSET VALUE END OF PERIOD NET INVESTMENT NET INVESTMENT
END OF PERIOD TOTAL RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
$11.07 13.29% $ 3,956 2.50% (0.64)% - 1.86%
- ----------------------------------------------------------------------------------------------------------------------
13.55 23.56 18,215 1.22 (0.03) 0.50% 0.69
- ----------------------------------------------------------------------------------------------------------------------
16.56 23.07 40,311 1.01 0.13 1.01 0.13
- ----------------------------------------------------------------------------------------------------------------------
18.23 13.22 53,504 1.06 0.01 1.06 0.01
- ----------------------------------------------------------------------------------------------------------------------
23.27 39.10 96,699 0.90 (0.11) 0.90 (0.11)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
13.71 38.95 38,235 0.96 1.11 - 2.07
- ----------------------------------------------------------------------------------------------------------------------
15.30 12.95 120,904 0.71 0.52 0.69 0.54
- ----------------------------------------------------------------------------------------------------------------------
19.69 31.93 230,014 0.68 0.42 0.68 0.42
- ----------------------------------------------------------------------------------------------------------------------
23.31 30.78 371,633 0.66 0.62 0.66 0.62
- ----------------------------------------------------------------------------------------------------------------------
32.60 55.81 768,751 0.66 0.29 0.66 0.29
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
11.40 15.84(1) 19,236 1.12(2) 0.65(2) - 1.77(2)
- ----------------------------------------------------------------------------------------------------------------------
11.86 5.67 28,198 0.98 (0.40) - 0.58
- ----------------------------------------------------------------------------------------------------------------------
22.66 92.10 84,949 0.92 (0.35) 0.20 0.37
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
10.99 13.76 17,074 1.69 1.09 - 2.78
- ----------------------------------------------------------------------------------------------------------------------
12.06 11.43 59,246 1.25 0.69 0.72 1.22
- ----------------------------------------------------------------------------------------------------------------------
12.97 8.66 102,229 1.13 0.91 1.13 0.91
- ----------------------------------------------------------------------------------------------------------------------
14.69 15.11 125,522 1.10 1.01 1.10 1.01
- ----------------------------------------------------------------------------------------------------------------------
19.63 34.14 173,743 1.08 0.36 1.08 0.36
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
15.00 51.26 17,412 1.24 0.86 - 2.10
- ----------------------------------------------------------------------------------------------------------------------
16.88 12.95 61,120 0.68 (0.04) 0.58 0.06
- ----------------------------------------------------------------------------------------------------------------------
19.16 13.77 82,690 0.60 0.26 0.60 0.26
- ----------------------------------------------------------------------------------------------------------------------
20.81 9.04 81,625 0.59 0.19 0.59 0.19
- ----------------------------------------------------------------------------------------------------------------------
40.04 92.52 160,595 0.58 0.06 0.58 0.06
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
9.69 (0.57) 4,092 2.50* 0.18* - 2.68
- ----------------------------------------------------------------------------------------------------------------------
11.20 17.69 17,240 2.02 (0.10) 0.50 1.42
- ----------------------------------------------------------------------------------------------------------------------
11.31 1.27 23,815 1.71 0.49 1.71 0.49
- ----------------------------------------------------------------------------------------------------------------------
7.91 (29.03) 13,272 1.73 0.72 1.73 0.72
- ----------------------------------------------------------------------------------------------------------------------
14.49 83.53 22,889 1.84 (0.03) 1.84 (0.03)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET ASSET VALUE PORTFOLIO
END OF PERIOD TURNOVER RATE
<S> <C>
- ---------------------
- ---------------------
$11.07 39%
- ---------------------
13.55 47
- ---------------------
16.56 55
- ---------------------
18.23 223
- ---------------------
23.27 88
- ---------------------
- ---------------------
13.71 174
- ---------------------
15.30 232
- ---------------------
19.69 262
- ---------------------
23.31 325
- ---------------------
32.60 360
- ---------------------
- ---------------------
11.40 104(1)
- ---------------------
11.86 323
- ---------------------
22.66 318
- ---------------------
- ---------------------
10.99 74
- ---------------------
12.06 62
- ---------------------
12.97 87
- ---------------------
14.69 80
- ---------------------
19.63 79
- ---------------------
- ---------------------
15.00 80
- ---------------------
16.88 146
- ---------------------
19.16 149
- ---------------------
20.81 193
- ---------------------
40.04 178
- ---------------------
- ---------------------
9.69 36
- ---------------------
11.20 46
- ---------------------
11.31 91
- ---------------------
7.91 116
- ---------------------
14.49 82
- ---------------------
</TABLE>
45
<PAGE>
NOTES
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46
<PAGE>
NOTES
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47
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES
Additional information about each Portfolio's investments is
available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO
SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a
discussion of the market conditions and investment
strategies that significantly affected each Portfolio's
performance during its last fiscal year. The Fund's
STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL
INFORMATION is incorporated herein by reference (legally is
part of this PROSPECTUS). For a free copy of any of these
documents, to request other information about the
Portfolios, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling
your Morgan Stanley Dean Witter Financial Advisor.
Information about the Fund (including the STATEMENT OF
ADDITIONAL INFORMATION) can be viewed and copied at the
Securities and Exchange Commission's Public Reference
Room in Washington, DC. Information about the Reference
Room's operations may be obtained by calling the SEC at
202-942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the SEC's Internet
site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected],
or by writing the Public Reference Section of the SEC,
Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7185)
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS
STATEMENT OF ADDITIONAL INFORMATION INVESTMENT
MAY 1, 2000 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 for the Morgan Stanley Dean Witter
Select Dimensions Investment Series (the "Fund") is not a PROSPECTUS. The Fund's
Class X PROSPECTUS and the Fund's Class Y PROSPECTUS (each dated May 1, 2000)
provide the basic information you should know before allocating your investment
under your variable annuity contract or your variable life contract. Either
PROSPECTUS may be obtained without charge from the Fund at its address or
telephone number listed below or from 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
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TABLE OF CONTENTS
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<S> <C> <C> <C>
I. Fund History..................................................... 4
II. Description of the Fund and Its Investments and Risks............ 4
A. Classification.............................................. 4
B. Eligible Purchasers......................................... 4
C. Investment Strategies and Risks............................. 4
D. Fund Policies/Investment Restrictions....................... 17
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.............. 27
V. Investment Management and Other Services......................... 27
A. Investment Manager and Sub-Advisors......................... 27
B. Services Provided by the Investment Manager and the
Sub-Advisors................................................ 29
C. Rule 12b-1 Plan............................................. 30
D. Other Service Providers..................................... 31
VI. Brokerage Allocation and Other Practices......................... 32
A. Brokerage Transactions...................................... 32
B. Commissions................................................. 32
C. Brokerage Selection......................................... 34
D. Directed Brokerage.......................................... 36
E. Regular Broker-Dealers...................................... 36
VII. Capital Stock and Other Securities............................... 36
VIII. Purchase, Redemption and Pricing of Shares....................... 37
A. Purchase/Redemption of Shares............................... 37
B. Offering Price.............................................. 37
IX. Taxation of the Fund and Shareholders............................ 40
X. Calculation of Performance Data.................................. 41
XI. Financial Statements............................................. 45
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GLOSSARY OF SELECTED DEFINED TERMS
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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.
"FINANCIAL ADVISOR"--Morgan Stanley Dean Witter authorized financial services
representatives.
"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 Investment Management Company (only applicable to the North
American Government Securities Portfolio, the Emerging Markets Portfolio and the
Mid-Cap Equity Portfolio) and MSDW Investment Management (only applicable to the
Growth Portfolio).
"TCW"--TCW Investment Management Company.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
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I. FUND HISTORY
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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
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A. CLASSIFICATION
The Fund is an open-end, diversified management investment company.
B. ELIGIBLE PURCHASERS
As discussed in each of the Class X and Class Y PROSPECTUSES, shares of the
Fund are sold only to particular insurance companies in connection with variable
annuity and/or variable life insurance contracts they issue. It is conceivable
that in the future it may become disadvantageous for both variable life
insurance and variable annuity contract separate accounts to invest in the same
underlying funds. Although neither the 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-
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ING GROWTH PORTFOLIO, the AMERICAN OPPORTUNITIES PORTFOLIO, the MID-CAP EQUITY
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
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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
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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
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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
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portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. Each of the 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
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contract. The margin deposits made are marked-to-market daily and the Portfolio
may be required to make subsequent deposits of cash or U.S. Government
securities, called "variation margin," which are reflective of price
fluctuations in the futures contract.
OPTIONS ON FUTURES CONTRACTS. Each of the 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.
If a Portfolio maintains a short position in a futures contract or has sold
a call option in a futures contract, it will cover this position by holding, in
a segregated account maintained on the books of the Portfolio, cash, U.S.
government securities or other liquid portfolio securities equal in value (when
added to any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Portfolio to purchase the same contract at a price no
higher than the price at which the short position was established.
In addition, if a Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained on the books
of the Portfolio. Alternatively, the Portfolio could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Portfolio.
ADDITIONAL INFORMATION CONCERNING THE 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.
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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 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.
ADDITIONAL INFORMATION CONCERNING THE VALUE-ADDED MARKET PORTFOLIO.
The VALUE-ADDED MARKET PORTFOLIO is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to the
owners of shares of the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Portfolio
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the S&P 500 INDEX PORTFOLIO is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the
Portfolio. S&P has no obligation to take the needs of the Portfolio or the
owners of shares of the Portfolio into consideration in determining, composing
or calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Portfolio or
the timing of the issuance or sale of shares of the Portfolio or in the
determination or calculation of the equation by which shares of the Portfolio
are to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein, and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the VALUE-ADDED MARKET PORTFOLIO,
owners of shares of the Portfolio, or any other person or entity from the use of
the S&P 500 Index or any data included therein. S&P makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the S&P 500 Index or any data
included therein. Without limiting any of the foregoing, in no event shall S&P
have any liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
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
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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
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.
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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.
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
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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 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
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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 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 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.
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 were designed in
such a way that they may not be able to
16
<PAGE>
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. Corporate and governmental data processing errors also may
result in production problems for individual companies and overall economic
uncertainties. Operations ran smoothly from the last week in December through
the first few weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including issuers
whose securities are contained in the Portfolios.
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.
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 the value 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.
17
<PAGE>
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(s) 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
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.
18
<PAGE>
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.
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.
19
<PAGE>
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the Morgan Stanley Dean Witter Funds (there were 93
such Funds as of the calendar year ended December 31, 1999), 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);
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Kmart Corporation Funds; formerly Chairman and Chief Executive Officer of
3100 West Big Beaver Road Levitz Furniture Corporation (November 1995-November
Troy, Michigan 1998) and President and 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 Mer-
chandise Group of Sears, Roebuck and Co.; Director of
Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) .... Chairman, Director or Trustee and Chief Executive Officer
Chairman of the Board, of the Morgan Stanley Dean Witter Funds; formerly
Chief Executive Officer and Chairman, Chief Executive Officer and Director of the
Trustee Investment Manager, Morgan Stanley Dean Witter
Two World Trade Center Distributors Inc. ("MSDW Distributors") and MSDW Services
New York, New York 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).
Edwin J. Garn (67) .............. Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator (R-Utah)(1974-1992)
c/o Huntsman Corporation and Chairman, Senate Banking Committee (1980-1986);
500 Huntsman Way formerly Mayor of Salt Lake City, Utah (1971-1974);
Salt Lake City, Utah formerly Astronaut, 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 Nus-
kin Asia Pacific (multilevel marketing); member of the
board of various civic and charitable organizations.
Wayne E. Hedien (65) ............ Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Director of The PMI Group, Inc. (private
c/o Mayer, Brown & Platt mortgage insurance); Trustee and Vice Chairman of The
Counsel to the Field Museum of Natural History; formerly associated with
Independent Trustees the Allstate Companies (1966-1994), most recently as
1675 Broadway Chairman of The Allstate Corporation (March 1993-December
New York, New York 1994) and Chairman and Chief Executive Officer of its
wholly-owned subsidiary, Allstate Insurance Company (July
1989-December 1994); director of various other business
and charitable organizations.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------- ---------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (50) ...... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick of Seven Council (G7C), an international economic
International, Inc. commission; Chairman of the Audit Committee and Director
1133 Connecticut Avenue, N.W. or Trustee of the Morgan Stanley Dean Witter Funds;
Washington, D.C. Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of the Financial
Accounting Standards Board); formerly Vice Chairman of
the Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury.
Michael E. Nugent (63) .......... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan Stanley
237 Park Avenue Dean Witter Funds; formerly Vice President, Bankers Trust
New York, New York Company and BT Capital Corporation (1984-1988); director
of various business organizations.
Philip J. Purcell* (56) ......... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, Dean Witter Reynolds and Novus Credit
1585 Broadway Services Inc.; Director of the MSDW Distributors;
New York, New York Director or Trustee of the Morgan Stanley Dean Witter
Funds; Director of American Airlines, Inc. and its parent
company, AMR Corporation; Director and/or officer of
various MSDW subsidiaries.
John L. Schroeder (69) .......... Retired; Chairman of the Derivatives Committee and
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Mayer, Brown & Platt Funds; Director of Citizens Utilities Company
Counsel to the (telecommunications, gas, electric and water utilities
Independent Trustees company); formerly Executive Vice President and Chief
1675 Broadway Investment Officer of the Home Insurance Company (August
New York, New York 1991-September 1995).
Mitchell M. Merin (46) .......... President and Chief Operating Officer of Asset Management
President of MSDW (since December 1998); President and Director
Two World Trade Center (since April 1997) and Chief Executive Officer (since
New York, New York June 1998) of the Investment Manager 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 (since May 1999); Trustee of
various Van Kampen investment companies (since December
1999); previously Chief Strategic Officer of the
Investment Manager and MSDW Services Company and
Executive Vice President of MSDW Distributors (April
1997-June 1998), Vice President of the Morgan Stanley
Dean Witter Funds (May 1997-April 1999), an Executive
Vice President of Dean Witter, Discover & Co.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------- ---------------------------------------------------------
<S> <C>
Barry Fink (45) ................. Executive Senior Vice President (since December 1999) and
Vice President, Secretary and General Counsel (since February 1997) and
Secretary and General Counsel Director (since July 1998) of the Investment Manager and
Two World Trade Center MSDW Services Company; Executive Vice President (since
New York, New York December 1999) and Assistant Secretary and Assistant
General 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); previously Senior Vice President
(March 1997-December 1999), First Vice President (June
1993-February 1997), Vice President and Assistant
Secretary and Assistant General Counsel of the Investment
Manager and MSDW Services Company, Senior Vice President
of MSDW Distributors (March 1997-December 1999) and
Assistant Secretary of the Morgan Stanley Dean Witter
Funds.
Peter M. Avelar (41) ............ Senior Vice President and Director of the High Yield
Vice President Group of the Investment Manager; Vice President of
Two World Trade Center various Morgan Stanley Dean Witter Funds.
New York, New York
Armon Bar-Tur (30) .............. Vice President of the Investment Manager (since February
Vice President 1999) and Portfolio Manager with the Investment Manager
Two World Trade Center (since October 1996); previously Assistant Vice President
New York, New York of the Investment Manager (February 1998-February 1999)
and prior thereto Research Analyst with Merrill Lynch
Asset Management (February 1994-January 1996).
Mark Bavoso (39) ................ Senior Vice President of the Investment Manager; Vice
Vice President President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
David Dineen (32) ............... Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Edward F. Gaylor (58) ........... Senior Vice President of the Investment Manager; Vice
Vice President President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Rajesh K. Gupta (39) ............ Senior Vice President and Director of the Taxable
Vice President Fixed-Income Group and Chief Administrative Officer of
Two World Trade Center Investments of the Investment Manager; Vice President of
New York, New York various Morgan Stanley Dean Witter Funds.
Peter Hermann (40) .............. Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Kenton J. Hinchliffe (55) ....... Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Two World Trade Center
New York, New York
Kevin Hurley (55) ............... Vice President of various Morgan Stanley Dean Witter
Senior Vice President 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>
Anita H. Kolleeny (44) .......... Senior Vice President and Director of Sector Rotation of
Vice President the Investment Manager; Vice President of various Morgan
Two World Trade Center Stanley Dean Witter Funds.
New York, New York
Paula LaCosta (48) .............. Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Jonathan R. Page (53) ........... Senior Vice President and Director of the Money Market
Vice President Group of the Investment Manager; Vice President of
Two World Trade Center various Morgan Stanley Dean Witter Funds.
New York, New York
Guy G. Rutherfurd Jr. (60) ...... Senior Vice President (since February 1997) and Director
Vice President of the Growth Group of the Investment Manager; Vice
Two World Trade Center President of various Morgan Stanley Dean Witter Funds;
New York, New York formerly Executive Vice President and Chief Investment
Officer of Nomura Asset Management (U.S.A.) Inc. (May
1992-February 1997).
Peter J. Seeley (50) ............ Vice President of the Investment Manager (since April
Vice President 1996); Vice President of various Morgan Stanley Dean
Two World Trade Center Witter Funds; previously Senior Fixed-Income Portfolio
New York, New York Manager with the Investment Manager (July 1994-April
1996).
Ronald B. Silvestri (34) ........ Vice President of the Investment Manager (since December
Vice President 1999); Vice President of various Morgan Stanley Dean
Two World Trade Center Witter Funds; formerly Senior Research Analyst with the
New York, New York Investment Manager.
Paul D. Vance (64) .............. Senior Vice President and Director of the Growth and
Vice President Income Group of the Investment Manager; Vice President of
Two World Trade Center various Morgan Stanley Dean Witter Funds.
New York, New York
Alice S. Weiss (51) ............. Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Christopher J. Ainley (41) ...... Managing Director of TCW Investment Management Company,
Vice President Trust Company of the West and TCW Asset Management Com-
865 South Figueroa Street pany (since February 1996); formerly Senior Vice
Los Angeles, California President of TCW Investment Management Company, Trust
Company of the West and TCW Asset Management Company (May
1994-February 1996); previously portfolio manager with
Putnam Investments.
Philip A. Barach (47) ........... Managing Director of TCW Investment Management Company;
Vice President Managing Director, Mortgage-Backed Securities of Trust
865 South Figueroa Street Company of the West and TCW Asset Management Company.
Los Angeles, California
Douglas S. Foreman (42) ......... Managing Director of TCW Investment Management Company,
Vice President Trust Company of the West and TCW Asset Management Com-
865 South Figueroa Street pany (since May 1994); previously portfolio manager with
Los Angeles, California Putnam Investments.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------- ---------------------------------------------------------
<S> <C>
James M. Goldberg (54) .......... Managing Director of TCW Investment Management Company;
Vice President Managing Director and Chairman of the Fixed Income Policy
865 South Figueroa Street Committee of Trust Company of the West and TCW Asset Man-
Los Angeles, California agement Company.
Jeffrey E. Gundlach (40) ........ Group Managing Director of TCW Investment Management
Vice President Company; Managing Director, Mortgage-Backed Securities of
865 South Figueroa Street Trust Company of the West and TCW Asset Management Com-
Los Angeles, California pany.
Frederick E. Horton (41) ........ Managing Director of TCW.
Vice President
865 South Figueroa Street
Los Angeles, California
Saker Nusseibeh (38) ............ Managing Director of European and International Equities
Vice President of TCW London International, Limited.
16 Charles II Street
London, England
Michael P. Reilly (36) .......... Managing Director of TCW.
Vice President
865 South Figueroa Street
Los Angeles, California
Michelle Kaufman (35) ........... Senior Vice President of the Investment Manager (since
Assistant Vice President February 1999) and Portfolio Manager with the Investment
Two World Trade Center Manager (since September 1993); Vice President or
New York, New York Assistant Vice President of various Morgan 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 (54) ........... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, MSDW Distributors, and MSDW Services
Two World Trade Center Company; Treasurer of the Morgan Stanley Dean Witter
New York, New York Funds.
</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.
In addition, MARILYN K. CRANNEY, TODD LEBO, LOU ANNE D. MCINNIS, CARSTEN
OTTO AND RUTH ROSSI, First Vice Presidents and Assistant General Counsels of the
Investment Manager and MSDW Services Company, and NATASHA KASSIAN, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee.
24
<PAGE>
In addition, three of the directors/trustees, including two independent
directors/trustees, serve as members of the Derivatives Committee and the
Insurance Committee.
The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing
Portfolio performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The independent directors/trustees are required to select and nominate
individuals to fill any independent director/trustee vacancy on the board of any
Fund that has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean
Witter Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.
The board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Portfolios.
Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/trustees of all the Funds tends to increase their
knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of independent directors/trustees arriving at conflicting
decisions regarding operations and management of the Funds and avoids the cost
and confusion that would likely ensue. Finally, having the same independent
directors/trustees serve on all Fund boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of independent
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel
25
<PAGE>
and other out-of-pocket expenses incurred by them in connection with attending
such meetings. Trustees and officers of the Fund who are or have been employed
by the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended December 31, 1999.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic............................................... $1,550
Edwin J. Garn............................................... 1,600
Wayne E. Hedien............................................. 1,600
Dr. Manuel H. Johnson....................................... 2,100
Michael E. Nugent........................................... 1,933
John L. Schroeder........................................... 1,933
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION FOR
SERVICES TO 93
MORGAN STANLEY
NAME OF INDEPENDENT TRUSTEE DEAN WITTER FUNDS
- --------------------------- -----------------
<S> <C>
Michael Bozic............................................... $134,600
Edwin J. Garn............................................... 138,700
Wayne E. Hedien............................................. 138,700
Dr. Manuel H. Johnson....................................... 208,638
Michael E. Nugent........................................... 193,324
John L. Schroeder........................................... 193,324
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an independent director/trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an independent director/trustee of any Morgan Stanley Dean Witter Fund
that has adopted the retirement program (each such Fund referred to as an
"ADOPTING FUND" and each such Trustee referred to as an "ELIGIBLE TRUSTEE") is
entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program
- ------------------------------
(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.
26
<PAGE>
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 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the calendar year ended December 31, 1999, and the
estimated retirement benefits for the Independent Trustees, to commence upon
their retirement, from the 55 Morgan Stanley Dean Witter Funds as of the
calendar year ended December 31, 1999.
RETIREMENT BENEFITS FROM 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
NAME OF INDEPENDENT RETIREMENT ELIGIBLE ACCRUED AS EXPENSES UPON RETIREMENT FROM
TRUSTEE (MAXIMUM 10) COMPENSATION BY ALL ADOPTING FUNDS ALL ADOPTING FUNDS(2)
- ------------------- ------------- ------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
Michael Bozic.......... 10 60.44% $20,933 $50,588
Edwin J. Garn.......... 10 60.44 31,737 50,675
Wayne E. Hedien........ 9 51.37 39,566 43,000
Dr. Manuel H. Johnson.. 10 60.44 13,129 75,520
Michael E. Nugent...... 10 60.44 23,175 67,209
John L. Schroeder...... 8 50.37 41,558 52,994
</TABLE>
- ------------------------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) on
page 26.
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 Class X shares of the Fund for allocation to their respective
separate accounts ("ACCOUNTS"), none of the Fund's Trustees was a Contract Owner
under the Accounts, and the aggregate number of shares of each Portfolio of the
Fund allocated to Contracts owned by the Fund's officers as a group was less
than one percent of each Portfolio's outstanding Class X shares.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER AND SUB-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, NY 10048. The Investment Manager is a wholly-owned subsidiary of MSDW,
a Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
The Sub-Advisor to the NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO, the
MID-CAP EQUITY PORTFOLIO and the EMERGING MARKETS PORTFOLIO is TCW Investment
Management Company, 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, CA 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, NY 10020.
27
<PAGE>
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 0.65% of net assets
Securities 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 1.00% of net assets
The Developing Growth Portfolio 0.50% of net assets
The Emerging Markets Portfolio 1.25% of net assets
</TABLE>
With respect to each Portfolio, the management fee is allocated among the
Classes pro rata based on the net assets of the Portfolio attributable to each
Class.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Investment
Manager accrued compensation under the Management Agreement as follows:
<TABLE>
<CAPTION>
COMPENSATION ACCRUED FOR THE FISCAL YEAR
ENDED DECEMBER 31,
------------------------------------------
NAME OF PORTFOLIO 1997 1998 1999
- ----------------- ------------ ------------ ------------
<S> <C> <C> <C>
The Money Market Portfolio.......................... $ 463,709 $ 492,661 $ 646,809
The North American Government Securities
Portfolio.......................................... 30,048 41,048 61,901
The Diversified Income Portfolio.................... 186,066 313,337 363,139
The Balanced Growth Portfolio....................... 422,583 554,456 738,566
The Utilities Portfolio............................. 261,168 412,581 739,430
The Dividend Growth Portfolio....................... 2,477,416 3,794,294 4,543,040
The Value-Added Market Portfolio.................... 540,475 797,292 913,168
The Growth Portfolio................................ 254,398 376,026 527,496
The American Opportunities Portfolio................ 1,082,276 1,802,876 3,136,439
The Mid-Cap Equity Portfolio........................ 0 0 281,211
The Global Equity Portfolio......................... 852,703 1,158,905 1,362,346
The Developing Growth Portfolio..................... 355,267 401,774 483,503
The Emerging Markets Portfolio...................... 308,327 218,826 209,834
----------- ----------- -----------
Total........................................... $ 7,234,436 $10,364,076 $13,982,121
=========== =========== ===========
</TABLE>
28
<PAGE>
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
Under a Sub-Advisory Agreement between TCW and the Investment Manager (the
"TCW Sub-Advisory Agreement") respecting the NORTH AMERICAN GOVERNMENT
SECURITIES PORTFOLIO, the EMERGING MARKETS PORTFOLIO and the MID-CAP EQUITY
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, the EMERGING MARKETS PORTFOLIO and the MID-CAP EQUITY 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.
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 had 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 attained $50 million of net assets or until December 31,
1999, whichever occured first. The Portfolio attained $50 million of net assets
on November 9, 1999.
B. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND THE SUB-ADVISORS
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, the MID-CAP
EQUITY 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,
the MID-CAP EQUITY 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, the MID-CAP EQUITY
PORTFOLIO and the GROWTH PORTFOLIO under the TCW Sub-Advisory Agreement and the
MSDW Investment Management Sub-Advisory Agreement will be paid by the
Portfolios. Each Portfolio pays all expenses incurred in its operation and a
portion of the Fund's general administration expenses allocated based on the
asset sizes of the Portfolios. The Portfolios' direct expenses include, but are
not limited to: expenses of the Plan of Distribution pursuant to Rule 12b-1;
charges and expenses of any registrar, custodian, transfer and dividend
disbursing agent; brokerage commissions; certain
29
<PAGE>
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. The 12b-1 fees relating to Class Y will be allocated
directly to Class Y. In addition, other expenses associated with a particular
Class (except advisory or custodial fees) may be allocated directly to the
Class, provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Trustees.
Expenses which are allocated on the basis of size of the respective
Portfolios include the costs and expenses of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager (or the Sub-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 each affected
Portfolio, or by the Trustees; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees, including a
majority of the Independent Trustees.
C. RULE 12B-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "Plan"). Under the Plan, Class Y shares of each
Portfolio bear a distribution fee paid to Hartford Securities Distribution Inc.
("Hartford") which is accrued daily and payable monthly at the annual rate of
0.25% of the average daily net assets of the Class.
The Plan provides that each Portfolio's distribution fee shall compensate
Hartford, Dean Witter Reynolds and its affiliates, and other selected
broker-dealers for expenses they incur in connection with the distribution of
the Portfolio's Class Y shares. These expenses may include: (i) costs incurred
in providing personal services to shareholders; (ii) overhead and other branch
office distribution-related expenses including, but not limited to, expenses of
operating Hartford's or other broker-dealers' offices used for selling Portfolio
shares (e.g., lease and utility costs, salaries and employee benefits of
operations and sales support personnel, costs related to client sales seminars
and telephone expenses); (iii) printing and mailing costs relating to
prospectuses and reports (for new shareholders); and (iv) costs incurred in
connection with advertising materials and sales literature.
30
<PAGE>
Under the Plan, Hartford provides the Fund, for review by the Trustees, and
the Trustees review, promptly after the end of each calendar quarter, a written
report regarding the distribution expenses incurred on behalf of each Portfolio
during such calendar quarter, which report includes (1) an itemization of the
types of expenses and the purposes therefor; (2) the amounts of such expenses;
and (3) a description of the benefits derived by the Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
Plan, the Trustees requested and received from Hartford and reviewed all the
information which they deemed necessary to arrive at an informed determination.
In making their determination, the Trustees considered: (1) the benefits each
Portfolio would be likely to obtain under the Plan, including that without the
compensation to individual brokers and the reimbursement of distribution and
account maintenance expenses of Dean Witter Reynolds's branch offices made
possible by the 12b-1 fees, Dean Witter Reynolds could not establish and
maintain a competitive and effective system for distribution and servicing of
Contract Owners and maintenance of their accounts; and (2) what services would
be provided under the Plan to Contract Owners. Based upon their review, the
Trustees, including each of the Independent Trustees, determined that approval
of the Plan would be in the best interests of each Portfolio and would have a
reasonable likelihood of continuing to benefit the Contract Owners. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the Class Y shareholders
of each affected Portfolio, and all material amendments to the Plan must also be
approved by the Trustees. The Plan may be terminated as to a Portfolio at any
time, without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities of the
Portfolio (as defined in the Investment Company Act) on not more than thirty
days' written notice to any other party to the Plan. So long as the Plan is in
effect, the election and nomination of Independent Trustees shall be committed
to the discretion of the Independent Trustees.
No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that
Hartford, the Investment Manager, Dean Witter Reynolds, MSDW Services Company or
certain of their employees may be deemed to have such an interest as a result of
benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Portfolios.
D. 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, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007, is the
Custodian of each Portfolio's assets other than those of the EMERGING MARKETS
PORTFOLIO, and grouping (1) of the DIVERSIFIED INCOME PORTFOLIO. The Chase
Manhattan Bank, One Chase Plaza, New York, NY 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 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 and of MSDW
Investment Management. As Transfer Agent and Dividend Disbursing Agent, the
Transfer Agent's responsibilities include maintaining shareholder accounts,
reinvesting dividends, processing account registration changes, handling
31
<PAGE>
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.
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, the MID-CAP EQUITY 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, 1997, 1998 and 1999, the Portfolios
paid brokerage commissions as follows:
<TABLE>
<CAPTION>
BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS PAID COMMISSIONS PAID COMMISSIONS PAID
FOR FISCAL YEAR FOR FISCAL YEAR FOR FISCAL YEAR
NAME OF PORTFOLIO ENDED 12/31/97 ENDED 12/31/98 ENDED 12/31/99
- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Diversified Income Portfolio.............. $ 1,875 $ 500 $ 528
Balanced Growth Portfolio................. 52,983 138,374 101,521
Utilities Portfolio....................... 23,494 29,288 81,258
Dividend Growth Portfolio................. 420,488 593,695 1,523,242
Value-Added Market Portfolio.............. 48,470 52,338 60,543
Growth Portfolio.......................... 45,268 187,650 94,623
American Opportunities Portfolio.......... 764,656 1,391,379 2,471,600
Mid-Cap Equity Portfolio.................. 23,517 131,466 149,553
Global Equity Portfolio................... 433,239 443,043 449,542
Developing Growth Portfolio............... 143,389 217,634 268,041
Emerging Markets Portfolio................ 140,267 123,716 85,296
---------- ---------- ----------
Total................................. $2,097,646 $3,309,083 $5,285,747
========== ========== ==========
</TABLE>
B. COMMISSIONS
Pursuant to an order of the SEC, the Portfolios may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Portfolios will limit their transactions with Dean Witter Reynolds to U.S.
Government and government agency securities, bank money instruments (i.e.,
certificates of deposit and bankers' acceptances) and commercial paper. The
transactions will be effected with Dean Witter Reynolds only when the price
available from Dean Witter Reynolds is better than that available from other
dealers.
During the fiscal years ended December 31, 1997, 1998 and 1999, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Portfolios, the commissions, fees or other remuneration received by the
affiliated broker or dealer
32
<PAGE>
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time. This standard would allow the affiliated broker or
dealer to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Trustees, including the Independent Trustees, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to an affiliated broker or dealer are consistent with
the foregoing standard. The Fund does not reduce the management fee it pays to
the Investment Manager by any amount of the brokerage commissions it may pay to
an affiliated broker or dealer.
During the fiscal years ended December 31, 1997 and 1998 the Portfolios paid
brokerage commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS PAID
TO DEAN WITTER REYNOLDS
FOR FISCAL YEAR ENDED
--------------------------
NAME OF PORTFOLIO 12/31/97 12/31/98
- ----------------- -------- --------
<S> <C> <C>
Money Market Portfolio...................................... 0 0
North American Government Securities Portfolio.............. 0 0
Diversified Income Portfolio................................ 0 0
Balanced Growth Portfolio................................... $ 4,707 $ 31,211
Utilities Portfolio......................................... 15,600 15,178
Dividend Growth Portfolio................................... 148,680 112,033
Value-Added Market Portfolio 0 0
Growth Portfolio............................................ 3,655 0
American Opportunities Portfolio............................ 73,465 92,265
Mid-Cap Equity Portfolio.................................... 9,511 12,282
Global Equity Portfolio..................................... 38,917 13,946
Developing Growth Portfolio................................. 27,638 25,879
-------- --------
Total................................................... $322,173 $302,784
======== ========
</TABLE>
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage
commissions to Dean Witter Reynolds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
EXECUTED TRADES
PERCENTAGE OF ON WHICH
BROKERAGE AGGREGATE BROKERAGE BROKERAGE
COMMISSIONS PAID COMMISSIONS FOR COMMISSIONS WERE
TO DWR FOR FISCAL FISCAL YEAR ENDED PAID FOR FISCAL YEAR
NAME OF PORTFOLIO YEAR ENDED 12/31/99 12/31/99 ENDED 12/31/99
- ----------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
Money Market Portfolio................ 0 0 0
North American Government Securities
Portfolio............................ 0 0 0
Diversified Income Portfolio.......... $ 525 99.37% 99.57%
Balanced Growth Portfolio............. 31,733 31.26 36.77
Utilities Portfolio................... 21,517 26.48 36.23
Dividend Growth Portfolio............. 119,495 7.84 10.03
Value-Added Market Portfolio.......... 0 0 0
Growth Portfolio...................... 0 0 0
American Opportunities Portfolio...... 59,078 2.39 2.97
Mid-Cap Equity Portfolio.............. 22,769 15.22 17.97
Global Equity Portfolio............... 7,932 1.76 4.17
Developing Growth Portfolio........... 38,648 14.42 17.26
Emerging Markets Portfolio............ 0 0 0
--------
Total............................. $301,697
========
</TABLE>
33
<PAGE>
During the period June 1 through December 31, 1997 and during the fiscal
year ended December 31, 1998, the Portfolios paid brokerage commissions to
Morgan Stanley & Co., which broker-dealer became an affiliate of the Investment
Manager on May 31, 1997 upon consummation of the merger of Dean Witter,
Discover & Co. with Morgan Stanley Group Inc., as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
PAID TO MORGAN
STANLEY & CO. FOR FISCAL
YEAR ENDED
------------------------
NAME OF PORTFOLIO 12/31/97 12/31/98
- ----------------- -------- --------
<S> <C> <C>
Money Market Portfolio...................................... 0 0
North American Government Securities Portfolio.............. 0 0
Diversified Income Portfolio................................ 0 0
Balanced Growth Portfolio................................... $ 165 $ 7,785
Utilities Portfolio......................................... 0 250
Dividend Growth Portfolio................................... 11,150 80,317
Value-Added Market Portfolio................................ 0 0
Growth Portfolio............................................ 135 45
American Opportunities Portfolio............................ 27,095 185,891
Mid-Cap Equity Portfolio.................................... 850 9,208
Global Equity Portfolio..................................... 3,141 9,579
Developing Growth Portfolio................................. 2,758 10,445
Emerging Markets Portfolio.................................. 3,274 2,855
-------- --------
Total................................................... $ 48,568 $306,375
======== ========
</TABLE>
For the fiscal year ended December 31, 1999, the Portfolios paid brokerage
commissions to Morgan Stanley & Co. as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF EXECUTED
PERCENTAGE OF TRADES ON WHICH
BROKERAGE COMMISSIONS AGGREGATE BROKERAGE BROKERAGE
PAID TO MORGAN COMMISSIONS FOR COMMISSIONS WERE
STANLEY & CO. FOR FISCAL FISCAL YEAR ENDED PAID FOR FISCAL YEAR
NAME OF PORTFOLIO YEAR ENDED 12/31/99 12/31/99 ENDED 12/31/99
- ----------------- ------------------------- ------------------- --------------------
<S> <C> <C> <C>
Money Market Portfolio............ 0 0 0
North American Government
Securities Portfolio............. 0 0 0
Diversified Income Portfolio...... 0 0 0
Balanced Growth Portfolio......... $ 8,985 28.85% 8.03%
Utilities Portfolio............... 0 0 0
Dividend Growth Portfolio......... 103,820 6.82 5.63
Value-Added Market Portfolio...... 0 0 0
Growth Portfolio.................. 11,475 12.13 10.78
American Opportunities
Portfolio........................ 272,223 10.91 12.33
Mid-Cap Equity Portfolio.......... 8,365 5.59 6.30
Global Equity Portfolio........... 25,287 5.62 5.23
Developing Growth Portfolio....... 9,645 3.60 2.73
Emerging Markets Portfolio........ 1,878 2.20 1.93
--------
Total......................... $441,678
========
</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
34
<PAGE>
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.
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.
35
<PAGE>
D. DIRECTED BROKERAGE
During the fiscal year ended December 31, 1999, the Portfolios paid
brokerage commissions to brokers because of research services provided as
follows:
<TABLE>
<CAPTION>
AGGREGATE DOLLAR AMOUNT
BROKERAGE COMMISSIONS OF TRANSACTIONS FOR WHICH
DIRECTED IN CONNECTION WITH SUCH COMMISSIONS WERE
RESEARCH SERVICES PROVIDED FOR PAID FOR FISCAL YEAR ENDED
NAME OF PORTFOLIO FISCAL YEAR ENDED 12/31/99 12/31/99
- ----------------- ------------------------------ --------------------------
<S> <C> <C>
Money Market Portfolio.................... 0 0
North American Government Securities
Portfolio................................ 0 0
Diversified Income Portfolio.............. $ 3 $ 662
Balanced Growth Portfolio................. 61,203 38,902,716
Utilities Portfolio....................... 59,741 28,722,688
Dividend Growth Portfolio................. 1,298,275 929,186,705
Value-Added Market Portfolio.............. 0 0
Growth Portfolio.......................... 45,370 39,404,196
American Opportunities Portfolio.......... 2,119,811 1,842,665,776
Mid-Cap Equity Portfolio.................. 115,706 77,307,357
Global Equity Portfolio................... 220,702 76,045,731
Developing Growth Portfolio............... 211,436 66,392,697
Emerging Markets Portfolio................ 84,562 19,685,643
---------- --------------
Total................................. $4,216,809 $3,118,314,171
========== ==============
</TABLE>
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1999, the DIVIDEND GROWTH
PORTFOLIO purchased common stock issued by J.P Morgan & Co., Inc and Bank of
America Corp., the VALUE-ADDED PORTFOLIO purchased common stock issued by
Merrill Lynch & Co., Inc. and PaineWebber Group, Inc. and the AMERICAN
OPPORTUNITIES PORTFOLIO purchased stock issued by Donaldson, Lufkin & Jenrette,
Inc., Goldman Sach Group, Inc. Lehman Brothers Holdings, Inc., Merrill Lynch &
Co., Inc. and PaineWebber Group, 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.
At December 31, 1999, the DIVIDEND GROWTH PORTFOLIO held common stock issued
by J.P. Morgan & Co., Inc. and Bank of America Corp. with market values of
$7,091,000 and $7,227,000, respectively, the VALUE-ADDED PORTFOLIO held common
stock issued by Merrill Lynch & Co., Inc., The Bank of New York and PaineWebber
Group Inc. with market values of $392,450, $400,000 and $349,313, respectively,
and the AMERICAN OPPORTUNITIES PORTFOLIO held common stock issued by Donaldson,
Lufkin & Jenrette, Inc., Goldman Sachs Group, Inc., Lehman Brothers
Holdings, Inc. Merrill Lynch & Co., Inc. and PaineWebber Group, Inc. with market
values of $1,693,125, $6,122,188, $6,554,813, $2,237,800 and $1,552,500,
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 Portfolios. All shares of
beneficial interest of the Fund are equal as to earnings, assets and voting
privileges except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne by such Class (if
any) or any other matter in which the interests of one Class differ from the
interests of any other Class.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional Portfolios and additional Classes of shares within any
Portfolio. The Trustees have not presently authorized any such additional series
or Classes of shares other than as set forth in the Prospectus for each Class.
36
<PAGE>
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by the actions
of the Trustees. In addition, under certain circumstances the shareholders may
call a meeting to remove Trustees and the Fund is required to provide assistance
in communicating with shareholders about such a meeting.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.
Shareholders have the right to vote on the election of Trustees of the Fund
and on any and all matters on which by law or the provisions of the Fund's
By-Laws they may be entitled to vote. To the extent required by law, 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.
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 Portfolio shares are offered (and how they are
redeemed) is provided in each of the Fund's Class X and Class Y PROSPECTUSES.
B. OFFERING PRICE
The price of each Portfolio shares, called "net asset value," is based on
the value of the Portfolio's securities. Net asset value per share of each of
Class X and Class Y shares is calculated by dividing the
37
<PAGE>
value of the portion of each Portfolio's securities and other assets
attributable to each Class, respectively, less the liabilities attributable to
each Class, respectively, by the number of shares of the Class outstanding. The
assets of each Class of shares are invested in a single portfolio. The net asset
value of each Class, however, will differ because the Classes have different
ongoing fees.
The MONEY MARKET PORTFOLIO, however, utilizes the amortized cost method in
valuing its portfolio securities for purposes of determining the net asset value
of its shares. The MONEY MARKET PORTFOLIO utilizes the amortized cost method in
valuing its portfolio securities even though the portfolio securities may
increase or decrease in market value, generally in connection with changes in
interest rates. The amortized cost method of valuation involves valuing a
security at its cost at the time of purchase adjusted by a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the MONEY MARKET
PORTFOLIO would receive if it sold the investment. During such periods, the
yield to investors in the MONEY MARKET PORTFOLIO may differ somewhat from that
obtained in a similar company which uses mark-to-market values for all of its
portfolio securities. For example, if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the MONEY MARKET PORTFOLIO would be able to obtain a somewhat higher
(lower) yield than would result from investment in such a similar company and
existing investors would receive less (more) investment income. The purpose of
this method of calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
the MONEY MARKET PORTFOLIO and the maintenance of the per share net asset value
of $1.00 is permitted pursuant to Rule 2a-7 of the 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 shareholders which might arise
from differences between the two methods of valuation. Any reduction of
outstanding shares will be effected by having each shareholder proportionately
contribute to the MONEY MARKET PORTFOLIO'S capital the necessary shares that
represent the amount of excess upon such determination. Each Contract Owner will
be deemed to have agreed to such contribution in these circumstances by
allocating investment under his or her Contract to the MONEY MARKET PORTFOLIO.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which the MONEY MARKET
PORTFOLIO'S interest in the instrument is subject to market action) until the
date on which in accordance with the terms of the security the principal amount
must unconditionally be paid, or in the case of a security called for
redemption, the date on which the redemption payment must be made.
38
<PAGE>
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 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
39
<PAGE>
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 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
40
<PAGE>
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.)
The current yield of the MONEY MARKET PORTFOLIO for the seven days ending
December 31, 1999 was 5.43%. The Portfolio's effective annualized yield for the
seven days ending December 31, 1999 was 5.57%, 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
require-
41
<PAGE>
ments; the total for the entire portfolio constitutes the Portfolio's gross
income for the period. Expenses accrued during the period are subtracted to
arrive at "net investment income." The resulting amount is divided by the
product of the net asset value per share on the last day of the period
multiplied by the average number of Portfolio shares outstanding during the
period that were entitled to dividends. This amount is added to 1 and raised to
the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The "yield" of a Portfolio
does not reflect the deduction of any charges which may be imposed on the
Contracts by the applicable Account which, if quoted, would reduce the yield
quoted. For the 30-day period ended December 31, 1999, the yield of the NORTH
AMERICAN GOVERNMENT SECURITIES PORTFOLIO, calculated pursuant to this formula,
was 5.36%, the yield of the DIVERSIFIED INCOME PORTFOLIO, calculated pursuant to
this formula, was 9.59%, and the yield of the BALANCED GROWTH PORTFOLIO,
calculated pursuant to this formula, was 3.21%.
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 of 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 and the EMERGING MARKETS PORTFOLIO
for the one and five year periods (or for the period from the
42
<PAGE>
date of commencement of the Portfolio's operations, if shorter than any of the
foregoing) ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN FOR
PERIOD FROM
AVERAGE ANNUAL COMMENCEMENT OF
TOTAL RETURN FOR TOTAL RETURN FOR OPERATIONS
DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED THROUGH
NAME OF PORTFOLIO (IF APPLICABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
- ----------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Money Market Portfolio... 4.78% 5.26% 5.27%
North American Government
Securities Portfolio.... 3.40 4.86 4.85
Diversified Income
Portfolio............... -1.83 5.36 5.37
Balanced Growth
Portfolio............... 3.52 14.26 13.97
Utilities Portfolio...... 43.71 25.27 24.66
Dividend Growth
Portfolio............... 0.53 21.50 20.84
Value-Added Market
Portfolio............... 12.15 18.90 18.16
Growth Portfolio......... 39.10 22.10 21.58
American Opportunities
Portfolio............... 55.81 33.36 32.49
Mid-Cap Equity
Portfolio............... 1/21/1997 92.10 N/A 33.75
Global Equity
Portfolio............... 34.14 16.29 15.74
Developing Growth
Portfolio............... 92.52 32.48 31.86
Emerging Markets
Portfolio............... 83.53 9.07 8.93
</TABLE>
In addition to the foregoing, the Fund may advertise the total return of the
Portfolios over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations similarly
do not reflect the deduction of any charges which may be imposed on the
Contracts by an Account. The Fund may also compute the aggregate total returns
of the Portfolios for specified periods by determining the aggregate percentage
rate which will result in the ending value of a hypothetical $1,000 investment
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value (without the reduction for any charges imposed on the Contracts by
the applicable Account) by the initial $1,000 investment and subtracting 1 from
the result.
The total returns of 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 and the EMERGING MARKETS PORTFOLIO for the one and
five year periods (or for the period from the date of
43
<PAGE>
commencement of the Portfolio's operations, if shorter than any of the
foregoing) ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
TOTAL RETURN FOR
PERIOD FROM
COMMENCEMENT OF
TOTAL RETURN FOR TOTAL RETURN FOR OPERATIONS
DATE OF INCEPTION FISCAL YEAR ENDED FIVE YEARS ENDED THROUGH
NAME OF PORTFOLIO (IF APPLICABLE) DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
- ----------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Money Market Portfolio... 4.78% 29.24% 30.22%
North American Government
Securities Portfolio.... 3.40 26.79 27.56
Diversified Income
Portfolio............... -1.83 29.85 30.84
Balanced Growth
Portfolio............... 3.52 94.75 95.91
Utilities Portfolio...... 43.71 208.54 210.56
Dividend Growth
Portfolio............... 0.53 164.82 164.68
Value-Added Market
Portfolio............... 12.15 137.63 135.83
Growth Portfolio......... 39.10 171.33 173.14
American Opportunities
Portfolio............... 55.81 321.90 324.82
Mid-Cap Equity
Portfolio............... 1/21/1997 92.10 N/A 135.16
Global Equity
Portfolio............... 34.14 112.70 112.05
Developing Growth
Portfolio............... 92.52 308.03 314.49
Emerging Markets
Portfolio............... 83.53 54.36 55.23
</TABLE>
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of a Portfolio by adding 1 to the
Portfolio's aggregate total return to date (expressed as a decimal) and
multiplying by $10,000, $50,000 or $100,000, as the case may be. Investments of
$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 to the following amounts at December 31, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT OF
OPERATIONS OF
--------------------------------
NAME OF PORTFOLIO $10,000 $50,000 $100,000
- ----------------- -------- --------- ---------
<S> <C> <C> <C>
Money Market Portfolio...................................... $13,022 $ 65,110 $130,220
North American Government Securities Portfolio.............. 12,756 63,780 127,560
Diversified Income Portfolio................................ 13,084 65,420 130,840
Balanced Growth Portfolio................................... 19,591 97,955 195,910
Utilities Portfolio......................................... 31,056 155,280 310,560
Dividend Growth Portfolio................................... 26,468 132,340 264,680
Value-Added Market Portfolio................................ 23,583 117,915 235,830
Growth Portfolio............................................ 27,314 136,570 273,140
American Opportunities Portfolio............................ 42,482 212,410 424,820
Mid-Cap Equity Portfolio.................................... 23,516 117,580 235,160
Global Equity Portfolio..................................... 21,205 106,025 212,050
Developing Growth Portfolio................................. 41,449 207,245 414,490
Emerging Markets Portfolio.................................. 15,523 77,615 155,230
</TABLE>
All of the foregoing yields and returns are for Class X only. As of
December 31, 1999, the Fund had not yet offered Class Y shares of any Portfolio.
44
<PAGE>
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, 1999 included in the PROSPECTUS of each of Class X and Class Y, and
incorporated by reference in this STATEMENT OF ADDITIONAL INFORMATION have been
so included and incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
* * * * *
This STATEMENT OF ADDITIONAL INFORMATION and each of the Class X and
Class Y PROSPECTUSES do not contain all of the information set forth in the
REGISTRATION STATEMENT the Fund has filed with the SEC. The complete
REGISTRATION STATEMENT may be obtained from the SEC.
45
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (73.1%)
BANKING (12.6%)
$ 6,240 Bank of America Corp............................. 6.08-6.13% 01/05/00-05/08/00 $ 6,163,147
1,965 Citicorp......................................... 5.90 01/26/00 1,957,031
5,220 Morgan (J.P.) & Co. Inc.......................... 6.06-6.09 01/14/00-01/27/00 5,203,764
1,725 Northern Trust Corp.............................. 6.05 02/18/00 1,711,246
2,090 Wells Fargo & Co................................. 6.08 02/02/00 2,078,890
------------
17,114,078
------------
CONSUMER SUNDRIES (4.2%)
5,825 Procter & Gamble Co.............................. 5.92-5.93 02/16/00-02/29/00 5,776,622
------------
DIVERSIFIED FINANCIAL SERVICES (7.3%)
3,500 Associates Corp. of North America................ 5.83 01/10/00-01/11/00 3,494,715
2,000 Associates First Capital Corp.................... 6.04 03/09/00 1,977,522
4,500 General Electric Capital Corp.................... 5.67-6.13 01/25/00-02/07/00 4,479,346
------------
9,951,583
------------
DIVERSIFIED MANUFACTURING (1.5%)
2,000 General Electric Co.............................. 5.90 02/01/00 1,989,977
------------
FINANCE - AUTOMOTIVE (5.3%)
750 BMW U.S. Capital Corp............................ 6.41 01/04/00 749,600
6,500 DaimlerChrysler North America Holding Corp....... 5.90-6.01 01/20/00-03/10/00 6,446,069
------------
7,195,669
------------
FINANCE - CONSUMER (9.0%)
3,725 American Express Credit Corp..................... 6.07-6.31 01/06/00-01/19/00 3,717,574
6,530 New Center Asset Trust........................... 5.88-6.04 02/08/00-02/15/00 6,487,209
2,000 Norwest Financial Inc............................ 5.96 02/17/00 1,984,777
------------
12,189,560
------------
FINANCE - CORPORATE (2.3%)
3,135 Ciesco, L.P...................................... 5.89-5.93 02/03/00-02/14/00 3,115,934
------------
INSURANCE (5.4%)
2,000 American General Finance Corp.................... 6.01 03/08/00 1,978,002
1,355 MetLife Funding Inc.............................. 5.89 01/27/00 1,349,295
3,950 Prudential Funding Corp.......................... 5.92-6.28 01/10/00-01/13/00 3,943,163
------------
7,270,460
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INTERNATIONAL BANKS (17.1%)
$ 2,000 ANZ (Del) Inc.................................... 6.07% 01/12/00 $ 1,996,339
2,590 Barclays U.S. Funding Corp....................... 5.85 01/07/00 2,587,524
2,300 Canadian Imperial Holdings Inc................... 6.50 01/03/00 2,299,171
1,630 CBA (Del) Finance Inc............................ 6.01 03/01/00 1,613,917
2,950 Cregem North America Inc......................... 5.98 01/19/00 2,941,268
4,545 Deutsche Bank Financial Inc...................... 5.78-5.80 01/04/00-04/07/00 4,503,472
1,980 Dresdner U.S. Finance Inc........................ 5.88 02/14/00 1,965,988
1,585 Internationale Nederlanden (U.S.) Funding
Corp........................................... 5.88 02/04/00 1,576,393
2,000 National Australia Funding (Del) Inc............. 5.87 01/31/00 1,990,450
1,800 UBS Finance (Del) LLC............................ 6.07 05/19/00 1,758,856
------------
23,233,378
------------
INVESTMENT BANKERS/BROKERS/SERVICES (4.8%)
6,570 Goldman Sachs Group Inc.......................... 6.08-6.23 01/21/00-03/29/00 6,494,574
------------
OFFICE EQUIPMENT & SUPPLIES (1.8%)
2,400 Pitney Bowes Inc................................. 6.41 01/06/00 2,397,867
------------
UTILITIES (1.8%)
2,500 National Rural Utilities Cooperative Finance
Corp........................................... 5.99 03/13/00 2,470,500
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $99,200,202)............................................................. 99,200,202
------------
CERTIFICATES OF DEPOSIT (10.0%)
MAJOR BANKS (10.0%)
4,900 Chase Manhattan Bank (USA) N.A................... 5.60-5.90 01/20/00-02/09/00 4,900,000
5,190 Fleet National Bank.............................. 6.07-6.09 02/22/00-02/24/00 5,190,000
3,500 U.S. Bank, N.A................................... 6.00-6.07 01/28/00-02/25/00 3,500,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $13,590,000)............................................................. 13,590,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MONEY MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON
AMOUNT IN DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM BANK NOTE (1.5%)
MAJOR BANKS
$ 2,000 First USA Bank, N.A. (AMORTIZED COST
$2,000,000).................................... 5.88% 02/11/00 $ 2,000,000
------------
U.S. GOVERNMENT AGENCIES (15.6%)
1,000 Federal Farm Credit Bank......................... 4.99 03/17/00 989,972
4,170 Federal Home Loan Banks.......................... 4.99-5.86 03/03/00-06/09/00 4,098,323
5,306 Federal Home Loan Mortgage Corp.................. 5.55-5.80 06/13/00-07/06/00 5,155,473
11,245 Federal National Mortgage Assoc.................. 4.93-5.95 03/15/00-08/07/00 10,947,654
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $21,191,422)............................................................. 21,191,422
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $135,981,624) (A)......................................................... 100.2% 135,981,624
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.2) (306,384)
----- -------------
NET ASSETS................................................................................ 100.0% $ 135,675,240
----- -------------
----- -------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY & OBLIGATIONS (33.2%)
$ 1,500 Federal Home Loan Banks........................... 7.05 % 04/03/00 $1,503,765
U.S. Treasury Notes
500 .................................................. 5.375 06/30/03 484,995
150 .................................................. 5.50 04/15/00 150,018
500 .................................................. 5.625 12/31/02 490,755
500 .................................................. 5.875 10/31/01 496,915
----------
TOTAL U.S. GOVERNMENT AGENCY & OBLIGATIONS
(IDENTIFIED COST $3,170,844)..................................................... 3,126,448
----------
MORTGAGE-BACKED SECURITIES (45.6%)
Federal Home Loan Mortgage Corp.
423 .................................................. 6.892 04/01/26 427,709
74 .................................................. 7.50 06/01/11 74,142
Federal Home Loan Mortgage Corp. PC Gold
32 .................................................. 5.50 11/01/00 31,213
2 .................................................. 7.00 07/01/00 1,944
183 .................................................. 7.00 09/01/17 178,904
340 .................................................. 7.00 02/01/28 329,261
97 .................................................. 7.50 05/01/11-08/01/11 97,730
Federal National Mortgage Assoc.
33 .................................................. 6.00 09/01/00 32,665
30 .................................................. 6.50 07/01/02 29,047
92 .................................................. 6.582 12/01/26 93,436
61 .................................................. 6.75 01/01/22 61,159
119 .................................................. 6.893 03/01/27 121,224
6 .................................................. 6.95 07/01/24 6,477
4 .................................................. 6.975 04/01/27 4,420
8 .................................................. 6.988 09/01/26 8,066
81 .................................................. 7.00 06/01/02-01/01/03 80,344
596 .................................................. 7.00 07/01/03 594,026
5 .................................................. 7.10 05/01/27 5,551
554 .................................................. 7.149 12/01/27 557,202
733 .................................................. 7.447 11/01/25 748,318
Government National Mortgage Assoc. II
66 .................................................. 6.375 02/20/23 66,896
31 .................................................. 6.375 06/20/25 30,819
28 .................................................. 6.375 01/20/26 27,895
24 .................................................. 6.375 05/20/26 24,662
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
NORTH AMERICAN GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 124 .................................................. 6.75 % 07/20/27 $ 124,576
124 .................................................. 6.75 08/20/27 124,230
417 .................................................. 7.50 12/20/28 411,065
----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $4,350,746)..................................................... 4,292,981
----------
SHORT-TERM INVESTMENTS (20.5%)
U.S. GOVERNMENT AGENCIES (a) (15.9%)
500 Federal Farm Credit Bank.......................... 5.14 01/28/00 498,073
1,000 Federal Home Loan Mortgage Corp................... 5.75 01/10/00 998,562
----------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $1,496,635)...................................................... 1,496,635
----------
REPURCHASE AGREEMENT (4.6%)
437 The Bank of New York (dated 12/31/99; proceeds
$437,191) (b) (IDENTIFIED COST $437,136)........ 1.50 01/03/00 437,136
----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $1,933,771)..................................................... 1,933,771
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $9,455,361) (C)............................................................ 99.3% 9,353,200
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 0.7 67,442
----- -----------
NET ASSETS.................................................................................. 100.0% $ 9,420,642
----- -----------
----- -----------
</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 $306,619 U.S. Treasury Note 11.25% due 02/15/15 valued at
$446,227.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,633 and the
aggregate gross unrealized depreciation is $104,794, resulting in net
unrealized depreciation of $102,161.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT & CORPORATE BONDS (93.0%)
FOREIGN (24.0%)
AUSTRALIA (0.0%)
CABLE TELEVISION
$ 1,300 Australis Holdings Property Ltd. (a).............. 15.00++% 11/01/02 $ 19,500
3 Australis Media Ltd. (a).......................... 15.75++ 05/15/03 16
-----------
TOTAL AUSTRALIA............................................................... 19,516
-----------
BERMUDA (0.2%)
OTHER TELECOMMUNICATIONS
200 Globenet Communications Group, Ltd. - 144A*....... 13.00 07/15/07 203,000
-----------
CANADA (1.2%)
BEVERAGES - NON-ALCOHOLIC (0.6%)
500 Sparkling Spring Water............................ 11.50 11/15/07 395,000
-----------
CELLULAR TELEPHONE (0.2%)
200 Clearnet Communications Inc....................... 14.75++ 12/15/05 197,000
-----------
CONSUMER/BUSINESS SERVICES (0.2%)
200 MDC Communications Corp........................... 10.50 12/01/06 197,500
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.0%)
750 International Semi-Tech Microelectronics (a)...... 11.50++ 08/15/03 37,500
-----------
OTHER TELECOMMUNICATIONS (0.2%)
200 Worldwide Fiber Inc. - 144A*...................... 12.00 08/01/09 206,500
-----------
TOTAL CANADA.................................................................. 1,033,500
-----------
DENMARK (4.2%)
FOREIGN GOVERNMENT OBLIGATIONS
DKK 10,000 Kingdom of Denmark (b)............................ 8.00 11/15/01 1,431,139
16,000 Kingdom of Denmark................................ 6.00 11/15/02 2,223,658
-----------
TOTAL DENMARK................................................................. 3,654,797
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GERMANY (4.0%)
FOREIGN GOVERNMENT OBLIGATIONS
EUR 1,700 Germany (Federal Republic of)..................... 4.50% 05/17/02 $ 1,714,477
1,750 Germany (Federal Republic of)..................... 4.50 08/19/02 1,762,790
-----------
TOTAL GERMANY................................................................. 3,477,267
-----------
NETHERLANDS (4.8%)
FOREIGN GOVERNMENT OBLIGATIONS (4.5%)
1,500 Netherlands Government Bond....................... 8.50 03/15/01 1,587,152
2,250 Netherlands Government Bond....................... 5.75 09/15/02 2,332,073
-----------
3,919,225
-----------
OTHER TELECOMMUNICATIONS (0.3%)
$ 200 Versatel Telecommunications BV.................... 13.25 05/15/08 213,000
-----------
TOTAL NETHERLANDS............................................................. 4,132,225
-----------
NEW ZEALAND (1.9%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKS
NZD 3,000 International Bank for Reconstruction &
Development (b)................................. 7.25 04/09/01 1,579,992
-----------
NORWAY (4.1%)
CONTRACT DRILLING (0.3%)
$ 400 Northern Offshore ASA............................. 10.00 05/15/05 244,000
-----------
FOREIGN GOVERNMENT OBLIGATION (3.8%)
NOK 26,060 Norway Government Bond (b)........................ 7.00 05/31/01 3,293,654
-----------
TOTAL NORWAY.................................................................. 3,537,654
-----------
UNITED KINGDOM (3.6%)
CELLULAR TELEPHONE (0.2%)
$ 300 Dolphin Telecom PLC............................... 14.00++ 05/15/09 138,000
-----------
FOREIGN GOVERNMENT OBLIGATION (2.5%)
GBP 1,300 U.K. Treasury Bond................................ 7.00 06/07/02 2,122,592
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INTERNATIONAL BANKS (0.7%)
GBP 400 Abbey National Treasury Service (b)............... 7.125% 03/14/01 $ 647,517
-----------
OTHER TELECOMMUNICATIONS (0.2%)
$ 200 Esprit Telecom Group PLC.......................... 10.875 06/15/08 198,000
-----------
TOTAL UNITED KINGDOM.......................................................... 3,106,109
-----------
TOTAL FOREIGN
(IDENTIFIED COST $22,717,358)................................................. 20,744,060
-----------
UNITED STATES (69.0%)
CORPORATE BONDS (29.1%)
ADVERTISING (0.3%)
300 Interep National Radio Sales...................... 10.00 07/01/08 291,000
-----------
AEROSPACE (0.3%)
300 Sabreliner Corp. - 144A*.......................... 11.00 06/15/08 237,000
-----------
BROADCAST/MEDIA (0.5%)
400 Tri-State Outdoor Media Group, Inc................ 11.00 05/15/08 394,000
-----------
CABLE TELEVISION (1.7%)
400 21st Century Telecom Group, Inc................... 12.25++ 02/15/08 268,000
300 Knology Holdings Inc.............................. 11.875++ 10/15/07 201,000
400 Optel, Inc. (a)................................... 13.00 02/15/05 296,000
1,000 Optel, Inc. (Series B) (a)........................ 11.50 07/01/08 720,000
-----------
1,485,000
-----------
CASINO/GAMBLING (1.2%)
1,200 Aladdin Gaming/Capital Corp. LLC (Series B)....... 13.50++ 03/01/10 486,000
850 Fitzgeralds Gaming Corp. (Series B) (c)........... 12.25 12/15/04 467,500
115 Lady Luck Gaming Financial Corp. (Series SA)...... 11.875 03/01/01 116,150
-----------
1,069,650
-----------
CELLULAR TELEPHONE (1.8%)
200 American Cellular Corp............................ 10.50 05/15/08 220,500
200 Dobson/Sygnet Communications...................... 12.25 12/15/08 220,000
500 McCaw International Ltd........................... 13.00++ 04/15/07 349,480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 300 Nextel Communications, Inc........................ 10.65++% 09/15/07 $ 226,500
300 Tritel PCS Inc. - 144A*........................... 12.75++ 05/15/09 189,000
500 Triton PCS Inc.................................... 11.00++ 05/01/08 355,000
-----------
1,560,480
-----------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.2%)
200 J.B. Poindexter & Co., Inc........................ 12.50 05/15/04 191,000
-----------
CONSUMER/BUSINESS SERVICES (1.3%)
200 Anacomp, Inc. (Series B).......................... 10.875 04/01/04 199,500
500 Comforce Operating, Inc........................... 12.00 12/01/07 325,000
700 Entex Information Services, Inc................... 12.50 08/01/06 315,000
300 Muzak LLC......................................... 9.875 03/15/09 289,500
-----------
1,129,000
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.4%)
310 Windmere-Durable Holdings, Inc.................... 10.00 07/31/08 302,250
-----------
CONSUMER SPECIALTIES (0.7%)
700 Samsonite Corp.................................... 10.75 06/15/08 612,500
-----------
CONTAINERS/PACKAGING (1.1%)
325 Berry Plastics Corp............................... 12.25 04/15/04 333,125
735 Envirodyne Industries, Inc........................ 10.25 12/01/01 411,600
200 Impac Group Inc. (Series B)....................... 10.125 03/15/08 182,000
-----------
926,725
-----------
DIVERSIFIED ELECTRONIC PRODUCTS (0.3%)
300 High Voltage Engineering, Inc..................... 10.75 08/15/04 256,500
-----------
DIVERSIFIED FINANCIAL SERVICES (1.5%)
GBP 800 General Electric Capital Corp. (b)................ 6.625 03/16/01 1,287,146
-----------
DIVERSIFIED MANUFACTURING (0.7%)
$ 200 Eagle-Picher Industries, Inc...................... 9.375 03/01/08 175,000
200 Jordan Industries, Inc. (Series D)................ 10.375 08/01/07 200,000
325 Jordan Industries, Inc. (Series B)................ 11.75++ 04/01/09 217,750
-----------
592,750
-----------
ELECTRONIC DISTRIBUTORS (0.1%)
400 CHS Electronics, Inc.............................. 9.875 04/15/05 48,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOOD CHAINS (0.6%)
$ 250 Big V Supermarkets, Inc. (Series B)............... 11.00% 02/15/04 $ 245,000
500 Pueblo Xtra International, Inc. (Series C)........ 9.50 08/01/03 300,000
-----------
545,000
-----------
FOOD DISTRIBUTORS (0.5%)
300 Fleming Companies, Inc. (Series B)................ 10.625 07/31/07 270,750
200 Volume Services of America Inc.................... 11.25 03/01/09 197,000
-----------
467,750
-----------
HOTELS/RESORTS (0.5%)
300 Epic Resorts LLC (Series B)....................... 13.00 06/15/05 240,000
299 Resort At Summerlin (Series B).................... 13.00 12/15/07 209,487
-----------
449,487
-----------
INDUSTRIAL SPECIALTIES (1.0%)
200 Cabot Safety Corp................................. 12.50 07/15/05 204,000
200 Indesco International Inc......................... 9.75 04/15/08 90,000
350 International Wire Group, Inc. (Series B)......... 11.75 06/01/05 361,375
250 Outsourcing Services Group, Inc. (Series B)....... 10.875 03/01/06 222,500
-----------
877,875
-----------
MEDICAL SPECIALTIES (0.8%)
600 Mediq Inc./PRN Life Support Services Inc.......... 11.00 06/01/08 240,000
600 Universal Hospital Services, Inc.................. 10.25 03/01/08 409,500
-----------
649,500
-----------
MEDICAL/NURSING SERVICES (0.3%)
500 Pediatric Services of America, Inc. (Series A).... 10.00 04/15/08 230,000
-----------
MILITARY/GOV'T/TECHNICAL (0.2%)
200 Loral Space & Communications Ltd.................. 9.50 01/15/06 182,000
-----------
OFFICE EQUIPMENT/SUPPLIES (0.5%)
700 Mosler, Inc....................................... 11.00 04/15/03 413,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OIL REFINING/MARKETING (0.0%)
$ 500 Transamerican Refining Corp. (Series B) (a) (c)... 16.00% 06/30/03 $ 7,500
-----------
OTHER TELECOMMUNICATIONS (3.9%)
600 Birch Telecom Inc................................. 14.00 06/15/08 606,000
300 DTI Holdings Inc. (Series B)...................... 12.50++ 03/01/08 111,000
1,700 Firstworld Communications, Inc.................... 13.00++ 04/15/08 1,020,000
300 Pac-West Telecomm Inc. (Series B)................. 13.50 02/01/09 310,500
300 Primus Telecommunication Group, Inc............... 11.75 08/01/04 303,000
300 Primus Telecommunication Group, Inc.
(Series B)...................................... 9.875 05/15/08 276,000
200 Viatel Inc........................................ 11.25 04/15/08 201,000
600 World Access, Inc. (d)............................ 13.25 01/15/08 540,000
-----------
3,367,500
-----------
PRINTING/FORMS (0.2%)
300 Premier Graphics Inc.............................. 11.50 12/01/05 210,000
-----------
RESTAURANTS (0.5%)
550 FRD Acquisition Corp. (Series B).................. 12.50 07/15/04 280,500
200 Friendly Ice Cream Corp........................... 10.50 12/01/07 172,000
-----------
452,500
-----------
RETAIL - SPECIALTY (0.6%)
200 Pantry, Inc....................................... 10.25 10/15/07 195,000
300 Petro Stopping Centers............................ 10.50 02/01/07 278,250
-----------
473,250
-----------
SPECIALTY FOODS/CANDY (0.3%)
1,839 SFAC New Holdings Inc. (d)........................ 13.00++ 06/15/09 275,862
-----------
TELECOMMUNICATIONS (3.6%)
200 CapRock Communications Corp. (Series B)........... 12.00 07/15/08 207,000
400 Covad Communications Group, Inc................... 12.50 02/15/09 416,000
600 e. Spire Communications, Inc...................... 13.75 07/15/07 426,000
300 Focal Communications Corp. (Series B)............. 12.125++ 02/15/08 198,000
250 GST Equipment Funding............................. 13.25 05/01/07 247,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 200 Hyperion Telecommunication, Inc. (Series B)....... 12.25% 09/01/04 $ 216,500
400 In-Flight Phone Corp. (Series B) (a) (c).......... 14.00 05/15/02 44,000
200 Level 3 Communications, Inc....................... 9.125 05/01/08 189,250
150 NextLink Communications, Inc...................... 12.50 04/15/06 160,500
250 NextLink Communications, Inc...................... 10.75 06/01/09 259,375
500 Rhythms Netconnections............................ 12.75 04/15/09 482,500
300 Talton Holdings, Inc. (Series B).................. 11.00 06/30/07 285,000
-----------
3,131,625
-----------
TELECOMMUNICATION EQUIPMENT (0.2%)
1,900 FWT, Inc. (a) (c)................................. 9.875 11/15/07 152,000
-----------
WIRELESS COMMUNICATIONS (3.3%)
1,000 Advanced Radio Telecom Corp....................... 14.00 02/15/07 910,000
100 Arch Escrow Corp.................................. 13.75 04/15/08 81,000
100 CellNet Data Systems, Inc. - 144A*................ 15.00 01/07/00 100,000
1,800 CellNet Data Systems, Inc......................... 14.00++ 10/01/07 216,000
250 Globalstar LP/Capital Corp........................ 11.375 02/15/04 167,500
150 Globalstar LP/Capital Corp........................ 11.50 06/01/05 100,500
300 Orbcomm Global LP/Capital Corp.................... 14.00 08/15/04 207,000
300 Paging Network, Inc............................... 10.125 08/01/07 93,000
1,050 Paging Network, Inc............................... 10.00 10/15/08 325,500
400 USA Mobile Communications Holdings, Inc........... 14.00 11/01/04 364,000
250 Winstar Equipment Corp............................ 12.50 03/15/04 270,000
-----------
2,834,500
-----------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $31,094,082)................................................. 25,102,350
-----------
MORTGAGE-BACKED SECURITIES (24.0%)
377 Federal Home Loan Mortgage Corp. (0.4%)........... 7.00 06/01/04 376,275
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Federal National Mortgage Assoc. (7.9%)
$ 2,602 .................................................. 6.00% 02/01/11-03/01/28 $ 2,403,687
2,354 .................................................. 6.50 04/01/12-04/01/26 2,240,698
2,031 .................................................. 7.00 07/01/25 1,963,296
175 .................................................. 8.00 07/01/26 176,659
-----------
6,784,340
-----------
Government National Mortgage Assoc. (15.7%)
4,820 .................................................. 6.00 11/15/28 4,387,817
5,805 .................................................. 6.50 01/15/24-04/20/28 5,448,727
1,622 .................................................. 7.00 09/15/22 1,566,760
1,666 .................................................. 7.50 07/15/26 1,650,064
437 .................................................. 8.00 06/15/26 441,351
-----------
13,494,719
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $21,585,402)................................................. 20,655,334
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (15.9%)
500 Federal Home Loan Banks (0.6%).................... 5.53 01/15/03 482,345
-----------
500 Federal National Mortgage Assoc. (0.6%)........... 5.60 02/02/01 495,425
-----------
6,000 Resolution Funding Corp. (b) (4.3%)............... 0.00 01/15/05-10/15/07 3,695,320
-----------
1,000 Tennessee Valley Authority (b) (1.1%)............. 0.00 07/15/00 967,770
-----------
U.S. Treasury Notes (b) (9.3%)
1,000 .................................................. 6.375 09/30/01 1,001,970
3,300 .................................................. 5.875 11/30/01 3,278,880
2,000 .................................................. 6.25 01/31/02 1,999,820
500 .................................................. 6.25 08/31/02 499,415
1,300 .................................................. 5.75 11/30/02 1,280,656
-----------
8,060,741
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $14,021,466)................................................. 13,701,601
-----------
TOTAL UNITED STATES
(IDENTIFIED COST $66,700,950)................................................. 59,459,285
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $89,418,308)................................................. 80,203,345
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (e) (0.0%)
CASINO/GAMBLING (0.0%)
787 Fitzgerald Gaming Corp. (Class D)*...................................................... $ 1
-----------
CLOTHING/SHOE/ACCESSORY SHOES (0.0%)
50,166 County Seat Stores, Inc. (d)............................................................ 451
-----------
MEDICAL/NURSING SERVICES (0.0%)
34,888 Raintree Healthcare Corp. (d)........................................................... 31,399
-----------
OTHER TELECOMMUNICATIONS (0.0%)
1,885 World Access, Inc. (d).................................................................. 36,522
-----------
SPECIALTY FOODS/CANDY (0.0%)
100 SFAC New Holdings Inc. (d)*............................................................. 25
-----------
TEXTILES (0.0%)
11,192 United States Leather, Inc. (d)......................................................... 101
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $945,854).............................................................. 68,499
-----------
CONVERTIBLE PREFERRED STOCKS (e) (0.0%)
OIL REFINING/MARKETING
878 TCR Holding Corp. (Class B) (Non-Voting)................................................ 9
483 TCR Holding Corp. (Class C) (Non-Voting)................................................ 5
1,273 TCR Holding Corp. (Class D) (Non-Voting)................................................ 13
2,633 TCR Holding Corp. (Class E) (Non-Voting)................................................ 26
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $313).................................................................. 53
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
<C> <S> <C> <C>
- --------- ----------
WARRANTS (e) (0.4%)
BROADCASTING (0.0%)
300 UIH Australia/Pacific Inc..................................................... 05/15/06 9,000
-----------
CASINO/GAMBLING (0.0%)
9,000 Aladdin Gaming Enterprises, Inc. - 144A*...................................... 03/01/10 90
-----------
CELLULAR TELEPHONE (0.0%)
500 McCaw International Ltd. - 144A*.............................................. 04/15/07 4,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HOTELS/RESORTS (0.0%)
300 Epic Resorts LLC/Capital - 144A*.............................................. 06/15/05 $ 3
250 Resort At Summerlin - 144A*................................................... 12/15/07 2
-----------
5
-----------
OIL REFINING/MARKETING (0.0%)
500 Transamerican Refining Corp. - 144A*.......................................... 06/30/03 1
-----------
OTHER TELECOMMUNICATIONS (0.4%)
500 Birch Telecom Inc. - 144A*.................................................... 06/15/08 27,500
1,500 DTI Holdings, Inc. - 144A*.................................................... 03/01/08 15
1,700 Firstworld Communications, Inc. - 144A*....................................... 04/15/08 204,000
200 Versatel Telecom - 144A* (Netherlands)........................................ 05/15/08 80,000
-----------
311,515
-----------
TOTAL WARRANTS
(IDENTIFIED COST $1,782).................................................................. 324,611
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
<C> <S> <C> <C> <C>
- ------------ ----- ------------------
SHORT-TERM INVESTMENTS (4.7%)
UNITED STATES
TIME DEPOSIT (f) (0.5%)
EUR 396 Chase Manhattan Bank
(IDENTIFIED COST $403,197)...................... 3.00% 01/21/00 397,977
-----------
U.S. GOVERNMENT AGENCY (g) (4.2%)
$ 3,650 Federal Home Loan Mortgage Corp. (AMORTIZED COST
$3,649,696)..................................... 1.50 01/03/00 3,649,696
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,052,893).................................................. 4,047,673
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DIVERSIFIED INCOME
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
VALUE
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $94,419,150) (H).......................................................... 98.1% $ 84,644,181
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 1.9 1,626,237
----- ------------
NET ASSETS................................................................................. 100.0% $ 86,270,418
----- ------------
----- ------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ 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.
(c) Non-income producing securities; issuer in default.
(d) Acquired through exchange offer.
(e) Non-income producing securities.
(f) Subject to withdrawal restrictions until maturity.
(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 $1,175,279 and the
aggregate gross unrealized depreciation is $10,950,248, resulting in net
unrealized depreciation of $9,774,969.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1999:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -------------------------------------------------------------------
<S> <C> <C> <C>
GBP 646,100 $1,043,871 02/28/00 $ 933
NZD 2,058,666 $1,052,802 02/29/00 (25,322)
NZD 871,237 $ 445,877 02/29/00 (10,390)
GBP 1,359,000 $2,172,253 03/03/00 (21,445)
------------
Net unrealized depreciation.................. $ (56,224)
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
GBP British Pound.
DKK Danish Krone.
EUR Euro.
NZD New Zealand Dollar.
NOK Norwegian Krone.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (62.9%)
AEROSPACE (2.5%)
50,000 United Technologies Corp............................................................... $ 3,250,000
------------
ALUMINUM (2.5%)
38,500 Alcoa Inc.............................................................................. 3,195,500
------------
AUTO PARTS: O.E.M. (2.3%)
190,000 Delphi Automotive Systems Corp......................................................... 2,992,500
------------
BEVERAGES - NON-ALCOHOLIC (2.3%)
82,500 PepsiCo, Inc........................................................................... 2,908,125
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.5%)
74,000 Deere & Co............................................................................. 3,209,750
------------
DEPARTMENT STORES (2.4%)
95,500 May Department Stores Co............................................................... 3,079,875
------------
DISCOUNT CHAINS (2.3%)
39,500 Dayton Hudson Corp..................................................................... 2,900,781
------------
DIVERSIFIED MANUFACTURING (2.4%)
31,000 Minnesota Mining & Manufacturing Co.................................................... 3,034,125
------------
ELECTRIC UTILITIES (4.4%)
92,000 GPU, Inc............................................................................... 2,754,250
88,000 Unicom Corp............................................................................ 2,948,000
------------
5,702,250
------------
ELECTRONIC DATA PROCESSING (2.3%)
27,000 International Business Machines Corp................................................... 2,916,000
------------
FINANCE COMPANIES (2.1%)
100,500 Associates First Capital Corp. (Class A)............................................... 2,757,469
------------
FOREST PRODUCTS (2.4%)
43,500 Weyerhaeuser Co........................................................................ 3,123,844
------------
MAJOR BANKS (4.4%)
55,500 Bank of America Corp................................................................... 2,785,406
127,500 KeyCorp................................................................................ 2,820,938
------------
5,606,344
------------
MAJOR CHEMICALS (2.4%)
46,000 Du Pont (E.I.) de Nemours & Co., Inc................................................... 3,030,250
------------
MAJOR PHARMACEUTICALS (2.3%)
45,000 Bristol-Myers Squibb Co................................................................ 2,888,438
------------
MAJOR U.S. TELECOMMUNICATIONS (2.1%)
53,000 AT&T Corp.............................................................................. 2,689,750
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEAT/POULTRY/FISH (2.4%)
136,500 ConAgra, Inc........................................................................... $ 3,079,781
------------
MOTOR VEHICLES (4.6%)
56,000 Ford Motor Co.......................................................................... 2,992,500
40,000 General Motors Corp.................................................................... 2,907,500
------------
5,900,000
------------
MULTI-SECTOR COMPANIES (2.2%)
18,500 General Electric Co.................................................................... 2,862,875
------------
OIL/GAS TRANSMISSION (2.6%)
74,000 Enron Corp............................................................................. 3,283,750
------------
OTHER METALS/MINERALS (2.6%)
50,000 Phelps Dodge Corp...................................................................... 3,356,250
------------
PACKAGE GOODS/COSMETICS (2.3%)
27,000 Procter & Gamble Co.................................................................... 2,958,187
------------
RAILROADS (2.4%)
97,500 CSX Corp............................................................................... 3,059,062
------------
SEMICONDUCTORS (2.2%)
35,000 Intel Corp............................................................................. 2,878,750
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $74,731,551).......................................................... 80,663,656
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
-------
CORPORATE BONDS (1.1%)
ELECTRONIC DATA PROCESSING (0.4%)
$ 500 IBM Corp.
7.00% due 10/30/25................................................................... 469,190
------------
INTERNATIONAL BANKS (0.1%)
100 Abbey National PLC (United Kingdom)
6.69% due 10/17/05................................................................... 96,537
------------
MAJOR PHARMACEUTICALS (0.0%)
45 Lilly (Eli) & Co.
8.375% due 12/01/06.................................................................. 47,772
------------
MAJOR U.S. TELECOMMUNICATIONS (0.3%)
400 MCI Communication Corp.
6.95% due 08/15/06................................................................... 389,372
------------
PAPER (0.2%)
200 Willamette Industries, Inc. 7.85% due 07/01/26......................................... 195,768
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY CHEMICALS (0.1%)
$ 200 Praxair, Inc.
6.90% due 11/01/06................................................................... $ 190,138
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $1,460,071)........................................................... 1,388,777
------------
MORTGAGE-BACKED SECURITIES (22.6%)
1,084 Federal Home Loan Mortgage Corp.
6.00% due 04/01/03................................................................... 1,044,117
547 Federal Home Loan Mortgage Corp.
7.00% due 08/01/12................................................................... 541,035
730 Federal Home Loan Mortgage Corp.
7.00% due 04/01/26................................................................... 706,433
350 Federal National Mortgage Assoc.
6.00% due 04/01/04................................................................... 337,253
3,885 Federal National Mortgage Assoc.
6.00% due 04/01/06................................................................... 3,739,376
1,518 Federal National Mortgage Assoc.
6.50% due 07/01/06................................................................... 1,487,863
1,643 Federal National Mortgage Assoc.
6.50% due 01/01/13................................................................... 1,593,877
3,489 Federal National Mortgage Assoc.
6.00% due 06/01/13................................................................... 3,311,306
755 Federal National Mortgage Assoc.
6.50% due 10/01/17................................................................... 720,587
946 Federal National Mortgage Assoc.
7.50% due 06/01/27................................................................... 936,073
906 Federal National Mortgage Assoc.
6.50% due 06/01/28................................................................... 853,641
2,304 Government National Mortgage Assoc.
7.50% due 08/15/23................................................................... 2,278,573
1,924 Government National Mortgage Assoc.
6.50% due 09/15/28................................................................... 1,807,096
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 2,848 Government National Mortgage Assoc.
6.00% due 11/15/28................................................................... $ 2,592,259
7,553 Government National Mortgage Assoc. II
6.50% due 04/20/28................................................................... 7,068,894
------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $30,378,753).......................................................... 29,018,383
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (9.6%)
1,100 Federal Home Loan Banks
5.65% due 02/06/03................................................................... 1,062,886
1,500 Federal Home Loan Banks
5.96% due 02/05/08................................................................... 1,384,785
500 Resolution Funding Corp.
0.00% due 10/15/04................................................................... 364,585
1,705 U.S. Treasury Bond
7.50% due 11/15/24................................................................... 1,859,950
1,065 U.S. Treasury Bond
6.00% due 02/15/26................................................................... 973,602
550 U.S. Treasury Note
7.75% due 01/31/00................................................................... 551,056
385 U.S. Treasury Note
6.625% due 06/30/01.................................................................. 387,206
1,400 U.S. Treasury Note
6.625% due 04/30/02.................................................................. 1,410,654
500 U.S. Treasury Note
5.50% due 05/31/03................................................................... 486,750
80 U.S. Treasury Note
7.875% due 11/15/04.................................................................. 84,557
1,300 U.S. Treasury Note
5.875% due 11/15/05.................................................................. 1,261,728
500 U.S. Treasury Note
6.25% due 02/15/07................................................................... 491,745
2,000 U.S. Treasury Note
6.125% due 08/15/07.................................................................. 1,949,080
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $12,754,575).......................................................... 12,268,584
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
BALANCED GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.4%)
U.S. GOVERNMENT AGENCY
$ 4,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,399,633)........ $ 4,399,633
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $123,724,583) (B)........................................................ 99.6% 127,739,033
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.4 560,193
----- -------------
NET ASSETS................................................................................ 100.0% $ 128,299,226
----- -------------
----- -------------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $11,131,142 and the
aggregate gross unrealized depreciation is $7,116,692, resulting in net
unrealized appreciation of $4,014,450.
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (91.8%)
ELECTRIC UTILITIES (21.7%)
21,000 AES Corp. (The)*....................................................................... $ 1,569,750
14,000 Allegheny Energy, Inc.................................................................. 377,125
25,000 Alliant Energy Co...................................................................... 687,500
15,000 Ameren Corp............................................................................ 491,250
10,000 American Electric Power Co............................................................. 321,250
30,000 Calpine Corp.*......................................................................... 1,920,000
27,081 Carolina Power & Light Co.............................................................. 824,278
10,000 Central & South West Corp.............................................................. 200,000
13,500 Cinergy Corp........................................................................... 325,687
15,000 CLECO Corp............................................................................. 480,937
25,000 CMS Energy Corp........................................................................ 779,687
19,000 Consolidated Edison, Inc............................................................... 655,500
20,000 Constellation Energy Group, Inc........................................................ 580,000
15,000 Dominion Resources, Inc................................................................ 588,750
32,500 DQE, Inc............................................................................... 1,125,312
35,000 DTE Energy Co.......................................................................... 1,098,125
13,355 Duke Energy Corp....................................................................... 669,419
28,000 Edison International................................................................... 733,250
27,500 Entergy Corp........................................................................... 708,125
10,000 Florida Progress Corp.................................................................. 423,125
25,000 FPL Group, Inc......................................................................... 1,070,312
14,000 GPU, Inc............................................................................... 419,125
7,500 Illinova Corp.......................................................................... 260,625
30,000 Independent Energy Holdings PLC (ADR) (United Kingdom)*................................ 986,250
30,000 IPALCO Enterprises, Inc................................................................ 511,875
10,000 Kansas City Power & Light Co........................................................... 220,625
31,700 LG&E Energy Corp....................................................................... 552,769
35,000 MidAmerican Energy Holdings Co.*....................................................... 1,179,062
20,000 Minnesota Power, Inc................................................................... 338,750
40,000 Montana Power Co....................................................................... 1,442,500
11,000 New Century Energies, Inc.............................................................. 334,125
10,000 New England Electric System............................................................ 517,500
25,000 Niagara Mohawk Holdings Inc.*.......................................................... 348,437
24,000 NiSource Inc........................................................................... 429,000
30,000 Northeast Utilities.................................................................... 616,875
20,000 Northern States Power Co............................................................... 390,000
20,000 Northwestern Corp...................................................................... 440,000
22,000 NSTAR.................................................................................. 891,000
24,000 OGE Energy Corp........................................................................ 456,000
30,500 PECO Energy Co......................................................................... 1,059,875
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
14,500 PG & E Corp............................................................................ $ 297,250
10,500 Pinnacle West Capital Corp............................................................. 320,906
40,000 Plug Power Inc.*....................................................................... 1,110,000
12,500 Public Service Company of New Mexico................................................... 203,125
19,000 Public Service Enterprise Group, Inc................................................... 661,437
20,000 Reliant Energy, Inc.................................................................... 457,500
27,000 SCANA Corp............................................................................. 725,625
45,040 Sierra Pacific Resources............................................................... 779,755
20,000 Southern Co............................................................................ 470,000
22,000 TECO Energy, Inc....................................................................... 408,375
12,000 Texas Utilities Co..................................................................... 426,750
31,000 TNP Enterprises, Inc................................................................... 1,278,750
21,000 Unicom Corp............................................................................ 703,500
15,000 United Illuminating Co................................................................. 770,625
16,000 Wisconsin Energy Corp.................................................................. 308,000
------------
35,945,373
------------
ENERGY (8.4%)
20,000 AGL Resources, Inc..................................................................... 340,000
10,000 Columbia Energy Group.................................................................. 632,500
6,000 Consolidated Natural Gas Co............................................................ 389,625
17,622 El Paso Energy Corp.................................................................... 683,954
31,824 Enron Corp............................................................................. 1,412,190
7,000 Ente Nazionale Idrocarburi - ENI SpA (ADR) (Italy)..................................... 385,875
15,000 Exxon Mobil Corp....................................................................... 1,208,437
16,000 Indiana Energy Inc..................................................................... 284,000
51,600 KeySpan Corp........................................................................... 1,196,475
30,000 Kinder Morgan, Inc..................................................................... 605,625
29,000 MCN Energy Group Inc................................................................... 688,750
25,000 MDU Resources Group, Inc............................................................... 500,000
14,000 New Jersey Resources Corp.............................................................. 546,875
15,000 Nicor Inc.............................................................................. 487,500
13,750 Northwest Natural Gas Co............................................................... 299,063
29,000 Questar Corp........................................................................... 435,000
12,000 Royal Dutch Petroleum Co. (ADR) (Netherlands).......................................... 725,250
14,541 Sempra Energy.......................................................................... 252,650
10,000 South Jersey Industries, Inc........................................................... 284,375
36,000 UtiliCorp United Inc................................................................... 699,750
22,000 Washington Gas Light Co................................................................ 605,000
15,000 Williams Companies, Inc................................................................ 458,438
16,000 YPF Sociedad Anomina (ADR) (Argentina)................................................. 591,000
------------
13,712,332
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS (61.1%)
10,000 ADC Telecommunications, Inc.*.......................................................... $ 725,000
15,000 Advanced Fibre Communications, Inc.*................................................... 671,250
19,000 Alcatel Alsthom (ADR) (France)......................................................... 855,000
14,160 ALLTEL Corp............................................................................ 1,170,855
25,000 Amdocs Ltd.*........................................................................... 862,500
25,000 American Tower Corp. (Class A)*........................................................ 764,063
15,000 Antec Corp.*........................................................................... 547,500
38,000 AT&T Canada, Inc. (Canada)*............................................................ 1,524,750
35,462 AT&T Corp.............................................................................. 1,799,697
15,000 BCE, Inc. (Canada)..................................................................... 1,352,813
14,144 Bell Atlantic Corp..................................................................... 870,740
10,000 BellSouth Corp......................................................................... 468,125
34,000 Broadwing Inc.......................................................................... 1,253,750
20,625 CenturyTel, Inc........................................................................ 977,109
12,000 China Telecom Ltd. (ADR)
(Hong Kong)*......................................................................... 1,542,750
22,000 Cisco Systems, Inc.*................................................................... 2,355,375
11,000 COLT Telecom Group PLC (ADR) (United Kingdom)*......................................... 2,242,625
15,000 Comcast Corp. (Class A Special)........................................................ 757,500
15,000 Commonwealth Telephone Enterprises, Inc.*.............................................. 787,500
10,000 Corning Inc............................................................................ 1,289,375
35,000 Crown Castle International Corp.*...................................................... 1,120,000
25,000 CTC Communication Group, Inc.*......................................................... 975,000
12,000 Deutsche Telekom AG (ADR) (Germany).................................................... 852,000
22,500 Dycom Industries, Inc.*................................................................ 991,406
10,000 Equant N.V. (Netherlands)*............................................................. 1,120,000
11,900 Esat Telecom Group PLC (ADR) (Ireland)*................................................ 1,088,850
7,200 France Telecom S.A. (ADR) (France)..................................................... 961,200
15,000 General Instrument Corp.*.............................................................. 1,275,000
10,000 General Motors Corp. (Class H) (Hughes Electronics)*................................... 960,000
48,405 Global Crossing Ltd. (Bermuda)*........................................................ 2,417,225
42,000 Global Telesystems Group, Inc.*........................................................ 1,454,250
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
12,500 GTE Corp............................................................................... $ 882,031
10,000 Harmonic, Inc.*........................................................................ 947,500
50,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR) (Greece)...................... 596,875
14,000 ICG Communications, Inc.*.............................................................. 261,625
50,200 Infonet Services Corp. (Class B)*...................................................... 1,317,750
40,000 Intermedia Communications Inc.*........................................................ 1,545,000
25,000 ITC DeltaCom, Inc.*.................................................................... 689,063
25,000 IXnet, Inc.*........................................................................... 751,563
10,000 Koninklijke (Royal) Philips Electronics NV (Netherlands)............................... 1,350,000
28,000 Level 3 Communications, Inc.*.......................................................... 2,289,000
14,584 Lucent Technologies Inc................................................................ 1,091,066
10,000 Magyar Tavkozlesi RT (MATAV) (ADR) (Hungary)........................................... 360,000
28,290 MCI WorldCom, Inc.*.................................................................... 1,499,370
40,000 McLeodUSA, Inc. (Class A)*............................................................. 2,350,000
14,000 MediaOne Group, Inc.*.................................................................. 1,075,375
25,000 Metromedia Fiber Network, Inc. (Class A)*.............................................. 1,196,875
25,000 MGC Communication, Inc.*............................................................... 1,254,688
10,000 Motorola, Inc.......................................................................... 1,472,500
10,000 Nextel Communications, Inc. (Class A)*................................................. 1,030,625
30,000 NEXTLINK Communications, Inc. (Class A)*............................................... 2,490,000
13,000 Nippon Telegraph & Telephone Corp. (ADR) (Japan)....................................... 1,119,625
10,000 Nokia Corp. (ADR) (Finland)............................................................ 1,900,000
16,000 Nortel Networks Corp. (Canada)......................................................... 1,616,000
20,000 NorthEast Optic Network, Inc.*......................................................... 1,250,000
70,000 Portugal Telecom S.A. (ADR) (Portugal)................................................. 761,250
15,000 Primus Telecommunications Group, Inc.*................................................. 573,750
12,000 QUALCOMM Inc.*......................................................................... 2,112,750
45,650 Qwest Communications International, Inc.*.............................................. 1,960,097
26,000 RCN Corp.*............................................................................. 1,259,375
25,000 Rhythms NetConnections Inc............................................................. 775,000
8,000 Royal PTT Nederland NV (ADR) (KPN) (Netherlands)....................................... 769,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
12,000 RSL Communications, Ltd. (Class A) (Bermuda)*.......................................... $ 204,750
60,000 SBA Communications Corp.*.............................................................. 1,091,250
29,272 SBC Communications, Inc................................................................ 1,427,010
15,000 Scientific-Atlanta, Inc................................................................ 834,375
14,000 Sprint Corp. (FON Group)............................................................... 942,375
10,500 Sprint Corp. (PCS Group)*.............................................................. 1,076,250
20,000 Tele Danmark AS (ADR) (Denmark)........................................................ 755,000
8,000 Telecom Italia SpA (ADR) (Italy)....................................................... 1,120,000
4,800 TeleCorp PCS, Inc.*.................................................................... 183,000
15,918 Telefonica Espana S.A. (ADR) (Spain)*.................................................. 1,254,537
15,000 Teleglobe Inc.......................................................................... 340,313
13,000 Telephone & Data Systems, Inc.......................................................... 1,638,000
15,000 Teligent, Inc. (Class A)*.............................................................. 908,438
20,000 Tellabs, Inc.*......................................................................... 1,282,500
20,000 Telstra Corp. Ltd. (ADR) (Australia)................................................... 545,000
50,000 Time Warner Telecom Inc. (Class A)*.................................................... 2,481,250
5,327 U.S. West, Inc......................................................................... 383,544
7,000 United States Cellular Corp.*.......................................................... 706,563
27,000 Viatel, Inc.*.......................................................................... 1,444,500
25,000 Vodafone Group PLC (ADR) (United Kingdom).............................................. 1,237,500
21,000 VoiceStream Wireless Corp.*............................................................ 2,979,375
20,000 Western Wireless Corp. (Class A)*...................................................... 1,332,500
20,000 Williams Communications Group, Inc.*................................................... 578,750
24,000 WinStar Communications, Inc.*.......................................................... 1,803,000
------------
101,130,741
------------
WATER SUPPLY (0.6%)
11,000 E'Town Corp............................................................................ 684,750
16,000 Philadelphia Suburban Corp............................................................. 331,000
------------
1,015,750
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $95,233,073).......................................................... 151,804,196
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (0.2%)
ELECTRIC UTILITIES (0.2%)
6,000 Alabama Power Capital Trust I (Series Q) $1.84......................................... $ 123,000
1,000 Duquesne Capital LP (Series A) $2.094.................................................. 22,063
2,500 Public Service Electric & Gas Capital (Series B) $2.00................................. 53,906
1,000 Tennessee Valley Authority (Series 95-A) $2.00......................................... 24,562
5,000 Virginia Power Capital $2.013.......................................................... 108,125
------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $388,687)............................................................. 331,656
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
------
CORPORATE BONDS (3.6%)
ELECTRIC UTILITIES (0.7%)
$ 500 Niagara Mohawk Power Corp. 8.00% due 06/01/04.......................................... 509,965
249 Niagara Mohawk Power Corp. 8.77% due 01/01/18.......................................... 260,113
500 Salton Sea Funding Corp. - 144A** 7.475% due 11/30/18.................................. 468,055
------------
1,238,133
------------
ENERGY (1.1%)
1,000 CMS Panhandle Holding Co. 7.00% due 07/15/29........................................... 877,720
1,000 Sonat Inc. 7.625% due 07/15/11......................................................... 979,810
------------
1,857,530
------------
TELECOMMUNICATIONS (1.8%)
500 Aliant Communications, Inc. 6.75% due 04/01/28......................................... 436,095
1,000 AT&T Canada Inc. - 144A** (Canada) 7.65% due 09/15/06.................................. 999,590
500 Electric Lightwave, Inc. 6.05% due 05/15/04............................................ 471,495
500 GTE Corp. 7.51% due 04/01/09........................................................... 500,100
500 LCI International, Inc. 7.25% due 06/15/07............................................. 481,545
------------
2,888,825
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $6,320,215)........................................................... 5,984,488
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
<PAGE>
UTILITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.1%)
U.S. GOVERNMENT AGENCY (a) (4.0%)
$6,600 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $6,599,450)........ $ 6,599,450
------------
REPURCHASE AGREEMENT (0.1%)
229 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $229,456) (b)
(IDENTIFIED COST $229,427)........................................................... 229,427
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,828,877)........................................................... 6,828,877
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
VALUE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $108,770,852) (C)........................................................ 99.7% $ 164,949,217
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.3 419,197
----- -------------
NET ASSETS................................................................................ 100.0% $ 165,368,414
----- -------------
----- -------------
</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 $160,927 U.S. Treasury Note 11.25% due 02/15/15 valued at
$234,198.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $60,539,705 and the
aggregate gross unrealized depreciation is $4,361,340, resulting in net
unrealized appreciation of $56,178,365.
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (95.8%)
AEROSPACE (3.3%)
295,000 Goodrich (B.F.) Co. (The).............................................................. $ 8,112,500
375,000 Lockheed Martin Corp................................................................... 8,203,125
120,000 United Technologies Corp............................................................... 7,800,000
------------
24,115,625
------------
ALUMINUM (2.2%)
195,000 Alcan Aluminium, Ltd. (Canada)......................................................... 8,031,562
99,000 Alcoa, Inc............................................................................. 8,217,000
------------
16,248,562
------------
APPAREL (1.0%)
250,000 VF Corp................................................................................ 7,500,000
------------
AUTO PARTS: O.E.M. (4.2%)
268,000 Dana Corp.............................................................................. 8,023,250
485,000 Delphi Automotive Systems Corp......................................................... 7,638,750
135,000 Johnson Controls, Inc.................................................................. 7,678,125
147,000 TRW Inc................................................................................ 7,634,812
------------
30,974,937
------------
AUTOMOTIVE AFTERMARKET (1.1%)
280,000 Goodyear Tire & Rubber Co.............................................................. 7,892,500
------------
BEVERAGES - NON-ALCOHOLIC (2.0%)
127,000 Coca Cola Co........................................................................... 7,397,750
205,000 PepsiCo, Inc........................................................................... 7,226,250
------------
14,624,000
------------
BUILDING PRODUCTS (1.1%)
245,000 Armstrong World Industries, Inc........................................................ 8,176,875
------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (2.1%)
160,000 Caterpillar, Inc....................................................................... 7,530,000
185,000 Deere & Co............................................................................. 8,024,375
------------
15,554,375
------------
CONSUMER ELECTRONICS/APPLIANCES (1.0%)
115,000 Whirlpool Corp......................................................................... 7,482,187
------------
CONTAINERS/PACKAGING (1.1%)
365,000 Crown Cork & Seal Co., Inc............................................................. 8,166,875
------------
DEPARTMENT STORES (2.0%)
240,000 May Department Stores Co............................................................... 7,740,000
245,000 Sears, Roebuck & Co.................................................................... 7,457,187
------------
15,197,187
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISCOUNT CHAINS (0.9%)
95,000 Dayton Hudson Corp..................................................................... $ 6,976,562
------------
DIVERSIFIED FINANCIAL SERVICES (0.9%)
77,000 Providian Financial Corp............................................................... 7,011,812
------------
DIVERSIFIED MANUFACTURING (3.3%)
126,000 Honeywell International Inc............................................................ 7,268,625
75,000 Minnesota Mining & Manufacturing Co.................................................... 7,340,625
255,000 Tyco International Ltd. (Bermuda)...................................................... 9,913,125
------------
24,522,375
------------
ELECTRIC UTILITIES (4.8%)
170,500 Dominion Resources, Inc................................................................ 6,692,125
170,000 FPL Group, Inc......................................................................... 7,278,125
238,000 GPU, Inc............................................................................... 7,125,125
305,000 Reliant Energy, Inc.................................................................... 6,976,875
220,000 Unicom Corp............................................................................ 7,370,000
------------
35,442,250
------------
ELECTRONIC DATA PROCESSING (2.0%)
66,000 Hewlett-Packard Co..................................................................... 7,519,875
70,000 International Business Machines Corp................................................... 7,560,000
------------
15,079,875
------------
ENGINEERING & CONSTRUCTION (1.1%)
175,000 Fluor Corp............................................................................. 8,028,125
------------
FINANCE COMPANIES (2.9%)
247,000 Associates First Capital Corp. (Class A)............................................... 6,777,062
122,000 Fannie Mae............................................................................. 7,617,375
200,000 Household International, Inc........................................................... 7,450,000
------------
21,844,437
------------
FOOD CHAINS (2.0%)
230,000 Albertson's, Inc....................................................................... 7,417,500
307,000 Winn-Dixie Stores, Inc................................................................. 7,348,812
------------
14,766,312
------------
FOOD DISTRIBUTORS (2.2%)
410,000 Supervalu, Inc......................................................................... 8,200,000
205,000 SYSCO Corp............................................................................. 8,110,312
------------
16,310,312
------------
FOREST PRODUCTS (1.0%)
108,000 Weyerhaeuser Co........................................................................ 7,755,750
------------
HOME FURNISHINGS (1.0%)
245,000 Newell Rubbermaid, Inc................................................................. 7,105,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTEGRATED OIL COMPANIES (4.0%)
125,000 BP Amoco PLC (ADR) (United Kingdom).................................................... $ 7,414,062
91,000 Exxon Mobil Corp....................................................................... 7,331,187
120,000 Kerr-McGee Corp........................................................................ 7,440,000
125,000 Royal Dutch Petroleum Co. (ADR) (Netherlands).......................................... 7,554,687
------------
29,739,936
------------
LIFE INSURANCE (3.1%)
78,500 Aegon N.V. (ARS) (Netherlands)......................................................... 7,496,750
112,400 Jefferson-Pilot Corp................................................................... 7,671,300
197,000 Lincoln National Corp.................................................................. 7,880,000
------------
23,048,050
------------
MAJOR BANKS (2.9%)
144,000 Bank of America Corp................................................................... 7,227,000
330,000 KeyCorp................................................................................ 7,301,250
56,000 Morgan (J.P.) & Co., Inc............................................................... 7,091,000
------------
21,619,250
------------
MAJOR CHEMICALS (4.1%)
57,000 Dow Chemical Co........................................................................ 7,616,625
113,000 Du Pont (E.I.) de Nemours & Co., Inc................................................... 7,443,875
295,000 Hercules Inc........................................................................... 8,223,125
195,000 Monsanto Co............................................................................ 6,946,875
------------
30,230,500
------------
MAJOR PHARMACEUTICALS (3.9%)
205,000 Abbott Laboratories.................................................................... 7,444,062
178,000 American Home Products Corp............................................................ 7,019,875
115,000 Bristol-Myers Squibb Co................................................................ 7,381,563
170,000 Schering-Plough Corp................................................................... 7,171,875
------------
29,017,375
------------
MAJOR U.S. TELECOMMUNICATIONS (1.9%)
114,500 Bell Atlantic Corp..................................................................... 7,048,906
97,500 GTE Corp............................................................................... 6,879,844
------------
13,928,750
------------
MANAGED HEALTH CARE (1.0%)
139,000 Aetna Inc.............................................................................. 7,757,938
------------
MEAT/POULTRY/FISH (1.0%)
345,000 ConAgra, Inc........................................................................... 7,784,063
------------
MILITARY/GOV'T/TECHNICAL (1.0%)
267,000 Raytheon Co. (Class B)................................................................. 7,092,188
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MOTOR VEHICLES (3.0%)
100,000 DaimlerChrysler AG (Germany)........................................................... $ 7,825,000
141,000 Ford Motor Co.......................................................................... 7,534,688
100,000 General Motors Corp.................................................................... 7,268,750
------------
22,628,438
------------
MULTI-SECTOR COMPANIES (0.9%)
45,000 General Electric Co.................................................................... 6,963,750
------------
NATURAL GAS (1.1%)
131,000 Consolidated Natural Gas Co............................................................ 8,506,813
------------
OFFICE EQUIPMENT/SUPPLIES (2.1%)
165,000 Pitney Bowes, Inc...................................................................... 7,971,563
340,000 Xerox Corp............................................................................. 7,713,750
------------
15,685,313
------------
OIL & GAS PRODUCTION (1.1%)
244,000 Burlington Resources, Inc.............................................................. 8,067,250
------------
OIL REFINING/MARKETING (1.9%)
305,000 Sunoco, Inc............................................................................ 7,167,500
285,000 USX-Marathon Group..................................................................... 7,035,938
------------
14,203,438
------------
OIL/GAS TRANSMISSION (2.1%)
190,000 El Paso Energy Corp.................................................................... 7,374,375
183,000 Enron Corp............................................................................. 8,120,625
------------
15,495,000
------------
OTHER METALS/MINERALS (1.1%)
123,000 Phelps Dodge Corp...................................................................... 8,256,375
------------
PACKAGE GOODS/COSMETICS (5.1%)
232,000 Avon Products, Inc..................................................................... 7,656,000
174,000 Gillette Co............................................................................ 7,166,625
210,000 International Flavors & Fragrances, Inc................................................ 7,927,500
116,000 Kimberly-Clark Corp.................................................................... 7,569,000
65,000 Procter & Gamble Co.................................................................... 7,121,563
------------
37,440,688
------------
PACKAGED FOODS (1.0%)
115,000 Quaker Oats Company (The).............................................................. 7,546,875
------------
PAINTS/COATINGS (1.0%)
123,000 PPG Industries, Inc.................................................................... 7,695,188
------------
PAPER (2.2%)
140,000 International Paper Co................................................................. 7,901,250
185,000 Mead Corp.............................................................................. 8,035,938
------------
15,937,188
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
DIVIDEND GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHOTOGRAPHIC PRODUCTS (1.1%)
119,000 Eastman Kodak Co....................................................................... $ 7,883,750
------------
RAILROADS (2.0%)
285,000 Burlington Northern Santa Fe Corp...................................................... 6,911,250
245,000 CSX Corp............................................................................... 7,686,875
------------
14,598,125
------------
RECREATIONAL PRODUCTS/TOYS (1.1%)
357,000 Brunswick Corp......................................................................... 7,943,250
------------
RENTAL/LEASING COMPANIES (1.0%)
305,000 Ryder System, Inc...................................................................... 7,453,438
------------
SEMICONDUCTORS (0.9%)
85,000 Intel Corp............................................................................. 6,991,250
------------
TOBACCO (1.0%)
288,000 UST, Inc............................................................................... 7,254,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $749,988,876)......................................................... 711,544,112
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- --------
SHORT-TERM INVESTMENTS (4.1%)
U.S. GOVERNMENT AGENCY (a) (4.1%)
$ 30,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST 30,397,467)........ 30,397,467
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.0%)
$ 210 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $209,787) (b)
(IDENTIFIED COST $209,761)........................................................... $ 209,761
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $30,607,228).......................................................... 30,607,228
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $780,596,104) (C)........................................................ 99.9% 742,151,340
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.1 660,156
----- -------------
NET ASSETS................................................................................ 100.0% $ 742,811,496
----- -------------
----- -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
ARS American Regulatory Share.
(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 $147,132 U.S Treasury Bond 11.25% due 02/15/15 valued at
$214,123.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $54,537,763 and the
aggregate gross unrealized depreciation is $92,982,527, resulting in net
unrealized depreciation of $38,444,764.
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (97.5%)
ACCIDENT & HEALTH INSURANCE (0.6%)
7,500 AFLAC, Inc.............................................................................. $ 353,906
12,800 Torchmark Corp.......................................................................... 372,000
12,570 UNUMProvident Corp...................................................................... 403,026
-----------
1,128,932
-----------
ADVERTISING (0.5%)
8,000 Interpublic Group of Companies, Inc..................................................... 461,500
4,000 Omnicom Group, Inc...................................................................... 400,000
-----------
861,500
-----------
AEROSPACE (1.0%)
9,400 Boeing Co............................................................................... 390,687
12,500 Goodrich (B.F.) Co. (The)............................................................... 343,750
16,000 Lockheed Martin Corp.................................................................... 350,000
6,300 Northrop Grumman Corp................................................................... 340,594
6,200 United Technologies Corp................................................................ 403,000
-----------
1,828,031
-----------
AIR FREIGHT/DELIVERY SERVICES (0.2%)
8,700 FDX Corp.*.............................................................................. 356,156
-----------
AIRLINES (0.8%)
5,900 AMR Corp.*.............................................................................. 395,300
6,800 Delta Air Lines, Inc.................................................................... 338,725
19,950 Southwest Airlines Co................................................................... 322,941
12,500 US Airways Group Inc.*.................................................................. 400,781
-----------
1,457,747
-----------
ALCOHOLIC BEVERAGES (0.6%)
5,400 Anheuser-Busch Companies, Inc........................................................... 382,725
5,400 Brown-Forman Corp. (Class B)............................................................ 309,150
7,100 Coors (Adolph) Co. (Class B)............................................................ 372,750
-----------
1,064,625
-----------
ALUMINUM (0.7%)
11,200 Alcan Aluminum Ltd. (Canada)............................................................ 461,300
5,500 Alcoa, Inc.............................................................................. 456,500
5,800 Reynolds Metals Co...................................................................... 444,425
-----------
1,362,225
-----------
APPAREL (0.6%)
10,000 Liz Claiborne, Inc...................................................................... 376,250
22,500 Russell Corp............................................................................ 376,875
10,900 VF Corp................................................................................. 327,000
-----------
1,080,125
-----------
AUTO PARTS: O.E.M. (0.9%)
11,400 Dana Corp............................................................................... 341,287
21,200 Delphi Automotive Systems Corp.......................................................... 333,900
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,500 Eaton Corp.............................................................................. $ 326,812
5,700 Johnson Controls, Inc................................................................... 324,187
6,800 TRW Inc................................................................................. 353,175
-----------
1,679,361
-----------
AUTOMOTIVE AFTERMARKET (0.5%)
22,500 Cooper Tire & Rubber Co................................................................. 350,156
13,100 Genuine Parts Co........................................................................ 325,044
11,600 Goodyear Tire & Rubber Co............................................................... 326,975
-----------
1,002,175
-----------
BEVERAGES - NON-ALCOHOLIC (0.6%)
6,200 Coca Cola Co............................................................................ 361,150
16,900 Coca-Cola Enterprises Inc............................................................... 340,112
9,900 PepsiCo, Inc............................................................................ 348,975
-----------
1,050,237
-----------
BIOTECHNOLOGY (0.2%)
7,900 Amgen Inc.*............................................................................. 474,000
-----------
BOOKS/MAGAZINES (0.4%)
8,000 Harcourt General, Inc................................................................... 322,000
9,900 Meredith Corp........................................................................... 412,706
-----------
734,706
-----------
BROADCASTING (0.5%)
7,000 CBS Corp.*.............................................................................. 447,562
4,800 Clear Channel Communications, Inc.*..................................................... 428,400
-----------
875,962
-----------
BUILDING MATERIALS (0.4%)
20,600 Owens Corning........................................................................... 397,837
8,500 Vulcan Materials Co..................................................................... 339,469
-----------
737,306
-----------
BUILDING MATERIALS/DIY CHAINS (0.4%)
6,300 Home Depot, Inc. (The).................................................................. 431,944
6,800 Lowe's Companies, Inc................................................................... 406,300
-----------
838,244
-----------
BUILDING PRODUCTS (0.4%)
10,400 Armstrong World Industries, Inc......................................................... 347,100
13,300 Masco Corp.............................................................................. 337,487
-----------
684,587
-----------
CABLE TELEVISION (0.4%)
7,500 Comcast Corp. (Class A Special)*........................................................ 378,750
5,400 MediaOne Group, Inc.*................................................................... 414,787
-----------
793,537
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CASINO/GAMBLING (0.4%)
15,200 Harrah's Entertainment, Inc.*........................................................... $ 401,850
22,500 Mirage Resorts, Inc.*................................................................... 344,531
-----------
746,381
-----------
CELLULAR TELEPHONE (0.4%)
4,000 Nextel Communications, Inc. (Class A)*.................................................. 412,250
4,100 Sprint Corp. (PCS Group)*............................................................... 420,250
-----------
832,500
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.8%)
9,750 Gap, Inc. (The)......................................................................... 448,500
9,700 Limited (The), Inc...................................................................... 420,131
12,900 Nordstrom, Inc.......................................................................... 337,819
16,900 TJX Companies, Inc...................................................................... 345,394
-----------
1,551,844
-----------
COMPUTER COMMUNICATIONS (0.8%)
8,500 3Com Corp.*............................................................................. 398,969
5,700 Adaptec, Inc.*.......................................................................... 283,931
16,000 Cabletron Systems, Inc.*................................................................ 416,000
4,000 Cisco Systems, Inc.*.................................................................... 428,250
-----------
1,527,150
-----------
COMPUTER SOFTWARE (2.4%)
6,200 Adobe Systems, Inc...................................................................... 416,950
13,100 Autodesk, Inc........................................................................... 441,306
5,400 BMC Software, Inc.*..................................................................... 431,325
2,500 Citrix Systems, Inc.*................................................................... 307,344
6,200 Computer Associates International, Inc.................................................. 433,612
11,200 Compuware Corp.*........................................................................ 416,500
3,500 Microsoft Corp.*........................................................................ 408,406
13,000 Novell, Inc.*........................................................................... 518,375
4,000 Oracle Corp.*........................................................................... 448,000
14,700 Parametric Technology Corp.*............................................................ 396,900
17,700 PeopleSoft, Inc.*....................................................................... 376,125
-----------
4,594,843
-----------
COMPUTER/VIDEO CHAINS (0.6%)
7,100 Best Buy Co., Inc.*..................................................................... 356,331
9,800 Circuit City Stores, Inc. - Circuit City Group.......................................... 441,612
8,200 Tandy Corp.............................................................................. 403,337
-----------
1,201,280
-----------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (1.2%)
7,300 Caterpillar, Inc........................................................................ 343,556
7,600 Cummins Engine Co., Inc................................................................. 367,175
10,100 Deere & Co.............................................................................. 438,087
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,400 NACCO Industries, Inc. (Class A)........................................................ $ 355,600
8,600 Navistar International Corp.*........................................................... 407,425
8,000 PACCAR, Inc............................................................................. 354,000
-----------
2,265,843
-----------
CONSUMER ELECTRONICS/APPLIANCES (0.4%)
8,600 Maytag Corp............................................................................. 412,800
6,000 Whirlpool Corp.......................................................................... 390,375
-----------
803,175
-----------
CONSUMER SPECIALTIES (0.2%)
17,900 Jostens, Inc............................................................................ 435,194
-----------
CONSUMER SUNDRIES (0.2%)
13,700 American Greetings Corp. (Class A)...................................................... 323,662
-----------
CONTAINERS/PACKAGING (1.3%)
8,800 Ball Corp............................................................................... 346,500
9,600 Bemis Company, Inc...................................................................... 334,800
15,600 Crown Cork & Seal Co., Inc.............................................................. 349,050
16,400 Owens-Illinois, Inc.*................................................................... 411,025
29,800 Pactiv Corp............................................................................. 316,625
6,900 Sealed Air Corp.*....................................................................... 357,506
6,200 Temple-Inland, Inc...................................................................... 408,812
-----------
2,524,318
-----------
CONTRACT DRILLING (0.4%)
16,700 Helmerich & Payne, Inc.................................................................. 364,269
20,800 Rowan Companies, Inc.*.................................................................. 451,100
-----------
815,369
-----------
DEPARTMENT STORES (1.1%)
16,000 Dillard's, Inc. (Class A)............................................................... 323,000
8,000 Federated Department Stores, Inc.*...................................................... 404,500
5,500 Kohl's Corp.*........................................................................... 397,031
10,200 May Department Stores Co................................................................ 328,950
17,400 Penney (J.C.) Co., Inc.................................................................. 346,912
10,500 Sears, Roebuck & Co..................................................................... 319,594
-----------
2,119,987
-----------
DISCOUNT CHAINS (1.2%)
22,400 Consolidated Stores Corp.*.............................................................. 364,000
4,400 Costco Wholesale Corp.*................................................................. 401,225
5,800 Dayton Hudson Corp...................................................................... 425,937
14,000 Dollar General Corp..................................................................... 318,500
29,100 Kmart Corp.*............................................................................ 292,819
6,300 Wal-Mart Stores, Inc.................................................................... 435,487
-----------
2,237,968
-----------
DIVERSIFIED COMMERCIAL SERVICES (0.2%)
9,900 Paychex, Inc............................................................................ 395,381
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED ELECTRONIC PRODUCTS (0.2%)
7,100 Rockwell International Corp............................................................. $ 339,912
-----------
DIVERSIFIED FINANCIAL SERVICES (0.7%)
2,700 American Express Co..................................................................... 448,875
7,650 Citigroup Inc........................................................................... 425,053
4,100 Providian Financial Corp................................................................ 373,356
-----------
1,247,284
-----------
DIVERSIFIED MANUFACTURING (1.6%)
7,900 Cooper Industries, Inc.................................................................. 319,456
7,000 Danaher Corp............................................................................ 337,750
9,200 Dover Corp.............................................................................. 417,450
7,600 Honeywell International Inc............................................................. 438,425
10,100 ITT Industries, Inc..................................................................... 337,719
4,300 Minnesota Mining & Manufacturing Co..................................................... 420,862
23,400 Thermo Electron Corp.*.................................................................. 351,000
11,000 Tyco International Ltd. (Bermuda)....................................................... 427,625
-----------
3,050,287
-----------
DRUGSTORE CHAINS (0.8%)
10,100 CVS Corp................................................................................ 403,369
13,500 Longs Drug Stores Corp.................................................................. 348,469
26,500 Rite Aid Corp........................................................................... 296,469
13,200 Walgreen Co............................................................................. 386,100
-----------
1,434,407
-----------
E.D.P. PERIPHERALS (0.9%)
4,100 EMC Corp.*.............................................................................. 447,925
3,800 Lexmark International Group, Inc. (Class A)*............................................ 343,900
4,900 Network Appliance, Inc.*................................................................ 406,700
8,900 Seagate Technology, Inc.*............................................................... 414,406
-----------
1,612,931
-----------
E.D.P. SERVICES (1.1%)
8,100 Automatic Data Processing, Inc.......................................................... 436,387
14,900 Ceridian Corp.*......................................................................... 321,281
4,800 Computer Sciences Corp.*................................................................ 454,200
6,300 Electronic Data Systems Corp............................................................ 421,706
8,300 First Data Corp......................................................................... 409,294
-----------
2,042,868
-----------
ELECTRIC UTILITIES (5.3%)
6,100 AES Corp. (The)*........................................................................ 455,975
9,500 Ameren Corp............................................................................. 311,125
9,700 American Electric Power Co., Inc........................................................ 311,612
10,300 Carolina Power & Light Co............................................................... 313,506
15,600 Central & South West Corp............................................................... 312,000
13,100 Cinergy Corp............................................................................ 316,037
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,200 CMS Energy Corp......................................................................... $ 318,112
9,000 Consolidated Edison, Inc................................................................ 310,500
12,000 Constellation Energy Group, Inc......................................................... 348,000
7,700 Dominion Resources, Inc................................................................. 302,225
9,900 DTE Energy Co........................................................................... 310,612
6,300 Duke Energy Corp........................................................................ 315,787
13,500 Edison International.................................................................... 353,531
12,300 Entergy Corp............................................................................ 316,725
13,500 FirstEnergy Corp........................................................................ 306,281
8,000 Florida Progress Corp................................................................... 338,500
7,500 FPL Group, Inc.......................................................................... 321,094
9,700 GPU, Inc................................................................................ 290,394
10,200 New Century Energies, Inc............................................................... 309,825
23,400 Niagara Mohawk Holdings Inc............................................................. 326,137
15,800 Northern States Power Co................................................................ 308,100
9,100 PECO Energy Co.......................................................................... 316,225
15,300 PG & E Corp............................................................................. 313,650
10,000 Pinnacle West Capital Corp.............................................................. 305,625
14,300 PP&L Resources, Inc..................................................................... 327,112
9,300 Public Service Enterprise Group, Inc.................................................... 323,756
13,500 Reliant Energy, Inc..................................................................... 308,812
10,730 Scottish Power PLC (ADR) (United Kingdom)............................................... 300,440
13,300 Southern Co............................................................................. 312,550
9,300 Texas Utilities Co...................................................................... 330,731
9,900 Unicom Corp............................................................................. 331,650
-----------
9,966,629
-----------
ELECTRICAL PRODUCTS (0.5%)
5,500 Emerson Electric Co..................................................................... 315,562
5,600 Molex Inc............................................................................... 317,100
10,200 Thomas & Betts Corp..................................................................... 325,125
-----------
957,787
-----------
ELECTRONIC COMPONENTS (0.5%)
22,700 Andrew Corp.*........................................................................... 428,462
4,700 Solectron Corp.*........................................................................ 447,087
-----------
875,549
-----------
ELECTRONIC DATA PROCESSING (1.9%)
4,200 Apple Computer, Inc.*................................................................... 431,550
15,200 COMPAQ Computer Corp.................................................................... 411,350
8,300 Dell Computer Corp.*.................................................................... 422,781
5,700 Gateway, Inc............................................................................ 410,756
3,900 Hewlett-Packard Co...................................................................... 444,356
3,300 International Business Machines Corp.................................................... 356,400
31,700 Silicon Graphics, Inc.*................................................................. 311,056
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
5,600 Sun Microsystems, Inc.*................................................................. $ 433,300
10,200 Unisys Corp.*........................................................................... 325,762
-----------
3,547,311
-----------
ELECTRONIC PRODUCTION EQUIPMENT (0.7%)
3,400 Applied Materials, Inc.*................................................................ 430,525
4,100 KLA-Tencor Corp.*....................................................................... 456,381
7,000 Teradyne, Inc.*......................................................................... 462,000
-----------
1,348,906
-----------
ENGINEERING & CONSTRUCTION (0.4%)
10,100 Fluor Corp.............................................................................. 463,337
31,700 Foster Wheeler Corp..................................................................... 281,337
-----------
744,674
-----------
ENVIRONMENTAL SERVICES (0.4%)
44,900 Allied Waste Industries, Inc.*.......................................................... 395,681
21,200 Waste Management, Inc................................................................... 364,375
-----------
760,056
-----------
FARMING/SEEDS/MILLING (0.2%)
26,400 Archer-Daniels-Midland Co............................................................... 321,750
-----------
FINANCE COMPANIES (1.4%)
11,100 Associates First Capital Corp. (Class A)................................................ 304,556
8,100 Capital One Financial Corp.............................................................. 390,319
12,500 Countrywide Credit Industries, Inc...................................................... 315,625
5,100 Fannie Mae.............................................................................. 318,431
6,700 Freddie Mac............................................................................. 315,319
8,800 Household International, Inc............................................................ 327,800
14,100 MBNA Corp............................................................................... 384,225
7,500 SLM Holding Corp........................................................................ 316,875
-----------
2,673,150
-----------
FINANCIAL PUBLISHING/SERVICES (0.6%)
10,900 Dun & Bradstreet Corp................................................................... 321,550
14,100 Equifax, Inc............................................................................ 332,231
6,900 McGraw-Hill Companies, Inc.............................................................. 425,212
-----------
1,078,993
-----------
FLUID CONTROLS (0.2%)
9,100 Parker-Hannifin Corp.................................................................... 466,944
-----------
FOOD CHAINS (0.9%)
10,000 Albertson's, Inc........................................................................ 322,500
12,000 Great Atlantic & Pacific Tea Co., Inc................................................... 334,500
18,900 Kroger Co.*............................................................................. 356,737
9,600 Safeway Inc.*........................................................................... 341,400
12,800 Winn-Dixie Stores, Inc.................................................................. 306,400
-----------
1,661,537
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD DISTRIBUTORS (0.4%)
17,700 Supervalu, Inc.......................................................................... $ 354,000
11,200 SYSCO Corp.............................................................................. 443,100
-----------
797,100
-----------
FOREST PRODUCTS (0.7%)
9,000 Georgia-Pacific Corp.................................................................... 456,750
24,800 Louisiana-Pacific Corp.................................................................. 353,400
6,200 Weyerhaeuser Co......................................................................... 445,237
-----------
1,255,387
-----------
GENERIC DRUGS (0.2%)
10,700 Watson Pharmaceuticals, Inc.*........................................................... 383,194
-----------
HOME BUILDING (0.7%)
13,700 Centex Corp............................................................................. 338,219
16,100 Fleetwood Enterprises, Inc.............................................................. 332,062
17,000 Kaufman & Broad Home Corp............................................................... 411,187
15,000 Pulte Corp.............................................................................. 337,500
-----------
1,418,968
-----------
HOME FURNISHINGS (0.5%)
14,700 Leggett & Platt, Inc.................................................................... 315,131
11,000 Newell Rubbermaid, Inc.................................................................. 319,000
19,400 Tupperware Corp......................................................................... 328,587
-----------
962,718
-----------
HOSPITAL/NURSING MANAGEMENT (0.6%)
14,800 Columbia/HCA Healthcare Corp............................................................ 433,825
22,000 Manor Care, Inc......................................................................... 352,000
18,400 Tenet Healthcare Corp.*................................................................. 432,400
-----------
1,218,225
-----------
HOTELS/RESORTS (0.5%)
7,400 Carnival Corp........................................................................... 353,812
34,800 Hilton Hotels Corp...................................................................... 334,950
10,500 Marriott International, Inc. (Class A).................................................. 331,406
-----------
1,020,168
-----------
INDUSTRIAL MACHINERY/COMPONENTS (0.6%)
5,000 Illinois Tool Works Inc................................................................. 337,812
6,800 Ingersoll-Rand Co....................................................................... 374,425
21,900 Milacron Inc............................................................................ 336,712
-----------
1,048,949
-----------
INDUSTRIAL SPECIALTIES (0.6%)
10,300 Ecolab, Inc............................................................................. 402,987
10,800 Millipore Corp.......................................................................... 417,150
17,300 Pall Corp............................................................................... 373,031
-----------
1,193,168
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE BROKERS/SERVICES (0.4%)
10,500 AON Corp................................................................................ $ 420,000
4,400 Marsh & McLennan Companies, Inc......................................................... 421,025
-----------
841,025
-----------
INTEGRATED OIL COMPANIES (1.9%)
6,200 Amerada Hess Corp....................................................................... 351,850
4,600 Atlantic Richfield Co................................................................... 397,900
3,800 Chevron Corp............................................................................ 329,175
14,200 Conoco, Inc. (Class B).................................................................. 353,225
5,100 Exxon Mobil Corp........................................................................ 410,869
7,100 Kerr-McGee Corp......................................................................... 440,200
7,000 Phillips Petroleum Co................................................................... 329,000
6,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)........................................... 362,625
6,000 Texaco, Inc............................................................................. 325,875
10,300 Unocal Corp............................................................................. 345,694
-----------
3,646,413
-----------
INTERNET SERVICES (0.2%)
4,800 America Online, Inc.*................................................................... 362,100
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (1.2%)
8,820 Bear Stearns Companies, Inc............................................................. 377,055
5,000 Lehman Brothers Holdings, Inc........................................................... 423,437
4,700 Merrill Lynch & Co., Inc................................................................ 392,450
3,200 Morgan Stanley Dean Witter & Co. (Note 3)............................................... 456,800
9,000 Paine Webber Group, Inc................................................................. 349,312
9,700 Schwab (Charles) Corp................................................................... 372,237
-----------
2,371,291
-----------
INVESTMENT MANAGERS (0.3%)
10,500 Franklin Resources, Inc................................................................. 336,656
8,800 Price (T.) Rowe Associates, Inc......................................................... 323,950
-----------
660,606
-----------
LIFE INSURANCE (0.7%)
4,800 American General Corp................................................................... 364,200
18,500 Conseco, Inc............................................................................ 330,687
5,100 Jefferson-Pilot Corp.................................................................... 348,075
8,500 Lincoln National Corp................................................................... 340,000
-----------
1,382,962
-----------
MAJOR BANKS (4.0%)
6,400 Bank of America Corp.................................................................... 321,200
10,000 Bank of New York Co., Inc............................................................... 400,000
10,600 Bank One Corp........................................................................... 339,862
11,500 BB&T Corp............................................................................... 314,812
4,900 Chase Manhattan Corp. (The)............................................................. 380,669
7,000 Comerica, Inc........................................................................... 326,813
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
9,500 First Union Corp........................................................................ $ 311,719
12,000 FleetBoston Financial Corp.............................................................. 417,750
14,300 Huntington Bancshares, Inc.............................................................. 340,519
14,500 KeyCorp................................................................................. 320,813
9,600 Mellon Financial Corp................................................................... 327,000
2,900 Morgan (J.P.) & Co., Inc................................................................ 367,213
14,000 National City Corp...................................................................... 331,625
7,200 PNC Bank Corp........................................................................... 320,400
5,800 Republic New York Corp.................................................................. 417,600
9,400 SouthTrust Corp......................................................................... 354,850
4,900 State Street Corp....................................................................... 358,006
10,700 Summit Bancorp.......................................................................... 327,688
5,100 SunTrust Banks, Inc..................................................................... 350,944
14,000 U.S. Bancorp............................................................................ 333,375
4,600 Wachovia Corp........................................................................... 312,800
9,900 Wells Fargo & Co........................................................................ 400,331
-----------
7,675,989
-----------
MAJOR CHEMICALS (1.4%)
3,400 Dow Chemical Co......................................................................... 454,325
5,400 DuPont (E.I.) de Nemours & Co., Inc..................................................... 355,725
7,900 Eastman Chemical Co..................................................................... 376,731
12,500 Hercules Inc............................................................................ 348,438
9,000 Monsanto Co............................................................................. 320,625
9,700 Rohm & Haas Co.......................................................................... 394,669
6,900 Union Carbide Corp...................................................................... 460,575
-----------
2,711,088
-----------
MAJOR PHARMACEUTICALS (1.8%)
8,400 Abbott Laboratories..................................................................... 305,025
8,200 American Home Products Corp............................................................. 323,388
5,800 Bristol-Myers Squibb Co................................................................. 372,288
4,100 Johnson & Johnson....................................................................... 381,813
5,400 Lilly (Eli) & Co........................................................................ 359,100
4,900 Merck & Co., Inc.*...................................................................... 328,606
10,500 Pfizer, Inc............................................................................. 340,594
6,800 Pharmacia & Upjohn, Inc................................................................. 306,000
7,400 Schering-Plough Corp.................................................................... 312,188
5,000 Warner-Lambert Co....................................................................... 409,688
-----------
3,438,690
-----------
MAJOR U.S. TELECOMMUNICATIONS (1.8%)
4,900 ALLTEL Corp............................................................................. 405,169
7,350 AT&T Corp............................................................................... 373,013
6,100 Bell Atlantic Corp...................................................................... 375,531
8,000 BellSouth Corp.......................................................................... 374,500
5,300 GTE Corp................................................................................ 373,981
6,600 MCI WorldCom, Inc.*..................................................................... 349,800
8,300 SBC Communications, Inc................................................................. 404,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
6,200 Sprint Corp. (FON Group)................................................................ $ 417,338
5,800 U.S. West, Inc.......................................................................... 417,600
-----------
3,491,557
-----------
MANAGED HEALTH CARE (0.7%)
6,200 Aetna, Inc.............................................................................. 346,038
43,100 Humana, Inc.*........................................................................... 352,881
6,800 United HealthCare Corp.................................................................. 361,250
5,400 Wellpoint Health Networks, Inc.*........................................................ 356,063
-----------
1,416,232
-----------
MEAT/POULTRY/FISH (0.2%)
14,800 ConAgra, Inc............................................................................ 333,925
-----------
MEDIA CONGLOMERATES (0.6%)
11,900 Disney (Walt) Co........................................................................ 348,075
5,800 Time Warner Inc......................................................................... 420,138
7,200 Viacom, Inc. (Class B)*................................................................. 435,150
-----------
1,203,363
-----------
MEDICAL EQUIPMENT & SUPPLIES (0.2%)
10,200 Medtronic, Inc.......................................................................... 371,663
-----------
MEDICAL SPECIALTIES (2.0%)
9,800 ALZA Corp. (Class A)*................................................................... 339,325
7,400 Bard (C.R.), Inc........................................................................ 392,200
5,900 Bausch & Lomb, Inc...................................................................... 403,781
5,800 Baxter International, Inc............................................................... 364,313
12,700 Becton, Dickinson & Co.................................................................. 339,725
11,300 Biomet, Inc............................................................................. 451,294
15,600 Boston Scientific Corp.*................................................................ 341,250
7,000 Guidant Corp............................................................................ 329,000
11,900 Mallinckrodt, Inc....................................................................... 378,569
12,600 St. Jude Medical, Inc.*................................................................. 386,663
-----------
3,726,120
-----------
MEDICAL/DENTAL DISTRIBUTORS (0.4%)
7,000 Cardinal Health, Inc.................................................................... 335,125
15,100 McKesson HBOC, Inc...................................................................... 340,694
-----------
675,819
-----------
MEDICAL/NURSING SERVICES (0.1%)
48,800 HEALTHSOUTH Corp.*...................................................................... 262,300
-----------
METALS FABRICATIONS (0.2%)
19,500 Timken Co. (The)........................................................................ 398,531
-----------
MID-SIZED BANKS (1.5%)
16,300 AmSouth Bancorporation.................................................................. 314,794
5,362 Fifth Third Bancorp..................................................................... 393,102
17,200 Firstar Corp............................................................................ 363,350
8,500 Northern Trust Corp..................................................................... 453,688
9,000 Old Kent Financial Corp................................................................. 318,375
12,900 Regions Financial Corp.................................................................. 323,306
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
17,800 Synovus Financial Corp.................................................................. $ 353,775
8,300 Union Planters Corp..................................................................... 327,331
-----------
2,847,721
-----------
MILITARY/GOV'T/TECHNICAL (0.6%)
6,400 General Dynamics Corp................................................................... 337,600
10,600 PerkinElmer, Inc........................................................................ 441,888
11,900 Raytheon Co. (Class B).................................................................. 316,094
-----------
1,095,582
-----------
MOTOR VEHICLES (0.4%)
6,500 Ford Motor Co........................................................................... 347,344
5,600 General Motors Corp..................................................................... 407,050
-----------
754,394
-----------
MOVIES/ENTERTAINMENT (0.2%)
8,400 Seagram Co. Ltd. (Canada)............................................................... 377,475
-----------
MULTI-LINE INSURANCE (0.9%)
12,800 Allstate Corp........................................................................... 307,200
3,900 American International Group, Inc....................................................... 421,688
4,500 CIGNA Corp.............................................................................. 362,531
7,500 Hartford Financial Services Group Inc. (Note 3)......................................... 355,313
13,600 Safeco Corp............................................................................. 337,450
-----------
1,784,182
-----------
MULTI-SECTOR COMPANIES (1.1%)
17,600 Crane Co................................................................................ 349,800
9,900 Fortune Brands, Inc..................................................................... 327,319
2,700 General Electric Co..................................................................... 417,830
40,900 McDermott International, Inc............................................................ 370,656
11,100 National Service Industries, Inc........................................................ 327,450
4,500 Textron, Inc............................................................................ 345,094
-----------
2,138,149
-----------
NATURAL GAS (1.1%)
5,900 Consolidated Natural Gas Co............................................................. 383,131
7,400 Eastern Enterprises..................................................................... 425,038
9,800 Nicor Inc............................................................................... 318,500
12,000 ONEOK, Inc.............................................................................. 301,500
9,000 Peoples Energy Corp..................................................................... 301,500
17,400 Sempra Energy........................................................................... 302,325
-----------
2,031,994
-----------
NEWSPAPERS (1.3%)
6,200 Dow Jones & Co., Inc.................................................................... 421,600
4,600 Gannett Co., Inc........................................................................ 375,188
6,100 Knight-Ridder, Inc...................................................................... 362,950
8,900 New York Times Co. (The) (Class A)...................................................... 437,213
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
5,500 Times Mirror Co. (Class A).............................................................. $ 368,500
8,000 Tribune Co.............................................................................. 440,500
-----------
2,405,951
-----------
OFFICE EQUIPMENT/SUPPLIES (0.6%)
6,100 Avery Dennison Corp..................................................................... 444,538
7,100 Pitney Bowes, Inc....................................................................... 343,019
14,500 Xerox Corp.............................................................................. 328,969
-----------
1,116,526
-----------
OIL & GAS PRODUCTION (0.9%)
10,900 Anardarko Petroleum Corp................................................................ 371,963
10,100 Apache Corp............................................................................. 373,069
10,100 Burlington Resources, Inc............................................................... 333,931
17,800 Occidental Petroleum Corp............................................................... 384,925
26,400 Union Pacific Resources Group, Inc...................................................... 336,600
-----------
1,800,488
-----------
OIL REFINING/MARKETING (0.7%)
9,700 Ashland, Inc............................................................................ 319,494
13,400 Sunoco, Inc............................................................................. 314,900
12,500 Tosco Corp.............................................................................. 339,844
12,400 USX-Marathon Group...................................................................... 306,125
-----------
1,280,363
-----------
OIL/GAS TRANSMISSION (1.0%)
10,000 Coastal Corp............................................................................ 354,375
5,900 Columbia Energy Group................................................................... 373,175
10,300 El Paso Energy Corp..................................................................... 399,769
10,400 Enron Corp.............................................................................. 461,500
11,200 Williams Companies, Inc................................................................. 342,300
-----------
1,931,119
-----------
OILFIELD SERVICES/EQUIPMENT (0.6%)
16,700 Baker Hughes Inc........................................................................ 351,744
9,700 Halliburton Co.......................................................................... 390,425
6,500 Schlumberger, Ltd....................................................................... 365,625
1,258 Transocean Sedco Forex Inc.............................................................. 42,392
-----------
1,150,186
-----------
OTHER CONSUMER SERVICES (0.6%)
7,900 Block (H.&R.), Inc...................................................................... 345,625
17,100 Cendant Corp.*.......................................................................... 454,219
47,500 Service Corp. International............................................................. 329,531
-----------
1,129,375
-----------
OTHER METALS/MINERALS (0.7%)
15,200 Allegheny Technologies Inc.............................................................. 341,050
18,200 Inco Ltd. (Canada)...................................................................... 427,700
7,200 Phelps Dodge Corp....................................................................... 483,300
-----------
1,252,050
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER PHARMACEUTICALS (0.2%)
7,400 Allergan, Inc........................................................................... $ 368,150
-----------
OTHER SPECIALTY STORES (1.1%)
12,000 AutoZone, Inc.*......................................................................... 387,750
10,000 Bed Bath & Beyond Inc.*................................................................. 346,250
31,300 Office Depot, Inc.*..................................................................... 342,344
35,500 Pep Boys-Manny, Moe & Jack.............................................................. 323,938
15,500 Staples, Inc.*.......................................................................... 319,688
23,300 Toys 'R' Us, Inc.*...................................................................... 333,481
-----------
2,053,451
-----------
OTHER TELECOMMUNICATIONS (0.4%)
8,700 CenturyTel, Inc......................................................................... 412,163
7,900 Global Crossing Ltd. (Bermuda)*......................................................... 394,506
-----------
806,669
-----------
OTHER TRANSPORTATION (0.1%)
30,600 Laidlaw, Inc. (Canada).................................................................. 160,650
-----------
PACKAGE GOODS/COSMETICS (1.6%)
12,700 Alberto-Culver Co. (Class B)............................................................ 327,819
12,000 Avon Products, Inc...................................................................... 396,000
7,700 Clorox Co............................................................................... 387,888
6,700 Colgate-Palmolive Co.................................................................... 435,500
9,100 Gillette Co............................................................................. 374,806
9,100 International Flavors & Fragrances, Inc................................................. 343,525
6,300 Kimberly-Clark Corp..................................................................... 411,075
3,800 Procter & Gamble Co..................................................................... 416,338
-----------
3,092,951
-----------
PACKAGED FOODS (1.6%)
7,100 Bestfoods............................................................................... 373,194
8,100 Campbell Soup Co........................................................................ 313,369
9,500 General Mills, Inc...................................................................... 339,625
7,700 Heinz (H.J.) Co......................................................................... 306,556
10,500 Kellogg Co.............................................................................. 323,531
5,700 Quaker Oats Company (The)............................................................... 374,063
11,700 Ralston-Ralston Purina Group............................................................ 326,138
15,500 Sara Lee Corp........................................................................... 341,969
6,000 Unilever N.V. (Netherlands)............................................................. 326,625
-----------
3,025,070
-----------
PAINTS/COATINGS (0.4%)
6,000 PPG Industries, Inc..................................................................... 375,375
16,500 Sherwin-Williams Co..................................................................... 346,500
-----------
721,875
-----------
PAPER (1.8%)
10,000 Boise Cascade Corp...................................................................... 405,000
7,100 Champion International Corp............................................................. 439,756
11,800 Fort James Corp......................................................................... 323,025
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,800 International Paper Co.................................................................. $ 440,213
10,300 Mead Corp............................................................................... 447,406
9,300 Potlatch Corp........................................................................... 415,013
13,300 Westvaco Corp........................................................................... 433,913
9,200 Willamette Industries, Inc.............................................................. 427,225
-----------
3,331,551
-----------
PHOTOGRAPHIC PRODUCTS (0.3%)
5,100 Eastman Kodak Co........................................................................ 337,875
17,100 Polaroid Corp........................................................................... 321,694
-----------
659,569
-----------
PRECIOUS METALS (1.1%)
18,900 Barrick Gold Corp. (Canada)............................................................. 334,294
71,000 Battle Mountain Gold Co................................................................. 146,438
24,700 Freeport-McMoran Copper & Gold, Inc. (Class B).......................................... 521,788
42,000 Homestake Mining Co..................................................................... 328,125
17,400 Newmont Mining Corp..................................................................... 426,300
30,000 Placer Dome Inc. (Canada)............................................................... 322,500
-----------
2,079,445
-----------
PRECISION INSTRUMENTS (0.5%)
3,900 PE Corporation-PE Biosystems Group...................................................... 469,219
11,600 Tektronix, Inc.......................................................................... 450,950
-----------
920,169
-----------
PRINTING/FORMS (0.4%)
11,900 Deluxe Corp............................................................................. 326,506
13,200 Donnelley (R.R.) & Sons Co.............................................................. 327,525
29,000 Moore Corp. Ltd. (Canada)............................................................... 175,813
-----------
829,844
-----------
PROPERTY - CASUALTY INSURERS (0.9%)
6,300 Chubb Corp.............................................................................. 354,769
9,900 Cincinnati Financial Corp............................................................... 306,900
5,100 Loews Corp.............................................................................. 309,506
4,300 Progressive Corp........................................................................ 314,438
10,800 St. Paul Companies, Inc................................................................. 363,825
-----------
1,649,438
-----------
RAILROADS (1.0%)
13,100 Burlington Northern Santa Fe Corp....................................................... 317,675
10,800 CSX Corp................................................................................ 338,850
6,500 Kansas City Southern Industries, Inc.................................................... 485,063
15,900 Norfolk Southern Corp................................................................... 325,950
7,800 Union Pacific Corp...................................................................... 340,275
-----------
1,807,813
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RECREATIONAL PRODUCTS/TOYS (0.5%)
15,600 Brunswick Corp.......................................................................... $ 347,100
18,350 Hasbro, Inc............................................................................. 349,797
25,600 Mattel, Inc............................................................................. 336,000
-----------
1,032,897
-----------
RENTAL/LEASING COMPANIES (0.2%)
13,700 Ryder System, Inc....................................................................... 334,794
-----------
RESTAURANTS (0.7%)
18,300 Darden Restaurants, Inc................................................................. 331,688
9,100 McDonald's Corp......................................................................... 366,844
8,200 Tricon Global Restaurants, Inc.*........................................................ 316,725
15,700 Wendy's International, Inc.............................................................. 323,813
-----------
1,339,070
-----------
SAVINGS & LOAN ASSOCIATIONS (0.4%)
10,500 Golden West Financial Corp.............................................................. 351,750
12,100 Washington Mutual, Inc.................................................................. 314,600
-----------
666,350
-----------
SEMICONDUCTORS (1.7%)
14,200 Advanced Micro Devices, Inc.*........................................................... 410,913
3,800 Analog Devices, Inc.*................................................................... 353,400
5,100 Intel Corp.............................................................................. 419,475
6,300 LSI Logic Corp.*........................................................................ 425,250
5,100 Micron Technology, Inc.*................................................................ 396,525
9,300 National Semiconductor Corp.*........................................................... 398,156
3,900 Texas Instruments, Inc.................................................................. 377,813
8,000 Xilinx, Inc.*........................................................................... 363,500
-----------
3,145,032
-----------
SERVICES TO THE HEALTH INDUSTRY (0.5%)
13,600 IMS Health Inc.......................................................................... 369,750
17,600 Quintiles Transnational Corp.*.......................................................... 327,800
6,700 Shared Medical Systems Corp............................................................. 341,281
-----------
1,038,831
-----------
SHOE MANUFACTURING (0.3%)
6,800 Nike, Inc. (Class B).................................................................... 337,025
37,500 Reebok International Ltd.*.............................................................. 307,031
-----------
644,056
-----------
SPECIALTY CHEMICALS (1.3%)
10,800 Air Products & Chemicals, Inc........................................................... 362,475
18,200 Engelhard Corp.......................................................................... 343,525
6,800 FMC Corp.*.............................................................................. 389,725
23,500 Grace (W. R.) & Co...................................................................... 326,063
8,700 Great Lakes Chemical Corp............................................................... 332,231
8,800 Praxair, Inc............................................................................ 442,750
11,000 Sigma-Aldrich Corp...................................................................... 330,000
-----------
2,526,769
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
VALUE-ADDED MARKET
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY FOODS/CANDY (0.4%)
6,400 Hershey Foods Corp...................................................................... $ 304,000
4,500 Wrigley (Wm.) Jr. Co. (Class A)......................................................... 373,219
-----------
677,219
-----------
SPECIALTY INSURERS (0.4%)
6,800 MBIA, Inc............................................................................... 359,125
6,800 MGIC Investment Corp.................................................................... 409,275
-----------
768,400
-----------
SPECIALTY STEELS (0.2%)
7,100 Nucor Corp.............................................................................. 389,169
-----------
STEEL/IRON ORE (0.7%)
45,000 Bethlehem Steel Corp.*.................................................................. 376,875
13,500 USX-U.S. Steel Group.................................................................... 445,500
26,400 Worthington Industries, Inc............................................................. 435,600
-----------
1,257,975
-----------
TELECOMMUNICATION EQUIPMENT (2.3%)
5,800 ADC Telecommunications, Inc.*........................................................... 420,500
2,400 Comverse Technology, Inc.*.............................................................. 347,250
3,500 Corning Inc............................................................................. 451,281
5,200 General Instrument Corp.*............................................................... 442,000
5,000 Lucent Technologies Inc................................................................. 374,063
2,900 Motorola, Inc........................................................................... 427,025
4,300 Nortel Networks Corp. (Canada).......................................................... 434,300
3,600 QUALCOMM Inc.*.......................................................................... 633,825
7,300 Scientific-Atlanta, Inc................................................................. 406,063
6,600 Tellabs, Inc.*.......................................................................... 423,225
-----------
4,359,532
-----------
TEXTILES (0.2%)
10,100 Springs Industries, Inc. (Class A)...................................................... 403,369
-----------
TOBACCO (0.5%)
27,700 Nabisco Group Holdings Corp............................................................. 294,313
13,700 Philip Morris Companies, Inc............................................................ 317,669
12,700 UST, Inc................................................................................ 319,881
-----------
931,863
-----------
TOOLS/HARDWARE (0.8%)
6,900 Black & Decker Corp..................................................................... 360,525
7,200 Briggs & Stratton Corp.................................................................. 386,100
11,400 Snap-On, Inc............................................................................ 302,813
12,600 Stanley Works........................................................................... 379,575
-----------
1,429,013
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WHOLESALE DISTRIBUTORS (0.3%)
7,400 Grainger (W.W.), Inc.................................................................... $ 353,813
30,300 IKON Office Solutions, Inc.............................................................. 206,419
-----------
560,232
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $145,265,618).......................................................... 184,889,648
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- -----------
SHORT-TERM INVESTMENT (a) (2.3%)
U.S. GOVERNMENT AGENCY
$ 4,500 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $4,499,625)...... 4,499,625
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $149,765,243) (B)........................................................ 99.8% 189,389,273
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 318,755
----- -------------
NET ASSETS................................................................................ 100.0% $ 189,708,028
----- -------------
----- -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $53,733,449 and the
aggregate gross unrealized depreciation is $14,109,419, resulting in net
unrealized appreciation of $39,624,030.
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (96.4%)
ADVERTISING (1.2%)
11,500 Omnicom Group, Inc...................................................................... $ 1,150,000
-----------
AEROSPACE (3.3%)
49,200 United Technologies Corp................................................................ 3,198,000
-----------
ALCOHOLIC BEVERAGES (0.8%)
11,500 Anheuser-Busch Companies, Inc........................................................... 815,062
-----------
BIOTECHNOLOGY (0.7%)
10,900 Amgen Inc.*............................................................................. 654,000
1,600 Tularik Inc.*........................................................................... 51,800
-----------
705,800
-----------
BROADCASTING (5.6%)
15,700 AMFM, Inc.*............................................................................. 1,228,525
11,800 CBS Corp.*.............................................................................. 754,462
38,300 Clear Channel Communications, Inc.*..................................................... 3,418,275
-----------
5,401,262
-----------
BUILDING MATERIALS/DIY CHAINS (3.6%)
50,550 Home Depot, Inc. (The)*................................................................. 3,465,834
-----------
CABLE TELEVISION (6.0%)
35,100 AT&T Corp. - Liberty Media Group (Class A)*............................................. 1,991,925
16,100 Charter Communications, Inc. (Class A)*................................................. 352,187
28,900 Comcast Corp. (Class A Special)*........................................................ 1,459,450
4,600 Comcast Corp. (Class A)................................................................. 220,225
19,400 MediaOne Group, Inc.*................................................................... 1,490,162
4,300 Tivo Inc.*.............................................................................. 142,975
2,800 TV Guide, Inc. (Class A)*............................................................... 119,525
-----------
5,776,449
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.7%)
16,005 Intimate Brands, Inc.................................................................... 690,216
-----------
COMPUTER COMMUNICATIONS (5.6%)
44,950 Cisco Systems, Inc.*.................................................................... 4,812,459
1,600 Cobalt Networks, Inc.*.................................................................. 171,200
1,400 Finisar Corp.*.......................................................................... 124,775
900 Juniper Networks, Inc.*................................................................. 305,325
-----------
5,413,759
-----------
COMPUTER SOFTWARE (6.5%)
43,100 Microsoft Corp.*........................................................................ 5,029,231
8,000 Novell, Inc.*........................................................................... 319,000
1,500 OpenTV Corp.*........................................................................... 120,375
5,850 Oracle Corp.*........................................................................... 655,200
800 Va Linux Systems, Inc.*................................................................. 165,300
-----------
6,289,106
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISCOUNT CHAINS (3.6%)
22,600 Costco Wholesale Corp.*................................................................. $ 2,060,837
20,300 Wal-Mart Stores, Inc.................................................................... 1,403,237
-----------
3,464,074
-----------
DIVERSIFIED ELECTRONIC PRODUCTS (1.0%)
6,200 JDS Uniphase Corp.*..................................................................... 999,750
-----------
DIVERSIFIED FINANCIAL SERVICES (3.4%)
10,300 American Express Co..................................................................... 1,712,375
28,400 Citigroup, Inc.......................................................................... 1,577,975
-----------
3,290,350
-----------
DIVERSIFIED MANUFACTURING (5.1%)
125,900 Tyco International Ltd. (Bermuda)....................................................... 4,894,362
-----------
ELECTRIC UTILITIES (0.3%)
6,900 Montana Power Co........................................................................ 248,831
-----------
ELECTRONIC COMPONENTS (0.6%)
6,000 Solectron Corp.*........................................................................ 570,750
-----------
ELECTRONIC DATA PROCESSING (1.0%)
12,800 Sun Microsystems, Inc.*................................................................. 990,400
-----------
ELECTRONIC PRODUCTION EQUIPMENT (1.4%)
9,800 Applied Materials, Inc.*................................................................ 1,240,925
1,000 KLA-Tencor Corp.*....................................................................... 111,312
-----------
1,352,237
-----------
FOOD CHAINS (0.3%)
7,300 Safeway Inc.*........................................................................... 259,606
-----------
INTERNET SERVICES (2.8%)
17,800 America Online, Inc.*................................................................... 1,342,787
3,400 Inktomi Corp.*.......................................................................... 301,325
1,900 Internet Capital Group, Inc.*........................................................... 322,169
1,700 Yahoo! Inc.*............................................................................ 735,569
-----------
2,701,850
-----------
MAJOR BANKS (1.2%)
28,200 Bank of New York Co., Inc............................................................... 1,128,000
-----------
MAJOR CHEMICALS (0.2%)
5,600 Monsanto Co............................................................................. 199,500
-----------
MAJOR PHARMACEUTICALS (10.2%)
22,100 American Home Products Corp............................................................. 871,569
31,700 Bristol-Myers Squibb Co................................................................. 2,034,744
14,400 Johnson & Johnson....................................................................... 1,341,000
4,600 Lilly (Eli) & Co........................................................................ 305,900
19,000 Merck & Co., Inc.*...................................................................... 1,274,187
49,200 Pfizer, Inc............................................................................. 1,595,925
30,400 Warner-Lambert Co....................................................................... 2,490,900
-----------
9,914,225
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR U.S. TELECOMMUNICATIONS (4.1%)
23,000 Bell Atlantic Corp...................................................................... $ 1,415,937
3,000 BellSouth Corp.......................................................................... 140,438
42,300 MCI WorldCom, Inc.*..................................................................... 2,241,900
3,800 SBC Communications, Inc................................................................. 185,250
-----------
3,983,525
-----------
MEDIA CONGLOMERATES (2.1%)
28,700 Time Warner Inc......................................................................... 2,078,956
-----------
MEDICAL EQUIPMENT & SUPPLIES (0.5%)
12,500 Medtronic, Inc.......................................................................... 455,469
-----------
MILITARY/GOV'T/TECHNICAL (2.0%)
22,200 General Dynamics Corp.*................................................................. 1,171,050
5,200 General Motors Corp. (Class H)*......................................................... 499,200
4,600 Litton Industries, Inc.*................................................................ 229,425
-----------
1,899,675
-----------
MULTI-LINE INSURANCE (0.6%)
5,600 American International Group, Inc....................................................... 605,500
-----------
MULTI-SECTOR COMPANIES (5.8%)
30,100 General Electric Co..................................................................... 4,657,975
12,600 Textron, Inc............................................................................ 966,263
-----------
5,624,238
-----------
OFFICE EQUIPMENT/SUPPLIES (1.2%)
23,100 Pitney Bowes, Inc....................................................................... 1,116,019
-----------
OTHER PHARMACEUTICALS (0.2%)
3,400 Forest Laboratories, Inc.*.............................................................. 208,888
-----------
OTHER SPECIALTY STORES (0.3%)
3,300 Tiffany & Co............................................................................ 294,525
-----------
OTHER TELECOMMUNICATIONS (0.6%)
13,200 IXnet, Inc.*............................................................................ 396,825
4,500 Pinnacle Holdings Inc.*................................................................. 191,813
-----------
588,638
-----------
PACKAGE GOODS/COSMETICS (1.7%)
2,200 Estee Lauder Companies, Inc. (Class A).................................................. 110,963
13,900 Procter & Gamble Co..................................................................... 1,522,919
-----------
1,633,882
-----------
PACKAGED FOODS (0.4%)
5,900 Quaker Oats Company (The)............................................................... 387,188
-----------
RESTAURANTS (0.2%)
7,700 Brinker International, Inc.*............................................................ 184,800
-----------
SEMICONDUCTORS (4.5%)
33,200 Intel Corp.............................................................................. 2,730,700
16,600 Maxim Integrated Products, Inc.*........................................................ 782,275
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
8,700 Texas Instruments, Inc.................................................................. $ 842,813
-----------
4,355,788
-----------
SPECIALTY FOODS/CANDY (0.4%)
12,900 Keebler Foods Co.*...................................................................... 362,813
-----------
TELECOMMUNICATION EQUIPMENT (6.3%)
28,600 American Tower Corp. (Class A)*......................................................... 874,088
8,600 CIENA Corp.*............................................................................ 494,500
15,800 Lucent Technologies Inc................................................................. 1,182,038
19,100 Motorola, Inc........................................................................... 2,812,475
8,100 Nortel Networks Corp. (Canada).......................................................... 818,100
-----------
6,181,201
-----------
TOBACCO (0.4%)
15,700 Philip Morris Companies, Inc............................................................ 364,044
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $69,175,939)........................................................... 93,244,572
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- --------
SHORT-TERM INVESTMENT (3.5%)
REPURCHASE AGREEMENT
$ 3,394 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $3,393,945) (a)
(IDENTIFIED COST $3,393,520).......................................................... 3,393,520
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $72,569,459) (B).......................................................... 99.9% 96,638,092
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.1 60,805
----- ------------
NET ASSETS................................................................................. 100.0% $ 96,698,897
----- ------------
----- ------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) Collateralized by $2,380,308 U.S. Treasury Bond 11.25% due 02/15/15 valued
at $3,464,091.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $25,671,018 and the
aggregate gross unrealized depreciation is $1,602,385, resulting in net
unrealized appreciation of $24,068,633.
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (94.7%)
ADVERTISING (2.7%)
18,000 DoubleClick Inc.*...................................................................... $ 4,555,125
24,000 Interpublic Group of Companies, Inc.................................................... 1,384,500
23,700 Lamar Advertising Co.*................................................................. 1,430,887
100,000 Omnicom Group, Inc..................................................................... 10,000,000
19,300 True North Communications, Inc......................................................... 862,469
177,000 WPP Group, PLC (United Kingdom)........................................................ 2,802,848
------------
21,035,829
------------
ALCOHOLIC BEVERAGES (1.1%)
48,800 Anheuser-Busch Companies, Inc.......................................................... 3,458,700
12,190 LVMH-Moet Hennessy Louis Vuitton (France).............................................. 5,452,334
------------
8,911,034
------------
ALUMINUM (1.5%)
90,000 Alcan Aluminium, Ltd. (Canada)......................................................... 3,706,875
100,000 Alcoa, Inc............................................................................. 8,300,000
------------
12,006,875
------------
BIOTECHNOLOGY (2.5%)
120,000 Amgen Inc.*............................................................................ 7,200,000
25,000 COR Therapeutics, Inc.*................................................................ 671,875
58,200 Genentech, Inc.*....................................................................... 7,827,900
10,000 Human Genome Sciences, Inc.*........................................................... 1,525,000
15,000 MedImmune, Inc.*....................................................................... 2,486,250
------------
19,711,025
------------
BROADCASTING (4.5%)
110,000 CBS Corp.*............................................................................. 7,033,125
61,300 Citadel Communications Corp.*.......................................................... 3,969,175
90,000 Clear Channel Communications, Inc.*.................................................... 8,032,500
41,100 Entercom Communications Corp.*......................................................... 2,712,600
40,000 Hispanic Broadcasting Corp.*........................................................... 3,680,000
33,200 Infinity Broadcasting Corp. (Series A)*................................................ 1,201,425
13,600 Radio One, Inc.*....................................................................... 1,251,200
30,000 Univision Communications, Inc. (Class A)*.............................................. 3,065,625
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
70,000 USA Networks, Inc.*.................................................................... $ 3,863,125
------------
34,808,775
------------
BUILDING MATERIALS/DIY CHAINS (1.0%)
108,000 Home Depot, Inc. (The)................................................................. 7,404,750
------------
CABLE TELEVISION (3.8%)
123,700 AT&T Corp. - Liberty Media Group (Class A)*............................................ 7,019,975
5,500 Canal Plus (France).................................................................... 799,360
132,700 Comcast Corp. (Class A Special)*....................................................... 6,701,350
117,900 Cox Communications, Inc. (Class A)*.................................................... 6,071,850
86,000 EchoStar Communications Corp. (Class A)*............................................... 8,363,500
5,300 Sogecable, S.A. (Spain)*............................................................... 337,969
------------
29,294,004
------------
CASINO/GAMBLING (0.7%)
30,000 MGM Grand, Inc.*....................................................................... 1,509,375
150,000 Mirage Resorts, Inc.*.................................................................. 2,296,875
120,000 Park Place Entertainment Corp.*........................................................ 1,500,000
------------
5,306,250
------------
CELLULAR TELEPHONE (3.6%)
65,000 Nextel Communications, Inc. (Class A)*................................................. 6,699,062
30,000 Sprint Corp. (PCS Group)*.............................................................. 3,075,000
18,000 United States Cellular Corp.*.......................................................... 1,816,875
25,000 Vodafone AirTouch PLC (ADR) (United Kingdom)........................................... 1,237,500
421,310 Vodafone AirTouch PLC (United Kingdom)................................................. 2,086,141
75,000 Voicestream Wireless Corp.*............................................................ 10,640,625
30,000 Western Wireless Corp. (Class A)*...................................................... 1,998,750
------------
27,553,953
------------
CLOTHING/SHOE/ACCESSORY STORES (0.7%)
76,300 Gap, Inc. (The)........................................................................ 3,509,800
40,000 Talbot's, Inc. (The)................................................................... 1,785,000
------------
5,294,800
------------
COMPUTER COMMUNICATIONS (2.5%)
5,000 Brocade Communications Systems, Inc.*.................................................. 878,750
3,400 CacheFlow Inc.*........................................................................ 444,337
72,000 Cisco Systems, Inc.*................................................................... 7,708,500
3,600 Cobalt Networks, Inc.*................................................................. 385,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
18,800 Emulex Corp.*.......................................................................... $ 2,123,225
6,800 Finisar Corp.*......................................................................... 606,050
4,400 Foundry Networks, Inc.*................................................................ 1,326,600
10,000 Juniper Networks, Inc.*................................................................ 3,392,500
12,000 Redback Networks, Inc.*................................................................ 2,120,250
------------
18,985,412
------------
COMPUTER SOFTWARE (10.0%)
3,500 Bottomline Technologies, Inc.*......................................................... 126,000
23,000 Check Point Software Technologies Ltd. (Israel)*....................................... 4,568,375
15,000 Citrix Systems, Inc.*.................................................................. 1,844,062
1,800 Digimarc Corp.*........................................................................ 90,000
13,900 E.piphany, Inc.*....................................................................... 3,092,750
11,300 i2 Technologies, Inc.*................................................................. 2,199,262
32,600 Intuit Inc.*........................................................................... 1,951,925
20,000 Legato Systems, Inc.*.................................................................. 1,375,000
45,000 Macromedia, Inc.*...................................................................... 3,290,625
36,000 Mercury Interactive Corp.*............................................................. 3,885,750
2,100 Metasolv Software, Inc.*............................................................... 172,725
100,000 Microsoft Corp.*....................................................................... 11,668,750
10,000 MicroStrategy Inc.*.................................................................... 2,100,000
15,700 OpenTV Corp.*.......................................................................... 1,259,925
160,000 Oracle Corp.*.......................................................................... 17,920,000
104,200 Parametric Technology Corp.*........................................................... 2,813,400
58,800 Rational Software Corp.*............................................................... 2,888,550
2,600 Red Hat, Inc.*......................................................................... 548,762
15,500 Remedy Corp.*.......................................................................... 736,250
35,000 Sapient Corp.*......................................................................... 4,930,625
25,000 TSI International Software Ltd.*....................................................... 1,412,500
55,000 Veritas Software Corp.*................................................................ 7,868,437
------------
76,743,673
------------
CONSUMER ELECTRONICS/APPLIANCES (1.3%)
34,500 Sony Corp. (Japan)..................................................................... 10,226,472
------------
CONTRACT DRILLING (1.7%)
135,000 ENSCO International Inc................................................................ 3,088,125
60,200 Nabors Industries, Inc.*............................................................... 1,862,437
50,000 Noble Drilling Corp.*.................................................................. 1,637,500
158,500 R&B Falcon Corp.*...................................................................... 2,100,125
60,300 Rowan Companies, Inc.*................................................................. 1,307,756
19,200 Santa Fe International Corp............................................................ 496,800
72,904 Transocean Sedco Forex Inc............................................................. 2,455,953
------------
12,948,696
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DISCOUNT CHAINS (3.6%)
75,000 Costco Wholesale Corp.*................................................................ $ 6,839,062
95,000 Dayton Hudson Corp..................................................................... 6,976,562
202,700 Wal-Mart Stores, Inc................................................................... 14,011,637
------------
27,827,261
------------
DIVERSIFIED COMMERCIAL SERVICES (0.7%)
15,000 CheckFree Holdings Corp.*.............................................................. 1,567,500
64,000 Concord EFS, Inc.*..................................................................... 1,644,000
3,200 Freemarkets Inc.*...................................................................... 1,092,200
2,500 Freenet.De AG*......................................................................... 276,092
8,100 Jupiter Communications, Inc.*.......................................................... 244,012
6,700 Wireless Facilities, Inc.*............................................................. 291,450
------------
5,115,254
------------
DIVERSIFIED ELECTRONIC PRODUCTS (1.2%)
36,000 JDS Uniphase Corp.*.................................................................... 5,805,000
25,000 Koninklijke (Royal) Philips Electronics NV (Netherlands)............................... 3,394,575
------------
9,199,575
------------
DIVERSIFIED FINANCIAL SERVICES (2.3%)
41,000 American Express Co.**................................................................. 6,816,250
59,200 AXA Financial, Inc..................................................................... 2,005,400
165,000 Citigroup Inc.**....................................................................... 9,167,812
------------
17,989,462
------------
E.D.P. PERIPHERALS (0.6%)
30,000 Network Appliance, Inc.*............................................................... 2,490,000
5,300 QLogic Corp.*.......................................................................... 847,337
30,000 Seagate Technology, Inc.*.............................................................. 1,396,875
------------
4,734,212
------------
E.D.P. SERVICES (1.2%)
20,500 Amdocs Ltd.*........................................................................... 707,250
77,400 BEA Systems, Inc.*..................................................................... 5,418,000
7,000 Razorfish, Inc.*....................................................................... 665,000
41,000 Whittman-Hart, Inc.*................................................................... 2,198,625
------------
8,988,875
------------
ELECTRIC UTILITIES (0.3%)
42,000 Calpine Corp.*......................................................................... 2,688,000
------------
ELECTRONIC COMPONENTS (0.0%)
1,400 E-Tek Dynamics, Inc.*.................................................................. 187,950
------------
ELECTRONIC DATA PROCESSING (1.6%)
14,000 Apple Computer, Inc.*.................................................................. 1,438,500
140,000 Sun Microsystems, Inc.*................................................................ 10,832,500
------------
12,271,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC PRODUCTION EQUIPMENT (1.5%)
42,100 Applied Materials, Inc.*............................................................... $ 5,330,912
55,700 ASM Lithography Holding N.V. (Netherlands)*............................................ 6,287,137
8,100 Rudolph Technologies, Inc.*............................................................ 267,300
------------
11,885,349
------------
FLUID CONTROLS (0.1%)
16,400 Parker-Hannifin Corp................................................................... 841,525
------------
FOREST PRODUCTS (0.4%)
40,000 Weyerhaeuser Co........................................................................ 2,872,500
------------
HOTELS/RESORTS (0.3%)
39,000 Royal Caribbean Cruises Ltd............................................................ 1,923,187
------------
INSURANCE BROKERS/SERVICES (0.1%)
10,900 Marsh & McLennan Companies, Inc........................................................ 1,042,994
------------
INTEGRATED OIL COMPANIES (0.5%)
40,000 Exxon Mobil Corp....................................................................... 3,222,500
6,200 Kerr-McGee Corp........................................................................ 384,400
------------
3,606,900
------------
INTERNATIONAL BANKS (0.8%)
350,000 Asahi Bank Ltd. (The) (Japan).......................................................... 2,157,112
180,000 Fuji Bank, Ltd. (The) (Japan).......................................................... 1,748,581
372,000 Sakura Bank, Ltd. (The) (Japan)........................................................ 2,154,412
------------
6,060,105
------------
INTERNET SERVICES (11.7%)
7,300 Agency.com, Inc.*...................................................................... 375,037
8,000 Akamai Technologies, Inc.*............................................................. 2,621,000
11,000 Allaire Corp.*......................................................................... 1,609,438
80,000 America Online, Inc.*.................................................................. 6,035,000
20,000 Ariba, Inc.*........................................................................... 3,540,000
20,000 Art Technology Group, Inc.*............................................................ 2,601,250
15,000 Broadbase Software, Inc.*.............................................................. 1,665,000
40,000 BroadVision, Inc.*..................................................................... 6,802,500
5,800 C-Bridge Internet Solutions, Inc.*..................................................... 287,100
14,500 Calico Commerce, Inc.*................................................................. 766,688
9,600 iManage, Inc.*......................................................................... 313,200
20,000 Inktomi Corp.*......................................................................... 1,772,500
1,600 Internet Capital Group, Inc.*.......................................................... 271,300
14,500 Kana Communications, Inc.*............................................................. 2,962,531
4,000 Liberate Technologies, Inc.*........................................................... 1,025,000
41,300 Lycos, Inc.*........................................................................... 3,285,931
10,000 OnDisplay, Inc.*....................................................................... 905,000
26,000 Portal Software, Inc.*................................................................. 2,665,000
10,500 Preview Systems, Inc.*................................................................. 672,000
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
18,000 Quest Software, Inc.*.................................................................. $ 1,793,250
15,000 RealNetworks, Inc.*.................................................................... 1,804,688
20,000 Scient Corp.*.......................................................................... 1,715,000
70,000 USWeb Corp.*........................................................................... 3,110,625
86,200 VeriSign, Inc.*........................................................................ 16,474,975
55,100 Vignette Corp.*........................................................................ 8,977,856
36,000 Yahoo! Inc.*........................................................................... 15,576,750
------------
89,628,619
------------
INVESTMENT
BANKERS/BROKERS/SERVICES (2.4%)
35,000 Donaldson, Lufkin & Jenrette, Inc...................................................... 1,693,125
65,000 Goldman Sachs Group, Inc. (The)........................................................ 6,122,188
77,400 Lehman Brothers Holdings, Inc.......................................................... 6,554,813
26,800 Merrill Lynch & Co., Inc............................................................... 2,237,800
40,000 Paine Webber Group, Inc................................................................ 1,552,500
------------
18,160,426
------------
MAJOR BANKS (0.7%)
65,000 Chase Manhattan Corp. (The)............................................................ 5,049,688
------------
MAJOR PHARMACEUTICALS (2.0%)
73,000 American Home Products Corp............................................................ 2,878,938
35,000 Johnson & Johnson...................................................................... 3,259,375
35,000 Merck & Co., Inc....................................................................... 2,347,188
82,600 Warner-Lambert Co...................................................................... 6,768,038
------------
15,253,539
------------
MAJOR U.S. TELECOMMUNICATIONS (0.3%)
48,600 MCI WorldCom, Inc.*.................................................................... 2,575,800
------------
MARINE TRANSPORTATION (0.2%)
34,200 Tidewater, Inc......................................................................... 1,231,200
------------
MEDIA CONGLOMERATES (0.8%)
55,000 News Corporation Ltd. (The) (ADR) (Australia).......................................... 2,103,750
65,000 Viacom, Inc. (Class B)*................................................................ 3,928,438
------------
6,032,188
------------
MEDICAL SPECIALTIES (0.2%)
30,000 Cytyc Corp.*........................................................................... 1,833,750
------------
MEDICAL/DENTAL DISTRIBUTORS (0.1%)
8,000 SciQuest.Com Inc.*..................................................................... 636,000
------------
MID - SIZED BANKS (0.4%)
51,800 Northern Trust Corp.................................................................... 2,764,825
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MILITARY/GOV'T/TECHNICAL (1.0%)
79,800 General Motors Corp. (Class H)*........................................................ $ 7,660,800
------------
MULTI-LINE INSURANCE (0.7%)
50,000 American International Group, Inc...................................................... 5,406,250
------------
MULTI-SECTOR COMPANIES (1.7%)
84,500 General Electric Co.**................................................................. 13,076,375
------------
NEWSPAPERS (0.5%)
30,000 New York Times Co. (The) (Class A)..................................................... 1,473,750
48,400 Tribune Co............................................................................. 2,665,025
------------
4,138,775
------------
OFFICE EQUIPMENT/SUPPLIES (0.1%)
9,700 Avery Dennison Corp.................................................................... 706,888
------------
OIL & GAS PRODUCTION (0.4%)
44,900 Devon Energy Corp...................................................................... 1,476,088
72,400 EOG Resources, Inc..................................................................... 1,271,525
------------
2,747,613
------------
OIL/GAS TRANSMISSION (0.3%)
58,100 Enron Corp............................................................................. 2,578,188
------------
OILFIELD SERVICES/EQUIPMENT (1.8%)
100,000 BJ Services Co.*....................................................................... 4,181,250
20,000 Cooper Cameron Corp.*.................................................................. 978,750
96,000 Halliburton Co......................................................................... 3,864,000
15,000 Schlumberger Ltd....................................................................... 843,750
46,000 Smith International, Inc.*............................................................. 2,285,625
38,100 Weatherford International, Inc.*....................................................... 1,521,619
------------
13,674,994
------------
OTHER CONSUMER SERVICES (0.5%)
45,000 Preview Travel, lnc.*.................................................................. 2,345,625
37,000 Ticketmaster Online-CitySearch, Inc. (Series B)*....................................... 1,422,188
------------
3,767,813
------------
OTHER METALS/MINERALS (0.4%)
126,000 Inco Ltd. (Canada)*.................................................................... 2,961,000
------------
OTHER SPECIALTY STORES (0.4%)
25,000 Tiffany & Co........................................................................... 2,231,250
21,800 Zale Corp.*............................................................................ 1,054,575
------------
3,285,825
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER TELECOMMUNICATIONS (3.4%)
40,000 Covad Communications Group, Inc.*...................................................... $ 2,225,000
45 Japan Telecom Co., Ltd. (Japan)........................................................ 1,804,931
8,500 KDD Corp. (Japan)...................................................................... 1,177,460
15,000 Mannesmann AG (Germany)................................................................ 3,613,337
125,000 McLeodUSA, Inc. (Class A)*............................................................. 7,343,750
343 Nippon Telegraph & Telephone Corp. (Japan)............................................. 5,872,139
36,100 PanAmSat Corp.*........................................................................ 2,132,156
35,000 RCN Corp.*............................................................................. 1,695,313
------------
25,864,086
------------
PACKAGE GOODS/COSMETICS (0.6%)
67,600 Colgate-Palmolive Co................................................................... 4,394,000
------------
PAPER (0.4%)
45,000 Champion International Corp............................................................ 2,787,188
------------
PRECISION INSTRUMENTS (0.2%)
15,000 PE Corporation-PE Biosystems Group..................................................... 1,804,688
------------
RECREATIONAL PRODUCTS/TOYS (0.4%)
35,600 Electronic Arts Inc.*.................................................................. 2,990,400
------------
SEMICONDUCTORS (1.3%)
15,000 Broadcom Corp. (Class A)*.............................................................. 4,084,688
45,000 Conexant Systems, Inc.*................................................................ 2,972,813
10,000 SDL, Inc.*............................................................................. 2,180,000
5,200 STMicroelectronics NV (Netherlands).................................................... 787,475
------------
10,024,976
------------
TELECOMMUNICATION EQUIPMENT (7.9%)
47,000 Alcatel (ADR) (France)................................................................. 2,115,000
11,900 CIENA Corp.*........................................................................... 684,250
35,000 Comverse Technology, Inc.*............................................................. 5,064,063
70,000 Corning Inc............................................................................ 9,025,625
133,178 Ericsson (L.M.) Telefonaktiebolaqet (ADR) (Sweden)..................................... 8,739,806
27,900 General Instrument Corp.*.............................................................. 2,371,500
24,000 Harmonic, Inc.*........................................................................ 2,274,000
54,100 Motorola, Inc.......................................................................... 7,966,225
6,100 Next Level Communications, Inc.*....................................................... 457,119
45,000 Nokia Corp. (ADR) (Finland)............................................................ 8,550,000
35,700 Nortel Networks Corp. (Canada)......................................................... 3,605,700
79,300 RF Micro Devices, Inc.*................................................................ 5,412,225
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
AMERICAN OPPORTUNITIES
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
58,000 Scientific-Atlanta, Inc................................................................ $ 3,226,250
5,000 Sycamore Networks, Inc.*............................................................... 1,518,125
------------
61,009,888
------------
TELECOMMUNICATIONS (1.1%)
215 DDI Corp. (Japan)...................................................................... 2,944,629
21,300 Pt Multimedia - Servicos de Telecomunicacoes e Multimedia SGPS SA (Portugal)*.......... 1,209,787
50,000 Sonera Oyj (Finland)................................................................... 3,422,235
11,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)..................................... 1,237,500
------------
8,814,151
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $481,565,655)......................................................... 728,325,630
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
SHORT-TERM INVESTMENT (A) (5.1%)
<C> <S> <C>
U.S. GOVERNMENT AGENCY
$ 39,100 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $39,096,742)....... 39,096,742
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
VALUE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $520,662,397) (B)........................................................ 99.8% $ 767,422,372
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.2 1,328,177
----- -------------
NET ASSETS................................................................................ 100.0% $ 768,750,549
----- -------------
----- -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Some or all of these securities are segregated in connection with open
futures contracts.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $251,369,259 and the
aggregate gross unrealized depreciation is $4,609,284, resulting in net
unrealized appreciation of $246,759,975.
FUTURES CONTRACTS OPEN AT DECEMBER 31, 1999:
<TABLE>
<CAPTION>
DESCRIPTION, UNDERLYING
NUMBER OF DELIVERY YEAR, FACE AMOUNT UNREALIZED
CONTRACTS AND MONTH AT VALUE DEPRECIATION
- ---------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index
March/2000
(97) $35,991,850 $ (1,560,742)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
MID-CAP EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (94.3%)
ADVERTISING (1.5%)
5,000 DoubleClick Inc.*...................................................................... $ 1,265,312
-----------
BIOTECHNOLOGY (3.9%)
20,300 Biogen, Inc.*.......................................................................... 1,714,081
8,600 Genentech, Inc.*....................................................................... 1,156,700
7,800 Gilead Sciences, Inc.*................................................................. 421,200
-----------
3,291,981
-----------
BROADCASTING (6.0%)
23,299 Clear Channel Communications, Inc.*.................................................... 2,079,436
11,600 Hispanic Broadcasting Corp.*........................................................... 1,067,200
19,200 Univision Communications, Inc. (Class A)*.............................................. 1,962,000
-----------
5,108,636
-----------
CABLE TELEVISION (5.5%)
26,600 Cablevision Systems Corp. (Class A)*................................................... 2,008,300
27,000 EchoStar Communications Corp. (Class A)*............................................... 2,625,750
-----------
4,634,050
-----------
CATALOG/SPECIALTY DISTRIBUTION (2.0%)
18,600 Amazon.com, Inc.*...................................................................... 1,415,925
8,900 Drugstore.com, Inc.*................................................................... 322,069
-----------
1,737,994
-----------
CLOTHING/SHOE/ACCESSORY STORES (0.9%)
16,700 Talbot's, Inc. (The)................................................................... 745,237
-----------
COMPUTER COMMUNICATIONS (3.4%)
1,800 Foundry Networks, Inc.*................................................................ 542,700
6,900 Juniper Networks, Inc.*................................................................ 2,340,825
-----------
2,883,525
-----------
COMPUTER SOFTWARE (8.3%)
5,000 Phone.com, Inc.*....................................................................... 579,687
14,100 Rational Software Corp.*............................................................... 692,662
68,800 Siebel Systems, Inc.*.................................................................. 5,796,400
-----------
7,068,749
-----------
DIVERSIFIED COMMERCIAL SERVICES (1.9%)
9,000 CheckFree Holdings Corp.*.............................................................. 940,500
17,500 Paychex, Inc........................................................................... 698,906
-----------
1,639,406
-----------
ENGINEERING & CONSTRUCTION (1.0%)
17,900 Metromedia Fiber Network, Inc. (Class A)*.............................................. 856,962
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
GENERIC DRUGS (0.7%)
13,200 Andrx Corp.*........................................................................... $ 552,750
-----------
INTERNET SERVICES (30.0%)
12,200 Ariba, Inc.*........................................................................... 2,159,400
15,500 Exodus Communications, Inc.*........................................................... 1,376,594
11,800 Portal Software, Inc.*................................................................. 1,209,500
18,300 Scient Corp.*.......................................................................... 1,569,225
10,800 StarMedia Network, Inc.*............................................................... 431,325
38,400 VeriSign, Inc.*........................................................................ 7,339,200
11,900 Viant Corp.*........................................................................... 1,157,275
20,300 Vignette Corp.*........................................................................ 3,307,631
16,100 Yahoo! Inc.*........................................................................... 6,966,269
-----------
25,516,419
-----------
INVESTMENT
BANKERS/BROKERS/SERVICES (2.3%)
75,700 E*TRADE Group, Inc.*................................................................... 1,977,662
-----------
INVESTMENT MANAGERS (1.5%)
34,900 Price (T.) Rowe Associates, Inc........................................................ 1,284,756
-----------
LIFE INSURANCE (1.3%)
24,800 Hartford Life, Inc. (Class A) (Note 3)................................................. 1,091,200
-----------
MEDICAL EQUIPMENT & SUPPLIES (0.4%)
6,300 VISX, Inc.*............................................................................ 326,025
-----------
MEDICAL SPECIALTIES (0.8%)
8,800 Minimed, Inc.*......................................................................... 644,600
-----------
MOVIES/ENTERTAINMENT (2.0%)
22,200 Westwood One, Inc.*.................................................................... 1,687,200
-----------
OTHER CONSUMER SERVICES (3.7%)
17,200 eBay, Inc.*............................................................................ 2,153,225
12,900 homestore.com, Inc.*................................................................... 954,600
-----------
3,107,825
-----------
OTHER PHARMACEUTICALS (0.7%)
6,300 Sepracor, Inc.*........................................................................ 624,881
-----------
OTHER SPECIALTY STORES (1.3%)
32,500 Bed Bath & Beyond Inc.*................................................................ 1,125,313
-----------
OTHER TELECOMMUNICATIONS (5.3%)
52,900 AT&T Canada, Inc. (Canada)*............................................................ 2,122,613
23,000 Global Crossing Ltd. (Bermuda)*........................................................ 1,148,563
20,600 McLeodUSA, Inc. (Class A)*............................................................. 1,210,250
-----------
4,481,426
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
MID-CAP EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (7.7%)
22,700 Altera Corp.*.......................................................................... $ 1,125,069
51,600 Maxim Integrated Products, Inc.*....................................................... 2,431,650
65,800 Xilinx, Inc.*.......................................................................... 2,989,788
-----------
6,546,507
-----------
SERVICES TO THE HEALTH INDUSTRY (0.6%)
20,900 MedQuist Inc.*......................................................................... 535,563
-----------
TELECOMMUNICATION EQUIPMENT (1.6%)
33,400 American Tower Corp. (Class A)*........................................................ 1,020,788
1,100 Sycamore Networks, Inc.*............................................................... 333,988
-----------
1,354,776
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $54,907,702).......................................................... 80,088,755
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENTS (4.7%)
U.S. GOVERNMENT AGENCY (a) (1.1%)
$ 1,000 Federal Home Loan Banks 5.72% due 01/12/00 (AMORTIZED COST $998,252)................... 998,252
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (3.6%)
$ 3,046 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $3,046,814) (b)
(IDENTIFIED COST $3,046,433)......................................................... $ 3,046,433
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,044,685)........................................................... 4,044,685
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $58,952,387) (C).......................................................... 99.0% 84,133,440
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 1.0 815,084
----- ------------
NET ASSETS................................................................................. 100.0% $ 84,948,524
----- ------------
----- ------------
</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) Collateralized by $2,136,851 U.S. Treasury Bond 11.25% due 02/15/15 valued
at $3,109,787.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $26,655,243 and the
aggregate gross unrealized depreciation is $1,474,190, resulting in net
unrealized appreciation of $25,181,053.
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (94.7%)
ARGENTINA (0.3%)
TELECOMMUNICATIONS
20,000 Telefonica de Argentina S.A. (ADR).................................................... $ 617,500
------------
AUSTRALIA (2.1%)
CABLE TELEVISION
300,000 Austar United Communications Ltd.*.................................................... 1,200,480
------------
INTERNATIONAL BANKS
78,000 Commonwealth Bank of Australia........................................................ 1,342,137
------------
OTHER METALS/MINERALS
200,000 WMC Limited........................................................................... 1,102,080
------------
TOTAL AUSTRALIA....................................................................... 3,644,697
------------
BRAZIL (0.7%)
TELECOMMUNICATIONS
10,000 Telecomunicacoes Brasileiras S.A.- Telebras (ADR) (Pref.)............................. 1,285,000
------------
CANADA (1.8%)
BIOTECHNOLOGY
32,900 BioChem Pharma, Inc.*................................................................. 711,463
------------
CABLE TELEVISION
60,000 Videotron Group Ltd................................................................... 1,016,035
------------
INTERNATIONAL BANKS
45,000 Bank of Montreal...................................................................... 1,533,384
------------
TOTAL CANADA.......................................................................... 3,260,882
------------
FINLAND (3.0%)
PAPER
54,000 UPM-Kymmene Oyj....................................................................... 2,172,528
------------
TELECOMMUNICATION EQUIPMENT
16,000 Nokia Corp. (ADR) (Class A)........................................................... 3,040,000
------------
TOTAL FINLAND......................................................................... 5,212,528
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FRANCE (6.9%)
DIVERSIFIED MANUFACTURING
6,000 Compagnie de Saint Gobain............................................................. $ 1,126,697
------------
ELECTRONIC DATA PROCESSING
152,000 Bull SA*.............................................................................. 1,221,524
------------
INTERNATIONAL BANKS
7,200 Societe Generale...................................................................... 1,672,847
------------
MILITARY/GOV'T/TECHNICAL
24,000 Thomson CSF........................................................................... 791,524
------------
MULTI-SECTOR COMPANIES
40,000 Lagardere S.C.A....................................................................... 2,172,528
------------
OIL REFINING/MARKETING
19,121 TotalFina S.A. (B Shares)............................................................. 2,548,360
------------
TELECOMMUNICATION EQUIPMENT
11,000 Alcatel............................................................................... 2,522,547
------------
TOTAL FRANCE.......................................................................... 12,056,027
------------
GERMANY (4.0%)
DIVERSIFIED ELECTRONIC PRODUCTS
15,000 Siemens AG (Registered Shares)........................................................ 1,905,488
------------
INTERNATIONAL BANKS
22,000 Bayerische Hypo-Und Vereinsbank AG.................................................... 1,500,251
------------
MAJOR CHEMICALS
38,000 Bayer AG.............................................................................. 1,796,359
------------
OTHER TELECOMMUNICATIONS
7,500 Mannesmann AG......................................................................... 1,806,668
------------
TOTAL GERMANY......................................................................... 7,008,766
------------
GREECE (0.4%)
TELECOMMUNICATIONS
65,000 Hellenic Telecommunication Organization S.A. (OTE) (ADR).............................. 775,938
------------
HONG KONG (1.5%)
INTERNATIONAL BANKS
100,000 Dao Heng Bank Group Ltd............................................................... 515,822
------------
MULTI-SECTOR COMPANIES
75,000 Hutchison Whampoa, Ltd................................................................ 1,090,172
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NATURAL GAS
292,820 Hong Kong & China Gas Co., Ltd........................................................ $ 401,149
------------
UTILITIES
123,000 CLP Holdings Ltd...................................................................... 566,427
------------
TOTAL HONG KONG....................................................................... 2,573,570
------------
IRELAND (0.8%)
OTHER TELECOMMUNICATIONS
300,000 Eircom PLC............................................................................ 1,306,534
------------
ITALY (1.6%)
ELECTRIC UTILITIES
350,000 Enel SpA*............................................................................. 1,464,445
------------
INTEGRATED OIL COMPANIES
22,500 ENI SpA (ADR)......................................................................... 1,240,312
------------
TOTAL ITALY........................................................................... 2,704,757
------------
JAPAN (15.7%)
CONSUMER ELECTRONICS/APPLIANCES
65,000 Pioneer Electronic Corp............................................................... 1,716,885
11,000 Sony Corp............................................................................. 3,260,614
------------
4,977,499
------------
DIVERSIFIED ELECTRONIC PRODUCTS
110,000 Hitachi Ltd........................................................................... 1,764,821
------------
ELECTRONIC COMPONENTS
14,000 TDK Corp.............................................................................. 1,932,499
------------
ELECTRONIC DATA PROCESSING
35,000 Fujitsu Ltd........................................................................... 1,595,578
------------
ELECTRONIC PRODUCTION EQUIPMENT
10,000 Tokyo Electron Ltd.................................................................... 1,369,595
------------
INDUSTRIAL MACHINERY/COMPONENTS
22,000 Fanuc Ltd............................................................................. 2,800,039
------------
INTERNATIONAL BANKS
80,000 Sanwa Bank Ltd........................................................................ 972,804
------------
INVESTMENT BANKERS/BROKERS/SERVICES
80,000 Nomura Securities Co., Ltd............................................................ 1,443,944
------------
MOTOR VEHICLES
90,000 Suzuki Motor Corp..................................................................... 1,312,757
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER PHARMACEUTICALS
27,000 Yamanouchi Pharmaceutical Co., Ltd.................................................... $ 942,966
------------
OTHER TELECOMMUNICATIONS
120 Nippon Telegraph & Telephone Corp..................................................... 2,054,393
------------
PACKAGE GOODS/COSMETICS
10,000 Uni-Charm Corp........................................................................ 576,208
------------
RAILROADS
200 East Japan Railway Co................................................................. 1,078,067
------------
SEMICONDUCTORS
8,000 Rohm Co., Ltd......................................................................... 3,287,028
------------
STEEL/IRON ORE
500,000 Nippon Steel Co....................................................................... 1,169,047
------------
TOTAL JAPAN........................................................................... 27,277,245
------------
NETHERLANDS (3.7%)
DIVERSIFIED ELECTRONIC PRODUCTS
12,000 Philips Electronics NV................................................................ 1,629,396
------------
DIVERSIFIED FINANCIAL SERVICES
26,000 ING Groep NV.......................................................................... 1,567,479
------------
LIFE INSURANCE
15,000 Aegon N.V............................................................................. 1,446,843
------------
MAJOR PHARMACEUTICALS
35,000 Akzo Nobel N.V........................................................................ 1,753,110
------------
TOTAL NETHERLANDS..................................................................... 6,396,828
------------
NEW ZEALAND (0.8%)
ELECTRIC UTILITIES
750,000 Contact Energy Ltd.................................................................... 1,314,540
------------
SINGAPORE (1.1%)
BANKING
219,835 Overseas Union Bank Ltd............................................................... 1,285,778
------------
REAL ESTATE
100,000 City Developments Ltd................................................................. 584,883
------------
TOTAL SINGAPORE....................................................................... 1,870,661
------------
SOUTH AFRICA (0.4%)
PAPER
70,000 Sappi Ltd. (ADR)...................................................................... 673,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (1.0%)
CELLULAR TELEPHONE
45,000 SK Telecom Co., Ltd. (ADR)............................................................ $ 1,726,875
------------
SPAIN (2.1%)
TELECOMMUNICATIONS
38,984 Telefonica de Espana S.A. (ADR)....................................................... 3,072,426
------------
UTILITIES
26,800 Endesa S.A............................................................................ 531,292
------------
TOTAL SPAIN........................................................................... 3,603,718
------------
SWEDEN (1.1%)
MULTI-SECTOR COMPANIES
130,000 Investor AB (B Shares)................................................................ 1,830,857
------------
SWITZERLAND (2.3%)
BUILDING MATERIALS
1,340 Holderbank Financiere Glarus AG (B Shares)............................................ 1,833,773
------------
INTERNATIONAL BANKS
4,300 UBS AG (Registered Shares)............................................................ 1,160,703
------------
MAJOR PHARMACEUTICALS
80 Roche Holdings AG..................................................................... 949,152
------------
TOTAL SWITZERLAND..................................................................... 3,943,628
------------
UNITED KINGDOM (9.8%)
ADVERTISING
80,000 WPP Group, PLC........................................................................ 1,266,824
------------
AEROSPACE
185,000 British Aerospace PLC................................................................. 1,224,371
240,543 Rolls-Royce PLC....................................................................... 830,929
------------
2,055,300
------------
CLOTHING/SHOE/ACCESSORY STORES
70,000 Next PLC.............................................................................. 671,184
------------
COMPUTER/VIDEO CHAINS
40,000 Dixons Group PLC...................................................................... 961,417
------------
DIVERSIFIED FINANCIAL SERVICES
32,000 Abbey National PLC.................................................................... 511,379
49,824 HSBC Holdings PLC..................................................................... 698,587
350,000 Old Mutual PLC........................................................................ 951,974
------------
2,161,940
------------
E.D.P. SERVICES
72,000 SEMA Group PLC........................................................................ 1,294,718
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR PHARMACEUTICALS
15,000 AstraZenca Group PLC.................................................................. $ 621,790
65,000 SmithKline Beecham PLC................................................................ 828,892
------------
1,450,682
------------
MOVIES/ENTERTAINMENT
210,000 Carlton Communications PLC............................................................ 2,044,061
------------
NEWSPAPERS
102,000 United News & Media PLC............................................................... 1,299,076
------------
TELECOMMUNICATION EQUIPMENT
180,000 Racal Electronics PLC................................................................. 1,612,586
------------
TELECOMMUNICATIONS
90,000 British Telecommunications PLC........................................................ 2,198,056
------------
TOTAL UNITED KINGDOM.................................................................. 17,015,844
------------
UNITED STATES (33.6%)
ALUMINUM
20,000 Alcoa, Inc............................................................................ 1,660,000
------------
CLOTHING/SHOE/ACCESSORY STORES
45,300 Gap, Inc. (The)....................................................................... 2,083,800
------------
COMPUTER COMMUNICATIONS
38,350 Cisco Systems, Inc.*.................................................................. 4,105,847
------------
DIVERSIFIED ELECTRONIC PRODUCTS
25,000 Rockwell International Corp........................................................... 1,196,875
------------
DIVERSIFIED FINANCIAL SERVICES
12,000 American Express Co................................................................... 1,995,000
23,450 Citigroup Inc......................................................................... 1,302,941
------------
3,297,941
------------
DIVERSIFIED MANUFACTURING
35,062 Honeywell International Inc........................................................... 2,022,639
------------
ELECTRONIC DATA PROCESSING
43,800 Gateway, Inc.*........................................................................ 3,156,337
20,000 Hewlett-Packard Co.................................................................... 2,278,750
38,000 Sun Microsystems, Inc.*............................................................... 2,940,250
------------
8,375,337
------------
FINANCE COMPANIES
16,100 Fannie Mae............................................................................ 1,005,244
------------
INTEGRATED OIL COMPANIES
15,400 Atlantic Richfield Co................................................................. 1,332,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
GLOBAL EQUITY
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
17,200 Chevron Corp.......................................................................... $ 1,489,950
34,627 Exxon Mobil Corp...................................................................... 2,789,620
------------
5,611,670
------------
INTERNET SERVICES
21,400 America Online, Inc.*................................................................. 1,614,362
40,000 At Home Corp. (Series A)*............................................................. 1,717,500
------------
3,331,862
------------
MAJOR BANKS
20,600 Chase Manhattan Corp. (The)........................................................... 1,600,362
------------
MAJOR CHEMICALS
11,800 Dow Chemical Co....................................................................... 1,576,775
72,000 Monsanto Co........................................................................... 2,565,000
------------
4,141,775
------------
MAJOR PHARMACEUTICALS
25,600 Abbott Laboratories................................................................... 929,600
22,800 American Home Products Corp........................................................... 899,175
22,600 Bristol-Myers Squibb Co............................................................... 1,450,637
------------
3,279,412
------------
MANAGED HEALTH CARE
95,000 Oxford Health Plans, Inc.*............................................................ 1,205,313
------------
MEDIA CONGLOMERATES
45,000 Disney (Walt) Co...................................................................... 1,316,250
------------
MILITARY/GOV'T/TECHNICAL
27,600 General Motors Corp. (Class H)*....................................................... 2,649,600
------------
MOTOR VEHICLES
18,500 Ford Motor Co......................................................................... 988,594
------------
OTHER SPECIALTY STORES
50,200 Bed Bath & Beyond Inc.*............................................................... 1,738,175
------------
PACKAGE GOODS/COSMETICS
24,600 Colgate-Palmolive Co.................................................................. 1,599,000
------------
PACKAGED FOODS
33,600 General Mills, Inc.................................................................... 1,201,200
------------
PAPER
28,200 Champion International Corp........................................................... 1,746,638
------------
SAVINGS & LOAN ASSOCIATIONS
43,800 Golden West Financial Corp............................................................ 1,467,300
35,180 Washington Mutual, Inc................................................................ 914,680
------------
2,381,980
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS
23,200 Intel Corp............................................................................ $ 1,908,200
------------
TOTAL UNITED STATES................................................................... 58,447,714
------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $112,119,136)........................................................ 164,547,859
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (a) (5.2%)
U.S. GOVERNMENT AGENCY
$ 9,050 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $9,049,246)....... 9,049,246
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $121,168,382) (B)........................................................ 99.9% 173,597,105
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.1 145,901
----- -------------
NET ASSETS................................................................................ 100.0% $ 173,743,006
----- -------------
----- -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $55,691,080 and the
aggregate gross unrealized depreciation is $3,262,357, resulting in net
unrealized appreciation of $52,428,723.
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
GLOBAL EQUITY
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Advertising....................................................................... $ 1,266,824 0.7%
Aerospace......................................................................... 2,055,300 1.2
Aluminum.......................................................................... 1,660,000 1.0
Banking........................................................................... 1,285,778 0.7
Biotechnology..................................................................... 711,462 0.4
Building Materials................................................................ 1,833,773 1.1
Cable Television.................................................................. 2,216,515 1.3
Cellular Telephone................................................................ 1,726,875 1.0
Clothing/Shoe/Accessory Stores.................................................... 2,754,984 1.6
Computer Communications........................................................... 4,105,847 2.4
Computer/Video Chains............................................................. 961,418 0.6
Consumer Electronics/Appliances................................................... 4,977,500 2.9
Diversified Electronic Products................................................... 6,496,580 3.7
Diversified Financial Services.................................................... 7,027,360 4.0
Diversified Manufacturing......................................................... 3,149,336 1.8
E.D.P. Services................................................................... 1,294,718 0.7
Electric Utilities................................................................ 2,778,985 1.6
Electronic Components............................................................. 1,932,499 1.1
Electronic Data Processing........................................................ 11,192,440 6.5
Electronic Production Equipment................................................... 1,369,595 0.8
Finance Companies................................................................. 1,005,244 0.6
Industrial Machinery/Components................................................... 2,800,039 1.6
Integrated Oil Companies.......................................................... 6,851,982 3.9
International Banks............................................................... 8,697,947 5.0
Internet Services................................................................. 3,331,862 1.9
Investment Bankers/Brokers/Services............................................... 1,443,944 0.8
Life Insurance.................................................................... 1,446,843 0.8
Major Banks....................................................................... 1,600,363 0.9
Major Chemicals................................................................... 5,938,134 3.4
Major Pharmaceuticals............................................................. 7,432,356 4.3
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Managed Health Care............................................................... $ 1,205,313 0.7%
Media Conglomerates............................................................... 1,316,250 0.8
Military/Gov't/Technical.......................................................... 3,441,124 2.0
Motor Vehicles.................................................................... 2,301,351 1.3
Movies/Entertainment.............................................................. 2,044,061 1.2
Multi-Sector Companies............................................................ 5,093,557 3.0
Natural Gas....................................................................... 401,149 0.2
Newspapers........................................................................ 1,299,076 0.7
Oil Refining/Marketing............................................................ 2,548,360 1.5
Other Metals/Minerals............................................................. 1,102,080 0.6
Other Pharmaceuticals............................................................. 942,966 0.5
Other Specialty Stores............................................................ 1,738,175 1.0
Other Telecommunications.......................................................... 5,167,595 3.0
Package Goods/Cosmetics........................................................... 2,175,208 1.3
Packaged Foods.................................................................... 1,201,200 0.7
Paper............................................................................. 4,592,916 2.6
Railroads......................................................................... 1,078,067 0.6
Real Estate....................................................................... 584,883 0.3
Savings & Loan Associations....................................................... 2,381,980 1.4
Semiconductors.................................................................... 5,195,228 3.0
Steel/Iron Ore.................................................................... 1,169,047 0.7
Telecommunication Equipment....................................................... 7,175,132 4.1
Telecommunications................................................................ 7,948,920 4.6
U.S. Government Agency............................................................ 9,049,246 5.2
Utilities......................................................................... 1,097,718 0.6
------------ ----
$173,597,105 99.9%
------------ ----
------------ ----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $163,262,859 94.0%
Preferred Stock................................................................... 1,285,000 0.7
Short-Term Investment............................................................. 9,049,246 5.2
------------ ----
$173,597,105 99.9%
------------ ----
------------ ----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (91.0%)
ADVERTISING (2.5%)
1,300 Digital Impact, Inc.*.................................................................. $ 65,162
30,000 FreeShop.com, Inc.*.................................................................... 1,410,000
32,600 Getty Images, Inc.*.................................................................... 1,595,362
5,200 Harris Interactive Inc.*............................................................... 67,925
12,900 Mediaplex, Inc.*....................................................................... 803,025
1,800 Netratings, Inc.*...................................................................... 86,512
------------
4,027,986
------------
AIR FREIGHT/DELIVERY SERVICES (1.1%)
25,000 C.H. Robinson Worldwide, Inc........................................................... 993,750
18,600 Expeditors International of Washington, Inc............................................ 806,775
------------
1,800,525
------------
APPAREL (0.6%)
60,000 Quiksilver, Inc.*...................................................................... 930,000
------------
AUTO PARTS: O.E.M. (0.6%)
33,000 Gentex Corp.*.......................................................................... 915,750
------------
BIOTECHNOLOGY (3.2%)
20,100 Alkermes, Inc.*........................................................................ 984,900
30,000 Gene Logic, Inc.*...................................................................... 795,000
24,000 Medco Research, Inc.*.................................................................. 721,500
10,000 Millennium Pharmaceuticals, Inc.*...................................................... 1,218,750
25,000 QLT Phototherapeutics, Inc.*........................................................... 1,462,500
------------
5,182,650
------------
BROADCASTING (1.3%)
18,700 Citadel Communications Corp.*.......................................................... 1,210,825
29,000 Radio Unica Communications Corp.*...................................................... 837,375
------------
2,048,200
------------
CABLE TELEVISION (2.1%)
30,000 Charter Communications, Inc. (Class A)*................................................ 656,250
5,200 Classic Communications, Inc. (Class A)*................................................ 191,100
31,200 Insight Communications Co., Inc.*...................................................... 924,300
4,000 NDS Group PLC (ADR) (United Kingdom)*.................................................. 121,500
15,000 Pegasus Communications Corp.*.......................................................... 1,440,000
------------
3,333,150
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CELLULAR TELEPHONE (1.9%)
15,000 Powertel, Inc.*........................................................................ $ 1,500,000
20,000 TeleCorp PCS, Inc.*.................................................................... 762,500
26,200 Tritel, Inc.*.......................................................................... 828,575
------------
3,091,075
------------
CLOTHING/SHOE/ACCESSORY STORES (1.2%)
25,000 Pacific Sunwear of California, Inc.*................................................... 795,312
40,000 Urban Outfitters, Inc.*................................................................ 1,165,000
------------
1,960,312
------------
COMPUTER COMMUNICATIONS (1.5%)
700 Cobalt Networks, Inc.*................................................................. 74,900
20,000 Emulex Corp.*.......................................................................... 2,258,750
------------
2,333,650
------------
COMPUTER SOFTWARE (12.0%)
25,300 BSQUARE Corporation*................................................................... 1,061,019
30,000 CBT Group PLC (ADR) (Ireland)*......................................................... 993,750
28,700 Dalleen Technologies, Inc.*............................................................ 624,225
25,000 Entrust Technologies Inc.*............................................................. 1,496,875
30,000 eSoft, Inc.*........................................................................... 870,000
45,700 FileNET Corp.*......................................................................... 1,171,062
20,000 Inet Technologies, Inc.*............................................................... 1,397,500
16,000 Mercury Interactive Corp.*............................................................. 1,727,000
400 Metasolv Software, Inc.*............................................................... 32,900
14,000 Micromuse Inc.*........................................................................ 2,380,000
24,000 NetIQ Corp.*........................................................................... 1,266,000
15,000 Packeteer, Inc.*....................................................................... 1,035,000
21,000 Peregrine Systems, Inc.*............................................................... 1,764,000
45,600 Project Software & Development, Inc.*.................................................. 2,519,400
20,000 Remedy Corp.*.......................................................................... 950,000
------------
19,288,731
------------
COMPUTER/VIDEO CHAINS (0.5%)
25,000 REX Stores Corp.*...................................................................... 875,000
------------
CONTAINERS/PACKAGING (0.4%)
100,000 Gaylord Container Corp. (Series A)*.................................................... 681,250
------------
CONTRACT DRILLING (1.0%)
63,000 R&B Falcon Corp.*...................................................................... 834,750
30,000 Santa Fe International Corp............................................................ 776,250
------------
1,611,000
------------
DISCOUNT CHAINS (0.5%)
20,000 BJ's Wholesale Club, Inc.*............................................................. 730,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED COMMERCIAL SERVICES (0.1%)
3,900 eCollege.Com*.......................................................................... $ 42,656
4,000 Management Network Group, Inc. (The)*.................................................. 130,500
------------
173,156
------------
DIVERSIFIED ELECTRONIC PRODUCTS (0.6%)
1,300 Caliper Technologies Corp.*............................................................ 86,612
50,000 Sensormatic Electronics Corp.*......................................................... 871,875
------------
958,487
------------
E.D.P. PERIPHERALS (0.9%)
15,000 DSP Group, Inc.*....................................................................... 1,393,125
------------
E.D.P. SERVICES (3.7%)
15,000 Concord Communications, Inc.*.......................................................... 664,687
40,000 Harbinger Corp.*....................................................................... 1,270,000
20,000 Lightbridge, Inc.*..................................................................... 557,500
3,100 McAfee.Com Corp.*...................................................................... 141,825
30,000 Netsolve, Inc.*........................................................................ 941,250
17,000 Pegasus Systems, Inc.*................................................................. 1,024,250
4,400 Predictive Systems, Inc.*.............................................................. 288,200
2,100 Rainmaker Systems, Inc.*............................................................... 42,525
10,000 ReSourcePhoenix.com, Inc............................................................... 192,500
20,000 U.S. Interactive, Inc.*................................................................ 845,000
------------
5,967,737
------------
ELECTRICAL PRODUCTS (0.5%)
38,000 Belden Inc............................................................................. 798,000
------------
ELECTRONIC COMPONENTS (0.7%)
22,000 Power Integrations, Inc.*.............................................................. 1,034,000
5,000 Sage, Inc.*............................................................................ 95,625
------------
1,129,625
------------
ELECTRONIC DISTRIBUTORS (2.3%)
25,000 Intraware, Inc.*....................................................................... 1,992,187
6,000 Metron Technology N.V.*................................................................ 95,250
10,000 Safeguard Scientifics, Inc.*........................................................... 1,620,625
------------
3,708,062
------------
ELECTRONIC PRODUCTION EQUIPMENT (5.0%)
20,000 Advanced Energy Industries, Inc.*...................................................... 983,750
19,500 Asyst Technologies, Inc.*.............................................................. 1,277,250
22,000 ATMI, Inc.*............................................................................ 724,625
39,000 EMCORE Corp.*.......................................................................... 1,296,750
77,500 MEMC Electronic Materials, Inc.*....................................................... 949,375
29,200 MKS Instruments, Inc.*................................................................. 1,054,850
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10,500 Orbotech, Ltd.*........................................................................ $ 813,750
30,000 Rudolph Technologies, Inc.*............................................................ 990,000
------------
8,090,350
------------
FINANCE COMPANIES (0.9%)
41,000 Advanta Corp. (Class A)................................................................ 745,687
23,000 NextCard, Inc.*........................................................................ 661,250
------------
1,406,937
------------
FINANCIAL PUBLISHING/SERVICES (0.5%)
30,000 Telescan, Inc.*........................................................................ 738,750
------------
FOREST PRODUCTS (0.7%)
23,400 Rayonier Inc........................................................................... 1,130,512
------------
INDUSTRIAL SPECIALTIES (0.1%)
6,000 Symyx Technologies, Inc.*.............................................................. 178,500
------------
INTEGRATED OIL COMPANIES (0.5%)
13,000 Murphy Oil Corp........................................................................ 745,875
------------
INTERNET SERVICES (12.7%)
1,400 Agency.com, Inc.*...................................................................... 71,925
29,400 AppNet, Inc.*.......................................................................... 1,284,412
26,000 Art Technology Group, Inc.*............................................................ 3,381,625
1,800 ASD Systems, Inc.*..................................................................... 31,500
12,000 Bluestone Software, Inc.*.............................................................. 1,374,000
1,100 C-Bridge Internet Solutions, Inc.*..................................................... 54,450
57,200 Circle.Com*............................................................................ 700,700
17,000 CNet Inc.*............................................................................. 962,625
20,000 Concentric Network Corp.*.............................................................. 613,750
25,000 Digex, Inc.*........................................................................... 1,700,000
1,000 El Sitio, Inc.*........................................................................ 36,750
6,000 Intertrust Technologies Corp.*......................................................... 705,750
15,000 InterVU Inc.*.......................................................................... 1,561,875
37,000 Jacada Ltd.*........................................................................... 1,026,750
2,100 Metalink Ltd.*......................................................................... 41,738
30,000 National Information Consortium, Inc.*................................................. 960,000
36,700 Netzero, Inc.*......................................................................... 988,606
900 OnDisplay, Inc.*....................................................................... 81,450
20,000 Optio Software, Inc.*.................................................................. 470,000
1,300 Pfsweb Inc.*........................................................................... 48,588
900 Preview Systems, Inc.*................................................................. 57,600
16,000 PSINet, Inc.*.......................................................................... 988,000
6,000 PurchasePro.com Inc.*.................................................................. 824,625
13,000 Quest Software, Inc.*.................................................................. 1,295,125
35,000 Rare Medium Group, Inc.*............................................................... 1,181,250
1,000 Xpedior Inc.*.......................................................................... 28,750
------------
20,471,844
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT BANKERS/BROKERS/SERVICES (0.9%)
35,000 AmeriTrade Holding Corp. (Class A)*.................................................... $ 759,063
17,000 eSPEED, Inc (Class A)*................................................................. 607,750
------------
1,366,813
------------
MEDICAL EQUIPMENT & SUPPLIES (0.8%)
23,500 LaserSight, Inc.*...................................................................... 232,063
20,000 VISX, Inc.*............................................................................ 1,035,000
------------
1,267,063
------------
MEDICAL SPECIALTIES (2.9%)
15,000 ABIOMED, Inc.*......................................................................... 540,000
20,000 ArthroCare Corp.*...................................................................... 1,220,000
22,000 Cytyc Corp.*........................................................................... 1,344,750
28,800 Orthofix International N.V.*........................................................... 403,200
35,500 SonoSite, Inc.*........................................................................ 1,136,000
------------
4,643,950
------------
MEDICAL/DENTAL DISTRIBUTORS (1.5%)
27,000 Priority Healthcare Corp.*............................................................. 781,313
21,000 SciQuest.Com Inc.*..................................................................... 1,669,500
------------
2,450,813
------------
MEDICAL/NURSING SERVICES (1.0%)
53,000 InfoCure Corp.*........................................................................ 1,652,938
------------
METALS FABRICATIONS (1.0%)
20,000 CommScope, Inc.*....................................................................... 806,250
35,000 Maverick Tube Corp.*................................................................... 853,125
------------
1,659,375
------------
MILITARY/GOV'T/TECHNICAL (1.5%)
50,000 Titan Corp. (The)*..................................................................... 2,356,250
------------
MOVIES/ENTERTAINMENT (1.5%)
39,000 CINAR Corp. (Class B) (Canada)*........................................................ 965,250
19,000 Westwood One, Inc.*.................................................................... 1,444,000
------------
2,409,250
------------
OFFICE/PLANT AUTOMATION (0.6%)
16,000 Kronos, Inc.*.......................................................................... 972,000
------------
OIL & GAS PRODUCTION (0.6%)
51,500 Nuevo Energy Co.*...................................................................... 965,625
------------
OILFIELD SERVICES/EQUIPMENT (1.1%)
26,000 BJ Services Co.*....................................................................... 1,087,125
48,500 Veritas DGC Inc.*...................................................................... 679,000
------------
1,766,125
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER CONSUMER SERVICES (0.6%)
51,700 Edison Schools Inc.*................................................................... $ 801,350
3,100 Expedia, Inc. (Class A)*............................................................... 108,500
15,000 Healthcentral.Com*..................................................................... 109,688
------------
1,019,538
------------
OTHER PHARMACEUTICALS (0.4%)
21,500 Shire Pharmaceuticals Group PLC (ADR) (United Kingdom)*................................ 620,813
------------
OTHER SPECIALTY STORES (1.1%)
24,000 Cost Plus, Inc.*....................................................................... 852,000
32,700 Linens 'N Things, Inc.*................................................................ 968,738
------------
1,820,738
------------
OTHER TELECOMMUNICATIONS (5.5%)
48,500 Allied Riser Communications Corporation*............................................... 982,125
9,000 Clarent Corp.*......................................................................... 698,625
40,000 Clearnet Communications Inc. (Class A)*................................................ 1,375,000
3,400 Deltathree.Com Inc.*................................................................... 86,700
12,000 Efficient Networks, Inc.*.............................................................. 815,250
29,000 ITC DeltaCom, Inc.*.................................................................... 799,313
1,000 Pac-West Telecomm, Inc.*............................................................... 26,250
27,800 Pinnacle Holdings Inc.*................................................................ 1,184,975
25,040 Primus Telecommunications Group, Inc.*................................................. 957,780
16,000 Viatel, Inc.*.......................................................................... 856,000
13,000 WinStar Communications, Inc.*.......................................................... 976,625
------------
8,758,643
------------
PAPER (0.5%)
82,000 Sappi Ltd. (ADR) (South Africa)*....................................................... 789,250
------------
PRECISION INSTRUMENTS (0.6%)
25,000 Mettler-Toledo International Inc.*..................................................... 954,688
------------
RECREATIONAL PRODUCTS/TOYS (0.6%)
40,000 THQ, Inc.*............................................................................. 927,500
------------
RENTAL/LEASING COMPANIES (0.7%)
30,000 Comdisco, Inc.......................................................................... 1,117,500
------------
RESTAURANTS (0.5%)
37,000 Jack in the Box Inc.*.................................................................. 765,438
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
DEVELOPING GROWTH
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS (2.6%)
22,000 Exar Corp.*............................................................................ $ 1,295,250
28,500 Fairchild Semiconductor Corp. (Class A)*............................................... 847,875
30,000 Integrated Device Technology, Inc.*.................................................... 868,125
10,000 QuickLogic Corporation*................................................................ 165,000
15,000 Silicon Image, Inc.*................................................................... 1,046,250
------------
4,222,500
------------
SERVICES TO THE HEALTH INDUSTRY (0.5%)
4,100 MedicaLogic Inc.*...................................................................... 86,356
25,000 Quest Diagnostics Inc.*................................................................ 764,063
------------
850,419
------------
SHOE MANUFACTURING (0.6%)
50,000 Madden (Steven), Ltd.*................................................................. 937,500
------------
SPECIALTY CHEMICALS (2.3%)
40,000 Celgene Corp.*......................................................................... 2,800,000
30,000 Georgia Gulf Corp...................................................................... 913,125
------------
3,713,125
------------
TELECOMMUNICATION EQUIPMENT (1.5%)
4,600 Airnet Communications Corp.*........................................................... 167,325
22,500 Antec Corp.*........................................................................... 821,250
33,400 MCK Communications, Inc.*.............................................................. 734,800
25,000 Paradyne Networks, Inc.*............................................................... 671,874
------------
2,395,249
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $83,151,316).......................................................... 146,103,342
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<C> <S> <C>
- --------
SHORT-TERM INVESTMENTS (9.0%)
U.S. GOVERNMENT AGENCY (a) (8.9%)
$ 14,400 Federal Home Loan Mortgage Corp. 1.50% due 01/03/00 (AMORTIZED COST $14,398,800)....... 14,398,800
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 143 The Bank of New York 1.50% due 01/03/00 (dated 12/31/99; proceeds $143,468) (b)
(IDENTIFIED COST $143,450)........................................................... $ 143,450
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $14,542,250).......................................................... 14,542,250
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $97,693,566) (C)......................................................... 100.0% 160,645,592
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... 0.0 (50,549)
----- -------------
NET ASSETS................................................................................ 100.0% $ 160,595,043
----- -------------
----- -------------
</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 $100,620 U.S. Treasury Bond 11.25% due 02/15/15 valued at
$146,433.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $64,944,375 and the
aggregate gross unrealized depreciation is $1,992,349, resulting in net
unrealized appreciation of $62,952,026.
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS AND RIGHTS (100.0%)
ARGENTINA (2.5%)
DIVERSIFIED FINANCIAL SERVICES
15,670 CEI Citicorp Holdings S.A.*...................................................... $ 57,202
-----------
INTERNATIONAL BANKS
4,537 Banco de Galicia y Buenos Aires S.A. de C.V. (Class B) (ADR)..................... 89,889
2,610 Banco Frances del Rio de La Plato S.A. (ADR)..................................... 61,824
-----------
151,713
-----------
OIL & GAS PRODUCTION
22,310 Perez Companc S.A. (Class B)..................................................... 114,241
-----------
STEEL/IRON ORE
33,330 Siderca S.A.I.C. (Class A)....................................................... 70,002
-----------
TELECOMMUNICATIONS
2,270 Telecom Argentina Stet - France Telecom S.A. (Class B) (ADR)..................... 77,748
3,335 Telefonica de Argentina S.A. (ADR)............................................... 102,968
-----------
180,716
-----------
TOTAL ARGENTINA.................................................................. 573,874
-----------
BRAZIL (11.0%)
ALCOHOLIC BEVERAGES
7,265 Companhia Cervejaria Brahma (ADR)................................................ 101,710
-----------
CABLE TELEVISION
4,600 Globo Cabo S.A. (ADR)*........................................................... 81,075
-----------
CELLULAR TELEPHONE
2,800 Tele Celular Sul Participacoes S.A. (ADR)........................................ 88,900
1,200 Telemig Celular S.A. (Class B) (Pref.)........................................... 55,425
-----------
144,325
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC UTILITIES
2,930,000 Centrais Eletricas Brasileiras S.A. (Class B) (Pref.)............................ $ 69,808
2,302 Companhia Energetica de Minas Gerais S.A. (ADR) (Pref.).......................... 51,148
-----------
120,956
-----------
INTEGRATED OIL COMPANIES
1,602,000 Petroleo Brasileiro S.A. (Pref.)................................................. 407,363
-----------
INTERNATIONAL BANKS
17,370,000 Banco Bradesco S.A. (Pref.)...................................................... 136,060
1,127,905 Banco Bradesco S.A. (Rights)*.................................................... 4,470
1,171,000 Banco Itau S.A. (Pref.).......................................................... 100,334
-----------
240,864
-----------
OTHER METALS/MINERALS
5,000 Companhia Vale do Rio Doce S.A. (Debentures)*++.................................. --
5,740 Companhia Vale do Rio Doce S.A. (Pref.).......................................... 158,651
-----------
158,651
-----------
OTHER TELECOMMUNICATIONS
1,234 Tele Centro Sul Participacoes S.A. (ADR)......................................... 111,986
9,790 Tele Norte Leste Participacoes S.A. (Pref.)...................................... 249,645
-----------
361,631
-----------
PAPER
1,110,000 Votorantim Celulose Papel S.A. (Pref.)........................................... 50,315
-----------
SPECIALTY STEELS
3,500 Gerdau S.A. (ADR)................................................................ 92,094
-----------
TELECOMMUNICATIONS
6,792 Embratel Participacoes S.A. (ADR)................................................ 185,082
2,715 Telecomunicacoes Brasileiras S.A. - Telebras (ADR)............................... 348,878
6,862 Telesp Participacoes S.A. (ADR).................................................. 167,690
-----------
701,650
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TOBACCO
7,600 Souza Cruz S.A................................................................... $ 56,128
-----------
TOTAL BRAZIL..................................................................... 2,516,762
-----------
CAYMAN ISLANDS (0.9%)
MUTUAL FUNDS
8,093 Formosa Growth Fund Ltd.*........................................................ 207,343
-----------
CHILE (2.2%)
AGRICULTURAL CHEMICALS
1,020 Sociedad Quimica y Minera de Chile S.A. (ADR).................................... 32,194
-----------
ALCOHOLIC BEVERAGES
2,760 Compania Cervecerias Unidas S.A. (ADR)........................................... 88,492
3,620 Vina Concha Y Toro (ADR)......................................................... 136,655
-----------
225,147
-----------
FOOD CHAINS
3,850 Distribucion Y Servicio D&S S.A. (ADR)........................................... 74,594
-----------
INTERNATIONAL BANKS
3,130 Banco Santander Chile (ADR)...................................................... 47,732
-----------
NON - U.S. UTILITIES
2,270 Chilectra S.A. (ADR) - 144A...................................................... 45,258
-----------
OTHER PHARMACEUTICALS
1,560 Laboratorio Chile S.A. (ADR)..................................................... 28,080
-----------
TELECOMMUNICATIONS
2,738 Cia de Telecommunicaciones de Chile S.A. (ADR)................................... 49,969
-----------
TOTAL CHILE...................................................................... 502,974
-----------
CHINA (0.9%)
ELECTRIC UTILITIES
438,000 Huaneng Power International, Inc. (Class H)...................................... 104,232
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TEXTILES
368,000 Yizheng Chemical Fibre Co., Ltd. (Class H)....................................... $ 102,959
-----------
TOTAL CHINA...................................................................... 207,191
-----------
GREECE (5.1%)
BUILDING MATERIALS
1,380 Titan Cement Co. S.A............................................................. 81,583
-----------
CELLULAR TELEPHONE
4,440 Panafon Hellenic Telecom S.A..................................................... 59,788
-----------
INTERNATIONAL BANKS
4,010 Alpha Credit Bank................................................................ 314,946
2,740 National Bank of Greece S.A...................................................... 202,011
-----------
516,957
-----------
OIL & GAS PRODUCTION
7,200 Hellenic Petroleum S.A........................................................... 117,901
-----------
TELECOMMUNICATION EQUIPMENT
3,080 Intracom S.A..................................................................... 141,079
-----------
TELECOMMUNICATIONS
10,282 Hellenic Telecommunication Organization S.A...................................... 244,176
-----------
TOTAL GREECE..................................................................... 1,161,484
-----------
HONG KONG (2.5%)
ELECTRONIC DATA PROCESSING
192,000 Legend Holdings Ltd.............................................................. 475,431
-----------
MARINE TRANSPORTATION
112,500 Cosco Pacific Ltd................................................................ 93,340
-----------
TOTAL HONG KONG.................................................................. 568,771
-----------
HUNGARY (2.0%)
INTEGRATED OIL COMPANIES
3,500 MOL Magyar Olaj-es Gazipari RT (GDR) - 144A**.................................... 73,500
-----------
INTERNATIONAL BANKS
2,400 OTP Bank RT...................................................................... 140,350
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
100
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER TELECOMMUNICATIONS
17,250 Magyar Tavkozlesi RT............................................................. $ 120,725
3,700 Magyar Tavkozlesi RT (ADR)....................................................... 133,200
-----------
253,925
-----------
TOTAL HUNGARY.................................................................... 467,775
-----------
INDIA (6.1%)
E.D.P. SERVICES
3,250 Infosys Technologies Ltd. (ADR).................................................. 1,046,500
-----------
OTHER TELECOMMUNICATIONS
12,100 Videsh Sanchar Nigam Ltd. (GDR).................................................. 300,080
-----------
TEXTILES
4,084 Reliance Industries Ltd. (GDR)................................................... 59,218
-----------
TOTAL INDIA...................................................................... 1,405,798
-----------
ISRAEL (3.3%)
FOOD CHAINS
3,215 Blue Square Chain Investments & Properties Ltd................................... 48,293
-----------
INTERNATIONAL BANKS
34,650 Bank Hapoalim Ltd................................................................ 107,761
28,800 Bank Leumi Le-Israel............................................................. 60,496
-----------
168,257
-----------
MILITARY/GOV'T/TECHNICAL
7,735 Elbit Systems Ltd................................................................ 120,836
-----------
OTHER PHARMACEUTICALS
2,030 Teva Pharmaceutical Industries Ltd. (ADR)........................................ 145,145
-----------
TELECOMMUNICATION EQUIPMENT
3,900 ECI Telecom Ltd. (ADR)........................................................... 123,337
1,530 NICE-Systems Ltd. (ADR)*......................................................... 75,257
-----------
198,594
-----------
TELECOMMUNICATIONS
14,200 Bezeq Israeli Telecommunication Corp., Ltd.*..................................... 70,645
-----------
TOTAL ISRAEL..................................................................... 751,770
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEXICO (12.2%)
ALCOHOLIC BEVERAGES
55,400 Grupo Modelo S.A. de C.V. (Series C)............................................. $ 151,781
-----------
BEVERAGES - NON-ALCOHOLIC
2,420 Coca-Cola Femsa S.A. de C.V. (ADR)............................................... 42,501
4,595 Fomento Economico Mexicano, S.A. de C.V. (ADR)................................... 204,477
-----------
246,978
-----------
BROADCASTING
5,790 Grupo Televisa S.A. de C.V. (GDR)*............................................... 395,168
-----------
BUILDING MATERIALS
10,100 Apasco S.A. de C.V............................................................... 62,792
6,500 Cemex S.A. de C.V. (ADR)*........................................................ 181,188
-----------
243,980
-----------
DIVERSIFIED MANUFACTURING
12,500 ALFA S.A. (Class A).............................................................. 58,614
-----------
MULTI-SECTOR COMPANIES
34,000 DESC S.A. de C.V. (Series B)..................................................... 27,945
-----------
OTHER METALS/MINERALS
10,600 Grupo Mexico S.A. (Series B)..................................................... 52,442
-----------
OTHER SPECIALTY STORES
158,500 Cifra S.A. de C.V. (Series C).................................................... 301,300
28,800 Organizacion Soriana S.A. de C.V. (Series B)..................................... 132,013
-----------
433,313
-----------
PACKAGE GOODS/COSMETICS
37,300 Kimberly-Clark de Mexico S.A. de C.V. (A Shares)................................. 145,427
-----------
SPECIALTY FOODS/CANDY
59,709 Grupo Industrial Bimbo S.A. de C.V. (Series A)*.................................. 133,071
-----------
TELECOMMUNICATIONS
7,630 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)................................ 858,375
-----------
TEXTILES
9,000 Grupo Carso S.A. de C.V. (Series A1)............................................. 44,763
-----------
TOTAL MEXICO..................................................................... 2,791,857
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
101
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PERU (0.7%)
BUILDING MATERIALS
25,472 Cementos Lima, S.A............................................................... $ 29,028
-----------
INTERNATIONAL BANKS
2,600 Credicorp Ltd. (ADR)............................................................. 31,200
-----------
OTHER TELECOMMUNICATIONS
3,700 Telefonica del Peru S.A. (ADR)................................................... 49,487
-----------
PRECIOUS METALS
2,750 Compania de Minas Buenaventura S.A. (ADR)........................................ 44,172
-----------
TOTAL PERU....................................................................... 153,887
-----------
PHILIPPINES (1.4%)
ALCOHOLIC BEVERAGES
32,340 San Miguel Corp. (Class B)....................................................... 45,628
-----------
INTERNATIONAL BANKS
12,738 Metropolitan Bank & Trust Co..................................................... 91,436
-----------
NON - U.S. UTILITIES
8,400 Manila Electric Co. (B Shares)................................................... 23,911
-----------
REAL ESTATE
306,100 SM Prime Holdings Inc............................................................ 57,583
-----------
TELECOMMUNICATIONS
3,820 Philippine Long Distance Telephone Co............................................ 96,919
-----------
TOTAL PHILIPPINES................................................................ 315,477
-----------
POLAND (1.9%)
INTERNATIONAL BANKS
2,000 Bank Slaski S.A.................................................................. 135,749
1,538 BRE Bank S.A..................................................................... 48,666
-----------
184,415
-----------
TELECOMMUNICATIONS
15,300 Telekomunikacja Polska S.A. (GDR)* **............................................ 97,537
-----------
WHOLESALE DISTRIBUTORS
15,900 Elektrim Spolka Akcyjna S.A...................................................... 157,464
-----------
TOTAL POLAND..................................................................... 439,416
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH AFRICA (11.6%)
ALCOHOLIC BEVERAGES
17,992 South African Breweries Ltd...................................................... $ 183,064
-----------
CLOTHING/SHOE/ACCESSORY STORES
522 Edgars Consolidated Stores Ltd................................................... 6,669
-----------
DIVERSIFIED FINANCIAL SERVICES
187,000 Sanlam Ltd.*..................................................................... 261,390
-----------
INTERNATIONAL BANKS
13,880 Nedcor Investment Bank Holdings.................................................. 8,685
14,038 Nedcor Ltd.*..................................................................... 312,589
-----------
321,274
-----------
LIFE INSURANCE
20,360 Liberty Life Association of Africa Ltd........................................... 234,955
-----------
MULTI-SECTOR COMPANIES
28,000 Johnnies Industrial Corp., Ltd................................................... 327,672
-----------
OTHER METALS/MINERALS
11,400 De Beers Consolidated Mines Ltd. (Units) =/=..................................... 331,670
-----------
PRECIOUS METALS
9,045 Anglo American Platinum Corporation Ltd.......................................... 274,915
7,410 Anglo American PLC............................................................... 478,142
3,116 Anglogold Ltd.................................................................... 160,345
-----------
913,402
-----------
REAL ESTATE
8,327 Liberty International PLC........................................................ 62,597
-----------
TOTAL SOUTH AFRICA............................................................... 2,642,693
-----------
SOUTH KOREA (15.2%)
DIVERSIFIED ELECTRONIC PRODUCTS
5,388 Samsung Electronics Co. - 144A**................................................. 1,261,627
-----------
ELECTRIC UTILITIES
6,500 Korea Electric Power Corp........................................................ 201,409
-----------
INTERNATIONAL BANKS
3,422 Kookmin Bank..................................................................... 53,619
-----------
SPECIALTY CHEMICALS
7,001 L.G. Chemical Ltd................................................................ 221,246
-----------
SPECIALTY FOODS/CANDY
600 Cheil Jedang Corp................................................................ 69,190
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
EMERGING MARKETS
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL/IRON ORE
5,610 Pohang Iron & Steel Co., Ltd..................................................... $ 654,335
-----------
TELECOMMUNICATIONS
4,800 Korea Telecom Corp............................................................... 756,338
3,570 Korea Telecom Corp. (ADR)........................................................ 266,858
-----------
1,023,196
-----------
TOTAL SOUTH KOREA................................................................ 3,484,622
-----------
TAIWAN (12.3%)
COMPUTER/VIDEO CHAINS
1,200 Synnex Technology International Corp. (GDR)...................................... 31,560
-----------
DIVERSIFIED COMMERCIAL SERVICES
9,296 ASE Test Ltd. (ADR)*............................................................. 219,618
-----------
ELECTRONIC DATA PROCESSING
30,287 Acer Inc. (GDR).................................................................. 431,590
33,272 Asustek Computer Inc. (GDR)...................................................... 463,312
143 Asustek Computer Inc. (GDR) - 144A**............................................. 1,986
-----------
896,888
-----------
ELECTRONIC PRODUCTION EQUIPMENT
15,830 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR)*.............................. 712,350
-----------
SEMICONDUCTORS
15,350 Winbond Electronics Corp. (GDR)*................................................. 354,969
15,122 Winbond Electronics Corp. (GDR) - 144A**......................................... 349,696
-----------
704,665
-----------
STEEL/IRON ORE
17,238 China Steel Corp. (GDR).......................................................... 258,139
-----------
TOTAL TAIWAN..................................................................... 2,823,220
-----------
THAILAND (0.7%)
INTERNATIONAL BANKS
64,700 Bangkok Bank PCL*................................................................ 163,471
-----------
TURKEY (7.5%)
BUILDING MATERIALS
7,141,600 Akcansa Cimento A.S.............................................................. 161,203
-----------
CONSUMER ELECTRONICS/APPLIANCES
4,320,000 Arcelik A.S...................................................................... 282,587
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD CHAINS
461,100 Migros Turk T.A.S................................................................ $ 297,374
-----------
INTERNATIONAL BANKS
8,501,000 Akbank T.A.S..................................................................... 250,628
8,276,400 Turkiye Is Bankasi (C Shares).................................................... 396,511
10,400,000 Yapi ve Kredi Bankasi A.S........................................................ 320,988
-----------
968,127
-----------
TOTAL TURKEY..................................................................... 1,709,291
-----------
VIETNAM (0.0%)
MUTUAL FUNDS
1,800 Lazard Vietnam Fund Ltd.*........................................................ --
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $13,996,921) (A).......................................................... 100.0% 22,887,676
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 0.0 1,141
----- ------------
NET ASSETS................................................................................. 100.0% $ 22,888,817
----- ------------
----- ------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a unit;
stocks or bonds with attached warrants.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,238,747 and the
aggregate gross unrealized depreciation is $347,992, resulting in net
unrealized appreciation of $8,890,755.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1999:
<TABLE>
<CAPTION>
CONTRACTS TO IN EXCHANGE DELIVERY UNREALIZED
DELIVER FOR DATE DEPRECIATION
- ---------------------------------------------------
<S> <C> <C> <C>
MXN 95,542 $10,062 01/04/00 $ (5)
</TABLE>
CURRENCY ABBREVIATION:
MXN Mexican Peso.
SEE NOTES TO FINANCIAL STATEMENTS
103
<PAGE>
EMERGING MARKETS
SUMMARY OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Agricultural Chemicals............................................................. $ 32,194 0.1%
Alcoholic Beverages................................................................ 707,330 3.1
Beverages - Non-Alcoholic.......................................................... 246,979 1.1
Broadcasting....................................................................... 395,167 1.7
Building Materials................................................................. 515,794 2.3
Cable Television................................................................... 81,075 0.4
Cellular Telephone................................................................. 204,113 0.9
Clothing/Shoe/Accessory Stores..................................................... 6,669 0.0
Computer/Video Chains.............................................................. 31,560 0.1
Consumer Electronics/Appliances.................................................... 282,587 1.2
Diversified Commercial Services.................................................... 219,618 1.0
Diversified Electronic Products.................................................... 1,261,627 5.5
Diversified Financial Services..................................................... 318,592 1.4
Diversified Manufacturing.......................................................... 58,614 0.3
E.D.P. Services.................................................................... 1,046,500 4.6
Electric Utilities................................................................. 426,596 1.9
Electronic Data Processing......................................................... 1,372,319 6.0
Electronic Production Equipment.................................................... 712,350 3.1
Food Chains........................................................................ 420,261 1.8
Integrated Oil Companies........................................................... 480,863 2.1
International Banks................................................................ 3,079,418 13.4
Life Insurance..................................................................... 234,955 1.0
Marine Transportation.............................................................. 93,340 0.4
Military/Gov't/Technical........................................................... 120,836 0.5
Multi-Sector Companies............................................................. 355,617 1.6
Mutual Funds....................................................................... 207,343 0.9
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non - U.S. Utilities............................................................... $ 69,169 0.3%
Oil & Gas Production............................................................... 232,142 1.0
Other Metals/Minerals.............................................................. 542,763 2.4
Other Pharmaceuticals.............................................................. 173,225 0.8
Other Specialty Stores............................................................. 433,313 1.9
Other Telecommunications........................................................... 965,123 4.2
Package Goods/Cosmetics............................................................ 145,427 0.6
Paper.............................................................................. 50,315 0.2
Precious Metals.................................................................... 957,575 4.2
Real Estate........................................................................ 120,180 0.5
Semiconductors..................................................................... 704,665 3.1
Specialty Chemicals................................................................ 221,246 1.0
Specialty Foods/Candy.............................................................. 202,261 0.9
Specialty Steels................................................................... 92,094 0.4
Steel/Iron Ore..................................................................... 982,476 4.3
Telecommunication Equipment........................................................ 339,673 1.5
Telecommunications................................................................. 3,323,181 14.5
Textiles........................................................................... 206,939 0.9
Tobacco............................................................................ 56,128 0.2
Wholesale Distributors............................................................. 157,464 0.7
----------- -----
$$22,887,676 100.0%
----------- -----
----------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks...................................................................... $21,703,377 94.8%
Preferred Stocks................................................................... 1,179,829 5.2
Rights............................................................................. 4,470 0.0
----------- -----
$22,887,676 100.0%
----------- -----
----------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
104
<PAGE>
(This page has been intentionally left blank.)
105
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at
value*................. $135,981,624 $9,353,200 $84,644,181 $127,739,033 $164,949,217
Cash..................... 5,981 27,500 115,630** 71,637 --
Receivable for:
Investments sold..... -- -- -- -- --
Shares of beneficial
interest sold...... 52,135 -- 47,078 90,957 238,316
Dividends............ -- -- -- 96,998 163,909
Interest............. 254,707 61,522 1,571,455 398,571 130,528
Foreign withholding
taxes reclaimed.... -- -- -- -- 10,050
Unrealized appreciation
on open forward foreign
currency contracts..... -- -- 933 -- --
Prepaid expenses and
other assets........... 1,834 850 2,831 6,447 10,021
------------ ---------- ----------- ------------ ------------
TOTAL ASSETS........ 136,296,281 9,443,072 86,382,108 128,403,643 165,502,041
------------ ---------- ----------- ------------ ------------
LIABILITIES:
Payable for:
Investments
purchased.......... -- -- -- -- --
Shares of beneficial
interest
repurchased........ 542,556 1,695 -- 9,817 31,408
Investment management
fees............... 57,101 5,244 29,367 64,181 85,373
Payable to bank.......... -- -- -- -- --
Unrealized depreciation
on open forward foreign
currency contracts..... -- -- 57,157 -- --
Accrued expenses and
other payables......... 21,384 15,491 25,166 30,419 16,846
------------ ---------- ----------- ------------ ------------
TOTAL LIABILITIES... 621,041 22,430 111,690 104,417 133,627
------------ ---------- ----------- ------------ ------------
NET ASSETS:
Paid-in-capital.......... 135,675,221 9,493,284 97,683,138 124,019,174 98,586,970
Accumulated undistributed
net investment income
(loss)................. 19 49,165 (197,032) 328,440 156,036
Accumulated undistributed
net realized gain
(loss)................. -- (19,646) (1,372,526) (62,838) 10,447,043
Net unrealized
appreciation
(depreciation)......... -- (102,161) (9,843,162) 4,014,450 56,178,365
------------ ---------- ----------- ------------ ------------
NET ASSETS.......... $135,675,240 $9,420,642 $86,270,418 $128,299,226 $165,368,414
============ ========== =========== ============ ============
*IDENTIFIED COST.... $135,981,624 $9,455,361 $94,419,150 $123,724,583 $108,770,852
============ ========== =========== ============ ============
SHARES OF BENEFICIAL
INTEREST
OUTSTANDING......... 135,675,221 938,953 9,627,702 8,772,505 6,299,489
============ ========== =========== ============ ============
NET ASSET VALUE PER SHARE
(UNLIMITED AUTHORIZED
SHARES OF $.01 PAR
VALUE)................... $1.00 $10.03 $8.96 $14.63 $26.25
============ ========== =========== ============ ============
</TABLE>
- ------------------
** Including $89,171 in foreign currency.
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH OPPORTUNITIES EQUITY EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
securities, at
value*........ $742,151,340 $189,389,273 $96,638,092 $767,422,372 $84,133,440 $173,597,105 $160,645,592 $22,887,676
Cash............ -- 40,436 -- 87,250 -- 34,967 -- --
Receivable for:
Investments
sold...... -- -- -- 998,594 676,477 936 -- 84,037
Shares of
beneficial
interest
sold...... 292,930 152,073 158,676 653,157 179,319 111,209 113,589 --
Dividends... 1,175,640 258,646 36,339 118,303 5,953 100,748 31,715 48,529
Interest.... -- -- 141 -- -- -- -- 3,635
Foreign
withholding
taxes
reclaimed... 2,399 -- -- 30,121 -- 97,517 -- --
Unrealized
appreciation
on open
forward
foreign
currency
contracts..... -- -- -- -- -- -- -- --
Prepaid expenses
and other
assets........ 25,839 7,978 3,325 18,415 36,695 10,770 6,060 1,288
------------ ------------ ----------- ------------ ----------- ------------ ------------ -----------
TOTAL
ASSETS..... 743,648,148 189,848,406 96,836,573 769,328,212 85,031,884 173,953,252 160,796,956 23,025,165
------------ ------------ ----------- ------------ ----------- ------------ ------------ -----------
LIABILITIES:
Payable for:
Investments
purchased... -- -- -- -- -- -- 80,397 --
Shares of
beneficial
interest
repurchased... 415,691 14,307 45,846 77,176 6,214 26,971 29,974 42,809
Investment
management
fees...... 364,439 78,013 61,542 367,483 46,713 139,924 61,136 22,785
Payable to
bank.......... -- -- -- -- -- -- -- 47,774
Unrealized
depreciation
on open
forward
foreign
currency
contracts..... -- -- -- -- -- -- -- --
Accrued expenses
and other
payables...... 56,522 48,058 30,288 133,004 30,433 43,351 30,406 22,980
------------ ------------ ----------- ------------ ----------- ------------ ------------ -----------
TOTAL
LIABILITIES... 836,652 140,378 137,676 577,663 83,360 210,246 201,913 136,348
------------ ------------ ----------- ------------ ----------- ------------ ------------ -----------
NET ASSETS:
Paid-in-capital... 655,208,436 133,632,128 65,650,194 456,210,925 49,995,867 109,590,259 67,200,481 18,403,601
Accumulated
undistributed
net investment
income
(loss)........ 1,046,212 199,606 -- -- -- (8,590) 3,982 (38,786)
Accumulated
undistributed
net realized
gain (loss)... 125,001,612 16,252,264 6,980,070 67,341,429 9,771,604 11,727,148 30,438,554 (4,367,396)
Net unrealized
appreciation
(depreciation)... (38,444,764) 39,624,030 24,068,633 245,198,195 25,181,053 52,434,189 62,952,026 8,891,398
------------ ------------ ----------- ------------ ----------- ------------ ------------ -----------
NET
ASSETS..... $742,811,496 $189,708,028 $96,698,897 $768,750,549 $84,948,524 $173,743,006 $160,595,043 $22,888,817
============ ============ =========== ============ =========== ============ ============ ===========
*IDENTIFIED
COST....... $780,596,104 $149,765,243 $72,569,459 $520,662,397 $58,952,387 $121,168,382 $ 97,693,566 $13,996,921
============ ============ =========== ============ =========== ============ ============ ===========
SHARES OF
BENEFICIAL
INTEREST
OUTSTANDING... 37,296,682 9,234,638 4,156,217 23,578,121 3,748,826 8,853,044 4,010,824 1,579,239
============ ============ =========== ============ =========== ============ ============ ===========
NET ASSET VALUE
PER SHARE
(UNLIMITED
AUTHORIZED
SHARES OF $.01
PAR VALUE)...... $19.92 $20.54 $23.27 $32.60 $22.66 $19.63 $40.04 $14.49
============ ============ =========== ============ =========== ============ ============ ===========
</TABLE>
107
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NORTH
AMERICAN
MONEY GOVERNMENT DIVERSIFIED BALANCED
MARKET SECURITIES INCOME GROWTH UTILITIES
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS):
INCOME
Interest................. $6,740,393 $ 534,298 $ 7,978,491 $ 2,792,665 $ 565,826
Dividends................ -- -- -- 1,809,801 2,084,761*
---------- --------- ----------- ----------- -----------
TOTAL INCOME........ 6,740,393 534,298 7,978,491 4,602,466 2,650,587
---------- --------- ----------- ----------- -----------
EXPENSES
Investment management
fee.................... 646,809 61,901 363,139 738,566 739,430
Professional fees........ 22,155 18,175 20,979 12,910 24,224
Custodian fees........... 10,487 9,594 30,355 15,224 11,798
Shareholder reports and
notices................ 9,536 1,432 10,238 11,001 18,295
Trustees' fees and
expenses............... -- -- 523 721 636
Transfer agent fees and
expenses............... 500 500 500 500 500
Organizational
expenses............... 1,374 1,374 1,374 1,374 1,374
Other.................... 1,895 2,792 10,182 4,383 2,406
---------- --------- ----------- ----------- -----------
TOTAL EXPENSES...... 692,756 95,768 437,290 784,679 798,663
Less: amounts
reimbursed/waived...... -- -- -- -- --
---------- --------- ----------- ----------- -----------
NET EXPENSES........ 692,756 95,768 437,290 784,679 798,663
---------- --------- ----------- ----------- -----------
NET INVESTMENT
INCOME (LOSS)....... 6,047,637 438,530 7,541,201 3,817,787 1,851,924
---------- --------- ----------- ----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized gain (loss)
on:
Investments.......... 454 (1,587) (2,316,553) 1,175,402 10,576,744
Futures contracts.... -- -- -- -- --
Foreign exchange
transactions....... -- -- 46,227 -- --
---------- --------- ----------- ----------- -----------
NET GAIN (LOSS)..... 454 (1,587) (2,270,326) 1,175,402 10,576,744
---------- --------- ----------- ----------- -----------
Net change in unrealized
appreciation/
depreciation on:
Investments.......... -- (117,223) (6,915,682) (1,416,501) 33,678,427
Future contracts..... -- -- -- -- --
Translation of
forward foreign
currency contracts,
other assets and
liabilities
denominated in
foreign
currencies......... -- -- (70,223) -- --
---------- --------- ----------- ----------- -----------
NET APPRECIATION
(DEPRECIATION)...... -- (117,223) (6,985,905) (1,416,501) 33,678,427
---------- --------- ----------- ----------- -----------
NET GAIN (LOSS)..... 454 (118,810) (9,256,231) (241,099) 44,255,171
---------- --------- ----------- ----------- -----------
NET INCREASE
(DECREASE)............... $6,048,091 $ 319,720 $(1,715,030) $ 3,576,688 $46,107,095
========== ========= =========== =========== ===========
</TABLE>
- ------------------
* Net of foreign withholding tax of $22,617, $100,506, $12,543, $40, $50,993,
$132,075, $200 and $27,455, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
108
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
DIVIDEND VALUE-ADDED AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH MARKET GROWTH OPPORTUNITIES EQUITY EQUITY GROWTH MARKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
INCOME (LOSS):
INCOME
Interest........ $ 778,588 $ 105,003 $ 155,716 $ 2,014,507 $ 128,006 $ 365,445 $ 426,799 $ 27,353
Dividends....... 18,462,601* 2,927,153* 369,197* 2,737,979* 85,430 1,608,207* 187,437* 276,394*
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
TOTAL
INCOME..... 19,241,189 3,032,156 524,913 4,752,486 213,436 1,973,652 614,236 303,747
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
EXPENSES
Investment
management
fee........... 4,543,040 913,168 527,496 3,136,439 281,211 1,362,346 483,503 209,834
Professional
fees.......... 25,062 22,659 20,938 25,590 22,398 26,283 22,092 32,002
Custodian
fees.......... 49,693 19,057 32,404 90,034 20,917 61,473 34,201 52,031
Shareholder
reports and
notices....... 59,492 18,605 12,090 41,092 19,808 8,747 15,519 5,905
Trustees' fees
and
expenses...... 4,256 1,022 182 2,683 -- 641 467 --
Transfer agent
fees and
expenses...... 500 500 500 500 500 500 500 500
Organizational
expenses...... 1,374 1,374 1,374 1,374 -- 1,374 1,374 1,374
Other........... 8,142 36,886 1,674 6,381 693 15,952 1,682 7,671
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
TOTAL
EXPENSES... 4,691,559 1,013,271 596,658 3,304,093 345,527 1,477,316 559,338 309,317
Less: amounts
reimbursed/waived... -- -- -- -- (271,774) -- -- --
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET
EXPENSES... 4,691,559 1,013,271 596,658 3,304,093 73,753 1,477,316 559,338 309,317
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET
INVESTMENT
INCOME
(LOSS)..... 14,549,630 2,018,885 (71,745) 1,448,393 139,683 496,336 54,898 (5,570)
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET REALIZED AND
UNREALIZED GAIN
(LOSS):
Net realized
gain (loss)
on:
Investments... 129,094,274 16,263,318 8,668,664 80,409,969 12,556,428 16,222,505 31,720,580 908,948
Futures
contracts... -- -- -- (6,364,911) -- -- -- --
Foreign
exchange
transactions... -- -- -- (2,549) -- (56,653) -- (75,719)
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET GAIN
(LOSS)..... 129,094,274 16,263,318 8,668,664 74,042,509 12,556,428 16,165,852 31,720,580 833,229
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
Net change in
unrealized
appreciation/
depreciation
on:
Investments... (142,695,765) 2,356,309 15,446,798 181,507,210 20,188,222 26,405,023 42,343,872 9,794,674
Future
contracts... -- -- -- (1,560,742) -- -- -- --
Translation
of forward
foreign
currency
contracts,
other
assets and
liabilities
denominated
in foreign
currencies... -- -- -- (1,588) -- (851) -- 1,106
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET
APPRECIATION
(DEPRECIATION)... (142,695,765) 2,356,309 15,446,798 179,944,880 20,188,222 26,404,172 42,343,872 9,795,780
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET GAIN
(LOSS)..... (13,601,491) 18,619,627 24,115,462 253,987,389 32,744,650 42,570,024 74,064,452 10,629,009
------------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
NET INCREASE
(DECREASE)...... $ 948,139 $20,638,512 $24,043,717 $255,435,782 $32,884,333 $43,066,360 $74,119,350 $10,623,439
============= =========== =========== ============ =========== =========== =========== ===========
</TABLE>
109
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY MARKET GOVERNMENT SECURITIES
------------------------------------ ------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------- ------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.... $ 6,047,637 $ 4,946,059 $ 438,530 $ 285,399
Net realized gain
(loss)................. 454 96 (1,587) 1,246
Net change in unrealized
appreciation/
depreciation........... -- -- (117,223) (24,395)
------------- ------------- ----------- -----------
NET INCREASE
(DECREASE).......... 6,048,091 4,946,155 319,720 262,250
------------- ------------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (6,047,731) (4,946,009) (429,137) (270,457)
Net realized gain........ (454) (96) -- --
Paid-in-capital.......... -- -- -- --
------------- ------------- ----------- -----------
TOTAL DIVIDENDS AND
DISTRIBUTIONS....... (6,048,185) (4,946,105) (429,137) (270,457)
------------- ------------- ----------- -----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 144,516,778 160,543,866 3,768,903 5,217,638
Reinvestment of dividends
and distributions...... 6,048,185 4,946,105 429,137 270,457
Cost of shares
repurchased............ (135,074,457) (129,350,587) (3,057,203) (2,182,113)
------------- ------------- ----------- -----------
NET INCREASE........ 15,490,506 36,139,384 1,140,837 3,305,982
------------- ------------- ----------- -----------
TOTAL INCREASE
(DECREASE).......... 15,490,412 36,139,434 1,031,420 3,297,775
NET ASSETS:
Beginning of period...... 120,184,828 84,045,394 8,389,222 5,091,447
------------- ------------- ----------- -----------
END OF PERIOD....... $ 135,675,240 $ 120,184,828 $ 9,420,642 $ 8,389,222
============= ============= =========== ===========
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................... $ 19 $ 113 $ 49,165 $ 30,818
============= ============= =========== ===========
SHARES ISSUED AND
REPURCHASED:
Sold..................... 144,516,778 160,543,866 373,179 513,927
Issued in reinvestment of
dividends and
distributions.......... 6,048,185 4,946,105 42,656 26,678
Repurchased.............. (135,074,457) (129,350,587) (303,201) (214,966)
------------- ------------- ----------- -----------
NET INCREASE............. 15,490,506 36,139,384 112,634 325,639
============= ============= =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
110
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED INCOME BALANCED GROWTH UTILITIES
----------------------------------- ----------------------------------- -----------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------- -----------------------------------
INCREASE
(DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income
(loss)........ $ 7,541,201 $ 6,202,641 $ 3,817,787 $ 2,564,019 $ 1,851,924 $ 1,400,655
Net realized
gain (loss)... (2,270,326) 108,452 1,175,402 12,637,891 10,576,744 648,615
Net change in
unrealized
appreciation/
depreciation... (6,985,905) (3,240,386) (1,416,501) (3,521,872) 33,678,427 11,747,508
------------ ------------ ------------ ------------ ------------ ------------
NET
INCREASE... (1,715,030) 3,070,707 3,576,688 11,680,038 46,107,095 13,796,778
------------ ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS
FROM:
Net investment
income........ (7,407,990) (5,803,603) (3,740,026) (2,431,401) (1,813,042) (1,364,710)
Net realized
gain.......... -- (99,333) (13,846,314) (1,884,145) (778,316) (698,541)
Paid-in-capital... (231,544) -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
TOTAL
DIVIDENDS
AND
DISTRIBUTIONS... (7,639,534) (5,902,936) (17,586,340) (4,315,546) (2,591,358) (2,063,251)
------------ ------------ ------------ ------------ ------------ ------------
TRANSACTIONS IN
SHARES OF
BENEFICIAL
INTEREST:
Net proceeds
from sales.... 25,140,484 43,957,759 38,151,616 38,742,816 53,847,696 34,192,413
Reinvestment of
dividends and
distributions... 7,639,534 5,902,936 17,586,340 4,315,546 2,591,358 2,063,251
Cost of shares
repurchased... (31,146,173) (15,324,330) (21,281,195) (13,894,173) (20,269,562) (13,071,951)
------------ ------------ ------------ ------------ ------------ ------------
NET
INCREASE... 1,633,845 34,536,365 34,456,761 29,164,189 36,169,492 23,183,713
------------ ------------ ------------ ------------ ------------ ------------
TOTAL
INCREASE... (7,720,719) 31,704,136 20,447,109 36,528,681 79,685,229 34,917,240
NET ASSETS:
Beginning of
period........ 93,991,137 62,287,001 107,852,117 71,323,436 85,683,185 50,765,945
------------ ------------ ------------ ------------ ------------ ------------
END OF
PERIOD..... $ 86,270,418 $ 93,991,137 $128,299,226 $107,852,117 $165,368,414 $ 85,683,185
============ ============ ============ ============ ============ ============
UNDISTRIBUTED
NET INVESTMENT
INCOME (LOSS)... $ (197,032) $ 740,817 $ 328,440 $ 250,069 $ 156,036 $ 117,223
============ ============ ============ ============ ============ ============
SHARES ISSUED
AND REPURCHASED:
Sold............ 2,660,408 4,342,229 3,333,509 2,464,618 2,571,246 2,031,983
Issued in
reinvestment
of dividends
and
distributions... 813,366 583,849 241,749 273,422 126,805 122,896
Repurchased..... (3,307,173) (1,515,732) (1,387,082) (898,886) (978,171) (781,200)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE.... 166,601 3,410,346 2,188,176 1,839,154 1,719,880 1,373,679
============ ============ ============ ============ ============ ============
</TABLE>
111
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
DIVIDEND GROWTH VALUE-ADDED MARKET
----------------------------------- ------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------- ------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................. $ 14,549,630 $ 11,747,567 $ 2,018,885 $ 1,916,238
Net realized gain
(loss)................. 129,094,274 65,404,292 16,263,318 6,592,408
Net change in unrealized
appreciation/
depreciation........... (142,695,765) 31,880,861 2,356,309 9,340,718
------------- ------------ ------------ ------------
NET INCREASE........ 948,139 109,032,720 20,638,512 17,849,364
------------- ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (14,356,475) (11,679,096) (2,002,626) (1,902,826)
Net realized gain........ (68,998,640) (26,160,355) (6,492,085) (2,322,935)
------------- ------------ ------------ ------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS....... (83,355,115) (37,839,451) (8,494,711) (4,225,761)
------------- ------------ ------------ ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 184,490,155 192,533,628 32,832,745 42,071,121
Reinvestment of dividends
and distributions...... 83,355,115 37,839,451 8,494,711 4,225,761
Cost of shares
repurchased............ (165,911,876) (96,700,375) (38,587,051) (26,412,836)
------------- ------------ ------------ ------------
NET INCREASE........ 101,933,394 133,672,704 2,740,405 19,884,046
------------- ------------ ------------ ------------
TOTAL INCREASE...... 19,526,418 204,865,973 14,884,206 33,507,649
NET ASSETS:
Beginning of period...... 723,285,078 518,419,105 174,823,822 141,316,173
------------- ------------ ------------ ------------
END OF PERIOD....... $ 742,811,496 $723,285,078 $189,708,028 $174,823,822
============= ============ ============ ============
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................... $ 1,046,212 $ 853,057 $ 199,606 $ 183,347
============= ============ ============ ============
SHARES ISSUED AND
REPURCHASED:
Sold..................... 8,484,915 9,213,959 1,641,753 2,296,136
Issued in reinvestment of
dividends and
distributions.......... 3,815,098 1,805,072 422,129 228,033
Repurchased.............. (7,808,848) (4,697,895) (1,941,093) (1,458,807)
------------- ------------ ------------ ------------
NET INCREASE............. 4,491,165 6,321,136 122,789 1,065,362
============= ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
112
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AMERICAN OPPORTUNITIES MID-CAP EQUITY
------------------------------------ ----------------------------------- -----------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE
(DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income
(loss)........ $ (71,745) $ 3,871 $ 1,448,393 $ 1,787,674 $ 139,683 $ 138,956
Net realized
gain (loss)... 8,668,664 3,308,989 74,042,509 40,392,380 12,556,428 (2,490,436)
Net change in
unrealized
appreciation/
depreciation... 15,446,798 2,556,804 179,944,880 37,572,830 20,188,222 3,446,115
------------ ------------ ------------ ------------ ----------- -----------
NET
INCREASE... 24,043,717 5,869,664 255,435,782 79,752,884 32,884,333 1,094,635
------------ ------------ ------------ ------------ ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS
FROM:
Net investment
income........ (3,871) -- (1,445,841) (1,947,082) (146,978) (152,597)
Net realized
gain.......... (4,876,846) (1,299,815) (46,008,369) (24,723,150) (27,244) (224,094)
------------ ------------ ------------ ------------ ----------- -----------
TOTAL
DIVIDENDS
AND
DISTRIBUTIONS... (4,880,717) (1,299,815) (47,454,210) (26,670,232) (174,222) (376,691)
------------ ------------ ------------ ------------ ----------- -----------
TRANSACTIONS IN
SHARES OF
BENEFICIAL
INTEREST:
Net proceeds
from sales.... 33,517,947 17,430,665 223,047,289 112,225,756 32,535,587 14,883,943
Reinvestment of
dividends and
distributions... 4,880,717 1,299,815 47,454,210 26,670,232 174,222 376,691
Cost of shares
repurchased... (14,366,545) (10,107,664) (81,365,431) (50,359,365) (8,669,033) (7,016,976)
------------ ------------ ------------ ------------ ----------- -----------
NET
INCREASE... 24,032,119 8,622,816 189,136,068 88,536,623 24,040,776 8,243,658
------------ ------------ ------------ ------------ ----------- -----------
TOTAL
INCREASE... 43,195,119 13,192,665 397,117,640 141,619,275 56,750,887 8,961,602
NET ASSETS:
Beginning of
period........ 53,503,778 40,311,113 371,632,909 230,013,634 28,197,637 19,236,035
------------ ------------ ------------ ------------ ----------- -----------
END OF
PERIOD..... $ 96,698,897 $ 53,503,778 $768,750,549 $371,632,909 $84,948,524 $28,197,637
============ ============ ============ ============ =========== ===========
UNDISTRIBUTED
NET INVESTMENT
INCOME (LOSS)... $ -- $ 3,871 $ -- $ 7,077 $ -- $ 7,295
============ ============ ============ ============ =========== ===========
SHARES ISSUED
AND REPURCHASED:
Sold............ 1,668,923 1,021,903 8,757,084 5,366,406 1,991,794 1,315,016
Issued in
reinvestment
of dividends
and
distributions... 275,120 75,659 2,113,992 1,333,903 13,119 33,289
Repurchased..... (722,403) (597,280) (3,237,660) (2,436,239) (633,054) (658,565)
------------ ------------ ------------ ------------ ----------- -----------
NET INCREASE.... 1,221,640 500,282 7,633,416 4,264,070 1,371,859 689,740
============ ============ ============ ============ =========== ===========
<CAPTION>
GLOBAL EQUITY
-----------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
- ---------------- -----------------------------------
INCREASE
(DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income
(loss)........ $ 496,336 $ 1,164,734
Net realized
gain (loss)... 16,165,852 (3,070,604)
Net change in
unrealized
appreciation/
depreciation... 26,404,172 16,931,102
------------ ------------
NET
INCREASE... 43,066,360 15,025,232
------------ ------------
DIVIDENDS AND
DISTRIBUTIONS
FROM:
Net investment
income........ (497,530) (1,517,727)
Net realized
gain.......... -- (422,276)
------------ ------------
TOTAL
DIVIDENDS
AND
DISTRIBUTIONS... (497,530) (1,940,003)
------------ ------------
TRANSACTIONS IN
SHARES OF
BENEFICIAL
INTEREST:
Net proceeds
from sales.... 29,681,396 38,348,277
Reinvestment of
dividends and
distributions... 497,530 1,940,003
Cost of shares
repurchased... (24,526,962) (30,080,763)
------------ ------------
NET
INCREASE... 5,651,964 10,207,517
------------ ------------
TOTAL
INCREASE... 48,220,794 23,292,746
NET ASSETS:
Beginning of
period........ 125,522,212 102,229,466
------------ ------------
END OF
PERIOD..... $173,743,006 $125,522,212
============ ============
UNDISTRIBUTED
NET INVESTMENT
INCOME (LOSS)... $ (8,590) $ 28,138
============ ============
SHARES ISSUED
AND REPURCHASED:
Sold............ 1,823,137 2,738,834
Issued in
reinvestment
of dividends
and
distributions... 31,851 135,036
Repurchased..... (1,548,072) (2,210,444)
------------ ------------
NET INCREASE.... 306,916 663,426
============ ============
</TABLE>
113
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
DEVELOPING GROWTH EMERGING MARKETS
----------------------------------- -----------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------- -----------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................. $ 54,898 $ 151,770 $ (5,570) $ 126,142
Net realized gain
(loss)................. 31,720,580 (1,185,922) 833,229 (4,347,772)
Net change in unrealized
appreciation/
depreciation........... 42,343,872 7,288,857 9,795,780 (2,116,653)
------------ ------------ ----------- ------------
NET INCREASE
(DECREASE).......... 74,119,350 6,254,705 10,623,439 (6,338,283)
------------ ------------ ----------- ------------
DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income.... (52,628) (180,742) -- (146,105)
Net realized gain........ -- (120,681) -- (48,814)
Paid-in-capital.......... -- -- (29,513) (70,872)
------------ ------------ ----------- ------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS....... (52,628) (301,423) (29,513) (265,791)
------------ ------------ ----------- ------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Net proceeds from
sales.................. 27,643,051 16,665,137 4,228,591 3,482,891
Reinvestment of dividends
and distributions...... 52,628 301,423 29,513 265,791
Cost of shares
repurchased............ (22,792,517) (23,985,095) (5,235,518) (7,686,938)
------------ ------------ ----------- ------------
NET INCREASE
(DECREASE).......... 4,903,162 (7,018,535) (977,414) (3,938,256)
------------ ------------ ----------- ------------
TOTAL INCREASE
(DECREASE).......... 78,969,884 (1,065,253) 9,616,512 (10,542,330)
NET ASSETS:
Beginning of period...... 81,625,159 82,690,412 13,272,305 23,814,635
------------ ------------ ----------- ------------
END OF PERIOD....... $160,595,043 $ 81,625,159 $22,888,817 $ 13,272,305
============ ============ =========== ============
UNDISTRIBUTED NET
INVESTMENT INCOME
(LOSS)................... $ 3,982 $ 7,110 $ (38,786) $ (2,344)
============ ============ =========== ============
SHARES ISSUED AND
REPURCHASED:
Sold..................... 1,021,132 861,579 421,932 368,627
Issued in reinvestment of
dividends and
distributions.......... 2,217 16,369 3,047 27,733
Repurchased.............. (934,031) (1,272,373) (524,322) (823,654)
------------ ------------ ----------- ------------
NET INCREASE
(DECREASE)............... 89,318 (394,425) (99,343) (427,294)
============ ============ =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
114
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Select Dimensions Investment Series (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The 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 Equity 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
Government Securities maintaining relatively low volatility of principal by
primarily investing in 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
Income current income and, as a secondary objective, to maximize
total return, but only to the extent consistent with its
primary objective, by equally allocating its assets among
three separate groupings of fixed income securities.
Balanced Growth Seeks to achieve capital growth with reasonable current
income by investing in common stock of companies which have
a record of paying dividends and have the potential for
increasing dividends, securities convertible into common
stock and in investment grade fixed income securities.
Utilities* Seeks both capital appreciation and current income by
investing in equity and fixed income securities of companies
in the utilities industry. Prior to August 5, 1999, the
investment objective was to provide current income and
long-term growth of income and capital by investing in
equity and fixed income securities of companies in the
public utilities industry.
Dividend Seeks to provide reasonable current income and long-term
Growth growth of income and capital by investing primarily in
common stock of companies with a record of paying dividends
and the potential for increasing dividends.
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>
115
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<C> <S>
Growth Seeks long-term growth of capital by investing primarily in
common stocks and securities convertible into common stocks
issued by domestic and foreign companies.
American Opportunities Seeks long-term capital growth consistent with an effort to
(formerly American reduce volatility by investing principally in common stock
Value) of companies in industries which, at the time of the
investment, are believed to be undervalued in the
marketplace.
Mid-Cap Equity Seeks long-term capital appreciation by investing primarily
(formerly Mid-Cap in equity securities of mid-cap companies (that is,
Growth) companies whose equity market capitalization falls within
the range of approximately $200 million to $12 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
Growth common stocks of smaller and medium-sized companies that, in
the opinion of the Investment Manager, have the potential
for growing more rapidly than the economy and which may
benefit from new products or services, technological
developments or changes in management.
Emerging Seeks long-term capital appreciation by investing primarily
Markets in equity securities 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 August 4, 1999, shareholders approved a change in the investment objective.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Money Market: securities are valued at amortized
cost which approximates market value. All remaining Portfolios: (1) an equity
security listed or traded on the New York, American or other domestic or foreign
stock exchange is valued at its latest sale price on 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
116
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
it is determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), or (in the case of Growth) by Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM"), or (in the case of the North American Government
Securities, Mid-Cap Equity and Emerging Markets) by TCW Investment Management
Company ("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 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
117
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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.
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 Equity) which have
118
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
been reimbursed for the full amount thereof, exclusive of amounts waived of
approximately $22,000 ($1,833 for each respective Portfolio, excluding Mid-Cap
Equity). Such expenses were deferred and fully amortized as of November 8, 1999.
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 Opportunities ................. **
Diversified Income...................... 0.40 Mid-Cap Equity ......................... 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>
- ----------------
* 0.625% to the portion of the daily net assets not exceeding $500 million
and 0.50% to the portion of daily net assets in excess of $500 million.
Effective May 1, 1999, the agreement was amended to reduce the annual rate
to 0.475% of the portion of daily net assets exceeding $1 billion.
** Effective May 1, 1999, the Agreement was amended to reduce the annual rate
from 0.625% of daily net assets to 0.625% of the portion of the daily net
assets not exceeding $500 million and 0.60% of the portion to 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, 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, Mid-Cap Equity, and Emerging Markets with
investment advice and portfolio management relating to the Portfolios'
investments in securities, subject to the overall supervision of the
119
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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.
For the period January 1, 1999 through November 8, 1999, the Investment Manager
reimbursed all operating expenses and waived the compensation provided for in
its Investment Management Agreement with Mid-Cap Equity.
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, 1999 were as follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT SECURITIES OTHER
------------------------------- ----------------------------------
PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES
----------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Money Market............................ $61,239,664 $70,484,730 $ 756,934,843 $ 738,736,843
North American Government Securities.... 4,964,204 3,015,612 -- --
Diversified Income...................... 13,664,047 17,507,560 45,089,695 42,364,270
Balanced Growth......................... 16,018,452 4,670,232 45,234,628 39,041,325
Utilities............................... 745,859 237,773 65,896,982 33,857,990
Dividend Growth......................... -- -- 758,744,091 756,296,143
Value-Added Market...................... -- -- 38,507,409 39,303,777
Growth.................................. -- -- 73,372,684 56,641,818
American Opportunities.................. 19,504,688 19,442,344 1,753,296,251 1,650,717,259
Mid-Cap Equity.......................... -- -- 136,407,017 115,722,768
Global Equity........................... -- -- 104,876,287 101,451,004
Developing Growth....................... -- -- 161,764,427 168,001,684
Emerging Markets........................ -- -- 13,004,272 13,097,359
</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 $228,264, as well as realized gain of $154,854.
Included in the aforementioned purchases of portfolio securities of Value-Added
Market are purchases of Hartford Financial Services Group, an affiliate of the
Fund, of $61,920.
Included in the aforementioned purchases of portfolio securities of Mid-Cap
Equity are purchases of Hartford Life Inc., an affiliate of the Fund, of
$1,189,003.
120
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
For the year ended December 31, 1999, the following Portfolios incurred
brokerage commissions with Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
DIVERSIFIED BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING
INCOME GROWTH UTILITIES GROWTH OPPORTUNITIES EQUITY EQUITY GROWTH
- ----------- -------- --------- -------- ------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$525 $31,733 $21,517 $119,495 $59,078 $22,769 $7,932 $38,648
==== ======= ======= ======== ======= ======= ====== =======
</TABLE>
For the year ended December 31, 1999, the following Portfolios incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affililiate of the
Investment Manager, for executed portfolio transactions:
<TABLE>
<CAPTION>
BALANCED DIVIDEND AMERICAN MID-CAP GLOBAL DEVELOPING EMERGING
GROWTH GROWTH GROWTH OPPORTUNITIES EQUITY EQUITY GROWTH MARKETS
- -------- -------- -------- ------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$8,985 $103,820 $11,475 $272,223 $8,365 $25,287 $9,645 $1,878
====== ======== ======= ======== ====== ======= ====== ======
</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, 1999, the following Portfolios had an approximate net capital
loss carryover which may be used to offset future capital gains to the extent
provided by regulations:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
------------------------------------
AVAILABLE THROUGH DECEMBER 31, 2004 2005 2006 2007 TOTAL
------------------------------ ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
North American Government Securities $8 $2 $ 4 $ 6 $ 20
Diversified Income -- -- 153 1,214 1,367
Emerging Markets -- -- 4,296 -- 4,296
</TABLE>
During the year ended December 31, 1999, the following Portfolios utilized
approximate net capital loss carryovers: Mid-Cap Equity -- $2,391,000; Global
Equity -- $3,935,000; Developing Growth -- $1,203,000; Emerging Markets --
$545,000.
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 1999: Global Equity -- $81,000;
Emerging Markets -- $5,000.
121
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
At December 31, 1999, the primary reason(s) for significant temporary/permanent
book/tax differences were as follows:
<TABLE>
<CAPTION>
PERMANENT DIFFERENCES
TEMPORARY DIFFERENCES -----------------------------
----------------------------- FOREIGN NET
POST-OCTOBER LOSS DEFERRALS CURRENCY OPERATING
LOSSES FROM WASH SALES GAINS/LOSSES LOSS
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Diversified Income...................... - -
Balanced Growth......................... -
Dividend Growth......................... -
Value-Added............................. -
Growth.................................. - -
American Opportunities.................. - -
Mid-Cap Equity.......................... -
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 interest
on bonds in default and American Opportunities had temporary differences
attributable to the mark-to-market of open futures contracts.
To reflect reclassifications arising from the permanent differences, the
following accounts were (charged) credited:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID-IN
INCOME (LOSS) GAIN (LOSS) CAPITAL
-------------- --------------- ------------
<S> <C> <C> <C>
North American Government Securities.... $ 8,954 $ (8,954) --
Diversified Income...................... (1,071,060) 1,071,060 --
Balanced Growth......................... 610 (610) --
Utilities............................... (69) 69 --
Growth.................................. 71,745 (71,745) --
American Opportunities.................. (9,629) 9,629 --
Global Equity........................... (35,534) 35,534 --
Developing Growth....................... (5,398) 9,555 $ (4,157)
Emerging Markets........................ (30,872) 75,850 (44,978)
</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.
122
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
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, 1999, Diversified Income and Emerging Markets had outstanding
forward contracts.
Some of the Portfolios may purchase and sell stock index futures ("futures
contracts") to facilitate trading, increase or decrease the Portfolio's market
exposure, seek higher investment returns, or to seek to protect against a
decline in the value of the Portfolios securities or an increase in prices of
securities that may be purchased.
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the value of the underlying securities.
At December 31, 1999, Emerging Markets' cash balance consisted principally of
interest bearing deposits with Chase Manhattan Bank N.A., the Portfolio's
custodian.
6. OTHER BUSINESS
North American Government and Emerging Markets -- On April 22, 1999, the Fund's
Board of Trustees approved the termination of these Portfolios and the
substitution of shares of similar portfolios of the Morgan Stanley Dean Witter
Universal Funds. The substitution will not be consumated unless authorized by
the Securities and Exchange Commission. Effective September 7, 1999, shares of
the Portfolios were no longer offered for new investment other than through
reinvestment of dividends.
123
<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 TOTAL
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS 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
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)
1999 1.00 0.05 -- 0.05 (0.05) -- (0.05)
NORTH AMERICAN GOVERNMENT SECURITIES
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)
1999 10.15 0.47 (0.13) 0.34 (0.46) -- (0.46)
DIVERSIFIED INCOME
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)
1999 9.93 0.78 (0.96) (0.18) (0.77) (0.02)++ (0.79)
BALANCED GROWTH
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)
1999 16.38 0.48 0.15 0.63 (0.48) (1.90) (2.38)
UTILITIES
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)
1999 18.71 0.34 7.69 8.03 (0.34) (0.15) (0.49)
DIVIDEND GROWTH
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)
1999 22.05 0.40 (0.10) 0.30 (0.40) (2.03) (2.43)
VALUE-ADDED MARKET
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)
1999 19.19 0.22 2.08 2.30 (0.22) (0.73) (0.95)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
124
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE ASSUMED)
NET ASSET NET ASSETS ------------------------------- ------------------------------
VALUE END OF NET NET PORTFOLIO
YEAR ENDED END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
DECEMBER 31 PERIOD RETURN+ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
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
1999 1.00 4.78 135,675 0.54 4.67 0.54 4.67 N/A
NORTH AMERICAN
GOVERNMENT
SECURITIES
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
1999 10.03 3.40 9,421 1.01 4.60 1.01 4.60 53
DIVERSIFIED
INCOME
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
1999 8.96 (1.83) 86,270 0.48 8.31 0.48 8.31 69
BALANCED GROWTH
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
1999 14.63 3.52 128,299 0.64 3.10 0.64 3.10 37
UTILITIES
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
1999 26.25 43.71 165,368 0.70 1.63 0.70 1.63 31
DIVIDEND GROWTH
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
1999 19.92 0.53 742,811 0.60 1.86 0.60 1.86 101
VALUE-ADDED
MARKET
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
1999 20.54 12.15 189,708 0.55 1.11 0.55 1.11 21
</TABLE>
125
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET NET TOTAL
VALUE INVESTMENT NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
YEAR ENDED BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
DECEMBER 31 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH
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 -- 2.16 2.16 -- (0.49) (0.49)
1999 18.23 (0.02) 6.65 6.63 -- (1.59) (1.59)
AMERICAN OPPORTUNITIES
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)
1999 23.31 0.08 11.76 11.84 (0.07) (2.48) (2.55)
MID-CAP EQUITY
1997 (a) 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)
1999 11.86 0.06 10.81 10.87 (0.06) (0.01) (0.07)
GLOBAL EQUITY
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)
1999 14.69 0.06 4.94 5.00 (0.06) -- (0.06)
DEVELOPING GROWTH
1995 10.13 0.24 4.88 5.12 (0.25) -- (0.25)
1996 15.00 0.02 1.92 1.94 (0.03) (0.03)++ (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)
1999 20.81 0.01 19.23 19.24 (0.01) -- (0.01)
EMERGING MARKETS
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) (0.07) (0.07)+++ (0.14)
1999 7.91 -- 6.60 6.60 -- (0.02)++ (0.02)
</TABLE>
<TABLE>
<C> <S>
- -------------------------------------------------------------------
(a) 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.
++ Distribution from paid-in-capital.
* After application of the Fund's expense limitation.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
126
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (AFTER EXPENSES WERE ASSUMED)
NET ASSET NET ASSETS ------------------------------- ------------------------------
VALUE END OF NET NET PORTFOLIO
YEAR ENDED END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
DECEMBER 31 PERIOD RETURN+ (000'S) EXPENSES INCOME (LOSS) EXPENSES INCOME (LOSS) RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
GROWTH
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
1999 23.27 39.10 96,699 0.90 (0.11) 0.90 (0.11) 88
AMERICAN
OPPORTUNITIES
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
1999 32.60 55.81 768,751 0.66 0.29 0.66 0.29 360
MID-CAP EQUITY
1997 (a) 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
1999 22.66 92.10 84,949 0.92 (0.35) 0.20 0.37 318
GLOBAL EQUITY
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
1999 19.63 34.14 173,743 1.08 0.36 1.08 0.36 79
DEVELOPING
GROWTH
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
1999 40.04 92.52 160,595 0.58 0.06 0.58 0.06 178
EMERGING
MARKETS
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
1999 14.49 83.53 22,889 1.84 (0.03) 1.84 (0.03) 82
</TABLE>
127
<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, Utilities Portfolio, Dividend Growth Portfolio, Value-Added
Market Portfolio, Growth Portfolio, American Opportunities Portfolio (formerly
American Value Portfolio), Mid-Cap Equity Portfolio (formerly Mid-Cap Growth
Portfolio), Global Equity Portfolio, Developing Growth Portfolio and Emerging
Markets Portfolio (constituting Morgan Stanley Dean Witter Select Dimensions
Investment Series, hereafter referred to as the "Fund") at December 31, 1999,
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
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the 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 16, 2000
128
<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) Amendment dated August 9, 1999 to the Declaration of Trust of
the Registrant is incorporated by reference to Exhibit 1(f) of
Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A, filed on June 9, 1999.
1(g) Form of Instrument Establishing and Designating Additional
Series of Shares, dated February 24, 2000, filed herein.
2. Amended and Restated By-Laws of the Registrant, dated May 1,
1999, is incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 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.
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.
1
<PAGE>
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) Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and TCW Funds Management, Inc. is incorporated
by reference to Exhibit 5(d) to Post-Effective Amendment No.
10 to the Registration Statement on Form N-1A, filed on June
9, 1999.
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 Exhibit 8(a) to
Pre-Effective Amendment No.1 to the Registration Statement on
Form N-1A, filed on October 6, 1994.
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.
2
<PAGE>
9. Opinion of Registrant's Counsel is incorporated by reference
to Exhibit 10 to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on October 6, 1994.
10. Consent of Independent Accountants, filed herein.
11. Not Applicable.
12. Not Applicable.
13. Form of Plan of Distribution pursuant to Rule 12b-1 between
the Registrant and Hartford Securities Distribution Inc.,
dated February 24, 2000, filed herein.
14. Not Applicable.
15. Form of Multiple Class Plan pursuant to Rule 18f-3, dated
February 24, 2000, filed herein.
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 are 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
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.
3
<PAGE>
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 indemnify
him.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
4
<PAGE>
(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
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
5
<PAGE>
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Real Estate Fund
(51) Morgan Stanley Dean Witter S&P 500 Index Fund
(52) Morgan Stanley Dean Witter S&P 500 Select Fund
(53) Morgan Stanley Dean Witter Select Dimensions Investment Series
(54) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(55) Morgan Stanley Dean Witter Short-Term Bond Fund
(56) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(57) Morgan Stanley Dean Witter Small Cap Growth Fund
(58) Morgan Stanley Dean Witter Special Value Fund
(59) Morgan Stanley Dean Witter Strategist Fund
(60) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(61) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(62) Morgan Stanley Dean Witter Total Market Index Fund
(63) Morgan Stanley Dean Witter Total Return Trust
(64) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(65) Morgan Stanley Dean Witter U.S. Government Securities Trust
(66) Morgan Stanley Dean Witter Utilities Fund
(67) Morgan Stanley Dean Witter Value-Added Market Series
(68) Morgan Stanley Dean Witter Value Fund
(69) Morgan Stanley Dean Witter Variable Investment Series
(70) Morgan Stanley Dean Witter World Wide Income Trust
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of
President, Chief Asset Management of Morgan Stanley Dean
Executive Officer and Witter & Co. ("MSDW); Chairman, Chief
Director Executive Officer and Director of Morgan
Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean
Witter Trust FSB ("MSDW Trust"); President,
Chief Executive Officer and Director of
Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the
Morgan Stanley Dean Witter Funds; Executive
Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"); Director of various
MSDW subsidiaries; Trustee of various Van
Kampen investment companies.
6
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Barry Fink Assistant Secretary of DWR; Executive Vice President,
Executive Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Executive Vice President, Assistant Secretary
Counsel and Director and Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds.
Officer and Director
Edward C. Oelsner, III
Executive Vice President
Joseph R. Arcieri Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Sheila A. Finnerty Vice President of Morgan Stanley Dean Witter Prime
Senior Vice President Income Trust.
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
7
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
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.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Money
Market Group
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
8
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
James Solloway
Senior Vice President
Katherine H. Stromberg Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group
Raymond A. Basile
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors and the Morgan Stanley
Funds. Dean Witter
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
9
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
David Johnson
First Vice President
Stanley Kapica
First Vice President
Douglas J. Ketterer
First Vice President
Todd Lebo First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carl F. Sadler
First Vice President
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz Vice President of Morgan Stanley Dean Witter Global
Vice President Utilities Fund.
Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
10
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Maurice Bendrihem
Vice President and
Assistant Controller
Thomas A. Bergeron
Vice President
Philip Bernstein
Vice President
Dale Boettcher
Vice President
Michelina Calandrella
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Annette Celenza
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
Michael J. Davey
Vice President
David Dineen Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Glen H. Frey Vice President of Morgan Stanley Dean Witter Information
Vice President Fund.
11
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity-Burke
Vice President
Peter Gewirtz
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Laury A. Haskamp
Vice President
Matthew T. Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Thomas G. Hudson II
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
12
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Nancy Karole-Kennedy
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Cameron J. Livingstone
Vice President
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter R. McDowell
Vice President
Albert McGarity
Vice President
Teresa McRoberts Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mary Beth Mueller
Vice President
13
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Hilary A. O'Neill
Vice President
Mori Paulson
Vice President
Anne Pickrell
Vice President
Frances Roman
Vice President
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund.
Hugh Rose
Vice President
Robert Rossetti Vice President of Morgan Stanley Dean Witter Competitive
Vice President Edge Fund.
Sally Sancimino
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Alison M. Sharkey
Vice President
14
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------
<S> <C>
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Ronald B. Silvestri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
William Stevens
Vice President
Michael Strayhorn
Vice President
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW
Distributors, DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048. The principal address of MSDW is 1585
Broadway, New York, New York 10036. The 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:
15
<PAGE>
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Prime Income Trust
16
<PAGE>
(51) Morgan Stanley Dean Witter Real Estate Fund
(52) Morgan Stanley Dean Witter S&P 500 Index Fund
(53) Morgan Stanley Dean Witter S&P 500 Select Fund
(54) Morgan Stanley Dean Witter Short-Term Bond Fund
(55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(56) Morgan Stanley Dean Witter Small Cap Growth Fund
(57) Morgan Stanley Dean Witter Special Value Fund
(58) Morgan Stanley Dean Witter Strategist Fund
(59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(61) Morgan Stanley Dean Witter Total Market Index Fund
(62) Morgan Stanley Dean Witter Total Return Trust
(63) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(64) Morgan Stanley Dean Witter U.S. Government Securities Trust
(65) Morgan Stanley Dean Witter Utilities Fund
(66) Morgan Stanley Dean Witter Value-Added Market Series
(67) Morgan Stanley Dean Witter Value Fund
(68) Morgan Stanley Dean Witter Variable Investment Series
(69) Morgan Stanley Dean Witter World Wide Income Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than Mr.
Purcell, who is a Trustee of the Registrant, none of the following persons has
any position or office with the Registrant.
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
17
<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.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 29th day of February, 2000.
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. 11 has been signed below by the following persons
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
(1) Principal Executive Officer Chairman, Chief Executive
Officer, and Trustee
By: /s/ Charles A. Fiumefreddo 02/29/00
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 02/29/00
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 02/29/00
--------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By: /s/David M. Butowsky 02/29/00
--------------------------
David M. Butowsky
Attorney-in-Fact
19
<PAGE>
MORGAN STANLEY DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES
EXHIBIT INDEX
1 (g). Form of Instrument Establishing and Designating Additional Class of
Shares.
10. Consent of Independent Accountants.
13. Form of Plan of Distribution pursuant to Rule 12b-1 between the
Registrant and Hartford Securities Distribution Inc., dated February
24, 2000.
15. Form of Multiple Class Plan pursuant to Rule 18f-3.
<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 Instrument Establishing and
Designating Additional Class of Shares of the Trust unanimously adopted by
the Trustees of the Trust on February 24, 2000, as provided in Section 6.9(h)
of the said Declaration, said Instrument to take effect on May 1, 2000, and I
do hereby further certify that such Instrument has not been amended and is on
the date hereof in full force and effect.
Dated this
--------------------------------------
Barry Fink
Secretary
(SEAL)
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
INSTRUMENT ESTABLISHING AND DESIGNATING
ADDITIONAL CLASS OF SHARES
WHEREAS, Morgan Stanley Dean Witter Select Dimensions Investment Series (the
"Trust") was established by the Declaration of Trust dated June 2, 1994,
as amended from time to time (the "Declaration"), under the laws of the
Commonwealth of Massachusetts;
WHEREAS, Section 6.9(h) of the Declaration provides that the establishment and
designation of any additional class of shares shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights, preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of such class, or as otherwise provided in such instrument, which
instrument shall have the status of an amendment to the Declaration; and
WHEREAS, the Trustees of the Trust have deemed it advisable to establish and
designate an additional class of shares and to designate a class for the
existing shares held prior to May 1, 2000 ("Existing Class") as provided herein.
NOW, THEREFORE, BE IT RESOLVED, pursuant to Section 6.9(h) of the Declaration,
there is hereby established and designated an additional class of shares, to be
known as: Class Y (the "Additional Class"), which shall be subject to the
relative rights, preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption set forth in
the Declaration with respect to the Existing Class, except to the extent the
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES AND MORGAN
STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES MULTIPLE CLASS PLAN PURSUANT TO
RULE 18f-3 attached hereto as EXHIBIT A sets forth differences among each of the
Existing Class and the Additional Class; and be it further
RESOLVED, pursuant to Section 6.9(h) of the Declaration, all shares of the Trust
held prior to May 1, 2000 are hereby designated as Class X shares of the Trust.
This instrument may be executed in more than one counterpart, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 24th day of February, 2000.
- ----------------------------------------
Michael Bozic, as Trustee
and not individually
c/o Kmart Corporation
3100 West Big Beaver Road
Troy, MI 48084
- ----------------------------------------
Charles A. Fiumefreddo, as Trustee
and not individually
Two World Trade Center
New York, NY 10048
- ----------------------------------------
Edwin J. Garn, as Trustee
and not individually
c/o Huntsman Corporation
500 Huntsman Way
Salt Lake City, UT 84111
- ----------------------------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Mayer Brown & Platt
Counsel to the Independent Trustees
1675 Broadway
New York, NY 10019
- ----------------------------------------
Manuel H. Johnson, as Trustee
and not individually
c/o Johnson Smick International Inc.
1133 Connecticut Avenue, NW
Washington, D.C. 20036
- ----------------------------------------
Michael E. Nugent, as Trustee
and not individually
c/o Triumph Capital, L.P.
237 Park Avenue
New York, NY 10017
- ----------------------------------------
Philip J. Purcell, as Trustee
and not individually
1585 Broadway
New York, NY 10036
- ----------------------------------------
John L. Schroeder, as Trustee
and not individually
c/o Mayer Brown & Platt
Counsel to the Independent Trustees
1675 Broadway
New York, NY 10019
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 24th day of February, 2000, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL E. NUGENT, PHILIP J.
PURCELL and JOHN L. SCHROEDER, known to me to be the individuals described in
and who executed the foregoing instrument, personally appeared before me and
they severally acknowledged the foregoing instrument to be their free act and
deed.
--------------------------------------
Notary Public
My Commission Expires:
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of
our report dated February 16, 2000, relating to the financial statements and
financial highlights of Morgan Stanley Dean Witter Select Dimension
Investment Series, which appears in such Registration Statement. We also
consent to the references to us under the headings "Financial Highlights",
"Custodian and Independent Accountants" and "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 28, 2000
<PAGE>
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES
WHEREAS, Morgan Stanley Dean Witter Investment Series (the "Fund")
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act, on behalf of each separate portfolio of the Fund (each
referred to herein as a "Portfolio", collectively, the "Portfolios") and the
Trustees have determined that there is a reasonable likelihood that adoption of
the Plan of Distribution will benefit each Portfolio and its shareholders; and
NOW, THEREFORE, the Fund hereby adopts, on behalf of each Portfolio, and
Hartford Securities Distribution Inc. ("Hartford") hereby agree to this Plan
of Distribution (the "Plan") in accordance with Rule 12b-1 under the Act, on
the following terms and conditions.
1. Each Portfolio shall pay monthly to the Distributor an amount equal to a
payment at the annual rate of .25% of the average net assets of the Portfolio,
attributable to its Class Y Shares during the month. Such amount shall be paid
to compensate Hartford, Dean Witter Reynolds Inc., ("DWR") its affiliates
and other broker-dealers for distribution related expenses incurred by them,
including personal services to shareholders with respect to their holdings of
Portfolio shares, and may be spent by Hartford, DWR, its affiliates and
such broker-dealers on any activities or expenses related to the distribution of
the Class Y shares or services to Class Y shareholders, including, but not
limited to: compensation to, and expenses of, financial advisors or other
employees of Hartford, DWR, its affiliates or other broker-dealers;
overhead and other branch office distribution-related expenses and telephone
expenses of persons who engage in or support distribution of shares or who
provide personal services to shareholders; printing of prospectuses and reports
for other than existing shareholders; preparation, printing and distribution of
sales literature and advertising materials. The overhead and other branch office
distribution-related expenses referred to in this paragraph 2 may include:
(a) the expenses of operating the branch offices of Hartford or other
broker-dealers, including DWR, in connection with the sale of Portfolio shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies; and (b) the costs of client sales seminars.
2. This Plan shall not take effect, with respect to a Portfolio, until it
has been approved, together with any related agreements, by votes of a majority
of the Board of Trustees of the Fund and of the Trustees who are not "interested
persons" of the Fund (as defined in the Act) and have no direct financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting (or meetings) called for the
purpose of voting on this Plan and such related agreements.
3. This Plan shall continue, with respect to a Portfolio, until April 30,
2000 and from year to year thereafter, provided such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2 hereof.
4. Hartford shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended with respect to each Portfolio and the purposes for which such
expenditures were made.
5. This Plan may be terminated at any time by a Portfolio by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding
voting securities of Class Y Shares of the Portfolio.
6. This Plan may not be amended to increase materially the amount payable
hereunder by a Portfolio unless such amendment is approved by a vote of at least
a majority (as defined in the Act) of the
1
<PAGE>
outstanding voting securities of Class Y Shares of the Portfolio, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not interested persons.
8. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 4 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
9. The Declaration of Trust establishing Morgan Stanley Dean Witter
Select Dimensions Investment Series, dated June 2, 1994, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Morgan Stanley Dean Witter Select Dimensions Investment Series
refers to the Trustees under the Declaration collectively as Trustees but not
as individuals or personally; and no Trustee, shareholder, officer, employee
or agent of Morgan Stanley Dean Witter Select Dimensions Investment Series
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Morgan Stanley Dean Witter
Select Dimensions Investment Series, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the Fund and Hartford have executed this Plan of
Distribution as of the day and year set forth below in New York, New York.
<TABLE>
<S> <C>
Date: , 2000
Attest: MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS
INVESTMENT SERIES
- --------------------- By: -------------------------------------------------------
Attest: HARTFORD SECURITIES DISTRIBUTION INC.
- --------------------- By: -------------------------------------------------------
</TABLE>
2
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT
SERIES ("SELECT DIMENSIONS")
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
("VARIABLE INVESTMENT")
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and will be
effective as of May 1, 2000 (the "Effective Date"). The Plan relates to
shares of Select Dimensions and Variable Investment. Each separate portfolio
of Select Dimensions and Variable Investment, respectively, is referred to
herein as a Fund (collectively, the "Portfolios"). The Portfolios are
distributed pursuant to a system (the "Multiple Class System") in which each
class of shares (each, a "Class" and collectively, the "Classes") of a
Portfolio represents a pro rata interest in the same portfolio of investments
of the Portfolio and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
Two Classes of shares of the Portfolios are offered for purchase by separate
accounts established by insurance companies to fund the benefits under certain
individual variable life insurance policies and individual and group variable
annuity contracts (the "Contracts"). Pursuant to Rule 12b-1 under the 1940 Act,
the Portfolios have each adopted a Plan of Distribution (the "12b-1 Plan") under
which shares of one of the Classes are subject to the service and/or
distribution fees ("12b-1 fees") described below.
1. X CLASS SHARES
X Class Shares are offered at net asset value per share without the
imposition of any sales charge. All shares of the Portfolios held prior to
the Effective Date have been designated as X Class Shares. X Class Shares are
available for purchase only by: (1) holders of a Contract on the Effective
Date; or (ii) holders of Contracts issued by Paragon Life Insurance Company
in connection with an employer sponsored insurance program offered to certain
employees of Morgan Stanley Dean Witter & Co.
2. Y CLASS SHARES
Y Class Shares are offered at net asset value per share without a
front-end sales charge. Y Class Shares are subject to a fee under each
Portfolio's respective 12b-1 Plan assessed at the annual rate of 0.25% of the
average daily net assets of the Portfolio attributable to the Y Class Shares..
3. ADDITIONAL CLASS OF SHARES
The Board of Directors/Trustees of Select Dimensions and/or Variable
Investment have the authority to create additional Classes, or change
existing Classes, from time to time, in accordance with Rule 18f-3 under the
1940 Act.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Portfolio are allocated among the various Classes of
shares PRO RATA based on the net assets of the Portfolio attributable to each
Class, except that 12b-1 fees relating to a particular Class are allocated
directly to that Class. In addition, other expenses associated with a particular
Class (except
<PAGE>
II. EXPENSE ALLOCATIONS (CONTINUED)
advisory or custodial fees), may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class, and the direct allocation to that Class is approved by the Fund's
Board of Directors/Trustees.
III. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan. In addition, each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class.
